##### 



EXHIBIT
1


SUN
LIFE FINANCIAL INC.




---



##### 



Financial Reporting Responsibilities
        
 Donald A. Stewart
 
 Paul W. Derksen
  1




---



##### 



2005
    
    
    2004 *
    
    
    2003 *REVENUEPremium income:Annuities
    
    
    
    
    
    $
    4,556
    
    
    $
    4,588
    
    
    $
    4,805Life insurance
    
    
    
    
    
    
    5,683
    
    
    
    5,948
    
    
    
    6,325Health insurance
    
    
    
    
    
    
    2,701
    
    
    
    2,367
    
    
    
    2,41312,940
    
    
    
    12,903
    
    
    
    13,543Net investment income (Note 6)
    
    
    
    
    
    
    6,079
    
    
    
    5,924
    
    
    
    5,703Fee income
    
    
    
    
    
    
    2,899
    
    
    
    2,903
    
    
    
    2,81021,918
    
    
    
    21,730
    
    
    
    22,056POLICY BENEFITS AND EXPENSESPayments to policyholders, beneficiaries and depositors:Maturities and surrenders
    
    
    
    
    
    
    5,922
    
    
    
    5,726
    
    
    
    6,050Annuity payments
    
    
    
    
    
    
    1,473
    
    
    
    1,495
    
    
    
    1,567Death and disability benefits
    
    
    
    
    
    
    2,397
    
    
    
    2,458
    
    
    
    2,488Health benefits
    
    
    
    
    
    
    1,885
    
    
    
    1,737
    
    
    
    1,696Policyholder dividends and interest on claims and
deposits
    
    
    
    
    
    
    1,125
    
    
    
    1,116
    
    
    
    1,12512,802
    
    
    
    12,532
    
    
    
    12,926Net transfers to segregated funds
    
    
    
    
    
    
    704
    
    
    
    582
    
    
    
    544Increase in actuarial liabilities (Note 10)
    
    
    
    
    
    
    872
    
    
    
    1,425
    
    
    
    1,510Commissions
    
    
    
    
    
    
    1,726
    
    
    
    1,916
    
    
    
    1,848Operating expenses (Note 16)
    
    
    
    
    
    
    2,921
    
    
    
    2,831
    
    
    
    3,088Premium taxes
    
    
    
    
    
    
    190
    
    
    
    182
    
    
    
    171Interest expense (Notes 11, 12 and 13)
    
    
    
    
    
    
    273
    
    
    
    278
    
    
    
    29219,488
    
    
    
    19,746
    
    
    
    20,379INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTERESTS
    
    
    
    
    
    
    2,430
    
    
    
    1,984
    
    
    
    1,677Income taxes expense (Note 19)
    
    
    
    
    
    
    531
    
    
    
    263
    
    
    
    357Non-controlling interests in net income of subsidiaries
(Note 14)
    
    
    
    
    
    
    23
    
    
    
    28
    
    
    
    14TOTAL NET INCOME
    
    
    
    
    
    
    1,876
    
    
    
    1,693
    
    
    
    1,306Less: Participating policyholders net income (loss)
    
    
    
    
    
    
    9
    
    
    
    13
    
    
    
    (1
    )SHAREHOLDERS NET INCOME
    
    
    
    
    
    
    1,867
    
    
    
    1,680
    
    
    
    1,307Less: Preferred shareholder dividends
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    COMMON SHAREHOLDERS NET INCOME
    
    
    
    
    
    $
    1,843
    
    
    $
    1,680
    
    
    $
    1,307Average exchange rates:U.S. Dollars
    
    
    1.21
    
    
    
    1.30
    
    
    
    1.40U.K. Pounds
    
    
    2.21
    
    
    
    2.38
    
    
    
    2.29* As restated for adoption of Canadian Institute of
Chartered Accountants (CICA) Handbook Accounting
Guideline 15 (AcG 15), Consolidation of Variable
Interest Entities (Note 2).Earnings per share(Note 17)Basic
    
    
    
    
    
    $
    3.14
    
    
    $
    2.81
    
    
    $
    2.15Diluted
    
    
    
    
    
    $
    3.12
    
    
    $
    2.79
    
    
    $
    2.15Weighted average shares outstanding in millions(Note 17)Basic
    
    
    
    
    
    
    587
    
    
    
    599
    
    
    
    608Diluted
    
    
    
    
    
    
    590
    
    
    
    602
    
    
    
    608
 The attached notes form part of these consolidated financial statements.
 2




---



##### 



2005
    
    
    2004 *ASSETSBonds (Note 6)
    
    
    
    
    
    $
    66,154
    
    
    $
    64,496Mortgages (Note 6)
    
    
    
    
    
    
    14,561
    
    
    
    13,862Stocks (Note 6)
    
    
    
    
    
    
    3,856
    
    
    
    3,463Real estate (Note 6)
    
    
    
    
    
    
    3,241
    
    
    
    3,148Cash, cash equivalents and short-term
securities
    
    
    
    
    
    
    5,091
    
    
    
    5,958Policy loans and other invested assets
    
    
    
    
    
    
    5,689
    
    
    
    5,984Invested assets
    
    
    
    
    
    
    98,592
    
    
    
    96,911Goodwill (Note 8)
    
    
    
    
    
    
    5,963
    
    
    
    5,471Intangible assets (Note 8)
    
    
    
    
    
    
    801
    
    
    
    751Other assets (Note 9)
    
    
    
    
    
    
    5,510
    
    
    
    4,670Total general fund assets
    
    
    
    
    
    $
    110,866
    
    
    $
    107,803Segregated funds net assets
    
    
    
    
    
    $
    60,984
    
    
    $
    56,564LIABILITIES AND EQUITYActuarial liabilities and other policy
liabilities (Note 10)
    
    
    
    
    
    $
    77,489
    
    
    $
    76,056Amounts on deposit
    
    
    
    
    
    
    3,382
    
    
    
    3,144Deferred net realized gains (Note 6)
    
    
    
    
    
    
    3,859
    
    
    
    3,466Senior debentures (Note 11)
    
    
    
    
    
    
    2,492
    
    
    
    1,920Other liabilities (Note 12)
    
    
    
    
    
    
    6,592
    
    
    
    7,152Total general fund liabilities
    
    
    
    
    
    
    93,814
    
    
    
    91,738Subordinated debt (Note 13)
    
    
    
    
    
    
    1,456
    
    
    
    1,462Non-controlling interests in subsidiaries
(Note 14)
    
    
    
    
    
    
    50
    
    
    
    188Total equity
    
    
    
    
    
    
    15,546
    
    
    
    14,415Total general fund liabilities and equity
    
    
    
    
    
    $
    110,866
    
    
    $
    107,803Segregated funds contract liabilities
    
    
    
    
    
    $
    60,984
    
    
    $
    56,564December 31 exchange rates:U.S. Dollars
    
    
    1.17
    
    
    
    1.20U.K. Pounds
    
    
    2.00
    
    
    
    2.32
 
 *

    As restated for adoption of AcG 15 (Note 2). The attached notes form part of these consolidated financial statements.
  
 Donald A. Stewart
 
 Krystyna T. Hoeg
 3




---



##### 



PARTICIPATINGPOLICYHOLDERS
    
    
    SHAREHOLDERS
    
    
    2005
    
    
    2004 *
    
    
    2003 *PREFERRED SHARESBalance, beginning of year
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Preferred shares issued (Note 15)
    
    
    
    
    
    
    725
    
    
    
    725
    
    
    
    
    
    
    
    Issuance costs, net of taxes (Note 15)
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )
    
    
    
    
    
    
    Balance, end of year
    
    
    
    
    
    
    712
    
    
    
    712
    
    
    
    
    
    
    
    COMMON SHARESBalance, beginning of year
    
    
    
    
    
    
    7,238
    
    
    
    7,238
    
    
    
    7,289
    
    
    
    7,420Common shares issued, net of issuance costs,
as consideration for business acquisition (Notes 3 and 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Stock options exercised (Note 18)
    
    
    
    
    
    
    99
    
    
    
    99
    
    
    
    75
    
    
    
    28Common shares purchased for cancellation (Note 15)
    
    
    
    
    
    
    (164
    )
    
    
    (164
    )
    
    
    (126
    )
    
    
    (222
    )Balance, end of year
    
    
    
    
    
    
    7,173
    
    
    
    7,173
    
    
    
    7,238
    
    
    
    7,289CONTRIBUTED SURPLUSBalance, beginning of year
    
    
    
    
    
    
    70
    
    
    
    70
    
    
    
    76
    
    
    
    57Stock based compensation (Note 18)
    
    
    
    
    
    
    17
    
    
    
    17
    
    
    
    11
    
    
    
    26Stock options exercised (Notes 15 and 18)
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )
    
    
    (17
    )
    
    
    (7
    )Balance, end of year
    
    
    
    
    
    
    66
    
    
    
    66
    
    
    
    70
    
    
    
    76RETAINED EARNINGSBalance, beginning of year, as previously reported
    
    
    85
    
    
    
    8,116
    
    
    
    8,201
    
    
    
    7,284
    
    
    
    6,694Adjustment for change in accounting policy (Note 2)
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    4
    
    
    
    6Balance, beginning of year, as restated
    
    
    85
    
    
    
    8,119
    
    
    
    8,204
    
    
    
    7,288
    
    
    
    6,700Net income
    
    
    9
    
    
    
    1,867
    
    
    
    1,876
    
    
    
    1,693
    
    
    
    1,306Dividends on common shares
    
    
    
    
    
    
    (581
    )
    
    
    (581
    )
    
    
    (515
    )
    
    
    (413
    )Dividends on preferred shares
    
    
    
    
    
    
    (24
    )
    
    
    (24
    )
    
    
    
    
    
    
    Common shares purchased for cancellation (Note 15)
    
    
    
    
    
    
    (380
    )
    
    
    (380
    )
    
    
    (262
    )
    
    
    (305
    )Balance, end of year
    
    
    94
    
    
    
    9,001
    
    
    
    9,095
    
    
    
    8,204
    
    
    
    7,288CURRENCY TRANSLATION ACCOUNTBalance, beginning of year
    
    
    (8
    )
    
    
    (1,089
    )
    
    
    (1,097
    )
    
    
    (673
    )
    
    
    738Net adjustment for foreign exchange gain (Note 22)
    
    
    
    
    
    
    (22
    )
    
    
    (22
    )
    
    
    
    
    
    
    Changes for the year
    
    
    (1
    )
    
    
    (380
    )
    
    
    (381
    )
    
    
    (424
    )
    
    
    (1,411
    )Balance, end of year
    
    
    (9
    )
    
    
    (1,491
    )
    
    
    (1,500
    )
    
    
    (1,097
    )
    
    
    (673
    )Total equity
    
    $
    85
    
    
    $
    15,461
    
    
    $
    15,546
    
    
    $
    14,415
    
    
    $
    13,980
 
 *

    As restated for adoption of AcG 15 (Note 2). The attached notes form part of these consolidated financial statements.
 4




---



##### 



2005
    
    
    2004 *
    
    
    2003 *CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIESTotal net income
    
    $
    1,876
    
    
    $
    1,693
    
    
    $
    1,306Items not affecting cash:Increase in actuarial and other policy-related liabilities
    
    
    802
    
    
    
    1,205
    
    
    
    1,430Amortization of:Net deferred realized and unrealized gains on investments
    
    
    (632
    )
    
    
    (498
    )
    
    
    (356
    )Deferred acquisition costs and intangible assets
    
    
    160
    
    
    
    201
    
    
    
    258Loss on sale of equity investment (Note 3)
    
    
    43
    
    
    
    
    
    
    
    (Gain) loss on foreign exchange (Note 22)
    
    
    (74
    )
    
    
    
    
    
    
    Future income taxes
    
    
    77
    
    
    
    232
    
    
    
    61Provisions for losses on investments
    
    
    (47
    )
    
    
    21
    
    
    
    113Stock based compensation (Note 18)
    
    
    68
    
    
    
    41
    
    
    
    41Other changes in other assets and liabilities
    
    
    263
    
    
    
    349
    
    
    
    195New mutual fund business acquisition costs capitalized
    
    
    (92
    )
    
    
    (84
    )
    
    
    (152
    )Redemption fees of mutual funds
    
    
    37
    
    
    
    65
    
    
    
    73Net cash provided by operating activities
    
    
    2,481
    
    
    
    3,225
    
    
    
    2,969CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIESDebentures and borrowed funds
    
    
    516
    
    
    
    10
    
    
    
    (96
    )Issuance of preferred shares (Note 15)
    
    
    725
    
    
    
    
    
    
    
    Payments to underwriters (Note 15)
    
    
    (20
    )
    
    
    
    
    
    
    Redemption of subordinated debt (Note 13)
    
    
    
    
    
    
    (267
    )
    
    
    (189
    )Issuance of common shares on exercise of stock options (Note 15)
    
    
    78
    
    
    
    58
    
    
    
    21Common shares purchased for cancellation (Note 15)
    
    
    (544
    )
    
    
    (388
    )
    
    
    (527
    )Dividends paid on common shares
    
    
    (450
    )
    
    
    (515
    )
    
    
    (413
    )Dividends paid on preferred shares
    
    
    (15
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    290
    
    
    
    (1,102
    )
    
    
    (1,204
    )CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIESSales, maturities and repayments of:Bonds
    
    
    28,290
    
    
    
    35,484
    
    
    
    39,138Mortgages
    
    
    1,912
    
    
    
    2,529
    
    
    
    3,128Stocks
    
    
    1,891
    
    
    
    1,422
    
    
    
    1,416Real estate
    
    
    243
    
    
    
    233
    
    
    
    131Purchases of:Bonds
    
    
    (30,640
    )
    
    
    (35,834
    )
    
    
    (43,323
    )Mortgages
    
    
    (2,774
    )
    
    
    (3,111
    )
    
    
    (2,673
    )Stocks
    
    
    (1,736
    )
    
    
    (1,374
    )
    
    
    (1,267
    )Real estate
    
    
    (294
    )
    
    
    (274
    )
    
    
    (191
    )Policy loans
    
    
    (77
    )
    
    
    (33
    )
    
    
    (68
    )Short-term securities
    
    
    (58
    )
    
    
    (454
    )
    
    
    1,095Other investments
    
    
    52
    
    
    
    (48
    )
    
    
    316Acquisitions, net of cash acquired (Note 3)
    
    
    (467
    )
    
    
    
    
    
    
    (266
    )Disposal, net of cash disposed of (Note 3)
    
    
    130
    
    
    
    
    
    
    
    Redemption of preferred shares of subsidiary (Note 14)
    
    
    (150
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (3,678
    )
    
    
    (1,460
    )
    
    
    (2,564
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    
    
    
    
    273Changes due to fluctuations in exchange rates
    
    
    (101
    )
    
    
    (90
    )
    
    
    (455
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,008
    )
    
    
    573
    
    
    
    (981
    )Cash and cash equivalents, beginning of year
    
    
    3,748
    
    
    
    3,175
    
    
    
    4,156Cash and cash equivalents, end of year
    
    
    2,740
    
    
    
    3,748
    
    
    
    3,175Short-term securities, end of year
    
    
    2,351
    
    
    
    2,210
    
    
    
    1,794Cash, cash equivalents and short-term securities, end of year
    
    $
    5,091
    
    
    $
    5,958
    
    
    $
    4,969Supplementary InformationCash and cash equivalents:Cash
    
    $
    506
    
    
    $
    384
    
    
    $
    486Cash equivalents
    
    
    2,234
    
    
    
    3,364
    
    
    
    2,689$
    2,740
    
    
    $
    3,748
    
    
    $
    3,175Cash disbursements made for:Interest on borrowed funds, debentures and subordinated debt
    
    $
    268
    
    
    $
    280
    
    
    $
    290Income taxes, net of refunds
    
    $
    304
    
    
    $
    265
    
    
    $
    149
 
 *
    As restated for adoption of AcG 15 (Note 2). The attached notes form part of these consolidated financial statements.
 5




