##### 



|                          |  |             
|------------------------- |  | ------------
|(SUN LIFE FINANCIAL LOGO) |  | Exhibit 99.2

SUN LIFE FINANCIAL SERVICES OF CANADA INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002





---



##### 



This page intentionally left blank.





---



##### 



FINANCIAL REPORTING RESPONSIBILITIES

Financial Reporting Responsibilities

Management is responsible for preparing the consolidated financial statements.
This responsibility includes selecting appropriate accounting policies and
making estimates and other judgements consistent with Canadian generally
accepted accounting principles including the requirements of the Office of the
Superintendent of Financial Institutions Canada. It also includes ensuring the
use of appropriate accounting policies and estimates in the disclosure of the
information which was prepared following accounting principles generally
accepted in the United States of America. The financial information presented
elsewhere in the annual report to shareholders is consistent with these
statements.

The Board of Directors (Board) oversees managements responsibilities for
financial reporting. An Audit Committee of non-management directors is
appointed by the Board to review the financial statements and report to the
directors prior to their approval of the financial statements for issuance to
shareholders.

Management is also responsible for maintaining systems of internal control that
provide reasonable assurance that financial information is reliable, that all
financial transactions are properly authorized, that assets are safeguarded,
and that Sun Life Financial Services of Canada Inc. and its subsidiaries,
collectively referred to as the Company, adhere to legislative and regulatory
requirements. These systems include the communication of policies and the
Companys code of ethics and business conduct throughout the organization.
Internal controls are reviewed and evaluated by the Companys internal
auditors.

The Audit Committee also conducts such review and inquiry of management and the
internal and external auditors as it deems necessary towards establishing that
the Company is employing appropriate systems of internal control, is adhering
to legislative and regulatory requirements and is applying the Companys code
of ethics and business conduct. Both the internal and external auditors have
full and unrestricted access to the Audit Committee, with and without the
presence of management.

The Office of the Superintendent of Financial Institutions Canada conducts
periodic examinations of the Company. These examinations are designed to
evaluate compliance with provisions of the Insurance Companies Act of Canada
and to ensure that the interests of policyholders, depositors and the public
are safeguarded. The Companys foreign operations and foreign subsidiaries are
examined by regulators in their local jurisdictions.

The Appointed Actuary, who is a member of management, is appointed by the Board
to discharge the various actuarial responsibilities required under the
Insurance Companies Act of Canada, and conducts the valuation of the Companys
actuarial liabilities. The role of the Appointed Actuary is described in more
detail in Note 2 on page 11. The report of the Appointed Actuary appears on
page 48.

The Companys external auditors, Deloitte & Touche LLP, Chartered Accountants,
conduct an independent examination of the financial statements and meet
separately with both management and the Audit Committee to discuss the results
of their examination. The auditors report to the shareholders appears on page
48.

(D.A. STEWART SIGNATURE)D.A. Stewart
Chairman and Chief Executive Officer

(P.W. DERKSEN SIGNATURE)P.W. Derksen
Executive Vice-President and Chief Financial Officer

Toronto, February 12, 2003

1
Sun Life Financial Services of Canada Inc.





---



##### 



CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Operations

YEARS ENDED DECEMBER 31 (in millions of Canadian dollars, except for per share amounts)

|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|------------------------------------------------------------------ | ---------------------------------------------------------------------- | ---------------------------------------------------------- | ------ | ----- | ----- | ---- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                   |                                                                        |                                                            |        | 2002  |       | 2001 |        | 2000 
|                                                                   |                                                                        |                                                            |        |       |       |      |        |      
|REVENUE                                                            |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                   | Premium income:                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |      
|                                                                   |                                                                        | Annuities                                                  |        | $     | 7,402 |      |        | $     | 4,196 |   |        | $     | 4,371 | 
|                                                                   |                                                                        | Life insurance                                             |        |       | 5,403 |      |        |       | 3,759 |   |        |       | 3,523 | 
|                                                                   |                                                                        | Health insurance                                           |        |       | 2,070 |      |        |       | 1,482 |   |        |       | 1,495 | 
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|                                                                   |                                                                        |                                                            | 14,875 |       |       |      | 9,437  |       |       |   | 9,389  |      
|                                                                   | Net investment income (Note 11)                                        |                                                            |        | 5,131 |       |      |        | 4,162 |       |   |        | 3,839 |      
|                                                                   | Fee income                                                             |                                                            |        | 3,095 |       |      |        | 3,216 |       |   |        | 3,318 |      
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|                                                                   |                                                                        |                                                            | 23,101 |       |       |      | 16,815 |       |       |   | 16,546 |      
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|POLICY BENEFITS AND EXPENSES                                       |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                   | Payments to policyholders, beneficiaries and depositors:               |                                                            |        |       |       |      |        |       |       |   |        |       |      
|                                                                   |                                                                        | Maturities and surrenders                                  |        |       | 5,476 |      |        |       | 2,610 |   |        |       | 2,270 | 
|                                                                   |                                                                        | Annuity payments                                           |        |       | 1,486 |      |        |       | 952   |   |        |       | 1,076 | 
|                                                                   |                                                                        | Death and disability benefits                              |        |       | 2,067 |      |        |       | 1,196 |   |        |       | 1,083 | 
|                                                                   |                                                                        | Health benefits                                            |        |       | 1,573 |      |        |       | 1,162 |   |        |       | 1,259 | 
|                                                                   |                                                                        | Policyholder dividends and interest on claims and deposits |        |       | 1,086 |      |        |       | 960   |   |        |       | 1,041 | 
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|                                                                   |                                                                        |                                                            | 11,688 |       |       |      | 6,880  |       |       |   | 6,729  |      
|                                                                   | Net transfers to segregated funds                                      |                                                            |        | 1,329 |       |      |        | 2,606 |       |   |        | 2,562 |      
|                                                                   | Increase in actuarial liabilities (Note 13)                            |                                                            |        | 3,822 |       |      |        | 1,697 |       |   |        | 1,611 |      
|                                                                   | Commissions                                                            |                                                            |        | 1,909 |       |      |        | 1,600 |       |   |        | 1,687 |      
|                                                                   | Operating expenses (Note 24)                                           |                                                            |        | 2,779 |       |      |        | 2,496 |       |   |        | 2,426 |      
|                                                                   | Premium taxes                                                          |                                                            |        | 168   |       |      |        | 113   |       |   |        | 117   |      
|                                                                   | Interest expense (Notes 16, 17 and 18)                                 |                                                            |        | 192   |       |      |        | 168   |       |   |        | 159   |      
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|                                                                   |                                                                        |                                                            | 21,887 |       |       |      | 15,560 |       |       |   | 15,291 |      
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|OPERATING INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTERESTS |                                                                        |                                                            | 1,214  |       |       |      | 1,255  |       |       |   | 1,255  |      
|                                                                   | Income taxes (Note 25)                                                 |                                                            |        | 98    |       |      |        | 306   |       |   |        | 386   |      
|                                                                   | Non-controlling interests in net income of subsidiaries (Note 19)      |                                                            |        | 83    |       |      |        | 68    |       |   |        | 67    |      
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|NET INCOME FROM CONTINUING OPERATIONS                              |                                                                        |                                                            | 1,033  |       |       |      | 881    |       |       |   | 802    |      
|                                                                   | Loss from discontinued operations, net of income taxes (Note 5)        |                                                            |        | 36    |       |      |        |      |       |   |        |      |      
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|TOTAL NET INCOME                                                   |                                                                        |                                                            | 997    |       |       |      | 881    |       |       |   | 802    |      
|                                                                   | Less:                                                                  |                                                            |        |       |       |      |        |       |       |   |        |       |      
|                                                                   | Net income from mutual operations (prior to demutualization)           |                                                            |        |      |       |      |        |      |       |   |        | 179   |      
|                                                                   | Participating policyholders net income (loss) (after demutualization) |                                                            |        | (1    | )     |      |        | (1    | )     |   |        | (6    | )    
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|SHAREHOLDERS NET INCOME (AFTER DEMUTUALIZATION)                   |                                                                        | $                                                          | 998    |       |       | $    | 882    |       |       | $ | 629    |      
|                                                                   |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|Basic earnings per share from continuing operations(Note 21)       |                                                                        | $                                                          | 1.91   |       |       | $    | 2.08   |       |       | $ | 1.49   | (1)  
|Basic earnings per share( Note 21)                                 |                                                                        | $                                                          | 1.84   |       |       | $    | 2.08   |       |       | $ | 1.49   | (1)  
|Diluted earnings per share from continuing operations(Note 21)     |                                                                        | $                                                          | 1.90   |       |       | $    | 2.07   |       |       | $ | 1.48   | (1)  
|Diluted earnings per share( Note 21)                               |                                                                        | $                                                          | 1.83   |       |       | $    | 2.07   |       |       | $ | 1.48   | (1)  



---

|(1) |  | Basic and diluted earnings per share from continuing operations and basic
and diluted earnings per share cover period from March 22 to December 31, 2000.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

The attached notes form part of these consolidated financial statements.

2
www.sunlife.com Annual Report 2002





---



##### 



CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

AS AT DECEMBER 31 (in millions of Canadian dollars)

|                       |                                                              |  |      |         |      |  |   |        | 
|---------------------- | ------------------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------ | 
|                       |                                                              |  | 2002 |         | 2001
|                       |                                                              |  |      |         |     
|ASSETS                 |                                                              |  |      |         |      |  |   |       
|                       | Bonds (Note 11)                                              |  | $    | 73,423  |      |  | $ | 48,077 | 
|                       | Mortgages (Note 11)                                          |  |      | 15,799  |      |  |   | 8,622  | 
|                       | Stocks (Note 11)                                             |  |      | 4,221   |      |  |   | 4,882  | 
|                       | Real estate (Note 11)                                        |  |      | 3,223   |      |  |   | 2,316  | 
|                       | Cash, cash equivalents and short-term securities             |  |      | 7,152   |      |  |   | 4,809  | 
|                       | Policy loans and other invested assets                       |  |      | 6,726   |      |  |   | 4,558  | 
|                       |                                                              |  |      |         |      |  |   |        | 
|                       | Invested assets                                              |  |      | 110,544 |      |  |   | 73,264 | 
|                       | Goodwill (Notes 3 and 12)                                    |  |      | 5,899   |      |  |   | 2,080  | 
|                       | Other assets (Note 12)                                       |  |      | 6,995   |      |  |   | 4,984  | 
|                       |                                                              |  |      |         |      |  |   |        | 
|                       | Total general fund assets                                    |  | $    | 123,438 |      |  | $ | 80,328 | 
|                       |                                                              |  |      |         |      |  |   |        | 
|                       | Segregated funds net assets                                  |  | $    | 52,755  |      |  | $ | 48,544 | 
|                       |                                                              |  |      |         |      |  |   |        | 
|LIABILITIES AND EQUITY |                                                              |  |      |         |      |  |   |       
|                       | Actuarial liabilities and other policy liabilities (Note 13) |  | $    | 89,862  |      |  | $ | 59,527 | 
|                       | Amounts on deposit                                           |  |      | 3,262   |      |  |   | 1,898  | 
|                       | Deferred net realized gains (Note 11)                        |  |      | 3,456   |      |  |   | 3,744  | 
|                       | Other liabilities (Note 15)                                  |  |      | 7,671   |      |  |   | 4,661  | 
|                       |                                                              |  |      |         |      |  |   |        | 
|                       | Total general fund liabilities                               |  |      | 104,251 |      |  |   | 69,830 | 
|                       | Subordinated debt (Note 17)                                  |  |      | 1,974   |      |  |   | 776    | 
|                       | Cumulative capital securities of a subsidiary (Note 18)      |  |      | 948     |      |  |   | 954    | 
|                       | Non-controlling interests in subsidiaries (Note 19)          |  |      | 1,356   |      |  |   | 1,043  | 
|                       | Total equity                                                 |  |      | 14,909  |      |  |   | 7,725  | 
|                       |                                                              |  |      |         |      |  |   |        | 
|                       | Total general fund liabilities and equity                    |  | $    | 123,438 |      |  | $ | 80,328 | 
|                       |                                                              |  |      |         |      |  |   |        | 
|                       | Segregated funds contract liabilities                        |  | $    | 52,755  |      |  | $ | 48,544 | 
|                       |                                                              |  |      |         |      |  |   |        | 

The attached notes form part of these consolidated financial statements.

Approved on behalf of the Board of Directors

(DONALD A. STEWART SIGNATURE)Donald A. Stewart
Chairman and Chief Executive Officer

(RONALD W. OSBORNE SIGNATURE)Ronald W. Osborne
Director

3
Sun Life Financial Services of Canada Inc.





---



##### 



CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Equity

YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)

|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | -- | ------------ | - | ------ | ----- | ---- | - | ------ | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                             |                                                                                                                                                |   | PARTICIPATING |   
|                             |                                                                                                                                                |   | POLICYHOLDERS |    | SHAREHOLDERS |   | 2002   |       | 2001 |   | 2000  
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |       
|SHARE CAPITAL                |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |      
|                             | Balance, beginning of year                                                                                                                     |   | $             |   |              |   | $      | 1,100 |      |   | $      | 1,100 |   |   | $     | 795   |   |   | $     |      |  
|                             | Common shares issued, net of issuance costs and fair value of stock options
granted as consideration for business acquisition (Notes 4 and 20) |   |               |   |              |   |        | 6,329 |      |   |        | 6,329 |   |   |       |      |   |   |       |      |  
|                             | New common shares issued for cash (Notes 8 and 20)                                                                                             |   |               |   |              |   |        |      |      |   |        |      |   |   |       | 330   |   |   |       | 844   |  
|                             | Stock option compensation (Notes 3 and 20)                                                                                                     |   |               |   |              |   |        | 21    |      |   |        | 21    |   |   |       |      |   |   |       |      |  
|                             | Stock options exercised (Notes 20 and 23)                                                                                                      |   |               |   |              |   |        | 27    |      |   |        | 27    |   |   |       |      |   |   |       |      |  
|                             | Commissions and offering costs, net of taxes (Notes 8 and 20)                                                                                  |   |               |   |              |   |        |      |      |   |        |      |   |   |       | (23   | ) |   |       | (49   | )
|                             | Purchase and cancellation of common shares (Note 20)                                                                                           |   |               |   |              |   |        |      |      |   |        |      |   |   |       | (2    | ) |   |       |      |  
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|                             | Balance, end of year                                                                                                                           |   |               |   |              |   |        | 7,477 |      |   |        | 7,477 |   |   |       | 1,100 |   |   |       | 795   |  
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|RETAINED EARNINGS/SURPLUS    |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |      
|                             | Balance, beginning of year                                                                                                                     |   |               | 77 |              |   |        | 5,917 |      |   |        | 5,994 |   |   |       | 5,350 |   |   |       | 5,283 |  
|                             | Demutualization costs, net of taxes (Note 8)                                                                                                   |   |               |   |              |   |        |      |      |   |        |      |   |   |       |      |   |   |       | (114  | )
|                             | Net income as a mutual company                                                                                                                 |   |               |   |              |   |        |      |      |   |        |      |   |   |       |      |   |   |       | 179   |  
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|                             | Balance, March 22, 2000, as at demutualization                                                                                                 |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       | 5,348 |  
|                             | Cash distribution to policyholders at demutualization                                                                                          |   |               |   |              |   |        |      |      |   |        |      |   |   |       |      |   |   |       | (570  | )
|                             | Balance of participating policyholders account of
Clarica Life Insurance Company at date of acquisition                                       |   |               | (3 | )            |   |        |      |      |   |        | (3    | ) |   |       |      |   |   |       |      |  
|                             | Net income (loss) as a stock company                                                                                                           |   |               | (1 | )            |   |        | 998   |      |   |        | 997   |   |   |       | 881   |   |   |       | 623   |  
|                             | Dividends on common shares                                                                                                                     |   |               |   |              |   |        | (294  | )    |   |        | (294  | ) |   |       | (204  | ) |   |       | (51   | )
|                             | Purchase and cancellation of common shares (Note 20)                                                                                           |   |               |   |              |   |        |      |      |   |        |      |   |   |       | (33   | ) |   |       |      |  
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|                             | Balance, end of year                                                                                                                           |   |               | 73 |              |   |        | 6,621 |      |   |        | 6,694 |   |   |       | 5,994 |   |   |       | 5,350 |  
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|CURRENCY TRANSLATION ACCOUNT |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |      
|                             | Balance, beginning of year                                                                                                                     |   |               | 3  |              |   |        | 628   |      |   |        | 631   |   |   |       | 372   |   |   |       | 407   |  
|                             | Changes for the year (prior to demutualization)                                                                                                |   |               |   |              |   |        |      |      |   |        |      |   |   |       |      |   |   |       | (17   | )
|                             | Changes for the year (after demutualization)                                                                                                   |   |               |   |              |   |        | 107   |      |   |        | 107   |   |   |       | 259   |   |   |       | (18   | )
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|                             | Balance, end of year                                                                                                                           |   |               | 3  |              |   |        | 735   |      |   |        | 738   |   |   |       | 631   |   |   |       | 372   |  
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  
|Total equity                 |                                                                                                                                                | $ | 76            |    |              | $ | 14,833 |       |      | $ | 14,909 |       |   | $ | 7,725 |       |   | $ | 6,517 |      
|                             |                                                                                                                                                |   |               |    |              |   |        |       |      |   |        |       |   |   |       |       |   |   |       |       |  

The attached notes form part of these consolidated financial statements.

4
www.sunlife.com Annual Report 2002





---



##### 



CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows

YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)

|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |         |   |      |  
|------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----- | ---------------------------------------------------------- | ------- | ---- | ----- | ------ | ------- | ---- | ----- | ------ | ------- | - | ---- | -
|                                                              |                                                                                   |                                                            |       |                                                            |         | 2002 |       | 2001   |         | 2000
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |     
|CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES         |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |       
|                                                              | Net income from continuing operations                                             |                                                            | $     | 1,033                                                      |         |      | $     | 881    |         |      | $     | 802    |        
|                                                              | Items not affecting cash:                                                         |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              |                                                                                   | Increase in actuarial and other policy related liabilities |       |                                                            | 3,759   |      |       |        | 1,191   |      |       |        | 1,282   |  
|                                                              |                                                                                   | Amortization of:                                           |       |                                                            |         |      |       |        |         |      |       |        |         |  
|                                                              |                                                                                   |                                                            |       | Net deferred realized and unrealized gains on investments  |         |      | (140  | )      |         |      | (451  | )      |         |   | (548 | )
|                                                              |                                                                                   |                                                            |       | Goodwill, deferred acquisition costs and intangible assets |         |      | 333   |        |         |      | 328   |        |         |   | 286  |  
|                                                              |                                                                                   | (Gain) or loss on sale of subsidiaries                     |       |                                                            | (177    | )    |       |        | (195    | )    |       |        | 5       |  
|                                                              |                                                                                   | Future income taxes                                        |       |                                                            | (87     | )    |       |        | 47      |      |       |        | 120     |  
|                                                              |                                                                                   | Provisions for losses on investments                       |       |                                                            | 366     |      |       |        | 4       |      |       |        | 107     |  
|                                                              |                                                                                   | Other changes in other assets and liabilities              |       |                                                            | (695    | )    |       |        | 343     |      |       |        | 692     |  
|                                                              | New mutual fund business acquisition costs capitalized                            |                                                            |       | (194                                                       | )       |      |       | (296   | )       |      |       | (506   | )      
|                                                              | Redemption fees of mutual funds                                                   |                                                            |       | 115                                                        |         |      |       | 105    |         |      |       | 101    |        
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              | Net cash provided by operating activities                                         |                                                            |       | 4,313                                                      |         |      |       | 1,957  |         |      |       | 2,341  |        
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES         |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |       
|                                                              | Borrowed funds                                                                    |                                                            |       | (103                                                       | )       |      |       | (104   | )       |      |       | (294   | )      
|                                                              | Issuance of subordinated debt (Note 17)                                           |                                                            |       | 799                                                        |         |      |       |       |         |      |       |       |        
|                                                              | Redemption of subordinated debt (Note 17)                                         |                                                            |       | (300                                                       | )       |      |       |       |         |      |       |       |        
|                                                              | Payments to certain participating policyholders and underwriters
(Notes 8 and 20) |                                                            |       |                                                           |         |      |       | (29    | )       |      |       | (658   | )      
|                                                              | Issuance of common shares (Notes 8 and 20)                                        |                                                            |       |                                                           |         |      |       | 330    |         |      |       | 844    |        
|                                                              | Issuance of common shares on exercise of stock options (Note 23)                  |                                                            |       | 27                                                         |         |      |       |       |         |      |       |       |        
|                                                              | Issuance of Sun Life ExchangEable Capital Securities  Series A and
B(Note 19)    |                                                            |       | 200                                                        |         |      |       | 950    |         |      |       |       |        
|                                                              | Purchase and cancellation of common shares (Note 20)                              |                                                            |       |                                                           |         |      |       | (35    | )       |      |       |       |        
|                                                              | Dividends paid on common shares                                                   |                                                            |       | (294                                                       | )       |      |       | (204   | )       |      |       | (51    | )      
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              | Net cash provided by (used in) financing activities                               |                                                            |       | 329                                                        |         |      |       | 908    |         |      |       | (159   | )      
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES         |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |       
|                                                              | Sales, maturities and repayments of:                                              |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              |                                                                                   | Bonds                                                      |       |                                                            | 30,556  |      |       |        | 13,427  |      |       |        | 9,621   |  
|                                                              |                                                                                   | Mortgages                                                  |       |                                                            | 3,528   |      |       |        | 1,487   |      |       |        | 1,638   |  
|                                                              |                                                                                   | Stocks                                                     |       |                                                            | 4,285   |      |       |        | 3,241   |      |       |        | 3,815   |  
|                                                              |                                                                                   | Real estate                                                |       |                                                            | 432     |      |       |        | 240     |      |       |        | 378     |  
|                                                              | Purchases of:                                                                     |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              |                                                                                   | Bonds                                                      |       |                                                            | (38,300 | )    |       |        | (13,833 | )    |       |        | (11,848 | )
|                                                              |                                                                                   | Mortgages                                                  |       |                                                            | (2,904  | )    |       |        | (2,001  | )    |       |        | (1,771  | )
|                                                              |                                                                                   | Stocks                                                     |       |                                                            | (2,818  | )    |       |        | (3,278  | )    |       |        | (3,190  | )
|                                                              |                                                                                   | Real estate                                                |       |                                                            | (227    | )    |       |        | (118    | )    |       |        | (282    | )
|                                                              | Policy loans                                                                      |                                                            |       | (151                                                       | )       |      |       | (88    | )       |      |       | (46    | )      
|                                                              | Short-term securities                                                             |                                                            |       | (317                                                       | )       |      |       | (249   | )       |      |       | (389   | )      
|                                                              | Other investments                                                                 |                                                            |       | (39                                                        | )       |      |       | (319   | )       |      |       | 30     |        
|                                                              | Acquisitions, net of cash acquired from continuing operations (Note 4)            |                                                            |       | 2,749                                                      |         |      |       | (1,825 | )       |      |       |       |        
|                                                              | Disposals, net of cash disposed of (Note 4)                                       |                                                            |       | (10                                                        | )       |      |       | 363    |         |      |       | 331    |        
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              | Net cash used in investing activities                                             |                                                            |       | (3,216                                                     | )       |      |       | (2,953 | )       |      |       | (1,713 | )      
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|Net cash provided by discontinued operations                  |                                                                                   |                                                            | 103   |                                                            |         |      |      |        |         |      |      |       
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|Changes due to fluctuations in exchange rates                 |                                                                                   |                                                            | 44    |                                                            |         |      | 168   |        |         |      | 36    |       
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|Increase in cash and cash equivalents                         |                                                                                   |                                                            | 1,573 |                                                            |         |      | 80    |        |         |      | 505   |       
|Cash and cash equivalents, beginning of year                  |                                                                                   |                                                            | 2,583 |                                                            |         |      | 2,503 |        |         |      | 1,998 |       
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|Cash and cash equivalents, end of year                        |                                                                                   |                                                            | 4,156 |                                                            |         |      | 2,583 |        |         |      | 2,503 |       
|Short-term securities, end of year                            |                                                                                   |                                                            | 2,996 |                                                            |         |      | 2,226 |        |         |      | 1,459 |       
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|Cash, cash equivalents and short-term securities, end of year |                                                                                   | $                                                          | 7,152 |                                                            |         | $    | 4,809 |        |         | $    | 3,962 |       
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|Supplementary Information                                     |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |       
|Cash and cash equivalents:                                    |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |       
|                                                              | Cash                                                                              |                                                            | $     | 328                                                        |         |      | $     | 396    |         |      | $     | 476    |        
|                                                              | Cash equivalents                                                                  |                                                            |       | 3,828                                                      |         |      |       | 2,187  |         |      |       | 2,027  |        
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              |                                                                                   | $                                                          | 4,156 |                                                            |         | $    | 2,583 |        |         | $    | 2,503 |       
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|Cash disbursements made for:                                  |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |       
|                                                              | Interest on borrowed funds, subordinated debt and cumulative capital
securities   |                                                            | $     | 201                                                        |         |      | $     | 167    |         |      | $     | 159    |        
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        
|                                                              | Income taxes, net of refunds                                                      |                                                            | $     | 229                                                        |         |      | $     | 269    |         |      | $     | 357    |        
|                                                              |                                                                                   |                                                            |       |                                                            |         |      |       |        |         |      |       |        |        

The attached notes form part of these consolidated financial statements.

5
Sun Life Financial Services of Canada Inc.





---



##### 



CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Changes in Segregated Funds Net Assets

YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)

|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|----------------------------------------------------------- | ------------------------------------------------- | -------------- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                                            |                                                   |                |        | 2002   |       | 2001 |        | 2000  
|                                                            |                                                   |                |        |        |       |      |        |       
|ADDITIONS TO SEGREGATED FUNDS                               |                                                   |                |        |        |       |      |        |        |       |   |        |       
|                                                            | Deposits:                                         |                |        |        |       |      |        |        |       |   |        |        |      
|                                                            |                                                   | Annuities      |        | $      | 5,105 |      |        | $      | 5,162 |   |        | $      | 6,860 | 
|                                                            |                                                   | Life insurance |        |        | 1,537 |      |        |        | 689   |   |        |        | 1,458 | 
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|                                                            |                                                   |                | 6,642  |        |       |      | 5,851  |        |       |   | 8,318  |       
|                                                            | Net transfers from general funds                  |                |        | 1,329  |       |      |        | 2,606  |       |   |        | 2,562  |      
|                                                            | Net realized and unrealized gains (losses)        |                |        | (8,658 | )     |      |        | (7,372 | )     |   |        | (2,670 | )    
|                                                            | Other investment income                           |                |        | 1,343  |       |      |        | 1,499  |       |   |        | 1,331  |      
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|                                                            |                                                   |                | 656    |        |       |      | 2,584  |        |       |   | 9,541  |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|DEDUCTIONS FROM SEGREGATED FUNDS                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|                                                            | Payments to policyholders and their beneficiaries |                |        | 7,366  |       |      |        | 6,480  |       |   |        | 6,243  |      
|                                                            | Management fees                                   |                |        | 564    |       |      |        | 538    |       |   |        | 552    |      
|                                                            | Taxes and other expenses                          |                |        | 57     |       |      |        | 67     |       |   |        | 33     |      
|                                                            | Effect of changes in currency exchange rates      |                |        | (349   | )     |      |        | (1,824 | )     |   |        | (296   | )    
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|                                                            |                                                   |                | 7,638  |        |       |      | 5,261  |        |       |   | 6,532  |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|Net additions (reductions) to segregated funds for the year |                                                   |                | (6,982 | )      |       |      | (2,677 | )      |       |   | 3,009  |       
|Acquisition (Note 4)                                        |                                                   |                | 11,193 |        |       |      | 3,882  |        |       |   |       |       
|Disposal (Note 4)                                           |                                                   |                |       |        |       |      | (2,194 | )      |       |   |       |       
|Segregated funds net assets, beginning of year              |                                                   |                | 48,544 |        |       |      | 49,533 |        |       |   | 46,524 |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|Segregated funds net assets, end of year                    |                                                   | $              | 52,755 |        |       | $    | 48,544 |        |       | $ | 49,533 |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 

Consolidated Statements of Segregated Funds Net Assets

AS AT DECEMBER 31 (in millions of Canadian dollars)

|                                                          |                                                  |   |        |        |      |   |        |        | 
|--------------------------------------------------------- | ------------------------------------------------ | - | ------ | ------ | ---- | - | ------ | ------ | 
|                                                          |                                                  |   | 2002   |        | 2001
|                                                          |                                                  |   |        |        |     
|ASSETS                                                    |                                                  |   |        |        |      |   |        |       
|                                                          | Segregated and mutual fund units                 |   | $      | 38,377 |      |   | $      | 34,534 | 
|                                                          | Stocks                                           |   |        | 7,452  |      |   |        | 8,635  | 
|                                                          | Bonds                                            |   |        | 5,896  |      |   |        | 4,049  | 
|                                                          | Cash, cash equivalents and short-term securities |   |        | 1,530  |      |   |        | 1,796  | 
|                                                          | Real estate                                      |   |        | 170    |      |   |        | 491    | 
|                                                          | Mortgages                                        |   |        | 146    |      |   |        | 162    | 
|                                                          | Other assets                                     |   |        | 965    |      |   |        | 379    | 
|                                                          |                                                  |   |        |        |      |   |        |        | 
|                                                          |                                                  |   | 54,536 |        |      |   | 50,046 |       
|                                                          |                                                  |   |        |        |      |   |        |        | 
|LIABILITIES                                               |                                                  |   | 1,781  |        |      |   | 1,502  |       
|                                                          |                                                  |   |        |        |      |   |        |        | 
|Net assets attributable to segregated funds policyholders |                                                  | $ | 52,755 |        |      | $ | 48,544 |       
|                                                          |                                                  |   |        |        |      |   |        |        | 

The attached notes form part of these consolidated financial statements.

6
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

(Amounts in millions of Canadian dollars, except for per share amounts and where otherwise stated)




|1. |  | Accounting Policies
|-- |  | -------------------

DESCRIPTION OF BUSINESS

Sun Life Financial Services of Canada Inc., a publicly traded company, is the
holding company of Sun Life Assurance Company of Canada. Sun Life Assurance
Company of Canada was organized as a mutual life insurance company until March
22, 2000, at which date it demutualized as described in Note 8. Both companies
are registered under the Insurance Companies Act of Canada, which is
administered by the Office of the Superintendent of Financial Institutions
Canada (OSFI).

Sun Life Financial Services of Canada Inc. together with all its subsidiaries,
including the wholly-owned consolidated subsidiary Sun Life Assurance Company
of Canada (Sun Life Assurance), are collectively referred to as Sun Life
Financial or the Company. The Company is an internationally diversified
financial services organization providing savings, retirement and pension
products, and life and health insurance to individuals and groups through its
operations in Canada, the United States, the United Kingdom and Asia. The
Company also operates mutual fund, investment management and trust businesses,
primarily in Canada, the United States and Asia.

