##### 



Exhibit 2




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##### 



Table of Contents
 Financial highlights
    
    
    4Enterprise mission, vision, values and strategy
    
    
    6Financial performance and objectives
    
    
    7Business overview
    
    
    8Performance overview
    
    
    9Consolidated results of operations
    
    
    11Non-GAAP financial measures
    
    
    15SLF Canada
    
    
    16SLF U.S.
    
    
    20MFS
    
    
    24SLF Asia
    
    
    27Corporate
    
    
    30Corporate developments
    
    
    32Accounting policies
    
    
    36Risk management
    
    
    38Controls and procedures
    
    
    41Investments
    
    
    42Financial position and liquidity
    
    
    44Legal and regulatory proceedings
    
    
    51
    Sun Life Financial Inc.
    
    2




---



##### 



Sun Life Financial Inc.
    
    3




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##### 



Financial highlights
 (in millions of dollars, except earnings and dividends per share,ROE and dividend payout ratio)
    
    2006
    
    
    
    2005(1)
    
    
    2004(1)Common shareholders net incomeOperating(2)
    
    
    2,091
    
    
    
    
    1,906
    
    
    
    1,739Reported
    
    
    2,089
    
    
    
    
    1,843
    
    
    
    1,680Basic earnings per share (EPS)Operating(2)
    
    
    3.62
    
    
    
    
    3.24
    
    
    
    2.91Reported
    
    
    3.62
    
    
    
    
    3.14
    
    
    
    2.81Return on common shareholders equity (ROE)Operating(2)
    
    
    13.8
    %
    
    
    
    13.1
    %
    
    
    12.0
    %Reported
    
    
    13.8
    %
    
    
    
    12.6
    %
    
    
    11.6
    %Dividends per common share
    
    
    1.15
    
    
    
    
    0.99
    
    
    
    0.86Dividend payout ratio(2)(3)
    
    
    32
    %
    
    
    
    31
    %
    
    
    30
    %Dividend yield
    
    
    2.5
    %
    
    
    
    2.3
    %
    
    
    2.3
    %Total revenue
    
    
    24,287
    
    
    
    
    21,918
    
    
    
    21,730Premiums, deposits and fund salesPremium revenue, including ASO premium equivalents
    
    
    17,327
    
    
    
    
    15,329
    
    
    
    15,100Segregated fund deposits
    
    
    8,753
    
    
    
    
    7,205
    
    
    
    7,145Mutual fund sales
    
    
    20,412
    
    
    
    
    20,329
    
    
    
    19,884Managed fund sales
    
    
    26,116
    
    
    
    
    31,135
    
    
    
    23,981Total premiums, deposits and fund sales
    
    
    72,608
    
    
    
    
    73,998
    
    
    
    66,110Assets under management (AUM)(at December 31)General fund assets
    
    
    117,831
    
    
    
    
    110,866
    
    
    
    107,803Segregated fund net assets
    
    
    70,789
    
    
    
    
    60,984
    
    
    
    56,564Other AUM
    
    
    247,865
    
    
    
    
    215,539
    
    
    
    195,283Total AUM
    
    
    436,485
    
    
    
    
    387,389
    
    
    
    359,650Capital(at December 31)Subordinated debt
    
    
    1,456
    
    
    
    
    1,456
    
    
    
    1,462Liabilities for Cumulative Capital Securities and Sun Life
    
    
    1,849
    
    
    
    
    1,849
    
    
    
    1,870ExchangEable Capital Securities(4)
Preferred shares
    
    
    1,250
    
    
    
    
    712
    
    
    
    152Participating policyholders equity
    
    
    92
    
    
    
    
    85
    
    
    
    77Total common shareholders equity
    
    
    15,842
    
    
    
    
    14,749
    
    
    
    14,338Total capital
    
    
    20,489
    
    
    
    
    18,851
    
    
    
    17,899
 (1)
    
    Certain comparative figures have been reclassified to conform with
the presentation adopted in 2006.(2)
    
    Operating earnings, operating EPS,
operating ROE and dividend payout ratio are non-GAAP measures and exclude certain
items described on page 15 under the heading Non-GAAP financial measures.(3)
    
    The dividend payout ratio represents the ratio of common shareholders dividends to
operating earnings.(4)
    
    These securities qualify as capital for Canadian regulatory purposes. Starting
January 1, 2005, Cumulative Capital Securities Securities (CCS) and Sun Life ExchangEable Capital
Securities (SLEECS) were deconsolidated and reclassified as debentures in other liabilities in
SLF Inc.s Consolidated Financial Statements. Additional information is available on page 45
under the heading Capital.
 Sun Life Financial Inc.
    
    4




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##### 



Financial strength ratings(as at December 31, 2006)
    
    A.M. Best
    
    
    Moodys
    
    
    Standard & PoorsSun Life Assurance Company of Canada
    
    
    A++
    
    
    Aa2
    
    AA+Sun Life Assurance Company of Canada (U.S.)
    
    
    A++
    
    
    Aa2
    
    AA+
 Sun Life Financial Inc.
    
    5




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##### 



Enterprise mission, vision, values and strategy
 
       Values
    
    
    Integrity
    
    
    EngagementWe are committed to the highest
standards of business ethics and
good governance.
    
    
    We value our diverse, talented
workforce and encourage, support
and reward them in contributing to
the full extent of their potential.Customer Focus
    
    
    Excellence
    
    
    ValueWe provide sound financial
solutions for our customers and
always work with their interests in
mind.
    
    
    We pursue operational excellence
through our dedicated people, our
quality products and services, and
our value-based risk management.
    
    
    We deliver value to the customers
and shareholders we serve and to
the communities in which we
operate.
    Generate value-building growth
    
    
    Intensify customer focus
    
    
    Enhance productivity and efficiencySustain profitable top-line growth
and deliver on key medium-term
financial targets.
    
    
    Meet the needs of our customers
by delivering top quality
products and services.
    
    
    Continuously improve productivity
and efficiency to increase
competitiveness.Strengthen risk management
    
    
    Foster innovation
    
    
    Leverage international resourcesEnhance risk management
processes and practices to
maximize shareholder value.
    
    
    Embed creativity and innovation
throughout the organization to
improve business results and gain
competitive advantage.
    
    
    Capitalize on our knowledge and
international reach, disseminating
expertise and resources across all of
our operations.
 Sun Life Financial Inc.
    
    6




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##### 



Financial performance and objectives
 2006Measure
    
    
    2006 goals
    
    
    2006 results
    
    
    achievementsvs. goalsOperating EPS (1) growth
Growth in EPS reflects the Companys focus on
generating sustainable earnings for
shareholders on a constant currency basis.
    
    
    10%
    
    
    15%
    
    
    Exceeded targetOperating ROE(1) growth
Growth in ROE is a significant driver of
shareholder value and is a major focus for
management across all businesses on a
constant currency basis.
    
