##### 



Exhibit 1




---



##### 



Table of Contents
 PAGEConsolidated
Financial Statements and NotesFinancial Reporting Responsibilities
    
    
    1Managements Report on Internal Control Over Financial Reporting
    
    
    2Consolidated Financial StatementsConsolidated Statements of Operations
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statements of Changes in Segregated Funds Net Assets and Consolidated
Statements of Segregated Funds Net Assets
    
    
    7Notes to the Consolidated Financial StatementsNote 1. Accounting Policies
    
    
    8Note 2. Changes in Accounting Policies
    
    
    13Note 3. Acquisition and Disposal
    
    
    16Note 4. Segmented Information
    
    
    17Note 5. Fair Value of Financial Instruments
    
    
    18Note 6. Invested Assets and Income
    
    
    19Note 7. Derivative Financial Instruments
    
    
    25Note 8. Goodwill and Intangible Assets
    
    
    26Note 9. Other Assets
    
    
    28Note 10. Actuarial Liabilities and Other Policy Liabilities
    
    
    28Note 11. Senior Debentures
    
    
    34Note 12. Other Liabilities
    
    
    34Note 13. Subordinated Debt
    
    
    35Note 14. Non-controlling Interests in Subsidiaries
    
    
    36Note 15. Share Capital and Normal Course Issuer Bid
    
    
    36Note 16. Operating Expenses
    
    
    37Note 17. Earnings Per Share
    
    
    38Note 18. Stock-Based Compensation
    
    
    38Note 19. Income Taxes
    
    
    41Note 20. Commitments, Guarantees and Contingencies
    
    
    43Note 21. Pension Plans and Other Post-Retirement Benefits
    
    
    45Note 22. Foreign Exchange Gain
    
    
    48Note 23. Variable Interest Entities
    
    
    48Note 24. Summary of Differences Between Accounting Principles
Generally Accepted in Canada and in the United States
    
    
    49Note 25. Comparative Figures
    
    
    67Appointed Actuarys Report
    
    
    68Reports of Independent Registered Chartered Accountants
    
    
    69




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##### 



Financial Reporting Responsibilities
        Donald A. Stewart
 Paul W. Derksen
   1
Sun Life Financial Inc.




---



##### 



Managements Report on Internal Control over Financial Reporting
   United States Securities and Exchange Act December 31,
2006 Internal
ControlIntegrated Framework,
 December 31,
2006 December 31,
2006
 Donald A. Stewart
 Paul W. Derksen




---



##### 



YEARS ENDED DECEMBER 31 (in millions of Canadian dollars, except for per share amounts)2006
    
    
    2005
    
    
    2004REVENUEPremium income:Annuities
    
    
    
    
    
    $
    5,380
    
    
    $
    4,556
    
    
    $
    4,588Life insurance
    
    
    
    
    
    
    6,168
    
    
    
    5,683
    
    
    
    5,948Health insurance
    
    
    
    
    
    
    3,061
    
    
    
    2,701
    
    
    
    2,36714,609
    
    
    
    12,940
    
    
    
    12,903Net
investment income (Note 6)
    
    
    
    
    
    
    6,664
    
    
    
    6,079
    
    
    
    5,924Fee income
    
    
    
    
    
    
    3,014
    
    
    
    2,899
    
    
    
    2,90324,287
    
    
    
    21,918
    
    
    
    21,730POLICY BENEFITS AND EXPENSESPayments to policyholders, beneficiaries and depositors:Maturities and surrenders
    
    
    
    
    
    
    5,707
    
    
    
    5,922
    
    
    
    5,726Annuity payments
    
    
    
    
    
    
    1,388
    
    
    
    1,473
    
    
    
    1,495Death and disability benefits
    
    
    
    
    
    
    2,438
    
    
    
    2,397
    
    
    
    2,458Health benefits
    
    
    
    
    
    
    2,253
    
    
    
    1,885
    
    
    
    1,737Policyholder dividends and interest on claims and deposits
    
    
    
    
    
    
    1,109
    
    
    
    1,125
    
    
    
    1,11612,895
    
    
    
    12,802
    
    
    
    12,532Net transfers to segregated funds
    
    
    
    
    
    
    835
    
    
    
    704
    
    
    
    582Increase in
actuarial liabilities (Note 10)
    
    
    
    
    
    
    2,525
    
    
    
    872
    
    
    
    1,425Commissions
    
    
    
    
    
    
    1,916
    
    
    
    1,726
    
    
    
    1,916Operating
expenses (Note 16)
    
    
    
    
    
    
    3,028
    
    
    
    2,921
    
    
    
    2,831Premium taxes
    
    
    
    
    
    
    205
    
    
    
    190
    
    
    
    182Interest
expense (Notes 11, 12 and 13)
    
    
    
    
    
    
    323
    
    
    
    273
    
    
    
    27821,727
    
    
    
    19,488
    
    
    
    19,746INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTERESTS
    
    
    
    
    
    
    2,560
    
    
    
    2,430
    
    
    
    1,984Income taxes
expense (Note 19)
    
    
    
    
    
    
    389
    
    
    
    531
    
    
    
    263Non-controlling interests in net income of subsidiaries (Note 14)
    
    
    
    
    
    
    27
    
    
    
    23
    
    
    
    28TOTAL NET INCOME
    
    
    
    
    
    
    2,144
    
    
    
    1,876
    
    
    
    1,693Less: Participating policyholders net income
    
    
    
    
    
    
    7
    
    
    
    9
    
    
    
    13SHAREHOLDERS NET INCOME
    
    
    
    
    
    
    2,137
    
    
    
    1,867
    
    
    
    1,680Less: Preferred shareholder dividends
    
    
    
    
    
    
    48
    
    
    
    24
    
    
    
    COMMON SHAREHOLDERS NET INCOME
    
    
    
    
    
    $
    2,089
    
    
    $
    1,843
    
    
    $
    1,680Average exchange rates:U.S. dollars
    
    
    1.13
    
    
    
    1.21
    
    
    
    1.30U.K. pounds
    
    
    2.09
    
    
    
    2.21
    
    
    
    2.38Earnings
per share (Note 17)Basic
    
    
    
    
    
    $
    3.62
    
    
    $
    3.14
    
    
    $
    2.81Diluted
    
    
    
    
    
    $
    3.58
    
    
    $
    3.12
    
    
    $
    2.79Weighted
average shares outstanding in millions (Note 17)Basic
    
    
    
    
    
    
    577
    
    
    
    587
    
    
    
    599Diluted
    
    
    
    
    
    
    580
    
    
    
    590
    
    
    
    602
 The attached notes form part of these consolidated financial statements.
  3
Sun Life Financial Inc.




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##### 



AS AT DECEMBER 31 (in millions of Canadian dollars)2006
    
    
    2005ASSETSBonds
(Note 6)
    
    
    
    
    
    $
    69,230
    
    
    $
    66,154Mortgages
(Note 6)
    
    
    
    
    
    
    15,993
    
    
    
    14,561Stocks
(Note 6)
    
    
    
    
    
    
    4,899
    
    
    
    3,856Real estate
(Note 6)
    
    
    
    
    
    
    3,825
    
    
    
    3,241Cash, cash equivalents and short-term securities
    
    
    
    
    
    
    6,239
    
    
    
    5,091Policy loans and other invested assets
    
    
    
    
    
    
    6,013
    
    
    
    5,689Invested assets
    
    
    
    
    
    
    106,199
    
    
    
    98,592Goodwill
(Note 8)
    
    
    
    
    
    
    5,981
    
    
    
    5,963Intangible
assets (Note 8)
    
    
    
    
    
    
    777
    
    
    
    801Other assets
(Note 9)
    
    
    
    
    
    
    4,874
    
    
    
    5,510Total general fund assets
    
    
    
    
    
    $
    117,831
    
    
    $
    110,866Segregated funds net assets
    
    
    
    
    
    $
    70,789
    
    
    $
    60,984LIABILITIES AND EQUITYActuarial
liabilities and other policy liabilities (Note 10)
    
    
    
    
    
    $
    81,036
    
    
    $
    77,489Amounts on deposit
    
    
    
    
    
    
    3,599
    
    
    
    3,382Deferred net
realized gains (Note 6)
    
    
    
    
    
    
    4,152
    
    
    
    3,859Senior
debentures (Note 11)
    
    
    
    
    
    
    3,491
    
    
    
    2,492Other
liabilities (Note 12)
    
    
    
    
    
    
    6,834
    
    
    
    6,592Total general fund liabilities
    
    
    
    
    
    
    99,112
    
    
    
    93,814Subordinated
debt (Note 13)
    
    
    
    
    
    
    1,456
    
    
    
    1,456Non-controlling interests in subsidiaries (Note 14)
    
    
    
    
    
    
    79
    
    
    
    50Total equity
    
    
    
    
    
    
    17,184
    
    
    
    15,546Total general fund liabilities and equity
    
    
    
    
    
    $
    117,831
    
    
    $
    110,866Segregated funds contract liabilities
    
    
    
    
    
    $
    70,789
    
    
    $
    60,984December 31
exchange rates:U.S. dollars
    
    
    1.17
    
    
    
    1.17U.K. pounds
    
    
    2.28
    
    
    
    2.00
 The attached notes form part of these consolidated financial statements.
  Donald A. Stewart
 Krystyna T. Hoeg




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##### 



YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)PARTICIPATINGPOLICYHOLDERS
    
    
    SHAREHOLDERS
    
    
    2006
    
    
    2005
    
    
    2004PREFERRED SHARESBalance, beginning of year
    
    $
    
    
    
    $
    712
    
    
    $
    712
    
    
    $
    
    
    
    $
    Preferred
shares issued (Note 15)
    
    
    
    
    
    
    550
    
    
    
    550
    
    
    
    725
    
    
    
    Issuance
costs, net of taxes (Note 15)
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )
    
    
    (13
    )
    
    
    Balance, end of year
    
    
    
    
    
    
    1,250
    
    
    
    1,250
    
    
    
    712
    
    
    
    COMMON SHARESBalance, beginning of year
    
    
    
    
    
    
    7,173
    
    
    
    7,173
    
    
    
    7,238
    
    
    
    7,289Stock
options exercised (Note 18)
    
    
    
    
    
    
    73
    
    
    
    73
    
    
    
    99
    
    
    
    75Common
shares purchased for cancellation (Note 15)
    
    
    
    
    
    
    (164
    )
    
    
    (164
    )
    
    
    (164
    )
    
    
    (126
    )Balance, end of year
    
    
    
    
    
    
    7,082
    
    
    
    7,082
    
    
    
    7,173
    
    
    
    7,238CONTRIBUTED SURPLUSBalance, beginning of year
    
    
    
    
    
    
    66
    
    
    
    66
    
    
    
    70
    
    
    
    76Stock-based
compensation (Note 18)
    
    
    
    
    
    
    18
    
    
    
    18
    
    
    
    17
    
    
    
    11Stock
options exercised (Notes 15 and 18)
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )
    
    
    (21
    )
    
    
    (17
    )Balance, end of year
    
    
    
    
    
    
    72
    
    
    
    72
    
    
    
    66
    
    
    
    70RETAINED EARNINGSBalance, beginning of year
    
    
    94
    
    
    
    9,001
    
    
    
    9,095
    
    
    
    8,204
    
    
    
    7,288Net income
    
    
    7
    
    
    
    2,137
    
    
    
    2,144
    
    
    
    1,876
    
    
    
    1,693Dividends on common shares
    
    
    
    
    
    
    (663
    )
    
    
    (663
    )
    
    
    (581
    )
    
    
    (515
    )Dividends on preferred shares
    
    
    
    
    
    
    (48
    )
    
    
    (48
    )
    
    
    (24
    )
    
    
    Common
shares purchased for cancellation (Note 15)
    
    
    
    
    
    
    (411
    )
    
    
    (411
    )
    
    
    (380
    )
    
    
    (262
    )Balance, end of year
    
    
    101
    
    
    
    10,016
    
    
    
    10,117
    
    
    
    9,095
    
    
    
    8,204CURRENCY TRANSLATION ACCOUNTBalance, beginning of year
    
    
    (9
    )
    
    
    (1,491
    )
    
    
    (1,500
    )
    
    
    (1,097
    )
    
    
    (673
    )Net
adjustment for foreign exchange gain (Note 22)
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )
    
    
    (22
    )
    
    
    Changes for the year
    
    
    
    
    
    
    167
    
    
    
    167
    
    
    
    (381
    )
    
    
    (424
    )Balance, end of year
    
    
    (9
    )
    
    
    (1,328
    )
    
    
    (1,337
    )
    
    
    (1,500
    )
    
    
    (1,097
    )Total equity
    
    $
    92
    
    
    $
    17,092
    
    
    $
    17,184
    
    
    $
    15,546
    
    
    $
    14,415
 The attached notes form part of these consolidated financial statements.