BASIS OF PRESENTATION

For financial statement purposes, the surplus and results of operations of Sun
Life Assurance have been presented in the consolidated financial statements of
Sun Life Financial Services of Canada Inc. on a continuity of interest basis as
a continuation of the historical operations of Sun Life Assurance. Therefore,
the surplus, results of operations and cash flows included in these
consolidated financial statements prior to demutualization are those of Sun
Life Assurance.

The Company prepares its consolidated financial statements according to
Canadian generally accepted accounting principles (GAAP) including the
accounting requirements of the OSFI.

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect:

| |  | the reported amounts of assets and liabilities at the date of the financial statements,         
|- |  | ------------------------------------------------------------------------------------------------
| |  | the disclosure of contingent assets and liabilities at the date of the financial statements, and
| |  | the reported amounts of revenues, policy benefits and expenses during the reporting period.     

The significant accounting policies used in the preparation of these
consolidated financial statements are summarized below.

BASIS OF CONSOLIDATION

The consolidated financial statements reflect the accounts of the Company which
include life insurance and non-life insurance subsidiaries. Significant
intercompany balances and transactions have been eliminated. The purchase
method is used to account for the acquisition of subsidiaries. The difference
between the acquisition cost of a subsidiary and the fair value of the net
identifiable assets acquired represents goodwill. Operating results of the
subsidiaries are included in the consolidated statements of operations since
the dates of their acquisition. Other entities over which the Company is able
to exercise a significant influence are accounted for by the equity method.
The Companys share of earnings of such entities is reported in net investment
income in the consolidated statements of operations.

BONDS AND MORTGAGES

Bonds and mortgages are carried at amortized cost, net of allowances for
losses. Purchase premiums or discounts on bonds are amortized on a constant
yield basis over the life of the particular securities.

Asset-backed securities are carried at cost and adjusted for unamortized
premiums and discounts. Unamortized premiums and discounts are amortized on a
constant yield basis over the estimated remaining term of the securities
adjusted for anticipated prepayments.

A bond or mortgage is classified as impaired when payment is 90 days past due,
foreclosure or power of sale procedures have started, or as other circumstances
warrant. When an asset is classified as impaired, allowances for losses are
established, interest is no longer accrued and previous interest accruals are
reversed. When this happens, the carrying value of the asset becomes the net
present value of its future estimated cash flows. Allowances for losses
against bonds and mortgages are charged against net investment income and are
reduced by write-offs of specific investments and recoveries. Allowances are
reduced once the conditions causing the impairment improve and future payments
are reasonably assured. The invested asset is then no longer classified as
impaired.

Management also establishes sectoral allowances for classes of assets when
there is concern about the ultimate collection of principal or interest. The
Companys actuarial liabilities include additional provisions for possible
future asset losses.

Realized gains and losses on the sales of bonds and mortgages are deferred and
amortized into net investment income on a constant yield basis over the
remaining period to maturity.

7
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | Accounting Policies (Contd)
|-- |  | ----------------------------

STOCKS

Stocks are originally recorded at cost and the carrying value is adjusted
annually by 15% of the difference between market value and previously adjusted
carrying value. Realized gains and losses on sales of stocks are deferred and
amortized into net investment income at the annual rate of 15% of the
unamortized balance.

REAL ESTATE

Real estate includes real estate held for investment and real estate held for
sale.

Real estate held for investment:Real estate held for investment is originally
recorded at cost. The carrying value is adjusted annually by 10% of the
difference between market value and previously adjusted carrying value.
Realized gains and losses on sales are deferred and amortized into net
investment income at the annual rate of 10% of the unamortized balance.

Market value is determined for each property by qualified appraisers.
Appraisals are obtained annually for high value properties and at least once
every three years for other properties. The Company monitors the values of
these properties to determine that, in aggregate, the carrying values used are
not in excess of market values and records a write down for any non-temporary
decline in the value of the portfolio.

Real estate held for sale:Properties held for sale are usually acquired
through foreclosure. They are carried at the lower of the carrying value of
the foreclosed loan or the estimated net sales proceeds of the particular
property. The Company estimates the net sales proceeds using independent
appraisals or discounted future cash flow analyses. Gains and losses on sales
of these properties are recorded in net investment income immediately.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative instruments, including interest rate swaps,
currency swaps, financial futures, options and forward contracts, to manage
risks associated with currency, interest rate and stock market fluctuations.
The Companys monitoring policies are described in Note 11. The accounting
policies for the various types of derivative instruments used by the Company
are described below.

Interest rate swaps and options are used by the Company to manage its exposure
to interest rate fluctuations associated with interest-sensitive portfolios.
Most of the interest rate swaps are used for duration matching of the asset
portfolio to the actuarial liabilities. Certain interest rate swaps are used
to hedge a floating rate loan. The net receivable or payable on the interest
rate swaps is accrued to other assets or other liabilities with the net spread
of the swaps recorded to net investment income. Realized gains or losses
associated with these derivatives are deferred and amortized over the remaining
duration of the bonds or liabilities being hedged. Premiums paid for interest
rate options are deferred in other invested assets and amortized to net
investment income over the terms of the options.

The Company uses currency swaps and forward contracts to reduce foreign
exchange fluctuations associated with foreign currency investments, investment
financing activity and actuarial liabilities for certain investment products.
The accounting for these contracts is consistent with the underlying assets or
liabilities. Foreign currency bonds hedged by currency swaps are recorded at
the exchange rates specified in the swap contracts. Currency forwards hedging
foreign denominated stocks are recorded at 15% of the difference between the
market values and previously adjusted carrying values, consistent with the
accounting for the stocks being hedged. Changes in exchange gains or losses on
currency swaps hedging the investment financing activity are included in other
liabilities and the currency translation account in equity, offsetting the
respective exchange gains or losses arising from the conversion of the
investment financing activity. The net payable or receivable on currency swaps
hedging actuarial liabilities is included in other assets or other liabilities
and net investment income. Any realized gains and losses resulting from the
termination of these derivative instruments are deferred and amortized on a
basis consistent with the underlying asset or liability.

Equity index futures, swaps and options are used to reduce exposure to the
effect of stock market fluctuations in the actuarial liabilities associated
with certain products. The premiums paid for options are deferred in other
invested assets and amortized to net investment income over the life of the
options. The intrinsic value of the options purchased to hedge the actuarial
liabilities associated with guaranteed minimum death benefit products (GMDB) is
included in other invested assets and the change in intrinsic value is included
in increase in actuarial liabilities, offsetting the change in actuarial
liabilities from equity market fluctuation of these products. The accounting
for the equity index futures follows the accounting for the underlying
actuarial liabilities.

For the options, equity futures and equity swaps that are held to support the
actuarial liabilities, the accounting policy for these investments is the same
as that of stocks.

POLICY LOANS

Policy loans are carried at their unpaid balance and are fully secured by the
policy values on which the loans are made.

CASH, CASH EQUIVALENTS AND SHORT-TERM SECURITIES

Cash equivalents are highly liquid investments with a term to maturity of less
than three months. Short-term securities are highly liquid investments with a
term to maturity exceeding three months but less than one year. They are
carried at amortized cost.

8
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | Accounting Policies (Contd)
|-- |  | ----------------------------

OTHER INVESTED ASSETS

Other invested assets include the Companys investment in segregated funds,
investments accounted for by the equity method and equipment leases.

DEFERRED ACQUISITION COSTS

Deferred acquisition costs arising on mutual fund sales are amortized over the
periods of the related sales charges, which range from three to seven years.
Deferred acquisition costs arising on segregated funds are calculated and
included in actuarial liabilities.

Actuarial liabilities implicitly include acquisition costs on insurance and
annuity product sales.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the cost of businesses acquired over the fair
value of the net identifiable tangible and intangible assets. Goodwill arising
from acquisitions before July 1, 2001 was amortized on a straight-line basis
over varying periods of up to 20 years in 2000 and 2001. Effective January 1,
2002, goodwill is no longer amortized. Identifiable intangible assets consist
of finite-life and indefinite-life intangible assets. Finite-life intangible
assets include the value of the banking distribution channel, the sales
potential of field force and asset administration contracts. These intangible
assets are amortized on a straight-line basis over varying periods of up to 40
years. The indefinite-life intangible assets include fund management
contracts, brand name and state licenses. The goodwill and indefinite-life
intangible assets are tested for impairment on an annual basis, based on the
fair values of the reporting units and the intangible assets.

CAPITAL ASSETS

Furniture, computers, other equipment and leasehold improvements are carried at
cost less accumulated depreciation and amortization. Depreciation and
amortization are recorded on a straight-line basis over the estimated useful
lives of these assets, which generally range from two to ten years.

LOANS SECURITIZATION

The Company periodically securitizes assets, such as mortgages or bonds, by
selling them to trusts that issue securities to investors. These transactions
are accounted for as sales when control over the assets has been surrendered
and consideration other than beneficial interests in these transferred assets
has been received in exchange. Gains or losses on these securitization
transactions are included in deferred net realized gains. In determining the
gain on sale of the assets, the carrying value of the assets sold is allocated
between the portion sold and the portion retained based on their relative fair
values on the date of sale. These fair values are determined using either
quoted market prices or discounted cash flows models. Interests in the
securitized assets, such as subordinated investments in the issued securities
or servicing rights, may be retained. These subordinated investments and
servicing rights are classified as bonds and other assets, respectively.

SEGREGATED FUNDS

Segregated funds are lines of business in which the Company issues a contract
where the benefit amount is directly linked to the market value of the
investments held in the particular segregated fund. Although the underlying
assets are registered in the name of the Company and the segregated fund
contract holder has no direct access to the specific assets, the contractual
arrangements are such that the segregated fund policyholder bears the risk and
rewards of the funds investment performance. In addition, certain individual
contracts have guarantees from the Company.

Segregated fund assets are carried at fair value. Fair values are determined
using quoted market values or, where quoted market values are not available,
estimated fair values as determined by the Company. Segregated fund assets may
not be applied against liabilities that arise from any other business of the
Company.

The investment results of the segregated funds are reflected directly in
segregated fund liabilities. Deposits to segregated funds are reported as
increases in segregated fund liabilities and are not reported as revenues in
the consolidated statements of operations.

The Company derives fee income from segregated funds. Fee income includes fund
management fees and income earned by the Company on capital invested in the
funds, as well as mortality, policy administration and surrender charges on
segregated funds. Changes in the Companys interest in the segregated funds,
including undistributed net investment income, are reflected in net investment
income. Separate consolidated financial statements are provided for the
segregated funds net assets and the changes in net assets.

AMOUNTS ON DEPOSIT

Amounts on deposit represent premiums paid in advance, reinvested policy
dividends and customer deposits in the Companys trust subsidiaries.

9
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | Accounting Policies (Contd)
|-- |  | ----------------------------

INCOME TAXES

The Company uses the liability method of tax allocation. Under this method,
the income tax expense consists of both an expense for current income taxes and
an expense for future income taxes. Current income tax expense (recoverable)
represents the expected payable (receivable) resulting from the current years
operations. Future income tax expense (recoverable) represents the movement
during the year in the cumulative temporary differences between the carrying
value of the Companys assets and liabilities on the balance sheet and their
values for tax purposes. Future income tax assets are recognized to the extent
that they are more likely than not to be realized.

Future income tax liabilities and assets are calculated based on income tax
rates and laws that, at the balance sheet date, are expected to apply when the
liability or asset is realized, which are normally those enacted or considered
substantively enacted at the consolidated balance sheet dates.

In determining the impact of taxes, the Company is required to comply with the
standards of both the Canadian Institute of Actuaries and the Canadian
Institute of Chartered Accountants (CICA). Actuarial standards require that
the projected timing of all cash flows associated with policy liabilities,
including income taxes, be included in the determination of actuarial
liabilities under the Canadian asset liability method.

The actuarial liabilities are first computed including all related income tax
effects on a discounted basis, including the effects of temporary differences
that have already occurred. Future income tax assets and/or liabilities
arising from temporary differences that have already occurred are computed
without discounting. The undiscounted future income tax assets and/or
liabilities are reclassified from the actuarial liabilities to future income
taxes on the balance sheets. The net result of this reclassification is to
leave the discounting effect of the future income taxes in the actuarial
liabilities.

PREMIUM INCOME AND RELATED EXPENSES

Gross premiums for all types of insurance contracts, and contracts with limited
mortality or morbidity risk, are generally recognized as revenue when due.
When premiums are recognized, actuarial liabilities are computed, with the
result that benefits and expenses are matched with such revenue.

FOREIGN CURRENCY TRANSLATION

The Companys exchange gains and losses arising from the conversion of its
self-sustaining foreign operations are included in the currency translation
account of the consolidated statements of equity. Revenues and expenses in
foreign currencies, including amortized gains and losses on foreign
investments, are translated into Canadian dollars at an average of the market
exchange rates during the year. Assets and liabilities are translated into
Canadian dollars at market exchange rates at the end of the year. The net
translation adjustment is reported as a separate item in the consolidated
statements of equity.

EMPLOYEE FUTURE BENEFITS

Pension costs related to current service are charged to income as services are
rendered. Based on managements best estimate assumptions, actuarial valuations
of the pension obligations are determined using the projected benefit method
prorated on service. The estimated present value of post-retirement health
care and life insurance benefits is charged to income over the employees years
of service to the date of eligibility. For the purpose of calculating the
expected return on pension plan assets, a market-related asset value is used
which recognizes asset gains and losses emerging after January 1, 2000 over a
five-year period. Any transition adjustments, as well as future adjustments
arising from plan amendments, are amortized to income over the estimated
average remaining service life of the members covered by the plan. Only future
variations in actuarial estimates in excess of certain minimums will be
amortized.



|2. |  | Actuarial Policies
|-- |  | ------------------

Actuarial liabilities and other policy liabilities, including policy benefits
payable and provision for policyholder dividends, are computed using generally
accepted actuarial practice in accordance with the standards established by the
Canadian Institute of Actuaries including the requirements of the OSFI.

Actuarial liabilities and other policy liabilities represent the estimated
amounts which, together with estimated future premiums and net investment
income, will provide for outstanding claims, future benefits, policyholders
dividends, taxes (other than income taxes) and expenses on in-force policies.

In calculating actuarial liabilities and other policy liabilities, assumptions
must be made about the timing and amount of many events, including death,
disability, investment, inflation, policy termination, expenses, taxes,
premiums, commissions and policyholder dividends.

The Company uses best estimate assumptions for expected future experience.
Uncertainty is inherent in the process, as no one can accurately predict the
future. Some assumptions relate to events that are anticipated to occur many
years in the future and may require subsequent revision. Additional provisions
are included in the actuarial liabilities to provide for possible adverse
deviations from the best estimates. If the assumption is more susceptible to
change or if the actuary is less certain about the underlying best estimate assumption, a correspondingly
larger provision is included in the actuarial liabilities. With the passage of
time and resulting reduction in estimation risk, the provisions are released
into income.

10
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. |  | Actuarial Policies (Contd)
|-- |  | ---------------------------

Reinsurance is used to limit exposure to large losses on life and disability
products. The Board approves the Companys individual life insurance retention
policy and limits which require that such arrangements be placed with
well-established, highly rated reinsurers. Coverage is well diversified and
controls are in place to manage exposure to reinsurance counterparties.
Actuarial liabilities are shown net of ceded reinsurance. Although reinsurance
arrangements provide for the recovery of claims arising from the liabilities
ceded, the Company retains primary responsibility to the policyholders.

The significant actuarial policies and assumptions are summarized below.

MORTALITY

Mortality refers to the rate at which death occurs for a defined group of
people. Insurance mortality is generally based on the Companys average
five-year experience. For annuities, Company experience is combined with
industry experience, since the Companys own experience is insufficient to be
statistically reliable. Assumed future mortality rates on annuities are
adjusted to reflect expected improvements in mortality. Assumed mortality
rates for life insurance contracts do not reflect any future improvement which
might occur.

MORBIDITY

Morbidity refers to the disability rate for a defined group of people. Most of
the Companys disability insurance is marketed on a group basis. In Canada,
morbidity assumptions are based on the Companys five-year average experience,
modified to reflect the trend in recovery rates. In the United States and the
United Kingdom, both industry and Company experience is used because the
Companys own experience is not sufficient to set a reliable assumption.

INVESTMENT RETURN

The Company generally maintains distinct asset portfolios for each line of
business. To ensure the adequacy of assets backing the liabilities, the
Company does cash flow testing using a set of plausible future interest rates
and economic environments as well as a set of prescribed scenarios. In each
test, asset and liability cash flows are projected. Net cash flows are
invested in new assets, if positive, or assets are sold to meet cash needs, in
accordance with the assumptions in the test and the standards of the Canadian
Institute of Actuaries. Whenever needed, specific assumptions are made for
cyclical credit risks that exceed the long-term expectation. The actuarial
liability is at least as great as that determined under the worst of the
prescribed scenarios as defined by the standards of the Canadian Institute of
Actuaries. Deferred net realized gains are taken into account in establishing
the actuarial liabilities.

POLICY LAPSE RATES

Policyholders may allow their policies to lapse by choosing not to continue to
pay premiums. Assumptions for lapse experience on life insurance are generally
based on the Companys average five-year experience. Lapse rates vary by
plan, age at issue, method of premium payment and policy duration. For
universal life contracts, it is also necessary to set assumptions about premium
cessation occurring prior to termination of the policy. Studies prepared by
industry or actuarial bodies are used for certain products where the Companys
experience is too limited to be statistically valid.

OPERATING EXPENSES AND INFLATION

Actuarial liabilities provide for future policy-related expenses. These
include the costs of premium collection, claims adjudication and processing,
actuarial calculations, preparation and mailing of policy statements and
related indirect expenses and overhead. Expense assumptions are mainly based
upon 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.

PROVISION FOR POLICYHOLDER DIVIDENDS

An amount equal to the policyholder dividends expected to be allotted to
policyholders over the next twelve months is shown as a provision for
policyholder dividends. Actuarial liabilities provide for the payment of
future policyholder dividends beyond the next twelve months. Both liabilities
are determined taking into account the scale of dividends approved by the Board
and the expectation that future dividends will be adjusted to reflect future
experience.

ROLE OF THE APPOINTED ACTUARY

The Appointed Actuary is appointed by the Board and is responsible for ensuring
that the assumptions and methods used in the valuation of policy liabilities
are in accordance with accepted actuarial practice, applicable legislation and
associated regulations or directives.

The Appointed Actuary is required to provide an opinion regarding the
appropriateness of the policy liabilities at the balance sheet dates to meet
all obligations to policyholders of the Company. Examination of supporting
data for accuracy and completeness and analysis of Company assets for their
ability to support the amount of policy liabilities are important elements of
the work required to form this opinion.

The Appointed Actuary is required each year to analyze the financial condition
of the Company and prepare a report for the Board. The 2002 analysis tested
the capital adequacy of the Company until December 31, 2006 under various
adverse economic and business conditions.

11
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|3. |  | Changes in Accounting Policies
|-- |  | ------------------------------

Goodwill and Other Intangible Assets:The Company adopted prospectively the
CICA Handbook Section 3062, Goodwill and Other Intangible Assets, on January 1,
2002. This standard requires that indefinite-life intangible assets and
goodwill not be amortized. If goodwill had not been amortized in 2001 and
2000, net income for the years ended December 31, 2001 and 2000 would have been
increased by the amortization expense of $19 and $18, respectively.

This standard also requires that intangible assets with an indefinite life and
goodwill be tested for impairment on an annual basis. In the first step of the
goodwill impairment test, the fair value of each reporting unit is compared to
its carrying value to identify if the carrying value is in excess of the fair
value. In the second step of the impairment test, the fair values of the
reporting units that have potential impairment are allocated to the fair values
of their identifiable net assets and the remaining unallocated balances are the
fair values of the goodwill. If the carrying values of the goodwill are
greater than the fair values, the excesses are recorded as impairment losses.

The Company completed the first steps of the transitional and annual impairment
tests for goodwill as at January 1 and June 30, 2002 and determined that none
of the goodwill balances were impaired. Therefore, the second steps of these
impairment tests were not required to be performed. If any impairment losses
had arisen from the transitional impairment test, they would have been
recognized as a change in accounting policy and recorded as an adjustment to
the opening retained earnings. Impairment losses, if any, arising from the
annual impairment tests will be charged to income.

Stock-Based Compensation and Other Stock-Based Payments:The Company adopted
prospectively CICA Handbook Section 3870, Stock-Based Compensation and Other
Stock-Based Payments, on January 1, 2002. The new Section requires that direct
awards of stocks be accounted for using the fair value method. It also
requires that stock appreciation rights (SAR) to be settled in cash be recorded
as liabilities for the difference between the option price and quoted market
price of the stocks. SAR to be settled by equity instruments are to be
measured using the fair value method or in a manner similar to the accounting
for SAR settled in cash. The new Section encourages, but does not require, the
use of the fair value method to account for all other stock-based transactions
with employees.

Effective January 1, 2002, the Company changed its accounting policy for stock
options granted to employees from the intrinsic value method to the fair value
method on a prospective basis. Under the fair value method, fair value of the
stock options is estimated at the grant date and the total fair value of the
options is amortized over the vesting periods as compensation expense with an
offset to share capital. For options that are forfeited before vesting, the
compensation expense that has previously been recognized in operating expenses
and share capital is reversed. When options are exercised, the proceeds
received by the Company are credited to share capital in the consolidated
statements of equity. The adoption of the fair value method for options
granted since January 1, 2002 for purposes other than a business acquisition
resulted in a reduction in net income of $21 and a reduction in basic and
diluted earnings per share of $0.03 per share for year ended December 31, 2002.

Disposal of Long-Lived Assets and Discontinued Operations:The Company adopted
in the fourth quarter of 2002 CICA Handbook Section 3475, Disposal of
Long-Lived Assets and Discontinued Operations, effective January 1, 2002 for
transactions occurring on or after January 1, 2002 and discontinued operations
existing at that date. This standard establishes the accounting requirements
for long-lived assets to be disposed of by sale and discontinued operations and
requires that those long-lived assets be measured at the lower of their
carrying amounts or fair values less costs to sell. It broadens the reporting
of discontinued operations to include all components of an entity with
operations and cash flows that can be distinguished from the rest of the
Company. Discontinued operations will no longer include future operating
losses, other than to the extent they are included in the fair value of the
asset. As a result of adopting this standard, the Company has reclassified
revenues, expenses and cash flows of its accident and health reinsurance and
guaranteed minimum income benefit businesses to continuing operations for 2000,
2001 and 2002, as this line of business no longer qualifies as a discontinued
operation. However, Clarica U.S., Inc. (Clarica U.S.) met the requirements to
be classified as a discontinued operation, based upon the formal plan of
disposal approved in 2002 and its designation as a held-for-sale investment.
The sale of Clarica U.S. was concluded on January 7, 2003 as described in Note
4.

FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Impaired Loans:The Company will apply the new accounting requirements in CICA
Handbook Section 3025, Impaired Loans, to assets foreclosed on or after May 1,
2003. A long-lived foreclosed asset is classified as held for sale only if
certain criteria in the CICA Handbook Section 3475, Disposal of Long-Lived
Assets and Discontinued Operations, are met. A long-lived foreclosed asset
classified as held for sale is measured at fair value less cost to sell.
Foreclosed assets, other than long-lived assets that meet the criteria to be
classified as held for sale, are initially measured at fair value. When the
initial carrying amount of the foreclosed asset is different from the carrying
amount of the loan, a gain or loss will be recorded at the time of foreclosure.
The Company will determine the impact of this new requirement on the
consolidated balance sheets and consolidated statements of operations when
foreclosures occur in 2003.

12www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|3. |  | Changes in Accounting Policies (Contd)
|-- |  | ---------------------------------------

Impairment of Long-Lived Assets:The Company will adopt Impairment of
Long-Lived Assets, CICA Handbook Section 3063, on January 1, 2004. Under this
standard, the impairment test of long-lived assets is a two-step process with
the first step determining when an impairment is recognized and the second step
measuring the amount of the impairment. To test for and measure impairment,
assets are grouped at the lowest level for which identifiable cash flows are
largely independent. An impairment loss is recognized when the carrying amount
of an asset to be held and used exceeds the sum of the undiscounted cash flows
expected from its use and eventual disposition. An impairment loss is measured
as the amount by which the assets carrying amount exceeds its fair value. An
asset classified as held for sale is measured at the lower of its carrying
amount or fair value less cost to sell. The Company does not expect this
standard to have a material effect on the consolidated financial statements.

Hedging Relationships:The Company will adopt Hedging Relationships, CICA
Handbook Accounting Guideline 13, on January 1, 2004. This Accounting Guideline
requires that all conditions with respect to identification, documentation,
designation and effectiveness of hedges be satisfied before companies choose to
use hedge accounting. These conditions are applicable to hedges existing on or
after January 1, 2004. The Company will determine the impact of implementing
this accounting guideline on the consolidated balance sheets and consolidated
statements of operations in 2003.

Consolidation of Special-Purpose Entities:CICA issued a draft Accounting
Guideline Consolidation of Special-Purpose Entities on August 1, 2002. The
proposed guideline addresses the principles for determining when an entity
includes assets, liabilities and results of activities of a special purpose
entity in its consolidated financial statements. The impact of this proposed
guideline on the consolidated financial statements has not yet been determined
as the proposed guideline is still under development.



|4. |  | Acquisitions, Disposals and Subsequent Event
|-- |  | --------------------------------------------

Effective May 29, 2002, the Company acquired all the outstanding common shares
of Clarica Life Insurance Company (Clarica) that were not already beneficially
owned by the Company as general fund assets for an ascribed price of $51.28 per
Clarica common share, and Clarica became a wholly-owned subsidiary of Sun Life
Financial Services of Canada Inc. The business acquired includes both general
and segregated funds business. Clarica was one of the largest life insurance
companies in Canada, offering a wide range of life and health insurance, wealth
management products and other financial services to both individuals and
corporations. This acquisition strengthened the Companys position as a market
leader in the Canadian life insurance industry and the Company expects to
achieve cost synergies through economies of scale. Effective December 31,
2002, Clarica amalgamated with Sun Life Assurance Company of Canada and the
amalgamated company continues to operate under the name of Sun Life Assurance
Company of Canada.

The acquisition was completed by way of a capital reorganization of Clarica
pursuant to which holders of Clarica common shares received 1.5135 common
shares of Sun Life Financial Services of Canada Inc. for each Clarica common
share held. Approximately 185 million common shares of Sun Life Financial
Services of Canada Inc. were issued at an ascribed price of $33.88 per share
based on a volume-weighted average closing price of the common shares for the
period from December 13 to 19, 2001. The common shares of Clarica that were
beneficially owned by the Company as general fund assets had a carrying value
of $540 at the date of acquisition. In addition, all the unvested Clarica
stock options vested immediately prior to the closing date and on May 29, 2002,
these Clarica stock options were exercisable to acquire approximately 5 million
common shares of Sun Life Financial Services of Canada Inc. as described in
Note 23. The Company recorded $48 as part of the purchase consideration and
share capital, representing the fair value of the outstanding Clarica stock
options based on the average share price of Clarica from December 13 to 19,
2001.

The total goodwill balance of Clarica has been recorded in the Canadian and
U.S. segments and is not deductible for tax purposes. The acquired intangible
assets include sales potential of the field force of $500 and asset
administration contracts of $140 that are subject to amortization and fund
management contracts of $250 and brand name of $60 that are not subject to
amortization. Sales potential of the field force and asset administration
contracts are amortized on a straight-line basis over the projected economic
lives of 40 and 25 years, respectively. Other liabilities and actuarial
liabilities acquired include $306 for the elimination of duplicate systems and
operations, staff reductions, employee relocation, closure of facilities and
transaction costs. During the year ended December 31, 2002, payments of $155
were charged against these expected future costs. As at December 31, 2002, the
remaining balance of these costs was $151.

The following supplemental unaudited pro forma information has been prepared to
give effect to the acquisition of Clarica, as if the transaction had been
completed at the beginning of each year. This information is calculated by
combining the results of operations of the Company for 2002 and 2001 with that
of Clarica prior to the acquisition date and adjusting for the amortization of
Claricas identifiable intangible assets, net of taxes ($7 in 2002 and $15 in
2001) and the elimination of amortization of net unrealized gains and deferred
net realized gains as a result of fair value adjustments to the assets and
liabilities of Clarica, net of taxes ($13 in 2002 and $31 in 2001). The pro
forma information is not intended to reflect what would have actually resulted
had the transaction been completed at the beginning of each respective year or
what may be obtained in the future.

Supplemental unaudited pro forma condensed information:

|                                                                               |  |      |        |      |  |   |        | 
|------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                               |  | 2002 |        | 2001
|                                                                               |  |      |        |     
|Revenue                                                                        |  | $    | 25,217 |      |  | $ | 21,819 | 
|Shareholders net income                                                       |  | $    | 1,186  |      |  | $ | 1,250  | 
|Weighted average number of shares outstanding (in millions)                    |  |      | 618    |      |  |   | 609    | 
|Basic earnings per share                                                       |  | $    | 1.92   |      |  | $ | 2.05   | 
|Shareholders net income on a diluted basis                                    |  | $    | 1,186  |      |  | $ | 1,250  | 
|Weighted average number of shares outstanding on a diluted basis (in millions) |  |      | 618    |      |  |   | 610    | 
|Diluted earnings per share                                                     |  | $    | 1.92   |      |  | $ | 2.05   | 

13
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|4. |  | Acquisitions, Disposals and Subsequent Event (Contd)
|-- |  | -----------------------------------------------------

Effective July 25, 2002, the Company acquired approximately 71 million common
shares of CI Fund Management Inc. (CI) in exchange for all the shares of
Spectrum Investment Management Limited (Spectrum) and Clarica Diversico Ltd.
(Diversico). The 71 million common shares of CI were valued at the weighted
average price of $9.15 per share on July 24, 2002. These common shares,
together with those that were already beneficially owned by the Company as
general fund assets, represented a 31% economic interest in CI on July 25,
2002. The Company recorded a gain of $177 before taxes in net investment
income for the sales of the two subsidiaries. Previously unrecognized net
capital losses were used to fully offset the tax on the gain. The acquired
intangible asset consists of fund management contracts of $510 that are not
subject to amortization. CI is an independent investment management company in
Canada with a wide range of investment funds and has assumed the
responsibilities for the management and administration of the retail segregated
funds of the Company. The Company has entered into a strategic distribution
agreement giving Clarica agents and managers access to CI products. The
investment is accounted for using the equity method of accounting and is
included in other invested assets on the consolidated balance sheets.

The Company concluded that there was not a clear strategic fit between Clarica
U.S. and the Companys U.S. operations. On October 22, 2002, the Company
announced that Clarica had signed a definitive agreement for the sale of
Clarica U.S. to Midland National Life Insurance Company for approximately $452
in cash, which amount included repayment of approximately $76 of existing
Clarica U.S. debt. The sale transaction closed on January 7, 2003. A loss of
$48 on the sale of Clarica U.S. was accrued in 2002. As a result of the plan
of disposal, Clarica U.S. is being accounted for as a discontinued operation as
described in Note 5.