---



##### 



2005
    
    
    2004
    
    
    2003ADDITIONS TO SEGREGATED FUNDSDeposits:Annuities
    
    $
    6,788
    
    
    $
    5,928
    
    
    $
    5,624Life insurance
    
    
    417
    
    
    
    1,217
    
    
    
    3447,205
    
    
    
    7,145
    
    
    
    5,968Net transfers from general funds
    
    
    704
    
    
    
    582
    
    
    
    544Net realized and unrealized gains
    
    
    3,971
    
    
    
    3,804
    
    
    
    6,456Other investment income
    
    
    1,826
    
    
    
    1,500
    
    
    
    1,41113,706
    
    
    
    13,031
    
    
    
    14,379DEDUCTIONS FROM SEGREGATED FUNDSPayments to policyholders and their beneficiaries
    
    
    7,219
    
    
    
    8,050
    
    
    
    6,776Management fees
    
    
    664
    
    
    
    622
    
    
    
    556Taxes and other expenses
    
    
    163
    
    
    
    120
    
    
    
    167Effect of changes in currency exchange rates
    
    
    1,772
    
    
    
    1,761
    
    
    
    5,5499,818
    
    
    
    10,553
    
    
    
    13,048Net additions to segregated funds for the year
    
    
    3,888
    
    
    
    2,478
    
    
    
    1,331Acquisition (Note 3)
    
    
    532
    
    
    
    
    
    
    
    Segregated funds net assets, beginning of year
    
    
    56,564
    
    
    
    54,086
    
    
    
    52,755Segregated funds net assets, end of year
    
    $
    60,984
    
    
    $
    56,564
    
    
    $
    54,086
   2005
    
    
    2004ASSETSSegregated and mutual fund units
    
    $
    48,358
    
    
    $
    43,589Stocks
    
    
    7,262
    
    
    
    7,082Bonds
    
    
    5,208
    
    
    
    5,600Cash, cash equivalents and short-term securities
    
    
    945
    
    
    
    961Real estate
    
    
    168
    
    
    
    159Mortgages
    
    
    49
    
    
    
    61Other assets
    
    
    1,289
    
    
    
    71663,279
    
    
    
    58,168LIABILITIES
    
    
    2,295
    
    
    
    1,604Net assets attributable to segregated funds policyholders
    
    $
    60,984
    
    
    $
    56,564
 The attached notes form part of these consolidated financial statements.
 6




---



##### 



1. Accounting Policies
 DESCRIPTION OF BUSINESS
  BASIS OF PRESENTATION
   
    
    the reported amounts of assets and liabilities at the date of the financial statements,
    
    the disclosure of contingent assets and liabilities at the date of the financial statements, and
    
    the reported amounts of revenues, policy benefits and expenses during the reporting period.
    BASIS OF CONSOLIDATION
  BONDS AND MORTGAGES
    STOCKS
  REAL ESTATE
  7




---



##### 



1. Accounting Policies (Contd)
 Real estate held for investment:
  Real estate held for sale:
 DERIVATIVE FINANCIAL INSTRUMENTS
      POLICY LOANS
  CASH, CASH EQUIVALENTS AND SHORT-TERM SECURITIES
  DEFERRED ACQUISITION COSTS
  8




---



##### 



1. Accounting Policies (Contd)
 GOODWILL
  INTANGIBLE ASSETS
  CAPITAL ASSETS
  LOANS SECURITIZATION
  SEGREGATED FUNDS
   ACTUARIAL LIABILITIES
  INCOME TAXES
  9




---



##### 



1. Accounting Policies (Contd)
  PREMIUM INCOME AND RELATED EXPENSES
  FOREIGN CURRENCY TRANSLATION
   PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
     STOCK-BASED COMPENSATION
   10




---



##### 



2. Changes in Accounting Policies
 ADOPTED IN 2005
 Consolidation of Variable Interest Entities
  Sun Life ExchangEable Capital Securities
 Cumulative Capital Securities
 Other Variable Interest Entities
 Financial Instruments  Disclosure and Presentation:
 FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 Financial Instruments, Hedges and Comprehensive Income:
 11




---



##### 



3. Acquisitions and Disposals
       Acquisitions
    
    
    Disposal2005
    
    
    2003
    
    
    2003CMG
Asia(1)
    
    
    CI
Financial(2)
    
    
    Clarica U.S.Percentage of shares acquired
/disposed of
    
    
    100
    %
    
    
    2.3
    %
    
    
    100
    %Invested assets acquired /
disposed of
    
    $
    1,548
    
    
    $
    72
    
    
    $
    5,047Other assets acquired /
disposed of
    
    
    122
    
    
    
    235
    
    
    
    2251,670
    
    
    
    307
    
    
    
    5,272Actuarial liabilities and
other policy liabilities
acquired /disposed of
    
    
    1,453
    
    
    
    
    
    
    
    4,265Amounts on deposit acquired /
disposed of
    
    
    159
    
    
    
    
    
    
    
    Other liabilities acquired /
disposed of
    
    
    40
    
    
    
    168
    
    
    
    5531,652
    
    
    
    168
    
    
    
    4,818Net balance sheet assets
acquired / disposed of
    
    $
    18
    
    
    $
    139
    
    
    $
    454Consideration:Common shares issued or
exchanged
    
    $
    
    
    
    $
    63
    
    
    $
    Transaction and other
related costs
    
    
    9
    
    
    
    
    
    
    
    (8
    )Cash cost of acquisition /
net proceeds of disposal
    
    
    535
    (3)
    
    
    266
    
    
    
    414Total consideration
    
    $
    544
    
    
    $
    329
    
    
    $
    406Pre- tax gain / (loss) on sale
    
    
    
    
    
    
    
    
    
    $
    (48
    )(4)Goodwill on acquisition
    
    $
    526
    
    
    $
    190Cash and cash equivalents
acquired / disposed of
    
    $
    77
    
    
    
    
    
    
    $
    133
 (1)  (2)  (3)  (4)
 4. Segmented Information
  12




---



##### 



4. Segmented Information (Contd)
     Results by segment for the years ended December 31United States
    
    
    
    
    
    
    
    
    
    
    ConsolidationCanada
    
    
    Sun Life
    
    
    MFS
    
    
    Asia
    
    
    Corporate
    
    
    Adjustments
    
    
    Total20052005Revenue
    
    $
    8,658
    
    
    $
    9,161
    
    
    $
    1,648
    
    
    $
    759
    
    
    $
    1,995
    
    
    $
    (303
    )
    
    $
    21,918Change in actuarial
liabilities
    
    $
    (240
    )
    
    $
    769
    
    
    $
    
    
    
    $
    253
    
    
    $
    90
    
    
    $
    
    
    
    $
    872Interest on claims
and deposits
    
    $
    77
    
    
    $
    18
    
    
    $
    
    
    
    $
    35
    
    
    $
    4
    
    
    $
    
    
    
    $
    134Interest expenses
    
    $
    122
    
    
    $
    151
    
    
    $
    8
    
    
    $
    
    
    
    $
    217
    
    
    $
    (225
    )
    
    $
    273Income taxes
expense (benefit)
    
    $
    385
    
    
    $
    113
    
    
    $
    110
    
    
    $
    17
    
    
    $
    (94
    )
    
    $
    
    
    
    $
    531Total net income
(loss)
    
    $
    971
    
    
    $
    496
    
    
    $
    179
    
    
    $
    42
    
    
    $
    188
    
    
    $
    
    
    
    $
    1,8762004*Revenue
    
    $
    8,162
    
    
    $
    9,429
    
    
    $
    1,700
    
    
    $
    694
    
    
    $
    2,137
    
    
    $
    (392
    )
    
    $
    21,730Change in actuarial
liabilities
    
    $
    (235
    )
    
    $
    1,332
    
    
    $
    
    
    
    $
    295
    
    
    $
    38
    
    
    $
    (5
    )
    
    $
    1,425Interest on claims
and deposits
    
    $
    85
    
    
    $
    17
    
    
    $
    
    
    
    $
    29
    
    
    $
    6
    
    
    $
    
    
    
    $
    137Interest expenses
    
    $
    122
    
    
    $
    135
    
    
    $
    15
    
    
    $
    
    
    
    $
    340
    
    
    $
    (334
    )
    
    $
    278Income taxes
expense (benefit)
    
    $
    293
    
    
    $
    55
    
    
    $
    108
    
    
    $
    14
    
    
    $
    (207
    )
    
    $
    
    
    
    $
    263Total net income
(loss)
    
    $
    907
    
    
    $
    392
    
    
    $
    114
    
    
    $
    45
    
    
    $
    235
    
    
    $
    
    
    
    $
    1,6932003*Revenue
    
    $
    8,189
    
    
    $
    9,663
    
    
    $
    1,684
    
    
    $
    611
    
    
    $
    2,330
    
    
    $
    (421
    )
    
    $
    22,056Change in actuarial
liabilities
    
    $
    457
    
    
    $
    1,046
    
    
    $
    
    
    
    $
    236
    
    
    $
    (217
    )
    
    $
    (12
    )
    
    $
    1,510Interest on claims
and deposits
    
    $
    82
    
    
    $
    18
    
    
    $
    
    
    
    $
    29
    
    
    $
    6
    
    
    $
    
    
    
    $
    135Interest expenses
    
    $
    108
    
    
    $
    152
    
    
    $
    23
    
    
    $
    
    
    
    $
    363
    
    
    $
    (354
    )
    
    $
    292Income taxes
expense (benefit)
    
    $
    322
    
    
    $
    97
    
    
    $
    5
    
    
    $
    12
    
    
    $
    (79
    )
    
    $
    
    
    
    $
    357Total net income
(loss)
    
    $
    770
    
    
    $
    305
    
    
    $
    (43
    )
    
    $
    37
    
    
    $
    237
    
    
    $
    
    
    
    $
    1,306
 
 *
    
    As restated for adoption of AcG 15 (Note 2). Assets by segment as at December 31United States
    
    
    
    
    
    
    
    
    
    
    ConsolidationCanada
    
    
    Sun Life
    
    
    MFS
    
    
    Asia
    
    
    Corporate
    
    
    Adjustments
    
    
    Total2005General fund assets
    
    $
    51,450
    
    
    $
    41,170
    
    
    $
    866
    
    
    $
    4,750
    
    
    $
    14,517
    
    
    $
    (1,887
    )
    
    $
    110,866Segregated funds
net assets
    
    $
    28,554
    
    
    $
    24,712
    
    
    $
    
    
    
    $
    750
    
    
    $
    6,968
    
    
    $
    
    
    
    $
    60,9842004*General fund assets
    
    $
    50,600
    
    
    $
    39,641
    
    
    $
    824
    
    
    $
    2,302
    
    
    $
    15,290
    
    
    $
    (854
    )
    
    $
    107,803Segregated funds
net assets
    
    $
    24,170
    
    
    $
    25,146
    
    
    $
    
    
    
    $
    88
    
    
    $
    7,216
    
    
    $
    (56
    )
    
    $
    56,564
 
 *
    
    As restated for adoption of AcG 15 (Note 2). 13




---



##### 



4. Segmented Information (Contd)
  2005
    
    
    2004*
    
    
    2003*RevenueUnited States
    
    $
    453
    
    
    $
    652
    
    
    $
    543United Kingdom
    
    
    1,264
    
    
    
    1,325
    
    
    
    1,517Other countries
    
    
    278
    
    
    
    160
    
    
    
    270Total revenue
    
    $
    1,995
    
    
    $
    2,137
    
    
    $
    2,330Total net income (loss):United States
    
    $
    91
    
    
    $
    197
    
    
    $
    53United Kingdom
    
    
    179
    
    
    
    188
    
    
    
    245Other countries
    
    
    (82
    )
    
    
    (150
    )
    
    
    (61
    )Total net income (loss)
    
    $
    188
    
    
    $
    235
    
    
    $
    237Assets:General funds:United States
    
    $
    3,666
    
    
    $
    4,697United Kingdom
    
    
    8,880
    
    
    
    10,353Other countries
    
    
    1,971
    
    
    
    240Total general fund assets
    
    $
    14,517
    
    
    $
    15,290Segregated funds:United Kingdom
    
    $
    6,968
    
    
    $
    7,216Total segregated funds net assets
    
    $
    6,968
    
    
    $
    7,216
 
 *
    
    As restated for adoption of AcG 15 (Note 2). 5. Fair Value of Financial Instruments
    14




---



##### 



6. Invested Assets and Income
  A) FAIR VALUE OF INVESTED ASSETS
  2005
    
    
    
    
    
    
    
    
    
    
    2004*Carrying
    
    
    Fair
    
    
    
    
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Yield %
    
    
    Value
    
    
    Value
    
    
    Yield %ASSETSBonds
    
    $
    66,154
    
    
    $
    70,073
    
    
    
    6.32
    
    
    $
    64,496
    
    
    $
    68,556
    
    
    
    6.22Mortgages
    
    
    14,561
    
    
    
    15,177
    
    
    
    6.63
    
    
    
    13,862
    
    
    
    14,576
    
    
    
    6.80Stocks
    
    
    3,856
    
    
    
    3,986
    
    
    
    12.43
    
    
    
    3,463
    
    
    
    3,376
    
    
    
    10.33Real estate
    
    
    3,241
    
    
    
    3,678
    
    
    
    8.46
    
    
    
    3,148
    
    
    
    3,421
    
    
    
    9.12Policy loans
    
    
    2,989
    
    
    
    2,989
    
    
    
    6.31
    
    
    
    2,936
    
    
    
    2,936
    
    
    
    6.50Cash, cash
equivalents and
short-term
securities
    
    
    5,091
    
    
    
    5,091
    
    
    
    n/a
    
    
    
    5,958
    
    
    
    5,958
    
    
    
    n/aOther invested assets
    
    
    2,700
    
    
    
    4,364
    
    
    
    n/a
    
    
    
    3,048
    
    
    
    3,969
    
    
    
    n/aTotal invested assets
    
    $
    98,592
    
    
    $
    105,358
    
    
    
    6.35
    
    
    $
    96,911
    
    
    $
    102,792
    
    
    
    6.12
 
 *
    
    As restated for adoption of AcG 15 (Note 2).  B) INVESTMENT POLICIES
   C) INVESTED ASSETS BY TYPE
 i) BONDS
  2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueBonds by credit rating:AAA
    
    $
    14,301
    
    
    $
    14,887
    
    
    $
    16,895
    
    
    $
    17,549AA
    
    
    10,122
    
    
    
    11,092
    
    
    
    8,714
    
    
    
    9,492A
    
    
    21,175
    
    
    
    22,785
    
    
    
    19,187
    
    
    
    20,701BBB
    
    
    18,280
    
    
    
    19,050
    
    
    
    17,695
    
    
    
    18,662BB & lower
    
    
    2,276
    
    
    
    2,259
    
    
    
    2,005
    
    
    
    2,152Total bonds
    
    $
    66,154
    
    
    $
    70,073
    
    
    $
    64,496
    
    
    $
    68,556
  15




---



##### 



6. Invested Assets and Income (Contd)
  2005Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueIssued or guaranteed by:Canadian federal government
    
    $
    3,428
    
    
    $
    183
    
    
    $
    (9
    )
    
    $
    3,602Canadian provincial and
municipal governments
    
    
    5,193
    
    
    
    1,042
    
    
    
    (1
    )
    
    
    6,234U.S. Treasury and other
U.S. agencies
    
    
    1,364
    
    
    
    44
    
    
    
    (13
    )
    
    
    1,395Other foreign governments
    
    
    2,214
    
    
    
    243
    
    
    
    (1
    )
    
    
    2,456Corporate
    
    
    45,113
    
    
    
    2,819
    
    
    
    (385
    )
    
    
    47,547Asset-backed securities
    
    
    8,842
    
    
    
    113
    
    
    
    (116
    )
    
    
    8,839Total bonds
    
    $
    66,154
    
    
    $
    4,444
    
    
    $
    (525
    )
    
    $
    70,073
 2004Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueIssued or guaranteed by:Canadian federal government
    
    $
    5,601
    
    
    $
    218
    
    
    $
    
    
    
    $
    5,819Canadian provincial and municipal
governments
    
    
    5,716
    
    
    
    742
    
    
    