    
    75  100
basis points
    
    
    110
basis points
    
    
    Exceeded targetDividend payout
ratio(1) (2)
The payment of common share dividends is an
indicator of managements confidence in the
Companys long-term ability to generate capital
as well as its significant capital strength and
flexibility.
    
    
    30%  40%
    
    
    32%
    
    
    Met target
 Sun Life Financials
medium-term goals are based on the following assumptions and
conditions:
    
    A rise in the average level of key equity market indices,
primarily the S&P 500, by approximately 7% - 8%
    
    Stability in North American interest rates across the yield
curve
    
    Continuation of the current credit environment
    
    Stability in exchange rates between the Canadian dollar and
foreign currencies, primarily the U.S. dollar and the British pound
sterling
  
 
 (1)
    
    Operating EPS, operating ROE and the dividend payout ratio are non-GAAP
measures. For additional information see the section under the heading Non-GAAP financial measures
on page 15.(2)
    
    The dividend payout ratio represents the ratio of common shareholders dividends to
operating earnings.
 Sun Life Financial Inc.
    
    7




---



##### 



Business overview
   Products
    
    SLF Canada
    
    SLF U.S.
    
    MFS
    
    SLF Asia
    
    CorporateIndividual life insurance
    
    o
    
    o
    
    
    
    o
    
    oIndividual annuity and savings
    
    o
    
    o
    
    o
    
    o
    
    oGroup life and health
    
    o
    
    o
    
    
    
    oGroup pension and retirement
    
    o
    
    o
    
    
    
    oMutual funds
    
    o
    
    
    
    o
    
    oAsset management
    
    o
    
    o
    
    o
    
    oIndividual health insurance
    
    o
    
    
    
    
    
    oReinsurance (life retrocession)
    
    
    
    
    
    
    
    
    
    o
  Distribution channels
    
    SLF Canada
    
    SLF U.S.
    
    MFS
    
    SLF AsiaDirect sales agents
    
    o
    
    
    
    
    
    oIndependent and managing general agents
    
    o
    
    o
    
    
    
    oFinancial intermediaries (e.g., brokers)
    
    o
    
    o
    
    o
    
    oBanks
    
    
    
    o
    
    
    
    oPension and benefit consultants
    
    o
    
    o
    
    oDirect sales (including Internet)
    
    o
    
    
    
    o
    
    o
   
    
    Equity market performance
    
    Interest rates
    
    Credit experience
    
    Mortality and morbidity experience
    
    Surrender and lapse experience
    
    Spreads between the interest credited to policyholders and investment returns
    
    Currency exchange rates, regulatory environment and other external factors.
 .
 Sun Life Financial Inc.
    
    8




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##### 



Performance overview
    (1)
     
 (1)
    
    Operating earnings, operating EPS and operating ROE are non-GAAP measures and
exclude the items described in this MD&A under the heading Non-GAAP financial measures on
page 15.
 Sun Life Financial Inc.
    
    9




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##### 



Sun Life Financial Inc.
    
    10




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##### 



Consolidated results of operations
   Earnings and earnings per share($ millions, except earnings and
dividends per share
    
    2006
    
    
    
    2005(1)
    
    
    2004(1)Total net income
    
    
    2,144
    
    
    
    
    1,876
    
    
    
    1,693Less:Participating
policyholders net income
    
    
    7
    
    
    
    
    9
    
    
    
    13Dividends paid to
preferred shareholders
    
    
    48
    
    
    
    
    24
    
    
    
    Common shareholders net income
    
    
    2,089
    
    
    
    
    1,843
    
    
    
    1,680Plus: Special items(2)
    
    
    2
    
    
    
    
    63
    
    
    
    59Operating earnings
    
    
    2,091
    
    
    
    
    1,906
    
    
    
    1,739Basic EPS from:Common shareholders net income
    
    
    3.62
    
    
    
    
    3.14
    
    
    
    2.81Operating earnings(2)
    
    
    3.62
    
    
    
    
    3.24
    
    
    
    2.91Diluted EPS from:Common shareholders net income
    
    
    3.58
    
    
    
    
    3.12
    
    
    
    2.79Operating earnings(2)
    
    
    3.58
    
    
    
    
    3.23
    
    
    
    2.88Common shareholders net income by segmentSLF Canada
    
    
    995
    
    
    
    
    963
    
    
    
    895SLF U.S.
    
    
    448
    
    
    
    
    495
    
    
    
    391MFS
    
    
    234
    
    
    
    
    179
    
    
    
    114SLF Asia
    
    
    101
    
    
    
    
    42
    
    
    
    45Corporate
    
    
    311
    
    
    
    
    164
    
    
    
    235Total
    
    
    2,089
    
    
    
    
    1,843
    
    
    
    1,680
 (1)
    
    Certain comparative figures have been
reclassified to conform with the presentation adopted in
2006.(2)
    
    The impact of special items on
earnings per share are described on page 15
under the heading Non-GAAP financial measures.
         Sun Life Financial Inc.
    
    11




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##### 



Sun Life Financial Inc.
    
    12




---



##### 



Total Revenue($ millions)
    
    2006
    
    
    
    2005(1)
    
    
    2004(1)PremiumsAnnuities
    
    
    5,380
    
    
    
    
    4,556
    
    
    
    4,588Life insurance
    
    
    6,168
    
    
    
    
    5,683
    
    
    
    5,948Health insurance
    
    
    3,061
    
    
    
    
    2,701
    
    
    
    2,367Total premiums
    
    
    14,609
    
    
    
    
    12,940
    
    
    
    12,903Net investment income
    
    
    6,664
    
    
    
    
    6,079
    
    
    
    5,924Fee income
    
    
    3,014
    
    
    
    
    2,899
    
    
    
    2,903Total
    
    
    24,287
    
    
    
    
    21,918
    
    
    
    21,730
 
 (1)
    
    Certain comparative figures
have been reclassified to conform with the
presentation adopted in 2006.      Benefit Payments($ millions)
    
    2006
    
    
    
    2005(1)
    
    
    2004(1)Payments to policyholders,
beneficiaries and depositors
    
    
    12,895
    
    
    
    
    12,802
    
    
    
    12,532Net transfers to segregated
funds
    
    
    835
    
    
    
    
    704
    
    
    
    582Increase in actuarial liabilities
    
    
    2,525
    
    
    
    
    872
    
    
    
    1,425Total
    
    
    16,255
    
    
    
    
    14,378
    
    
    
    14,539
 
 (1)
    
    Certain comparative figures
have been reclassified to conform with the
presentation adopted in 2006.    Sun Life Financial Inc.
    