Effective December 7, 2001 and November 30, 2001, respectively, the Company
sold all the common shares of SLC Asset Management Limited (SLCAM), an asset
management company, together with two affiliated companies, and all the common
shares of Sun Bank plc (SB), a bank specializing in mortgage and savings
products. The sale of SLCAM and its affiliated companies resulted in a
reduction in segregated fund net assets in respect of funds invested for third
party pooled pension customers. The gains on sales of the United Kingdom
subsidiaries were $195 before related taxes of $70 and these gains were
included in net investment income. Proceeds from the sales of the subsidiaries
were used for general corporate purposes. The proceeds presented in this note
are net of disposition costs of $34 and $7 for SLCAM and SB, respectively.
These costs were primarily professional fees, commissions and the impact on
actuarial liabilities.

Effective October 31, 2001, the Company acquired all the outstanding common
shares of Keyport Life Insurance Company (Keyport) and Independent Financial
Marketing Group, Inc. (IFMG) for a cash payment of U.S.$1,702. Keyport is a
Boston-based insurance company providing a diversified line of fixed, indexed
and variable annuity products and IFMG is a leading third-party marketer of
insurance and investment products to retail customers through banks in the
United States. The business acquired includes both general and segregated
funds business. The acquisition complements the Companys product array and
its distribution capabilities. In 2002, adjustments were made to the purchase
price allocations of Keyport and IFMG. This resulted in an increase in other
assets, goodwill, actuarial liabilities and other liabilities of $108, $30,
$102 and $11, respectively, and a decrease in invested assets of $25. The
goodwill of Keyport and IFMG was allocated to the SLF United States segment, of
which $323 is expected to be deductible for tax purposes.

On April 10, 2000, the sale of the reinsurance business closed.

Effective March 1, 2000, the Company sold all the common shares of Sun Life
Trust Company (SLT), a Canadian deposit taking, mortgage lending and trust
services company. Proceeds from the sale, net of applicable taxes, recovered
SLTs carrying value.

The transactions are summarized below:

|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |       | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------- | - | ------------ | --- | --------- | - | ------ | ------ | -------- | - | --------- | ------ | ----- | - | --- | --- | --- | - | --- | --- | - | - | --- | --- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                                                                             |                                                    |   | Acquisitions |     | Disposals
|                                                                                             |                                                    |   |              |     |          
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   | Keyport/  |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |      
|                                                                                             |                                                    |   | CI           |     | Clarica   |   | IFMG   |        | Spectrum |   | Diversico |        | SLCAM |   | SB  |     | SLT
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |    
|Percentage of shares acquired/disposed of                                                    |                                                    |   | 31           | %   |           |   | 100    | %      |          |   | 100       | %      |       |   | 100 | %   |     |   | 100 | %   |   |   | 100 | %   |  |   | 100   | %     |  |   | 100   | %    
|Net balance sheet assets acquired/disposed of                                                |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|                                                                                             | Invested assets acquired/disposed of               |   | $            | 23  |           |   | $      | 31,693 |          |   | $         | 22,479 |       |   | $   | 9   |     |   | $   | 2   |   |   | $   | 67  |  |   | $     | 2,604 |  |   | $     | 1,929 | 
|                                                                                             | Other assets acquired/disposed of                  |   |              | 722 |           |   |        | 2,672  |          |   |           | 1,436  |       |   |     | 96  |     |   |     | 315 |   |   |     | 41  |  |   |       | 37    |  |   |       | 52    | 
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|                                                                                             |                                                    |   | 745          |     |           |   | 34,365 |        |          |   | 23,915    |        |       |   | 105 |     |     |   | 317 |     |   |   | 108 |     |  |   | 2,641 |       |  |   | 1,981 |      
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|Actuarial liabilities and other policy liabilities
acquired/disposed of                      |                                                    |   |             |     |           |   | 24,787 |        |          |   | 22,656    |        |       |   |    |     |     |   |    |     |   |   |    |     |  |   |      |       |  |   |      |      
|Amounts on deposit acquired/disposed of                                                      |                                                    |   |             |     |           |   | 1,277  |        |          |   |          |        |       |   |    |     |     |   |    |     |   |   |    |     |  |   | 2,417 |       |  |   | 1,739 |      
|Other liabilities acquired/disposed of                                                       |                                                    |   | 231          |     |           |   | 5,093  | (1)    |          |   | 493       |        |       |   | 36  |     |     |   | 4   |     |   |   | 41  |     |  |   | 100   |       |  |   | 77    |      
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|                                                                                             |                                                    |   | 231          |     |           |   | 31,157 |        |          |   | 23,149    |        |       |   | 36  |     |     |   | 4   |     |   |   | 41  |     |  |   | 2,517 |       |  |   | 1,816 |      
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|                                                                                             |                                                    | $ | 514          |     |           | $ | 3,208  |        |          | $ | 766       |        |       | $ | 69  |     |     | $ | 313 |     |   | $ | 67  |     |  | $ | 124   |       |  | $ | 165   |      
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|Considerations:                                                                              |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|                                                                                             | Common shares issued or exchanged                  |   | $            | 571 |           |   | $      | 6,284  |          |   | $         |       |       |   | $   | 249 |     |   | $   | 322 |   |   | $   |    |  |   | $     |      |  |   | $     |      | 
|                                                                                             | Carrying value of investments in acquirees shares |   |              | 36  |           |   |        | 540    |          |   |           |       |       |   |     |    |     |   |     |    |   |   |     |    |  |   |       |      |  |   |       |      | 
|                                                                                             | Fair value of outstanding Clarica stock options    |   |              |    |           |   |        | 48     |          |   |           |       |       |   |     |    |     |   |     |    |   |   |     |    |  |   |       |      |  |   |       |      | 
|                                                                                             | Transaction and other related costs                |   |              |    |           |   |        | 57     |          |   |           |       |       |   |     | (7  | )   |   |     | (5  | ) |   |     |    |  |   |       |      |  |   |       |      | 
|                                                                                             | Cash cost of acquisition/net proceeds of disposal  |   |              |    |           |   |        |       |          |   |           | 2,744  |       |   |     |    |     |   |     |    |   |   |     | 242 |  |   |       | 144   |  |   |       | 160   | 
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|                                                                                             |                                                    | $ | 607          |     |           | $ | 6,929  |        |          | $ | 2,744     |        |       | $ | 242 |     |     | $ | 317 |     |   | $ | 242 |     |  | $ | 144   |       |  | $ | 160   |      
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|Goodwill on acquisition/pre tax gain (loss) on sale                                          |                                                    | $ | 93           |     |           | $ | 3,721  |        |          | $ | 1,978     |        |       | $ | 173 |     |     | $ | 4   |     |   | $ | 175 |     |  | $ | 20    |       |  | $ | (5    | )    
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      
|Cash and cash equivalents acquired (disposed of)
from continuing and discontinued operations |                                                    |   |              |     |           | $ | 2,816  |        |          | $ | 919       |        |       | $ | (8  | )   |     | $ | (2  | )   |   | $ | (23 | )   |  | $ |      |       |  | $ |      |      
|                                                                                             |                                                    |   |              |     |           |   |        |        |          |   |           |        |       |   |     |     |     |   |     |     |   |   |     |     |  |   |       |       |  |   |       |      



---

|(1) |  | Other liabilities acquired included subordinated debt of $746 and preferred shares of $160.
|--- |  | -------------------------------------------------------------------------------------------

14
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|5. |  | Discontinued Operations
|-- |  | -----------------------

The Company discontinued its reinsurance operations in 1999. In conjunction
with the early adoption of CICA Handbook Section 3475, Disposal of Long-Lived
Assets and Discontinued Operations, the Company has reclassified revenues,
expenses and cash flows of the accident and health reinsurance and guaranteed
minimum income benefit businesses from discontinued operations to continuing
operations for 2000, 2001 and 2002. However, Clarica U.S. met the requirements
to be classified as a discontinued operation, based upon the formal plan of
disposal approved in 2002 and its designation as a held-for-sale investment.
The sale of Clarica U.S. was concluded on January 7, 2003 as described in Note
4.

The components of the $36 loss from discontinued operations shown in the
consolidated statements of operations are as follows:

|                                                                |  |      |     |  
|--------------------------------------------------------------- |  | ---- | --- | -
|                                                                |  | 2002
|                                                                |  |     
|REVENUE                                                         |  | $    | 945 |  
|EXPENSES                                                        |  |      | 923 |  
|                                                                |  |      |     |  
|Net operating income before income taxes                        |  |      | 22  |  
|Income taxes expense                                            |  |      | 10  |  
|                                                                |  |      |     |  
|Net operating income                                            |  |      | 12  |  
|Gain (loss) on sale of Clarica U.S.                             |  |      | (48 | )
|                                                                |  |      |     |  
|Income (loss) from discontinued operations, net of income taxes |  | $    | (36 | )
|                                                                |  |      |     |  

The following amounts relating to discontinued operations are included in the consolidated balance sheets:

|                             |                                                    |   |       |       | 
|---------------------------- | -------------------------------------------------- | - | ----- | ----- | 
|                             |                                                    |   | 2002 
|                             |                                                    |   |      
|ASSETS                       |                                                    |   |       |      
|                             | Invested assets                                    |   | $     | 5,103 | 
|                             | Other assets                                       |   |       | 227   | 
|                             |                                                    |   |       |       | 
|Total assets                 |                                                    | $ | 5,330 |      
|                             |                                                    |   |       |       | 
|LIABILITIES AND EQUITY       |                                                    |   |       |      
|                             | Actuarial liabilities and other policy liabilities |   | $     | 4,373 | 
|                             | Other liabilities                                  |   |       | 497   | 
|                             | Equity                                             |   |       | 460   | 
|                             |                                                    |   |       |       | 
|Total liabilities and equity |                                                    | $ | 5,330 |      
|                             |                                                    |   |       |       | 



|6. |  | Reorganization of the United Kingdom Operations
|-- |  | -----------------------------------------------

In February 2001, the Board approved a reorganization of the Companys United
Kingdom operations. As a result, the Company decided to exit the direct sales
force distribution channel and significantly reduce the scale of its operations
by the end of 2003. During 2001, severance, asset write-offs and other related
costs of $195 were expensed as part of the operating expenses in the
consolidated statements of operations.

On January 14, 2002, the Company announced an agreement with the Marlborough
Stirling group to outsource the administration of the Companys individual life
and pension business in the United Kingdom which had already been closed for
new business. During 2002, expenses related to the outsource contract, closed
branches, contract cancellations, system migrations and other related costs of
$88 were included in the operating expenses in the consolidated statements of
operations. Cost savings relating to exiting the direct sales force
distribution channel and outsourcing the administrative function were realized
in 2001 and 2002. As at December 31, 2002, the accruals for the
reorganizational costs were $49 ($33 in 2001).

SUBSEQUENT EVENT

On January 13, 2003, the Company announced that it had signed a definitive
agreement to sell its United Kingdom group insurance business to Unum Limited
(UnumProvident), a United Kingdom subsidiary of UnumProvident Corporation.
Under the agreement, UnumProvident will acquire the Companys United Kingdom
group income protection business together with the renewal rights to the group
life business. Subject to regulatory approval in the United Kingdom, the sale
is expected to close in the first quarter of 2003.



|7. |  | Restructuring and Other Related Charges
|-- |  | ---------------------------------------

In conjunction with the acquisition of Clarica, the Company developed a plan to
restructure the combined operations of its consolidated subsidiaries, Sun Life
Assurance and Clarica. The combined Canadian operation is headquartered in
Waterloo, Ontario. It is anticipated that approximately 1,800 positions will
be eliminated between the two companies. The Company expects the restructuring
to be substantially completed by the end of 2003. The Company has recorded a
pre-tax charge of $315 ($217 net of taxes) related to Sun Life Assurance in
2002. This reflected both required increases in actuarial liabilities and a
charge for restructuring costs. These costs cover future increased renewal
commission expenses, severance, eliminating duplicate systems, facilities and
operations, as well as other exiting costs. The total costs related to
increased future renewal commissions, reflected primarily in the actuarial
liabilities, was $103 ($70 net of taxes). In addition, the purchase equation
of Clarica also recognized similar required increases in actuarial liabilities
and restructuring costs totalling $343. In total, the Company anticipates
incurring $555 of costs related to the integration, other than commissions, in
the 19 months to December 31, 2003.

15
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|7. |  | Restructuring and Other Related Charges (Contd)
|-- |  | ------------------------------------------------

As at December 31, 2002, the remaining balance on these expected future costs
was as follows:

|                                          |  |                       |     |                 |  |                |     |  |  |   |     | 
|----------------------------------------- |  | --------------------- | --- | --------------- |  | -------------- | --- |  |  | - | --- | 
|                                          |  | 2002                 
|                                          |  |                      
|                                          |  | Expected Future Costs |     | Amount Utilized |  | Ending Balance
|                                          |  |                       |     |                 |  |               
|Costs of eliminating duplicate systems    |  | $                     | 136 |                 |  | $              | 58  |  |  | $ | 78  | 
|Costs of eliminating duplicate operations |  |                       | 140 |                 |  |                | 53  |  |  |   | 87  | 
|Compensation costs                        |  |                       | 146 |                 |  |                | 37  |  |  |   | 109 | 
|Transaction costs                         |  |                       | 107 |                 |  |                | 104 |  |  |   | 3   | 
|Costs of consolidating facilities         |  |                       | 26  |                 |  |                | 2   |  |  |   | 24  | 
|                                          |  |                       |     |                 |  |                |     |  |  |   |     | 
|Total                                     |  | $                     | 555 |                 |  | $              | 254 |  |  | $ | 301 | 
|                                          |  |                       |     |                 |  |                |     |  |  |   |     | 



|8. |  | Demutualization
|-- |  | ---------------

Sun Life Assurance Company of Canada was organized as a mutual life insurance
company until March 22, 2000. On that date, Sun Life Assurance Company of
Canada converted to a stock life insurance company with common shares following
the approvals of its plan to demutualize by policyholders and the Minister of
Finance (Canada). Sun Life Financial Services of Canada Inc. was incorporated
on August 5, 1999 under the Insurance Companies Act of Canada and on March 22,
2000, became an insurance holding company owning all of the outstanding shares
of Sun Life Assurance Company of Canada. To effect the conversion, Sun Life
Financial Services of Canada Inc. issued a total of 400 million common shares,
of which 46 million common shares were issued to underwriters at $12.50 per
share and 97 million common shares were sold in a secondary offering on behalf
of certain eligible participating policyholders outside Canada who elected, or
were otherwise required, to sell their common shares under the terms of
demutualization. The remaining 257 million common shares were issued to
certain participating policyholders. Proceeds from the common shares issued to
the underwriters amounted to $576 and were used to fund payments to certain
participating policyholders at demutualization. External costs in respect of
demutualization of $114 after taxes were treated as a capital transaction and
were deducted from the surplus of Sun Life Assurance Company of Canada. All
underwriting commissions and offering costs of issuing common shares of $43
after taxes were treated as a capital transaction and deducted from the share
capital of Sun Life Financial Services of Canada Inc.

In connection with the initial public offering, Sun Life Financial Services of
Canada Inc. granted the underwriters over-allotment options to purchase up to
22 million common shares from treasury at a price of $12.50 per share. The
over-allotment options were exercisable for a period of 30 days after the
closing of the offering. These options were fully exercised and the common
shares were issued on April 4, 2000 for total proceeds of $268, less
underwriting costs of $6 after taxes. The proceeds were used for general
corporate purposes.

On demutualization, Sun Life Assurance Company of Canada allocated sufficient
assets for individual participating policies sold prior to demutualization to
meet contractual obligations, to protect policyholders reasonable expectations
in respect of future policy dividends and to meet other non-guaranteed policy
benefits. These assets and earnings on this business are not available to the
shareholders.

To support the participating policies that Sun Life Assurance Company of Canada
expected to issue over at least the five-year period after demutualization,
initial capital of $84 was allocated from the shareholders account. Subject
to regulatory approval, the capital of $84 with accrued interest may generally
be transferred to the shareholders account if the capital is no longer
required to support the new participating policies after the five-year period.

SUBSEQUENT EVENT

In accordance with the provisions of the Demutualization Plan of Sun Life
Assurance Company of Canada and the share capital by-law of Sun Life Financial
Services of Canada Inc., unclaimed demutualization benefits issued to eligible
policyholders whose addresses were not known to the Company (lost
policyholders) will be cancelled on February 22, 2003. The unclaimed
demutualization benefits that will be cancelled on February 22, 2003 include
approximately 3 million common shares of Sun Life Financial Services of Canada
Inc., accumulated dividends of approximately $3 and demutualization benefits
payable in cash of approximately $10. Under the Demutualization Plan, lost
policyholders may claim their cancelled demutualization benefits (including all
unpaid dividends on shares) at any time without interest.



|9. |  | Segmented Information
|-- |  | ---------------------

The Company has six reportable segments: SLF Canada, SLF United States, M.F.S.,
SLF United Kingdom, SLF Asia and other. These reportable segments reflect the
Companys management structure and internal financial reporting. Each of these
segments has its own management and all of these segments operate in the
financial services industry. They derive their revenues principally from
wealth management operations (mutual funds, investment management and
annuities), protection services (life and health insurance, life retrocession
and financial reinsurance) and other (primarily investments of a corporate
nature and earnings on capital not attributed to the strategic business units).

16
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|9. |  | Segmented Information (Contd)
|-- |  | ------------------------------

Other operations include the accident and health reinsurance operations and
those operations for which management responsibility resides in head office.
Net income (loss) from continuing operations in this category is shown net of
certain expenses borne centrally. As Clarica U.S. has been discontinued,
revenue, expenses and net income (loss) from continuing operations do not
include these results. However, the assets of the discontinued operation are
included in SLF United States assets.

Transactions occurring between segments consist primarily of internal financing
agreements. Inter-segment transactions are measured at market values
prevailing when the arrangements were negotiated. Inter-segment revenue
consists of interest of $306 in 2002 ($140 in 2001 and $141 in 2000) and fee
income of $68 in 2002 ($48 in 2001 and $33 in 2000). The major non-cash item
is the change in actuarial liabilities which is separately disclosed.

The results of the segments operations are discussed in the Managements Discussion and Analysis.

|                                             |  |                                                    |       |          |  |               |        |         |  |      |       |       |  |             |       |       |  |               |     |  |  |   |      |   |  |   |      |   |  |   |        | 
|-------------------------------------------- |  | -------------------------------------------------- | ----- | -------- |  | ------------- | ------ | ------- |  | ---- | ----- | ----- |  | ----------- | ----- | ----- |  | ------------- | --- |  |  | - | ---- | - |  | - | ---- | - |  | - | ------ | 
|                                             |  | Results by segment for the years ended December 31
|                                             |  |                                                   
|                                             |  |                                                    |       |          |  | United States |        |         |  |      |       |       |  |             |       |       |  |               |     |  |  |   |      |   |  |  
|                                             |  |                                                    |       |          |  |               |        | United  |  |      |       |       |  |             |       |       |  | Consolidation |     |  |  |  
|                                             |  | Canada                                             |       | Sun Life |  | M.F.S.        |        | Kingdom |  | Asia |       | Other |  | Adjustments |       | Total
|                                             |  |                                                    |       |          |  |               |        |         |  |      |       |       |  |             |       |      
|2002                                         |  |                                                    |       |          |  |               |        |         |  |      |       |       |  |             |       |       |  |               |     |  |  |   |      |   |  |   |      |   |  |   |        | 
|Revenue                                      |  | $                                                  | 6,563 |          |  | $             | 11,877 |         |  | $    | 1,979 |       |  | $           | 1,828 |       |  | $             | 661 |  |  | $ | 567  |   |  | $ | (374 | ) |  | $ | 23,101 | 
|Change in actuarial liabilities              |  | $                                                  | 535   |          |  | $             | 2,500  |         |  | $    |      |       |  | $           | 168   |       |  | $             | 293 |  |  | $ | 326  |   |  | $ |     |   |  | $ | 3,822  | 
|Interest on claims and deposits              |  | $                                                  | 74    |          |  | $             | 29     |         |  | $    |      |       |  | $           | 2     |       |  | $             | 30  |  |  | $ |     |   |  | $ |     |   |  | $ | 135    | 
|Interest expenses                            |  | $                                                  | 77    |          |  | $             | 154    |         |  | $    | 29    |       |  | $           | 28    |       |  | $             |    |  |  | $ | 211  |   |  | $ | (307 | ) |  | $ | 192    | 
|Income taxes (benefit)                       |  | $                                                  | 191   |          |  | $             | 38     |         |  | $    | 109   |       |  | $           | (18   | )     |  | $             | 11  |  |  | $ | (233 | ) |  | $ |     |   |  | $ | 98     | 
|Net income (loss) from
continuing operations |  | $                                                  | 514   |          |  | $             | 360    |         |  | $    | 174   |       |  | $           | 190   |       |  | $             | 24  |  |  | $ | (229 | ) |  | $ |     |   |  | $ | 1,033  | 
|2001                                         |  |                                                    |       |          |  |               |        |         |  |      |       |       |  |             |       |       |  |               |     |  |  |   |      |   |  |   |      |   |  |   |        | 
|Revenue                                      |  | $                                                  | 3,855 |          |  | $             | 7,811  |         |  | $    | 2,273 |       |  | $           | 2,067 |       |  | $             | 464 |  |  | $ | 533  |   |  | $ | (188 | ) |  | $ | 16,815 | 
|Change in actuarial liabilities              |  | $                                                  | 552   |          |  | $             | 675    |         |  | $    |      |       |  | $           | 298   |       |  | $             | 136 |  |  | $ | 36   |   |  | $ |     |   |  | $ | 1,697  | 
|Interest on claims and deposits              |  | $                                                  | 47    |          |  | $             | 21     |         |  | $    |      |       |  | $           | 121   |       |  | $             | 28  |  |  | $ | 1    |   |  | $ |     |   |  | $ | 218    | 
|Interest expenses                            |  | $                                                  | 36    |          |  | $             | 69     |         |  | $    | 31    |       |  | $           | 31    |       |  | $             |    |  |  | $ | 141  |   |  | $ | (140 | ) |  | $ | 168    | 
|Income taxes (benefit)                       |  | $                                                  | 106   |          |  | $             | 25     |         |  | $    | 144   |       |  | $           | (7    | )     |  | $             | 5   |  |  | $ | 33   |   |  | $ |     |   |  | $ | 306    | 
|Net income (loss) from
continuing operations |  | $                                                  | 207   |          |  | $             | 226    |         |  | $    | 231   |       |  | $           | 180   |       |  | $             | 20  |  |  | $ | 17   |   |  | $ |     |   |  | $ | 881    | 
|2000                                         |  |                                                    |       |          |  |               |        |         |  |      |       |       |  |             |       |       |  |               |     |  |  |   |      |   |  |   |      |   |  |   |        | 
|Revenue                                      |  | $                                                  | 3,946 |          |  | $             | 7,159  |         |  | $    | 2,382 |       |  | $           | 2,260 |       |  | $             | 413 |  |  | $ | 560  |   |  | $ | (174 | ) |  | $ | 16,546 | 
|Change in actuarial liabilities              |  | $                                                  | 245   |          |  | $             | 894    |         |  | $    |      |       |  | $           | 349   |       |  | $             | 115 |  |  | $ | 8    |   |  | $ |     |   |  | $ | 1,611  | 
|Interest on claims and deposits              |  | $                                                  | 69    |          |  | $             | 17     |         |  | $    |      |       |  | $           | 125   |       |  | $             | 27  |  |  | $ | 2    |   |  | $ |     |   |  | $ | 240    | 
|Interest expenses                            |  | $                                                  | 34    |          |  | $             | 64     |         |  | $    | 29    |       |  | $           | 37    |       |  | $             |    |  |  | $ | 136  |   |  | $ | (141 | ) |  | $ | 159    | 
|Income taxes (benefit)                       |  | $                                                  | 131   |          |  | $             | 28     |         |  | $    | 176   |       |  | $           | 24    |       |  | $             | 12  |  |  | $ | 15   |   |  | $ |     |   |  | $ | 386    | 
|Net income (loss) from
continuing operations |  | $                                                  | 195   |          |  | $             | 228    |         |  | $    | 256   |       |  | $           | 119   |       |  | $             | 27  |  |  | $ | (23  | ) |  | $ |     |   |  | $ | 802    | 

|                              |  |                                     |        |          |  |               |        |         |  |      |         |       |  |             |        |       |  |               |       |  |  |   |       |  |  |   |         |   |  |   |         | 
|----------------------------- |  | ----------------------------------- | ------ | -------- |  | ------------- | ------ | ------- |  | ---- | ------- | ----- |  | ----------- | ------ | ----- |  | ------------- | ----- |  |  | - | ----- |  |  | - | ------- | - |  | - | ------- | 
|                              |  | Assets by segment as at December 31
|                              |  |                                    
|                              |  |                                     |        |          |  | United States |        |         |  |      |         |       |  |             |        |       |  |               |       |  |  |   |       |  |  |  
|                              |  |                                     |        |          |  |               |        | United  |  |      |         |       |  |             |        |       |  | Consolidation |       |  |  |  
|                              |  | Canada                              |        | Sun Life |  | M.F.S.        |        | Kingdom |  | Asia |         | Other |  | Adjustments |        | Total
|                              |  |                                     |        |          |  |               |        |         |  |      |         |       |  |             |        |      
|2002                          |  |                                     |        |          |  |               |        |         |  |      |         |       |  |             |        |       |  |               |       |  |  |   |       |  |  |   |         |   |  |   |         | 
|General fund assets           |  | $                                   | 50,242 |          |  | $             | 54,154 |         |  | $    | 1,424   |       |  | $           | 12,610 |       |  | $             | 2,147 |  |  | $ | 3,948 |  |  | $ | (1,087  | ) |  | $ | 123,438 | 
|Segregated funds net assets   |  | $                                   | 19,029 |          |  | $             | 26,519 |         |  | $    |        |       |  | $           | 7,204  |       |  | $             | 3     |  |  | $ |      |  |  | $ |        |   |  | $ | 52,755  | 
|Other assets under
Management |  | $                                   | 19,878 |          |  | $             | 2,628  |         |  | $    | 177,960 |       |  | $           |       |       |  | $             | 79    |  |  | $ |      |  |  | $ | (16,138 | ) |  | $ | 184,407 | 
|2001                          |  |                                     |        |          |  |               |        |         |  |      |         |       |  |             |        |       |  |               |       |  |  |   |       |  |  |   |         |   |  |   |         | 
|General fund assets           |  | $                                   | 17,707 |          |  | $             | 44,938 |         |  | $    | 1,762   |       |  | $           | 12,238 |       |  | $             | 1,830 |  |  | $ | 2,396 |  |  | $ | (543    | ) |  | $ | 80,328  | 
|Segregated funds net assets   |  | $                                   | 8,706  |          |  | $             | 31,746 |         |  | $    |        |       |  | $           | 8,091  |       |  | $             | 1     |  |  | $ |      |  |  | $ |        |   |  | $ | 48,544  | 
|Other assets under
Management |  | $                                   | 26,092 |          |  | $             | 1,833  |         |  | $    | 218,401 |       |  | $           |       |       |  | $             | 21    |  |  | $ |      |  |  | $ | (23,472 | ) |  | $ | 222,875 | 
|2000                          |  |                                     |        |          |  |               |        |         |  |      |         |       |  |             |        |       |  |               |       |  |  |   |       |  |  |   |         |   |  |   |         | 
|General fund assets           |  | $                                   | 17,659 |          |  | $             | 16,790 |         |  | $    | 1,787   |       |  | $           | 14,117 |       |  | $             | 1,465 |  |  | $ | 3,470 |  |  | $ | (278    | ) |  | $ | 55,010  | 
|Segregated funds net assets   |  | $                                   | 8,720  |          |  | $             | 28,922 |         |  | $    |        |       |  | $           | 11,891 |       |  | $             |      |  |  | $ |      |  |  | $ |        |   |  | $ | 49,533  | 
|Other assets under
Management |  | $                                   | 24,153 |          |  | $             | 1,588  |         |  | $    | 221,045 |       |  | $           | 3,653  |       |  | $             | 7     |  |  | $ |      |  |  | $ | (26,456 | ) |  | $ | 223,990 | 

17
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|9. |  | Segmented Information (Contd)
|-- |  | ------------------------------

The following table shows revenue, net income from continuing operations and assets by
territory for the Companys other operations:

|                                                   |                 |   |       |       |      |   |       |       |   |   |       |       |  
|-------------------------------------------------- | --------------- | - | ----- | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|                                                   |                 |   | 2002  |       | 2001 |   | 2000 
|                                                   |                 |   |       |       |      |   |      
|Revenue:                                           |                 |   |       |       |      |   |       |       |   |   |       |      
|                                                   | United States   |   | $     | 181   |      |   | $     | 231   |   |   | $     | 424   |  
|                                                   | Other countries |   |       | 386   |      |   |       | 302   |   |   |       | 136   |  
|                                                   |                 |   |       |       |      |   |       |       |   |   |       |       |  
|Total revenue                                      |                 | $ | 567   |       |      | $ | 533   |       |   | $ | 560   |      
|                                                   |                 |   |       |       |      |   |       |       |   |   |       |       |  
|Net income (loss) from continuing operations:      |                 |   |       |       |      |   |       |       |   |   |       |      
|                                                   | United States   |   | $     | (241  | )    |   | $     | 28    |   |   | $     | (1    | )
|                                                   | Other countries |   |       | 12    |      |   |       | (11   | ) |   |       | (22   | )
|                                                   |                 |   |       |       |      |   |       |       |   |   |       |       |  
|Total net income (loss) from continuing operations |                 | $ | (229  | )     |      | $ | 17    |       |   | $ | (23   | )    
|                                                   |                 |   |       |       |      |   |       |       |   |   |       |       |  
|Assets:                                            |                 |   |       |       |      |   |       |       |   |   |       |      
|General funds:                                     |                 |   |       |       |      |   |       |       |   |   |       |      
|                                                   | United States   |   | $     | 1,160 |      |   | $     | 861   |   |   | $     | 2,337 |  
|                                                   | Other countries |   |       | 2,788 |      |   |       | 1,535 |   |   |       | 1,133 |  
|                                                   |                 |   |       |       |      |   |       |       |   |   |       |       |  
|Total assets                                       |                 | $ | 3,948 |       |      | $ | 2,396 |       |   | $ | 3,470 |      
|                                                   |                 |   |       |       |      |   |       |       |   |   |       |       |  



|10. |  | Fair Value of Financial Instruments
|--- |  | -----------------------------------

The fair values of the Companys financial instruments are shown in the
following table. For completeness, all other general funds assets and
liabilities, subordinated debt and cumulative capital securities are also
included.