    
    
    
    
    6,458U.S. Treasury and other U.S. agencies
    
    
    1,224
    
    
    
    52
    
    
    
    (4
    )
    
    
    1,272Other foreign governments
    
    
    2,805
    
    
    
    179
    
    
    
    (21
    )
    
    
    2,963Corporate
    
    
    40,351
    
    
    
    2,845
    
    
    
    (85
    )
    
    
    43,111Asset-backed securities
    
    
    8,799
    
    
    
    221
    
    
    
    (87
    )
    
    
    8,933Total bonds
    
    $
    64,496
    
    
    $
    4,257
    
    
    $
    (197
    )
    
    $
    68,556
  2005
    
    
    2004Canada
    
    $
    24,089
    
    
    $
    25,556United States
    
    
    30,176
    
    
    
    27,857United Kingdom
    
    
    5,843
    
    
    
    6,989Other
    
    
    6,046
    
    
    
    4,094Total bonds
    
    $
    66,154
    
    
    $
    64,496
  2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueDue in one year or less
    
    $
    2,492
    
    
    $
    2,500
    
    
    $
    3,770
    
    
    $
    3,801Due in years two through five
    
    
    13,066
    
    
    
    13,262
    
    
    
    12,789
    
    
    
    13,206Due in years six through ten
    
    
    17,454
    
    
    
    17,952
    
    
    
    14,671
    
    
    
    15,566Due after ten years
    
    
    24,300
    
    
    
    27,520
    
    
    
    24,467
    
    
    
    27,050Asset-backed securities
    
    
    8,842
    
    
    
    8,839
    
    
    
    8,799
    
    
    
    8,933Total bonds
    
    $
    66,154
    
    
    $
    70,073
    
    
    $
    64,496
    
    
    $
    68,556
 ii) MORTGAGES
  2005
    
    
    2004Non-residential
    
    
    Residential
    
    
    Total
    
    
    Non-residential
    
    
    Residential
    
    
    TotalCanada
    
    $
    5,932
    
    
    $
    3,407
    
    
    $
    9,339
    
    
    $
    5,684
    
    
    $
    3,676
    
    
    $
    9,360United States
    
    
    4,802
    
    
    
    229
    
    
    
    5,031
    
    
    
    4,098
    
    
    
    172
    
    
    
    4,270United Kingdom
    
    
    191
    
    
    
    
    
    
    
    191
    
    
    
    231
    
    
    
    1
    
    
    
    232Total mortgages
    
    $
    10,925
    
    
    $
    3,636
    
    
    $
    14,561
    
    
    $
    10,013
    
    
    $
    3,849
    
    
    $
    13,862
 16




---



##### 



6. Invested Assets and Income (Contd)
  Year
    
    Amount2006
    
    $
    1,4832007
    
    
    1,2712008
    
    
    1,1972009
    
    
    1,0642010
    
    
    1,076Thereafter
    
    
    8,499Total mortgages
    
    $
    14,590
  iii) STOCKS
  2005
    
    
    2004Canada
    
    $
    721
    
    
    $
    791United States
    
    
    1,438
    
    
    
    1,105United Kingdom
    
    
    1,184
    
    
    
    1,417Other
    
    
    513
    
    
    
    150Total stocks
    
    $
    3,856
    
    
    $
    3,463
  Gross
    
    
    Gross
    
    
    EstimatedCarrying
    
    
    Original
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairValue
    
    
    Cost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueTotal 2005
    
    $
    3,856
    
    
    $
    3,180
    
    
    $
    861
    
    
    $
    (55
    )
    
    $
    3,986Total 2004
    
    $
    3,463
    
    
    $
    2,695
    
    
    $
    744
    
    
    $
    (63
    )
    
    $
    3,376
 iv) REAL ESTATE
  2005
    
    
    2004Canada
    
    $
    2,031
    
    
    $
    1,869United States
    
    
    876
    
    
    
    917United Kingdom
    
    
    332
    
    
    
    360Other
    
    
    2
    
    
    
    2Total real estate
    
    $
    3,241
    
    
    $
    3,148
  2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueReal estate held for investment
    
    $
    3,238
    
    
    $
    3,675
    
    
    $
    3,139
    
    
    $
    3,408Real estate held for sale
    
    
    3
    
    
    
    3
    
    
    
    9
    
    
    
    13Total real estate
    
    $
    3,241
    
    
    $
    3,678
    
    
    $
    3,148
    
    
    $
    3,421
 D) IMPAIRED INVESTED ASSETS
  2005
    
    
    2004Impaired
    
    
    Allowance
    
    
    Impaired
    
    
    AllowanceCarrying Value(1)
    
    
    for Losses(2)
    
    
    Carrying Value(1)
    
    
    for Losses (2)Bonds
    
    $
    239
    
    
    $
    97
    
    
    $
    333
    
    
    $
    213Mortgages
    
    
    61
    
    
    
    29
    
    
    
    74
    
    
    
    37Other
    
    
    21
    
    
    
    14
    
    
    
    34
    
    
    
    13Total
    
    $
    321
    
    
    $
    140
    
    
    $
    441
    
    
    $
    263
 
 (1)
    
    Impaired carrying value shown above is shown gross, before allowance for losses.
Includes $5 in 2005 ($12 in 2004) of impaired mortgages that have no allowance for losses. Impaired
mortgage loans with no allowance for losses are loans for which, at a minimum, either the fair
value of the collateral or the expected future cash flows exceed the carrying value.(2)
    
    Includes sectoral allowances of $7 and $14 for bonds and mortgages, respectively, in
2005 ($74 and $24, respectively, in 2004). The remaining allowances are specific allowances. 17




---



##### 



6. Invested Assets and Income (Contd)
  2005
    
    
    2004Mortgages with scheduled payments 90 days or more in arrears:Carrying value
    
    $
    3
    
    
    $
    22Percentage of total mortgages before allowances
    
    
    
    
    
    
    0.2
    %Weighted average recorded investment in impaired mortgage loans, before allowances
    
    $
    73
    
    
    $
    66Interest received on impaired mortgage loans (recorded as received)
    
    $
    5
    
    
    $
    4Carrying value of bonds, mortgages and real estate (including specific allowances)
that were non-income producing for the preceding 12 months
    
    $
    100
    
    
    $
    100
  Bonds
    
    
    Mortgages
    
    
    Other
    
    
    TotalBalance, January 1, 2004
    
    $
    302
    
    
    $
    42
    
    
    $
    22
    
    
    $
    366Provision for losses
    
    
    22
    
    
    
    
    
    
    
    (1
    )
    
    
    21Write-offs, net of recoveries
    
    
    (92
    )
    
    
    (2
    )
    
    
    (7
    )
    
    
    (101
    )Effect of changes in currency
exchange rates
    
    
    (19
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    (23
    )Balance, December 31, 2004
    
    $
    213
    
    
    $
    37
    
    
    $
    13
    
    
    $
    263Provision
for losses (recoveries)
    
    
    (45
    )
    
    
    (5
    )
    
    
    3
    
    
    
    (47
    )Write-offs, net of recoveries
    
    
    (69
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (73
    )Effect of changes in currency
exchange rates
    
    
    (2
    )
    
    
    (1
    )
    
    
    
    
    
    
    (3
    )Balance, December 31, 2005
    
    $
    97
    
    
    $
    29
    
    
    $
    14
    
    
    $
    140
 E) DEFERRED NET REALIZED GAINS
  Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Derivatives
    
    
    TotalBalance, January 1, 2004
    
    $
    1,912
    
    
    $
    135
    
    
    $
    1,056
    
    
    $
    164
    
    
    $
    (143
    )
    
    $
    3,124Net realized gains
(losses) for the period
    
    
    526
    
    
    
    60
    
    
    
    148
    
    
    
    56
    
    
    
    114
    
    
    
    904Amortization of deferred
net realized gains
    
    
    (277
    )
    
    
    (32
    )
    
    
    (222
    )
    
    
    (23
    )
    
    
    12
    
    
    
    (542
    )Effect of changes in
currency exchange rates
    
    
    (14
    )
    
    
    (5
    )
    
    
    (8
    )
    
    
    (1
    )
    
    
    8
    
    
    
    (20
    )Balance, December 31, 2004
    
    $
    2,147
    
    
    $
    158
    
    
    $
    974
    
    
    $
    196
    
    
    $
    (9
    )
    
    $
    3,466Net realized gains
(losses) for the period
    
    
    552
    
    
    
    35
    
    
    
    284
    
    
    
    54
    
    
    
    222
    
    
    
    1,147Amortization of deferred
net realized gains
    
    
    (278
    )
    
    
    (35
    )
    
    
    (206
    )
    
    
    (25
    )
    
    
    (11
    )
    
    
    (555
    )Effect of changes in
currency exchange rates
    
    
    (130
    )
    
    
    
    
    
    
    (72
    )
    
    
    (10
    )
    
    
    13
    
    
    
    (199
    )Balance, December 31, 2005
    
    $
    2,291
    
    
    $
    158
    
    
    $
    980
    
    
    $
    215
    
    
    $
    215
    
    
    $
    3,859
 F) NET INVESTMENT INCOME
  2005
    
    
    2004
    
    
    2003Interest from:Bonds
    
    $
    3,720
    
    
    $
    3,807
    
    
    $
    3,831Mortgages
    
    
    889
    
    
    
    899
    
    
    
    951Policy loans
    
    
    184
    
    
    
    202
    
    
    
    224Cash, cash equivalents and short-term securities
    
    
    155
    
    
    
    113
    
    
    
    134Interest income
    
    
    4,948
    
    
    
    5,021
    
    
    
    5,140Dividends from stocks
    
    
    118
    
    
    
    116
    
    
    
    103Real estate income (net)(1)
    
    
    252
    
    
    
    229
    
    
    
    222Amortization of deferred net realized gains
    
    
    555
    
    
    
    542
    
    
    
    496Amortization of unrealized gains and losses
    
    
    77
    
    
    
    (44
    )
    
    
    (140
    )Derivative realized and unrealized gains and losses(2)
    
    
    (22
    )
    
    
    39
    
    
    
    (85
    )Other items (net)(3)
    
    
    196
    
    
    
    145
    
    
    
    1846,124
    
    
    
    6,048
    
    
    
    5,920Recoveries (provision for losses) on investments
    
    
    47
    
    
    
    (21
    )
    
    
    (113
    )Investment expenses and taxes
    
    
    (92
    )
    
    
    (103
    )
    
    
    (104
    )Total net investment income
    
    $
    6,079
    
    
    $
    5,924
    
    
    $
    5,703
 
 (1)
    
    Includes operating lease rental income of $271 ($254 and $242, respectively, in
2004 and 2003).(2)
    
    Consists of realized and unrealized gains on derivatives that are reported at
fair value. Additional derivative losses of $66 ($72 in 2004 and $47
in 2003) are included in other
items (net).(3)
    
    Includes equity income from CI Financial of $119 in 2005 ($95 in 2004, $58
in 2003). 2005 also includes the loss on sale of Cuprum of $43 as described in Note 3. 18




---



##### 



6. Invested Assets and Income (Contd)
 G) SECURITIES LENDING
  H) LOAN SECURITIZATIONS
  2005
    
    
    2004
    
    
    2003Carrying value of mortgages sold
    
    $
    
    
    
    $
    161
    
    
    $
    623Gain on sale
    
    $
    
    
    
    $
    18
    
    
    $
    70
  2005
    
    
    2004Mortgages
    
    
    Bonds
    
    
    Mortgages
    
    
    BondsCarrying value of retained interests
    
    $
    116
    
    
    $
    1
    
    
    $
    134
    
    
    $
    4Fair value of retained interests
    
    $
    125
    
    
    $
    1
    
    
    $
    146
    
    
    $
    4Weighted average remaining life (in years)
    
    
    1.0-14.3
    
    
    
    5.2
    
    
    
    3.6-20.4
    
    
    
    7.7Discount rate
    
    
    2.5-7.0
    %
    
    
    11.1
    %
    
    
    2.5-7.0
    %
    
    
    11.1
    %Impact on fair value of 10% adverse change
    
    $
    3
    
    
    $
    1
    
    
    $
    2
    
    
    $
    Impact on fair value of 20% adverse change
    
    $
    6
    
    
    $
    1
    
    
    $
    5
    
    
    $
    Anticipated credit losses
    
    
    
    
    
    
    0.6
    %
    
    
    
    
    
    
    0.6
    %Impact on fair value of 10% adverse change
    
    
    
    
    
    $
    1
    
    
    
    
    
    
    $
    1Impact on fair value of 20% adverse change
    
    
    
    
    
    $
    1
    
    
    
    
    
    
    $
    1
    2005
    
    
    2004
    
    
    2003Mortgages
    
    
    Mortgages
    
    
    MortgagesProceeds from new securitizations
    
    $
    
    
    
    $
    179
    
    
    $
    693Cash flows received on retained
interests and servicing fees
    
    $
    33
    
    
    $
    57
    
    
    $
    26
 7. Derivative Financial Instruments
   19




---



##### 



7. Derivative Financial Instruments (Contd)
  2005Notional AmountsFair Value
    
    
    Term to Maturity
    
    
    TotalUnder
    
    
    1 to
    
    
    Over
    
    
    NotionalPositive(1)
    
    
    Net
    
    
    1 Year
    
    
    5 Years
    
    
    5 Years
    
    
    AmountInterest rate contracts
    
    $
    328
    
    
    $
    67
    
    
    $
    3,749
    
    
    $
    6,059
    
    
    $
    9,751
    
    
    $
    19,559Foreign exchange contracts
    
    
    664
    
    
    
    589
    
    
    
    1,935
    
    
    
    1,497
    
    
    
    4,124
    
    
    
    7,556Equity and other contracts(2)
    
    
    586
    
    
    
    539
    
    
    
    5,522
    
    
    
    4,474
    
    
    
    1,253
    
    
    
    11,249Total
    
    $
    1,578
    
    
    $
    1,195
    
    
    $
    11,206
    
    
    $
    12,030
    
    
    $
    15,128
    
    
    $
    38,364Over-the-counter contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    36,859Exchange-traded contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,505
 2004Notional AmountsFair Value
    
    
    Term to Maturity
    
    
    TotalUnder
    
    
    1 to
    
    
    Over
    
    
    NotionalPositive(1)
    
    
    Net
    
    
    1 Year
    
    
    5 Years
    
    
    5 Years
    
    
    AmountInterest rate contracts
    
    $
    215
    
    
    $
    (148
    )
    
    $
    1,776
    
    
    $
    4,040
    
    
    $
    8,567
    
    
    $
    14,383Foreign exchange contracts
    
    
    793
    
    
    
    720
    
    
    
    2,395
    
    
    
    881
    
    
    
    1,858
    
    
    
    5,134Equity and other contracts(2)
    
    
    561
    
    
    
    508
    
    
    
    2,510
    
    
    
    6,404
    
    
    
    1,786
    
    
    
    10,700Total
    
    $
    1,569
    
    
    $
    1,080
    
    
    $
    6,681
    
    
    $
    11,325
    
    
    $
    12,211
    
    
    $
    30,217Over-the-counter contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29,247Exchange-traded contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    970
 (1)
    
    Used to determine the credit risk exposure if the counterparties were to
default. The credit risk exposure is the cost of replacing, at current market rates, all contracts
with a positive fair value.(2)
    

Equity and other contracts in 2005 includes equity forwards with a fair value of
$13 ($4 in 2004) hedging the variation in the cash flows associated with the anticipated payments
under certain stock-based compensation plans expected to occur in 2007 and 2008. The fair value
that has not been recognized of $7 ($3 in 2004) will be recognized in net income as the liability
is accrued for the stock-based compensation plan over the vesting period.  8. Goodwill and Intangible Assets
 A) GOODWILL
   UnitedCanada(1)
    
    
    States
    
    
    Asia
    
    
    Corporate(1)
    
    
    TotalBalance, January 1, 2004
    
    $
    3,739
    
    
    $
    1,609
    
    
    $
    29
    
    
    $
    592
    
    
    $
    5,969Acquisitions
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    43Disposals
    