    13




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##### 



Expenses and Other($ millions)
    
    2006
    
    
    
    2005(1)
    
    
    2004(1)Commissions
    
    
    1,916
    
    
    
    
    1,726
    
    
    
    1,916Operating expenses
    
    
    3,003
    
    
    
    
    2,899
    
    
    
    2,747Regulatory settlement
provisions related to MFS
    
    
    
    
    
    
    
    
    
    
    
    62Intangibles amortization
    
    
    25
    
    
    
    
    22
    
    
    
    22Premium taxes
    
    
    205
    
    
    
    
    190
    
    
    
    182Interest expenses
    
    
    323
    
    
    
    
    273
    
    
    
    278Income taxes
    
    
    389
    
    
    
    
    531
    
    
    
    263Non-controlling interests in
net income of subsidiaries
    
    
    27
    
    
    
    
    23
    
    
    
    28Participating policyholders
net income (loss)
    
    
    7
    
    
    
    
    9
    
    
    
    13Dividends to preferred
shareholders
    
    
    48
    
    
    
    
    24
    
    
    
    Total
    
    
    5,943
    
    
    
    
    5,697
    
    
    
    5,511
 
 (1)
    
    Certain comparatives figures have
been reclassified to conform with the presentation
adopted in 2006.   Quarterly Information($
millions, unless otherwise noted)
    
    2006
    
    
    
    2005(2)Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Common shareholders net incomeOperating(1)
    
    
    545
    
    
    
    541
    
    
    
    512
    
    
    
    493
    
    
    
    
    490
    
    
    
    481
    
    
    
    477
    
    
    
    458Reported
    
    
    545
    
    
    
    541
    
    
    
    512
    
    
    
    491
    
    
    
    
    478
    
    
    
    430
    
    
    
    477
    
    
    
    458Basic EPS (in dollars)Operating(1)
    
    
    0.95
    
    
    
    0.94
    
    
    
    0.88
    
    
    
    0.85
    
    
    
    
    0.84
    
    
    
    0.82
    
    
    
    0.81
    
    
    
    0.77Reported
    
    
    0.95
    
    
    
    0.94
    
    
    
    0.88
    
    
    
    0.84
    
    
    
    
    0.82
    
    
    
    0.74
    
    
    
    0.81
    
    
    
    0.77Total revenue
    
    
    6,137
    
    
    
    6,604
    
    
    
    6,231
    
    
    
    5,315
    
    
    
    
    5,338
    
    
    
    5,504
    
    
    
    5,988
    
    
    
    5,088Total AUM
    
    
    436,485
    
    
    
    401,167
    
    
    
    387,205
    
    
    
    402,376
    
    
    
    
    387,389
    
    
    
    373,754
    
    
    
    377,096
    
    
    
    365,831
 
 (1)
    
    Operating earnings and operating EPS are
non-GAAP measures and exclude the items described under the
heading Non-GAAP financial measures on page15.(2)
    
    Certain comparative figures have been restated to conform with the presentation
adopted in 2006. Sun Life Financial Inc.
    
    14




---



##### 



Non-GAAP financial measures
        Impact of Special Items on Basic Earnings per Share($ per share)
    
    2006
    
    
    
    2005
    
    
    2004EPS - Reported
    
    
    3.62
    
    
    
    
    3.14
    
    
    
    2.81(GAAP-based)Net gains (losses) on
special items
    
    
    
    
    
    
    
    (0.10
    )
    
    
    (0.10
    )EPS - Operating
    
    
    3.62
    
    
    
    
    3.24
    
    
    
    2.91
 Reconciliation of Operating Earnings($ millions)
    
    2006
    
    
    
    2005Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Total
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    TotalReported earnings(GAAP-based)
    
    
    545
    
    
    
    541
    
    
    
    512
    
    
    
    491
    
    
    
    2,089
    
    
    
    
    478
    
    
    
    430
    
    
    
    477
    
    
    
    458
    
    
    
    1,843After-tax gains (losses) on special itemsCMG Asia integration costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Net loss on sale of Cuprum
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Total special items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    (12
    )
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )Operating earnings
    
    
    545
    
    
    
    541
    
    
    
    512
    
    
    
    493
    
    
    
    2,091
    
    
    
    
    490
    
    
    
    481
    
    
    
    477
    
    
    
    458
    
    
    
    1,906
 Sun Life Financial Inc.
    
    15




---



##### 



SLF Canada
 
   
   
   Strengths
 
    
    SLF Canadas Individual Insurance & Investments business has national market
leadership positions in both protection and wealth
    
    A multi-distribution strategy with the Clarica Sales Force providing a stable level of
sales in the large mid-market segment and the growing third-party channel capturing a
bigger share of the high net worth market
    
    The strategic partnership with CI Financial leverages its strong asset management
products and SLF Canadas unique distribution capabilities
    
    The group businesses distinguish themselves with leading market share, long-standing
customer relationships, a regional service delivery model, service innovations and
recognized capability in delivering customized solutions
    
    The Total Benefits offering allows for integrated access to group products and services
by members and sponsors
    
    The asset retention rollover business in GRS leads the competition by a wide margin in
terms of sales
    
    A risk management focus that continues to strengthen and enable business decision making
 Opportunities
 
    
    The aging population has created growth opportunities in both the health and retirement markets
    
    There are increased rollover opportunities to capitalize on asset retention from plan
members retiring or terminating employment
    
    Increasing benefit and pension cost pressures faced by companies as a result of
increased  longevity, rising health care costs and the low interest rate environment
    
    Technological innovations are leveraged to the medium-sized group businesses to enhance
their employee offerings and lower costs
 
   
    
    Solidify its leadership position in its core businesses
    
    Increase its share of the growing retirement and health markets
    
    Continue to build on its plan sponsor foundation and gain access to a much broader member base
    
    Leverage capabilities across business groups and business units to gain competitive advantage
 
 Sun Life Financial Inc.
    
    16




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##### 




    
    Grow the third-party distribution channel and continue to strengthen distribution
capabilities in the Clarica Sales Force
    
    Increase market share in the small to medium-sized group business market segments
    
    Continue to grow the rollover and voluntary group retirement businesses and enhance the
advice-based channels to meet the needs of baby boomers as their demand for advice
increases
    
    Maintain disciplined focus on expense management
 
 Summary statement of operations($ millions, except as noted)
    
    2006
    
    
    
    2005(1)
    
    
    2004(1)Premiums
    
    
    5,721
    
    
    
    
    5,314
    
    
    
    4,970Net investment income
    
    
    2,993
    
    
    
    
    2,780
    
    
    
    2,660Fee income
    
    
    619
    
    
    
    
    564
    
    
    
    532Total revenue
    
    
    9,333
    
    
    
    
    8,658
    
    
    
    8,162Client disbursements and change
in actuarial liabilities
    
    
    6,277
    
    
    
    
    5,625
    
    
    
    5,345Commissions and other expenses
    
    
    1,774
    
    
    
    
    1,660
    
    
    
    1,603Income taxes
    
    
    262
    
    
    
    
    385
    
    
    
    293Non-controlling interests in
net income of subsidiaries
    
    
    19
    
    
    