The difference between the fair values of tangible assets and liabilities,
detailed below, should not be used as an estimate of the market value of the
Company.

|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|------------------------------------------------ |  | -------- | ------- | ----- |  | -------- | ------- | ----- |  | - | ------ |  |  | - | ------ | 
|                                                 |  | 2002     |         | 2001 
|                                                 |  |          |         |      
|                                                 |  | Carrying |         | Fair  |  | Carrying |         | Fair 
|                                                 |  | Value    |         | Value |  | Value    |         | Value
|                                                 |  |          |         |       |  |          |         |      
|ASSETS                                           |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Bonds                                            |  | $        | 73,423  |       |  | $        | 77,597  |       |  | $ | 48,077 |  |  | $ | 49,311 | 
|Mortgages                                        |  |          | 15,799  |       |  |          | 17,072  |       |  |   | 8,622  |  |  |   | 9,144  | 
|Stocks                                           |  |          | 4,221   |       |  |          | 3,104   |       |  |   | 4,882  |  |  |   | 4,370  | 
|Real estate                                      |  |          | 3,223   |       |  |          | 3,437   |       |  |   | 2,316  |  |  |   | 2,550  | 
|Policy loans                                     |  |          | 3,390   |       |  |          | 3,390   |       |  |   | 2,408  |  |  |   | 2,408  | 
|Cash, cash equivalents and short-term securities |  |          | 7,152   |       |  |          | 7,152   |       |  |   | 4,809  |  |  |   | 4,809  | 
|Other invested assets                            |  |          | 3,336   |       |  |          | 3,297   |       |  |   | 2,150  |  |  |   | 2,171  | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Invested assets                                  |  |          | 110,544 |       |  |          | 115,049 |       |  |   | 73,264 |  |  |   | 74,763 | 
|Future income taxes                              |  |          | 1,032   |       |  |          | 549     |       |  |   | 968    |  |  |   | 639    | 
|Other assets excluding future income taxes       |  |          | 11,862  |       |  |          | 11,862  |       |  |   | 6,096  |  |  |   | 6,096  | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Total general fund assets                        |  | $        | 123,438 |       |  | $        | 127,460 |       |  | $ | 80,328 |  |  | $ | 81,498 | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|LIABILITIES                                      |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Actuarial liabilities                            |  | $        | 87,165  |       |  | $        | 93,407  |       |  | $ | 57,858 |  |  | $ | 61,852 | 
|Amounts on deposit                               |  |          | 3,262   |       |  |          | 3,287   |       |  |   | 1,898  |  |  |   | 1,898  | 
|Policy benefits payable                          |  |          | 1,683   |       |  |          | 1,683   |       |  |   | 864    |  |  |   | 864    | 
|Provision for policyholder dividends             |  |          | 1,014   |       |  |          | 1,014   |       |  |   | 805    |  |  |   | 805    | 
|Deferred net realized gains                      |  |          | 3,456   |       |  |          |        |       |  |   | 3,744  |  |  |   |       | 
|Future income taxes                              |  |          | 382     |       |  |          | 493     |       |  |   | 329    |  |  |   | 529    | 
|Other liabilities excluding future income taxes  |  |          | 7,289   |       |  |          | 7,289   |       |  |   | 4,332  |  |  |   | 4,332  | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Total general fund liabilities                   |  | $        | 104,251 |       |  | $        | 107,173 |       |  | $ | 69,830 |  |  | $ | 70,280 | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Subordinated debt                                |  | $        | 1,974   |       |  | $        | 2,111   |       |  | $ | 776    |  |  | $ | 815    | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Cumulative capital securities of a subsidiary    |  | $        | 948     |       |  | $        | 1,008   |       |  | $ | 954    |  |  | $ | 968    | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|Derivative financial instruments (Note 11)       |  | $        |        |       |  | $        | 130     |       |  | $ |       |  |  | $ | 37     | 
|                                                 |  |          |         |       |  |          |         |       |  |   |        |  |  |   |        | 

A significant portion of any difference between fair values and carrying values relates to assets that are
matched to liabilities as to duration, within specified limits. If these assets are sold before maturity, the Company will reinvest the proceeds to
ensure there are sufficient assets to match liabilities. Consequently, changes in the fair values of assets backing liabilities will tend to be offset
by changes in the fair values of those liabilities.

In an exchange of financial instruments, fair value refers to the amount that would be agreed upon between
willing knowledgeable parties. Consequently the estimated fair values do not necessarily represent the values for which these financial
instruments could have been sold at the dates of the consolidated balance sheets. The methods and assumptions used to
estimate fair value are given below.

18
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. Fair Value of Financial Instruments (Contd)

Items with fair value equal to carrying value:Due to their nature, the fair
values of policy loans, cash and cash equivalents, other assets excluding
future income taxes, policy benefits payable, provision for policyholder
dividends and other liabilities excluding future income taxes are assumed to be
equal to their carrying values. The carrying value of goodwill is included in
the other assets excluding future income taxes line in this note.

Bonds:For publicly traded bonds, fair value is determined using quoted market
prices. For bonds without a readily ascertainable market price, the Company
has determined an estimated fair value using a discounted cash flow approach,
including provisions for credit risk, generally based upon the assumption that
such securities will be held to maturity.

Mortgages:Fair value of mortgages is determined by discounting the expected
future cash flows using current market interest rates for mortgages with
similar credit risks and terms to maturity.

Stocks:Fair value of stocks is based on quoted market prices, usually the
last trade values.

Real estate:Fair value of real estate is determined by referring to sales of
comparable properties in the marketplace and the net present value of the
expected future cash flows, discounted using current interest rates.

Short-term securities:Fair value of short-term securities is based on market
yields.

Other invested assets:Fair value is determined by reference to market prices
for similar investments.

Future income taxes:Fair value of future income taxes represents the amount
that would be recognized on the balance sheet if the financial instruments were
measured at fair value.

Actuarial liabilities:Fair value of actuarial liabilities is determined by
reference to the fair value of the assets supporting those liabilities.

Amounts on deposit:Fair value of fixed rate deposits is determined by
discounting the expected future cash flows using current market interest rates
for similar deposits. For amounts on deposit with no stated maturity, fair
value is equal to carrying value.

Deferred net realized gains:When financial assets and liabilities are
measured at fair value, deferred net realized gains no longer exist.

Subordinated debt:Fair value is based on market prices for the same or
similar instruments as appropriate.

Cumulative capital securities of a subsidiary:Fair value of the cumulative
capital securities is based on market prices for those instruments.

Derivative financial instruments:Fair values of interest rate contracts and
foreign exchange contracts are determined by discounting expected future cash
flows using current market interest and exchange rates for similar instruments.
Fair values of options, financial futures and common stock index swaps are
based on the quoted market prices or the values of the underlying securities or
indices.

11. Invested Assets and Derivative Financial Instruments

CONTRACTUAL MATURITIES

The contractual maturities of bonds at December 31 is shown below. The
interest rate risk, which is the potential for financial loss due to interest
rate fluctuations, is included in Note 13.

|                              |  |          |        |       |  |          |        |       |  |   |        |  |  |   |        | 
|----------------------------- |  | -------- | ------ | ----- |  | -------- | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|                              |  | 2002     |        | 2001 
|                              |  |          |        |      
|                              |  | Carrying |        | Fair  |  | Carrying |        | Fair 
|                              |  | Value    |        | Value |  | Value    |        | Value
|                              |  |          |        |       |  |          |        |      
|Due in one year or less       |  | $        | 2,974  |       |  | $        | 3,017  |       |  | $ | 1,717  |  |  | $ | 1,728  | 
|Due in years two through five |  |          | 18,642 |       |  |          | 19,439 |       |  |   | 10,330 |  |  |   | 10,526 | 
|Due in years six through ten  |  |          | 16,260 |       |  |          | 17,256 |       |  |   | 11,008 |  |  |   | 11,366 | 
|Due after ten years           |  |          | 23,687 |       |  |          | 25,794 |       |  |   | 15,776 |  |  |   | 16,535 | 
|Asset-backed securities       |  |          | 11,860 |       |  |          | 12,091 |       |  |   | 9,246  |  |  |   | 9,156  | 
|                              |  |          |        |       |  |          |        |       |  |   |        |  |  |   |        | 
|Total bonds                   |  | $        | 73,423 |       |  | $        | 77,597 |       |  | $ | 48,077 |  |  | $ | 49,311 | 
|                              |  |          |        |       |  |          |        |       |  |   |        |  |  |   |        | 

Bonds not due at a single maturity date have been included in the above table
in the year of final maturity. Actual maturities may differ from contractual
maturities because of the Companys right to call or the borrowers right to
prepay obligations, with or without call or prepayment penalties. Asset-backed
securities, which are not due at a single maturity date, are shown separately.

At December 31, 2002, scheduled mortgage loan maturities before any allowances
are as follows: 2003  $2,027; 2004  $996; 2005  $1,010; 2006  $1,552; 2007
 $1,586; and $8,691 thereafter. Actual maturities could differ from
contractual maturities because borrowers may have the right to prepay
obligations, with or without prepayment penalties.

19
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. Invested Assets and Derivative Financial Instruments (Contd)

UNREALIZED GAINS AND LOSSES

Bonds are carried at amortized cost, net of allowances for losses, in the
consolidated financial statements. Gross unrealized gains and losses on bonds
are not brought into income nor are they included in the carrying value. The
fair value is determined as described in Note 10. Gross unrealized gains
(losses) on bonds, issued or guaranteed by the following parties, are as
follows:

|                         |                                               |   |           |       |            |   |            |     |       |   |           |    |   |   |        |       | 
|------------------------ | --------------------------------------------- | - | --------- | ----- | ---------- | - | ---------- | --- | ----- | - | --------- | -- | - | - | ------ | ----- | 
|                         |                                               |   | 2002     
|                         |                                               |   |          
|                         |                                               |   |           |       |            |   | Gross      |     | Gross |   | Estimated
|                         |                                               |   | Amortized |       | Unrealized |   | Unrealized |     | Fair 
|                         |                                               |   | Cost      |       | Gains      |   | (Losses)   |     | Value
|                         |                                               |   |           |       |            |   |            |     |      
|Issued or guaranteed by: |                                               |   |           |       |            |   |            |     |       |   |           |    |   |   |        |      
|                         | Canadian federal government                   |   | $         | 6,110 |            |   | $          | 281 |       |   | $         | (2 | ) |   | $      | 6,389 | 
|                         | Canadian provincial and municipal governments |   |           | 5,280 |            |   |            | 587 |       |   |           | (8 | ) |   |        | 5,859 | 
|                         | U.S. Treasury and other U.S. agencies         |   |           | 3,024 |            |   |            | 176 |       |   |           | (2 | ) |   |        | 3,198 | 
|                         | Other foreign governments                     |   |           | 3,901 |            |   |            | 293 |       |   |           | (4 | ) |   |        | 4,190 | 
|Corporate                |                                               |   | 43,248    |       |            |   | 3,389      |     |       |   | (767      | )  |   |   | 45,870 |      
|Asset-backed securities  |                                               |   | 11,860    |       |            |   | 418        |     |       |   | (187      | )  |   |   | 12,091 |      
|                         |                                               |   |           |       |            |   |            |     |       |   |           |    |   |   |        |       | 
|Total bonds              |                                               | $ | 73,423    |       |            | $ | 5,144      |     |       | $ | (970      | )  |   | $ | 77,597 |      
|                         |                                               |   |           |       |            |   |            |     |       |   |           |    |   |   |        |       | 

|                         |                                               |   |           |       |            |   |            |     |       |   |           |     |   |   |        |       | 
|------------------------ | --------------------------------------------- | - | --------- | ----- | ---------- | - | ---------- | --- | ----- | - | --------- | --- | - | - | ------ | ----- | 
|                         |                                               |   | 2001     
|                         |                                               |   |          
|                         |                                               |   |           |       |            |   | Gross      |     | Gross |   | Estimated
|                         |                                               |   | Amortized |       | Unrealized |   | Unrealized |     | Fair 
|                         |                                               |   | Cost      |       | Gains      |   | (Losses)   |     | Value
|                         |                                               |   |           |       |            |   |            |     |      
|Issued or guaranteed by: |                                               |   |           |       |            |   |            |     |       |   |           |     |   |   |        |      
|                         | Canadian federal government                   |   | $         | 1,970 |            |   | $          | 69  |       |   | $         | (5  | ) |   | $      | 2,034 | 
|                         | Canadian provincial and municipal governments |   |           | 2,598 |            |   |            | 293 |       |   |           | (25 | ) |   |        | 2,866 | 
|                         | U.S. Treasury and other U.S. agencies         |   |           | 1,574 |            |   |            | 28  |       |   |           | (15 | ) |   |        | 1,587 | 
|                         | Other foreign governments                     |   |           | 3,495 |            |   |            | 144 |       |   |           | (57 | ) |   |        | 3,582 | 
|Corporate                |                                               |   | 29,194    |       |            |   | 1,184      |     |       |   | (292      | )   |   |   | 30,086 |      
|Asset-backed securities  |                                               |   | 9,246     |       |            |   | 24         |     |       |   | (114      | )   |   |   | 9,156  |      
|                         |                                               |   |           |       |            |   |            |     |       |   |           |     |   |   |        |       | 
|Total bonds              |                                               | $ | 48,077    |       |            | $ | 1,742      |     |       | $ | (508      | )   |   | $ | 49,311 |      
|                         |                                               |   |           |       |            |   |            |     |       |   |           |     |   |   |        |       | 

Gross unrealized gains (losses) on stocks are as follows:

|           |  |          |       |          |  |            |       |            |  |       |     |       |  |           |      |   |  |   |       | 
|---------- |  | -------- | ----- | -------- |  | ---------- | ----- | ---------- |  | ----- | --- | ----- |  | --------- | ---- | - |  | - | ----- | 
|           |  |          |       |          |  |            |       |            |  | Gross |     | Gross |  | Estimated
|           |  | Carrying |       | Original |  | Unrealized |       | Unrealized |  | Fair 
|           |  | Value    |       | Cost     |  | Gains      |       | (Losses)   |  | Value
|           |  |          |       |          |  |            |       |            |  |      
|Total 2002 |  | $        | 4,221 |          |  | $          | 3,159 |            |  | $     | 400 |       |  | $         | (455 | ) |  | $ | 3,104 | 
|           |  |          |       |          |  |            |       |            |  |       |     |       |  |           |      |   |  |   |       | 
|Total 2001 |  | $        | 4,882 |          |  | $          | 3,666 |            |  | $     | 992 |       |  | $         | (288 | ) |  | $ | 4,370 | 
|           |  |          |       |          |  |            |       |            |  |       |     |       |  |           |      |   |  |   |       | 

Stocks are originally recorded at cost. The carrying value of stocks in the
consolidated financial statements is adjusted annually by 15% of the difference
between market value and previously adjusted carrying value. The total amount
of unrealized gains and losses for stocks and real estate taken into income in
the year is shown in the Net Investment Income section of this note.

CREDIT AND CONCENTRATION RISK MANAGEMENT

Credit risk is the risk of financial loss resulting from the failure of debtors
to make payments of interest or principal when due. The Company controls
credit risk through detailed credit and underwriting policies, as well as
counterparty exposure limits.

It is the Companys policy to diversify all investment portfolios. Except for
sovereign country issuers where the Company carries on business or for issuers
where the Board has granted specific approval, Company policy limits credit
exposure to 4% of consolidated equity invested in any single issuer and to 8%
of consolidated equity invested in any associated group of issuers.

Investment grade bonds are those rated BBB and above. The Companys bond
portfolio has 96.2% (94.5% in 2001) invested in investment grade bonds based on
carrying value.

The Companys mortgage loans, stocks and real estate investments are
diversified by type and location and, for mortgage loans, by borrower.
Mortgage loans are collateralized by the related property and generally do not
exceed 75% of the value of the property at the time the original loan is made.

20
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. Invested Assets and Derivative Financial Instruments (Contd)

The Companys investments in bonds, mortgages, stocks and real estate are shown
in the tables below:

|                           |  |          |        |       |  |          |        |       |  |   |        |  |  |   |        | 
|-------------------------- |  | -------- | ------ | ----- |  | -------- | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|                           |  | 2002     |        | 2001 
|                           |  |          |        |      
|                           |  | Carrying |        | Fair  |  | Carrying |        | Fair 
|                           |  | Value    |        | Value |  | Value    |        | Value
|                           |  |          |        |       |  |          |        |      
|Bonds by investment grade: |  |          |        |       |  |          |        |       |  |   |        |  |  |   |        | 
|AAA                        |  | $        | 23,483 |       |  | $        | 24,573 |       |  | $ | 13,812 |  |  | $ | 13,951 | 
|AA                         |  |          | 8,951  |       |  |          | 9,817  |       |  |   | 5,324  |  |  |   | 5,692  | 
|A                          |  |          | 20,252 |       |  |          | 21,670 |       |  |   | 13,444 |  |  |   | 13,955 | 
|BBB                        |  |          | 17,918 |       |  |          | 18,856 |       |  |   | 12,845 |  |  |   | 13,083 | 
|BB & lower                 |  |          | 2,819  |       |  |          | 2,681  |       |  |   | 2,652  |  |  |   | 2,630  | 
|                           |  |          |        |       |  |          |        |       |  |   |        |  |  |   |        | 
|Total bonds                |  | $        | 73,423 |       |  | $        | 77,597 |       |  | $ | 48,077 |  |  | $ | 49,311 | 
|                           |  |          |        |       |  |          |        |       |  |   |        |  |  |   |        | 

Breakdown of bonds, mortgages, stocks and real estate by geographic location,
as opposed to reportable segment, is as follows:

|               |  |                |        |                 |  |             |        |                |  |        |       |  |  |   |       |  |  |   |       | 
|-------------- |  | -------------- | ------ | --------------- |  | ----------- | ------ | -------------- |  | ------ | ----- |  |  | - | ----- |  |  | - | ----- | 
|               |  | 2002          
|               |  |               
|               |  |                |        | Mortgages       |  |             |        |               
|               |  | Bonds by       |        |                 |  | Stocks by   |        | Real          
|               |  | Issuer Country |        | Non-residential |  | Residential |        | Issuer Country |  | Estate
|               |  |                |        |                 |  |             |        |                |  |       
|Canada         |  | $              | 24,922 |                 |  | $           | 5,993  |                |  | $      | 4,106 |  |  | $ | 734   |  |  | $ | 1,885 | 
|United States  |  |                | 36,818 |                 |  |             | 5,180  |                |  |        | 188   |  |  |   | 1,036 |  |  |   | 946   | 
|United Kingdom |  |                | 8,083  |                 |  |             | 331    |                |  |        | 1     |  |  |   | 2,236 |  |  |   | 390   | 
|Other          |  |                | 3,600  |                 |  |             |       |                |  |        |      |  |  |   | 215   |  |  |   | 2     | 
|               |  |                |        |                 |  |             |        |                |  |        |       |  |  |   |       |  |  |   |       | 
|Total          |  | $              | 73,423 |                 |  | $           | 11,504 |                |  | $      | 4,295 |  |  | $ | 4,221 |  |  | $ | 3,223 | 
|               |  |                |        |                 |  |             |        |                |  |        |       |  |  |   |       |  |  |   |       | 

|               |  |                |        |                 |  |             |       |                |  |        |       |  |  |   |       |  |  |   |       | 
|-------------- |  | -------------- | ------ | --------------- |  | ----------- | ----- | -------------- |  | ------ | ----- |  |  | - | ----- |  |  | - | ----- | 
|               |  | 2001          
|               |  |               
|               |  |                |        | Mortgages       |  |             |       |               
|               |  | Bonds by       |        |                 |  | Stocks by   |       | Real          
|               |  | Issuer Country |        | Non-residential |  | Residential |       | Issuer Country |  | Estate
|               |  |                |        |                 |  |             |       |                |  |       
|Canada         |  | $              | 9,992  |                 |  | $           | 2,062 |                |  | $      | 1,763 |  |  | $ | 1,088 |  |  | $ | 921   | 
|United States  |  |                | 28,495 |                 |  |             | 4,339 |                |  |        | 142   |  |  |   | 1,033 |  |  |   | 879   | 
|United Kingdom |  |                | 6,724  |                 |  |             | 315   |                |  |        | 1     |  |  |   | 2,185 |  |  |   | 513   | 
|Other          |  |                | 2,866  |                 |  |             |      |                |  |        |      |  |  |   | 576   |  |  |   | 3     | 
|               |  |                |        |                 |  |             |       |                |  |        |       |  |  |   |       |  |  |   |       | 
|Total          |  | $              | 48,077 |                 |  | $           | 6,716 |                |  | $      | 1,906 |  |  | $ | 4,882 |  |  | $ | 2,316 | 
|               |  |                |        |                 |  |             |       |                |  |        |       |  |  |   |       |  |  |   |       | 

*      Residential mortgages include mortgages for single and multiple family dwellings.

|                     |  |          |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|-------------------- |  | -------- | ----- | ----- |  | -------- | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                     |  | 2002     |       | 2001 
|                     |  |          |       |      
|                     |  | Carrying |       | Fair  |  | Carrying |       | Fair 
|                     |  | Value    |       | Value |  | Value    |       | Value
|                     |  |          |       |       |  |          |       |      
|Real estate by type: |  |          |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|Held for investment  |  | $        | 3,205 |       |  | $        | 3,415 |       |  | $ | 2,294 |  |  | $ | 2,521 | 
|Held for sale        |  |          | 18    |       |  |          | 22    |       |  |   | 22    |  |  |   | 29    | 
|                     |  |          |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|Total real estate    |  | $        | 3,223 |       |  | $        | 3,437 |       |  | $ | 2,316 |  |  | $ | 2,550 | 
|                     |  |          |       |       |  |          |       |       |  |   |       |  |  |   |       | 

ALLOWANCES FOR LOSSES ON INVESTED ASSETS

The Company has impaired invested assets and foreclosed properties held for
sale with specific allowances, and other sectoral allowances, at December 31,
as follows:

|                                         |                      |                      |  |     |    |                  |     |            |     |                 |     |                  |    |   |     |    |    |   |     | 
|---------------------------------------- | -------------------- | -------------------- |  | --- | -- | ---------------- | --- | ---------- | --- | --------------- | --- | ---------------- | -- | - | --- | -- | -- | - | --- | 
|                                         |                      |                      |  |     |    | 2002             |     | 2001      
|                                         |                      |                      |  |     |    |                  |     |           
|                                         |                      |                      |  |     |    | Carrying Value   |     |            |     |                 |     | Carrying Value   |    |   |     |   
|                                         |                      |                      |  |     |    | before Allowance |     |            |     |                 |     | before Allowance |    |   |     |   
|                                         |                      |                      |  |     |    | for Impaired     |     | Allowances |     | for Impaired    |     | Allowances      
|                                         |                      |                      |  |     |    | Invested Assets  |     | for Losses |     | Invested Assets |     | for Losses      
|                                         |                      |                      |  |     |    |                  |     |            |     |                 |     |                 
|Mortgages                                |                      |                      |  |     |    |                  |     |            |     |                 |     |                  |    |   |     |    |    |   |    
|- impaired, with allowance for losses    |                      |                      |  | $   | 57 |                  |     | $          | 12  |                 |     | $                | 15 |   |     | $  | 5  |  
|- impaired, with no allowance for losses |                      |                      |  |     | 30 |                  |     |            |    |                 |     |                  | 17 |   |     |    |   |  
|- sectoral allowance                     |                      |                      |  |     |   |                  |     |            | 51  |                 |     |                  |   |   |     |    | 55 |  
|Bonds                                    | - specific allowance |                      |  | 815 |    |                  |     | 305        |     |                 |     | 210              |    |   |     | 17 |   
|                                         |                      | - sectoral allowance |  |     |   |                  |     |            | 112 |                 |     |                  |   |   |     |    | 49 |  
|Foreclosed properties                    | - specific allowance |                      |  | 18  |    |                  |     | 1          |     |                 |     | 17               |    |   |     | 4  |   
|Other                                    |                      | - specific allowance |  |     | 32 |                  |     |            | 14  |                 |     |                  | 1  |   |     |    | 1  |  
|                                         |                      |                      |  |     |    |                  |     |            |     |                 |     |                  |    |   |     |    |    |   |     | 
|Total                                    |                      |                      |  |     |    | $                | 952 |            |     | $               | 495 |                  |    | $ | 260 |    |    | $ | 131 | 
|                                         |                      |                      |  |     |    |                  |     |            |     |                 |     |                  |    |   |     |    |    |   |     | 

21
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. Invested Assets and Derivative Financial Instruments (Contd)

Changes in the allowances for losses are as follows:

|                                |                           |   |           |    |       |   |           |     |           |   |            |   |           |   |           |    |       |   |           |    |            |   |    |   |  |   |     |   |  |   |            |     |  |   |    |    |  
|------------------------------- | ------------------------- | - | --------- | -- | ----- | - | --------- | --- | --------- | - | ---------- | - | --------- | - | --------- | -- | ----- | - | --------- | -- | ---------- | - | -- | - |  | - | --- | - |  | - | ---------- | --- |  | - | -- | -- | -
|                                |                           |   | 2002      |    | 2001  |   | 2000     
|                                |                           |   |           |    |       |   |          
|                                |                           |   |           |    |       |   |           |     |           |   | Foreclosed |   |           |   |           |    |       |   |           |    | Foreclosed |   |    |   |  |   |     |   |  |   | Foreclosed
|                                |                           |   |           |    |       |   |           |     |           |   | Properties |   |           |   |           |    |       |   |           |    | Properties |   |    |   |  |   |     |   |  |   | Properties
|                                |                           |   | Mortgages |    | Bonds |   | and Other |     | Mortgages |   | Bonds      |   | and Other |   | Mortgages |    | Bonds |   | and Other
|                                |                           |   |           |    |       |   |           |     |           |   |            |   |           |   |           |    |       |   |          
|Balance, January 1              |                           | $ | 60        |    |       | $ | 66        |     |           | $ | 5          |   |           | $ | 56        |    |       | $ | 108       |    |            | $ | 10 |   |  | $ | 93  |   |  | $ | 50         |     |  | $ | 8  |   
|Provision for losses            |                           |   |           |    |       |   |           |     |           |   |            |   |           |   |           |    |       |   |           |    |            |   |    |   |  |   |     |   |  |   |            |     |  |   |    |   
|                                | - continuing operations   |   |           | (4 | )     |   |           | 366 |           |   |            | 4 |           |   |           | 10 |       |   |           | (8 | )          |   |    | 2 |  |   |     | 3 |  |   |            | 113 |  |   |    | (9 | )
|Provision for losses            |                           |   |           |    |       |   |           |     |           |   |            |   |           |   |           |    |       |   |           |    |            |   |    |   |  |   |     |   |  |   |            |     |  |   |    |   
|                                | - discontinued operations |   |           | (2 | )     |   |           |    |           |   |            | 1 |           |   |           |   |       |   |           |   |            |   |    |  |  |   |     |  |  |   |            |    |  |   |    |   |  
|Write-offs, net of recoveries   |                           |   | 9         |    |       |   | (13       | )   |           |   | 5          |   |           |   | (3        | )  |       |   | (39       | )  |            |   | (6 | ) |  |   | (11 | ) |  |   | (57        | )   |  |   | 11 |   
|Currency translation adjustment |                           |   |          |    |       |   | (2        | )   |           |   |           |   |           |   | 2         |    |       |   | 5         |    |            |   |   |   |  |   | 1   |   |  |   | 2          |     |  |   |   |   
|Dispositions                    |                           |   |          |    |       |   |          |     |           |   |           |   |           |   | (5        | )  |       |   |          |    |            |   | (1 | ) |  |   | (30 | ) |  |   |           |     |  |   |   |   
|                                |                           |   |           |    |       |   |           |     |           |   |            |   |           |   |           |    |       |   |           |    |            |   |    |   |  |   |     |   |  |   |            |     |  |   |    |   
|Balance, December 31            |                           | $ | 63        |    |       | $ | 417       |     |           | $ | 15         |   |           | $ | 60        |    |       | $ | 66        |    |            | $ | 5  |   |  | $ | 56  |   |  | $ | 108        |     |  | $ | 10 |   
|                                |                           |   |           |    |       |   |           |     |           |   |            |   |           |   |           |    |       |   |           |    |            |   |    |   |  |   |     |   |  |   |            |     |  |   |    |   

At December 31, 2002, the carrying value of bonds, mortgages and real estate,
including any specific allowances, which were non-income producing for the
preceding twelve months was $46 ($207 in 2001).

At December 31, 2002 and 2001, mortgages with scheduled payments which were 90
days or more in arrears were $65 (0.4% of total mortgages) and $32 (0.4% of
total mortgages), respectively, before any allowances.

During 2002 and 2001, the Companys weighted average recorded investment in
impaired mortgage loans, before any allowances, was $67 and $45, respectively.
Interest on impaired mortgage loans is recorded as received and was $5 for 2002
and $3 for 2001. 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.