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##### 



YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)2006
    
    
    2005
    
    
    2004CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIESTotal net income
    
    $
    2,144
    
    
    $
    1,876
    
    
    $
    1,693Items not affecting cash:Increase in actuarial and other policy-related liabilities
    
    
    2,538
    
    
    
    802
    
    
    
    1,205Amortization of:Net deferred realized and unrealized gains on investments
    
    
    (751
    )
    
    
    (632
    )
    
    
    (498
    )Deferred acquisition costs and intangible assets
    
    
    130
    
    
    
    160
    
    
    
    201Loss on sale
of equity investment (Note 3)
    
    
    
    
    
    
    43
    
    
    
    (Gain) loss
on foreign exchange (Note 22)
    
    
    (4
    )
    
    
    (74
    )
    
    
    Future income taxes
    
    
    (335
    )
    
    
    77
    
    
    
    232Provisions for losses (recoveries) on investments
    
    
    (10
    )
    
    
    (47
    )
    
    
    21Stock-based
compensation (Note 18)
    
    
    80
    
    
    
    68
    
    
    
    41Other changes in other assets and liabilities
    
    
    698
    
    
    
    559
    
    
    
    114New mutual fund business acquisition costs capitalized
    
    
    (66
    )
    
    
    (92
    )
    
    
    (84
    )Redemption fees of mutual funds
    
    
    45
    
    
    
    37
    
    
    
    65Net cash provided by operating activities
    
    
    4,469
    
    
    
    2,777
    
    
    
    2,990CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIESDebentures and borrowed funds
    
    
    1,028
    
    
    
    516
    
    
    
    10Issuance of
preferred shares (Note 15)
    
    
    550
    
    
    
    725
    
    
    
    Payments to
underwriters (Note 15)
    
    
    (18
    )
    
    
    (20
    )
    
    
    Redemption
of subordinated debt (Note 13)
    
    
    
    
    
    
    
    
    
    
    (267
    )Issuance of
common shares on exercise of stock options (Note 15)
    
    
    61
    
    
    
    78
    
    
    
    58Common
shares purchased for cancellation (Note 15)
    
    
    (575
    )
    
    
    (544
    )
    
    
    (388
    )Dividends paid on common shares
    
    
    (633
    )
    
    
    (450
    )
    
    
    (515
    )Dividends paid on preferred shares
    
    
    (57
    )
    
    
    (15
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    356
    
    
    
    290
    
    
    
    (1,102
    )CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIESSales, maturities and repayments of:Bonds
    
    
    29,644
    
    
    
    27,508
    
    
    
    35,972Mortgages
    
    
    2,590
    
    
    
    1,912
    
    
    
    2,529Stocks
    
    
    1,572
    
    
    
    1,891
    
    
    
    1,422Real estate
    
    
    204
    
    
    
    243
    
    
    
    233Purchases of:Bonds
    
    
    (31,104
    )
    
    
    (30,135
    )
    
    
    (36,087
    )Mortgages
    
    
    (3,938
    )
    
    
    (2,774
    )
    
    
    (3,111
    )Stocks
    
    
    (2,203
    )
    
    
    (1,736
    )
    
    
    (1,374
    )Real estate
    
    
    (523
    )
    
    
    (294
    )
    
    
    (274
    )Policy loans
    
    
    (87
    )
    
    
    (77
    )
    
    
    (33
    )Short-term securities
    
    
    1,120
    
    
    
    (58
    )
    
    
    (454
    )Other investments
    
    
    78
    
    
    
    52
    
    
    
    (48
    )Acquisition,
net of cash acquired (Note 3)
    
    
    
    
    
    
    (486
    )
    
    
    Disposal,
net of cash disposed of (Note 3)
    
    
    
    
    
    
    130
    
    
    
    Redemption
of preferred shares of subsidiary (Note 14)
    
    
    
    
    
    
    (150
    )
    
    
    Net cash used in investing activities
    
    
    (2,647
    )
    
    
    (3,974
    )
    
    
    (1,225
    )Changes due to fluctuations in exchange rates
    
    
    18
    
    
    
    (101
    )
    
    
    (90
    )Increase (decrease) in cash and cash equivalents
    
    
    2,196
    
    
    
    (1,008
    )
    
    
    573Cash and cash equivalents, beginning of year
    
    
    2,740
    
    
    
    3,748
    
    
    
    3,175Cash and cash equivalents, end of year
    
    
    4,936
    
    
    
    2,740
    
    
    
    3,748Short-term securities, end of year
    
    
    1,303
    
    
    
    2,351
    
    
    
    2,210Cash, cash equivalents and short-term securities, end of year
    
    $
    6,239
    
    
    $
    5,091
    
    
    $
    5,958Supplementary InformationCash and cash equivalents:Cash
    
    $
    642
    
    
    $
    506
    
    
    $
    384Cash equivalents
    
    
    4,294
    
    
    
    2,234
    
    
    
    3,364$
    4,936
    
    
    $
    2,740
    
    
    $
    3,748Cash disbursements made for:Interest on borrowed funds, debentures and subordinated debt
    
    $
    303
    
    
    $
    268
    
    
    $
    280Income taxes, net of refunds
    
    $
    567
    
    
    $
    304
    
    
    $
    265
 The attached notes form part of these consolidated financial statements.




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##### 



Consolidated Statements of Changes in Segregated Funds Net Assets
 YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)2006
    
    
       2005
    
    
       2004ADDITIONS TO SEGREGATED FUNDSDeposits:Annuities
    
    $
    7,444
    
    
    $
    6,788
    
    
    $
    5,928Life insurance
    
    
    1,309
    
    
    
    417
    
    
    
    1,2178,753
    
    
    
    7,205
    
    
    
    7,145Net transfers from general funds
    
    
    835
    
    
    
    704
    
    
    
    582Net realized and unrealized gains
    
    
    5,386
    
    
    
    3,971
    
    
    
    3,804Other investment income
    
    
    2,637
    
    
    
    1,826
    
    
    
    1,50017,611
    
    
    
    13,706
    
    
    
    13,031DEDUCTIONS FROM SEGREGATED FUNDSPayments to policyholders and their beneficiaries
    
    
    7,910
    
    
    
    7,219
    
    
    
    8,050Management fees
    
    
    747
    
    
    
    664
    
    
    
    622Taxes and other expenses
    
    
    137
    
    
    
    163
    
    
    
    120Effect of changes in currency exchange rates
    
    
    (988
    )
    
    
    1,772
    
    
    
    1,7617,806
    
    
    
    9,818
    
    
    
    10,553Net additions to segregated funds for the year
    
    
    9,805
    
    
    
    3,888
    
    
    
    2,478Acquisition
(Note 3)
    
    
    
    
    
    
    532
    
    
    
    Segregated funds net assets, beginning of year
    
    
    60,984
    
    
    
    56,564
    
    
    
    54,086Segregated funds net assets, end of year
    
    $
    70,789
    
    
    $
    60,984
    
    
    $
    56,564
 Consolidated Statements of Segregated Funds Net Assets
 AS AT DECEMBER 31 (in millions of Canadian dollars)2006
    
    
       2005ASSETSSegregated and mutual fund units
    
    $
    56,528
    
    
    $
    48,358Stocks
    
    
    8,317
    
    
    
    7,262Bonds
    
    
    5,823
    
    
    
    5,208Cash, cash equivalents and short-term securities
    
    
    584
    
    
    
    945Real estate
    
    
    215
    
    
    
    168Mortgages
    
    
    42
    
    
    
    49Other assets
    
    
    721
    
    
    
    1,28972,230
    
    
    
    63,279LIABILITIES
    
    
    1,441
    
    
    
    2,295Net assets attributable to segregated funds policyholders
    
    $
    70,789
    
    
    $
    60,984
 The attached notes form part of these consolidated financial statements.
 7




---



##### 



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
 
    
    the reported amounts of revenues, policy benefits and expenses during the reporting period.
    BASIS OF CONSOLIDATION
  BONDS AND MORTGAGES
   8




---



##### 



1. Accounting Policies (Contd)
   STOCKS
  REAL ESTATE
  Real estate held for investment:
  Real estate held for sale:
 DERIVATIVE FINANCIAL INSTRUMENTS
     9




---



##### 



1. Accounting Policies (Contd)
  POLICY LOANS
  CASH, CASH EQUIVALENTS AND SHORT-TERM SECURITIES
  DEFERRED ACQUISITION COSTS
  GOODWILL
  INTANGIBLE ASSETS
  CAPITAL ASSETS
  10




---



##### 



1. Accounting Policies (Contd)
 LOANS SECURITIZATION
  SEGREGATED FUNDS
   ACTUARIAL LIABILITIES
  INCOME TAXES
   11




---



##### 



1. Accounting Policies (Contd)
 PREMIUM INCOME AND RELATED EXPENSES
  FOREIGN CURRENCY TRANSLATION
 
  PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
     STOCK-BASED COMPENSATION
  12




---



##### 



1. Accounting Policies (Contd)
  2. Changes in Accounting Policies
 ADOPTED IN 2006
 Implicit variable interests:
  Stock-based compensation:
  FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 Financial instruments, hedges and comprehensive income:
 Summary of new standards
  13




---



##### 



2. Changes in Accounting Policies (Contd)
      Expected impact on 2007 consolidated financial statements
     14




---



##### 



2. Changes in Accounting Policies (Contd)
  Investments supporting actuarial liabilities
   Investments not supporting actuarial liabilities
     Determining the variability to be considered in applying the Variable Interest Entity Standards:
  15




---



##### 



3. Acquisition and Disposal
    Acquisition2005CMG Asia
    (1)Percentage of shares acquired
    
    
    100%Invested assets acquired
    
    $
    1,548Other assets acquired
    
    
    1221,670Actuarial liabilities and other policy liabilities
acquired
    
    
    1,453Amounts on deposit acquired
    
    
    159Other liabilities acquired
    
    
    40$
    1,652Net balance sheet assets acquired
    
    $
    18Consideration:Transaction and other related costs
    
    $
    9Cash cost of acquisition (2) (3)
    
    
    554Total consideration
    
    $
    563Goodwill on acquisition (3)
    
    $
    545Cash and cash equivalents acquired
    
    $
    77
 (1)  (2)  (3)
   SUBSEQUENT EVENT
 January 29, 2007,
 16




---



##### 



4. Segmented Information
     Results by segment for the years ended December 31United States
    
    
    
    
    
    
    
    
    
    
    ConsolidationSLF Canada
    
    
    SLF U.S.
    
    
    MFS
    
    
    SLF Asia
    
    
    Corporate
    
    
    Adjustments
    
    
    Total2006Revenue
    
    $
    9,333
    
    
    $
    10,465
    
    
    $
    1,662
    
    
    $
    1,022
    
    
    $
    2,164
    
    
    $
    (359
    )
    
    $
    24,287Change in actuarial liabilities
    
    $
    524
    
    
    $
    1,717
    
    
    $
    
    
    
    $
    244
    
    
    $
    40
    
    
    $
    
    
    
    $
    2,525Interest on claims and deposits
    
    $
    80
    
    
    $
    17
    
    
    $
    
    
    
    $
    45
    
    
    $
    4
    
    
    $
    
    
    
    $
    146Interest expenses
    
    $
    134
    
    
    $
    211
    
    
    $
    5
    
    
    $
    
    
    
    $
    199
    
    
    $
    (226
    )
    
    $
    323Income taxes expense (benefit)
    
    $
    262
    
    
    $
    21
    
    
    $
    150
    
    
    $
    17
    
    
    $
    (61
    )
    
    $
    
    
    
    $
    389Total net income (loss)
    
    $
    1,001
    
    
    $
    449
    
    
    $
    234
    
    
    $
    101
    
    
    $
    359
    
    
    $
    
    
    
    $
    2,1442005Revenue
    
    $
    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
    
    
    $
    
    
    
    $
    1,8762004Revenue
    
    $
    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
    
    
    $
    
    
    
    $
    1,693
 Assets by segment as at December 31United States
    
    
    
    
    
    
    ConsolidationSLF Canada
    
    
    SLF U.S.
    
    
    MFS
    
    
    SLF Asia
    
    
    Corporate
    
    
    Adjustments
    
    
    Total2006General fund assets
    
    $
    52,702
    
    
    $
    44,172
    
    
    $
    981
    
    
    $
    5,334
    
    
    $
    16,516
    
    
    $
    (1,874
    )
    
    $
    117,831Segregated funds net assets
    
    $
    33,806
    
    
    $
    27,522
    
    
    $
    
    
    
    $
    1,232
    
    
    $
    8,229
    
    
    $
    
    
    
    $
    70,7892005General 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
    
    
    $
    
    
    
    $
    60,984
 17




---



##### 



4. Segmented Information (Contd)
  2006
    
    
    2005
    
    
    2004Revenue:United States
    
    $
    618
    
    
    $
    453
    
    
    $
    652United Kingdom
    
    
    1,309
    
    
    
    1,264
    
    
    
    1,325Other countries
    
    
    237
    
    
    
    278
    
    
    
    160Total revenue
    
    $
    2,164
    
    
    $
    1,995
    
    
    $
    2,137Total net income (loss):United States
    
    $
    190
    
    
    $
    91
    
    
    $
    197United Kingdom
    
    
    193
    
    
    
    179
    
    
    
    188Other countries
    
    
    (24
    )
    
    
    (82
    )
    
    
    (150
    )Total net income (loss)
    
    $
    359
    
    
    $
    188
    
    
    $
    235Assets:General funds:United States
    
    $
    4,715
    
    
    $
    3,666United Kingdom
    
    
    10,254
    
    
    
    8,880Other countries
    
    
    1,547
    
    
    
    1,971Total general fund assets
    
    $
    16,516
    
    
    $
    14,517Segregated funds:United Kingdom
    
    $
    8,229
    
    
    $
    6,968Total segregated funds net assets
    
    $
    8,229
    
    
    $
    6,968
 5. Fair Value of Financial Instruments
    18




---



##### 



6. Invested Assets and Income
  A) FAIR VALUE OF INVESTED ASSETS
  2006
    
    
    
    2005Carrying
    
    
    Fair
    
    
    
    
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Yield %
    
    
    Value
    
    
    Value
    
    
    Yield %ASSETSBonds
    
    $
    69,230
    
    
    $
    72,524
    
    
    
    6.31
    
    
    $
    66,154
    
    
    $
    70,073
    
    
    
    6.32Mortgages
    
    
    15,993
    
    
    
    16,322
    
    
    
    6.44
    
    
    
    14,561
    
    
    
    15,177
    
    
    
    6.63Stocks
    
    
    4,899
    
    
    
    5,544
    
    
    
    11.24
    
    
    
    3,856
    
    
    
    3,986
    
    
    
    12.43Real estate
    
    
    3,825
    
    
    
    4,549
    
    
    
    12.02
    
    
    