    
    17
    
    
    
    14Par policyholders income
    
    
    6
    
    
    
    
    8
    
    
    
    12Common shareholders net income
    
    
    995
    
    
    
    
    963
    
    
    
    895Selected financial informationEarnings by business unitIndividual Insurance & Investments
    
    
    585
    
    
    
    
    572
    
    
    
    511Group Benefits
    
    
    247
    
    
    
    
    246
    
    
    
    252Group Wealth
    
    
    163
    
    
    
    
    145
    
    
    
    132Total
    
    
    995
    
    
    
    
    963
    
    
    
    895ROE
    
    
    14.1
    %
    
    
    
    14.5
    %
    
    
    13.5
    %Total AUM ($ billions)
    
    
    124.1
    
    
    
    
    114.3
    
    
    
    105.1
 
 (1)
    
    Certain comparative figures have been
reclassified to conform with the presentation adopted in 2006.    (1)
    
 (1)
    
    ROE for the business segments is a non-GAAP measure. For additional information
see Non-GAAP financial measures on page 15. Sun Life Financial Inc.
    
    17




---



##### 



Individual Insurance & Investments
       Group Benefits
  TM
   Sun Life Financial Inc.
    
    18




---



##### 



Group Wealth
 (1) (1)
    
 (1)
    
    As measured by Benefits Canada magazines 2006 Defined Contribution Plan Survey
released in December 2006. Sun Life Financial Inc.
    
    19




---



##### 



SLF U.S.
 
   
      
   Strengths
 
    
    Diversified product mix
    
    Broad and expanding distribution network that offers opportunities to effectively cross-sell
    
    Multi-site service strategy that allows for enhanced customer service
    
    Strong risk management helping to ensure financial stability
  Opportunities
 
    
    Leverage the power of its distribution network across all product lines
    
    Increase retention of in-force business
    
    Introduce additional innovative products to meet consumer needs
    
    Serve the needs of the growing retirement market
    
    Industry consolidation may serve as a catalyst for SLF U.S. to augment operations through
additional focused acquisitions, which would provide operational scale in its core
businesses
 
 Sun Life Financial Inc.
    
    20




---



##### 




    
    Enhancing distribution capabilities and productivity
    
    Achieving recognition as a product and solution expert by leveraging customer knowledge,
risk management and investment expertise
    
    Focusing on deeper penetration into existing distributor networks and adding specialty distributors
    
    Extending product range, distribution and market reach in all core business lines
    
    Pursuing acquisitions that will increase shareholder value by
creating economies of scale, efficiencies and enhanced market presence
 
  
    
    Improve Individual Life profitability
    
    Successfully integrate the employee benefits group business to be acquired from Genworth
    
    Achieve growth in variable annuities
    
    Expand the geographic reach and range of product offerings
    
    Continue service centre improvement initiatives
 
     (1)
    
 (1)
    
    ROE for the business segments is a non-GAAP measure. For additional
information see Non-GAAP financial measures on page 15. Sun Life Financial Inc.
    
    21




---



##### 



Summary statement of operations(C$ millions)
    
    2006
    
    
    
    2005
    
    
    2004Premiums
    
    
    7,261
    
    
    
    
    6,246
    
    
    
    6,465Net investment income
    
    
    2,512
    
    
    
    
    2,298
    
    
    
    2,355Fee income
    
    
    692
    
    
    
    
    617
    
    
    
    609Total revenue
    
    
    10,465
    
    
    
    
    9,161
    
    
    
    9,429Client disbursement and change
in actuarial liabilities
    
    
    8,054
    
    
    
    
    6,993
    
    
    
    7,330Commissions and other expenses
    
    
    1,941
    
    
    
    
    1,560
    
    
    
    1,652Income taxes
    
    
    21
    
    
    
    
    113
    
    
    
    55Non-controlling interests in
net income of subsidiaries
    
    
    
    
    
    
    
    (1
    )
    
    
    Par policyholders income
    
    
    1
    
    
    
    
    1
    
    
    
    1Common shareholders net income
    
    
    448
    
    
    
    
    495
    
    
    
    391Selected financial information(US$ millions, except as noted)Earnings by business unitAnnuities
    
    
    298
    
    
    
    
    268
    
    
    
    184Individual Life
    
    
    50
    
    
    
    
    100
    
    
    
    81Group Life & Health
    
    
    47
    
    
    
    
    41
    
    
    
    35Total
    
    
    395
    
    
    
    
    409
    
    
    
    300Total revenue
    
    
    9,248
    
    
    
    
    7,539
    
    
    
    7,245Common shareholders net income
    
    
    395
    
    
    
    
    409
    
    
    
    300ROE
    
    
    11.5
    %
    
    
    
    12.9
    %
    
    
    10.4
    %Total AUM(US$ billions)
    
    
    63.1
    
    
    
    
    58.4
    
    
    
    56.1
  Annuities
    Individual Life
     Group Life & Health
  Sun Life Financial Inc.
    
    22




---



##### 



Sun Life Financial Inc.
    
    23




---



##### 



MFS
 
   
     
   Strengths
 
    
    Diversified asset base that balances the expected performance cycles in each
individual asset category
    
    Strong client/wholesaler relationships
    
    Strength in the global institutional marketplace, with enhanced global distribution
    
    Excellent record of superior investment performance in key investment styles, including
newer offerings targeted to sophisticated investors
 Opportunities
 
    
    International equity and fixed income investment category performance continues
to provide additional opportunities in the institutional marketplace
    
    Unique investment opportunities to gather fixed income assets through structured
investment products
    
    Continued improvement in investment performance and increased scale in offshore and
separate account segments will provide additional opportunities for profit growth
 
 Sun Life Financial Inc.
    
    24




---



##### 




    
    Develop and nurture an investment process that targets consistently above average
long-term investment performance across all major investment styles
    
    Continue to develop its distribution focus in three distinct channels, which are
institutional, retail and advisory. This includes a newly created advisory resource team
dedicated to develop and deliver performance and product information to dealers and third
parties
 
  
    
    Improve domestic equity investment performance and sustain long-term performance
    
    Increase domestic mutual fund sales and net flows
    
    Increase profit margins
 
  Summary statement of operations(C$ millions)
    
    2006
    
    
    
    2005
    
    
    2004Total revenue
    
    
    1,662
    
    
    
    
    1,648
    
    
    
    1,700Commissions and other expenses
    
    
    1,271
    
    
    
    
    1,355
    
    
    
    1,471Income taxes
    
    
    150
    
    
    
    
    110
    
    
    
    108Non-controlling interests in
net income of subsidiaries
    
    
    7
    
    
    
    
    4
    
    
    
    7Common shareholders net income
(loss)  reported
    
    
    234
    
    
    
    
    179
    
    
    
    114Plus: Regulatory settlement
provisions
    
    
    
    
    
    
    
    
    
    
    
    59Common shareholders net income
- Operating
    
    
    234
    
    
    
    
    179
    
    
    
    173Selected financial information
(US$ millions, except as noted)Total revenue
    
    
    1,464
    
    
    
    
    1,360
    
    
    
    1,306Common shareholders net incomeReported
    
    
    206
    
    
    
    
    147
    
    
    
    88Operating
    
    
    206
    
    
    
    
    147
    
    
    
    133Sales (US$ billions)Gross
    
    
    37.0
    
    
    
    
    38.8
    
    
    
    29.5Net
    
    
    0.2
    
    
    
    
    7.5
    
    
    
    (8.9
    )AUM (US$ billions)
    
    
    187
    
    
    
    
    162
    
    
    
    146Average net assets (US$ billions)
    
    
    172
    
    
    
    
    151
    
    
    
    138
     Sun Life Financial Inc.
    
    25




---



##### 



Outlook
  Sun Life Financial Inc.
    