DEFERRED NET REALIZED GAINS

Deferred net realized gains are realized gains and losses which have not yet
been recognized in income. The following deferred amounts will be amortized
into future net investment income:

|            |  |      |       |      |  |   |       |  
|----------- |  | ---- | ----- | ---- |  | - | ----- | -
|            |  | 2002 |       | 2001
|            |  |      |       |     
|Bonds       |  | $    | 1,832 |      |  | $ | 1,678 |  
|Mortgages   |  |      | 83    |      |  |   | 62    |  
|Stocks      |  |      | 1,450 |      |  |   | 1,851 |  
|Real estate |  |      | 191   |      |  |   | 165   |  
|Derivatives |  |      | (100  | )    |  |   | (12   | )
|            |  |      |       |      |  |   |       |  
|Total       |  | $    | 3,456 |      |  | $ | 3,744 |  
|            |  |      |       |      |  |   |       |  

Changes in deferred net realized gains are as follows:

|                                                        |             |   |       |      |      |   |       |     | 
|------------------------------------------------------- | ----------- | - | ----- | ---- | ---- | - | ----- | --- | 
|                                                        |             |   | 2002  |      | 2001
|                                                        |             |   |       |      |     
|Deferred net realized gains, January 1                  |             | $ | 3,744 |      |      | $ | 3,725 |    
|Net realized investments gains (losses) for the period: |             |   |       |      |      |   |       |    
|                                                        | Bonds       |   |       | 220  |      |   |       | 201 | 
|                                                        | Mortgages   |   |       | 43   |      |   |       | 17  | 
|                                                        | Stocks      |   |       | (240 | )    |   |       | 189 | 
|                                                        | Real estate |   |       | 39   |      |   |       | 28  | 
|                                                        | Derivatives |   |       | (99  | )    |   |       | 6   | 
|Amortization of deferred net realized gains             |             |   | (433  | )    |      |   | (517  | )  
|Effect of changes in currency exchange rates            |             |   | 182   |      |      |   | 95    |    
|                                                        |             |   |       |      |      |   |       |    
|Deferred net realized gains, December 31                |             | $ | 3,456 |      |      | $ | 3,744 |    
|                                                        |             |   |       |      |      |   |       |    

22
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. Invested Assets and Derivative Financial Instruments (Contd)

NET INVESTMENT INCOME

Net investment income has the following components:

|                                            |                                                  |   |       |       |      |   |       |       |  |   |       |       | 
|------------------------------------------- | ------------------------------------------------ | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                            |                                                  |   | 2002  |       | 2001 |   | 2000 
|                                            |                                                  |   |       |       |      |   |      
|Interest from:                              |                                                  |   |       |       |      |   |       |       |  |   |       |      
|                                            | Bonds                                            |   | $     | 3,810 |      |   | $     | 2,248 |  |   | $     | 1,974 | 
|                                            | Mortgages                                        |   |       | 899   |      |   |       | 852   |  |   |       | 860   | 
|                                            | Policy loans                                     |   |       | 195   |      |   |       | 119   |  |   |       | 102   | 
|                                            | Cash, cash equivalents and short-term securities |   |       | 122   |      |   |       | 116   |  |   |       | 146   | 
|                                            |                                                  |   |       |       |      |   |       |       |  |   |       |       | 
|Interest income                             |                                                  |   | 5,026 |       |      |   | 3,335 |       |  |   | 3,082 |      
|Dividends from stocks                       |                                                  |   | 132   |       |      |   | 95    |       |  |   | 103   |      
|Real estate income (net)                    |                                                  |   | 223   |       |      |   | 192   |       |  |   | 182   |      
|Amortization of deferred net realized gains |                                                  |   | 433   |       |      |   | 517   |       |  |   | 534   |      
|Amortization of unrealized gains and losses |                                                  |   | (288  | )     |      |   | (66   | )     |  |   | 14    |      
|Other items (net)                           |                                                  |   | 219   |       |      |   | 154   |       |  |   | 93    |      
|                                            |                                                  |   |       |       |      |   |       |       |  |   |       |       | 
|                                            |                                                  |   | 5,745 |       |      |   | 4,227 |       |  |   | 4,008 |      
|Provisions for losses on investments        |                                                  |   | (365  | )     |      |   | (4    | )     |  |   | (107  | )    
|Investment expenses and taxes               |                                                  |   | (99   | )     |      |   | (61   | )     |  |   | (62   | )    
|Impact of discontinued operations           |                                                  |   | (150  | )     |      |   |      |       |  |   |      |      
|                                            |                                                  |   |       |       |      |   |       |       |  |   |       |       | 
|Total net investment income                 |                                                  | $ | 5,131 |       |      | $ | 4,162 |       |  | $ | 3,839 |      
|                                            |                                                  |   |       |       |      |   |       |       |  |   |       |       | 

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative instruments to manage risks associated with
currency, interest rate and stock market fluctuations. Models are used by the
Company to ensure the continuing effectiveness of its hedging strategies. The
Company monitors the gap in market sensitivity between assets and liabilities
for specific insurance and annuity business segments. That gap is managed
within defined tolerance limits by the use of derivative instruments.
Derivative positions are reported to the Board quarterly.

Derivative instruments are either exchange-traded or over-the-counter contracts
negotiated between two counterparties. The notional amounts of the
over-the-counter and exchange-traded contracts are $24,192 ($16,854 in 2001)
and $666 ($128 in 2001), respectively. As at December 31, 2002, the Company
had assets of $188 ($115 in 2001) pledged as collateral for the derivative
contracts. Since counterparty failure in a derivative transaction could render
it ineffective for hedging purposes, the Company transacts its derivative
contracts with counterparties rated AA or better. In limited circumstances,
the Company will enter into transactions with lower rated counterparties if
credit enhancement features are included.

The Company has the following amounts outstanding at December 31:

|                           |  |            |       |                  |  |        |      |         |  |                  |       |            |  |          |        |        |  |   |        |  |  |   |        |  |  |   |       |  |  |   |    | 
|-------------------------- |  | ---------- | ----- | ---------------- |  | ------ | ---- | ------- |  | ---------------- | ----- | ---------- |  | -------- | ------ | ------ |  | - | ------ |  |  | - | ------ |  |  | - | ----- |  |  | - | -- | 
|                           |  | 2002       |       |                  |  |        |      |         |  |                 
|                           |  |            |       |                  |  |        |      |         |  |                 
|                           |  |            |       |                  |  |        |      |         |  | Notional Amounts |       |            |  |          |        |        |  |  
|                           |  |            |       |                  |  |        |      |         |  |                  |       |            |  |          |        |        |  |  
|                           |  | Fair Value |       | Term to Maturity |  |        |      |         |  |                 
|                           |  |            |       |                  |  | Total  |      | Credit  |  | Risk-           
|                           |  |            |       | Under            |  | One to |      | Over    |  | Notional         |       | Equivalent |  | Weighted
|                           |  | Positive   |       | Net              |  | 1 year |      | 5 years |  | 5 years          |       | Amount     |  | Amount   |        | Amount
|                           |  |            |       |                  |  |        |      |         |  |                  |       |            |  |          |        |       
|Interest rate contracts    |  | $          | 495   |                  |  | $      | (294 | )       |  | $                | 544   |            |  | $        | 7,788  |        |  | $ | 6,401  |  |  | $ | 14,733 |  |  | $ | 630   |  |  | $ | 14 | 
|Foreign exchange contracts |  |            | 198   |                  |  |        | 27   |         |  |                  | 740   |            |  |          | 981    |        |  |   | 1,894  |  |  |   | 3,615  |  |  |   | 397   |  |  |   | 13 | 
|Equity and other contracts |  |            | 524   |                  |  |        | 397  |         |  |                  | 2,132 |            |  |          | 1,943  |        |  |   | 2,435  |  |  |   | 6,510  |  |  |   | 1,223 |  |  |   | 21 | 
|                           |  |            |       |                  |  |        |      |         |  |                  |       |            |  |          |        |        |  |   |        |  |  |   |        |  |  |   |       |  |  |   |    | 
|Total                      |  | $          | 1,217 |                  |  | $      | 130  |         |  | $                | 3,416 |            |  | $        | 10,712 |        |  | $ | 10,730 |  |  | $ | 24,858 |  |  | $ | 2,250 |  |  | $ | 48 | 
|                           |  |            |       |                  |  |        |      |         |  |                  |       |            |  |          |        |        |  |   |        |  |  |   |        |  |  |   |       |  |  |   |    | 

|                           |  |            |     |                  |  |        |      |         |  |                  |       |            |  |          |       |        |  |   |       |  |  |   |        |  |  |   |       |  |  |   |    | 
|-------------------------- |  | ---------- | --- | ---------------- |  | ------ | ---- | ------- |  | ---------------- | ----- | ---------- |  | -------- | ----- | ------ |  | - | ----- |  |  | - | ------ |  |  | - | ----- |  |  | - | -- | 
|                           |  | 2001      
|                           |  |           
|                           |  |            |     |                  |  |        |      |         |  | Notional Amounts |       |            |  |          |       |        |  |  
|                           |  |            |     |                  |  |        |      |         |  |                  |       |            |  |          |       |        |  |  
|                           |  | Fair Value |     | Term to Maturity |  |        |      |         |  |                 
|                           |  |            |     |                  |  | Total  |      | Credit  |  | Risk-           
|                           |  |            |     | Under            |  | One to |      | Over    |  | Notional         |       | Equivalent |  | Weighted
|                           |  | Positive   |     | Net              |  | 1 year |      | 5 years |  | 5 years          |       | Amount     |  | Amount   |       | Amount
|                           |  |            |     |                  |  |        |      |         |  |                  |       |            |  |          |       |       
|Interest rate contracts    |  | $          | 121 |                  |  | $      | (139 | )       |  | $                | 352   |            |  | $        | 3,595 |        |  | $ | 4,243 |  |  | $ | 8,190  |  |  | $ | 203   |  |  | $ | 4  | 
|Foreign exchange contracts |  |            | 19  |                  |  |        | (66  | )       |  |                  | 513   |            |  |          | 570   |        |  |   | 644   |  |  |   | 1,727  |  |  |   | 101   |  |  |   | 4  | 
|Equity and other contracts |  |            | 319 |                  |  |        | 242  |         |  |                  | 1,473 |            |  |          | 4,262 |        |  |   | 1,330 |  |  |   | 7,065  |  |  |   | 872   |  |  |   | 27 | 
|                           |  |            |     |                  |  |        |      |         |  |                  |       |            |  |          |       |        |  |   |       |  |  |   |        |  |  |   |       |  |  |   |    | 
|Total                      |  | $          | 459 |                  |  | $      | 37   |         |  | $                | 2,338 |            |  | $        | 8,427 |        |  | $ | 6,217 |  |  | $ | 16,982 |  |  | $ | 1,176 |  |  | $ | 35 | 
|                           |  |            |     |                  |  |        |      |         |  |                  |       |            |  |          |       |        |  |   |       |  |  |   |        |  |  |   |       |  |  |   |    | 

23
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11.     Invested Assets and Derivative Financial Instruments (Contd)

The positive fair value is the maximum credit risk and represents the cost of
replacing the derivative contracts at current market rates. The net fair value
is the net unrealized gains or losses of all derivative financial instruments.
Fair value of interest rate swap contracts and foreign exchange swap contracts
is determined by discounting expected future cash flows using current market
interest and exchange rates for similar instruments. Fair value of options and
financial futures is based on the quoted market price or the value of
underlying securities or indices.

The notional amount is the face value of the underlying asset or liability from
which the value of the derivative is derived. The credit risk exposure, if the
counterparties were to default, is indicated by the cost of replacing, at
current market rates, all contracts with a positive fair value as shown above.
The credit equivalent amount is the credit risk exposure plus an amount for
potential future credit exposure. The risk-weighted amount is a measure of
credit risk, which represents the credit equivalent amount weighted according
to the nature of the derivative and the creditworthiness of the counterparty.
This measure is used to determine the amount of capital necessary to support
derivative transactions for certain Canadian regulatory purposes. The credit
equivalent and risk-weighted amounts have been determined in accordance with
guidelines provided by the OSFI.

SECURITIES LENDING

The Company engages in securities lending to generate additional income.
Certain securities from its portfolio are loaned to other institutions for
short periods. Collateral, which exceeds the market value of the loaned
securities, is deposited by the borrower with a lending agent, usually a
securities custodian, and retained by the lending agent until the underlying
security has been returned to the Company. The market value of the loaned
securities is monitored on a daily basis with additional collateral obtained or
refunded as the market values fluctuate. It is Company practice to obtain a
guarantee from the lending agent against counterparty default, including
collateral deficiency, in securities lending transactions. At December 31,
2002, the Company had loaned securities (which are included in invested assets)
with a carrying value and market value of approximately $1,675 and $1,775,
respectively.

LOANS SECURITIZATION

On February 19, 2002, the Company sold commercial mortgages with a carrying
value of $497 to a trust which subsequently issued securities backed by the
commercial mortgages. The Company was retained to service and administer the
mortgages and also retained a subordinated investment in the issued securities.
This transaction resulted in a gain of approximately $28 before taxes which
was included in deferred net realized gains. In determining the gain on sale
of the commercial mortgages, the carrying value of the mortgages sold was
allocated between the portion sold and the portion retained based on their
relative fair values on the date of sale. These fair values were based on the
quoted market prices from an independent source.

As at December 31, 2002, the key assumptions of the discounted cash flows
models and the sensitivity of the fair values of the retained interests to an
immediate 10% and 20% adverse change in key assumptions are as follows:

|                                                                         |                                            |   |           |   |       |   |      |   | 
|------------------------------------------------------------------------ | ------------------------------------------ | - | --------- | - | ----- | - | ---- | - | 
|                                                                         |                                            |   |           |   |       |   | 2002
|                                                                         |                                            |   |           |   |       |   |     
|                                                                         |                                            |   | Mortgages |   | Bonds
|                                                                         |                                            |   |           |   |      
|Carrying value of retained interests ($95 and $27 in 2001, respectively) |                                            | $ | 128       |   |       | $ | 8    |  
|Fair value of retained interests ($86 and $27 in 2001, respectively)     |                                            | $ | 130       |   |       | $ | 8    |  
|Weighted-average remaining life (in years)                               |                                            |   | 3.8-9.6   |   |       |   | 9.7  |  
|Discount rate                                                            |                                            |   | 6.0-7.9   | % |       |   | 11.1 | %
|                                                                         | Impact on fair value of 10% adverse change |   | $         | 4 |       |   | $    | 1 | 
|                                                                         | Impact on fair value of 20% adverse change |   | $         | 7 |       |   | $    | 1 | 
|Anticipated credit losses                                                |                                            |   | 0.0       | % |       |   | 0.6  | %
|                                                                         | Impact on fair value of 10% adverse change |   |           |   |       |   | $    | 1 | 
|                                                                         | Impact on fair value of 20% adverse change |   |           |   |       |   | $    | 2 | 

The sensitivity analysis in the table above is hypothetical and should be used
with caution. As the figures indicate, changes in fair value based on
variations in assumptions generally cannot be extrapolated because the
relationship of the change in the assumption to the change in fair value may
not be linear. Also, in this table, the effect of a variation in a particular
assumption on the fair value of the retained interest is calculated without
changing any other assumption. In reality, changes in one factor may result in
changes in another, which might magnify or counteract the sensitivities.

The credit losses, net of recoveries, of the securitized bond portfolio for
2002 were $23. As at December 31, 2002, the securitized bond portfolio of $24
was 90 days or more past due.

The following table summarizes certain cash flows received from securitization
trusts in 2002, 2001 and 2000:

|                                                             |  |           |     |       |  |           |   |       |  |           |     |       |  |   |   |  |  |   |     |  |  |   |     | 
|------------------------------------------------------------ |  | --------- | --- | ----- |  | --------- | - | ----- |  | --------- | --- | ----- |  | - | - |  |  | - | --- |  |  | - | --- | 
|                                                             |  | 2002      |     | 2001  |  | 2000     
|                                                             |  |           |     |       |  |          
|                                                             |  | Mortgages |     | Bonds |  | Mortgages |   | Bonds |  | Mortgages |     | Bonds
|                                                             |  |           |     |       |  |           |   |       |  |           |     |      
|Proceeds from new securitizations                            |  | $         | 525 |       |  | $         |  |       |  | $         | 269 |       |  | $ |  |  |  | $ | 282 |  |  | $ | 648 | 
|Cash flows received on retained interests and servicing fees |  | $         | 17  |       |  | $         | 2 |       |  | $         | 9   |       |  | $ | 4 |  |  | $ | 7   |  |  | $ |    | 

24
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. Other Assets

Other assets consist of the following:

|                                  |  |      |       |      |  |   |       | 
|--------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                  |  | 2002 |       | 2001
|                                  |  |      |       |     
|Accounts receivable               |  | $    | 1,433 |      |  | $ | 824   | 
|Investment income due and accrued |  |      | 1,326 |      |  |   | 890   | 
|Future income taxes (Note 25)     |  |      | 1,032 |      |  |   | 968   | 
|Deferred acquisition costs        |  |      | 849   |      |  |   | 1,162 | 
|Intangible assets                 |  |      | 786   |      |  |   | 79    | 
|Prepaid expenses                  |  |      | 536   |      |  |   | 457   | 
|Outstanding premiums              |  |      | 384   |      |  |   | 242   | 
|Capital assets                    |  |      | 230   |      |  |   | 204   | 
|Other                             |  |      | 419   |      |  |   | 158   | 
|                                  |  |      |       |      |  |   |       | 
|Total other assets                |  | $    | 6,995 |      |  | $ | 4,984 | 
|                                  |  |      |       |      |  |   |       | 

Amortization of deferred acquisition costs charged to income amounted to $316
in 2002 ($305 and $265 in 2001 and 2000, respectively).

Capital assets are carried at a cost of $630 ($724 in 2001), less accumulated
depreciation and amortization of $400 ($520 in 2001). Depreciation and
amortization charged to income totalled $75 ($66 and $59 in 2001 and 2000,
respectively).

In addition to the goodwill of $5,899 ($2,080 in 2001) shown on the
consolidated balance sheets and the intangible assets amount shown above,
goodwill of $209 ($123 in 2001) and intangible assets of $510 (nil in 2001) for
investments accounted for by the equity method are included in other invested
assets. Goodwill amortization was not charged to net investment income and
operating expenses during the year ($9 and $10, respectively in 2001 and $10
and $8, respectively in 2000). Changes in goodwill of subsidiaries and
investments accounted for by the equity method are as follows:

|                                             |  |        |       |        |  |         |       |        |  |       |     |       |  |   |    |   |  |   |     |   |  |   |       |  
|-------------------------------------------- |  | ------ | ----- | ------ |  | ------- | ----- | ------ |  | ----- | --- | ----- |  | - | -- | - |  | - | --- | - |  | - | ----- | -
|                                             |  |        |       |        |  | United  |       | United |  |       |     |       |  |   |    |   |  |   |     |  
|                                             |  | Canada |       | States |  | Kingdom |       | Asia   |  | Other |     | Total
|                                             |  |        |       |        |  |         |       |        |  |       |     |      
|Balance, January 1, 2001                     |  | $      | 73    |        |  | $       |      |        |  | $     | 20  |       |  | $ | 32 |   |  | $ | 105 |   |  | $ | 230   |  
|Acquisitions                                 |  |        |      |        |  |         | 2,013 |        |  |       |    |       |  |   |   |   |  |   |    |   |  |   | 2,013 |  
|Amortization                                 |  |        | (7    | )      |  |         | (2    | )      |  |       | (2  | )     |  |   | (2 | ) |  |   | (6  | ) |  |   | (19   | )
|Dispositions                                 |  |        |      |        |  |         |      |        |  |       | (18 | )     |  |   |   |   |  |   |    |   |  |   | (18   | )
|Effect of changes in currency exchange rates |  |        |      |        |  |         | 5     |        |  |       |    |       |  |   |   |   |  |   | (8  | ) |  |   | (3    | )
|                                             |  |        |       |        |  |         |       |        |  |       |     |       |  |   |    |   |  |   |     |   |  |   |       |  
|Balance, December 31, 2001                   |  |        | 66    |        |  |         | 2,016 |        |  |       |    |       |  |   | 30 |   |  |   | 91  |   |  |   | 2,203 |  
|Acquisitions                                 |  |        | 3,745 |        |  |         | 199   |        |  |       |    |       |  |   |   |   |  |   |    |   |  |   | 3,944 |  
|Dispositions                                 |  |        | (20   | )      |  |         | (32   | )      |  |       |    |       |  |   |   |   |  |   |    |   |  |   | (52   | )
|Adjustments (Note 4)                         |  |        |      |        |  |         | 30    |        |  |       |    |       |  |   |   |   |  |   |    |   |  |   | 30    |  
|Effect of changes in currency exchange rates |  |        |      |        |  |         | (9    | )      |  |       |    |       |  |   |   |   |  |   | (8  | ) |  |   | (17   | )
|                                             |  |        |       |        |  |         |       |        |  |       |     |       |  |   |    |   |  |   |     |   |  |   |       |  
|Balance, December 31, 2002                   |  | $      | 3,791 |        |  | $       | 2,204 |        |  | $     |    |       |  | $ | 30 |   |  | $ | 83  |   |  | $ | 6,108 |  
|                                             |  |        |       |        |  |         |       |        |  |       |     |       |  |   |    |   |  |   |     |   |  |   |       |  

Amortization of intangible assets recorded in operating expenses during the
year was $17 ($4 in 2001 and $3 in 2000). As at December 31, 2002, the
components of the intangible assets included in other invested assets and other
assets are as follows:

|                               |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 
|------------------------------ |  | -------------- | ----- | ------------ |  | ------ | -- | -------------- |  | ------------ | ----- | ------ |  | - | -- |  |  | - | - |  |  | - | -- | 
|                               |  | 2002           |       | 2001        
|                               |  |                |       |             
|                               |  | Gross carrying |       | Accumulated  |  | Net    |    | Gross carrying |  | Accumulated  |       | Net   
|                               |  | amount         |       | amortization |  | amount |    | amount         |  | amortization |       | amount
|                               |  |                |       |              |  |        |    |                |  |              |       |       
|Amortized intangible assets:   |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 
|Sales potential of field force |  | $              | 400   |              |  | $      | 6  |                |  | $            | 394   |        |  | $ |   |  |  | $ |  |  |  | $ |   | 
|Asset administration contracts |  |                | 195   |              |  |        | 9  |                |  |              | 186   |        |  |   | 10 |  |  |   | 3 |  |  |   | 7  | 
|Banking distribution channel   |  |                | 43    |              |  |        | 5  |                |  |              | 38    |        |  |   | 44 |  |  |   | 1 |  |  |   | 43 | 
|Other                          |  |                | 8     |              |  |        | 1  |                |  |              | 7     |        |  |   | 9  |  |  |   |  |  |  |   | 9  | 
|                               |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 
|                               |  |                | 646   |              |  |        | 21 |                |  |              | 625   |        |  |   | 63 |  |  |   | 4 |  |  |   | 59 | 
|                               |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 
|Unamortized intangible assets: |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 
|Fund management contracts      |  |                | 601   |              |  |        |   |                |  |              | 601   |        |  |   | 4  |  |  |   |  |  |  |   | 4  | 
|Brand name                     |  |                | 54    |              |  |        |   |                |  |              | 54    |        |  |   |   |  |  |   |  |  |  |   |   | 
|State licenses                 |  |                | 16    |              |  |        |   |                |  |              | 16    |        |  |   | 16 |  |  |   |  |  |  |   | 16 | 
|                               |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 
|                               |  |                | 671   |              |  |        |   |                |  |              | 671   |        |  |   | 20 |  |  |   |  |  |  |   | 20 | 
|                               |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 
|Total intangible assets        |  | $              | 1,317 |              |  | $      | 21 |                |  | $            | 1,296 |        |  | $ | 83 |  |  | $ | 4 |  |  | $ | 79 | 
|                               |  |                |       |              |  |        |    |                |  |              |       |        |  |   |    |  |  |   |   |  |  |   |    | 

25
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13.     Actuarial Liabilities and Other Policy Liabilities

COMPOSITION OF ACTUARIAL LIABILITIES AND OTHER POLICY LIABILITIES

The actuarial liabilities and other policy liabilities consist of the
following:

|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |       |  |  |   |       |  |  |   |        | 
|-------------------------------------------------- |  | ------ | ------ | ------ |  | ------- | ------ | ------ |  | ---------- | ----- | ----- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                                   |  | 2002  
|                                                   |  |       
|                                                   |  |        |        |        |  | United  |        | United |  |            |       |       |  | Other |       |  |  |  
|                                                   |  | Canada |        | States |  | Kingdom |        | Asia   |  | Operations |       | Total
|                                                   |  |        |        |        |  |         |        |        |  |            |       |      
|Individual participating life                      |  | $      | 10,241 |        |  | $       | 5,959  |        |  | $          | 4,131 |       |  | $     | 1,011 |  |  | $ | 87    |  |  | $ | 21,429 | 
|Individual non-participating life                  |  |        | 1,525  |        |  |         | 8,507  |        |  |            | (21   | )     |  |       |      |  |  |   | 233   |  |  |   | 10,244 | 
|Group life                                         |  |        | 1,417  |        |  |         | 132    |        |  |            | 43    |       |  |       |      |  |  |   |      |  |  |   | 1,592  | 
|Individual annuities                               |  |        | 10,769 |        |  |         | 21,375 |        |  |            | 20    |       |  |       |      |  |  |   | 63    |  |  |   | 32,227 | 
|Group annuities                                    |  |        | 6,441  |        |  |         | 7,084  |        |  |            | 3,698 |       |  |       |      |  |  |   |      |  |  |   | 17,223 | 
|Health insurance                                   |  |        | 3,375  |        |  |         | 600    |        |  |            | 395   |       |  |       |      |  |  |   | 80    |  |  |   | 4,450  | 
|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |       |  |  |   |       |  |  |   |        | 
|Total actuarial liabilities                        |  |        | 33,768 |        |  |         | 43,657 |        |  |            | 8,266 |       |  |       | 1,011 |  |  |   | 463   |  |  |   | 87,165 | 
|Add: other policy liabilities                      |  |        | 820    |        |  |         | 551    |        |  |            | 381   |       |  |       | 77    |  |  |   | 868   |  |  |   | 2,697  | 
|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |       |  |  |   |       |  |  |   |        | 
|Actuarial liabilities and other
policy liabilities |  | $      | 34,588 |        |  | $       | 44,208 |        |  | $          | 8,647 |       |  | $     | 1,088 |  |  | $ | 1,331 |  |  | $ | 89,862 | 
|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |       |  |  |   |       |  |  |   |        | 

|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |     |  |  |   |     |  |  |   |        | 
|-------------------------------------------------- |  | ------ | ------ | ------ |  | ------- | ------ | ------ |  | ---------- | ----- | ----- |  | ----- | --- |  |  | - | --- |  |  | - | ------ | 
|                                                   |  | 2001  
|                                                   |  |       
|                                                   |  |        |        |        |  | United  |        | United |  |            |       |       |  | Other |     |  |  |  
|                                                   |  | Canada |        | States |  | Kingdom |        | Asia   |  | Operations |       | Total
|                                                   |  |        |        |        |  |         |        |        |  |            |       |      
|Individual participating life                      |  | $      | 3,335  |        |  | $       | 5,586  |        |  | $          | 3,775 |       |  | $     | 740 |  |  | $ | 78  |  |  | $ | 13,514 | 
|Individual non-participating life                  |  |        | 376    |        |  |         | 5,257  |        |  |            | (23   | )     |  |       |    |  |  |   | 68  |  |  |   | 5,678  | 
|Group life                                         |  |        | 710    |        |  |         | 119    |        |  |            | 463   |       |  |       |    |  |  |   |    |  |  |   | 1,292  | 
|Individual annuities                               |  |        | 3,260  |        |  |         | 18,655 |        |  |            | 20    |       |  |       |    |  |  |   |    |  |  |   | 21,935 | 
|Group annuities                                    |  |        | 3,056  |        |  |         | 6,609  |        |  |            | 2,817 |       |  |       |    |  |  |   |    |  |  |   | 12,482 | 
|Health insurance                                   |  |        | 1,974  |        |  |         | 547    |        |  |            | 320   |       |  |       |    |  |  |   | 116 |  |  |   | 2,957  | 
|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |     |  |  |   |     |  |  |   |        | 
|Total actuarial liabilities                        |  |        | 12,711 |        |  |         | 36,773 |        |  |            | 7,372 |       |  |       | 740 |  |  |   | 262 |  |  |   | 57,858 | 
|Add: other policy liabilities                      |  |        | 271    |        |  |         | 523    |        |  |            | 373   |       |  |       | 73  |  |  |   | 429 |  |  |   | 1,669  | 
|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |     |  |  |   |     |  |  |   |        | 
|Actuarial liabilities and other policy liabilities |  | $      | 12,982 |        |  | $       | 37,296 |        |  | $          | 7,745 |       |  | $     | 813 |  |  | $ | 691 |  |  | $ | 59,527 | 
|                                                   |  |        |        |        |  |         |        |        |  |            |       |       |  |       |     |  |  |   |     |  |  |   |        | 

In the above tables, the other operations are primarily business from the
accident and health reinsurance operations and the actuarial liabilities were
reduced by ceded reinsurance of $1,805 ($953 in 2001). Other policy
liabilities consist of policy benefits payable, provisions for unreported
claims, provisions for policyholder dividends and provisions for experience
rating refunds.

Policyholder dividends of $856 are included in policyholder dividends and
interest on claims and deposits in the consolidated statements of operations
($737 and $787 in 2001 and 2000, respectively).

Provisions for adverse deviations from expected assumptions have been included
in the actuarial liabilities to recognize the measurement uncertainty inherent
in the computation process. In determining these provisions, the Company
ensures:


    
    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.


These provisions will be reduced and included in future income to the extent
that they are no longer required. For group insurance, reductions in
provisions may be returned to policyholders as experience rating refunds.

CHANGES IN ACTUARIAL LIABILITIES

Changes in actuarial liabilities during the year are as follows:

|                                                                |  |      |        |      |  |   |        |  
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                |  | 2002 |        | 2001
|                                                                |  |      |        |     
|Actuarial liabilities, January 1                                |  | $    | 57,858 |      |  | $ | 32,778 |  
|Change in liabilities on in-force business                      |  |      | (3,064 | )    |  |   | (126   | )
|Liabilities arising from new policies                           |  |      | 7,110  |      |  |   | 1,823  |  
|Changes in intrinsic value of options that hedge the GMDB(1)    |  |      | (224   | )    |  |   |       |  
|                                                                |  |      |        |      |  |   |        |  
|Increase in actuarial liabilities                               |  |      | 3,822  |      |  |   | 1,697  |  
|                                                                |  |      |        |      |  |   |        |  
|Acquisition                                                     |  |      | 23,929 |      |  |   | 22,554 |  
|Discontinued operations                                         |  |      | 643    |      |  |   |       |  
|Changes in intrinsic value of options that hedge the GMDB(1)    |  |      | 224    |      |  |   |       |  
|Increases in actuarial liabilities related to the restructuring |  |      | 104    |      |  |   |       |  
|Dispositions and other                                          |  |      | (18    | )    |  |   | (228   | )
|Effect of changes in currency exchange rates                    |  |      | 603    |      |  |   | 1,057  |  
|                                                                |  |      |        |      |  |   |        |  
|Actuarial liabilities, December 31                              |  | $    | 87,165 |      |  | $ | 57,858 |  
|                                                                |  |      |        |      |  |   |        |  



---

|(1) |  | The changes in intrinsic value of the options were included in increase
in actuarial liabilities in the consolidated statements of operations and other
invested assets in the consolidated balance sheets.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. Actuarial Liabilities and Other Policy Liabilities (Contd)

MEASUREMENT UNCERTAINTY AND ASSUMPTIONS MOST SUSCEPTIBLE TO CHANGE

The Company uses best estimate assumptions for expected future experience in
calculating actuarial liabilities. An additional margin is then added to
provide for possible adverse deviations from the best estimates. Best estimate
assumptions are normally set based on average recent experience and trend in
that experience. Accordingly, the assumptions are expected to change slowly
over time. Due to the long-term nature of policy liabilities, the margin for
possible deviations generally increases for contingencies further in the
future. The best estimate assumptions and margins for adverse deviations are
reviewed annually and revisions are made where deemed necessary and prudent.
The actuarial policies addressing the selection of the major assumptions are
discussed in Note 2.

Mortality and morbidity:For products where higher mortality would be
financially adverse to the Company, a 1% increase in the best estimate
assumption would decrease the net income by $92. For products where lower
mortality would be financially adverse to the Company, a 1% reduction in the
mortality assumption would decrease the net income by $45. For products where
the morbidity is a significant assumption, a 1% change in that assumption would
reduce the net income by $31.