    
    (17
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (18
    )Effect of changes in currency exchange rates
    
    
    
    
    
    
    (112
    )
    
    
    
    
    
    
    (16
    )
    
    
    (128
    )Balance, December 31, 2004
    
    $
    3,732
    
    
    $
    1,497
    
    
    $
    28
    
    
    $
    609
    
    
    $
    5,866Acquisitions
    
    
    
    
    
    
    
    
    
    
    526
    
    
    
    48
    
    
    
    574Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )Effect of changes in currency exchange rates
    
    
    
    
    
    
    (43
    )
    
    
    (35
    )
    
    
    (9
    )
    
    
    (87
    )Balance, December 31, 2005
    
    $
    3,732
    
    
    $
    1,454
    
    
    $
    519
    
    
    $
    568
    
    
    $
    6,273
 
 (1)
    
    Restated to reflect the reallocation of $309 of goodwill from SLF Canada to
Corporate related to the realignment of the reinsurance business, as
described in Note 4. 20




---



##### 



8. Goodwill and Intangible Assets (Contd)
 B) INTANGIBLE ASSETS
  2005
    
        
2004Gross Carrying
    
    
    Accumulated
    
    
    Net
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    NetAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountFinite-life intangible assets:Sales potential of field force
    
    $
    400
    
    
    $
    35
    
    
    $
    365
    
    
    $
    400
    
    
    $
    25
    
    
    $
    375Asset administration contracts
    
    
    225
    
    
    
    23
    
    
    
    202
    
    
    
    201
    
    
    
    21
    
    
    
    180Distribution channels
    
    
    55
    
    
    
    22
    
    
    
    33
    
    
    
    33
    
    
    
    10
    
    
    
    23Brand name (1)
    
    
    54
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    1736
    
    
    
    81
    
    
    
    655
    
    
    
    636
    
    
    
    57
    
    
    
    579Indefinite-life intangible assets:Fund management contracts
    
    
    878
    
    
    
    
    
    
    
    878
    
    
    
    850
    
    
    
    
    
    
    
    850State licenses
    
    
    12
    
    
    
    
    
    
    
    12
    
    
    
    12
    
    
    
    
    
    
    
    12Brand name (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    54890
    
    
    
    
    
    
    
    890
    
    
    
    916
    
    
    
    
    
    
    
    916Total intangible assets
    
    $
    1,626
    
    
    $
    81
    
    
    $
    1,545
    
    
    $
    1,552
    
    
    $
    57
    
    
    $
    1,495
 
 (1)
    
    Usage of the brand name changed effective December 31, 2005. Amortization of the
brand name will commence on January 1, 2006. 9. Other Assets
  2005
    
    
    2004*Accounts receivable
    
    $
    2,168
    
    
    $
    1,299Investment income due and accrued
    
    
    1,161
    
    
    
    1,121Future income taxes (Note 19)
    
    
    667
    
    
    
    719Deferred acquisition costs
    
    
    271
    
    
    
    362Prepaid expenses
    
    
    207
    
    
    
    219Outstanding premiums
    
    
    316
    
    
    
    294Accrued benefit asset (Note 21)
    
    
    456
    
    
    
    438Capital assets
    
    
    129
    
    
    
    168Other
    
    
    135
    
    
    
    50Total other assets
    
    $
    5,510
    
    
    $
    4,670
 *
    
    As restated for adoption of AcG 15 (Note 2).   10. Actuarial Liabilities and Other Policy Liabilities
 A) ACTUARIAL POLICIES
    21




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
  
    
    when taken one at a time, each provision is reasonable with respect to the underlying best
estimate assumption, and the extent of uncertainty present in making that assumption, and
    
    in total, the cumulative effect of all provisions is reasonable with respect to the total
actuarial liabilities.
   Provision for Policyholder Dividends
  B) COMPOSITION OF ACTUARIAL LIABILITIES AND OTHER POLICY LIABILITIES
  2005UnitedCanada
    
    
    States
    
    
    Asia
    
    
    Corporate(1)
    
    
    TotalIndividual participating life
    
    $
    11,591
    
    
    $
    5,167
    
    
    $
    2,538
    
    
    $
    3,094
    
    
    $
    22,390Individual non-participating life
    
    
    1,858
    
    
    
    6,649
    
    
    
    196
    
    
    
    496
    
    
    
    9,199Group life
    
    
    1,184
    
    
    
    130
    
    
    
    7
    
    
    
    (3
    )
    
    
    1,318Individual annuities
    
    
    9,317
    
    
    
    16,002
    
    
    
    
    
    
    
    3,192
    
    
    
    28,511Group annuities
    
    
    5,752
    
    
    
    3,313
    
    
    
    160
    
    
    
    
    
    
    
    9,225Health insurance
    
    
    4,581
    
    
    
    470
    
    
    
    (1
    )
    
    
    84
    
    
    
    5,134Total actuarial liabilities
    
    
    34,283
    
    
    
    31,731
    
    
    
    2,900
    
    
    
    6,863
    
    
    
    75,777Add: Other policy liabilities(2)
    
    
    570
    
    
    
    431
    
    
    
    49
    
    
    
    662
    
    
    
    1,712Actuarial liabilities and other policy
liabilities
    
    $
    34,853
    
    
    $
    32,162
    
    
    $
    2,949
    
    
    $
    7,525
    
    
    $
    77,489
 2004UnitedCanada
    
    
    States
    
    
    Asia
    
    
    Corporate(1)
    
    
    TotalIndividual participating life
    
    $
    11,133
    
    
    $
    5,137
    
    
    $
    1,042
    
    
    $
    3,740
    
    
    $
    21,052Individual non-participating life
    
    
    1,727
    
    
    
    6,177
    
    
    
    199
    
    
    
    380
    
    
    
    8,483Group life
    
    
    1,190
    
    
    
    121
    
    
    
    1
    
    
    
    41
    
    
    
    1,353Individual annuities
    
    
    10,040
    
    
    
    16,990
    
    
    
    
    
    
    
    3,553
    
    
    
    30,583Group annuities
    
    
    5,999
    
    
    
    3,057
    
    
    
    
    
    
    
    
    
    
    
    9,056Health insurance
    
    
    3,228
    
    
    
    447
    
    
    
    (1
    )
    
    
    57
    
    
    
    3,731Total actuarial liabilities
    
    
    33,317
    
    
    
    31,929
    
    
    
    1,241
    
    
    
    7,771
    
    
    
    74,258Add: Other policy liabilities(2)
    
    
    563
    
    
    
    420
    
    
    
    36
    
    
    
    779
    
    
    
    1,798Actuarial liabilities and other policy
liabilities
    
    $
    33,880
    
    
    $
    32,349
    
    
    $
    1,277
    
    
    $
    8,550
    
    
    $
    76,056
 
 (1)
    
    Primarily business from the United Kingdom, Reinsurance and Run-off Reinsurance
operations.(2)
    
Consists of policy benefits payable, provisions for unreported claims, provisions
for policyholder dividends and provisions for experience rating refunds. 22




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
 C) TOTAL ASSETS SUPPORTING ACTUARIAL LIABILITIES, EQUITY AND OTHER
  2005Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Other
    
    
    TotalIndividual participating life
    
    $
    13,870
    
    
    $
    3,596
    
    
    $
    2,910
    
    
    $
    2,211
    
    
    $
    5,480
    
    
    $
    28,067Individual non-participating life
    
    
    7,571
    
    
    
    1,559
    
    
    
    355
    
    
    
    49
    
    
    
    2,110
    
    
    
    11,644Group life
    
    
    1,540
    
    
    
    656
    
    
    
    4
    
    
    
    18
    
    
    
    7
    
    
    
    2,225Individual annuities
    
    
    25,664
    
    
    
    4,736
    
    
    
    52
    
    
    
    28
    
    
    
    1,432
    
    
    
    31,912Group annuities
    
    
    7,403
    
    
    
    2,257
    
    
    
    34
    
    
    
    123
    
    
    
    850
    
    
    
    10,667Health insurance
    
    
    4,650
    
    
    
    1,514
    
    
    
    10
    
    
    
    41
    
    
    
    486
    
    
    
    6,701Equity and other
    
    
    5,456
    
    
    
    243
    
    
    
    491
    
    
    
    771
    
    
    
    12,689
    
    
    
    19,650Total assets
    
    $
    66,154
    
    
    $
    14,561
    
    
    $
    3,856
    
    
    $
    3,241
    
    
    $
    23,054
    
    
    $
    110,866
 2004*Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Other
    
    
    TotalIndividual participating life
    
    $
    13,116
    
    
    $
    3,400
    
    
    $
    2,653
    
    
    $
    2,153
    
    
    $
    4,727
    
    
    $
    26,049Individual non-participating life
    
    
    6,432
    
    
    
    1,248
    
    
    
    288
    
    
    
    7
    
    
    
    2,034
    
    
    
    10,009Group life
    
    
    1,684
    
    
    
    562
    
    
    
    8
    
    
    
    26
    
    
    
    222
    
    
    
    2,502Individual annuities
    
    
    27,072
    
    
    
    4,737
    
    
    
    51
    
    
    
    62
    
    
    
    1,787
    
    
    
    33,709Group annuities
    
    
    7,070
    
    
    
    2,281
    
    
    
    32
    
    
    
    121
    
    
    
    791
    
    
    
    10,295Health insurance
    
    
    4,685
    
    
    
    1,358
    
    
    
    11
    
    
    
    40
    
    
    
    440
    
    
    
    6,534Equity and other
    
    
    4,437
    
    
    
    276
    
    
    
    420
    
    
    
    739
    
    
    
    12,833
    
    
    
    18,705Total assets
    
    $
    64,496
    
    
    $
    13,862
    
    
    $
    3,463
    
    
    $
    3,148
    
    
    $
    22,834
    
    
    $
    107,803
 *
    
    As restated for adoption of AcG 15 (Note 2). D) CHANGES IN ACTUARIAL LIABILITIES
  2005
    
    
    2004Actuarial liabilities, January 1
    
    $
    74,258
    
    
    $
    75,324Change in liabilities on in-force business
    
    
    (3,495
    )
    
    
    (2,374
    )Liabilities arising from new policies
    
    
    4,268
    
    
    
    3,799Significant changes in assumptions or methodology(1):Gross increases
    
    
    268
    
    
    
    Gross decreases
    
    
    (169
    )
    
    
    Increase in actuarial liabilities
    
    
    872
    
    
    
    1,425Actuarial liabilities before the following:
    
    
    75,130
    
    
    
    76,749Acquisition (Note 3)
    
    
    1,440
    
    
    
    Change due to termination of reinsurance agreement(2)
    
    
    1,223
    
    
    
    (30
    )Other
    
    
    (13
    )
    
    
    (29
    )Effect of changes in currency exchange rates
    
    
    (2,003
    )
    
    
    (2,432
    )Actuarial liabilities, December 31
    
    
    75,777
    
    
    
    74,258Add: Other policy liabilities
    
    
    1,712
    
    
    
    1,798Actuarial liabilities and other policy liabilities, December 31
    
    $
    77,489
    
    
    $
    76,056
 (1)
 (2)
 E) FAIR VALUE OF ACTUARIAL LIABILITIES, FUTURE INCOME TAXES AND DEFERRED NET REALIZED GAINS
  23




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
 F) ASSUMPTIONS AND MEASUREMENT UNCERTAINTY
 Mortality
   Morbidity
  Asset Default
  Segregated Fund Guarantees
    Interest Rate
    
 24




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
  Policy Termination Rates
   Operating Expenses and Inflation
  G) REINSURANCE AGREEMENTS
  2005
    
    
    2004
    
    
    2003Premiums:Direct premiums
    
    $
    13,290
    
    
    $
    13,235
    
    
    $
    13,688Reinsurance assumed
    
    
    745
    
    
    
    655
    
    
    
    723Reinsurance ceded
    
    
    (1,095
    )
    
    
    (987
    )
    
    
    (868
    )$
    12,940
    
    
    $
    12,903
    
    
    $
    13,543Payments to policyholders, beneficiaries and depositors:Direct payments
    
    $
    12,956
    
    
    $
    12,671
    
    
    $
    13,036Reinsurance assumed
    
    
    838
    
    
    
    602
    
    
    
    809Reinsurance ceded
    
    
    (992
    )
    
    
    (741
    )
    
    
    (919
    )$
    12,802
    
    
    $
    12,532
    
    
    $
    12,926
  H) ROLE OF THE APPOINTED ACTUARY
    25




---



##### 



11. Senior Debentures
  Currency of Borrowing
    
    Interest Rate
    
    
    Maturity
    
    
    2005
    
    
    2004Partnership capital securities (Note 2)
    
    U.S. dollars
    
    
    8.53
    %
    
    
    
    
    
    $
    699
    
    
    $
    720Sun Life Assurance debentures (Note 2):Series A debenture
    
    Canadian dollars
    
    
    6.87
    %
    
    
    2031
    
    
    
    990
    
    
    
    990Series B debenture
    
    Canadian dollars
    
    
    7.09
    %
    
    
    2052
    
    
    
    200
    
    
    
    200Funding debenture (1)
    
    Canadian dollars
    
    
    7.09
    %
    
    
    2052
    
    
    
    3
    
    
    
    10Sun Life Financial senior unsecured debentures(2)
    
    Canadian dollars
    
    
    4.80
    %
    
    
    2035
    
    
    
    600
    
    
    
    $
    2,492
    
    
    $
    1,920Fair value
    
    
    
    
    
    
    
    
    

    
    
    
    
    $
    2,723
    
    
    $
    2,157
 
 (1)
    
    On December 30, 2005, $7 of the Funding debenture was redeemed prior to the
maturity date.(2)
    
    On November 23, 2005,Sun Life Financial Inc. issued $600 principal amount of Series
A Senior Unsecured 4.8% Fixed/Floating Debentures due 2035. These debentures will bear interest at
a fixed annual rate of 4.8% per annum payable semi-annually until November 23, 2015; and at a
variable rate payable quarterly equal to the Canadian dollar offered rate for three months
bankers acceptances plus 1% thereafter until maturity on November 23, 2035. Sun Life Financial
Inc. may redeem the debentures after 10 years at 100% of the principal amount. The debentures will
be a direct senior unsecured obligation of the Company and will rank equally with all other
unsecured and unsubordinated indebtedness of Sun Life Financial Inc.  12. Other Liabilities
 A) COMPOSITION OF OTHER LIABILITIES
  2005
    
    
    2004*Accounts payable
    
    $
    2,137
    
    
    $
    2,727Bank overdrafts
    
    
    217
    
    
    
    417Bond repurchase agreements
    
    
    1,614
    
    
    
    1,645Accrued expenses and taxes
    
    
    1,075
    
    
    
    919Borrowed funds
    
    
    127
    
    
    
    153Future income taxes (Note 19)
    
    
    502
    
    
    
    505Accrued benefit liability (Note 21)
    
    
    470
    
    
    
    456Provisions for future policyholder costs
    
    
    54
    
    
    
    82Other
    
    
    396
    
    
    
    248Total other liabilities
    
    $
    6,592
    
    
    $
    7,152
 
 *
    
    As restated for adoption of AcG 15 (Note 2). B) BOND REPURCHASE AGREEMENTS
  C) BORROWED FUNDS
  Currency of Borrowing

    
    Maturity
    
    
    2005
    
    
    2004Bank credit facilities(1)
    
    U.S. dollars
    
    
    2006
    
    
    $
    
    
    
    $
    36Encumbrances on real estate
    
    Canadian dollars
    
    
    2006-2012
    
    
    
    59
    
    
    
    52U.S. dollars
    
    
    2006-2014
    
    
    
    68
    
    
    
    65Total borrowed funds
    
    
    
    
    
    
    
    
    
    $
    127
    
    
    $
    153
 
 (1)
    
    At a floating rate, linked to London Inter Bank Offered Rate. 26




---



##### 



12. Other Liabilities (Contd)
  Year
    
    Amount2006
    
    $
    62007
    
    
    152008
    
    
    252009
    
    
    22010
    
    
    3Thereafter
    
    
    76Total
    
    $
    127
    13. Subordinated Debt
  InterestCurrency
    
    Rate
    
    
    Maturity
    
    
    2005
    
    
    2004*Subordinated debentures(1)
    