    3,241
    
    
    
    3,678
    
    
    
    8.46Policy loans
    
    
    3,105
    
    
    
    3,105
    
    
    
    6.35
    
    
    
    2,989
    
    
    
    2,989
    
    
    
    6.31Cash, cash equivalents and short-term securities
    
    
    6,239
    
    
    
    6,239
    
    
    
    n/a
    
    
    
    5,091
    
    
    
    5,091
    
    
    
    n/aOther invested assets
    
    
    2,908
    
    
    
    4,605
    
    
    
    n/a
    
    
    
    2,700
    
    
    
    4,364
    
    
    
    n/aTotal invested assets
    
    $
    106,199
    
    
    $
    112,888
    
    
    
    6.79
    
    
    $
    98,592
    
    
    $
    105,358
    
    
    
    6.35
  B) INVESTMENT POLICIES
   19




---



##### 



6. Invested Assets and Income (Contd)
 C) INVESTED ASSETS BY TYPE
 i) BONDS
  2006
    
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueBonds by credit rating:AAA
    
    $
    13,432
    
    
    $
    13,805
    
    
    $
    14,301
    
    
    $
    14,887AA
    
    
    12,042
    
    
    
    12,888
    
    
    
    10,122
    
    
    
    11,092A
    
    
    22,175
    
    
    
    23,492
    
    
    
    21,175
    
    
    
    22,785BBB
    
    
    19,849
    
    
    
    20,522
    
    
    
    18,280
    
    
    
    19,050BB and lower
    
    
    1,732
    
    
    
    1,817
    
    
    
    2,276
    
    
    
    2,259Total bonds
    
    $
    69,230
    
    
    $
    72,524
    
    
    $
    66,154
    
    
    $
    70,073
   2006Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueIssued or guaranteed by:Canadian federal government
    
    $
    3,223
    
    
    $
    163
    
    
    $
    (3
    )
    
    $
    3,383Canadian provincial and municipal governments
    
    
    5,581
    
    
    
    958
    
    
    
    (4
    )
    
    
    6,535U.S. Treasury and other U.S. agencies
    
    
    1,275
    
    
    
    34
    
    
    
    (12
    )
    
    
    1,297Other foreign governments
    
    
    2,593
    
    
    
    418
    
    
    
    (11
    )
    
    
    3,000Corporate
    
    
    48,189
    
    
    
    2,071
    
    
    
    (395
    )
    
    
    49,865Asset-backed securities
    
    
    8,369
    
    
    
    172
    
    
    
    (97
    )
    
    
    8,444Total bonds
    
    $
    69,230
    
    
    $
    3,816
    
    
    $
    (522
    )
    
    $
    72,524
 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
 20




---



##### 



6. Invested Assets and Income (Contd)
  2006
    
    
    2005Canada
    
    $
    24,131
    
    
    $
    24,089United States
    
    
    31,025
    
    
    
    30,176United Kingdom
    
    
    6,818
    
    
    
    5,843Other
    
    
    7,256
    
    
    
    6,046Total bonds
    
    $
    69,230
    
    
    $
    66,154
  2006
    
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueDue in 1 year or less
    
    $
    3,164
    
    
    $
    3,184
    
    
    $
    2,492
    
    
    $
    2,500Due in years 2-5
    
    
    13,648
    
    
    
    13,899
    
    
    
    13,066
    
    
    
    13,262Due in years 6-10
    
    
    18,582
    
    
    
    19,016
    
    
    
    17,454
    
    
    
    17,952Due after 10 years
    
    
    25,467
    
    
    
    27,981
    
    
    
    24,300
    
    
    
    27,520Asset-backed securities
    
    
    8,369
    
    
    
    8,444
    
    
    
    8,842
    
    
    
    8,839Total bonds
    
    $
    69,230
    
    
    $
    72,524
    
    
    $
    66,154
    
    
    $
    70,073
 ii) MORTGAGES
  2006
    
    
    2005Non-residential
    
    
    Residential
    
    
    Total
    
    
    Non-residential
    
    
    Residential
    
    
    TotalCanada
    
    $
    6,347
    
    
    $
    2,794
    
    
    $
    9,141
    
    
    $
    5,932
    
    
    $
    3,407
    
    
    $
    9,339United States
    
    
    6,404
    
    
    
    306
    
    
    
    6,710
    
    
    
    4,802
    
    
    
    229
    
    
    
    5,031United Kingdom
    
    
    142
    
    
    
    
    
    
    
    142
    
    
    
    191
    
    
    
    
    
    
    
    191Total mortgages
    
    $
    12,893
    
    
    $
    3,100
    
    
    $
    15,993
    
    
    $
    10,925
    
    
    $
    3,636
    
    
    $
    14,561
  Year
    
    Amount2007
    
    $
    1,4952008
    
    
    1,1642009
    
    
    9062010
    
    
    9902011
    
    
    1,375Thereafter
    
    
    10,090Total mortgages
    
    $
    16,020
  21




---



##### 



6. Invested Assets and Income (Contd)
 iii) STOCKS
  2006
    
    
    2005Canada
    
    $
    1,762
    
    
    $
    721United States
    
    
    1,601
    
    
    
    1,438United Kingdom
    
    
    1,274
    
    
    
    1,184Other
    
    
    262
    
    
    
    513Total stocks
    
    $
    4,899
    
    
    $
    3,856
  Gross
    
    
    Gross
    
    
    EstimatedCarrying
    
    
    Original
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairValue
    
    
    Cost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueTotal 2006
    
    $
    4,899
    
    
    $
    4,093
    
    
    $
    1,472
    
    
    $
    (21
    )
    
    $
    5,544Total 2005
    
    $
    3,856
    
    
    $
    3,180
    
    
    $
    861
    
    
    $
    (55
    )
    
    $
    3,986
 iv) REAL ESTATE
  2006
    
    
    2005Canada
    
    $
    2,372
    
    
    $
    2,031United States
    
    
    1,091
    
    
    
    876United Kingdom
    
    
    361
    
    
    
    332Other
    
    
    1
    
    
    
    2Total real estate
    
    $
    3,825
    
    
    $
    3,241
  2006
    
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueReal estate held for
investment
    
    $
    3,822
    
    
    $
    4,546
    
    
    $
    3,238
    
    
    $
    3,675Real estate held for sale
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3Total real estate
    
    $
    3,825
    
    
    $
    4,549
    
    
    $
    3,241
    
    
    $
    3,678
 22




---



##### 



6. Invested Assets and Income (Contd)
 D) IMPAIRED INVESTED ASSETS
  2006
    
    
    2005Impaired
    
    
    Allowance
    
    
    Impaired
    
    
    AllowanceCarrying Value
    (1)
    
    for Losses
    
    
    Carrying Value
    (1)
    
    for LossesBonds
    
    $
    113
    
    
    $
    54
    
    
    $
    239
    
    
    $
    97Mortgages
    
    
    63
    
    
    
    27
    
    
    
    61
    
    
    
    29Other
    
    
    22
    
    
    
    15
    
    
    
    21
    
    
    
    14Total
    
    $
    198
    
    
    $
    96
    
    
    $
    321
    
    
    $
    140
 (1)
    
    Impaired carrying value shown above is shown gross, before allowance for losses.
Includes $7 in 2006 ($5 in 2005) 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.
  2006
    
    
    2005Mortgages with scheduled payments 90 days or more in arrears:Carrying value
    
    $
    
    
    
    $
    3Percentage of total mortgages before allowances
    
    
    
    
    
    
    Weighted average recorded investment in impaired mortgage loans, before allowances
    
    $
    63
    
    
    $
    73Interest received on impaired mortgage loans (recorded as received)
    
    $
    4
    
    
    $
    5Carrying value of bonds, mortgages and real estate (including specific allowances)
that were non-income producing for the preceding 12 months
    
    $
    75
    
    
    $
    100
  Bonds
    
    
    Mortgages
    
    
    Other
    
    
    TotalBalance, January 1, 2005
    
    $
    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
    
    
    $
    140Provision for losses (recoveries)
    
    
    (9
    )
    
    
    (1
    )
    
    
    
    
    
    
    (10
    )Write-offs, net of recoveries
    
    
    (29
    )
    
    
    (1
    )
    
    
    1
    
    
    
    (29
    )Effect of changes in currency exchange rates
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Balance, December 31, 2006
    
    $
    54
    
    
    $
    27
    
    
    $
    15
    
    
    $
    96
 23




---



##### 



6. Invested Assets and Income (Contd)
 E) DEFERRED NET REALIZED GAINS
  Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Derivatives
    
    
    TotalBalance, January 1, 2005
    
    $
    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
    
    
    $
    3,859Net realized gains (losses) for the period
    
    
    146
    
    
    
    49
    
    
    
    169
    
    
    
    59
    
    
    
    243
    
    
    
    666Amortization of deferred net realized gains
    
    
    (258
    )
    
    
    (35
    )
    
    
    (203
    )
    
    
    (28
    )
    
    
    (53
    )
    
    
    (577
    )Effect of changes in currency exchange rates
    
    
    114
    
    
    
    2
    
    
    
    80
    
    
    
    9
    
    
    
    (1
    )
    
    
    204Balance, December 31, 2006
    
    $
    2,293
    
    
    $
    174
    
    
    $
    1,026
    
    
    $
    255
    
    
    $
    404
    
    
    $
    4,152
 F) NET INVESTMENT INCOME
  2006
    
    
    2005
    
    
    2004Interest from:Bonds
    
    $
    3,874
    
    
    $
    3,720
    
    
    $
    3,807Mortgages
    
    
    930
    
    
    
    889
    
    
    
    899Policy loans
    
    
    203
    
    
    
    184
    
    
    
    202Cash, cash equivalents and short-term securities
    
    
    170
    
    
    
    155
    
    
    
    113Interest income
    
    
    5,177
    
    
    
    4,948
    
    
    
    5,021Dividends from stocks
    
    
    103
    
    
    
    118
    
    
    
    116Real estate income (net)(1)
    
    
    260
    
    
    
    252
    
    
    
    229Amortization of deferred net realized gains
    
    
    577
    
    
    
    555
    
    
    
    542Amortization of unrealized gains and losses
    
    
    174
    
    
    
    77
    
    
    
    (44
    )Derivative realized and unrealized gains and losses (2)
    
    
    116
    
    
    
    (22
    )
    
    
    39Other items (net)(3)
    
    
    335
    
    
    
    196
    
    
    
    1456,742
    
    
    
    6,124
    
    
    
    6,048Recoveries (provision for losses) on investments
    
    
    10
    
    
    
    47
    
    
    
    (21
    )Investment expenses and taxes
    
    
    (88
    )
    
    
    (92
    )
    
    
    (103
    )Total net investment income
    
    $
    6,664
    
    
    $
    6,079
    
    
    $
    5,924
 (1)
    
    Includes operating lease rental income of $275 ($271 and $254, respectively, in
2005 and 2004).(2)
    
    Consists of realized and unrealized gains on derivatives that are reported at fair
value. Additional derivative gains of $31 ($(66) in 2005 and $(72) in 2004) are included in other
items (net).(3)
    
    Includes equity income from CI Financial of $167 in 2006 ($119 in 2005, and $95 in
2004). 2005 also includes the loss on sale of Cuprum of $43 as described in Note 3.
 G) SECURITIES LENDING
  24




---



##### 



6. Invested Assets and Income (Contd)
 H) LOAN SECURITIZATIONS
   2006
    
    
    2005Carrying value of retained interests
    
    $
    103
    
    
    $
    117Fair value of retained interests
    
    $
    111
    
    
    $
    126Weighted average remaining life (in years)
    
    
    0.7-13.3
    
    
    
    1.0-14.3Discount rate
    
    
    2.5%-12.5%
    
    
    
    2.5-11.1%Anticipated credit losses
    
    
    0.6%
    
    
    
    0.6%
    2006
    
    
    2005
    
    
    2004Mortgages
    
    
    Mortgages
    
    
    MortgagesProceeds from new securitizations
    
    $
    
    
    
    $
    
    
    
    $
    179Cash flows received on retained interests and servicing fees
    
    $
    18
    
    
    $
    33
    
    
    $
    57
 7. Derivative Financial Instruments
   25




---



##### 



7. Derivative Financial Instruments (Contd)
  2006Notional AmountsFair Value
    
    
    Term to Maturity
    
    
    TotalUnder
    
    
    1 to
    
    
    Over
    
    
    NotionalPositive
    (1)
    
    Net
    
    
    1 Year
    
    
    5 Years
    
    
    5 Years
    
    
    AmountInterest rate contracts
    
    $
    189
    
    
    $
    (51
    )
    
    $
    2,633
    
    
    $
    7,551
    
    
    $
    13,605
    
    
    $
    23,789Foreign exchange contracts
    
    
    704
    
    
    
    599
    
    
    
    2,862
    
    
    
    1,779
    
    
    
    4,667
    
    
    
    9,308Equity and other contracts (2)
    
    
    585
    
    
    
    574
    
    
    
    4,997
    
    
    
    5,739
    
    
    
    307
    
    
    
    11,043Total
    
    $
    1,478
    
    
    $
    1,122
    
    
    $
    10,492
    
    
    $
    15,069
    
    
    $
    18,579
    
    
    $
    44,140Over-the-counter contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,864Exchange-traded contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,2762005Notional 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
 (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 2006 include equity forwards with a fair value of $15
($13 in 2005), hedging the variation in the cash flows associated with the anticipated payments
under certain stock-based compensation plans expected to occur in 2007 to 2009. The fair value that
has not been recognized of $9 ($7 in 2005) will be recognized in net income as the liability is
accrued for the stock-based compensation plan over a three-year vesting period.
  8. Goodwill and Intangible Assets
 A) GOODWILL
  26