Lapse rates:For individual life insurance products where fewer lapses would
be financially adverse to the Company, net income would be decreased by $77 if
the lapse rate assumption was reduced by 10% starting in policy year six (5%
for participating policies and policies with adjustable premiums). For
products where more lapses would be financially adverse to the Company, net
income would be decreased by $62 if an extra 1% of the in-force policies were
assumed to lapse each year beginning in policy year six (0.5% for participating
policies and policies with adjustable premiums).

Expenses:The sensitivity of actuarial liabilities to a 10% increase in unit
expenses Company-wide would result in a decrease in net income of $342.

Asset default:In addition to the allowances for losses on invested assets
outlined in Note 11, the actuarial liabilities include an amount of $1,869
determined on a pre-tax basis ($943 in 2001) to provide for possible future
asset defaults and loss of asset value. This provision results from a
reduction in the expected future investment yield or a reduction in the value
of equity assets recognized in the computation of actuarial liabilities. The
reduction varies depending on the creditworthiness of the class of asset.

Segregated fund guarantees:The Company has a large volume of accumulation
annuities primarily in the United States subject to equity market movements.
The Company monitors its experience for the accumulation annuities sold in the
United States on a monthly basis, and has hedged a large percentage of its
exposure with long dated put options against the S&P 500. The sensitivity of
the actuarial liability for the various guarantees offered under these products
to changes in the equity market is significant for those blocks of business.
For example, an immediate 10% drop in equity markets as at December 31, 2002
would decrease the net income for segregated fund guarantees by $92.

Interest rate:Interest rate risk is the potential for financial loss arising
from changes in interest rates. For example, the Company is exposed to this
risk when the cash flows from assets and the policy obligations they support
are significantly mismatched, as this may result in the need to either sell
assets to meet policy payments and expenses, or re-invest excess asset cash
flows under unfavourable interest environments.

To manage this risk, a matching policy is established for each portfolio of
assets and related liabilities. Asset/liability management programs are in
place to implement this policy. The primary approach used is duration
analysis, which measures the sensitivity of assets and liabilities to interest
rate changes across the entire yield curve. Partial duration analysis is used
to examine the duration gap of assets and liabilities at discrete intervals on
the yield curve. These gaps are managed within specified tolerance limits.

Interest rate sensitivity is provided for in the actuarial liabilities for all
policies, with adequate provisions to absorb moderate changes in interest
rates.

For certain product types, including participating insurance and certain forms
of universal life policies and annuities, the effect of changes in the interest
rate environment will be largely passed through to policyholders as changes to
the amount of dividends declared or to the rate of interest credited in
accordance with the nature of the contract and policy terms. Changes to
dividends declared and the rate of interest credited occur routinely as
interest rates change, and reflect the normal operation of these policies
according to their contractual terms.

Among the different lines of insurance business, annuities are the most
sensitive to changes in interest rates. The annuity business represents 57% of
the Companys total actuarial liabilities. For the Companys annuity business,
an immediate 1% parallel increase in interest rates at December 31, 2002 across
the entire yield curve, assuming the Company was unable to take any investment
action to mitigate the impact of this change, would result in an estimated
decrease in net income of $59. Conversely, an immediate 1% parallel decrease
in interest rates, again, assuming no other investment action, would result in
an estimated increase in net income of $5.

27
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. Actuarial Liabilities and Other Policy Liabilities (Contd)

The following table shows the expected cash flows for annuity business:

|               |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|-------------- |  | ------ | ----- | ------- |  | ------------ | ------ | ------------- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | -
|               |  | 2002  
|               |  |       
|               |  | Under  |       | 1 to    |  | Over 5 years |        | Over 10 years |  |       |        |  
|               |  | 1 year |       | 5 years |  | to 10 years  |        | or more       |  | Total
|               |  |        |       |         |  |              |        |               |  |      
|CANADA         |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|Assets         |  | $      | 3,362 |         |  | $            | 9,855  |               |  | $     | 4,339  |   |  | $ | 8,370  |   |  | $ | 25,926 |  
|Liabilities    |  |        | 3,196 |         |  |              | 9,707  |               |  |       | 4,287  |   |  |   | 9,284  |   |  |   | 26,474 |  
|               |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|Cash flow gap  |  | $      | 166   |         |  | $            | 148    |               |  | $     | 52     |   |  | $ | (914   | ) |  | $ | (548   | )
|               |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|UNITED STATES  |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|Assets         |  | $      | 6,557 |         |  | $            | 15,885 |               |  | $     | 10,145 |   |  | $ | 5,013  |   |  | $ | 37,600 |  
|Liabilities    |  |        | 4,443 |         |  |              | 17,451 |               |  |       | 9,010  |   |  |   | 6,726  |   |  |   | 37,630 |  
|               |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|Cash flow gap  |  | $      | 2,114 |         |  | $            | (1,566 | )             |  | $     | 1,135  |   |  | $ | (1,713 | ) |  | $ | (30    | )
|               |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|UNITED KINGDOM |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|Assets         |  | $      | 429   |         |  | $            | 1,045  |               |  | $     | 1,316  |   |  | $ | 5,371  |   |  | $ | 8,161  |  
|Liabilities    |  |        | 283   |         |  |              | 1,124  |               |  |       | 1,382  |   |  |   | 5,472  |   |  |   | 8,261  |  
|               |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  
|Cash flow gap  |  | $      | 146   |         |  | $            | (79    | )             |  | $     | (66    | ) |  | $ | (101   | ) |  | $ | (100   | )
|               |  |        |       |         |  |              |        |               |  |       |        |   |  |   |        |   |  |   |        |  

TOTAL ASSETS SUPPORTING ACTUARIAL LIABILITIES, EQUITY AND OTHER

Bonds and mortgages are used extensively to support actuarial liabilities,
particularly in the annuity and group businesses. Stocks and real estate are
primarily used to support individual participating life insurance business
where the Company has some ability to adjust policyholder dividends. Equity
and other includes both insurance and non-insurance operations of the Company.
The following tables show the total assets supporting actuarial liabilities,
equity and other:

|                                  |  |       |        |           |  |        |        |             |  |       |       |       |  |   |       |  |  |   |        |  |  |   |         | 
|--------------------------------- |  | ----- | ------ | --------- |  | ------ | ------ | ----------- |  | ----- | ----- | ----- |  | - | ----- |  |  | - | ------ |  |  | - | ------- | 
|                                  |  | 2002 
|                                  |  |      
|                                  |  | Bonds |        | Mortgages |  | Stocks |        | Real Estate |  | Other |       | Total
|                                  |  |       |        |           |  |        |        |             |  |       |       |      
|Individual participating life     |  | $     | 12,627 |           |  | $      | 4,226  |             |  | $     | 3,378 |       |  | $ | 2,213 |  |  | $ | 4,646  |  |  | $ | 27,090  | 
|Individual non-participating life |  |       | 7,776  |           |  |        | 1,451  |             |  |       | 162   |       |  |   | 12    |  |  |   | 2,102  |  |  |   | 11,503  | 
|Group life                        |  |       | 1,809  |           |  |        | 643    |             |  |       | 17    |       |  |   | 17    |  |  |   | 274    |  |  |   | 2,760   | 
|Individual annuities              |  |       | 25,480 |           |  |        | 4,988  |             |  |       | 123   |       |  |   | 42    |  |  |   | 5,104  |  |  |   | 35,737  | 
|Group annuities                   |  |       | 15,117 |           |  |        | 2,845  |             |  |       | 68    |       |  |   | 161   |  |  |   | 931    |  |  |   | 19,122  | 
|Health insurance                  |  |       | 4,340  |           |  |        | 1,330  |             |  |       | 30    |       |  |   | 24    |  |  |   | 917    |  |  |   | 6,641   | 
|Equity and other                  |  |       | 6,274  |           |  |        | 316    |             |  |       | 443   |       |  |   | 754   |  |  |   | 12,798 |  |  |   | 20,585  | 
|                                  |  |       |        |           |  |        |        |             |  |       |       |       |  |   |       |  |  |   |        |  |  |   |         | 
|Total assets                      |  | $     | 73,423 |           |  | $      | 15,799 |             |  | $     | 4,221 |       |  | $ | 3,223 |  |  | $ | 26,772 |  |  | $ | 123,438 | 
|                                  |  |       |        |           |  |        |        |             |  |       |       |       |  |   |       |  |  |   |        |  |  |   |         | 

|                                  |  |       |        |           |  |        |       |             |  |       |       |       |  |   |       |  |  |   |        |  |  |   |        | 
|--------------------------------- |  | ----- | ------ | --------- |  | ------ | ----- | ----------- |  | ----- | ----- | ----- |  | - | ----- |  |  | - | ------ |  |  | - | ------ | 
|                                  |  | 2001 
|                                  |  |      
|                                  |  | Bonds |        | Mortgages |  | Stocks |       | Real Estate |  | Other |       | Total
|                                  |  |       |        |           |  |        |       |             |  |       |       |      
|Individual participating life     |  | $     | 7,587  |           |  | $      | 2,615 |             |  | $     | 3,567 |       |  | $ | 1,668 |  |  | $ | 2,529  |  |  | $ | 17,966 | 
|Individual non-participating life |  |       | 3,878  |           |  |        | 749   |             |  |       | 79    |       |  |   | 13    |  |  |   | 1,011  |  |  |   | 5,730  | 
|Group life                        |  |       | 1,297  |           |  |        | 329   |             |  |       | 36    |       |  |   | 13    |  |  |   | 293    |  |  |   | 1,968  | 
|Individual annuities              |  |       | 16,638 |           |  |        | 1,922 |             |  |       | 162   |       |  |   | 40    |  |  |   | 3,408  |  |  |   | 22,170 | 
|Group annuities                   |  |       | 10,398 |           |  |        | 1,685 |             |  |       | 139   |       |  |   | 184   |  |  |   | 741    |  |  |   | 13,147 | 
|Health insurance                  |  |       | 3,109  |           |  |        | 801   |             |  |       | 50    |       |  |   | 20    |  |  |   | 794    |  |  |   | 4,774  | 
|Equity and other                  |  |       | 5,170  |           |  |        | 521   |             |  |       | 849   |       |  |   | 378   |  |  |   | 7,655  |  |  |   | 14,573 | 
|                                  |  |       |        |           |  |        |       |             |  |       |       |       |  |   |       |  |  |   |        |  |  |   |        | 
|Total assets                      |  | $     | 48,077 |           |  | $      | 8,622 |             |  | $     | 4,882 |       |  | $ | 2,316 |  |  | $ | 16,431 |  |  | $ | 80,328 | 
|                                  |  |       |        |           |  |        |       |             |  |       |       |       |  |   |       |  |  |   |        |  |  |   |        | 

28
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|14. |  | Reinsurance Agreements
|--- |  | ----------------------

Reinsurance is used to limit exposure to large losses. The Board approves the
Companys individual life insurance retention policy and limits which require
that such arrangements be placed with well-established, highly rated
reinsurers. Coverage is well diversified and controls are in place to manage
exposure to reinsurance counterparties. Actuarial liabilities are shown net of
ceded reinsurance in Note 13. While reinsurance arrangements provide for the
recovery of claims arising from the liabilities ceded, the Company retains
primary responsibility to the policyholders. The effect of reinsurance on
premiums and payments to policyholders, beneficiaries and depositors is
summarized as follows:

|                                                         |                     |  |      |        |      |  |      |       |   |  |   |       |  
|-------------------------------------------------------- | ------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                         |                     |  | 2002 |        | 2001 |  | 2000
|                                                         |                     |  |      |        |      |  |     
|Premiums:                                                |                     |  |      |        |      |  |      |       |   |  |   |      
|                                                         | Direct premiums     |  | $    | 15,061 |      |  | $    | 9,722 |   |  | $ | 9,374 |  
|                                                         | Reinsurance assumed |  |      | 577    |      |  |      | 169   |   |  |   | 369   |  
|                                                         | Reinsurance ceded   |  |      | (763   | )    |  |      | (454  | ) |  |   | (354  | )
|                                                         |                     |  |      |        |      |  |      |       |   |  |   |       |  
|                                                         |                     |  | $    | 14,875 |      |  | $    | 9,437 |   |  | $ | 9,389 |  
|                                                         |                     |  |      |        |      |  |      |       |   |  |   |       |  
|Payments to policyholders, beneficiaries and depositors: |                     |  |      |        |      |  |      |       |   |  |   |      
|                                                         | Direct payments     |  | $    | 11,585 |      |  | $    | 6,937 |   |  | $ | 6,670 |  
|                                                         | Reinsurance assumed |  |      | 511    |      |  |      | 235   |   |  |   | 417   |  
|                                                         | Reinsurance ceded   |  |      | (408   | )    |  |      | (292  | ) |  |   | (358  | )
|                                                         |                     |  |      |        |      |  |      |       |   |  |   |       |  
|                                                         |                     |  | $    | 11,688 |      |  | $    | 6,880 |   |  | $ | 6,729 |  
|                                                         |                     |  |      |        |      |  |      |       |   |  |   |       |  



|15. |  | Other Liabilities
|--- |  | -----------------

Other liabilities consist of the following:

|                                         |  |      |       |      |  |   |       | 
|---------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                         |  | 2002 |       | 2001
|                                         |  |      |       |     
|Accounts payable                         |  | $    | 3,248 |      |  | $ | 1,967 | 
|Bond repurchase agreements               |  |      | 1,570 |      |  |   |      | 
|Accrued expenses and taxes               |  |      | 1,041 |      |  |   | 1,163 | 
|Borrowed funds (Note 16)                 |  |      | 306   |      |  |   | 310   | 
|Future income taxes (Note 25)            |  |      | 382   |      |  |   | 329   | 
|Provisions for future policyholder costs |  |      | 227   |      |  |   | 566   | 
|Other                                    |  |      | 897   |      |  |   | 326   | 
|                                         |  |      |       |      |  |   |       | 
|Total other liabilities                  |  | $    | 7,671 |      |  | $ | 4,661 | 
|                                         |  |      |       |      |  |   |       | 

The Company enters into bond repurchase agreements for operational funding and
liquidity purposes. Bond repurchase agreements have maturities ranging from 2
to 90 days, averaging 36 days, and bearing interest rates averaging 2.82% as at
December 31, 2002. As at December 31, 2002, the Company had assets with a
total market value of $1,566 pledged as collateral for the bond repurchase
agreements.



|16. |  | Borrowed Funds
|--- |  | --------------

The following obligations are included in borrowed funds:

|                            |  |                       |  |          |           |      |  |      |     |   |     |   |     |   |     | 
|--------------------------- |  | --------------------- |  | -------- | --------- | ---- |  | ---- | --- | - | --- | - | --- | - | --- | 
|                            |  | Currency of Borrowing |  | Maturity |           | 2002 |  | 2001
|                            |  |                       |  |          |           |      |  |     
|Bank credit facilities(1)   |  | U.S. dollars          |  |          | 2005      |      |  | $    | 237 |   |     | $ | 239 |  
|Encumbrances on real estate |  | Canadian dollars      |  |          | 2003-2010 |      |  |      | 28  |   |     |   | 29  |  
|                            |  | U.S. dollars          |  |          | 2004-2014 |      |  |      | 41  |   |     |   | 42  |  
|                            |  |                       |  |          |           |      |  |      |     |   |     |   |     |   |     | 
|Total borrowed funds        |  |                       |  |          |           |      |  |      |     | $ | 306 |   |     | $ | 310 | 
|                            |  |                       |  |          |           |      |  |      |     |   |     |   |     |   |     | 



---

|(1) |  | At various floating rates,
linked to London InterBank Offered Rate.
|--- |  | -------------------------------------------------------------------

Interest expense for the borrowed funds was $26, $30 and $25 for 2002, 2001 and
2000, respectively.

At December 31, 2002, aggregate maturities, including principal repayments, of
encumbrances on real estate are $25 for 2003, $10 for 2004, $2 for 2005, $5 for
2006, $18 for 2007 and $1 for 2008.

At December 31, 2002, bank credit facilities are $237 ($239 in 2001) and the
weighted average interest rates related to those borrowings is 2.05% (5.3% to
6.1% in 2001). The U.S. dollar bank credit facility is secured by the future
distribution fee stream of the mutual funds under the management of
Massachusetts Financial Services Company (M.F.S.).

At December 31, 2002, the Company had $1,225 in lines of credit from numerous
financial institutions of which $988 was unused. These lines of credit
generally have terms ranging from 1 to 5 years.

29
Sun Life Financial Services of Canada Inc.






---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|17. |  | Subordinated Debt
|--- |  | -----------------

The following obligations are included in subordinated debt:

|                                      |                                  |  |          |      |      |   |       |     |  |   |     |     | 
|------------------------------------- | -------------------------------- |  | -------- | ---- | ---- | - | ----- | --- |  | - | --- | --- | 
|                                      |                                  |  | Maturity |      | 2002 |   | 2001 
|                                      |                                  |  |          |      |      |   |      
|Amounts borrowed in Canadian dollars: |                                  |  |          |      |      |   |       |     |  |   |     |    
|                                      | 8.49% capital debentures         |  |          | 2005 |      |   | $     |    |  |   | $   | 300 | 
|                                      | 5.80% subordinated debentures(1) |  |          | 2013 |      |   |       | 253 |  |   |     |    | 
|                                      | 6.65% subordinated debentures(2) |  |          | 2015 |      |   |       | 300 |  |   |     |    | 
|                                      | 6.15% subordinated debentures    |  |          | 2022 |      |   |       | 799 |  |   |     |    | 
|                                      | 6.30% subordinated debentures(3) |  |          | 2028 |      |   |       | 150 |  |   |     |    | 
|Amounts borrowed in U.S. dollars:     |                                  |  |          |      |      |   |       |     |  |   |     |    
|                                      | 6.63% subordinated notes         |  |          | 2007 |      |   |       | 236 |  |   |     | 238 | 
|                                      | 7.25% subordinated notes         |  |          | 2015 |      |   |       | 236 |  |   |     | 238 | 
|                                      |                                  |  |          |      |      |   |       |     |  |   |     |     | 
|Total subordinated debt               |                                  |  |          |      |      | $ | 1,974 |     |  | $ | 776 |    
|                                      |                                  |  |          |      |      |   |       |     |  |   |     |     | 



---

|(1) |  | After May 15, 2008, interest is payable at an annual rate equal to the
90-day Bankers Acceptance Rate plus 1%. Redeemable in whole or in part at any
time.                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | After October 12, 2010, interest is payable at an annual rate equal
to the 90-day Bankers Acceptance Rate plus 1%. 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.
|(3) |  | Redeemable in whole or in part at any time.                                                                                                                                                                                                                          

Interest expense on subordinated debt borrowings was $86, $59 and $58 for 2002,
2001 and 2000, respectively.

All of the subordinated debt qualifies as capital for Canadian regulatory
purposes.

On June 25, 2002, the Company issued $800 subordinated debentures for $799.
Interest on the subordinated debentures will be payable semi-annually at an
annual rate of 6.15% until June 30, 2012. The first interest payments were
made on December 31, 2002. From July 1, 2012 to the maturity date of June 30,
2022, interest will be payable quarterly at an annual rate of 1.54% over the
90-day Bankers Acceptance average bid rate for each quarterly interest period.
Subject to certain conditions, the Company may redeem the subordinated
debentures before the maturity date of June 30, 2022. The proceeds of this
offering were used for general corporate purposes, including investments in
subsidiaries.

On December 19, 2001, the Company notified the holders of the 8.49% capital
debentures of its intention to redeem the $300 principal amount of debentures
before the maturity date of July 28, 2005. The redemption premiums of $30, net
of taxes of $7, were recorded in 2001. The redemption of the capital
debentures was completed on January 28, 2002.



|18. |  | Cumulative Capital Securities of a Subsidiary
|--- |  | ---------------------------------------------

On May 6, 1997, Sun Life of Canada (U.S.) Capital Trust I, a Delaware statutory
business trust of the Company, issued U.S.$600 of 8.526% cumulative capital
securities (Securities). These Securities were issued in U.S. dollars and have
no scheduled maturity date. Distributions are payable semi-annually in
arrears. The payment of distributions is indirectly guaranteed by Sun Life
Assurance Company of Canada on a subordinated basis. These cumulative capital
securities qualify as capital for Canadian regulatory purposes.



|19. |  | Non-controlling Interests in Subsidiaries
|--- |  | -----------------------------------------

Non-controlling interests in the consolidated balance sheets consist of the following:

|                                                                                  |  |      |       |      |  |   |       | 
|--------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                                                                  |  | 2002 |       | 2001
|                                                                                  |  |      |       |     
|Sun Life ExchangEable Capital Securities issued by Sun Life Capital Trust (Trust) |  | $    | 1,150 |      |  | $ | 950   | 
|Preferred shares of Sun Life Assurance Company of Canada(1)                       |  |      | 158   |      |  |   |      | 
|Non-controlling interests in M.F.S. and McLean Budden Limited                     |  |      | 48    |      |  |   | 93    | 
|                                                                                  |  |      |       |      |  |   |       | 
|Total non-controlling interests in subsidiaries                                   |  | $    | 1,356 |      |  | $ | 1,043 | 
|                                                                                  |  |      |       |      |  |   |       | 



---

|(1) |  | These preferred shares were issued by Clarica before amalgamating with Sun
Life Assurance.
|--- |  | ------------------------------------------------------------------------------------------

Non-controlling interests in net income of subsidiaries include the preferred
shares dividend payments of $5 (nil in 2001 and 2000), non-controlling
interests in the Trust of $45 ($7 in 2001 and nil in 2000) and non-controlling
interests in M.F.S. and McLean Budden Limited of $33 ($61 in 2001 and $67 in
2000).

On June 25, 2002, the Trust, a controlled trust of Sun Life Assurance Company
of Canada, issued $200 of non-voting Sun Life ExchangEable Capital Securities 
Series B (SLEECS Series B). Holders of the SLEECS Series B are entitled to
receive a semi-annual non-cumulative fixed cash distribution of $35.465 per
SLEECS Series B, representing an annual yield of 7.093% of the one thousand
dollar initial issue price, payable out of the Trusts net distributable funds.
The SLEECS Series B are subject to terms that are similar to those of the
prior Sun Life ExchangEable Capital Securities Series A offering as described
below. The proceeds of this offering were used for general corporate purposes,
including investments in subsidiaries.

30
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|19. |  | Non-controlling Interests in Subsidiaries (Contd)
|--- |  | --------------------------------------------------

On October 19, 2001, the Trust issued $950 of non-voting Sun Life ExchangEable
Capital Securities  Series A (SLEECS). Holders of the SLEECS are entitled to
receive a semi-annual non-cumulative fixed cash distribution of $34.325 per
SLEECS, representing an annual yield of 6.865% of the one thousand dollars
initial issue price, payable out of the Trusts net distributable funds. If
Sun Life Assurance Company of Canada has not declared dividends on its Class B
Non-cumulative Preferred Shares Series A or on any of its preferred shares
listed on a stock exchange, cash distributions will not be made on the SLEECS.
Subject to regulatory approval, the Trust may redeem the SLEECS at any time
after the fifth anniversary of the date of issuance and, in certain limited
circumstances, may also redeem the SLEECS during the first five years. The
holders of the SLEECS have the right at any time to surrender each one thousand
dollars face amount of SLEECS and to receive from the Trust in exchange 40
Class A Non-cumulative Preferred Shares Series Z of Sun Life Assurance Company
of Canada, subject to compliance with the Declaration of Trust. Proceeds of
issuing the SLEECS were used to finance in part the acquisition of Keyport and
IFMG. Both Sun Life ExchangEable Capital Securities  Series A and B qualify
as capital for Canadian regulatory purposes.

Pursuant to the Share Exchange Agreement, Sun Life Financial Services of Canada
Inc. and Sun Life Assurance Company of Canada agreed that if the Trust fails to
pay on any regular distribution date the required cash distributions on the
SLEECS in full, Sun Life Assurance Company of Canada will not pay dividends on
its public preferred shares. If there are no public preferred shares of Sun
Life Assurance Company of Canada outstanding, Sun Life Financial Services of
Canada Inc. will not pay dividends on any of its preferred and common shares.



|20. |  | Share Capital and Normal Course Issuer Bid
|--- |  | ------------------------------------------

The authorized share capital of Sun Life Financial Services of Canada Inc.
consists of the following:



| |  | 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 Services of Canada Inc. There are no pre-emptive,
redemption, purchase or conversion rights attached to the common shares.                                                                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An unlimited number of
Class A and Class B non-voting preferred shares, issuable in series. The Board is authorized to fix before issuing the
shares, the number, the consideration per share, the designation of and
the rights and restrictions of the Class A and Class B shares of each
series, subject to the special rights and restrictions attached to all the
Class A and Class B shares.

The changes and the number of shares issued and outstanding are as follows:

|                                                                                                                                       |  |                  |     |        |  |                  |       |        |  |  |     |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | --- | ------ |  | ---------------- | ----- | ------ |  |  | --- | - |  | - | ----- | -
|                                                                                                                                       |  | 2002             |     | 2001  
|                                                                                                                                       |  |                  |     |       
|                                                                                                                                       |  | Number of shares |     | Amount |  | Number of shares |       | Amount
|                                                                                                                                       |  |                  |     |        |  |                  |       |       
|Common shares (in millions of shares)
Balance, January 1                                                                               |  |                  | 432 |        |  | $                | 1,100 |        |  |  | 422 |   |  | $ | 795   |  
|Common shares issued, net of issuance costs and fair value of
stock options granted as consideration for business acquisition (Note 4) |  |                  | 185 |        |  |                  | 6,329 |        |  |  |    |   |  |   |      |  
|Shares issued for cash                                                                                                                 |  |                  |    |        |  |                  |      |        |  |  | 11  |   |  |   | 330   |  
|Stock option compensation (Note 3)                                                                                                     |  |                  |    |        |  |                  | 21    |        |  |  |    |   |  |   |      |  
|Stock options exercised (Note 23)                                                                                                      |  |                  | 1   |        |  |                  | 27    |        |  |  |    |   |  |   |      |  
|Purchase and cancellation of common shares                                                                                             |  |                  |    |        |  |                  |      |        |  |  | (1  | ) |  |   | (2    | )
|Commissions and offering costs, net of taxes                                                                                           |  |                  |    |        |  |                  |      |        |  |  |     |   |  |   | (23   | )
|                                                                                                                                       |  |                  |     |        |  |                  |       |        |  |  |     |   |  |   |       |  
|Balance, December 31                                                                                                                   |  |                  | 618 |        |  | $                | 7,477 |        |  |  | 432 |   |  | $ | 1,100 |  
|                                                                                                                                       |  |                  |     |        |  |                  |       |        |  |  |     |   |  |   |       |  

On October 4, 2001, Sun Life Financial Services of Canada Inc. issued 11
million common shares at $30 per share for $330. Underwriting commissions and
offering costs of issuing the common shares amounted to $23 and were deducted
from the share capital of Sun Life Financial Services of Canada Inc. Proceeds
of issuing the common shares were used to finance in part the acquisition of
Keyport and IFMG.

Commencing in May 2001, pursuant to a one-year normal course issuer bid, the
Company purchased and cancelled approximately one million of its common shares
at an average price of $32 per share for a total amount of $35.

31
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|21. |  | Earnings Per Share
|--- |  | ------------------

|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | --- |  | - | ---- | ---
|                                                                                            |  | 2002 |       | 2001 |  | 2000
|                                                                                            |  |      |       |      |  |     
|BASIC EARNINGS PER SHARE                                                                    |  |      |       |      |  |      |      |     |  |   |      |    
|Shareholders net income from continuing operations                                         |  | $    | 1,034 |      |  | $    | 882  |     |  | $ | 629  |    
|Income (loss) from discontinued operations, net of income taxes                             |  |      | (36   | )    |  |      |     |     |  |   |     |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Shareholders net income                                                                    |  | $    | 998   |      |  | $    | 882  |     |  | $ | 629  |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Shareholders net income excluding goodwill amortization                                    |  | $    | 998   |      |  | $    | 901  | (2) |  | $ | 647  | (2)
|Weighted average number of shares outstanding (in millions)                                 |  |      | 543   |      |  |      | 424  |     |  |   | 421  |    
|Basic earnings per share from continuing operations                                         |  | $    | 1.91  |      |  | $    | 2.08 |     |  | $ | 1.49 |    
|Basic earnings (loss) per share from discontinued operations                                |  |      | (0.07 | )    |  |      |     |     |  |   |     |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Basic earnings per share                                                                    |  | $    | 1.84  |      |  | $    | 2.08 |     |  | $ | 1.49 |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Basic earnings per share excluding goodwill amortization                                    |  | $    | 1.84  |      |  | $    | 2.13 |     |  | $ | 1.54 |    
|DILUTED EARNINGS PER SHARE                                                                  |  |      |       |      |  |      |      |     |  |   |      |    
|Shareholders net income from continuing operations                                         |  | $    | 1,034 |      |  | $    | 882  |     |  | $ | 629  |    
|Less: Effect of stock options of subsidiaries(1)                                            |  |      | 3     |      |  |      | 5    |     |  |   | 4    |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Shareholders net income from continuing operations on a diluted basis                      |  | $    | 1,031 |      |  | $    | 877  |     |  | $ | 625  |    
|Income (loss) from discontinued operations, net of income taxes                             |  |      | (36   | )    |  |      |     |     |  |   |     |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Shareholders net income on a diluted basis                                                 |  | $    | 995   |      |  | $    | 877  |     |  | $ | 625  |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Shareholders net income excluding goodwill amortization on a diluted basis                 |  | $    | 995   |      |  | $    | 896  | (2) |  | $ | 643  | (2)
|Weighted average number of shares outstanding on a diluted basis (in millions)(1), (3) ,(4) |  |      | 543   |      |  |      | 424  |     |  |   | 421  |    
|Diluted earnings per share from continuing operations                                       |  | $    | 1.90  |      |  | $    | 2.07 |     |  | $ | 1.48 |    
|Diluted earnings (loss) per share from discontinued operations                              |  |      | (0.07 | )    |  |      |     |     |  |   |     |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Diluted earnings per share                                                                  |  | $    | 1.83  |      |  | $    | 2.07 |     |  | $ | 1.48 |    
|                                                                                            |  |      |       |      |  |      |      |     |  |   |      |    
|Diluted earnings per share excluding goodwill amortization                                  |  | $    | 1.83  |      |  | $    | 2.11 |     |  | $ | 1.53 |    



---

|(1) |  | The effect of stock options is calculated based on the treasury stock
method requirements which assume that any proceeds from the exercise of the
options would be used to purchase common shares at the average market prices
during the period.                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Goodwill amortization of $19 and $18 for the years ended December 31, 2001
and 2000, respectively, was added back to shareholders net income for the
calculation of basic and diluted earnings per share excluding goodwill
amortization.                                                                                                                                  
|(3) |  | Clarica stock options have been included in the calculations of the diluted
earnings per share and diluted earnings per share excluding goodwill
amortization for the year ended December 31, 2002, as they are exercisable to
acquire common shares of Sun Life Financial Services of Canada Inc.                                                                          
|(4) |  | Options to purchase approximately 10 million shares of Sun Life Financial
Services of Canada Inc. at the average exercise price of $31.37 per share were
outstanding as at December 31, 2002. However, they were not included in the
diluted earnings per share calculations, because their exercise prices were
greater than the average market price of the common shares.



|22. |  | Minimum Capital Requirements
|--- |  | ----------------------------

The Company is subject to the Canadian Minimum Continuing Capital and Surplus
Requirements (MCCSR) on its worldwide insurance operations. At December 31,
2002, the Company had a MCCSR ratio of 230% (190% in 2001), which is in excess
of the minimum requirement. In addition, foreign operations and foreign
subsidiaries of the Company must comply with local capital requirements in each
of the jurisdictions in which they operate. Furthermore, the Company is
required to appropriate retained earnings of $2,246 ($2,163 in 2001). All of
these requirements constrain the Companys ability to distribute its retained
earnings.



|23. |  | Stock-based Compensation
|--- |  | ------------------------

Sun Life Financial Services of Canada Inc. granted stock options to certain
employees and directors under the Executive Stock Option Plan and the Director
Stock Option Plan and to all eligible employees under the Special 2001 Stock
Option Award Plan. These options may be exercised at the closing price of the
common shares on the Exchange on the trading day preceding the grant date. The
options granted under the stock option plans will vest at various times: over a
five-year period under the Executive Stock Option Plan, two years after the
grant date under the Special 2001 Stock Option Award Plan and over a two-year
period or immediately upon death or attainment of the mandatory age for
retirement under the Director Stock Option Plan. All options have a maximum
exercise period of 10 years. The maximum number of common shares that may be
issued under the Executive Stock Option Plan, the Special 2001 Stock Option
Award Plan and the Director Stock Option Plan are 29,525,000 shares, 1,150,000
shares and 150,000 shares, respectively.