    Canadian dollars
    
    
    6.65
    %
    
    
    2015
    
    
    $
    300
    
    
    $
    300Subordinated debentures(2)
    
    Canadian dollars
    
    
    6.15
    %
    
    
    2022
    
    
    
    799
    
    
    
    799Subordinated debentures(3)
    
    Canadian dollars
    
    
    6.30
    %
    
    
    2028
    
    
    
    150
    
    
    
    150Subordinated notes(4)
    
    U.S. dollars
    
    
    6.63
    %
    
    
    2007
    
    
    
    32
    
    
    
    33Subordinated notes
    
    U.S. dollars
    
    
    7.25
    %
    
    
    2015
    
    
    
    175
    
    
    
    180Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,456
    
    
    $
    1,462Fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,617
    
    
    $
    1,614
 
 (1)
    
    After October 12, 2010, interest is payable at 1% over the 90-day Bankers
Acceptance Rate. Redeemable in whole or in part at any time prior to October 12, 2010. On or after
October 12, 2010, redeemable in whole on interest payment date.(2)
    
    After June 30, 2012, interest is payable at 1.54% over the 90-day Bankers
Acceptance Rate. Redeemable in whole or in part at any time.(3)
    
    Redeemable in whole or in part at any time.(4)
    
    In the third quarter of 2003, $165 (81.6% of the originally issued notes) was
redeemed. Redemption premiums of $24 ($14 net of taxes) were recorded in net investment income in
2003.*
    
    As restated for adoption of AcG 15 (Note 2).   14. Non-controlling Interests in Subsidiaries
  2005
    
    
    2004*Preferred shares of Sun Life Assurance(1)
    
    $
    
    
    
    $
    152Non-controlling interests in MFS and McLean Budden Limited
    
    
    50
    
    
    
    36Total non-controlling interests in subsidiaries
    
    $
    50
    
    
    $
    188
 
 (1)
    
    On June 30, 2005, these preferred shares were redeemed by Sun Life
Assurance at $25 per share for a total amount of $150, excluding declared dividends also paid
upon redemption.*
    
    As restated for adoption of AcG 15 (Note 2).  27




---



##### 



15. Share Capital and Normal Course Issuer Bid
 A) SHARE CAPITAL
  
    
    An unlimited number of common shares without nominal or par value. Each common share is
entitled to one vote at meetings of the shareholders of Sun Life Financial Inc. There are no
pre-emptive, redemption, purchase or conversion rights attached to the common shares.
    
    An unlimited number of Class A and Class B non-voting preferred shares, issuable in series. The
Board is authorized to fix before issuing the shares, the number, the consideration per share,
the designation of and the rights and restrictions of the Class A and Class B shares of each
series, subject to the special rights and restrictions attached to
all the Class A and Class B shares. The Board has authorized three Series of Class A non-voting preferred shares.
  2005
    
    
    2004
    
    
    2003Number
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    Numberof Shares
    
    
    Amount
    
    
    of Shares
    
    
    Amount
    
    
    of Shares
    
    
    AmountPreferred
shares (in millions of shares)Balance, January 1
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Preferred shares issued, Series 1
    
    
    16
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred shares issued, Series 2
    
    
    13
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance costs, net of taxes
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31
    
    
    29
    
    
    $
    712
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Common
shares (in millions of shares)Balance, January 1
    
    
    592
    
    
    $
    7,238
    
    
    
    600
    
    
    $
    7,289
    
    
    
    618
    
    
    $
    7,420Common shares issued, net of issuance costs,
granted as consideration for business acquisition (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    63Stock options exercised (Note 18)
    
    
    3
    
    
    
    99
    
    
    
    2
    
    
    
    75
    
    
    
    1
    
    
    
    28Common shares purchased for cancellation
    
    
    (13
    )
    
    
    (164
    )
    
    
    (10
    )
    
    
    (126
    )
    
    
    (18
    )
    
    
    (222
    )Common shares cancelled for lost policyholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    Balance, December 31
    
    
    582
    
    
    $
    7,173
    
    
    
    592
    
    
    $
    7,238
    
    
    
    600
    
    
    $
    7,289
   SUBSEQUENT EVENT
  B) NORMAL COURSE ISSUER BID
  28




---



##### 



15. Share Capital and Normal Course Issuer Bid (Contd)
  2005
    
    
    2004
    
    
    2003Number of shares repurchased (in millions)
    
    
    13
    
    
    
    10
    
    
    
    18Amount (1)
    
    $
    544
    (2)
    
    $
    388
    
    
    $
    527Average price per share
    
    $
    41.10
    
    
    $
    37.93
    
    
    $
    28.88
 
 (1)
    
    The total amount repurchased is allocated to common shares and retained earnings
in the consolidated statements of equity. The amount recorded to common shares is based on the
average cost per common share.(2)
    
    As at December 31, 2005, an additional $11 were subscribed for but not settled
or cancelled. SUBSEQUENT EVENT
  16. Operating Expenses
  2005
    
    
    2004
    
    
    2003Compensation costs
    
    $
    1,726
    
    
    $
    1,557
    
    
    $
    1,510Premises and equipment costs
    
    
    286
    
    
    
    290
    
    
    
    287Restructuring and other related charges
    
    
    10
    
    
    
    27
    
    
    
    128Capital asset depreciation and amortization (Note 9)
    
    
    63
    
    
    
    62
    
    
    
    67Other (1)
    
    
    836
    
    
    
    895
    
    
    
    1,096Total operating expenses
    
    $
    2,921
    
    
    $
    2,831
    
    
    $
    3,088
 
 (1)
    
    Other for 2004 includes a pre-tax provision for MFS regulatory issues and other
actions of $66 ($338 in 2003). 17. Earnings Per Share
  2005
    
    
    2004*
    
    
    2003*Common shareholders net income
    
    $
    1,843
    
    
    $
    1,680
    
    
    $
    1,307Less: Effect of stock options of subsidiaries(1)
    
    
    5
    
    
    
    2
    
    
    
    Common shareholders net income on a diluted basis
    
    $
    1,838
    
    
    $
    1,678
    
    
    $
    1,307Weighted average number of shares outstanding for basic earnings per share (in millions)
    
    
    587
    
    
    
    599
    
    
    
    608Add: Adjustments relating to the dilutive impact of stock options(1), (2)
    
    
    3
    
    
    
    3
    
    
    
    Weighted average number of shares outstanding on a diluted basis (in millions)
    
    
    590
    
    
    
    602
    
    
    
    608
 
 (1)
    
    The effect of stock options is calculated based on the treasury stock method
requirements which assume that unrecognized compensation as well as any proceeds from the exercise
of the options would be used to purchase common shares at the average market prices during the
period.(2)
    
    Options to purchase approximately four million shares of Sun Life
Financial Inc. at the average exercise price of $33.22 per share were outstanding as at December
31, 2003. However, they were not included in the diluted earnings per share calculations, because
their exercise prices were greater than the average market price of the common shares.*
    
    As restated for adoption of AcG 15 (Note 2). 18. Stock-Based Compensation
 A) STOCK OPTION PLANS
  29




---



##### 



18. Stock-Based Compensation (Contd)
  2005
    
    
    2004
    
    
    2003Number of
    
    
    Weighted
    
    
    Number of
    
    
    Weighted
    
    
    Number of
    
    
    WeightedStock Options
    
    
    Average
    
    
    Stock Options
    
    
    Average
    
    
    Stock Options
    
    
    Average(Thousands)
    
    
    Exercise Price
    
    
    (Thousands)
    
    
    Exercise Price
    
    
    (Thousands)
    
    
    Exercise PriceBalance, January 1
    
    
    12,457
    
    
    $
    26.90
    
    
    
    15,239
    
    
    $
    27.17
    
    
    
    12,421
    
    
    $
    29.82Granted
    
    
    1,339
    
    
    
    40.80
    
    
    
    173
    
    
    
    36.67
    
    
    
    4,778
    
    
    
    27.70Exercised
    
    
    (2,999
    )
    
    
    26.11
    
    
    
    (2,267
    )
    
    
    25.69
    
    
    
    (863
    )
    
    
    22.51Forfeited
    
    
    (748
    )
    
    
    25.61
    
    
    
    (688
    )
    
    
    26.97
    
    
    
    (1,097
    )
    
    
    28.76Balance, December 31
    
    
    10,049
    
    
    $
    28.95
    
    
    
    12,457
    
    
    $
    26.90
    
    
    
    15,239
    
    
    $
    27.17Exercisable, December 31
    
    
    5,750
    
    
    $
    27.59
    
    
    
    6,318
    
    
    $
    27.36
    
    
    
    5,291
    
    
    $
    27.30
  Options Outstanding
    
    
    Options ExercisableNumber of
    
    
    Weighted Average
    
    
    Weighted
    
    
    Number of
    
    
    WeightedStock Options
    
    
    Remaining Contractual
    
    
    Average
    
    
    Stock Options
    
    
    AverageRange of exercise prices
    
    (Thousands)
    
    
    Life (Years)
    
    
    Exercise Price
    
    
    (Thousands)
    
    
    Exercise Price$19.05 to $24.30
    
    
    3,163
    
    
    
    6.26
    
    
    $
    22.17
    
    
    
    1,914
    
    
    $
    22.24$25.28 to $30.91
    
    
    3,645
    
    
    
    6.03
    
    
    
    28.49
    
    
    
    2,362
    
    
    
    28.63$31.00 to $33.20
    
    
    1,830
    
    
    
    6.18
    
    
    
    32.75
    
    
    
    1,396
    
    
    
    32.65$36.50 to $44.73
    
    
    1,411
    
    
    
    8.96
    
    
    
    40.41
    
    
    
    78
    
    
    
    36.6510,049
    
    
    
    6.54
    
    
    $
    28.95
    
    
    
    5,750
    
    
    $
    27.59
  Weighted average assumptions
    
    2005
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    4.3
    %
    
    
    4.5
    %
    
    
    5.0
    %Expected volatility
    
    
    20.0
    %
    
    
    24.8
    %
    
    
    25.0
    %Dividend yield
    
    
    2.4
    %
    
    
    2.3
    %
    
    
    2.5
    %Expected life of the option (in years)
    
    
    5.6
    
    
    
    7.0
    
    
    
    7.0
  B) EMPLOYEE SHARE OWNERSHIP PLAN
  C) OTHER STOCK-BASED COMPENSATION PLANS
   Senior Executives Deferred Share Unit (DSU) Plan:
 Restricted Share Unit (RSU) Plan:
 30




---



##### 



18. Stock-Based Compensation (Contd)
 Performance Share Unit (PSU) Plan:
 Expenses and outstanding units:
 2005
    
    
    2004
    
    
    2003Number of units (in thousands):Deferred share units
    
    
    587
    
    
    
    542
    
    
    
    582Restricted share units
    
    
    2,080
    
    
    
    1,644
    
    
    
    664Performance share units
    
    
    461
    
    
    
    273
    
    
    
    Expense recorded (in millions)
    
    $
    46
    
    
    $
    30
    
    
    $
    9
 D) STOCK-BASED COMPENSATION PLANS OF SUBSIDIARIES
   2005
    
    
    2004
    
    
    2003Awards outstanding (in thousands)
    
    
    192
    
    
    
    140
    
    
    
    172Expense recorded (in millions)
    
    $
    13
    
    
    $
    
    
    
    $
    6
 19. Income Taxes
  2005
    
    
    2004
    *
    
    2003
    *Canadian income tax expense:Current
    
    $
    127
    
    
    $
    98
    
    
    $
    61Future
    
    
    151
    
    
    
    95
    
    
    
    192Total
    
    
    278
    
    
    
    193
    
    
    
    253Foreign income tax expense (benefit):Current
    
    
    327
    
    
    
    (67
    )
    
    
    235Future
    
    
    (74
    )
    
    
    137
    
    
    
    (131
    )Total
    
    
    253
    
    
    
    70
    
    
    
    104Total income taxes expense
    
    $
    531
    
    
    $
    263
    
    
    $
    357
 
 *
    
    As restated for adoption of AcG 15 (Note 2).  31




---



##### 



19. Income Taxes (Contd)
  2005
    
    
    2004*
    
    
    2003*%
    
    
    
    
    
    
    %
    
    
    
    
    
    
    %Total net income
    
    $
    1,876
    
    
    
    
    
    
    $
    1,693
    
    
    
    
    
    
    $
    1,306Add: Income taxes expense
    
    
    531
    
    
    
    
    
    
    
    263
    
    
    
    
    
    
    
    357Non-controlling interests in net income of subsidiaries
    
    
    23
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    14Total net income before income taxes
and non-controlling interests in net income of subsidiaries
    
    $
    2,430
    
    
    
    
    
    
    $
    1,984
    
    
    
    
    
    
    $
    1,677Taxes at the combined Canadian federal and provincial statutory income tax rate
    
    $
    850
    
    
    
    35.0
    
    
    $
    655
    
    
    
    33.0
    
    
    $
    579
    
    
    
    34.5Increase (decrease) in rate resulting from:Higher (lower) effective rates on income
subject to taxation in foreign jurisdictions
    
    
    (148
    )
    
    
    (6.0
    )
    
    
    (259
    )
    
    
    (13.1
    )
    
    
    (134
    )
    
    
    (8.0
    )Tax (benefit) cost of unrecognized losses
    
    
    (35
    )
    
    
    (1.5
    )
    
    
    (19
    )
    
    
    (1.0
    )
    
    
    (37
    )
    
    
    (2.2
    )Tax exempt investment income
    
    
    (114
    )
    
    
    (4.7
    )
    
    
    (94
    )
    
    
    (4.7
    )
    
    
    (91
    )
    
    
    (5.4
    )Capital taxes
    
    
    8
    
    
    
    0.3
    
    
    
    7
    
    
    
    0.4
    
    
    
    11
    
    
    
    0.7Changes to statutory income tax rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    1.7Other
    
    
    (30
    )
    
    
    (1.2
    )
    
    
    (27
    )
    
    
    (1.4
    )
    
    
    
    
    
    
    Companys effective worldwide income taxes
    
    $
    531
    
    
    
    21.9
    
    
    $
    263
    
    
    
    13.2
    
    
    $
    357
    
    
    
    21.3
 
 *
    
    As restated for adoption of AcG 15 (Note 2).   2005
    
    
    2004*Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesInvestments
    
    $
    198
    
    
    $
    395
    
    
    $
    196
    
    
    $
    484Actuarial liabilities
    
    
    18
    
    
    
    (14
    )
    
    
    134
    
    
    
    35Deferred acquisition costs
    
    
    301
    
    
    
    9
    
    
    
    300
    
    
    
    (2
    )Losses available for carry forward
    
    
    177
    
    
    
    (2
    )
    
    
    250
    
    
    
    (40
    )Other
    
    
    74
    
    
    
    114
    
    
    
    36
    
    
    
    28768
    
    
    
    502
    
    
    
    916
    
    
    
    505Valuation allowance
    
    
    (101
    )
    
    
    
    
    
    
    (197
    )
    
    
    Total
    
    $
    667
    
    
    $
    502
    
    
    $
    719
    
    
    $
    505
 
 *
    
    As restated for adoption of AcG 15 (Note 2).  2005
    
    
    2004
    *
    
    2003
    *Investments
    
    $
    (107
    )
    
    $
    (193
    )
    
    $
    (65
    )Actuarial liabilities
    
    
    68
    
    
    
    126
    
    
    
    113Deferred acquisition costs
    
    
    2
    
    
    
    97
    
    
    
    (144
    )Losses (incurred) utilized
    
    
    10
    
    
    
    220
    
    
    
    118Other
    
    
    104
    
    
    
    (18
    )
    
    
    39Future income tax expense
    
    $
    77
    
    
    $
    232
    
    
    $
    61
 
 *
    
    As restated for adoption of AcG 15 (Note 2).32www.sunlife.com Annual Report 2005




---



##### 



20. Commitments, Guarantees and Contingencies
 A) LEASE COMMITMENTS
  2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterFuture rental payments
    