---



##### 



8. Goodwill and Intangible Assets (Contd)
  UnitedCanada
    
    
    States
    
    
    Asia
    
    
    Corporate
    
    
    TotalBalance, January 1, 2005
    
    $
    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
    
    
    $
    6,273Adjustment to purchase equation of CMG Asia (Note 3)
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    19Acquisitions (Note 3)
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    46Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Effect of changes in currency exchange rates
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    
    
    
    
    (4
    )Balance, December 31, 2006
    
    $
    3,768
    
    
    $
    1,453
    
    
    $
    535
    
    
    $
    571
    
    
    $
    6,327
 B) INTANGIBLE ASSETS
  2006
    
    
    
    
    
    
    
    
    
    
    2005Gross Carrying
    
    
    Accumulated
    
    
    Net
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    NetAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountFinite-life intangible assets:Sales potential of field force
    
    $
    423
    
    
    $
    48
    
    
    $
    375
    
    
    $
    423
    
    
    $
    35
    
    
    $
    388Asset administration contracts
    
    
    224
    
    
    
    38
    
    
    
    186
    
    
    
    225
    
    
    
    32
    
    
    
    193Distribution channels
    
    
    32
    
    
    
    16
    
    
    
    16
    
    
    
    32
    
    
    
    13
    
    
    
    19Brand name (1)
    
    
    54
    
    
    
    2
    
    
    
    52
    
    
    
    54
    
    
    
    
    
    
    
    54Other
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    1735
    
    
    
    106
    
    
    
    629
    
    
    
    736
    
    
    
    81
    
    
    
    655Indefinite-life intangible assets:Fund management contracts(2)
    
    
    895
    
    
    
    
    
    
    
    895
    
    
    
    878
    
    
    
    
    
    
    
    878State licenses
    
    
    12
    
    
    
    
    
    
    
    12
    
    
    
    12
    
    
    
    
    
    
    
    12907
    
    
    
    
    
    
    
    907
    
    
    
    890
    
    
    
    
    
    
    
    890Total intangible assets
    
    $
    1,642
    
    
    $
    106
    
    
    $
    1,536
    
    
    $
    1,626
    
    
    $
    81
    
    
    $
    1,545
 (1)
    
    Usage of the brand name changed on December 31, 2005. Amortization of the
brand name commenced on January 1, 2006.(2)
    
    The increase is primarily due to
the increase in the Companys ownership interest in CI investments. (Note 3)
 27




---



##### 



9. Other Assets
  2006
    
    
    2005Accounts receivable
    
    $
    1,401
    
    
    $
    2,168Investment income due and accrued
    
    
    1,190
    
    
    
    1,161Future income taxes (Note 19)
    
    
    747
    
    
    
    667Deferred acquisition costs
    
    
    185
    
    
    
    271Prepaid expenses
    
    
    207
    
    
    
    178Outstanding premiums
    
    
    323
    
    
    
    316Accrued benefit asset (Note 21)
    
    
    454
    
    
    
    456Capital assets
    
    
    179
    
    
    
    158Other
    
    
    188
    
    
    
    135Total other assets
    
    $
    4,874
    
    
    $
    5,510
   10. Actuarial Liabilities and Other Policy Liabilities
 A) ACTUARIAL POLICIES
     
    
    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
    
    in total, the cumulative effect of all provisions is reasonable with respect to the total actuarial liabilities.
   28




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
 Provision for Policyholder Dividends
  B) COMPOSITION OF ACTUARIAL LIABILITIES AND OTHER POLICY LIABILITIES
  2006UnitedCanada
    
    
    States
    
    
    Asia
    
    
    Corporate
    (1)
    
    TotalIndividual participating life
    
    $
    12,213
    
    
    $
    5,362
    
    
    $
    2,508
    
    
    $
    3,296
    
    
    $
    23,379Individual non-participating life
    
    
    2,013
    
    
    
    7,723
    
    
    
    333
    
    
    
    487
    
    
    
    10,556Group life
    
    
    1,216
    
    
    
    127
    
    
    
    8
    
    
    
    3
    
    
    
    1,354Individual annuities
    
    
    8,977
    
    
    
    14,486
    
    
    
    
    
    
    
    3,883
    
    
    
    27,346Group annuities
    
    
    5,538
    
    
    
    5,277
    
    
    
    353
    
    
    
    
    
    
    
    11,168Health insurance
    
    
    4,850
    
    
    
    527
    
    
    
    (1
    )
    
    
    107
    
    
    
    5,483Total actuarial liabilities
    
    
    34,807
    
    
    
    33,502
    
    
    
    3,201
    
    
    
    7,776
    
    
    
    79,286Add: Other policy liabilities(2)
    
    
    464
    
    
    
    541
    
    
    
    62
    
    
    
    683
    
    
    
    1,750Actuarial liabilities and other policy liabilities
    
    $
    35,271
    
    
    $
    34,043
    
    
    $
    3,263
    
    
    $
    8,459
    
    
    $
    81,036
 2005UnitedCanada
    
    
    States
    
    
    Asia
    
    
    Corporate
    (1)
    
    TotalIndividual participating life
    
    $
    11,591
    
    
    $
    5,167
    
    
    $
    2,348
    
    
    $
    3,094
    
    
    $
    22,200Individual non-participating life
    
    
    1,858
    
    
    
    6,649
    
    
    
    185
    
    
    
    496
    
    
    
    9,188Group life
    
    
    1,184
    
    
    
    130
    
    
    
    7
    
    
    
    (3
    )
    
    
    1,318Individual annuities
    
    
    9,317
    
    
    
    16,002
    
    
    
    
    
    
    
    3,192
    
    
    
    28,511Group annuities
    
    
    5,752
    
    
    
    3,313
    
    
    
    361
    
    
    
    
    
    
    
    9,426Health 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
 (1)
    
    Primarily business from the U.K., 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.
 29




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
 C)
TOTAL ASSETS SUPPORTING LIABILITIES AND EQUITY
  2006Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Other
    
    
    TotalIndividual participating life
    
    $
    14,591
    
    
    $
    4,034
    
    
    $
    3,542
    
    
    $
    2,632
    
    
    $
    4,382
    
    
    $
    29,181Individual non-participating life
    
    
    9,542
    
    
    
    2,233
    
    
    
    500
    
    
    
    117
    
    
    
    2,505
    
    
    
    14,897Group life
    
    
    1,394
    
    
    
    675
    
    
    
    5
    
    
    
    22
    
    
    
    99
    
    
    
    2,195Individual annuities
    
    
    23,574
    
    
    
    4,897
    
    
    
    60
    
    
    
    30
    
    
    
    2,124
    
    
    
    30,685Group annuities
    
    
    9,607
    
    
    
    2,151
    
    
    
    45
    
    
    
    147
    
    
    
    892
    
    
    
    12,842Health insurance
    
    
    4,704
    
    
    
    1,723
    
    
    
    14
    
    
    
    48
    
    
    
    579
    
    
    
    7,068Equity and other
    
    
    5,818
    
    
    
    280
    
    
    
    733
    
    
    
    829
    
    
    
    13,303
    
    
    
    20,963Total assets
    
    $
    69,230
    
    
    $
    15,993
    
    
    $
    4,899
    
    
    $
    3,825
    
    
    $
    23,884
    
    
    $
    117,831
 2005Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Other
    
    
    TotalIndividual participating life
    
    $
    13,714
    
    
    $
    3,573
    
    
    $
    2,886
    
    
    $
    2,211
    
    
    $
    5,454
    
    
    $
    27,838Individual non-participating life
    
    
    7,561
    
    
    
    1,557
    
    
    
    355
    
    
    
    49
    
    
    
    2,110
    
    
    
    11,632Group life
    
    
    1,540
    
    
    
    656
    
    
    
    4
    
    
    
    18
    
    
    
    7
    
    
    
    2,225Individual annuities
    
    
    25,664
    
    
    
    4,736
    
    
    
    52
    
    
    
    28
    
    
    
    1,432
    
    
    
    31,912Group annuities
    
    
    7,524
    
    
    
    2,281
    
    
    
    43
    
    
    
    123
    
    
    
    941
    
    
    
    10,912Health insurance
    
    
    4,650
    
    
    
    1,514
    
    
    
    10
    
    
    
    41
    
    
    
    486
    
    
    
    6,701Equity and other
    
    
    5,501
    
    
    
    244
    
    
    
    506
    
    
    
    771
    
    
    
    12,624
    
    
    
    19,646Total assets
    
    $
    66,154
    
    
    $
    14,561
    
    
    $
    3,856
    
    
    $
    3,241
    
    
    $
    23,054
    
    
    $
    110,866
 D) CHANGES IN ACTUARIAL LIABILITIES
  2006
    
    
    2005Actuarial liabilities, January 1
    
    $
    75,777
    
    
    $
    74,258Change in liabilities on in-force business
    
    
    (2,942
    )
    
    
    (3,495
    )Liabilities arising from new policies
    
    
    5,415
    
    
    
    4,268Significant changes in assumptions or methodology(1):Gross increases
    
    
    149
    
    
    
    268Gross decreases
    
    
    (97
    )
    
    
    (169
    )Increase in actuarial liabilities
    
    
    2,525
    
    
    
    872Actuarial liabilities before the following:
    
    
    78,302
    
    
    
    75,130Acquisition (Note 3)
    
    
    
    
    
    
    1,440Change due to termination of reinsurance agreement(2)
    
    
    
    
    
    
    1,223Effect of changes in currency exchange rates
    
    
    984
    
    
    
    (2,016
    )Actuarial liabilities, December 31
    
    
    79,286
    
    
    
    75,777Add: Other policy liabilities
    
    
    1,750
    
    
    
    1,712Actuarial liabilities and other policy liabilities, December 31
    
    $
    81,036
    
    
    $
    77,489
 (1)
    
    The increase in reserves in 2006 results from strengthening of longevity
assumptions in Canada and the U. K. The increases in reserves in 2005 were from (a) lapse and
morbidity assumption changes in the Reinsurance business unit and (b) strengthening the margin for
future credit yield compression in U.S. individual. The decreases in 2006 arise from changes in
assumptions as a result of changes in pension legislation in the U.K. The decreases in 2005 were
mainly from mortality assumption changes in the Reinsurance business unit.(2)
    
    Reserve increase due to the termination of a reinsurance treaty within the Canadian
group benefits business, and the resulting recapture of the business. An associated decrease in
other liabilities was also recorded to reflect this recapture.
 30




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
 E) FAIR VALUE OF ACTUARIAL LIABILITIES, FUTURE INCOME TAXES AND DEFERRED NET REALIZED GAINS
  F) ASSUMPTIONS AND MEASUREMENT UNCERTAINTY
 Mortality
   Morbidity
  Asset default
  Segregated fund guarantees
  31




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
   Interest rate
      Policy termination rates
   Operating expenses and inflation
  32




---



##### 



10. Actuarial Liabilities and Other Policy Liabilities (Contd)
 G) REINSURANCE AGREEMENTS
  2006
    
    
    2005
    
    
    2004Premiums:Direct premiums
    
    $
    14,947
    
    
    $
    13,305
    
    
    $
    13,346Reinsurance assumed
    
    
    574
    
    
    
    530
    
    
    
    527Reinsurance ceded
    
    
    (912
    )
    
    
    (895
    )
    
    
    (970
    )$
    14,609
    
    
    $
    12,940
    
    
    $
    12,903Payments to policyholders, beneficiaries and depositors:Direct payments
    
    $
    12,987
    
    
    $
    12,961
    
    
    $
    12,773Reinsurance assumed
    
    
    419
    
    
    
    453
    
    
    
    413Reinsurance ceded
    
    
    (511
    )
    
    
    (612
    )
    
    
    (654
    )$
    12,895
    
    
    $
    12,802
    
    
    $
    12,532
  H) ROLE OF THE APPOINTED ACTUARY
    33




---



##### 



11. Senior Debentures
  Currency of Borrowing
    
    
    Interest Rate
    
    
    Maturity
    
    
    2006
    
    
    2005Partnership capital securities
    
    U.S. dollars
    
    
    8.53
    %
    
    
    
    
    
    $
    698
    
    
    $
    699Sun Life Assurance debenturesSeries A debenture
    
    Cdn. dollars
    
    
    6.87
    %
    
    
    2031
    
    
    
    990
    
    
    
    990Series B debenture
    
    Cdn. dollars
    
    
    7.09
    %
    
    
    2052
    
    
    
    200
    
    
    
    200Funding debenture (1)
    
    Cdn. dollars
    
    
    7.09
    %
    
    
    2052
    
    
    
    3
    
    
    
    3Sun Life
Financial Inc. senior unsecured debenturesSeries A (2)
    
    Cdn. dollars
    
    
    4.80
    %
    
    
    2035
    
    
    
    600
    
    
    
    600Series B (3)
    
    Cdn. dollars
    
    
    4.95
    %
    
    
    2036
    
    
    
    700
    
    
    
    Series C (4)
    
    Cdn. dollars
    
    
    5.00
    %
    
    
    2031
    
    
    
    300
    
    
    
    $
    3,491
    
    
    $
    2,492Fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,704
    
    
    $
    2,723
 (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 are a direct senior unsecured obligation of the Company
and will rank equally with all other unsecured and unsubordinated indebtedness of Sun Life
Financial Inc.(3)
    
    On March 13, 2006, Sun Life Financial Inc. issued $700 principal amount of Series B
Senior Unsecured 4.95% Fixed/Floating Debentures due 2036. These debentures bear interest
at a fixed rate of 4.95% per annum payable semi-annually until June 1, 2016, and at a
variable rate equal to the Canadian dollar offered rate for three months bankers
acceptances plus 1% thereafter until maturity on June 1, 2036. Sun Life Financial Inc. may
redeem the debentures on or after June 1, 2016, at 100% of the principal amount. The
debentures are direct senior unsecured obligations of the Company and rank equally with all
other unsecured and unsubordinated indebtedness of Sun Life Financial Inc.(4)
    