    26




---



##### 



SLF Asia
 
   
    
   Strengths
 
    
    Sun Life Financials favourable reputation is a key differentiator in emerging
markets
    
    International resources and expertise are available to complement the local talent to
deliver the sales and develop innovative products
    
    Sun Life Financial has a long history in several markets, demonstrating its commitment
to the region
    
    Solid risk management processes
 Opportunities
 
    
    Several markets have a growing affluent and middle class, with increasing needs
for wealth management solutions
    
    Life insurance is still new to several markets, creating an opportunity to grow sales,
increase market share and improve operational scale in these areas
    
    Leverage the Companys North American expertise in group life and health insurance,
pension products and asset management to open up new lines of business in Asia
    
    A demand for value-added health and retirement products by individuals and employers is
emerging as the public safety net erodes in many countries across Asia
 
  
    
    Develop SLF Asia into a significant long-term revenue and earnings growth
operation
    
    Build multiple distribution channels that can deliver innovative products to different
market segments
    
    Enhance investment-linked product offerings to provide greater value and choice to the
customer
    
    Leverage Sun Life Financials worldwide resources to bring industry-leading products,
services and best practices to Asia
 
 Sun Life Financial Inc.
    
    27




---



##### 




    
    Secure new distribution alliances, including bancassurance in key markets
    
    Continue to leverage the expanded distribution capacity and synergies achieved through
the CMG Asia acquisition
    
    Expand the geographic reach and range of product offerings for multi-channel
distribution in the Philippines
    
    Explore cross selling opportunities by leveraging the distribution channels of the
joint venture in India
    
    Continue the geographic expansion in China
 
 Summary statement of operations($millions, except as noted)
    
    2006
    
    
    
    2005(1)
    
    
    2004(1)Premiums
    
    
    640
    
    
    
    
    524
    
    
    
    506Net investment income
    
    
    318
    
    
    
    
    223
    
    
    
    185Fee income
    
    
    64
    
    
    
    
    12
    
    
    
    3Total revenue
    
    
    1,022
    
    
    
    
    759
    
    
    
    694Client disbursements and change
in actuarial liabilities
    
    
    621
    
    
    
    
    499
    
    
    
    470Commissions and other expenses
    
    
    283
    
    
    
    
    201
    
    
    
    165Income taxes
    
    
    17
    
    
    
    
    17
    
    
    
    14Common shareholders net income
    
    
    101
    
    
    
    
    42
    
    
    
    45Selected financial informationSales  New annualized premiums
Individual life(2)
    
    
    337
    
    
    
    
    261
    
    
    
    239Total AUM ($ billions)
    
    
    8.9
    
    
    
    
    7.3
    
    
    
    2.5
 (1)
    
    Certain comparative figures have been reclassified to conform with the presentation adopted in 2006.(2)
    
    Includes 100% of sales for joint ventures. Individual life sales would be $236 million,
$181 million and $162 million for 2006, 2005 and 2004, respectively, if joint venture sales were included at 50%.  December 31,
2006
      Philippines
   Sun Life Financial Inc.
    
    28




---



##### 



Hong Kong
   India
    China
   Indonesia
  Sun Life Financial Inc.
    
    29




---



##### 



Corporate
 
   
 Summary statement of operations (1)
 ($ millions)
    
    2006
    
    
    
    2005(2)
    
    
    2004(2)Premiums
    
    
    987
    
    
    
    
    856
    
    
    
    962Net investment income
    
    
    802
    
    
    
    
    791
    
    
    
    725Fee income
    
    
    16
    
    
    
    
    45
    
    
    
    58Total revenue
    
    
    1,805
    
    
    
    
    1,692
    
    
    
    1,745Client disbursements and change
in actuarial liabilities
    
    
    1,303
    
    
    
    
    1,261
    
    
    
    1,394Commissions and other expenses
    
    
    203
    
    
    
    
    334
    
    
    
    316Income taxes
    
    
    (61
    )
    
    
    
    (94
    )
    
    
    (207
    )Non-controlling
interests in net income of subsidiaries
    
    
    1
    
    
    
    
    3
    
    
    
    7Dividends
paid to preferred shareholders
    
    
    48
    
    
    
    
    24
    
    
    
    Common shareholders net income
    
    
    311
    
    
    
    
    164
    
    
    
    235Selected financial informationEarnings by business unitSLF U.K.
    
    
    171
    
    
    
    
    192
    
    
    
    173Reinsurance
    
    
    93
    
    
    
    
    5
    
    
    
    72Corporate Support
    
    
    47
    
    
    
    
    (33
    )
    
    
    (10
    )Total
    
    
    311
    
    
    
    
    164
    
    
    
    235
 (1)
    
    Including consolidation adjustments related to activities between segments.(2)
    
    Certain comparative figures have been reclassified to comform with the presentation adopted in 2006.    SLF U.K.
   Reinsurance
    Sun Life Financial Inc.
    
    30




---



##### 



Corporate Support
   Sun Life Financial Inc.
    
    31




---



##### 



Corporate developments
             Critical accounting estimates
    Sun Life Financial Inc.
    