As described in Note 4, all of the Clarica stock options vested immediately
prior to the closing date of the acquisition and each unexercised Clarica stock
option outstanding on May 29, 2002 became exercisable to acquire common shares
of Sun Life Financial Services of Canada Inc. These Clarica stock options are
presented with those of Sun Life Financial Services of Canada Inc. in the
following tables.

32
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|23. |  | Stock-based Compensation (Contd)
|--- |  | ---------------------------------

The activities in the stock option plans for the year ended December 31 are as follows:

|                                                           |  |               |            |                  |  |               |       |                  |  |           |  |  |   |       |  | 
|---------------------------------------------------------- |  | ------------- | ---------- | ---------------- |  | ------------- | ----- | ---------------- |  | --------- |  |  | - | ----- |  | 
|                                                           |  | 2002          |            | 2001            
|                                                           |  |               |            |                 
|                                                           |  | Number of     |            | Weighted average |  | Number of     |       | Weighted average
|                                                           |  | stock options |            | exercise price   |  | stock options |       | exercise price  
|                                                           |  |               |            |                  |  |               |       |                 
|Balance, January 1                                         |  |               | 5,545,000  |                  |  | $             | 29.87 |                  |  |          |  |  | $ |     
|Granted                                                    |  |               | 4,467,100  |                  |  | $             | 33.16 |                  |  | 5,710,800 |  |  | $ | 29.86
|Granted as consideration for business acquisition (Note 4) |  |               | 4,502,927  |                  |  | $             | 24.78 |                  |  |          |  |  | $ |     
|Exercised                                                  |  |               | 1,196,353  |                  |  | $             | 22.58 |                  |  |          |  |  | $ |     
|Forfeited                                                  |  |               | 897,821    |                  |  | $             | 30.82 |                  |  | 165,800   |  |  | $ | 29.60
|                                                           |  |               |            |                  |  |               |       |                 
|Balance, December 31                                       |  |               | 12,420,853 |                  |  | $             | 29.84 |                  |  | 5,545,000 |  |  | $ | 29.87
|                                                           |  |               |            |                  |  |               |       |                 
|Exercisable, December 31                                   |  |               | 4,064,678  |                  |  | $             | 26.37 |                  |  | 2,000     |  |  | $ | 31.00
|                                                           |  |               |            |                  |  |               |       |                 

The stock options outstanding and exercisable as at December 31, 2002, by exercise price, are as follows:

|                         |  |                     |  |                       |  |                |  |               |  |               
|------------------------ |  | ------------------- |  | --------------------- |  | -------------- |  | ------------- |  | --------------
|                         |  | Options Outstanding |  | Options Exercisable  
|                         |  |                     |  |                      
|                         |  |                     |  | Weighted average      |  | Weighted       |  |               |  | Weighted      
|                         |  | Number of           |  | remaining contractual |  | average        |  | Number of     |  | average       
|Range of exercise prices |  | stock options       |  | life (years)          |  | exercise price |  | stock options |  | exercise price
|                         |  |                     |  |                       |  |                |  |               |  |               
|$19.05 to $25.28         |  | 1,739,962           |  | 7.72                  |  | $21.21         |  | 1,739,962     |  | $21.21        
|$27.09 to $29.49         |  | 4,839,204           |  | 8.25                  |  | $29.34         |  | 1,050,979     |  | $28.80        
|$31.00 to $33.53         |  | 5,715,787           |  | 9.06                  |  | $32.73         |  | 1,242,262     |  | $31.27        
|$36.50 to $38.50         |  | 125,900             |  | 8.92                  |  | $36.63         |  | 31,475        |  | $36.63        
|                         |  |                     |  |                       |  |                |  |               |  |               
|                         |  | 12,420,853          |  | 8.55                  |  | $29.84         |  | 4,064,678     |  | $26.37        
|                         |  |                     |  |                       |  |                |  |               |  |               

Effective October 1, 2001, the Company began matching employees contributions
to the Sun Life Financial Employee Stock Plan (Plan). Eligible employees in
Canada may contribute from 1% to 20% of their base earnings to the Plan. The
Company matches 50% of the lower of the employee contributions and 5% of the
employees base earnings to an annual maximum of one thousand five hundred
dollars. The Companys contributions vest immediately and are expensed.



|24. |  | Operating Expenses
|--- |  | ------------------

Operating expenses consist of the following:

|                                                      |  |      |       |      |  |      |       |  |  |   |       | 
|----------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                      |  | 2002 |       | 2001 |  | 2000
|                                                      |  |      |       |      |  |     
|Compensation costs                                    |  | $    | 1,684 |      |  | $    | 1,528 |  |  | $ | 1,447 | 
|Premises and equipment costs                          |  |      | 299   |      |  |      | 264   |  |  |   | 268   | 
|Restructuring and other related charges (Note 7)      |  |      | 158   |      |  |      |      |  |  |   |      | 
|Capital asset depreciation and amortization (Note 12) |  |      | 76    |      |  |      | 66    |  |  |   | 59    | 
|Goodwill amortization (Note 12)                       |  |      |      |      |  |      | 10    |  |  |   | 8     | 
|Other                                                 |  |      | 605   |      |  |      | 628   |  |  |   | 644   | 
|Impact of discontinued operations                     |  |      | (43   | )    |  |      |      |  |  |   |      | 
|                                                      |  |      |       |      |  |      |       |  |  |   |       | 
|Total operating expenses                              |  | $    | 2,779 |      |  | $    | 2,496 |  |  | $ | 2,426 | 
|                                                      |  |      |       |      |  |      |       |  |  |   |       | 

33
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|25. |  | Income Taxes
|--- |  | ------------

In the consolidated statements of operations, the income tax expense for the Companys worldwide operations has the following
components:

|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|----------------------------------------------------- | ------- | - | ---- | --- | ---- | - | ---- | --- | - | - | --- | --- | 
|                                                      |         |   | 2002 |     | 2001 |   | 2000
|                                                      |         |   |      |     |      |   |     
|CONTINUING OPERATIONS                                 |         |   |      |     |      |   |      |     |   |   |     |    
|Canadian income tax expense (benefit):                |         |   |      |     |      |   |      |     |   |   |     |    
|                                                      | Current |   | $    | 116 |      |   | $    | 23  |   |   | $   | 76  | 
|                                                      | Future  |   |      | (72 | )    |   |      | 113 |   |   |     | 75  | 
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|Total                                                 |         |   | 44   |     |      |   | 136  |     |   |   | 151 |    
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|Foreign income tax expense (benefit):                 |         |   |      |     |      |   |      |     |   |   |     |    
|                                                      | Current |   |      | 69  |      |   |      | 236 |   |   |     | 190 | 
|                                                      | Future  |   |      | (15 | )    |   |      | (66 | ) |   |     | 45  | 
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|Total                                                 |         |   | 54   |     |      |   | 170  |     |   |   | 235 |    
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|Income tax expense related to continuing operations   |         |   | 98   |     |      |   | 306  |     |   |   | 386 |    
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|DISCONTINUED OPERATIONS                               |         |   |      |     |      |   |      |     |   |   |     |    
|Foreign income tax expense (benefit):                 |         |   |      |     |      |   |      |     |   |   |     |    
|                                                      | Current |   |      | (1  | )    |   |      |    |   |   |     |    | 
|                                                      | Future  |   |      | 11  |      |   |      |    |   |   |     |    | 
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|Total                                                 |         |   | 10   |     |      |   |     |     |   |   |    |    
|Income tax expense related to discontinued operations |         |   | 10   |     |      |   |     |     |   |   |    |    
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 
|Total income taxes                                    |         | $ | 108  |     |      | $ | 306  |     |   | $ | 386 |    
|                                                      |         |   |      |     |      |   |      |     |   |   |     |     | 

The undistributed earnings of most non-Canadian subsidiaries would be taxed
only upon their repatriation to Canada. The Company recognizes a future tax
liability, if any, on these undistributed earnings to the extent that
management expects they will be repatriated in the foreseeable future. As
repatriation of such earnings is not currently planned, the Company has not
recognized the future tax liability. If the undistributed earnings of all
non-Canadian subsidiaries were repatriated, additional taxes that would be
payable are estimated to be $56 as at December 31, 2002 ($33 and $17 in 2001
and 2000, respectively).

The Companys effective worldwide income tax rate differs from the combined
Canadian federal and provincial statutory income tax rate, as follows:

|                                                                                                                      |  |      |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  |  | ----- | - |  | - | ----- | - |  |  | ----- | -
|                                                                                                                      |  | 2002 |       | 2001 |  | 2000
|                                                                                                                      |  |      |       |      |  |     
|                                                                                                                      |  |      |       |      |  | %    |       |   |  |   |       | % |  |  |       |   |  | %
|Net income from continuing operations                                                                                 |  | $    | 1,033 |      |  |      |       |   |  | $ | 881   |   |  |  |       |   |  | $ | 802   |   |  |  |       |  
|Add: income taxes                                                                                                     |  |      | 98    |      |  |      |       |   |  |   | 306   |   |  |  |       |   |  |   | 386   |   |  |  |       |  
|non-controlling interests in net income of subsidiaries                                                               |  |      | 83    |      |  |      |       |   |  |   | 68    |   |  |  |       |   |  |   | 67    |   |  |  |       |  
|                                                                                                                      |  |      |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Net income from continuing operations before income taxes
and non-controlling interests in net income of subsidiaries |  | $    | 1,214 |      |  |      |       |   |  | $ | 1,255 |   |  |  |       |   |  | $ | 1,255 |   |  |  |       |  
|                                                                                                                      |  |      |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Taxes at the combined Canadian federal and
provincial statutory income tax rate                                       |  | $    | 456   |      |  |      | 37.6  |   |  | $ | 520   |   |  |  | 41.4  |   |  | $ | 542   |   |  |  | 43.2  |  
|Increase (decrease) in rate resulting from:                                                                           |  |      |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Higher (lower) effective rates on income
subject to taxation in foreign jurisdictions                                 |  |      | (183  | )    |  |      | (15.1 | ) |  |   | (193  | ) |  |  | (15.4 | ) |  |   | (146  | ) |  |  | (11.6 | )
|Tax (benefit) cost of unrecognized losses                                                                             |  |      | (103  | )    |  |      | (8.5  | ) |  |   | (23   | ) |  |  | (1.8  | ) |  |   |      |   |  |  |      |  
|Tax exempt investment income                                                                                          |  |      | (107  | )    |  |      | (8.8  | ) |  |   | (39   | ) |  |  | (3.1  | ) |  |   | (52   | ) |  |  | (4.1  | )
|Capital taxes                                                                                                         |  |      | 8     |      |  |      | 0.7   |   |  |   | 6     |   |  |  | 0.5   |   |  |   | 9     |   |  |  | 0.7   |  
|Statutory income tax rate reduction                                                                                   |  |      | (2    | )    |  |      | (0.2  | ) |  |   | 6     |   |  |  | 0.5   |   |  |   | 27    |   |  |  | 2.1   |  
|Other                                                                                                                 |  |      | 29    |      |  |      | 2.4   |   |  |   | 29    |   |  |  | 2.3   |   |  |   | 6     |   |  |  | 0.5   |  
|                                                                                                                      |  |      |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  
|Companys effective worldwide income taxes                                                                            |  | $    | 98    |      |  |      | 8.1   |   |  | $ | 306   |   |  |  | 24.4  |   |  | $ | 386   |   |  |  | 30.8  |  
|                                                                                                                      |  |      |       |      |  |      |       |   |  |   |       |   |  |  |       |   |  |   |       |   |  |  |       |  

The Company has accumulated tax losses, primarily in the United Kingdom,
totalling $3,282 ($2,069 in 2001). The benefit of these tax losses has been
recognized to the extent that they are more likely than not to be realized in
the amount of $643 ($127 in 2001) in future income taxes. The Company will
realize this benefit in future years through a reduction in current income
taxes as and when the losses are utilized. These tax losses are subject to
examination by various tax authorities and could be reduced as a result of the adjustments to
tax returns. Furthermore, legislative, business or other changes may limit the
Companys ability to utilize these losses.

34
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|25. |  | Income Taxes (Contd)
|--- |  | ---------------------

The following is future tax assets and liabilities in the consolidated balance sheets by source of temporary differences:

|                                   |  |        |       |             |  |        |      |             |  |   |     |   |  |   |      |  
|---------------------------------- |  | ------ | ----- | ----------- |  | ------ | ---- | ----------- |  | - | --- | - |  | - | ---- | -
|                                   |  | 2002   |       | 2001       
|                                   |  |        |       |            
|                                   |  | Assets |       | Liabilities |  | Assets |      | Liabilities
|                                   |  |        |       |             |  |        |      |            
|Investments                        |  | $      | 254   |             |  | $      | 621  |             |  | $ | 115 |   |  | $ | (19  | )
|Actuarial liabilities              |  |        | (155  | )           |  |        | (178 | )           |  |   | 364 |   |  |   | 290  |  
|Deferred acquisition costs         |  |        | 300   |             |  |        | 24   |             |  |   | 324 |   |  |   | 144  |  
|Losses available for carry forward |  |        | 862   |             |  |        | (165 | )           |  |   | 66  |   |  |   | (560 | )
|Other                              |  |        | 153   |             |  |        | 54   |             |  |   | 117 |   |  |   | (14  | )
|                                   |  |        |       |             |  |        |      |             |  |   |     |   |  |   |      |  
|                                   |  |        | 1,414 |             |  |        | 356  |             |  |   | 986 |   |  |   | (159 | )
|Valuation allowance                |  |        | (382  | )           |  |        | 26   |             |  |   | (18 | ) |  |   | 488  |  
|                                   |  |        |       |             |  |        |      |             |  |   |     |   |  |   |      |  
|Total                              |  | $      | 1,032 |             |  | $      | 382  |             |  | $ | 968 |   |  | $ | 329  |  
|                                   |  |        |       |             |  |        |      |             |  |   |     |   |  |   |      |  

Future income taxes are the result of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The sources of these temporary
differences and the recognized tax effects for continuing operations in the
consolidated statements of operations are as follows:

|                                                                     |  |      |      |      |  |      |      |   |  |   |      |  
|-------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                     |  | 2002 |      | 2001 |  | 2000
|                                                                     |  |      |      |      |  |     
|Investments                                                          |  | $    | (128 | )    |  | $    | 273  |   |  | $ | (186 | )
|Actuarial liabilities                                                |  |      | 454  |      |  |      | (188 | ) |  |   | 146  |  
|Deferred acquisition costs                                           |  |      | (128 | )    |  |      | (166 | ) |  |   | (2   | )
|Losses (incurred) utilized                                           |  |      | (268 | )    |  |      | 158  |   |  |   | 75   |  
|Other                                                                |  |      | (17  | )    |  |      | (30  | ) |  |   | 87   |  
|                                                                     |  |      |      |      |  |      |      |   |  |   |      |  
|Future income tax expense (benefit) related to continuing operations |  | $    | (87  | )    |  | $    | 47   |   |  | $ | 120  |  
|                                                                     |  |      |      |      |  |      |      |   |  |   |      |  



|26. |  | Commitments and Contingencies
|--- |  | -----------------------------

LEASE COMMITMENTS

The Company leases offices and certain equipment. These are operating leases
with rents charged to operations in the year to which they relate. Total
future rental payments for the remainder of these leases are $123 for 2003,
$119 for 2004, $108 for 2005, $93 for 2006, $82 for 2007 and $153 thereafter.

CONTRACTUAL COMMITMENTS

In the normal course of business, various contractual commitments are
outstanding which are not reflected in the consolidated financial statements.
At December 31, 2002, there were outstanding contractual commitments of $927,
of which $569 expires in 30 days, $331 expires in 31 to 365 days and $27
expires in 2004 or later. The majority of these commitments are to extend
credit under commercial and residential mortgage loans.

LETTERS OF CREDIT

The Company issues letters of credit in the normal course of business. At
December 31, 2002, letters of credit in the amount of $547 have been issued.

REINSURANCE MATTERS

Certain of the arrangements in the reinsurance business remaining with the
Company are subject to litigation or arbitration. The liabilities of the
Company under these arrangements are subject to measurement uncertainty, but
they are not expected to have a material adverse effect on the consolidated
financial position of the Company.

UNICOVER

The Company has been engaged in an arbitration proceeding in the United States
with Cragwood Managers, LLC (formerly Unicover Managers, Inc.) and the members
of the Unicover reinsurance pool in respect of certain contracts of reinsurance
of accident and health insurance components of workers compensation insurance
policies written by U.S. insurers. The arbitration hearing concluded in early
August 2002. A final award was delivered by the Arbitration Panel in October
2002 and clarified on January 28, 2003. The Arbitration Panels decision is
confidential.

The Company is also engaged in arbitration proceedings in the United States and
in England with certain of the companies that have contracts to provide
reinsurance to the Company. Those contracts would provide coverage for
Unicover-related claims (as well as certain non-Unicover claims). Those
companies are disputing their obligation to provide coverage to the Company
under their respective contracts of reinsurance. Other reinsurers of the
Company may institute similar proceedings.

The Company established provisions of $150 after taxes during 1999 in
connection with the Unicover business. Since establishing the provision, the
Company has achieved certain settlements in connection with the Unicover
related claims. The remaining provision is consistent with the Companys
assessment of its liabilities following the decision of the Arbitration Panel.

35
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|26. |  | Commitments and Contingencies (Contd)
|--- |  | --------------------------------------

INDEMNITIES

In the normal course of its business, the Company has entered into agreements
that include indemnities in favour of third parties, such as engagement letters
with advisors and consultants, outsourcing agreements, underwriting and agency
agreements, information technology agreements, distribution agreements and
service agreements. The Company has also agreed to indemnify its directors and
certain of its officers and employees in accordance with the Companys by-laws.
The foregoing agreements generally do not contain any limits on the Companys
liability and therefore, it is not possible to estimate the Companys potential
liability under these indemnities.

The Company has entered into agreements relating to the acquisition or
disposition of businesses and the establishment of business joint ventures,
each of which contains indemnities in favour of third parties that are
customary to such commercial transactions. It is not possible to estimate the
Companys potential liability for these indemnities due to the nature of these
indemnities.

In certain cases, the Company has recourse against third parties with respect
to the foresaid indemnities and the Company also maintains insurance policies
that may provide coverage against certain of these claims.

LEGAL PROCEEDINGS

The Company is engaged in litigation arising in the ordinary course of
business. None of this litigation is expected to have a material adverse
effect on the consolidated financial position of the Company.

27.     Employee Future Benefits

PENSION PLANS

The Company sponsors non-contributory defined benefit pension plans for
eligible employees, primarily in Canada, the United States, the United Kingdom
and the Philippines. The defined benefit pension plans offer benefits based on
length of service and final average earnings. The specific features of these
plans vary in accordance with the countries in which employees are located. In
addition, the Company maintains supplementary non-contributory pension
arrangements for eligible employees, primarily for benefits which do not
qualify for funding under the various formal pension plans.

36
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|27. |  | Employee Future Benefits (Contd)
|--- |  | ---------------------------------

The following tables set forth the status of these pension plans.

|                                                                   |  |      |       |      |  |   |       |  
|------------------------------------------------------------------ |  | ---- | ----- | ---- |  | - | ----- | -
|                                                                   |  | 2002 |       | 2001
|                                                                   |  |      |       |     
|Change in benefit obligation:                                      |  |      |       |      |  |   |       |  
|Benefit obligation, January 1                                      |  | $    | 1,436 |      |  | $ | 1,317 |  
|Balance of benefit obligation of Clarica at date of acquisition    |  |      | 436   |      |  |   |      |  
|Service cost                                                       |  |      | 80    |      |  |   | 54    |  
|Interest cost                                                      |  |      | 106   |      |  |   | 85    |  
|Actuarial losses/(gains)                                           |  |      | (63   | )    |  |   | 25    |  
|Benefits paid                                                      |  |      | (81   | )    |  |   | (58   | )
|Curtailments, settlements and plan amendments                      |  |      | 10    |      |  |   | (22   | )
|Effect of changes in currency exchange rates                       |  |      | 57    |      |  |   | 35    |  
|                                                                   |  |      |       |      |  |   |       |  
|Benefit obligation, December 31                                    |  | $    | 1,981 |      |  | $ | 1,436 |  
|                                                                   |  |      |       |      |  |   |       |  
|Change in plan assets:                                             |  |      |       |      |  |   |       |  
|Fair value of plan assets, January 1                               |  | $    | 1,710 |      |  | $ | 1,715 |  
|Balance of plan assets of Clarica at date of acquisition           |  |      | 446   |      |  |   |      |  
|Net actual return on plan assets                                   |  |      | (85   | )    |  |   |      |  
|Employer contributions                                             |  |      | 11    |      |  |   | 15    |  
|Benefits paid                                                      |  |      | (81   | )    |  |   | (58   | )
|Effect of changes in currency exchange rates                       |  |      | 43    |      |  |   | 38    |  
|                                                                   |  |      |       |      |  |   |       |  
|Fair value of plan assets, December 31                             |  | $    | 2,044 |      |  | $ | 1,710 |  
|                                                                   |  |      |       |      |  |   |       |  
|Net funded status, December 31                                     |  | $    | 63    |      |  | $ | 274   |  
|Unamortized net actuarial loss / (gain)                            |  |      | 357   |      |  |   | 175   |  
|Unamortized past service cost                                      |  |      | 14    |      |  |   | 12    |  
|Unamortized transition obligation / (asset)                        |  |      | (184  | )    |  |   | (203  | )
|                                                                   |  |      |       |      |  |   |       |  
|Prepaid benefit asset, December 31                                 |  | $    | 250   |      |  | $ | 258   |  
|                                                                   |  |      |       |      |  |   |       |  
|Plans with projected benefit obligations in excess of plan assets: |  |      |       |      |  |   |       |  
|Projected benefit obligations                                      |  | $    | 1,410 |      |  | $ | 654   |  
|                                                                   |  |      |       |      |  |   |       |  
|Plan assets                                                        |  | $    | 1,196 |      |  | $ | 561   |  
|                                                                   |  |      |       |      |  |   |       |  
|Weighted-average assumptions as at December 31:                    |  |      |       |      |  |   |       |  
|Discount rate                                                      |  |      | 6.4   | %    |  |   | 6.4   | %
|Expected long-term rate of return on plan assets                   |  |      | 7.5   | %    |  |   | 7.8   | %
|Rate of compensation increase                                      |  |      | 3.9   | %    |  |   | 4.1   | %

|                                                |  |      |      |      |  |      |      |   |  |   |      |  
|----------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                |  | 2002 |      | 2001 |  | 2000
|                                                |  |      |      |      |  |     
|Components of net periodic benefit cost:        |  |      |      |      |  |      |      |   |  |   |      |  
|Service cost, curtailments and settlements      |  | $    | 91   |      |  | $    | 42   |   |  | $ | 38   |  
|Interest cost                                   |  |      | 106  |      |  |      | 85   |   |  |   | 80   |  
|Expected return on plan assets                  |  |      | (152 | )    |  |      | (134 | ) |  |   | (125 | )
|Amortization of actuarial losses / (gains)      |  |      | 3    |      |  |      | (2   | ) |  |   | (2   | )
|Amortization of transition obligation / (asset) |  |      | (21  | )    |  |      | (21  | ) |  |   | (22  | )
|Amortization of past service cost and other     |  |      |     |      |  |      | (9   | ) |  |   |     |  
|                                                |  |      |      |      |  |      |      |   |  |   |      |  
|Net periodic benefit cost (income)              |  | $    | 27   |      |  | $    | (39  | ) |  | $ | (31  | )
|                                                |  |      |      |      |  |      |      |   |  |   |      |  

The assumed discount rates, the expected long-term rates of return on plan
assets and the rates of increase in future compensation used in determining the
actuarial present value of the projected benefit obligations vary according to
the economic conditions of the countries in which the pension plans are
situated.

The assets supporting the defined benefit plans and the other supplementary
pension arrangements are trusteed or held in the segregated funds of the
Company.

The Company has also established defined contribution pension plans for
eligible qualifying employees and agents. Generally the contribution is a set
percentage of an individuals annual income. The total contribution made by
the Company to such plans was $42 in 2002, $38 in 2001 and $35 in 2000.

OTHER POST-RETIREMENT BENEFITS

In addition to the Companys pension plans, the Company provides certain
post-retirement medical, dental and life insurance benefits to eligible
employees and agents, and to their dependents upon meeting certain
requirements. A significant portion of the Companys employees may become
eligible for these benefits upon retirement. These post-retirement benefits
are not funded.

37
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|27. |  | Employee Future Benefits (Contd)
|--- |  | ---------------------------------

The following tables set forth the status of the post-retirement benefit plans.

|                                                                |  |      |      |      |  |   |      |  
|--------------------------------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | -
|                                                                |  | 2002 |      | 2001
|                                                                |  |      |      |     
|Change in benefit obligation:                                   |  |      |      |      |  |   |      |  
|Benefit obligation, January 1                                   |  | $    | 186  |      |  | $ | 152  |  
|Balance of benefit obligation of Clarica at date of acquisition |  |      | 102  |      |  |   |     |  
|Service cost                                                    |  |      | 8    |      |  |   | 4    |  
|Interest cost                                                   |  |      | 15   |      |  |   | 11   |  
|Actuarial losses / (gains)                                      |  |      | (21  | )    |  |   | 22   |  
|Benefits paid                                                   |  |      | (8   | )    |  |   | (6   | )
|Curtailments, settlements and plan amendments                   |  |      | (12  | )    |  |   |     |  
|Effect of changes in currency exchange rates                    |  |      | (1   | )    |  |   | 3    |  
|                                                                |  |      |      |      |  |   |      |  
|Benefit obligation, December 31                                 |  | $    | 269  |      |  | $ | 186  |  
|                                                                |  |      |      |      |  |   |      |  
|Change in plan assets:                                          |  |      |      |      |  |   |      |  
|Fair value of plan assets, January 1                            |  | $    |     |      |  | $ |     |  
|Balance of plan assets of Clarica at date of acquisition        |  |      |     |      |  |   |     |  
|Employer contributions                                          |  |      | 8    |      |  |   | 6    |  
|Benefits paid                                                   |  |      | (8   | )    |  |   | (6   | )
|                                                                |  |      |      |      |  |   |      |  
|Fair value of plan assets, December 31                          |  | $    |     |      |  | $ |     |  
|                                                                |  |      |      |      |  |   |      |  
|Net funded status, December 31                                  |  | $    | (269 | )    |  | $ | (186 | )
|Unamortized net actuarial loss / (gain)                         |  |      | 20   |      |  |   | 41   |  
|Unamortized past service cost                                   |  |      | (5   | )    |  |   |     |  
|Unamortized transition obligation / (asset)                     |  |      | (13  | )    |  |   | (15  | )
|                                                                |  |      |      |      |  |   |      |  
|Accrued benefit liability, December 31                          |  | $    | (267 | )    |  | $ | (160 | )
|                                                                |  |      |      |      |  |   |      |  
|Weighted-average assumption as at December 31:                  |  |      |      |      |  |   |      |  
|Discount rate                                                   |  |      | 6.7  | %    |  |   | 6.8  | %
|                                                                |  |      |      |      |  |   |      |  

|                                                |  |      |    |      |  |      |    |   |  |   |    |  
|----------------------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  | - | -- | -
|                                                |  | 2002 |    | 2001 |  | 2000
|                                                |  |      |    |      |  |     
|Components of net periodic benefit cost:        |  |      |    |      |  |      |    |   |  |   |    |  
|Service cost, curtailments and settlements      |  | $    | 1  |      |  | $    | 4  |   |  | $ | 3  |  
|Interest cost                                   |  |      | 15 |      |  |      | 11 |   |  |   | 10 |  
|Amortization of actuarial losses / (gains)      |  |      | 1  |      |  |      | 1  |   |  |   |   |  
|Amortization of transition obligation / (asset) |  |      | (2 | )    |  |      | (1 | ) |  |   | (1 | )
|                                                |  |      |    |      |  |      |    |   |  |   |    |  
|Net periodic benefit cost                       |  | $    | 15 |      |  | $    | 15 |   |  | $ | 12 |  
|                                                |  |      |    |      |  |      |    |   |  |   |    |  

The assumed medical cost trend rate used in measuring the accumulated
post-retirement benefits obligation in Canada in 2002 was 8%, decreasing by
0.5% each year until 2006, after which it remains at 6%. In the United States
in 2002, the assumed rate was 12%, decreasing to 11% in 2003 and then evenly to
5.5% by 2013, and remaining at that level thereafter. The assumed dental cost
trend rate was 5.5% in Canada and in the United States.

If the health care cost trend rate assumptions were increased by 1%, the
accumulated post-retirement benefit obligations would be increased by $21 as at
December 31, 2002. This rate increase would increase the 2002 aggregate
service and interest costs by $5. A decrease of 1% in the trend rate
assumptions would result in respective decreases of about the same amounts.