    On July 11, 2006, Sun Life Financial Inc. issued $300 principal amount of Series C
Senior Unsecured 5% Fixed/Floating Debentures due 2031. These debentures bear interest at a
fixed rate of 5% per annum payable semi-annually until July 11, 2011, and at a variable
rate equal to the Canadian dollar offered rate for three month bankers acceptances plus 1%
thereafter until maturity on July 11, 2031. Sun Life Financial Inc. may redeem the
debentures on or after July 11, 2011 at 100% of the principal amount. The debentures are
direct senior unsecured obligations of the Company and rank equally with all other
unsecured and unsubordinated indebtedness of Sun Life Financial Inc.
  12. Other Liabilities
 A) COMPOSITION OF OTHER LIABILITIES
  2006
    
    
    2005Accounts payable
    
    $
    1,811
    
    
    $
    2,137Bank overdrafts
    
    
    281
    
    
    
    217Bond repurchase agreements
    
    
    2,151
    
    
    
    1,614Accrued expenses and taxes
    
    
    1,211
    
    
    
    1,075Borrowed funds
    
    
    214
    
    
    
    127Future income taxes (Note 19)
    
    
    226
    
    
    
    502Accrued benefit liability (Note 21)
    
    
    505
    
    
    
    470Provisions for future policyholder costs
    
    
    48
    
    
    
    54Other
    
    
    387
    
    
    
    396Total other liabilities
    
    $
    6,834
    
    
    $
    6,592
 B) BOND REPURCHASE AGREEMENTS
  34




---



##### 



12. Other Liabilities (Contd)
 C) BORROWED FUNDS
  Currency of Borrowing
    
    
    Maturity
    
    
    2006
    
    
    2005Encumbrances on real estate
    
    Cdn. dollars
    
    
    2007-2016
    
    
    $
    112
    
    
    $
    59U.S. dollars
    
    
    2007-2014
    
    
    
    102
    
    
    
    68Total borrowed funds
    
    
    
    
    
    
    
    
    
    $
    214
    
    
    $
    127
  Year
    
    Amount2007
    
    $
    182008
    
    
    332009
    
    
    152010
    
    
    52011
    
    
    47Thereafter
    
    
    96Total
    
    $
    214
   13. Subordinated Debt
  InterestCurrency
    
    
    Rate
    
    
    Maturity
    
    
    2006
    
    
    2005Subordinated debentures (1)
    
    Cdn. dollars
    
    
    6.65
    %
    
    
    2015
    
    
    $
    300
    
    
    $
    300Subordinated debentures (2)
    
    Cdn. dollars
    
    
    6.15
    %
    
    
    2022
    
    
    
    799
    
    
    
    799Subordinated debentures (3)
    
    Cdn. dollars
    
    
    6.30
    %
    
    
    2028
    
    
    
    150
    
    
    
    150Subordinated notes
    
    U.S. dollars
    
    
    6.63
    %
    
    
    2007
    
    
    
    32
    
    
    
    32Subordinated notes
    
    U.S. dollars
    
    
    7.25
    %
    
    
    2015
    
    
    
    175
    
    
    
    175Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,456
    
    
    $
    1,456Fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,591
    
    
    $
    1,617
 (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.
    35




---



##### 



14. Non-controlling Interests in Subsidiaries
   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 before issuing the shares, to fix 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 four series of Class A
non-voting preferred shares.
  2006
    
    
    2005
    
    
    2004Number
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    Numberof Shares
    
    
    Amount
    
    
    of Shares
    
    
    Amount
    
    
    of Shares
    
    
    AmountPreferred shares(in millions of shares)Balance, January 1
    
    
    29
    
    
    $
    712
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Preferred shares issued, Class A, Series 1
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    400
    
    
    
    
    
    
    
    Preferred shares issued, Class A, Series 2
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    325
    
    
    
    
    
    
    
    Preferred shares issued, Class A, Series 3
    
    
    10
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred shares issued, Class A, Series 4
    
    
    12
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance costs, net of taxes
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    Balance, December 31
    
    
    51
    
    
    $
    1,250
    
    
    
    29
    
    
    $
    712
    
    
    
    
    
    
    $
    Common shares(in millions of shares)Balance, January 1
    
    
    582
    
    
    $
    7,173
    
    
    
    592
    
    
    $
    7,238
    
    
    
    600
    
    
    $
    7,289Stock options exercised (Note 18)
    
    
    2
    
    
    
    73
    
    
    
    3
    
    
    
    99
    
    
    
    2
    
    
    
    75Common shares purchased for cancellation
    
    
    (12
    )
    
    
    (164
    )
    
    
    (13
    )
    
    
    (164
    )
    
    
    (10
    )
    
    
    (126
    )Balance, December 31
    
    
    572
    
    
    $
    7,082
    
    
    
    582
    
    
    $
    7,173
    
    
    
    592
    
    
    $
    7,238
  36




---



##### 



15. Share Capital and Normal Course Issuer Bid (Contd)
  SUBSEQUENT
EVENT
  B) NORMAL COURSE ISSUER BID
  Announcement Date
    
    Period Covered
    
    Maximum Shares Authorized for PurchaseFebruary 12, 2003
    
    February 12, 2003 to January 5, 2004
    
    31 millionJanuary 8, 2004
    
    January 12, 2004 to January 11, 2005
    
    30 millionJanuary 6, 2005
    
    January 12, 2005 to January 11, 2006
    
    30 millionJanuary 10, 2006
    
    January 12, 2006 to January 11, 2007
    
    29 millionSubsequent event:January 10, 2007
    
    January 12, 2007 to January 11, 2008
    
    29 million
  2006
    
    
    2005
    
    
    2004Number of shares repurchased (in millions)
    
    
    12
    
    
    
    13
    
    
    
    10Amount (1)
    
    $
    575
    
    
    $
    544
    
    
    $
    388Average price per share
    
    $
    46.31
    
    
    $
    41.10
    
    
    $
    37.93
 (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.
 16. Operating Expenses
  2006
    
    
    2005
    
    
    2004Compensation costs
    
    $
    1,851
    
    
    $
    1,769
    
    
    $
    1,636Premises and equipment costs
    
    
    259
    
    
    
    287
    
    
    
    293Restructuring and other related charges
    
    
    1
    
    
    
    10
    
    
    
    27Capital asset depreciation and amortization (Note 9)
    
    
    67
    
    
    
    63
    
    
    
    62Other (1)
    
    
    850
    
    
    
    792
    
    
    
    813Total operating expenses
    
    $
    3,028
    
    
    $
    2,921
    
    
    $
    2,831
 (1)
    
    Other for 2004 includes a pre-tax provision for MFS regulatory issues and other actions of $66.
 37




---



##### 



17. Earnings Per Share
  2006
    
    
    2005
    
    
    2004Common shareholders net income
    
    $
    2,089
    
    
    $
    1,843
    
    
    $
    1,680Less: Effect of stock options of subsidiaries (1)
    
    
    11
    
    
    
    5
    
    
    
    2Common shareholders net income on a diluted basis
    
    $
    2,078
    
    
    $
    1,838
    
    
    $
    1,678Weighted average number of shares outstanding for basic earnings per share (in millions)
    
    
    577
    
    
    
    587
    
    
    
    599Add: Adjustments relating to the dilutive impact of stock options (2), (3)
    
    
    3
    
    
    
    3
    
    
    
    3Weighted average number of shares outstanding on a diluted basis (in millions)
    
    
    580
    
    
    
    590
    
    
    
    602
 (1)
    
    A subsidiary of Sun Life Financial Inc. grants stock options exercisable for shares of the
subsidiary and restricted stock awards of the subsidiary. If these outstanding stock options were
exercised and the restricted stock awards were fully vested, the Company would record an increase
in non-controlling interests, and therefore, a reduction in common shareholders net income.(2)
    
    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. Only stock options exercisable for shares of Sun Life Financial Inc. are included in the
adjustment relating to the dilutive impact of stock options.(3)
    
    Options exercisable for approximately 1 million common shares of Sun Life Financial
Inc. with an average exercise price of $49.39 per share that were outstanding as at December 31,
2006, were excluded from the calculation of diluted earnings per share for 2006 because their
exercise prices were greater than the average market price of common shares of Sun Life Financial
Inc.
 18. Stock-Based Compensation
 A) STOCK OPTION PLANS
   2006
    
    
    2005
    
    
    2004Number 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
    
    
    10,049
    
    
    
    $  28.95
    
    
    
    12,457
    
    
    
    $  26.90
    
    
    
    15,239
    
    
    
    $  27.17Granted
    
    
    1,460
    
    
    
    49.29
    
    
    
    1,339
    
    
    
    40.80
    
    
    
    173
    
    
    
    36.67Exercised
    
    
    (2,228
    )
    
    
    26.57
    
    
    
    (2,999
    )
    
    
    26.11
    
    
    
    (2,267
    )
    
    
    25.69Forfeited
    
    
    (143
    )
    
    
    37.47
    
    
    
    (748
    )
    
    
    25.61
    
    
    
    (688
    )
    
    
    26.97Balance, December 31
    
    
    9,138
    
    
    
    $  32.58
    
    
    
    10,049
    
    
    
    $  28.95
    
    
    
    12,457
    
    
    
    $  26.90Exercisable, December 31
    
    
    5,909
    
    
    
    $  28.39
    
    
    
    5,750
    
    
    
    $  27.59
    
    
    
    6,318
    
    
    
    $  27.36
  38




---



##### 



18. Stock-Based Compensation (Contd)
  2006
    
    
    2005
    
    
    2004Compensation expense recorded
    
    $
    13
    
    
    $
    9
    
    
    $
    11Income tax benefit on expense recorded
    
    $
    1
    
    
    $
    1
    
    
    $
    2Income tax benefit realized on exercised options
    
    $
    6
    
    
    $
    4
    
    
    $
    3
 
  Options Outstanding
    
    
    Options ExercisableWeighted Average
    
    
    
    
    
    
    
    
    
    
    Weighted AverageNumber of
    
    
    Remaining
    
    
    Weighted
    
    
    Number of
    
    
    Remaining
    
    
    WeightedRange of
    
    Stock Options
    
    
    Contractual
    
    
    Average
    
    
    Stock Options
    
    
    Contractual
    
    
    Averageexercise prices
    
    (Thousands)
    
    
    Life (Years)
    
    
    Exercise Price
    
    
    (Thousands)
    
    
    Life (Years)
    
    
    Exercise Price$19.05 to $24.28
    
    
    2,213
    
    
    
    5.27
    
    
    
    $  22.20
    
    
    
    1,831
    
    
    
    5.09
    
    
    
    $  22.43$25.28 to $30.91
    
    
    2,751
    
    
    
    5.05
    
    
    
    28.45
    
    
    
    2,310
    
    
    
    4.86
    
    
    
    28.57$31.00 to $33.20
    
    
    1,433
    
    
    
    5.16
    
    
    
    32.82
    
    
    
    1,396
    
    
    
    5.10
    
    
    
    32.83$36.50 to $44.73
    
    
    1,345
    
    
    
    7.98
    
    
    
    40.46
    
    
    
    370
    
    
    
    7.62
    
    
    
    39.87$46.80 to $49.90
    
    
    1,396
    
    
    
    9.15
    
    
    
    49.38
    
    
    
    2
    
    
    
    9.15
    
    
    
    49.409,138
    
    
    
    6.19
    
    
    
    $  32.58
    
    
    
    5,909
    
    
    
    5.17
    
    
    
    $  28.39
  Weighted average assumptions
    
    2006

    
    2005

    
    2004Risk-free interest rate
    
    
    4.1
    %
    
    
    4.3
    %
    
    
    4.5
    %Expected volatility
    
    
    16.0
    %
    
    
    20.0
    %
    
    
    24.8
    %Expected dividend yield
    
    
    2.2
    %
    
    
    2.4
    %
    
    
    2.3
    %Expected life of the option (in years)
    
    
    5.6
    
    
    
    5.6
    
    
    
    7.0
 B) EMPLOYEE SHARE OWNERSHIP PLAN
  39




---



##### 



18. Stock-Based Compensation (Contd)
 C) OTHER STOCK-BASED COMPENSATION PLANS
   Senior Executives Deferred Share Unit (DSU) Plan:
 Restricted Share Unit (RSU) Plan:
 Performance Share Unit (PSU) Plan:
 Additional information for other stock-based compensation plans
 DSUs
    
    
    RSUs
    
    
    PSUs
    
    
    TotalNumber of units (in thousands)Units outstanding December 31, 2004
    
    
    542
    
    
    
    1,644
    
    
    
    273
    
    
    
    2,459Units outstanding December 31, 2005
    
    
    587
    
    
    
    2,080
    
    
    
    461
    
    
    
    3,128Units outstanding December 31, 2006
    
    
    588
    
    
    
    2,138
    
    
    
    611
    
    
    
    3,337Liability accrued at December 31, 2006
    
    $
    29
    
    
    $
    73
    
    
    $
    21
    
    
    $
    123
  2006
    
    
    2005
    
    
    2004Compensation expense recorded
    
    $
    50
    
    
    $
    46
    
    
    $
    30Income tax benefit on expense recorded
    
    $
    17
    
    
    $
    16
    
    
    $
    11
 40




---



##### 



18. Stock-Based Compensation (Contd)
  D) STOCK-BASED COMPENSATION PLANS OF A SUBSIDIARY
   2006
    
    
    2005
    
    
    2004Awards outstanding (in thousands)
    
    
    172
    
    
    
    192
    
    
    
    140Expense recorded
    
    $
    17
    
    
    $
    13
    
    
    $
    Income tax benefit recorded
    
    $
    6
    
    
    $
    5
    
    
    $
    
 19. Income Taxes
  2006
    
    
    2005
    
    
    2004Canadian income tax expense (benefit):Current
    
    $
    418
    
    
    $
    127
    
    
    $
    98Future
    
    
    (271
    )
    