    $
    103
    
    
    $
    93
    
    
    $
    56
    
    
    $
    45
    
    
    $
    37
    
    
    $
    118
 B) CONTRACTUAL COMMITMENTS
  Expires in
    
    
    Expires in
    
    
    Expires30 Days
    
    
    31 to 365 Days
    
    
    2007 or Later
    
    
    TotalContractual commitments
    
    $
    218
    
    
    $
    1,254
    
    
    $
    694
    
    
    $
    2,166
  C) LETTERS OF CREDIT
  D) INDEMNITIES
   E) LEGAL AND REGULATORY PROCEEDINGS
 In re Mutual Funds Investment Litigation (Alger, Columbia,
Janus, MFS, One Group, Putnam, Allianz Dresdner), No.1:04-md-15863 (transfer began March 19,
2004) Riggs v. MFS et al., Case No.
04-CV-01162-JFM Hammerslough v. MFS et al., Case No. 04-MD-01620 Anita
Walker v. MFS et al., Case No. 1:04-CV-01758 Reaves v. MFS Series Trust I, et al. Case
No. 1:05-CV-02220-JFM (Class B Shares) Forsythe v. Sun Life Financial Inc., et al., No.
04cv10584 (GAO) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts Financial Servs.
Co., et al., No. 04cv11458 (GAO)
 Securities Act of 1933 Securities
Exchange Act of 1934 Investment Company Act of 1940 Investment Advisers Act of 1940 Employee Retirement Income Security Act of 1974
 33




---



##### 



20. Commitments, Guarantees and Contingencies (Contd)
   F) PROVISIONS IN THE UNITED KINGDOM
   21. Pension Plans and Other Post-Retirement Benefits
  Pension
    
    
    Post-Retirement2005
    
    
    2004
    
    
    2005
    
    
    2004Change in projected benefit obligation:Projected benefit obligation, January 1
    
    $
    2,190
    
    
    $
    2,053
    
    
    $
    293
    
    
    $
    291Service cost
    
    
    56
    
    
    
    56
    
    
    
    7
    
    
    
    7Interest cost
    
    
    123
    
    
    
    121
    
    
    
    17
    
    
    
    17Actuarial losses (gains)
    
    
    344
    
    
    
    85
    
    
    
    39
    
    
    
    9Benefits paid
    
    
    (87
    )
    
    
    (103
    )
    
    
    (12
    )
    
    
    (10
    )Curtailments, settlements and plan amendments
    
    
    (34
    )
    
    
    1
    
    
    
    (4
    )
    
    
    (17
    )Effect of changes in currency exchange rates
    
    
    (102
    )
    
    
    (23
    )
    
    
    (2
    )
    
    
    (4
    )Projected benefit obligation, December 31(1),(2)
    
    $
    2,490
    
    
    $
    2,190
    
    
    $
    338
    
    
    $
    293Accumulated benefit obligation, December 31(3)
    
    $
    2,343
    
    
    $
    2,019Change in plan assets:Fair value of plan assets, January 1
    
    $
    2,177
    
    
    $
    2,077
    
    
    $
    
    
    
    $
    Net actual return on plan assets
    
    
    231
    
    
    
    200
    
    
    
    
    
    
    
    Employer contributions
    
    
    35
    
    
    
    25
    
    
    
    12
    
    
    
    10Benefits paid
    
    
    (87
    )
    
    
    (103
    )
    
    
    (12
    )
    
    
    (10
    )Effect of changes in currency exchange rates
    
    
    (92
    )
    
    
    (22
    )
    
    
    
    
    
    
    Fair value of plan assets, December 31(1)
    
    $
    2,264
    
    
    $
    2,177
    
    
    $
    
    
    
    $
    Net funded status, December 31
    
    $
    (226
    )
    
    $
    (13
    )
    
    $
    (338
    )
    
    $
    (293
    )Unamortized net actuarial loss
    
    
    601
    
    
    
    394
    
    
    
    80
    
    
    
    45Unamortized past service cost
    
    
    8
    
    
    
    11
    
    
    
    (22
    )
    
    
    (20
    )Unamortized transition asset
    
    
    (108
    )
    
    
    (132
    )
    
    
    (9
    )
    
    
    (10
    )Contributions (transfers), October 1 to December 31(1)
    
    
    (1
    )
    
    
    (1
    )
    
    
    1
    
    
    
    1Accrued benefit asset (liability), December 31(1)
    
    $
    274
    
    
    $
    259
    
    
    $
    (288
    )
    
    $
    (277
    )Balance sheet classification of accrued benefit asset (liability), December 31:Other assets
    
    $
    456
    
    
    $
    438
    
    
    $
    
    
    
    $
    Other liabilities
    
    $
    182
    
    
    $
    179
    
    
    $
    288
    
    
    $
    277Pension plans with projected benefit obligations in excess of plan assets:Projected benefit obligations
    
    $
    1,715
    
    
    $
    1,496Plan assets
    
    $
    1,364
    
    
    $
    1,239
 34




---



##### 



21. Pension Plans and Other Post-Retirement Benefits (Contd)
 Weighted average assumptions:
 Pensions
    
    
    Post-retirementTo Measure
    
    
    To Measure the
    
    
    To Measure
    
    
    To Measure theBenefit Obligation
    
    
    Net Benefit Costs
    
    
    Benefit Obligation
    
    
    Net Benefit Costsas of the
Plans
    
    
    or Income for
    
    
    as of the
Plans
    
    
    or Income forMeasurement Date(1)
    
    
    the Period
    
    
    Measurement Date(1)
    
    
    the PeriodDiscount
rate
    
    
    5.1
    %
    
    
    5.8%
    
    
    
    5.1
    %
    
    
    6.0
    %Expected
long-term rate of
return on plan assets
    
    
    7.4
    %
    
    
    7.2%
    
    
    
    
    
    
    
    Rate of compensation
increase
    
    
    3.6
    %
    
    
    3.9%
    
    
    
    
    
    
    
    
 
 (1)
    
    The measurement date for most of the plans in the United States is September 30.
For all other defined benefit plans, the measurement date is December 31. For plans with a
September 30 measurement date, contributions from October 1 to December 31 are reflected in the
balance sheet for the current year but excluded from the September 30 plan asset balance.(2)
    
    The date of the most recent actuarial valuation for funding purposes was January 1,
2005. The date of the next required actuarial valuation for funding purposes is January 1, 2006.(3)
    
    The Accumulated Benefit Obligation is smaller than the Projected Benefit Obligation
since it does not recognize projected future compensation increases. Discount rate, return on plan assets and rate of compensation increase:
     Pension
    
    
    Post-Retirement(1)2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Components of defined benefit cost recognized:Service cost, curtailments and settlements
    
    $
    56
    
    
    $
    57
    
    
    $
    54
    
    
    $
    7
    
    
    $
    7
    
    
    $
    8Plan amendments
    
    
    
    
    
    
    1
    
    
    
    3
    
    
    
    (4
    )
    
    
    (17
    )
    
    
    Interest cost
    
    
    123
    
    
    
    121
    
    
    
    112
    
    
    
    17
    
    
    
    17
    
    
    
    17Actual return on plan assets
    
    
    (231
    )
    
    
    (201
    )
    
    
    (252
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial losses (gains)
    
    
    341
    
    
    
    84
    
    
    
    185
    
    
    
    39
    
    
    
    9
    
    
    
    26Benefit cost before adjustments to recognize the
long-term nature of defined benefit plans
    
    $
    289
    
    
    $
    62
    
    
    $
    102
    
    
    $
    59
    
    
    $
    16
    
    
    $
    51Adjustments to recognize the long-term nature of
defined benefit plans:Difference between expected and actual
return on plan assets for year
    
    
    71
    
    
    
    41
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    Difference between actuarial losses (gains) recognized and actual
actuarial losses (gains) on accrued benefit obligation for year
    
    
    (342
    )
    
    
    (74
    )
    
    
    (170
    )
    
    
    (37
    )
    
    
    (7
    )
    
    
    (25
    )Difference between amortization of past service costs
for year and actual plan amendments for year
    
    
    1
    
    
    
    1
    
    
    
    (1
    )
    
    
    2
    
    
    
    16
    
    
    
    Amortization of transition obligation (asset)
    
    
    (19
    )
    
    
    (20
    )
    
    
    (20
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )Total adjustments to defer costs to future periods
    
    $
    (289
    )
    
    $
    (52
    )
    
    $
    (92
    )
    
    $
    (37
    )
    
    $
    7
    
    
    $
    (27
    )Total benefit cost recognized
    
    $
    
    
    
    $
    10
    
    
    $
    10
    
    
    $
    22
    
    
    $
    23
    
    
    $
    24
 
 (1)
    
    The assumed medical cost trend rate used in measuring the
accumulated post-retirement benefits obligation in Canada in 2005 was 10%, decreasing by 0.5% each
year until 2014, after which it remains at 5.5%. In the United States in 2005, the assumed rate was
10%, decreasing evenly to 5% by 2011, and remaining at that level thereafter. The assumed dental
cost trend rate is 4.5% in Canada and 5% in the United States. 35




---



##### 



21. Pension Plans and Other Post-Retirement Benefits (Contd)
  1%Increase
    
    
    DecreaseEffect on post-retirement benefit obligations
    
    $
    53
    
    
    $
    (45
    )Effect on aggregated service and interest costs
    
    $
    5
    
    
    $
    ( 4
    )
 Composition of fair value of plan assets, December 31:
 2005
    
    
    2004Equity investments
    
    
    49.7
    %
    
    
    48.0
    %Fixed income investments
    
    
    43.4
    %
    
    
    44.7
    %Real estate investments
    
    
    2.1
    %
    
    
    2.7
    %Other
    
    
    4.8
    %
    
    
    4.6
    %Total composition of fair value of plan assets
    
    
    100.0
    %
    
    
    100.0
    %
 Target allocation of plan assets, December 31:
 2005
    
    
    2004Equity investments
    
    
    46.3
    %
    
    
    45.2
    %Fixed income investments
    
    
    44.8
    %
    
    
    45.0
    %Real estate investments
    
    
    5.3
    %
    
    
    5.1
    %Other
    
    
    3.6
    %
    
    
    4.7
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    Post-Pension
    
    
    Retirement
    
    
    TotalExpected contributions for the next 12 months
    
    $
    18
    
    
    $
    12
    
    
    $
    30
 Expected future benefit payments2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011-2015Pension
    
    $
    82
    
    
    $
    86
    
    
    $
    88
    
    
    $
    92
    
    
    $
    97
    
    
    $
    564Post-retirement
    
    
    11
    
    
    
    11
    
    
    
    12
    
    
    
    12
    
    
    
    13
    
    
    
    73Total
    
    $
    93
    
    
    $
    97
    
    
    $
    100
    
    
    $
    104
    
    
    $
    110
    
    
    $
    637
  22. Foreign Exchange Gain
  36




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States
  A) RECONCILIATION OF SELECTED CDN. GAAP FINANCIAL STATEMENT INFORMATION TO U.S. GAAP
 i) Consolidated statements of operations:
 2005
    
    
    2004
    
    
    2003Cdn.
    
    
    U.S.
    
    
    Cdn.*
    
    
    U.S.
    
    
    Cdn.*
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPREVENUEPremiums
    
    $
    12,940
    
    
    $
    7,135
    
    
    $
    12,903
    
    
    $
    6,883
    
    
    $
    13,543
    
    
    $
    7,229Net investment income
    
    
    6,079
    
    
    
    6,030
    
    
    
    5,924
    
    
    
    5,693
    
    
    
    5,703
    
    
    
    5,758Net realized gains
    
    
    
    
    
    
    788
    
    
    
    
    
    
    
    793
    
    
    
    
    
    
    
    373Fee income
    
    
    2,899
    
    
    
    2,965
    
    
    
    2,903
    
    
    
    3,098
    
    
    
    2,810
    
    
    
    3,05321,918
    
    
    
    16,918
    
    
    
    21,730
    
    
    
    16,467
    
    
    
    22,056
    
    
    
    16,413POLICY BENEFITS AND EXPENSESPayments to policyholders, beneficiaries and depositors
    
    
    13,506
    
    
    
    8,920
    
    
    
    13,114
    
    
    
    9,218
    
    
    
    13,470
    
    
    
    9,159Increase in actuarial liabilities
    
    
    872
    
    
    
    1,274
    
    
    
    1,425
    
    
    
    835
    
    
    
    1,510
    
    
    
    1,109Acquisition expense amortization
    
    
    138
    
    
    
    439
    
    
    
    179
    
    
    
    473
    
    
    
    234
    
    
    
    613Other expenses
    
    
    4,972
    
    
    
    3,979
    
    
    
    5,028
    
    
    
    3,838
    
    
    
    5,165
    
    
    
    4,09619,488
    
    
    
    14,612
    
    
    
    19,746
    
    
    
    14,364
    
    
    
    20,379
    
    
    
    14,977INCOME BEFORE INCOME TAXES AND
NON-CONTROLLING INTERESTS
    
    
    2,430
    
    
    
    2,306
    
    
    
    1,984
    
    
    
    2,103
    
    
    
    1,677
    
    
    
    1,436Income taxes expense
    
    
    531
    
    
    
    445
    
    
    
    263
    
    
    
    403
    
    
    
    357
    
    
    
    277Non-controlling interests in net income of subsidiaries
    
    
    23
    
    
    
    23
    
    
    
    28
    
    
    
    35
    
    
    
    14
    
    
    
    14INCOME BEFORE DIVIDENDS
DECLARED ON PREFERRED SHARES
    
    
    1,876
    
    
    
    1,838
    
    
    
    1,693
    
    
    
    1,665
    
    
    
    1,306
    
    
    
    1,145Less preferred share dividends
    
    
    24
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES
    
    
    1,852
    
    
    
    1,814
    
    
    
    1,693
    
    
    
    1,665
    
    
    
    1,306
    
    
    
    1,145Cumulative effect of accounting changes, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    TOTAL NET INCOME
    
    
    1,852
    
    
    
    1,814
    
    
    
    1,693
    
    
    
    1,486
    
    
    
    1,306
    
    
    
    1,145Less participating policyholders net income (loss)
    
    
    9
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    (1
    )
    
    
    COMMON SHAREHOLDERS NET INCOME
    
    $
    1,843
    
    
    $
    1,814
    
    
    $
    1,680
    
    
    $
    1,486
    
    
    $
    1,307
    
    
    $
    1,145Earnings per shareBasicNet operating income
    
    $
    3.14
    
    
    $
    3.09
    
    
    $
    2.81
    
    
    $
    2.78
    
    
    $
    2.15
    
    
    $
    1.88Cumulative effect of accounting changes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.30
    )
    
    
    
    
    
    
    Common shareholders net income
    
    $
    3.14
    
    
    $
    3.09
    
    
    $
    2.81
    
    
    $
    2.48
    
    
    $
    2.15
    
    
    $
    1.88DilutedNet operating income
    
    $
    3.12
    
    
    $
    3.07
    
    
    $
    2.79
    
    
    $
    2.77
    
    
    $
    2.15
    
    
    $
    1.88Cumulative effect of accounting changes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.30
    )
    
    
    
    
    
    
    Common shareholders net income
    
    $
    3.12
    
    
    $
    3.07
    
    
    $
    2.79
    
    
    $
    2.47
    
    
    $
    2.15
    
    
    $
    1.88Weighted average shares outstanding in millionsBasic
    
    
    587
    
    
    
    587
    
    
    
    599
    
    
    
    599
    
    
    
    608
    
    
    
    608Diluted
    
    
    590
    
    
    
    590
    
    
    
    602
    
    
    
    602
    
    
    
    608
    
    
    
    608
  ii) Comprehensive income:
  37




---



##### 



23.
    