    32




---



##### 




    
    when taken one at a time, each provision is reasonable with respect to the underlying
best estimate assumption and the extent of uncertainty present in making that assumption; and
    
    in total, the cumulative effect of all provisions is reasonable with respect to the
total actuarial liabilities.
   Critical accounting
    
    
    
    
    Determination methodology and
    
    
    
    
    Financial significanceestimate
    
    
    
    
    assumptions
    
    
    
    
    (measured as at December 31, 2006)Equity markets  the
value of the Companys
policyholder obligations
for certain products is
dependent on
assumptions about the
future level of equity
markets
    
    
    
    
    The calculation of actuarial liabilities for
equity market-sensitive products
includes adequate provisions to absorb
moderate changes in rates of equity
market return with provisions
determined using scenario testing under
the standards established by the
Canadian Institute of Actuaries
    
    
    
    
    For participating insurance products, a
portion of the effect of
changes in
equity market movements is passed
through to policyholders as changes in
the amount of dividends declared
For variable annuity guarantees
(primarily in SLF U.S.) and for certain
annuity options in SLF U.K., a
1%
reduction in the expected long-term
equity market return assumption would
decrease net income by $68 millionInterest rates  the
    
    
    
    
    The calculation of actuarial liabilities for
    
    
    
    
    For certain product types, includingvalue of the Companys
policyholder obligations
for all policies is
sensitive to changes in
interest rates
    
    
    
    
    all policies includes adequate provisions
to absorb moderate changes in interest
rates with provisions determined using
scenario testing under the standards
established by the Canadian Institute of
Actuaries
    
    
    

    
    participating insurance policies and
certain forms of universal life policies
and annuities, the effect of changes in
interest rates is largely passed through
to policyholders as changes in
the
amount of dividends declared or in the
rate of interest credited
An immediate 1% increase in interest
rates across the entire yield
curve
would result in an estimated increase in
net income of $60 million
An immediate 1% parallel decrease in
interest rates would result in
an
estimated decrease in net income of
$242 millionAsset default provisions
are included in actuarial
liabilities for possible
future asset defaults and
loss of asset value in
current assets and future
purchases
    
    
    
    
    Based on a reduction in the expected
future investment yield or a reduction in
the value of equity assets recognized in
the computation of actuarial liabilities
    
    
    
    
    Asset default provisions included in
actuarial liabilities amounted
to $2.6
billion on a pre-tax basis as at
December 31, 2006
 Sun Life Financial Inc.
    
    
    33




---



##### 



Critical accounting
    
    
    
    
    Determination methodology and
    
    
    
    
    Financial significanceestimate
    
    
    
    
    assumptions
    
    
    
    
    (measured as at December 31, 2006)Mortality  the rate of
death for a defined
group of people
    
    
    


    
    Generally based on the Companys
average five-year experience
Industry experience considered where
the Companys experience is not
sufficient
Rates on annuities, where lower
mortality rates result in an increase in
actuarial liabilities, are adjusted to
reflect estimated future
improvements in life span
Rates for life insurance contracts do
not reflect any future improvement
that might be expected
    
    
    
    
    For products for which higher
mortality would be financially adverse
to the Company, a 1% increase in the
best estimate assumption would
decrease net income by $88 million
For products for which lower mortality
would be financially adverse to the
Company, a 1% reduction in the
mortality assumption would decrease
net income by $40 millionMorbidity  both the
rates of accident or
sickness and the rates of
subsequent recovery for
defined groups of
people
    
    
    


    
    Generally based on the Companys
average five-year experience
Industry experience considered where
the Companys experience is not
sufficient
Long-term care and critical illness
insurance assumptions developed in
collaboration with reinsurers and
largely based on their experience
For those benefits where the Company
or industry experience is limited, larger
provisions for adverse deviation are
included
    
    
    
    
    For products for which the morbidity is
a significant assumption, a 1% adverse
change in that assumption would
reduce net income by $20 millionPolicy termination rates
 the rates at which
policies terminate prior
to the end of the
contractual coverage
periods
    
    
    

    
    Generally based on the Companys
average five-year experience
Industry studies used where the
Companys experience is not sufficient
Rates may vary by plan, age at issue,
method of premium payment and
policy duration
Assumptions for premium cessation
occurring prior to termination of the
policy required for universal life
contracts
    
    
    

    
    For individual life insurance products
for which fewer terminations would be
financially adverse to the Company,
net income would decrease $81
million if the termination rate
assumption were reduced by 10%
starting in policy year six (5% for
participating policies and policies with
adjustable premiums)
For products for which more
terminations would be financially
adverse to the Company, net income
would decrease $74 million if an extra
1% of the in-force policies were
assumed to terminate each year
beginning in policy year six (0.5% for
participating policies and policies with
adjustable premiums)Operating expenses and
inflation  actuarial
liabilities provide for
future policy-related
expenses
    
    
    

    
    Mainly based on recent Company
experience using an internal expense
allocation methodology
The increases assumed in future
expenses are consistent with the
inflation rate used in the scenario
testing under the standards
established by the Canadian Institute
of Actuaries
    
    
    
    
    A 10% increase in maintenance unit
expenses Company-wide would result
in a decrease in net income of $263
million
 Sun Life Financial Inc.
    
    
    34




---



##### 



.
  .
  
   December 31,
2006
    Sun Life Financial Inc.
    
    
    35




---



##### 



Accounting policies
   Implicit variable interests
  Stock-based compensation
  Financial instruments, hedges and comprehensive income overview
   Sun Life Financial Inc.
    
    
    36




---



##### 



Business impact of financial instruments, hedges and comprehensive income
       Sun Life Financial Inc.
    
    
    37




---



##### 



Determining the variability to be considered in applying the variable interest entity (VIE)
standards
  Risk management
    Objectives
  (i)
    
    avoid risks that could materially adversely affect the value or reputation of
the Company(ii)
    
    contribute to sustainable earnings(iii)
    
    identify risks that the
Company can manage in order to increase returns(iv)
    
    provide transparency of the
Companys risks through internal and external reporting
 Risk philosophy
  Risk culture
  (i)
    
    acting with integrity(ii)
    
    understanding the impact of risk on customers(iii)
    
    embedding risk management into the business(iv)
    
    promoting full and transparent
communications(v)
    
    collaboration(vi)
    
    aligning of objectives and incentives
 Accountabilities
  Key risk processes
  Risk identification
  Sun Life Financial Inc.
    
    
    38




---



##### 



Market risk tolerance and Earnings-at-Risk
   Sensitivity of earnings
   Increase (Decrease) in Earnings
    
    2006($ millions)
    
    AccountingBasisInterest
Rate Sensitivity
(1)211% Increase
    
    
    641% Decrease
    
    
    (167
    )Equity Market Sensitivity (2)10% Increase
    
    
    13010% Decrease
    
    
    (140
    )
 
 (1)
    
    Represents a 100 basis point parallel shift in assumed interest
rates across the entire yield curve.(2)
    
    Represents the percentage change in equity markets. Sun Life Financial Inc.
    