    
    151
    
    
    
    95Total
    
    
    147
    
    
    
    278
    
    
    
    193Foreign income tax expense (benefit):Current
    
    
    306
    
    
    
    327
    
    
    
    (67
    )Future
    
    
    (64
    )
    
    
    (74
    )
    
    
    137Total
    
    
    242
    
    
    
    253
    
    
    
    70Total income taxes expense
    
    $
    389
    
    
    $
    531
    
    
    $
    263
  41




---



##### 



19. Income Taxes (Contd)
  2006
    
    
    2005
    
    
    2004%
    
    
    
    
    
    
    %
    
    
    
    
    
    
    %Total net income
    
    $
    2,144
    
    
    
    
    
    
    $
    1,876
    
    
    
    
    
    
    $
    1,693Add: Income taxes expense
    
    
    389
    
    
    
    
    
    
    
    531
    
    
    
    
    
    
    
    263Non-controlling interests in net income of subsidiaries
    
    
    27
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    28Total net income before income taxes
and non-controlling interests in net income of subsidiaries
    
    $
    2,560
    
    
    
    
    
    
    $
    2,430
    
    
    
    
    
    
    $
    1,984Taxes at the combined Canadian federal
and provincial statutory income tax rate
    
    $
    896
    
    
    
    35.0
    
    
    $
    850
    
    
    
    35.0
    
    
    $
    655
    
    
    
    33.0Increase (decrease) in rate resulting from:Higher (lower) effective rates on income
subject to taxation in foreign jurisdictions
    
    
    (239
    )
    
    
    (9.3
    )
    
    
    (148
    )
    
    
    (6.1
    )
    
    
    (230
    )
    
    
    (11.6
    )Tax (benefit) cost of unrecognized losses
    
    
    (41
    )
    
    
    (1.6
    )
    
    
    (35
    )
    
    
    (1.5
    )
    
    
    (19
    )
    
    
    (1.0
    )Tax exempt investment income
    
    
    (179
    )
    
    
    (7.0
    )
    
    
    (116
    )
    
    
    (4.8
    )
    
    
    (133
    )
    
    
    (6.7
    )Changes to statutory income tax rates
    
    
    (41
    )
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (7
    )
    
    
    (0.3
    )
    
    
    (20
    )
    
    
    (0.7
    )
    
    
    (10
    )
    
    
    (0.5
    )Companys effective worldwide income taxes
    
    $
    389
    
    
    
    15.2
    
    
    $
    531
    
    
    
    21.9
    
    
    $
    263
    
    
    
    13.2
    2006
    
    
    2005Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesInvestments
    
    $
    61
    
    
    $
    272
    
    
    $
    198
    
    
    $
    395Actuarial liabilities
    
    
    123
    
    
    
    (7
    )
    
    
    18
    
    
    
    (14
    )Deferred acquisition costs
    
    
    325
    
    
    
    
    
    
    
    301
    
    
    
    9Losses available for carry forward
    
    
    216
    
    
    
    (15
    )
    
    
    177
    
    
    
    (2
    )Other
    
    
    99
    
    
    
    (24
    )
    
    
    74
    
    
    
    114824
    
    
    
    226
    
    
    
    768
    
    
    
    502Valuation allowance
    
    
    (77
    )
    
    
    
    
    
    
    (101
    )
    
    
    Total
    
    $
    747
    
    
    $
    226
    
    
    $
    667
    
    
    $
    502
 42




---



##### 



19. Income Taxes (Contd)
  2006
    
    
    2005
    
    
    2004Investments
    
    $
    14
    
    
    $
    (107
    )
    
    $
    (193
    )Actuarial liabilities
    
    
    (101
    )
    
    
    68
    
    
    
    126Deferred acquisition costs
    
    
    (45
    )
    
    
    2
    
    
    
    97Losses (incurred) utilized
    
    
    (75
    )
    
    
    10
    
    
    
    220Other
    
    
    (128
    )
    
    
    104
    
    
    
    (18
    )Future income tax expense (benefit)
    
    $
    (335
    )
    
    $
    77
    
    
    $
    232
 20. Commitments, Guarantees and Contingencies
 A) LEASE COMMITMENTS
  2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterFuture rental payments
    
    $
    98
    
    
    $
    70
    
    
    $
    59
    
    
    $
    50
    
    
    $
    40
    
    
    $
    141
 B) CONTRACTUAL COMMITMENTS
  Expires in
    
    
    Expires in
    
    
    Expires in30 Days
    
    
    31 to 365 Days
    
    
    2008 or Later
    
    
    TotalContractual commitments
    
    $
    161
    
    
    $
    894
    
    
    $
    311
    
    
    $
    1,366
  C) LETTERS OF CREDIT
  43




---



##### 



20. Commitments, Guarantees and Contingencies (Contd)
 D) INDEMNITIES
   E) LEGAL AND REGULATORY PROCEEDINGS
 Employee Retirement Income Security
Act of 1974 (ERISA)
  F) PROVISIONS IN THE UNITED KINGDOM
  December 31,
2006
 44




---



##### 



21. Pension Plans and Other Post-Retirement Benefits
  Pension
    
    
    Post-Retirement2006
    
    
    2005
    
    
    2006
    
    
    2005Change in projected benefit obligation:Projected benefit obligation, January 1
    
    $
    2,490
    
    
    $
    2,190
    
    
    $
    338
    
    
    $
    293Service cost
    
    
    56
    
    
    
    56
    
    
    
    9
    
    
    
    7Interest cost
    
    
    124
    
    
    
    123
    
    
    
    17
    
    
    
    17Actuarial losses (gains)
    
    
    (25
    )
    
    
    341
    
    
    
    (27
    )
    
    
    39Benefits paid
    
    
    (100
    )
    
    
    (87
    )
    
    
    (9
    )
    
    
    (12
    )Curtailments, settlements and plan amendments
    
    
    7
    
    
    
    (34
    )
    
    
    
    
    
    
    (4
    )Effect of changes in currency exchange rates
    
    
    91
    
    
    
    (99
    )
    
    
    
    
    
    
    (2
    )Projected benefit obligation, December 31(1), (2)
    
    $
    2,643
    
    
    $
    2,490
    
    
    $
    328
    
    
    $
    338Accumulated benefit obligation, December 31(3)
    
    $
    2,387
    
    
    $
    2,343Change in plan assets:Fair value of plan assets, January 1
    
    $
    2,264
    
    
    $
    2,177
    
    
    $
    
    
    
    $
    Net actual return on plan assets
    
    
    242
    
    
    
    231
    
    
    
    
    
    
    
    Employer contributions
    
    
    17
    
    
    
    35
    
    
    
    11
    
    
    
    12Benefits paid
    
    
    (100
    )
    
    
    (87
    )
    
    
    (11
    )
    
    
    (12
    )Effect of changes in currency exchange rates
    
    
    79
    
    
    
    (92
    )
    
    
    
    
    
    
    Fair value of plan assets, December 31(1)
    
    $
    2,502
    
    
    $
    2,264
    
    
    $
    
    
    
    $
    Net funded status, December 31
    
    $
    (141
    )
    
    $
    (226
    )
    
    $
    (328
    )
    
    $
    (338
    )Unamortized net actuarial loss
    
    
    474
    
    
    
    601
    
    
    
    49
    
    
    
    80Unamortized past service cost
    
    
    14
    
    
    
    8
    
    
    
    (20
    )
    
    
    (22
    )Unamortized transition asset
    
    
    (92
    )
    
    
    (108
    )
    
    
    (7
    )
    
    
    (9
    )Contributions (transfers), October 1 to December 31(1)
    
    
    (1
    )
    
    
    (1
    )
    
    
    1
    
    
    
    1Accrued benefit asset (liability), December 31(1)
    
    $
    254
    
    
    $
    274
    
    
    $
    (305
    )
    
    $
    (288
    )Balance sheet classification of accrued benefit asset (liability), December 31:Other assets
    
    $
    454
    
    
    $
    456
    
    
    $
    
    
    
    $
    Other liabilities
    
    $
    200
    
    
    $
    182
    
    
    $
    305
    
    
    $
    288Pension plans with projected benefit obligations in excess of plan assets:Projected benefit obligations
    
    $
    1,539
    
    
    $
    1,715Plan assets
    
    $
    1,264
    
    
    $
    1,364
 Weighted average assumptions:
 Pensions
    
    
    Post-retirementTo Measure Benefit
    
    
    To Measure the Net
    
    
    To Measure Benefit
    
    
    To Measure the NetObligation
    
    
    Benefit Costs or
    
    
    Obligation
    
    
    Benefit Costs oras of the Plans
    
    
    income
    
    
    as of the Plans
    
    
    incomeMeasurement Date(1)
    
    
    for the Period
    
    
    Measurement Date(1)
    
    
    for the PeriodDiscount rate
    
    
    5.2
    %
    
    
    5.1
    %
    
    
    5.1
    %
    
    
    5.1
    %Expected long-term
rate of
return on plan assets
    
    
    7.5
    %
    
    
    7.4
    %Rate of compensation
increase
    
    
    3.7
    %
    
    
    3.6
    %
 (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,
2006. The date of the next required actuarial valuation for funding purposes is January 1, 2007.(3)
    
    The accumulated benefit obligation is smaller than the projected benefit obligation
since it does not recognize projected future compensation increases.
 45




---



##### 



21.
    
    Pension Plans and Other Post-Retirement Benefits (Contd)
 Discount rate, return on plan assets and rate of compensation increase:
     Pension
    
    
    Post-Retirement(1)2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Components of defined benefit cost recognized:Service cost, curtailments and settlements
    
    $
    56
    
    
    $
    56
    
    
    $
    57
    
    
    $
    9
    
    
    $
    7
    
    
    $
    7Plan amendments
    
    
    8
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (4
    )
    
    
    (17
    )Interest cost
    
    
    124
    
    
    
    123
    
    
    
    121
    
    
    
    17
    
    
    
    17
    
    
    
    17Actual return on plan assets
    
    
    (242
    )
    
    
    (231
    )
    
    
    (201
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial losses (gains)
    
    
    (25
    )
    
    
    341
    
    
    
    84
    
    
    
    (27
    )
    
    
    39
    
    
    
    9Benefit cost before adjustments to recognize the
long-term nature of defined benefit plans
    
    $
    (79
    )
    
    $
    289
    
    
    $
    62
    
    
    $
    (1
    )
    
    $
    59
    
    
    $
    16Adjustments to recognize the long-term nature of
defined benefit plans:Difference between expected and actual
return on plan assets for year
    
    $
    73
    
    
    $
    71
    
    
    $
    41
    
    
   $
    
    
    
    $
    
    
    
    $
    Difference between actuarial losses (gains) recognized and actual
actuarial losses (gains) on accrued benefit obligation for year
    
    
    55
    
    
    
    (342
    )
    
    
    (74
    )
    
    
    31
    
    
    
    (37
    )
    
    
    (7
    )Difference between amortization of past service costs
for year and actual plan amendments for year
    
    
    (7
    )
    
    
    1
    
    
    
    1
    
    
    
    (2
    )
    
    
    2
    
    
    
    16Amortization of transition obligation (asset)
    
    
    (17
    )
    
    
    (19
    )
    
    
    (20
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )Total adjustments to defer costs to future periods
    
    $
    104
    
    
    $
    (289
    )
    
    $
    (52
    )
    
    $
    27
    
    
    $
    (37
    )
    
    $
    7Total benefit cost recognized
    
    $
    25
    
    
    $
    
    
    
    $
    10
    
    
    $
    26
    
    
    $
    22
    
    
    $
    23
 
 (1)
    
    The assumed medical cost trend rate used in measuring the accumulated
post-retirement benefits obligation in Canada in 2006 was 10%, decreasing by 0.5% each year to an
ultimate rate of 5.5% per year. In the United States in 2006, the assumed rate was 9%, 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. 46




---



##### 



21.
    
    Pension Plans and Other Post-Retirement Benefits (Contd)
  1%Increase
    
    
    DecreaseEffect on post-retirement benefit obligations
    
    $
    40
    
    
    $
    (35
    )Effect on aggregated service and interest costs
    
    $
    4
    
    
    $
    (3
    )
 Composition of fair value of plan assets, December 31:
 2006

    
    2005Equity investments
    
    
    51
    %
    
    
    50
    %Fixed income investments
    
    
    41
    %
    
    
    43
    %Real estate investments
    
    
    3
    %
    
    
    2
    %Other
    
    
    5
    %
    
    
    5
    %Total composition of fair value of plan assets
    
    
    100
    %
    
    
    100
    %
 Target allocation of plan assets, December 31:
 2006

    
    2005Equity investments
    
    
    46
    %
    
    
    46
    %Fixed income investments
    
    
    45
    %
    
    
    45
    %Real estate investments
    
    
    5
    %
    
    
    5
    %Other
    
    
    4
    %
    
    
    4
    %Total
    
    
    100
    %
    
    
    100
    %
    Post-Pension
    
    
    Retirement
    
    
    TotalExpected contributions for the next 12 months
    
    $
    20
    
    
    $
    13
    
    
    $
    33
 Expected future benefit payments20122007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    -2016Pension
    
    $
    85
    
    
    $
    88
    
    
    $
    93
    
    
    $
    97
    
    
    $
    100
    
    
    $
    613Post-retirement
    
    
    12
    
    
    
    13
    
    
    
    13
    
    
    
    14
    
    
    
    14
    
    
    
    73Total
    
    $
    97
    
    
    $
    101
    
    
    $
    106
    
    
    $
    111
    
    
    $
    114
    
    
    $
    686
  47




---



##### 



22.
    
    Foreign Exchange Gain
  23.
    
    Variable Interest Entities
  48




---



##### 



24.
    