    Summary of Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
 ii) Comprehensive income (Contd):
 2005
    
    
    2004
    
    
    2003Total net income based on U.S. GAAP
    
    $
    1,838
    
    
    $
    1,486
    
    
    $
    1,145Other comprehensive income:Change in unrealized foreign currency translation gains and losses*
    
    
    (308
    )
    
    
    (437
    )
    
    
    (1,688
    )Unrealized gains on available for sale securities
    
    
    789
    
    
    
    721
    
    
    
    1,207Reclassification adjustment for (gains) losses included in net income
    
    
    (702
    )
    
    
    (354
    )
    
    
    (711
    )Changes to deferred acquisition costs and other liabilities
    
    
    19
    
    
    
    (535
    )
    
    
    (320
    )Changes in gains on derivatives designated as cash flow hedges
    
    
    12
    
    
    
    4
    
    
    
    6Other
    
    
    (11
    )
    
    
    
    
    
    
    (95
    )Additional minimum pension liability
    
    
    (90
    )
    
    
    (30
    )
    
    
    (17
    )Income taxes
    
    
    (18
    )
    
    
    4
    
    
    
    (133
    )Shareholders comprehensive income (loss)
    
    $
    1,529
    
    
    $
    859
    
    
    $
    (606
    )
 *
    
    Shown as part of consolidated statements of equity under Cdn. GAAP.
 iii) Consolidated balance sheets:
 2005
    
    
    2004Cdn.
    
    
    U.S.
    
    
    Cdn.*
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPASSETSBonds
    
    $
    66,154
    
    
    
    
    
    
    $
    64,496Bonds  available for sale (amortized cost: 2005  $57,870;
2004  $57,120)
    
    
    
    
    
    $
    61,417
    
    
    
    
    
    
    $
    60,758Bonds  trading
    
    
    
    
    
    
    4,377
    
    
    
    
    
    
    
    4,129Mortgages and corporate loans
    
    
    14,561
    
    
    
    18,639
    
    
    
    13,862
    
    
    
    17,389Stocks
    
    
    3,856
    
    
    
    
    
    
    
    3,463Stocks  available for sale (amortized cost: 2005  $2,209;
2004  $1,692)
    
    
    
    
    
    
    2,636
    
    
    
    
    
    
    
    2,059Stocks  trading
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    1,317Real estate, net of accumulated depreciation (accumulated
depreciation: 2005  $368; 2004  $333)
    
    
    3,241
    
    
    
    2,187
    
    
    
    3,148
    
    
    
    2,208Policy loans
    
    
    2,989
    
    
    
    2,989
    
    
    
    2,936
    
    
    
    2,936Cash and cash equivalents
    
    
    2,740
    
    
    
    2,733
    
    
    
    3,748
    
    
    
    3,759Short-term securities(1)
    
    
    2,351
    
    
    
    2,349
    
    
    
    2,210
    
    
    
    2,379Other invested assets
    
    
    2,700
    
    
    
    4,732
    
    
    
    3,048
    
    
    
    3,579Total invested assets
    
    
    98,592
    
    
    
    103,409
    
    
    
    96,911
    
    
    
    100,513Deferred acquisition costs
    
    
    271
    
    
    
    6,223
    
    
    
    362
    
    
    
    5,704Future income taxes(2)
    
    
    667
    
    
    
    153
    
    
    
    719
    
    
    
    4Goodwill
    
    
    5,963
    
    
    
    4,645
    
    
    
    5,471
    
    
    
    4,527Intangible assets
    
    
    801
    
    
    
    803
    
    
    
    751
    
    
    
    754Other assets
    
    
    4,572
    
    
    
    8,353
    
    
    
    3,589
    
    
    
    8,569Segregated funds assets(3)
    
    
    
    
    
    
    60,854
    
    
    
    
    
    
    
    56,555Total consolidated assets
    
    $
    110,866
    
    
    $
    184,440
    
    
    $
    107,803
    
    
    $
    176,626Segregated funds net assets(3)
    
    $
    60,984
    
    
    
    
    
    
    $
    56,564LIABILITIES AND EQUITYActuarial liabilities
    
    $
    75,777
    
    
    $
    48,597
    
    
    $
    74,258
    
    
    $
    47,856Contract holder deposits
    
    
    
    
    
    
    36,971
    
    
    
    
    
    
    
    37,085Other policy liabilities
    
    
    1,712
    
    
    
    3,278
    
    
    
    1,798
    
    
    
    3,022Amounts on deposit
    
    
    3,382
    
    
    
    3,375
    
    
    
    3,144
    
    
    
    3,136Future income taxes(2)
    
    
    502
    
    
    
    1,131
    
    
    
    505
    
    
    
    1,032Deferred net realized gains
    
    
    3,859
    
    
    
    
    
    
    
    3,466Senior debentures
    
    
    2,492
    
    
    
    2,492
    
    
    
    1,920
    
    
    
    1,920Other liabilities
    
    
    6,090
    
    
    
    9,048
    
    
    
    6,647
    
    
    
    8,371Total consolidated liabilities
    
    
    93,814
    
    
    
    104,892
    
    
    
    91,738
    
    
    
    102,422Subordinated debt
    
    
    1,456
    
    
    
    1,456
    
    
    
    1,462
    
    
    
    1,462Non-controlling interests in subsidiaries
    
    
    50
    
    
    
    50
    
    
    
    188
    
    
    
    195Segregated funds liabilities(3)
    
    
    
    
    
    
    60,854
    
    
    
    
    
    
    
    56,555Equity
    
    
    15,546
    
    
    
    17,188
    
    
    
    14,415
    
    
    
    15,992Total consolidated liabilities and equity
    
    $
    110,866
    
    
    $
    184,440
    
    
    $
    107,803
    
    
    $
    176,626Segregated funds contract liabilities(3)
    
    $
    60,984
    
    
    
    
    
    
    $
    56,564
 *
    
    As restated for adoption of AcG 15 (Note 2).(1)
    
    U.S. GAAP
terminology is short-term
investments.(2)
    
    U.S.
GAAP terminology is deferred income
tax.(3)
    
    U.S. GAAP
terminology is separate accounts.
 38




---



##### 



23.
    
    Summary of Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
 iv) Consolidated statements of equity:
 2005
    
    
    2004Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPPARTICIPATING POLICYHOLDERS CAPITAL ACCOUNT:Balance, January 1
    
    $
    85
    
    
    $
    
    
    
    $
    72
    
    
    $Net income attributed to participating policyholders
    
    
    9
    
    
    
    
    
    
    
    13Balance, December 31
    
    
    94
    
    
    
    
    
    
    
    85SHAREHOLDERS EQUITY:PREFERRED SHARESBalance, January 1
    
    
    725
    
    
    
    725
    
    
    
    
    
    
    
    Shares issued, net of issuance costs
    
    
    (13
    )
    
    
    (13
    )
    
    
    
    
    
    
    Balance, December 31
    
    
    712
    
    
    
    712
    
    
    
    
    
    
    
    PAID IN CAPITALBalance, January 1
    
    
    7,308
    
    
    
    13,345
    
    
    
    7,365
    
    
    
    13,495Common shares issued, net of issuance costs,
as consideration for business acquisition(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options exercised(2)
    
    
    78
    
    
    
    78
    
    
    
    58
    
    
    
    58Common shares purchased for cancellation(1)
    
    
    (164
    )
    
    
    (301
    )
    
    
    (126
    )
    
    
    (230
    )Stock option compensation(3)
    
    
    17
    
    
    
    17
    
    
    
    11
    
    
    
    12Subsidiary equity transaction
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    10Balance, December 31
    
    
    7,239
    
    
    
    13,148
    
    
    
    7,308
    
    
    
    13,345RETAINED EARNINGSBalance, January 1
    
    
    8,116
    
    
    
    2,907
    
    
    
    7,212
    
    
    
    2,094Adjustment for change in accounting policy
    
    
    3
    
    
    
    
    
    
    
    4
    
    
    
    Balance, beginning of period, as restated
    
    
    8,119
    
    
    
    2,907
    
    
    
    7,216
    
    
    
    2,094Net income for the period attributed to shareholders
    
    
    1,867
    
    
    
    1,838
    
    
    
    1,680
    
    
    
    1,486Dividends on common shares
    
    
    (581
    )
    
    
    (581
    )
    
    
    (515
    )
    
    
    (515
    )Dividends on preferred shares
    
    
    (24
    )
    
    
    (24
    )
    
    
    
    
    
    
    Common shares purchased for cancellation
    
    
    (380
    )
    
    
    (243
    )
    
    
    (262
    )
    
    
    (158
    )Balance, December 31
    
    
    9,001
    
    
    
    3,897
    
    
    
    8,119
    
    
    
    2,907CURRENCY TRANSLATION ACCOUNTBalance, January 1
    
    
    (1,097
    )
    
    
    (1,270
    )
    
    
    (673
    )
    
    
    (833
    )Changes for the period
    
    
    (403
    )
    
    
    (308
    )
    
    
    (424
    )
    
    
    (437
    )Balance, December 31
    
    
    (1,500
    )
    
    
    (1,578
    )
    
    
    (1,097
    )
    
    
    (1,270
    )ACCUMULATED UNREALIZED GAINS AND LOSSESUnrealized gains on available-for-sale securities
    
    
    
    
    
    
    2,696
    
    
    
    
    
    
    
    2,694Gains on derivatives designated as cash flow hedges
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    1Deferred acquisition costs and other liabilities
    
    
    
    
    
    
    (1,557
    )
    
    
    
    
    
    
    (1,615
    )Additional minimum pension liability
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    (70
    )Balance, December 31
    
    
    
    
    
    
    1,009
    
    
    
    
    
    
    
    1,010TOTAL EQUITY
    
    $
    15,546
    
    
    $
    17,188
    
    
    $
    14,415
    
    
    $
    15,992
 (1)
    
    Shown as share capital under Cdn. GAAP.(2)
    
    Shown as share capital and
contributed surplus under Cdn. GAAP.(3)
    
    Shown as contributed
surplus under Cdn. GAAP.
 39




---



##### 



23.
    
    Summary of Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
 v) Effect of differences between Cdn. GAAP and U.S. GAAP net income:
  2005
    
    
    2004*
    
    
    2003*Total net income in accordance with Cdn. GAAP
    
    $
    1,876
    
    
    $
    1,693
    
    
    $
    1,306Adjustments related to:InvestmentsBonds
    
    
    208
    
    
    
    266
    
    
    
    274Stocks and segregated fund units
    
    
    265
    
    
    
    229
    
    
    
    (14
    )Derivative instruments
    
    
    493
    
    
    
    117
    
    
    
    453Real estate
    
    
    (54
    )
    
    
    5
    
    
    
    (83
    )Total investments
    
    
    912
    
    
    
    617
    
    
    
    630Deferred acquisition costsDeferred acquisition costs  deferred
    
    
    720
    
    
    
    909
    
    
    
    860Deferred acquisition costs  amortization and interest
    
    
    (301
    )
    
    
    (290
    )
    
    
    (440
    )Total deferred acquisition costs
    
    
    419
    
    
    
    619
    
    
    
    420Actuarial liabilities and other policyholder revenues and expensesPremium and fees revenue
    
    
    (5,448
    )
    
    
    (5,528
    )
    
    
    (5,786
    )Payments to policyholders, beneficiaries and depositors
    
    
    4,586
    
    
    
    3,896
    
    
    
    4,311Actuarial liabilities
    
    
    (402
    )
    
    
    590
    
    
    
    401Total actuarial liabilities and other policyholder revenues and expenses
    
    
    (1,264
    )
    
    
    (1,042
    )
    
    
    (1,074
    )Other
    
    
    (191
    )
    
    
    (82
    )
    
    
    (247
    )Income tax effect of above adjustments
    
    
    86
    
    
    
    (140
    )
    
    
    110Change in accounting policy
    
    
    
    
    
    
    (179
    )
    
    
    Redemption premiums
    
    
    
    
    
    
    
    
    
    
    Total net income in accordance with U.S. GAAP
    
    $
    1,838
    
    
    $
    1,486
    
    
    $
    1,145
 *
    
    As restated for adoption of AcG 15 (Note 2). B) SIGNIFICANT ACCOUNTING POLICY DIFFERENCES BETWEEN CDN. GAAP AND U.S. GAAP APPLICABLE TO THE
COMPANY
  Cdn. GAAP
    
    
    U.S. GAAPBonds
    
    
    Bonds are carried at amortized cost. Realized gains and
losses are deferred and amortized to income using the
constant yield method over the remaining period to
maturity.
    
    
    Bonds are carried at market value. The bonds are classified
as available for sale or trading. Unrealized gains and losses
are included in other comprehensive income if classified as
available for sale, and included in net income if classified as
trading. Realized gains and losses are included in net income
immediately. Certain bonds are included in mortgages and
corporate loans, as they do not meet the definition of a
security.Stocks
    
    
    Stocks are originally recorded at cost. The carrying
value is adjusted towards the fair value at 5% of the
difference between fair value and carrying value per
quarter. Realized gains and losses are deferred and
amortized into net investment income at the rate of 5%
of the unamortized balance each quarter. The Company
records a write-down for any other than temporary
decline in the value of the entire stock portfolio.
    
    
    Stocks are carried at market value. The stocks are classified
as available for sale or trading. Unrealized gains and losses
are included in other comprehensive income if classified as
available for sale, and included in net income if classified as
trading. Other than temporary declines in the value of stock
result in a write-down charged to income.Real Estate
    
    
    Real estate held for investment is originally recorded at
cost. The carrying value is adjusted towards the fair
value at 3% of the difference between fair value and
carrying value per quarter. Realized gains and losses on
sales are deferred and amortized into net investment
income at the rate of 3% of the unamortized balance
each quarter. The Company records a write-down for
any other than temporary decline in the value of the
entire real estate portfolio.
    
    
    Real estate held for investment is carried at depreciated cost.
Realized gains and losses on sales are reflected in income
immediately. Other than temporary declines in value of
specific properties result in a write-down charged to income.
 40




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
 Cdn. GAAP
    
    
    U.S. GAAPDerivatives
    
    
    Most of the Companys derivatives are accounted for as
either fixed term portfolio investments or equity portfolio
investments. Fixed term portfolio investment accounting
reports investments at amortized cost. Equity portfolio
investments are carried at a value calculated using a
moving average market method. Realized gains and
losses on the derivatives are deferred and amortized into
net investment income.
Certain derivative instruments are classified as hedges
and either accounted for using hedge accounting or fair
value accounting. Under hedge accounting, the
accounting for the derivative follows the underlying asset
or liability that is being hedged. Under fair value
accounting, the derivative instrument is recorded at fair
value on the balance sheet with increases or decreases
recorded to net investment income. Foreign exchange
exposure of an anticipated purchase transaction may
qualify for hedge accounting.
    
    
    Derivative instruments are carried at their fair values.
Changes in fair values of derivatives that are not hedges are
recorded in income as they arise. For fair value hedges, the
gain or loss on the derivative as well as the related offsetting
adjustment to the carrying value of the hedged item for the
effective portion of the hedging derivative are recognized in
income. For cash flow hedges, the effective portion of the
changes in the fair value of the derivatives is recorded in other
comprehensive income and the ineffective portion is
recognized in income.
If an option within an insurance contract has economic
characteristics that are different from that of the insurance
contract and the option meets the definition of a derivative
instrument, the option is known as an embedded derivative.
The embedded derivatives are separately accounted for as
stand-alone derivatives and carried at fair values with the
changes in fair value recorded in income. Foreign exchange
exposure of an anticipated purchase transaction would not
qualify for hedge accounting.Deferred
acquisition
costs
    
    
    Costs of acquiring new insurance and annuity business,
primarily commissions; underwriting; issue expenses
and agency expenses are implicitly recognized in
actuarial liabilities for most of the policies.
    
    
    Acquisition costs are deferred and recorded as an asset.
Amortization of such costs is dependent on the product to
which the costs relate. For participating life insurance
contracts, except for participating policies in the United
Kingdom, amortization is based on a constant percentage of
gross margin. For universal life and investment-type
contracts, amortization is based on a constant percentage of
gross profit. For other non-participating products, including
term, group and disability insurance, as well as participating
policies in the United Kingdom, amortization is based on a
constant percentage of premium. In cases where
amortization is based on gross profit or margin, and available-
for-sale bonds or stocks are used to support the underlying
contract liability or actuarial reserve, a portion of the
unrealized gains and losses balance is removed from equity
and netted against the deferred acquisition cost balance.Actuarial
liabilities and
contract holder
deposits
    
    
    Actuarial liabilities are calculated in accordance with
Canadian generally accepted actuarial practice. This method uses best estimate assumptions for future
experience factors adjusted to provide modest margins
for adverse deviation in each experience factor.
    