    
    39




---



##### 



Risk category
    
    
    
    
    How risk is managedMarket
risk  the uncertainty in the
valuation of assets and the cost of
embedded options and guarantees arising
from changes in equity markets and/or
interest rates
    
    
    
    
    The Companys insurance liabilities are segmented according to
major product type, with investment guidelines established for each
segment
Exposure to capital markets is monitored and managed against
established risk tolerance limits
    
    Individual stock holdings are diversified by industry type and
corporate entity
    
    Real estate holdings are diversified by location and property type
    
    Effects of large and sustained adverse market movement are
monitored through Dynamic Capital Adequacy Testing and other
stress-testing techniques
    
    Considerations are given to the use of derivatives and the Companys
policies regarding liquidity management and foreign exchange risks
(see pages 44 to 45 in this MD&A under the heading Financial
position and liquidity)Interest
rate risk the risk of
asset liability
mismatch resulting from interest rate
volatility
    
    
    
    
    Matching policy established for each portfolio of assets and
associated liabilities to keep potential losses within acceptable limits
Key rate duration technique employed for certain interest-sensitive
businesses (e.g., individual and group annuities) to examine duration
gaps of assets, liabilities and off-balance sheet instruments at
discrete points on the yield curve and to manage these gaps within
specified tolerance limitsCredit
risk  the uncertainty surrounding
the likelihood of default or credit
downgrade
    
    
    
    
    Credit risks associated with fixed income investments are managed
by major business groups and the Company in aggregate using:
o Detailed credit and underwriting policieso Specific diversification requirementso Comprehensive due diligence and ongoing credit analysiso Aggregate counterparty exposure limitso Monitoring against pre-established limits
    
    Provisions for impaired assets are charged against the carrying value
of the asset with additional allowances provided for in actuarial
liabilitiesReinsurance
ceded risk  the counterparty
risk relating to externally reinsuring
exposures
    
    
    
    
    Policy established to limit and monitor the level of reinsurance
ceded to any single reinsurer or group of reinsurers.Product
design and pricing risk  the risk
arising from inappropriate or inadequate
product design and pricing, including
deviations from the assumptions used in
pricing products as a result of uncertainty
concerning future investment yields,
mortality and morbidity experience,
expenses, changes in policyholder
behaviour, and taxes
    
    
    
    
    Annual compliance assessment is performed by all business units
against standards and guidelines for product design and pricing
methods, pricing assumptions, profit margin objectives, required
scenario analysis, documentation, internal peer review and pricing
approval processes
Internal audit of business unit pricing processes is performed on a
rotating basis
 Sun Life Financial Inc.
    
    
    40




---



##### 



Risk category
    
    
    
    
    How risk is managedMortality
and morbidity risk the risk of
incurring higher than anticipated mortality
and morbidity claim losses on any one
policy or group of policies
    
    
    
    
    Detailed uniform underwriting procedures have been established to
determine the insurability of applicants and to manage exposure to
large claims
Underwriting requirements are regularly scrutinized against industry
guidelines
Group insurance policies are underwritten prior to initial issue and
renewals, driven by risk selection, plan design and rating techniques
    
    Risk policies approved by the Board of Directors include limits on
the maximum amount of insurance that may be issued under one
policy and the maximum amount that may be retained, varying by
geographical region
    
    Amounts in excess of limits are reinsuredLegal, regulatory and market conduct risk
management e the risk associated with
failure to comply with laws or to conduct
business consistent with changing
regulatory or public expectations
    
    
    
    
    A strong compliance culture is promoted by setting the appropriate
tone at the top with respect to compliance with laws and
regulations
Enterprise-wide compliance policies and framework established with
annual self-assessment by all business units
Annual enterprise-wide attestation by all employees regarding
compliance with Code of Business Conduct
    
    Key compliance risks are monitored at the corporate and business
group levelsOperational
risk  the uncertainty arising
from internal events caused by failures of
people, process and technology as well as
external events
    
    
    

    
    Enterprise-wide and business-specific policies and guidelines
established
Comprehensive insurance program, including appropriate levels of
self-insurance, is maintained to provide protection against potential
losses
Environmental risk management program is maintained to help
protect investment assets (primarily real estate, mortgage and
structured finance portfolios) from losses due to environmental
issues and to help ensure compliance with applicable laws
 Controls and procedures
      Sun Life Financial Inc.
    
    
    41




---



##### 



Investments
    Investments($ millions)
    
    2006
    
    
    
    
    
    
    
    2005 (1)
    
    
    
    
    
    
    2004 (1)% of
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofCarrying value
    
    
    total
    
    
    
    Carrying value
    
    
    total
    
    
    Carrying value
    
    
    totalBonds
    
    
    69,230
    
    
    
    65
    
    
    
    
    66,154
    
    
    
    67
    
    
    
    64,496
    
    
    
    67Mortgages
    
    
    15,993
    
    
    
    15
    
    
    
    
    14,561
    
    
    
    15
    
    
    
    13,862
    
    
    
    14Stocks
    
    
    4,899
    
    
    
    5
    
    
    
    
    3,856
    
    
    
    4
    
    
    
    3,463
    
    
    
    4Real estate
    
    
    3,825
    
    
    
    3
    
    
    
    
    3,241
    
    
    
    3
    
    
    
    3,148
    
    
    
    3Cash and equivalent investments
    
    
    6,239
    
    
    
    6
    
    
    
    
    5,091
    
    
    
    5
    
    
    
    5,958
    
    
    
    6Policy loans and other invested assets
    
    
    6,013
    
    
    
    6
    
    
    
    
    5,689
    
    
    
    6
    
    
    
    5,984
    
    
    
    6Total carrying value
    
    
    106,199
    
    
    
    100
    
    
    
    
    98,592
    
    
    
    100
    
    
    
    96,911
    
    
    
    100Total market value
    
    
    112,888
    
    
    
    
    
    
    
    
    105,358
    
    
    
    
    
    
    
    102,792
 
 (1)
    
    Certain comparative figures have been reclassified to conform with the presentation adopted in 2006.  December 31,
2005
  Sun Life Financial Inc.
    
    42




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##### 



Bonds
 ,
   
 Mortgages
 .
  
 Stocks
  Real estate
   December 31,
2005
     Sun Life Financial Inc.
    
    43




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##### 



December 31,
2005
 Financial position and liquidity
      Sun Life Financial Inc.
    
    44




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##### 



Cash flow
 ($ millions )
    
    2006
    
    
    
    2005 (1)
    
    
    2004 (1)Net cash provided by operating activities
    
    
    4,469
    
    
    
    
    2,777
    
    
    
    2,990Net cash provided by (used in) financing activities
    
    
    356
    
    
    
    
    290
    
    
    
    (1,102
    )Net cash provided by (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 period
    
    
    2,740
    
    
    
    
    3,748
    
    
    
    3,175Cash and cash equivalents, end of period
    
    
    4,936
    
    
    
    
    2,740
    
    
    
    3,748Short-term securities, end of period
    
    
    1,303
    
    
    
    
    2,351
    
    
    
    2,210Cash, cash equivalents and short-term securities, end of period
    
    
    6,239
    
    
    
    
    5,091
    
    
    
    5,958
 
 (1)
    
    Certain comparative figures have been reclassified to conform with the presentation adopted in 2006.   
    
    capital levels
    
    asset levels
    
    matching position
    
    diversification and credit quality of its investments
    
    cash forecasts and actual amounts against established targets
       Sun Life Financial Inc.
    