    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:
 2006
    
    
    2005
    
    
    2004Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPREVENUEPremiums
    
    $
    14,609
    
    
    $
    7,791
    
    
    $
    12,940
    
    
    $
    7,135
    
    
    $
    12,903
    
    
    $
    6,883Net investment income
    
    
    6,664
    
    
    
    6,022
    
    
    
    6,079
    
    
    
    6,030
    
    
    
    5,924
    
    
    
    5,693Net realized gains
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    788
    
    
    
    
    
    
    
    793Fee income
    
    
    3,014
    
    
    
    3,077
    
    
    
    2,899
    
    
    
    2,965
    
    
    
    2,903
    
    
    
    3,09824,287
    
    
    
    17,227
    
    
    
    21,918
    
    
    
    16,918
    
    
    
    21,730
    
    
    
    16,467POLICY BENEFITS AND EXPENSESPayments to policyholders, beneficiaries and depositors
    
    
    13,730
    
    
    
    8,860
    
    
    
    13,506
    
    
    
    8,920
    
    
    
    13,114
    
    
    
    9,218Increase in actuarial liabilities
    
    
    2,525
    
    
    
    1,602
    
    
    
    872
    
    
    
    1,274
    
    
    
    1,425
    
    
    
    835Acquisition expense amortization
    
    
    105
    
    
    
    772
    
    
    
    138
    
    
    
    439
    
    
    
    179
    
    
    
    473Other expenses
    
    
    5,367
    
    
    
    4,166
    
    
    
    4,972
    
    
    
    3,979
    
    
    
    5,028
    
    
    
    3,83821,727
    
    
    
    15,400
    
    
    
    19,488
    
    
    
    14,612
    
    
    
    19,746
    
    
    
    14,364INCOME BEFORE INCOME TAXES AND
NON-CONTROLLING INTERESTS
    
    
    2,560
    
    
    
    1,827
    
    
    
    2,430
    
    
    
    2,306
    
    
    
    1,984
    
    
    
    2,103Income taxes expense
    
    
    389
    
    
    
    243
    
    
    
    531
    
    
    
    445
    
    
    
    263
    
    
    
    403Non-controlling interests in net income of subsidiaries
    
    
    27
    
    
    
    27
    
    
    
    23
    
    
    
    23
    
    
    
    28
    
    
    
    35INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGES
    
    
    2,144
    
    
    
    1,557
    
    
    
    1,876
    
    
    
    1,838
    
    
    
    1,693
    
    
    
    1,665Cumulative effect of accounting changes, net of taxes (Section D)
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )TOTAL NET INCOME
    
    
    2,144
    
    
    
    1,561
    
    
    
    1,876
    
    
    
    1,838
    
    
    
    1,693
    
    
    
    1,486Less participating policyholders net income
    
    
    7
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    13
    
    
    
    SHAREHOLDERS NET INCOME
    
    
    2,137
    
    
    
    1,561
    
    
    
    1,867
    
    
    
    1,838
    
    
    
    1,680
    
    
    
    1,486Less preferred shareholder dividends
    
    
    48
    
    
    
    48
    
    
    
    24
    
    
    
    24
    
    
    
    
    
    
    
    COMMON SHAREHOLDERS NET INCOME
    
    $
    2,089
    
    
    $
    1,513
    
    
    $
    1,843
    
    
    $
    1,814
    
    
    $
    1,680
    
    
    $
    1,486Earnings per shareBasicCommon shareholders net income excluding cumulative
effect of accounting changes
    
    $
    3.62
    
    
    $
    2.61
    
    
    $
    3.14
    
    
    $
    3.09
    
    
    $
    2.81
    
    
    $
    2.78Cumulative effect of accounting changes
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.30
    )Common shareholders net income
    
    $
    3.62
    
    
    $
    2.62
    
    
    $
    3.14
    
    
    $
    3.09
    
    
    $
    2.81
    
    
    $
    2.48DilutedCommon shareholders net income excluding cumulative
effect of accounting changes
    
    $
    3.58
    
    
    $
    2.58
    
    
    $
    3.12
    
    
    $
    3.07
    
    
    $
    2.79
    
    
    $
    2.77Cumulative effect of accounting changes
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.30
    )Common shareholders net income
    
    $
    3.58
    
    
    $
    2.59
    
    
    $
    3.12
    
    
    $
    3.07
    
    
    $
    2.79
    
    
    $
    2.47Weighted average shares outstanding in millionsBasic
    
    
    577
    
    
    
    577
    
    
    
    587
    
    
    
    587
    
    
    
    599
    
    
    
    599Diluted
    
    
    580
    
    
    
    580
    
    
    
    590
    
    
    
    590
    
    
    
    602
    
    
    
    602
 49




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 ii)
    
    Comprehensive income:
  2006
    
    
    2005
    
    
    2004Total shareholders net income based on U.S. GAAP
    
    $
    1,561
    
    
    $
    1,838
    
    
    $
    1,486Other comprehensive income:Change in unrealized foreign currency translation gains and losses*
    
    
    176
    
    
    
    (308
    )
    
    
    (437
    )Unrealized gains on available-for-sale securities
    
    
    (76
    )
    
    
    789
    
    
    
    721Reclassification adjustment for (gains) losses included in net income
    
    
    (20
    )
    
    
    (702
    )
    
    
    (354
    )Changes to deferred acquisition costs and other liabilities
    
    
    328
    
    
    
    19
    
    
    
    (535
    )Changes in gains on derivatives designated as cash flow hedges
    
    
    4
    
    
    
    12
    
    
    
    4Impact of adopting SFAS 158 (1)Changes in unamortized net actuarial loss
    
    
    (352
    )
    
    
    
    
    
    
    Changes in past service cost
    
    
    10
    
    
    
    
    
    
    
    Changes in transition asset
    
    
    10
    
    
    
    
    
    
    
    Additional minimum pension liability (2)
    
    
    187
    
    
    
    (90
    )
    
    
    (30
    )Other
    
    
    (8
    )
    
    
    (11
    )
    
    
    Income taxes
    
    
    140
    
    
    
    (18
    )
    
    
    4Shareholders comprehensive income (loss)
    
    $
    1,960
    
    
    $
    1,529
    
    
    $
    859
 
 (1)
    
    Refer to section 24 B and 24 D (iv) for more details.(2)
    
    The additional minimum pension liability for 2006 includes the impact of adopting FAS 158.*
    
    Shown as part of consolidated statements of equity under Cdn. GAAP. 50




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 iii)
    
    Consolidated balance sheets:
 2006
    
    
    2005Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPASSETSBonds
    
    $
    69,230
    
    
    
    
    
    
    $
    66,154Bonds  available-for-sale (amortized cost: 2006  $57,825;
2005  $57,870)
    
    
    
    
    
    $
    60,872
    
    
    
    
    
    
    $
    61,417Bonds  held-for-trading
    
    
    
    
    
    
    6,668
    
    
    
    
    
    
    
    4,377Mortgages and corporate loans
    
    
    15,993
    
    
    
    20,793
    
    
    
    14,561
    
    
    
    18,639Stocks
    
    
    4,899
    
    
    
    
    
    
    
    3,856Stocks  available-for-sale (amortized cost: 2006  $3,025;
2005  $2,209)
    
    
    
    
    
    
    3,879
    
    
    
    
    
    
    
    2,636Stocks  held-for-trading
    
    
    
    
    
    
    1,665
    
    
    
    
    
    
    
    1,350Real estate, net of accumulated depreciation (accumulated
depreciation: 2006  $409; 2005  $368)
    
    
    3,825
    
    
    
    2,611
    
    
    
    3,241
    
    
    
    2,187Cash and cash equivalents
    
    
    4,936
    
    
    
    4,926
    
    
    
    2,740
    
    
    
    2,733Short-term securities (1)
    
    
    1,303
    
    
    
    1,299
    
    
    
    2,351
    
    
    
    2,349Policy loans
    
    
    3,105
    
    
    
    3,105
    
    
    
    2,989
    
    
    
    2,989Other invested assets
    
    
    2,908
    
    
    
    5,688
    
    
    
    2,700
    
    
    
    4,732Invested assets
    
    
    106,199
    
    
    
    111,506
    
    
    
    98,592
    
    
    
    103,409Goodwill
    
    
    5,981
    
    
    
    4,664
    
    
    
    5,963
    
    
    
    4,645Intangible assets
    
    
    777
    
    
    
    771
    
    
    
    801
    
    
    
    803Deferred acquisition costs
    
    
    185
    
    
    
    6,495
    
    
    
    271
    
    
    
    6,223Future income taxes (2)
    
    
    747
    
    
    
    240
    
    
    
    667
    
    
    
    153Other assets
    
    
    3,942
    
    
    
    7,654
    
    
    
    4,572
    
    
    
    8,353Total other assets
    
    
    11,632
    
    
    
    19,824
    
    
    
    12,274
    
    
    
    20,177Segregated funds assets (3)
    
    
    
    
    
    
    70,559
    
    
    
    
    
    
    
    60,854Total consolidated assets
    
    $
    117,831
    
    
    $
    201,889
    
    
    $
    110,866
    
    
    $
    184,440Segregated funds net assets (3)
    
    $
    70,789
    
    
    
    
    
    
    $
    60,984LIABILITIES AND EQUITYActuarial liabilities
    
    $
    79,286
    
    
    $
    50,906
    
    
    $
    75,777
    
    
    $
    48,597Contract holder deposits
    
    
    
    
    
    
    38,666
    
    
    
    
    
    
    
    36,971Other policy liabilities
    
    
    1,750
    
    
    
    3,289
    
    
    
    1,712
    
    
    
    3,278Amounts on deposit
    
    
    3,599
    
    
    
    3,588
    
    
    
    3,382
    
    
    
    3,375Deferred net realized gains
    
    
    4,152
    
    
    
    
    
    
    
    3,859Senior debentures
    
    
    3,491
    
    
    
    3,491
    
    
    
    2,492
    
    
    
    2,492Future income taxes (2)
    
    
    226
    
    
    
    598
    
    
    
    502
    
    
    
    1,131Other liabilities
    
    
    6,608
    
    
    
    10,746
    
    
    
    6,090
    
    
    
    9,048Total general fund liabilities
    
    
    99,112
    
    
    
    111,284
    
    
    
    93,814
    
    
    
    104,892Subordinated debt
    
    
    1,456
    
    
    
    1,456
    
    
    
    1,456
    
    
    
    1,456Non-controlling interests in subsidiaries
    
    
    79
    
    
    
    79
    
    
    
    50
    
    
    
    50Segregated funds liabilities (3)
    
    
    
    
    
    
    70,559
    
    
    
    
    
    
    
    60,854Equity
    
    
    17,184
    
    
    
    18,511
    
    
    
    15,546
    
    
    
    17,188Total consolidated liabilities and equity
    
    $
    117,831
    
    
    $
    201,889
    
    
    $
    110,866
    
    
    $
    184,440Segregated funds contract liabilities (3)
    
    $
    70,789
    
    
    
    
    
    
    $
    60,984
 
 (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. 51




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally
Accepted in Canada and in the United States (Contd)
 iv)
    
    Consolidated statements of equity:
 2006
    
    
    
    2005Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPPARTICIPATING POLICYHOLDERS CAPITAL ACCOUNT:Balance, January 1
    
    $
    94
    
    
    $
    
    
    
    $
    85
    
    
    $Net income attributed to participating policyholders
    
    
    7
    
    
    
    
    
    
    
    9Balance, December 31
    
    
    101
    
    
    
    
    
    
    
    94SHAREHOLDERS EQUITY:PREFERRED SHARESBalance, January 1
    
    
    712
    
    
    
    712
    
    
    
    
    
    
    
    Shares issued, net of issuance costs
    
    
    538
    
    
    
    538
    
    
    
    712
    
    
    
    712Balance, December 31
    
    
    1,250
    
    
    
    1,250
    
    
    
    712
    
    
    
    712PAID IN CAPITALBalance, January 1
    
    
    7,239
    
    
    
    13,148
    
    
    
    7,308
    
    
    
    13,345Stock
options exercised
(2)
    
    
    61
    
    
    
    61
    
    
    
    78
    
    
    
    78Common shares purchased for cancellation (1)
    
    
    (164
    )
    
    
    (278
    )
    
    
    (164
    )
    
    
    (301
    )Stock option
compensation
(3)
    
    
    18
    
    
    
    16
    
    
    
    17
    
    
    
    17Subsidiary equity transaction
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    9Balance, December 31
    
    
    7,154
    
    
    
    12,981
    
    
    
    7,239
    
    
    
    13,148RETAINED EARNINGSBalance, January 1
    
    
    9,001
    
    
    
    3,897
    
    
    
    8,119
    
    
    
    2,907Net income for the period attributed to shareholders
    
    
    2,137
    
    
    
    1,561
    
    
    
    1,867
    
    
    
    1,838Dividends on common shares
    
    
    (663
    )
    
    
    (663
    )
    
    
    (581
    )
    
    
    (581
    )Dividends on preferred shares
    
    
    (48
    )
    
    
    (48
    )
    
    
    (24
    )
    
    
    (24
    )Common shares purchased for cancellation
    
    
    (411
    )
    
    
    (297
    )
    
    
    (380
    )
    
    
    (243
    )Balance, December 31
    
    
    10,016
    
    
    
    4,450
    
    
    
    9,001
    
    
    
    3,897CURRENCY TRANSLATION ACCOUNTBalance, January 1
    
    
    (1,500
    )
    
    
    (1,578
    )
    
    
    (1,097
    )
    
    
    (1,270
    )Net adjustment for foreign exchange gain
    
    
    (4
    )
    
    
    
    
    
    
    (22
    )
    
    
    Changes for the period
    
    
    167
    
    
    
    176
    
    
    
    (381
    )
    
    
    (308
    )Balance, December 31
    
    
    (1,337
    )
    
    
    (1,402
    )
    
    
    (1,500
    )
    
    
    (1,578
    )ACCUMULATED UNREALIZED GAINS AND LOSSESUnrealized gains on available-for-sale securities
    
    
    
    
    
    
    2,744
    
    
    
    
    
    
    
    2,696Unamortized net actuarial loss
    
    
    
    
    
    
    (240
    )
    
    
    
    
    
    
    Unamortized past service cost
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    Unamortized transition asset
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    Gains on derivatives designated as cash flow hedges
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    6Deferred acquisition costs and other liabilities
    
    
    
    
    
    
    (1,289
    )
    
    
    
    
    
    
    (1,557
    )Additional minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136
    )Balance, December 31
    
    
    
    
    
    
    1,232
    
    
    
    
    
    
    
    1,009TOTAL EQUITY
    
    $
    17,184
    
    
    $
    18,511
    
    
    $
    15,546
    
    
    $
    17,188
 
 (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. 52




---



##### 



24.
    
