SLGI ASSET MANAGEMENT INC. ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE for the period ended December 31, 2020 Sun Life BlackRock Canadian Universe Bond Fund This page is intentionally left blank Sun Life BlackRock Canadian Universe Bond Fund This annual management report of fund performance contains financial highlights but does not contain the complete financial statements of the investment fund. You can request a free copy of the annual financial statements by calling 1-877-344-1434, by sending an email to us at [email protected] or by writing to us at SLGI Asset Management Inc., 1 York Street, Suite 3300, Toronto, Ontario, M5J 0B6. The financial statements are available on our website at www.sunlifeglobalinvestments.com and on SEDAR at www.sedar.com. Securityholders may also contact us using one of these methods to request a copy of the investment fund’s proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosure. As of July 20, 2020, Sun Life Global Investments (Canada) Inc. changed its name to SLGI Asset Management Inc. SLGI Asset Management Inc. (the "Manager") is an indirect wholly owned subsidiary of Sun Life Financial Inc. MANAGEMENT DISCUSSION OF FUND The Manager cautions that the current global uncertainty with respect to the spread of the coronavirus (“COVID-19”) and its PERFORMANCE effect on the broader global economy may have a significant impact to the volatility of the financial market. While the Investment Objectives and Strategies precise impact remains unknown, rapid spread of the virus may The fundamental investment objectives of the Sun Life have a material adverse effect on global economic activity and BlackRock Canadian Universe Bond Fund (the “Fund”) are to disrupt global supply chains, operations, mobility of people, provide income by replicating, to the extent possible, the which could affect interest rates, credit ratings, credit risk, performance, net of fees, of a broad and recognized Canadian inflation, business, financial conditions, results of operations bond market index (the “Index”). The fund invests directly in and other factors relevant to Fund performance. fixed income securities included in the Index and/or may The broad Canadian fixed income markets showed positive achieve indirect exposure to some or all of the Index by returns during the reporting period. Accommodative monetary investing in exchange-traded funds, mutual funds or policy, which included rate cuts and bond purchase programs, derivatives that are correlated to the performance of the provided positive support to the asset class. Despite these Index. positive contributions, the Fund’s return lagged the benchmark The Fund’s sub-advisor is BlackRock Asset Management Canada primarily due to the timing of a large redemption in March, Limited (the “Sub-Advisor”). The Sub-Advisor invests the Fund when liquidity was a concern in the markets. directly in fixed income securities included in the Index and/or may achieve indirect exposure to some or all of the Index by Recent Developments investing in exchange-traded funds, mutual funds or A new strain of coronavirus (“COVID-19”) that emerged in derivatives that are correlated to the performance of the Wuhan, China in December 2019 gripped global markets in the Index. A passive investment strategy is followed and the bonds early months of 2020. The rapid rise and spread of infections selected for inclusion in the portfolio will have aggregate led the World Health Organization (“W.H.O”) to declare it a investment characteristics such as sector, credit quality, yield pandemic in early March, and the COVID-19 outbreak saw and term to maturity similar to those of the bonds comprising borders closing, lockdown of countries and the shutdown of the Index. entire sectors. The scale and extent of the possible economic fallout from the outbreak drove swings in financial markets Risk amid a depth of risk-off fear not seen since the global financial There were no changes in the Fund's investment objectives or crisis. Further exacerbating the situation was the oil price shock strategies during the period which materially impacted the due to disagreements between Saudi Arabia and Russia over overall level of risk in the Fund. efforts to cut production in the face of declining demand from the coronavirus outbreak. Results of Operations During the period, the net asset value of the Fund decreased from $1.7 billion to $1.1 billion due to net redemptions, partially offset by positive performance. During the period, the Fund returned 7.6% for Series I securities, this result lagged the Fund's benchmark, FTSE Canada Universe Bond Index, which returned 8.7%. Please refer to the ‘Past Performance’ section of this report for performance of the series. Annual MRFP | Sun Life Global Investments p | 1 Sun Life BlackRock Canadian Universe Bond Fund In response to the potential economic fallout from COVID-19 As portfolio manager, the Manager is responsible for managing and to lend support to the economy, governments and central the investment portfolio of the Fund directly or through sub- banks