    
    The actuarial liabilities for participating life policies, except
those in the United Kingdom, are computed using a net level
premium reserve method with interest and mortality
assumptions based primarily upon those assumptions used
for establishing the cash surrender values in the contract. For
universal life-type and investment contracts, contract holder
deposits represent account balances and U.S. GAAP liabilities
primarily equal account value balances. The account values
represent an accumulation of gross deposits received plus
credited interest less withdrawals, expenses and mortality
charges. Other non-participating products include term, group
and disability insurance. For these products, as well as
participating contracts in the United Kingdom, a net level
premium method is used with assumptions locked in at time of
issue, unless the business is in a loss recognition position, in
which case a best estimate gross premium valuation is used.Deferred net
realized gains
    
    
    Realized gains and losses on sales of invested assets
are deferred and amortized.
    
    
    Realized gains and losses are recognized in income
immediately.
 41




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
 Cdn. GAAP
    
    
    U.S. GAAPPremium
revenue, fee
income,
maturities and
surrenders, and
interest on
claims and
deposits
    
    


    Premiums for universal life and other            investment-type
contracts            are            recorded as            revenue, and a            liability            for
future            policy            benefits is            established as a            charge            to
income. Interest accrued on contracts is shown as an
increase            in            actuarial            liabilities. Payments            to            contract
holders upon maturity are reflected as an expense with
an            offsetting            reduction to            the            increase            in            actuarial
liabilities.







    
    
    Amounts received for universal life and investment-type
contracts are not included in the income statement but are
reported as deposits to contract holder account balances.
Revenues from these contracts are limited to amounts
assessed against policyholders account balances for
mortality, policy administration and surrender charges, and are
included in fee income when earned. Interest accrued on
contracts is included in interest on claims and deposits.
Payments upon maturity or surrender are reflected as
reductions to the contract holder deposits on the balance
sheet. Other payments in excess of the account value, such
as death claims, are reflected as an expense.Minimum
pension liability
    
    
    There is no requirement to record the additional
minimum pension liability.
    
    
    For a defined benefit pension plan, an additional minimum
pension liability is required to be recognized if an unfunded
Accumulated Benefit Obligation (ABO) exists and (i) an
accrued benefit asset is recorded, or (ii) an accrued benefit
liability is recorded for an amount less than the unfunded
ABO. The additional minimum liability is calculated by
reference to the excess of the ABO, which is smaller than the
Projected Benefit Obligation (PBO) since it does not recognize
projected future compensation increases, over the fair value of
plan assets. If an additional minimum liability is required to be
recognized for a defined benefit pension plan, an intangible
asset is recorded up to the amount of any unamortized past
service cost, and/or unamortized transitional obligation with
any remaining excess recorded as part of other
comprehensive income. The additional minimum liability is
recorded as an accrued benefit liability.Redemption of
subordinated
debts
    
    

    Redemption                        premiums                        are                        recorded                        once                        an
obligation                        to                        redeem the                        principal amount                        of                        capital
debentures is incurred.






    
    
    Redemption premiums are recorded when the principal
amount of the capital debentures is redeemed.Cumulative
translation
adjustment
    
    


    A                                    proportionate amount of                                    the                                    exchange
 gain or                                    loss
accumulated in the separate component of shareholders
equity is                                    reflected in net                                    income when                                    there                                    is a
reduction in the Companys net investment in a foreign
operation resulting from a capital transaction, dilution, or
sale of all or part of the foreign operation.




    
    
    A proportionate amount of exchange gains or losses
accumulated in the separate component of shareholders
equity is reflected in net income only when there is a reduction
in the Companys net investment in the foreign operation
resulting from the sale of all or part of the foreign operation.Guarantees
    
    

    Disclosure                                                is                                                required for                                                all
                                         significant                                                guarantees
provided by the Company.




    
    
    In addition to the disclosure requirements, for all guarantees
issued or modified after December 31, 2002, recognition of a
liability is required at the fair value of the obligation assumed.Future income
tax asset and
liability(1)
    
    

    Future                                                            income tax liabilities                                                            and
                                 assets are                                                            recognized
based on the differences between the accounting values
of assets and liabilities and their related tax bases using
income tax rates of enacted or substantially enacted tax
law.



    
    
    Future income tax liabilities and assets are recorded based on
income tax rates of currently enacted tax law. Differences in
the provisions for income taxes arise from differing accounting
policies for assets and liabilities, and differences in the
recognition of tax rate changes are disclosed in part C (vii) of
this note.Segregated
funds(2)
    
    

    Assets                                                                        and                                                                        liabilities of
                                                             segregated funds                                                                        are                                                                        shown
separately                                                                        from general                                                                        assets                                                                        and
                                                                     liabilities of                                                                        the
Company. The Companys investment in segregated
funds is included in other invested assets.



    
    
    Assets and liabilities are called separate accounts and are
required to be included within the financial statements of the
Company. Any excess of the separate account assets over
separate account liabilities primarily represents the Companys investment in segregated funds.The Companys investment in separate accounts is included
in other invested assets, consistent with Cdn. GAAP.
 (1)
    
    U.S. GAAP terminology is deferred income tax.(2)
    
    U.S. GAAP terminology is separate accounts. 42




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
 C) ADDITIONAL INFORMATION REQUIRED TO BE REPORTED UNDER U.S. GAAP
 i)
 2005
    
    
    2004
    
    
    2003Bonds:Gross realized gains
    
    $
    618
    
    
    $
    698
    
    
    $
    618Gross realized losses
    
    $
    (122
    )
    
    $
    (216
    )
    
    $
    (266
    )Stocks:Gross realized gains
    
    $
    217
    
    
    $
    233
    
    
    $
    27Gross realized losses
    
    $
    (65
    )
    
    $
    (51
    )
    
    $
    (91
    )
 ii)
 2005
    
    
    2004
    
    
    2003Bonds
    
    $
    12
    
    
    $
    41
    
    
    $
    54Stocks
    
    $
    348
    
    
    $
    201
    
    
    $
    113
 iii) Real estate:
 2005
    
    
    2004
    
    
    2003Depreciation expense
    
    $
    56
    
    
    $
    59
    
    
    $
    37
 iv) Derivatives:
  2005
    
    
    2004Change in fair value
    
    $
    8
    
    
    $
    3Amount reclassified from OCI to income during the reporting period
    
    $
    4
    
    
    $
    1Amount expected to be reclassified to income during the next 12 months
    
    $
    3
    
    
    $
    1Component of loss excluded from hedge effectiveness assessment
    
    $
    2
    
    
    $
    2
  .
 43




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
 v) Unrealized loss positions for which an other than temporary impairment has not been recognized
  Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of securities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesDebt securities
    
    $
    16,140
    
    
    $
    (322
    )
    
    $
    3,755
    
    
    $
    (255
    )
    
    $
    19,895
    
    
    $
    (577
    )Common stock
    
    
    174
    
    
    
    (21
    )
    
    
    40
    
    
    
    (20
    )
    
    
    214
    
    
    
    (41
    )Total temporarily impaired securities
    
    $
    16,314
    
    
    $
    (343
    )
    
    $
    3,795
    
    
    $
    (275
    )
    
    $
    20,109
    
    
    $
    (618
    )
    vi) Stock-based compensation:
 44




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
 vii) Future income tax asset and liability (1) :
 2005Future Income Tax Asset(1)
    
    
    Future Income Tax Liability(1)Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPInvestments
    
    $
    198
    
    
    $
    (208
    )
    
    $
    395
    
    
    $
    1,852Actuarial liabilities
    
    
    18
    
    
    
    978
    
    
    
    (14
    )
    
    
    (2,159
    )Deferred acquisition costs
    
    
    301
    
    
    
    (506
    )
    
    
    9
    
    
    
    1,081Losses available for carry forward
    
    
    177
    
    
    
    14
    
    
    
    (2
    )
    
    
    (166
    )Other
    
    
    74
    
    
    
    (119
    )
    
    
    114
    
    
    
    478Future tax asset/liability before valuation allowance
    
    
    768
    
    
    
    159
    
    
    
    502
    
    
    
    1,086Valuation allowance
    
    
    (101
    )
    
    
    (6
    )
    
    
    
    
    
    
    45Total
    
    $
    667
    
    
    $
    153
    
    
    $
    502
    
    
    $
    1,131
 2004Future Income Tax Asset (1)
    
    
    Future Income Tax Liability (1)Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPInvestments
    
    $
    196
    
    
    $
    (262
    )
    
    $
    484
    
    
    $
    1,804Actuarial liabilities
    
    
    134
    
    
    
    688
    
    
    
    35
    
    
    
    (2,424
    )Deferred acquisition costs
    
    
    300
    
    
    
    (446
    )
    
    
    (2
    )
    
    
    682Losses available for carry forward
    
    
    250
    
    
    
    16
    
    
    
    (40
    )
    
    
    (277
    )Other
    
    
    36
    
    
    
    8
    
    
    
    28
    
    
    
    880Future tax asset/liability before valuation allowance
    
    
    916
    
    
    
    4
    
    
    
    505
    
    
    
    665Valuation allowance
    
    
    (197
    )
    
    
    
    
    
    
    
    
    
    
    367Total
    
    $
    719
    
    
    $
    4
    
    
    $
    505
    
    
    $
    1,032
 (1)
    
    U.S. GAAP terminology is deferred income tax. viii) Acquisition:
 CMG AsiaCdn. GAAP
    
    
    U.S. GAAPInvested assets acquired
    
    $
    1,548
    
    
    $
    1,548Other assets acquired(1)
    
    
    122
    
    
    
    422Segregated funds assets acquired
    
    
    
    
    
    
    5321,670
    
    
    
    2,502Actuarial liabilities and other policy liabilities acquired
    
    
    1,453
    
    
    
    1,344Amounts on deposit acquired
    
    
    159
    
    
    
    159Other liabilities acquired
    
    
    40
    
    
    
    38Segregated funds liabilities acquired
    
    
    
    
    
    
    5321,652
    
    
    
    2,073Net balance sheet assets acquired
    
    $
    18
    
    
    $
    429Considerations given:Cash cost of acquisition
    
    $
    535
    (2)
    
    $
    513Transaction and other related costs
    
    
    9
    
    
    
    9$
    544
    
    
    $
    522Goodwill on acquisition
    
    $
    526
    
    
    $
    93
 (1)
    
    Other assets acquired included value of business acquired of $287 under U.S. GAAP.(2)
    
    Includes the cost to hedge the foreign exchange exposure of
the purchase price. 45




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
   2005
    
    
    2004
    
    
    2003Revenue
    
    $
    17,136
    
    
    $
    16,809
    
    
    $
    16,767Total common shareholders net income before realized gains
    
    $
    1,034
    
    
    $
    709
    
    
    $
    792Net realized gains
    
    
    791
    
    
    
    810
    
    
    
    383Common shareholders net income
    
    
    1,825
    
    
    
    1,519
    
    
    
    1,175Weighted average number of shares outstanding (in millions)
    
    
    587
    
    
    
    599
    
    
    
    608Basic earnings per share
    
    $
    3.11
    
    
    $
    2.54
    
    
    $
    1.93Shareholders net income on a diluted basis
    
    $
    1,820
    
    
    $
    1,517
    
    
    $
    1,175Weighted average number of shares outstanding on a diluted basis (in millions)
    
    
    590
    
    
    
    602
    
    
    
    608Diluted earnings per share
    
    $
    3.08
    
    
    $
    2.52
    
    
    $
    1.93
 ix) Earnings per share:
  2005
    
    
    2004
    
    
    2003Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPCommon shareholders net income before cumulative
effect of accounting changes
    
    $
    1,843
    
    
    $
    1,814
    
    
    $
    1,680
    
    
    $
    1,665
    
    
    $
    1,307
    
    
    $
    1,145Cumulative effect of accounting changes, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    Common shareholders net income
    
    $
    1,843
    
    
    $
    1,814
    
    
    $
    1,680
    
    
    $
    1,486
    
    
    $
    1,307
    
    
    $
    1,145Less: Effect of stock options of subsidiaries
    
    
    5
    
    
    
    5
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Common shareholders net income on a diluted basis
    
    $
    1,838
    
    
    $
    1,809
    
    
    $
    1,678
    
    
    $
    1,484
    
    
    $
    1,307
    
    
    $
    1,145Weighted average number of shares outstanding (in millions)
    
    
    587
    
    
    
    587
    
    
    
    599
    
    
    
    599
    
    
    
    608
    
    
    
    608Add: Adjustments relating to the dilutive impact of stock options
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    Weighted average number of shares outstanding
on a diluted basis (in millions)
    
    
    590
    
    
    
    590
    
    
    
    602
    
    
    
    602
    
    
    
    608
    
    
    
    608
 x) Statements of cash flows:
 2005
    
    
    2004
    
    
    2003Deposits and withdrawals reclassified to financing activities:Deposits to policyholders accounts
    
    $
    6,401
    
    
    $
    5,656
    
    
    $
    6,102Withdrawals from policyholders accounts
    
    $
    6,021
    
    
    $
    5,986
    
    
    $
    6,363
 xi) Guarantees:
 xii) Liabilities for Contract Guarantees:
  46




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
  Weighted Average AttainedBenefit type
    
    Account Balance
    
    
    Net Amount at Risk
    
    
    Age of Contract HoldersMinimum death
    
    $
    34,164
    
    
    $
    3,442
    
    
    
    60Minimum income
    
    $
    3,006
    
    
    $
    873
    
    
    
    49Minimum accumulation or withdrawal
    
    $
    2,388
    
    
    $
    
    
    
    
    58
  Minimum
    
    
    GuaranteedGuaranteed Death
    
    
    Minimum IncomeBenefit
    
    
    Benefit
    
    
    TotalBalance at January 1, 2004
    
    $
    64
    
    
    $
    183
    
    
    $
    247Incurred guaranteed benefits
    
    
    30
    
    
    
    1
    
    
    
    31Paid guaranteed benefits
    
    
    (57
    )
    
    
    (13
    )
    
    
    (70
    )Interest
    
    
    1
    
    
    
    21
    
    
    
    22Effect of changes in currency exchange rates
    
    
    (1
    )
    
    
    1
    
    
    
    Balance at December 31, 2004
    
    
    37
    
    
    
    193
    
    
    
    230Benefit ratio and assumption changes
    
    
    19
    
    
    
    
    
    
    
    19Incurred guaranteed benefits
    
    
    43
    
    
    
    1
    
    
    
    44Paid guaranteed benefits
    
    
    (43
    )
    
    
    (22
    )
    
    
    (65
    )Interest
    
    
    2
    
    
    
    51
    
    
    
    53Effect of changes in currency exchange rates
    
    
    10
    
    
    
    (29
    )
    
    
    (19
    )Balance at December 31, 2005
    
    $
    68
    
    
    $
    194
    
    
    $
    262
    D) U.S. GENERALLY ACCEPTED ACCOUNTING STANDARDS ADOPTED BY THE COMPANY IN 2005
 i) EITF 03-6  Participating Securities and the Two-Class Method Under Financial Accounting
Standards Board (FASB) Statement No. 128, Earnings Per Share:
 47




---



##### 



23.
    
    Summary of Differences Between Accounting Principles Generally Accepted in Canada and in the United States (Contd)
 E) U.S. GENERALLY ACCEPTED ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY
 i) FASB Statement No. 153  Exchanges of Non-monetary Assets (SFAS 153):
 ii)
FASB Statement No. 154 Accounting Changes and Error Corrections (SFAS 154): ,
 iii) FASB Statement No. 123R  Share-Based Payment (SFAS 123R):
 iv) Securities Exchange Commission (SEC) Staff Accounting Bulletin No.107 (SAB 107):
 24. Comparative Figures
  48




---



##### 



Robert W. Wilson
 
  
    
 Deloitte & Touche LLP
 
 49