    45




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##### 



Capital
 ($ millions)
    
    2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    
    18,851
    
    
    
    17,899
    
    
    
    17,789Common shareholders net income
    
    
    2,089
    
    
    
    1,843
    
    
    
    1,680Common share dividends
    
    
    (663
    )
    
    
    (581
    )
    
    
    (515
    )Issuance (buyback) of common shares (net of expenses)
    
    
    (514
    )
    
    
    (466
    )
    
    
    (330
    )Stock option compensation
    
    
    18
    
    
    
    17
    
    
    
    11Effect of changes in exchange rates
    
    
    163
    
    
    
    (402
    )
    
    
    (421
    )Total change in common shareholders equity
    
    
    1,093
    
    
    
    411
    
    
    
    425Subordinated debt redemption
    
    
    
    
    
    
    
    
    
    
    (253
    )Exchange rate changes  Subordinated notes & CCS
    
    
    
    
    
    
    (27
    )
    
    
    (69
    )Issuance of preferred shares (net of redemptions and expenses)
    
    
    538
    
    
    
    562
    
    
    
    Accounting policy & other changes
    
    
    7
    
    
    
    6
    
    
    
    7Balance, end of year
    
    
    20,489
    
    
    
    18,851
    
    
    
    17,899
    Number of common shares
 (in millions)
    
    2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    
    582.0
    
    
    
    592.0
    
    
    
    600.0Stock options exercised
    
    
    2.2
    
    
    
    3.1
    
    
    
    2.4Shares repurchased
    
    
    (12.4
    )
    
    
    (13.1
    )
    
    
    (10.4
    )Balance, end of year
    
    
    571.8
    
    
    
    582.0
    
    
    
    592.0
 Number of stock options outstanding
 (in millions)Balance, beginning of year
    
    
    10.0
    
    
    
    12.4
    
    
    
    15.2Options issued
    
    
    1.5
    
    
    
    1.3
    
    
    
    0.2Options exercised or cancelled
    
    
    (2.4
    )
    
    
    (3.7
    )
    
    
    (3.0
    )Balance, end of year
    
    
    9.1
    
    
    
    10.0
    
    
    
    12.4
   Sun Life Financial Inc.
    
    46




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(1)
 
 (1)
    
 (1)
   (1)
      Sun Life Financial Inc.
    
    47




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##### 




    
    earn management fees and additional spread on a matched book of business
    
    hedge and match the Companys liabilities, and reduce risks associated with currency, interest rate and stock market fluctuations
    
    replicate permissible investments
    
    reduce financing costs
  
    
    asset securitizations
    
    securities lending
    
    financial derivatives
 Asset securitizations
   ($millions)
    
    2006
    
    
    
    2005As at December 31Securitized assets under
management
    
    
    2,434
    
    
    
    
    2,829The Companys retained interests
    
    
    103
    
    
    
    
    117For the year ended December 31Cash flow received on retained
interests and servicing fees
    
    
    18
    
    
    
    
    33Proceeds from sale of company
assets through securitization
including pre-tax gains
    
    
    
    
    
    
    
    
 Sun Life Financial Inc.
    
    48




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##### 



Securities lending
    Products/Application
    
    
    Use of derivative
    
    
    Derivative usedU.S. universal life contracts,
certain Canadian group annuity
contracts containing minimum
interest rate guarantees, and U.K.
unit-linked pension products with
guaranteed annuity rate options
    
    
    To limit potential financial losses from
significant reductions in asset earned rates
relative to contract guarantees and manage
the equity exposure due to certain
regulatory requirements for the U.K. unit-
linked pension products
    
    
    Interest rate options and swaps;
short equity forwardsInterest rate exposure in relation
to asset-liability management
    
    
    To manage the sensitivity of the duration
gap between assets, liabilities and off-
balance sheet instruments to interest rate
changes
    
    
    Interest rate swaps and optionsU.S. variable annuities, Canadian
segregated funds and reinsurance
on variable annuity guarantees
offered by other insurance
companies
    
    
    To manage the exposure to product
guarantees sensitive to movement in equity
market levels
    
    
    Put options on equity index;
futures on equity indices and on
interest ratesU.S. fixed index annuities
    
    
    To manage the exposure to product
guarantees related to equity market
performance
    
    
    Futures and options on equity
indices and interest ratesU.K. With Profit Fund
    
    
    To protect the fund from the impact of a
significant fall in the U.K. equity market
below a predetermined level
    
    
    Collar option on equity index
maturing in 2006 and put option
on equity index maturing in 2007Currency exposure in relation to
asset-liability management
    
    
    To reduce the sensitivity to currency
fluctuations by matching the value and
cash flows of specific assets denominated
in one currency with the value and cash
flows of the corresponding liabilities
denominated in another currency
    
    
    Currency swaps and forwards
   ($ millions)
    
    2006
    
    
    
    2005As at December 31Net fair value
    
    
    1,122
    
    
    
    
    1,195Total notional amount
    
    
    44,140
    
    
    
    
    38,364Credit equivalent amount
    
    
    2,361
    
    
    
    
    2,463Risk-weighted credit
equivalent amount
    
    
    55
    
    
    
    
    53
 Sun Life Financial Inc.
    
    49




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##### 



Payments due by period($ millions)
    
    Total
    
    
    Within 1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    Over 5 yearsLong-term debt
    
    
    4,947
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    4,915Operating leases
    
    
    458
    
    
    
    98
    
    
    
    129
    
    
    
    90
    
    
    
    141Credit-related arrangementsContractual commitments
    
    
    1,366
    
    
    
    1,055
    
    
    
    311
    
    
    
    
    
    
    
    Letters of credit
    
    
    1,122
    
    
    
    1,122
    
    
    
    
    
    
    
    
    
    
    
    General fund policyholder liabilities(1)
    
    
    189,402
    
    
    
    13,202
    
    
    
    15,092
    
    
    
    13,223
    
    
    
    147,885Total contractual obligations
    
    
    197,295
    
    
    
    15,509
    
    
    
    15,532
    
    
    
    13,313
    
    
    
    152,941
 
 (1)
    
    General fund policyholder liability cash flows include estimates related to the timing
and payment of death and disability claims, policy surrenders, policy maturities,
annuity payments, minimum guarantees on segregated fund products, policyholder dividends,
commissions and premium taxes offset by contractual future premiums and fees on
in-force contracts. These estimated cash flows are based on the best estimate assumptions used in
the determination of policy liabilities. These amounts are undiscounted and do not reflect
recoveries from reinsurance agreements. The actuarial and other
policy liability amounts included
in the 2006 SLF Inc. Consolidated Financial Statements are based on the present value of the estimated
cash flows and are net of reinsured amounts. Due to the use of assumptions, actual cash flows
will differ from these estimates. Outsourcing agreements
   Sun Life Financial Inc.
    
    50




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##### 



Legal and regulatory proceedings
   Sun Life Financial Inc.
    
    51