    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:
  2006
    
    
    2005
    
    
    2004Total net income in accordance with Cdn. GAAP
    
    $
    2,144
    
    
    $
    1,876
    
    
    $
    1,693Adjustments related to:InvestmentsBonds
    
    
    (217
    )
    
    
    208
    
    
    
    266Stocks and segregated fund units
    
    
    75
    
    
    
    265
    
    
    
    229Derivative instruments
    
    
    (65
    )
    
    
    493
    
    
    
    117Real estate
    
    
    (95
    )
    
    
    (54
    )
    
    
    5Total investments
    
    
    (302
    )
    
    
    912
    
    
    
    617Deferred acquisition costsDeferred acquisition costs  Deferred
    
    
    897
    
    
    
    720
    
    
    
    909Deferred acquisition costs  Amortization and interest
    
    
    (665
    )
    
    
    (301
    )
    
    
    (290
    )Total deferred acquisition costs
    
    
    232
    
    
    
    419
    
    
    
    619Actuarial liabilities and other policyholder revenues and expensesPremium and fees revenue
    
    
    (6,466
    )
    
    
    (5,448
    )
    
    
    (5,528
    )Payments to policyholders, beneficiaries and depositors
    
    
    4,870
    
    
    
    4,586
    
    
    
    3,896Actuarial liabilities
    
    
    923
    
    
    
    (402
    )
    
    
    590Total actuarial liabilities and other policyholder revenues and expenses
    
    
    (673
    )
    
    
    (1,264
    )
    
    
    (1,042
    )Other
    
    
    10
    
    
    
    (191
    )
    
    
    (82
    )Income tax effect of above adjustments
    
    
    146
    
    
    
    86
    
    
    
    (140
    )Change in accounting policy
    
    
    4
    
    
    
    
    
    
    
    (179
    )Total net income in accordance with U.S. GAAP
    
    $
    1,561
    
    
    $
    1,838
    
    
    $
    1,486
 53




---



##### 



24.
    
    Summary of Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
 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 instruments,
included with bonds
under Canadian GAAP, are
reclassified to
mortgages and corporate
loans under U.S. GAAP,
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.
 54




---



##### 



24.
    
    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 used for
risk management purposes
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
adjustment to the carrying
value of the hedged item
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.
Embedded derivatives are
separately accounted for as
stand- alone derivatives
and carried at fair values
with the changes in fair
value recorded in income
when they are not clearly
and closely related to
their host instruments.
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.
 55




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 Cdn. GAAP
    
    
    U.S. GAAPActuarial
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.Premium
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.
 56




---



##### 



24.
    
    Summary of Differences between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 Cdn. GAAP
    
    
    U.S. GAAPMinimum
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.
In 2006, the Financial Accounting Standards Board (FASB)
issued FASB statement No.158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans. This
new standard eliminates the requirement to record the
additional minimum liability effective for the 2006
consolidated financial statements. More details on the
implications of adopting this new standard are provided in
Note 24 D (iv).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.
 57




---



##### 



24.
    
    Summary of Differences between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 Cdn. GAAP
    
    
    U.S. GAAPGuarantees
    
    
    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. 58




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##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted in
Canada and in the United States (Contd)
  i)
    
    Realized gains (losses) from sales and redemptions of available-for-sale securities
included in net realized gains:
 2006
    
    
    2005
    
    
    2004Bonds:Gross realized gains
    
    $
    383
    
    
    $
    618
    
    
    $
    698Gross realized losses
    
    $
    (256
    )
    
    $
    (122
    )
    
    $
    (216
    )Stocks:Gross realized gains
    
    $
    193
    
    
    $
    217
    
    
    $
    233Gross realized losses
    
    $
    (78
    )
    
    $
    (65
    )
    
    $
    (51
    )
 ii)
    
    Change in net unrealized gains (losses) included in net investment income for securities classified as trading:
 2006
    
    
    2005
    
    
    2004Bonds
    
    $
    (80
    )
    
    $
    12
    
    
    $
    41Stocks
    
    $
    301
    
    
    $
    348
    
    
    $
    201
 iii)
    
    Real estate:The depreciation expense included in the U.S. GAAP other expenses are as follows:
 2006
    
    
    2005
    
    
    2004Depreciation expense
    
    $
    56
    
    
    $
    56
    
    
    $
    59
 iv) Derivatives:
  2006
    
    
    2005
    
    
    2004Change in fair value
    
    $
    1
    
    
    $
    8
    
    
    $
    3Amount reclassified from OCI to income during the reporting period
    
    $
    4
    
    
    $
    4
    
    
    $
    1Amount expected to be reclassified to income during the next 12 months
    
    $
    6
    
    
    $
    3
    
    
    $
    1Component of loss excluded from hedge effectiveness assessment
    
    $
    1
    
    
    $
    2
    
    
    $
    2
  59




---



##### 



24.
    
    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
    
    
    $9,576
    
    
    
    $(122
    )
    
    
    $11,517
    
    
    
    $(398
    )
    
    
    $21,093
    
    
    
    $(520
    )Common stock
    
    
    41
    
    
    
    (1
    )
    
    
    12
    
    
    
    (2
    )
    
    
    53
    
    
    
    (3
    )Total temporarily
impaired securities
    
    
    $9,617
    
    
    
    $(123
    )
    
    
    $11,529
    
    
    
    $(400
    )
    
    
    $21,146
    
    
    
    $(523
    )
    vi) Stock-based compensation: .
 60




---



##### 



24.
    
    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) :
 2006Future Income Tax Asset
    (1)
    
    Future Income Tax Liability
    (1)Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPInvestments
    
    $
    61
    
    
    $
    (52
    )
    
    $
    272
    
    
    $
    1,550Actuarial liabilities
    
    
    123
    
    
    
    1,343
    
    
    
    (7
    )
    
    
    (1,639
    )Deferred acquisition costs
    
    
    325
    
    
    
    (933
    )
    
    
    
    
    
    
       635Losses available for carry forward
    
    
    216
    
    
    
    16
    
    
    
    (15
    )
    
    
    (215
    )Other
    
    
    99
    
    
    
    (130
    )
    
    
    (24
    )
    
    
    202Future tax asset/liability before valuation allowance
    
    
    824
    
    
    
    244
    
    
    
    226
    
    
    
    533Valuation allowance
    
    
    (77
    )
    
    
    (4
    )
    
    
    
    
    
    
    65Total
    
    $
    747
    
    
    $
    240
    
    
    $
    226
    
    
    $
    598
 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
 (1)
    
    U.S. GAAP terminology is deferred income tax.
 61




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 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
    
    $
    554
    (2), (3)
    
    $
    532
    (3)Transaction and other related costs
    
    
    9
    
    
    
    9$
    563
    
    
    $
    541Goodwill on acquisition
    
    $
    545
    (3)
    
    $
    112
    (3)
 (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.(3)
    
    Includes $19 for the impact of change in value of the
receivable from CBA.   2005
    
    
    2004Revenue
    
    $
    17,136
    
    
    $
    16,809Total common shareholders net income before realized gains
    
    $
    1,034
    
    
    $
    709Net realized gains
    
    
    791
    
    
    
    810Common shareholders net income
    
    $
    1,825
    
    
    $
    1,519Weighted average number of shares outstanding (in millions)
    
    
    587
    
    
    
    599Basic earnings per share
    
    $
    3.11
    
    
    $
    2.54Shareholders net income on a diluted basis
    
    $
    1,820
    
    
    $
    1,517Weighted average number of shares outstanding on a diluted basis (in millions)
    
    
    590
    
    
    
    602Diluted earnings per share
    
    $
    3.08
    
    
    $
    2.52
 62




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally
Accepted in Canada and in the United States (Contd)
 ix) Earnings per share:
  2006
    
    
    2005
    
    
    2004Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.
    
    
    Cdn.
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPCommon shareholders net income excluding cumulative
effect of accounting changes
    
    $
    2,089
    
    
    $
    1,509
    
    
    $
    1,843
    
    
    $
    1,814
    
    
    $
    1,680
    
    
    $
    1,665Cumulative effect of accounting changes, net of income taxes
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )Common shareholders net income
    
    $
    2,089
    
    
    $
    1,513
    
    
    $
    1,843
    
    
    $
    1,814
    
    
    $
    1,680
    
    
    $
    1,486Less: Effect of stock options of subsidiaries
    
    
    11
    
    
    
    11
    
    
    
    5
    
    
    
    5
    
    
    
    2
    
    
    
    2Common shareholders net income on a diluted basis
    
    $
    2,078
    
    
    $
    1,502
    
    
    $
    1,838
    
    
    $
    1,809
    
    
    $
    1,678
    
    
    $
    1,484Weighted average number of shares outstanding (in millions)
    
    
    577
    
    
    
    577
    
    
    
    587
    
    
    
    587
    
    
    
    599
    
    
    
    599Add: Adjustments relating to the dilutive impact of stock options
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3Weighted average number of shares outstanding
on a diluted basis (in millions)
    
    
    580
    
    
    
    580
    
    
    
    590
    
    
    
    590
    
    
    
    602
    
    
    
    602
 x) Statements of cash flows:
 2006
    
    
    2005
    
    
    2004Deposits and withdrawals reclassified to financing activities:Deposits to policyholders accounts
    
    $
    6,417
    
    
    $
    6,401
    
    
    $
    5,656Withdrawals from policyholders accounts
    
    $
    6,510
    
    
    $
    6,021
    
    
    $
    5,986
 63




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 xi) Guarantees:
 xii) Liabilities for contract guarantees:
   Weighted Average AttainedBenefit type
    
    Account Balance
    
    
    Net Amount at Risk
    
    
    Age of Contract HoldersMinimum death
    
    $
    36,371
    
    
    $
    2,667
    
    
    
    61Minimum income
    
    $
    3,001
    
    
    $
    933
    
    
    
    51Minimum accumulation or withdrawal
    
    $
    4,257
    
    
    $
    
    
    
    
    58
  Minimum
    
    
    GuaranteedGuaranteed Death
    
    
    Minimum IncomeBenefit
    
    
    Benefit
    
    
    TotalBalance at January 1, 2005
    
    $
    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
    
    
    
    262Benefit ratio and assumption changes
    
    
    (7
    )
    
    
    1
    
    
    
    (6
    )Incurred guaranteed benefits
    
    
    69
    
    
    
    1
    
    
    
    70Paid guaranteed benefits
    
    
    (69
    )
    
    
    (33
    )
    
    
    (102
    )Interest
    
    
    4
    
    
    
    (26
    )
    
    
    (22
    )Effect of changes in currency exchange rates
    
    
    
    
    
    
    20
    
    
    
    20Balance at December 31, 2006
    
    $
    65
    
    
    $
    157
    
    
    $
    222
   64




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
   D)
U.S. GENERALLY ACCEPTED ACCOUNTING STANDARDS ADOPTED BY THE COMPANY
IN 2006
 i) FASB Statement No. 123R  Share-Based Payment (SFAS 123R):
   ii) FASB Statement No. 153  Exchanges of Non-monetary Assets (SFAS 153):
 iii)
FASB Statement No. 154  Accounting Changes and Error
Corrections (SFAS 154): ,
 iv) FASB Statement No. 158  Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans (SFAS 158):
 65




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
  Before Application
    
    
    
    
    
    
    After Applicationof SFAS 158
    
    
    Adjustment
    
    
    of SFAS 158Intangible assets
    
    $
    785
    
    
    $
    (14
    )
    
    $
    771Other assets
    
    $
    7,871
    
    
    $
    (217
    )
    
    $
    7,654Other liabilities
    
    $
    10,811
    
    
    $
    (65
    )
    
    $
    10,746Future income tax asset (liability)
    
    $
    (412
    )
    
    $
    54
    
    
    $
    (358
    )Equity
    
    $
    18,623
    
    
    $
    (112
    )
    
    $
    18,511
 v) Securities Exchange Commission (SEC) Staff Accounting Bulletin No. 107 (SAB 107):
 vi) SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When
Quantifying Misstatements in Current Year Financial Statements (SAB 108):
 E) U.S. GENERALLY ACCEPTED ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY
 i) FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155):
 ii) FASB Statement No. 156, Accounting for Servicing of Financial Assets (SFAS 156):
 66




---



##### 



24.
    
    Summary of Differences Between Accounting Principles Generally Accepted
in Canada and in the United States (Contd)
 iii) FASB Statement No. 157, Fair Value Measurements (SFAS 157):
 iv) FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of
FASB Statement No. 109 (FIN 48):
 v) American Institute of Certified Public Accountants (AICPA) Statement of Position 05-1,
Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications
or Exchanges of Insurance Contracts (SOP 05-1):
 25.Comparative Figures
  67




---



##### 



Appointed Actuarys Report
    Robert W. Wilson
 
 68




---



##### 



Report of Independent Registered Chartered Accountants
      
 Deloitte & Touche LLP
 
 69




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##### 



Report of Independent Registered Chartered Accountants
        
 Deloitte & Touche LLP
 
 70