globally deployed aggressive measures to fend off a advisors. The Manager has retained BlackRock Asset global catastrophe caused by the pandemic. In March, the Bank Management Canada Limited to act as a sub-advisor for the of Canada (“BoC”) cut its overnight rate three times in a matter Fund. of few weeks by 150bps cumulatively, bringing the overnight Certain mutual funds managed by the Manager (“SLGI Funds”) rate to its effective lower bound of 0.25%. The BoC also may have direct or indirect holdings in Sun Life Financial Inc. or announced quantitative easing by committing to purchase the its affiliates or other funds managed by SLGI Asset Government of Canada bonds. Additionally, the BoC Management Inc., or its affiliates. Other funds managed by announced various liquidity and large-scale asset purchase SLGI Asset Management Inc., or its affiliates, may invest in programs in first half of 2020 aimed at improving the market securities of the SLGI Funds. efficiency and normalize issuance levels. The BoC also quadrupled its balance sheet to more than C$500 billion If applicable the Fund relied on standing instructions from the (nearly 25% of gross domestic product (“GDP”)), in part through IRC in respect of one or more of the following transactions: government-backed and corporate bond purchases. The (a) trades in securities of Sun Life Financial Inc.; and/or federal government also stepped in and announced a C$82 (b) purchases of securities from or sales of securities to a billion (3.5% of GDP) aid package to support the economy. related dealer, where it acted as principal. Despite the significant fiscal and monetary policy stimulus, The relevant standing instructions require that securities Canadian Q1 2020 GDP shrank by 8.2% on a Quarter-over transactions with related parties conducted by the Manager (i) Quarter annualized basis, down from 0.6% in the prior quarter. are free from any influence by an entity related to the The contraction can largely be attributed to widespread Manager and without taking into account any consideration closure of non-essential businesses, border closures, and travel relevant to an entity related to the Manager; (ii) represent the restrictions owing to COVID-19. Strict lockdowns contributed business judgment of the Manager uninfluenced by to depressed output in nearly all sectors of the economy, considerations other than the best interests of the Fund; (iii) including domestic and international trade. comply with the applicable policies and procedures of the Manager; and (iv) achieve a fair and reasonable result for the However, towards the second half of the reporting period, Fund. lockdowns began to ease and economic activity recovered. Some vaccines got approvals around the globe which gave Fees and expenses payable to or in connection with the SLGI further relief to the markets that the end of the crisis may be Funds’ IRC are allocated to the series to which they apply in a in sight. The outcome of the U.S. presidential election ended manner that, in the Manager’s view, is considered fair and with Democratic Party candidate Joe Biden winning. This was reasonable. The amounts of these charges are disclosed in the also supportive for the markets as a long hard fought election line item “Independent review committee fees” in the Fund’s filled with uncertainty ended. Statements of Comprehensive Income (Loss). The composition of the Fund's independent review committee The Manager has a distribution agreement with Sun Life ("IRC") changed during the period. Effective August 18, 2020, Financial Investment Services (Canada) Inc. (the “Dealer”), a Andrew Smith retired from the IRC. Effective August 19, 2020, company under common control under which the Dealer may Frank Lippa joined the IRC. distribute securities of the funds offered by the Manager in the jurisdictions in which the Dealer is so authorized. Related Party Transactions The Manager is an indirect wholly owned subsidiary of Sun Life SLGI Asset Management Inc. is the manager, trustee and Financial Inc. portfolio manager of the Fund. For its services, the Manager receives a management fee that is calculated as a percentage of the average net asset value of the Fund. This fee is calculated daily and payable monthly. The Manager is responsible for the provision of all general management and administrative services required by the Fund in its day-to-day operations, including providing or arranging for the provision of investment advice, bookkeeping, recordkeeping and other administrative services for the Fund. As trustee, the Manager holds legal title to the Fund's investments in trust for securityholders. p | 2 Annual MRFP | Sun Life Global Investments Sun Life BlackRock Canadian Universe Bond Fund Fund Administrative Expenses Financial Highlights The Manager pays certain operating expenses of the Fund (the The following tables show selected key financial information “Administration Expenses”) in return for a fixed administration about the Fund and are intended to help you understand the fee paid to the Manager by the Fund (“Administration Fee”).