38
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting Principles
Generally Accepted in Canada and in the United States
|--- |  | -------------------------------------------------------------------------------------------------------------------

The Companys consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada (Cdn. GAAP), including the
accounting requirements of the OSFI. These accounting principles differ in
certain material respects from accounting principles generally accepted in the
United States (U.S. GAAP). The differing basis of accounting changes the
incidence of profit recognition over the life of an insurance contract.
Regardless of the accounting basis chosen, the total profit of an insurance
contract will not change. The financial statement impact and a description of
the material differences follow.



|a) |  | Reconciliation of selected Cdn. GAAP financial statement information to U.S. GAAP:
|-- |  | ----------------------------------------------------------------------------------
|  
|i) |  | Consolidated statements of operations:                                            

|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |     | 
|-------------------------------------------------------------------------- | ----------------------------------- | - | ------ | --- | ---- | - | ------ | --- | ---- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | --- |  | - | ------ | --- | 
|                                                                           |                                     |   | 2002   |     | 2001 |   | 2000  
|                                                                           |                                     |   |        |     |      |   |       
|                                                                           |                                     |   | Cdn.   |     | U.S. |   | Cdn.   |     | U.S. |   | Cdn.   |   | U.S.
|                                                                           |                                     |   | GAAP   |     | GAAP |   | GAAP   |     | GAAP |   | GAAP   |   | GAAP
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |     
|REVENUE                                                                    |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Premiums                                                                   |                                     | $ | 14,875 |     |      | $ | 6,531  |     |      | $ | 9,437  |   |      | $ | 4,860  |   |  | $ | 9,389  |     |  | $ | 4,963  |    
|Net investment income                                                      |                                     |   | 5,131  |     |      |   | 4,478  |     |      |   | 4,162  |   |      |   | 3,274  |   |  |   | 3,839  |     |  |   | 3,231  |    
|Net realized gains (losses)                                                |                                     |   |       |     |      |   | (44    | )   |      |   |       |   |      |   | 379    |   |  |   |       |     |  |   | 449    |    
|Fee income                                                                 |                                     |   | 3,095  |     |      |   | 3,258  |     |      |   | 3,216  |   |      |   | 3,206  |   |  |   | 3,318  |     |  |   | 3,218  |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|                                                                           |                                     |   | 23,101 |     |      |   | 14,223 |     |      |   | 16,815 |   |      |   | 11,719 |   |  |   | 16,546 |     |  |   | 11,861 |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|POLICY BENEFITS AND EXPENSES                                               |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Payments to policyholders, beneficiaries and depositors                    |                                     |   | 13,017 |     |      |   | 7,966  |     |      |   | 9,486  |   |      |   | 5,581  |   |  |   | 9,291  |     |  |   | 5,603  |    
|Increase in actuarial liabilities                                          |                                     |   | 3,822  |     |      |   | 1,377  |     |      |   | 1,697  |   |      |   | 1,000  |   |  |   | 1,611  |     |  |   | 721    |    
|Acquisition expense amortization                                           |                                     |   | 316    |     |      |   | 950    |     |      |   | 305    |   |      |   | 698    |   |  |   | 265    |     |  |   | 803    |    
|Other expenses                                                             |                                     |   | 4,732  |     |      |   | 3,654  |     |      |   | 4,072  |   |      |   | 3,285  |   |  |   | 4,124  |     |  |   | 3,059  |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|                                                                           |                                     |   | 21,887 |     |      |   | 13,947 |     |      |   | 15,560 |   |      |   | 10,564 |   |  |   | 15,291 |     |  |   | 10,186 |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Operating income before income taxes and
non-controlling interests         |                                     |   | 1,214  |     |      |   | 276    |     |      |   | 1,255  |   |      |   | 1,155  |   |  |   | 1,255  |     |  |   | 1,675  |    
|Income taxes expense (benefit)                                             |                                     |   | 98     |     |      |   | (250   | )   |      |   | 306    |   |      |   | 291    |   |  |   | 386    |     |  |   | 457    |    
|Non-controlling interests in net income of subsidiaries                    |                                     |   | 83     |     |      |   | 83     |     |      |   | 68     |   |      |   | 68     |   |  |   | 67     |     |  |   | 67     |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Net operating income before discontinued
operations and extraordinary item |                                     |   | 1,033  |     |      |   | 443    |     |      |   | 881    |   |      |   | 796    |   |  |   | 802    |     |  |   | 1,151  |    
|Discontinued operations:                                                   |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|                                                                           | Gain (loss) on sale of Clarica U.S  |   |        | (48 | )    |   |        | (58 | )    |   |        |  |      |   |        |  |  |   |        |    |  |   |        |    | 
|                                                                           | Net operating income of Clarica U.S |   |        | 12  |      |   |        | 22  |      |   |        |  |      |   |        |  |  |   |        |    |  |   |        |    | 
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|                                                                           |                                     |   | (36    | )   |      |   | (36    | )   |      |   |       |   |      |   |       |   |  |   |       |     |  |   |       |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Income before extraordinary item                                           |                                     |   | 997    |     |      |   | 407    |     |      |   | 881    |   |      |   | 796    |   |  |   | 802    |     |  |   | 1,151  |    
|Extraordinary item                                                         |                                     |   |       |     |      |   | (30    | )   |      |   |       |   |      |   |       |   |  |   |       |     |  |   | (45    | )  
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Total net income                                                           |                                     |   | 997    |     |      |   | 377    |     |      |   | 881    |   |      |   | 796    |   |  |   | 802    |     |  |   | 1,106  |    
|Less:                                                                      |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Net income from mutual operations (prior to
demutualization)               |                                     |   |       |     |      |   |       |     |      |   |       |   |      |   |       |   |  |   | 179    |     |  |   | 222    |    
|Participating policyholders net income (loss) (after
demutualization)     |                                     |   | (1     | )   |      |   |       |     |      |   | (1     | ) |      |   |       |   |  |   | (6     | )   |  |   |       |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Shareholders net income (after demutualization)                           |                                     | $ | 998    |     |      | $ | 377    |     |      | $ | 882    |   |      | $ | 796    |   |  | $ | 629    |     |  | $ | 884    |    
|                                                                           |                                     |   |        |     |      |   |        |     |      |   |        |   |      |   |        |   |  |   |        |     |  |   |        |    
|Basic earnings per share from continuing operations                        |                                     | $ | 1.91   |     |      | $ | 0.82   |     |      | $ | 2.08   |   |      | $ | 1.88   |   |  | $ | 1.49   | (1) |  | $ | 2.21   | (1)
|Basic earnings per share                                                   |                                     | $ | 1.84   |     |      | $ | 0.69   |     |      | $ | 2.08   |   |      | $ | 1.88   |   |  | $ | 1.49   | (1) |  | $ | 2.10   | (1)
|Diluted earnings per share from continuing operations                      |                                     | $ | 1.90   |     |      | $ | 0.82   |     |      | $ | 2.07   |   |      | $ | 1.87   |   |  | $ | 1.48   | (1) |  | $ | 2.20   | (1)
|Diluted earnings per share                                                 |                                     | $ | 1.83   |     |      | $ | 0.69   |     |      | $ | 2.07   |   |      | $ | 1.87   |   |  | $ | 1.48   | (1) |  | $ | 2.09   | (1)



---

|(1) |  | Basic and diluted earnings per share from continuing operations and basic
and diluted earnings per share cover the period from March 22 to December 31,
2000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|ii) |  | Comprehensive income:
|--- |  | ---------------------

U.S. GAAP includes the concept of comprehensive income. Comprehensive income
is a measure of changes in the equity of the Company during the year. It
includes both net income and other comprehensive income. Other comprehensive
income for the year includes such items as the movement in the foreign currency
translation account and the unrealized gains and losses on available for sale
securities. Other comprehensive income also includes the changes to deferred
acquisition costs and other liabilities, as well as the income tax impact
arising from the unrealized gains and losses on available for sale securities.

39
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|ii) |  | Comprehensive income (contd):                                                                                              

|                                                                       |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |   |      |  
|---------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----- | ---- | ----- | ---- | ---- | ---- | ---- | - | ----- | - | ---- | -
|                                                                       |                                                            |                                                                                      |       | 2002 |       | 2001 |      | 2000
|                                                                       |                                                            |                                                                                      |       |      |       |      |      |     
|Other comprehensive income:                                            |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |  
|                                                                       | Foreign currency translation account movement for the year |                                                                                      | $     | 127  |       |      | $    | 331  |      |   | $     | 6 |     
|                                                                       | Unrealized gains and losses movement for the year          |                                                                                      |       |      |       |      |      |      |      |   |       |   |     
|                                                                       |                                                            | Unrealized gains and (losses) on available for sale bonds                            |       |      | 2,644 |      |      |      | (66  | ) |       |   | 561  |  
|                                                                       |                                                            | Unrealized gains and (losses) on available for sale stocks and segregated fund units |       |      | (364  | )    |      |      | (202 | ) |       |   | 546  |  
|                                                                       |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |   |     
|                                                                       |                                                            | Less: reclassification adjustment for gains (losses) included in net income          |       |      | (54   | )    |      |      | 115  |   |       |   | (698 | )
|                                                                       |                                                            |                                                                                      | 2,226 |      |       |      | (153 | )    |      |   | 409   |  
|                                                                       |                                                            | Changes to deferred acquisition costs and other liabilities                          |       |      | (709  | )    |      |      | (22  | ) |       |   | (365 | )
|                                                                       |                                                            | Other                                                                                |       |      | 57    |      |      |      | (9   | ) |       |   | (24  | )
|                                                                       |                                                            | Additional minimum pension liability                                                 |       |      | (50   | )    |      |      |     |   |       |   |     |  
|                                                                       |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |   |     
|                                                                       |                                                            | Income taxes                                                                         |       |      | (493  | )    |      |      | 22   |   |       |   | (103 | )
|                                                                       |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |   |     
|                                                                       |                                                            |                                                                                      | 1,031 |      |       |      | (162 | )    |      |   | (83   | )
|Total other comprehensive income (loss)                                |                                                            |                                                                                      | 1,158 |      |       |      | 169  |      |      |   | (77   | )
|Total net income based on U.S. GAAP                                    |                                                            |                                                                                      | 377   |      |       |      | 796  |      |      |   | 1,106 |  
|                                                                       |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |   |     
|Comprehensive income                                                   |                                                            |                                                                                      | 1,535 |      |       |      | 965  |      |      |   | 1,029 |  
|Less:                                                                  |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |  
|Comprehensive income from mutual operations (prior to demutualization) |                                                            |                                                                                      |      |      |       |      |     |      |      |   | 168   |  
|                                                                       |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |   |     
|Shareholders comprehensive income (after demutualization)             |                                                            | $                                                                                    | 1,535 |      |       | $    | 965  |      |      | $ | 861   |  
|                                                                       |                                                            |                                                                                      |       |      |       |      |      |      |      |   |       |   |     



|iii) |  | Consolidated balance sheets:
|---- |  | ----------------------------

|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|--------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------ |  |  | - | ------- | 
|                                              |  | 2002 |         | 2001
|                                              |  |      |         |     
|                                              |  | Cdn. |         | U.S. |  | Cdn. |         | U.S.
|                                              |  | GAAP |         | GAAP |  | GAAP |         | GAAP
|                                              |  |      |         |      |  |      |         |     
|ASSETS                                        |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Bonds                                         |  | $    | 73,423  |      |  |      |         |      |  | $ | 48,077 |  |  |   |         | 
|Bonds  available for sale                    |  |      |         |      |  | $    | 71,008  |      |  |   |        |  |  | $ | 45,853  | 
|Bonds  trading                               |  |      |         |      |  |      | 4,518   |      |  |   |        |  |  |   | 3,446   | 
|Mortgages and corporate loans                 |  |      | 15,799  |      |  |      | 17,809  |      |  |   | 8,622  |  |  |   | 8,615   | 
|Stocks                                        |  |      | 4,221   |      |  |      |         |      |  |   | 4,882  |  |  |   |         | 
|Stocks  available for sale                   |  |      |         |      |  |      | 1,693   |      |  |   |        |  |  |   | 2,208   | 
|Stocks  trading                              |  |      |         |      |  |      | 1,411   |      |  |   |        |  |  |   | 2,162   | 
|Real estate                                   |  |      | 3,223   |      |  |      | 2,362   |      |  |   | 2,316  |  |  |   | 1,925   | 
|Policy loans                                  |  |      | 3,390   |      |  |      | 3,390   |      |  |   | 2,408  |  |  |   | 2,408   | 
|Cash and cash equivalents                     |  |      | 4,156   |      |  |      | 4,156   |      |  |   | 2,583  |  |  |   | 4,452   | 
|Short-term securities(1)                      |  |      | 2,996   |      |  |      | 2,996   |      |  |   | 2,226  |  |  |   | 2,226   | 
|Other invested assets                         |  |      | 3,336   |      |  |      | 3,260   |      |  |   | 2,150  |  |  |   | 1,678   | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Total invested assets                         |  |      | 110,544 |      |  |      | 112,603 |      |  |   | 73,264 |  |  |   | 74,973  | 
|Deferred acquisition costs                    |  |      | 849     |      |  |      | 6,234   |      |  |   | 1,162  |  |  |   | 6,380   | 
|Future income taxes(2)                        |  |      | 1,032   |      |  |      | 400     |      |  |   | 968    |  |  |   | 496     | 
|Goodwill                                      |  |      | 5,899   |      |  |      | 4,878   |      |  |   | 2,080  |  |  |   | 1,322   | 
|Other assets                                  |  |      | 5,114   |      |  |      | 9,592   |      |  |   | 2,854  |  |  |   | 4,485   | 
|Segregated funds assets(3)                    |  |      |         |      |  |      | 53,152  |      |  |   |        |  |  |   | 49,021  | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Total consolidated assets                     |  | $    | 123,438 |      |  | $    | 186,859 |      |  | $ | 80,328 |  |  | $ | 136,677 | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Segregated funds net assets(3)                |  | $    | 52,755  |      |  |      |         |      |  | $ | 48,544 |  |  |   |         | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|LIABILITIES AND EQUITY                        |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Actuarial liabilities                         |  | $    | 87,165  |      |  | $    | 49,634  |      |  | $ | 57,858 |  |  | $ | 31,589  | 
|Contract holder deposits                      |  |      |         |      |  |      | 46,666  |      |  |   |        |  |  |   | 32,909  | 
|Other policy liabilities                      |  |      | 2,697   |      |  |      | 2,718   |      |  |   | 1,669  |  |  |   | 1,374   | 
|Amounts on deposit                            |  |      | 3,262   |      |  |      | 3,242   |      |  |   | 1,898  |  |  |   | 1,869   | 
|Future income taxes(2)                        |  |      | 382     |      |  |      | 1,279   |      |  |   | 329    |  |  |   | 1,046   | 
|Deferred net realized gains                   |  |      | 3,456   |      |  |      |         |      |  |   | 3,744  |  |  |   |         | 
|Other liabilities                             |  |      | 7,289   |      |  |      | 8,903   |      |  |   | 4,332  |  |  |   | 6,788   | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Total consolidated liabilities                |  |      | 104,251 |      |  |      | 112,442 |      |  |   | 69,830 |  |  |   | 75,575  | 
|Subordinated debt                             |  |      | 1,974   |      |  |      | 1,974   |      |  |   | 776    |  |  |   | 776     | 
|Cumulative capital securities of a subsidiary |  |      | 948     |      |  |      | 988     |      |  |   | 954    |  |  |   | 996     | 
|Non-controlling interests in subsidiaries     |  |      | 1,356   |      |  |      | 1,356   |      |  |   | 1,043  |  |  |   | 1,043   | 
|Segregated funds liabilities(3)               |  |      |         |      |  |      | 52,753  |      |  |   |        |  |  |   | 48,567  | 
|Equity                                        |  |      | 14,909  |      |  |      | 17,346  |      |  |   | 7,725  |  |  |   | 9,720   | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Total consolidated liabilities and equity     |  | $    | 123,438 |      |  | $    | 186,859 |      |  | $ | 80,328 |  |  | $ | 136,677 | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 
|Segregated funds contract liabilities(3)      |  | $    | 52,755  |      |  |      |         |      |  | $ | 48,544 |  |  |   |         | 
|                                              |  |      |         |      |  |      |         |      |  |   |        |  |  |   |         | 



---

|(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.     

40
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|iv) |  | Consolidated statements of equity:                                                                                          

|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                                                                 |  | 2002 |        | 2001
|                                                                                                                                 |  |      |        |     
|                                                                                                                                 |  | Cdn. |        | U.S. |  | Cdn. |        | U.S.
|                                                                                                                                 |  | GAAP |        | GAAP |  | GAAP |        | GAAP
|                                                                                                                                 |  |      |        |      |  |      |        |     
|Post-demutualization participating policyholders capital account:                                                               |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, January 1                                                                                                               |  | $    | 77     |      |  | $    |       |      |  | $ | 78    |   |  | $ |      |  
|Balance of participating policyholders account of Clarica at date
of acquisition                                                |  |      | (3     | )    |  |      |       |      |  |   |      |   |  |   |      |  
|Net income (loss) as a stock company for participating policyholders                                                             |  |      | (1     | )    |  |      |       |      |  |   | (1    | ) |  |   |      |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, December 31                                                                                                             |  |      | 73     |      |  |      |       |      |  |   | 77    |   |  |   |      |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Shareholders equity:                                                                                                            |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Paid in capital                                                                                                                  |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, January 1                                                                                                               |  |      | 1,100  |      |  |      | 7,352  |      |  |   | 795   |   |  |   | 6,996 |  
|Common shares issued, net of issuance costs and fair value of stock
options granted as consideration for business acquisition(1) |  |      | 6,329  |      |  |      | 6,329  |      |  |   |      |   |  |   |      |  
|New common shares issued for cash(1)                                                                                             |  |      |       |      |  |      |       |      |  |   | 330   |   |  |   | 330   |  
|Stock options exercised(1)                                                                                                       |  |      | 27     |      |  |      | 27     |      |  |   |      |   |  |   |      |  
|Commissions and offering costs, net of taxes(1)                                                                                  |  |      |       |      |  |      |       |      |  |   | (23   | ) |  |   | (23   | )
|Purchase and cancellation of common shares(1)                                                                                    |  |      |       |      |  |      |       |      |  |   | (2    | ) |  |   | (18   | )
|Subsidiary equity transaction and stock option compensation                                                                      |  |      | 21     |      |  |      | 32     |      |  |   |      |   |  |   | 67    |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, December 31                                                                                                             |  |      | 7,477  |      |  |      | 13,740 |      |  |   | 1,100 |   |  |   | 7,352 |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Retained earnings                                                                                                                |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, January 1                                                                                                               |  |      | 5,917  |      |  |      | 1,408  |      |  |   | 5,272 |   |  |   | 833   |  
|Net income as a stock company attributed to shareholders                                                                         |  |      | 998    |      |  |      | 377    |      |  |   | 882   |   |  |   | 796   |  
|Balance of participating policyholders account of Clarica at date
of acquisition                                                |  |      |       |      |  |      | (3     | )    |  |   |      |   |  |   |      |  
|Dividends on common shares                                                                                                       |  |      | (294   | )    |  |      | (294   | )    |  |   | (204  | ) |  |   | (204  | )
|Purchase and cancellation of common shares                                                                                       |  |      |       |      |  |      |       |      |  |   | (33   | ) |  |   | (17   | )
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, December 31                                                                                                             |  |      | 6,621  |      |  |      | 1,488  |      |  |   | 5,917 |   |  |   | 1,408 |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Currency translation account                                                                                                     |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, January 1                                                                                                               |  |      | 631    |      |  |      | 728    |      |  |   | 372   |   |  |   | 397   |  
|Changes for the period                                                                                                           |  |      | 107    |      |  |      | 127    |      |  |   | 259   |   |  |   | 331   |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, December 31                                                                                                             |  |      | 738    |      |  |      | 855    |      |  |   | 631   |   |  |   | 728   |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Unrealized gains and losses                                                                                                      |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, January 1                                                                                                               |  |      |       |      |  |      | 232    |      |  |   |      |   |  |   | 394   |  
|Changes for the period                                                                                                           |  |      |       |      |  |      | 1,031  |      |  |   |      |   |  |   | (162  | )
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Balance, December 31                                                                                                             |  |      |       |      |  |      | 1,263  |      |  |   |      |   |  |   | 232   |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  
|Total equity                                                                                                                     |  | $    | 14,909 |      |  | $    | 17,346 |      |  | $ | 7,725 |   |  | $ | 9,720 |  
|                                                                                                                                 |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |  



---

|(1) |  | Shown as share capital under Cdn. GAAP.
|--- |  | ---------------------------------------

41
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|v.  |  | Effect of material differences between Cdn. GAAP and U.S. GAAP net income:                                                  

For the material differences between Cdn. GAAP and U.S. GAAP net income listed below, please refer to the following section for a
description of the differences in accounting policies.

|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |        |  
|---------------------------------------------------------------------- | ------------------------------------------------------- | - | ---- | ------ | ---- | - | ---- | ------ | - | - | ----- | ------ | -
|                                                                       |                                                         |   | 2002 |        | 2001 |   | 2000
|                                                                       |                                                         |   |      |        |      |   |     
|Total net income in accordance with Cdn. GAAP                          |                                                         | $ | 997  |        |      | $ | 881  |        |   | $ | 802   |       
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Adjustments related to:                                                |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Investments                                                            |                                                         |   |      |        |      |   |      |        |   |   |       |       
|                                                                       | Bonds                                                   |   |      | 224    |      |   |      | 33     |   |   |       | (4     | )
|                                                                       | Stocks and segregated fund units                        |   |      | (691   | )    |   |      | (553   | ) |   |       | (226   | )
|                                                                       | Derivative instruments                                  |   |      | (22    | )    |   |      | 18     |   |   |       | 22     |  
|                                                                       | Real estate                                             |   |      | (24    | )    |   |      | (9     | ) |   |       | 60     |  
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Total investments                                                      |                                                         |   | (513 | )      |      |   | (511 | )      |   |   | (148  | )     
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Deferred acquisition costs                                             |                                                         |   |      |        |      |   |      |        |   |   |       |       
|                                                                       | Deferred acquisition costs  deferred                   |   |      | 881    |      |   |      | 585    |   |   |       | 644    |  
|                                                                       | Deferred acquisition costs  amortization and interest  |   |      | (634   | )    |   |      | (393   | ) |   |       | (538   | )
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Total deferred acquisition costs                                       |                                                         |   | 247  |        |      |   | 192  |        |   |   | 106   |       
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Actuarial liabilities & other policyholder revenues and expenses       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|                                                                       | Premium and fees revenue                                |   |      | (7,863 | )    |   |      | (4,228 | ) |   |       | (4,155 | )
|                                                                       | Payments to policyholders, beneficiaries and depositors |   |      | 5,051  |      |   |      | 3,905  |   |   |       | 3,688  |  
|                                                                       | Actuarial liabilities                                   |   |      | 2,445  |      |   |      | 697    |   |   |       | 890    |  
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Total actuarial liabilities & other policyholder revenues and expenses |                                                         |   | (367 | )      |      |   | 374  |        |   |   | 423   |       
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Other                                                                  |                                                         |   | (305 | )      |      |   | (155 | )      |   |   | 39    |       
|Income tax effect of above adjustments                                 |                                                         |   | 348  |        |      |   | 15   |        |   |   | (71   | )     
|Extraordinary items                                                    |                                                         |   | (30  | )      |      |   |     |        |   |   | (45   | )     
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       
|Total net income in accordance with U.S. GAAP                          |                                                         | $ | 377  |        |      | $ | 796  |        |   | $ | 1,106 |       
|                                                                       |                                                         |   |      |        |      |   |      |        |   |   |       |       



|b) |  | The following describes the material accounting policy differences between
Cdn. GAAP and U.S. GAAP applicable to the Company:
|-- |  | -----------------------------------------------------------------------------------------------------------------------------

For a complete description of Cdn. GAAP accounting and actuarial policies,
please refer to Notes 1 and 2, respectively.

i) Bonds:Under Cdn. GAAP, 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. Under U.S. GAAP, bonds are
carried at market value. The bonds are classified as available for sale or
trading and 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
when realized. Under U.S. GAAP, certain bonds were reclassified to mortgages
and corporate loans, as they do not meet the definition of a security.

For purposes of U.S. GAAP, at December 31, 2002 and 2001, the Company has
classified as available for sale bonds with an amortized cost of $67,300 and
$44,785, respectively, and fair value of $71,008 and $45,853, respectively.
Gross realized gains and gross realized losses on available for sale bonds of
$475 and $530, respectively, in 2002, $225 and $17, respectively, in 2001 and
$143 and $220, respectively, in 2000 are included in U.S. GAAP net realized
gains. For bonds classified as trading, the change in net unrealized gains and
(losses) for the years ended December 31, 2002, 2001 and 2000 of $82, $(7) and
$115, respectively, are included in U.S. GAAP net investment income.

ii) Stocks:Under Cdn. GAAP, stocks are originally recorded at cost. The
carrying value is adjusted annually by 15% of the difference between market
value and previously adjusted carrying value. Realized gains and losses are
deferred and amortized into income at the rate of 15% per year. Under U.S.
GAAP, stocks are carried at market value. The stocks are classified as
available for sale or trading and 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 when realized.

For purposes of U.S. GAAP, at December 31, 2002 and 2001, the Company has
classified as available for sale investments in stocks with a cost of $1,862
and $2,045, respectively, and fair value of $1,693 and $2,208, respectively.
Gross realized gains and gross realized losses on available for sale stocks of
$268 and $416, respectively, in 2002, $226 and $181, respectively, in 2001, and
$474 and $114, respectively, in 2000 are included in U.S. GAAP net realized
gains. For stocks classified as trading, the change in net unrealized gains
and (losses) for the years ended December 31, 2002, 2001 and 2000 of $(525),
$(359) and $(235), respectively, are included in U.S. GAAP net investment
income.

42
www.sunlife.com Annual Report 2002





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

iii) Real estate:Under Cdn. GAAP, real estate held for investment is
originally recorded at cost. The carrying value is adjusted annually by 10% of
the difference between market value and previously adjusted carrying value.
Realized gains and losses on sales are deferred and recognized into income at
the rate of 10% per year. Under U.S. GAAP, real estate held for investment is
carried at depreciated cost. Realized gains and losses on sales are reflected
in income when realized.

Accumulated depreciation on real estate was $362 and $386 at December 31, 2002
and 2001, respectively. Depreciation expense was $61 in 2002, $39 in 2001 and
$9 in 2000.

iv) Derivatives:Under Cdn. GAAP, most of the Companys derivatives are
eligible for hedge accounting. Realized gains and losses of the derivatives
are treated in a manner consistent with realized gains and losses of the
underlying hedged assets or liabilities. The reporting basis does not affect
the economic viability of any hedges. Under U.S. GAAP, the Company adopted
Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS 133) on January 1, 2001. The
cumulative effect of adopting SFAS 133 did not have a material impact on the
Companys consolidated results of operations, financial position or cash flows.
At the initial adoption of SFAS 133, the Company recorded total cumulative
gains of $8 in income to recognize the fair value of all derivatives that were
fair value hedges prior to the adoption of the standard. The Company also
recorded cumulative losses of $9 in income to recognize the difference between
the carrying and fair values of the related hedged assets and liabilities.
Additionally, the Company recorded a cumulative loss of $2, net of taxes, in
accumulated other comprehensive income (OCI) to recognize the fair value of the
derivatives that were cash flow hedges prior to the adoption of SFAS 133.

When the Company enters into a derivative contract, management decides if the
derivative is designated as a hedge of the identified exposure under SFAS 133.
With the exception noted below, hedge accounting is not pursued under SFAS 133
for most derivative instruments and the derivative is recorded at fair value
with changes in its fair value reported in income. As at December 31, 2002,
the Company designated certain interest rate swaps as cash flow hedges of the
interest rate risk related to a floating-rate loan. For the cash flow hedges,
the effective portion of the changes in the fair value of the derivatives was
recorded in OCI and the ineffective portion was recognized in income. For the
period ended December 31, 2002, the change in the fair value of the cash flow
hedges was $4 after taxes ($6 in 2001) and there was no ineffectiveness from
the hedges. The Company expects to reclassify $4 ($1 in 2001) of the
cumulative effect of SFAS 133 from OCI to income during the next twelve months.

If an option of a non-derivative contract has economic characteristics that are
different from that of the non-derivative contract and the option meets the
definition of a derivative instrument under SFAS 133, the option is known as an
embedded derivative. A few embedded derivatives were identified in the
investments and insurance products. These embedded derivatives were separately
accounted for as stand-alone derivatives and carried at fair values with the
changes in fair value recorded in income.

v) Deferred acquisition costs:Under Cdn. GAAP, 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. U.S. GAAP requires the explicit deferral
of acquisition costs. 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.

Deferred acquisition costs under U.S. GAAP amount to $6,234 at December 31,
2002 ($6,380 at December 31, 2001). Amortization charged to income was $950 in
2002, $698 in 2001 and $803 in 2000.

vi) Future income tax asset and liability(1):Under both Cdn. and U.S. GAAP,
the Company provides for future income taxes on temporary differences between
book and tax assets and liabilities. Differences between Cdn. GAAP and U.S.
GAAP arise from differing accounting policies for assets and liabilities and
differences in the recognition of tax rate changes. Differences are as
follows:

|                                                      |  |                            |       |                                |  |      |      |      |  |   |      |   |  |   |        |  
|----------------------------------------------------- |  | -------------------------- | ----- | ------------------------------ |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ------ | -
|                                                      |  | 2002                      
|                                                      |  |                           
|                                                      |  | Future income tax asset(1) |       | Future income tax liability(1)
|                                                      |  |                            |       |                               
|                                                      |  | Cdn.                       |       | U.S.                           |  | Cdn. |      | U.S.
|                                                      |  | GAAP                       |       | GAAP                           |  | GAAP |      | GAAP
|                                                      |  |                            |       |                                |  |      |      |     
|Investments                                           |  | $                          | 254   |                                |  | $    | (280 | )    |  | $ | 621  |   |  | $ | 1,509  |  
|Actuarial liabilities                                 |  |                            | (155  | )                              |  |      | 939  |      |  |   | (178 | ) |  |   | (1,710 | )
|Deferred acquisition costs                            |  |                            | 300   |                                |  |      | (332 | )    |  |   | 24   |   |  |   | 926    |  
|Losses available for carry forward                    |  |                            | 862   |                                |  |      | 13   |      |  |   | (165 | ) |  |   | (993   | )
|Other                                                 |  |                            | 153   |                                |  |      | 74   |      |  |   | 54   |   |  |   | 1,095  |  
|                                                      |  |                            |       |                                |  |      |      |      |  |   |      |   |  |   |        |  
|Future tax asset/liability before valuation
Allowance |  |                            | 1,414 |                                |  |      | 414  |      |  |   | 356  |   |  |   | 827    |  
|Valuation allowance                                   |  |                            | (382  | )                              |  |      | (14  | )    |  |   | 26   |   |  |   | 452    |  
|                                                      |  |                            |       |                                |  |      |      |      |  |   |      |   |  |   |        |  
|Total                                                 |  | $                          | 1,032 |                                |  | $    | 400  |      |  | $ | 382  |   |  | $ | 1,279  |  
|                                                      |  |                            |       |                                |  |      |      |      |  |   |      |   |  |   |        |  



---

|(1) |  | U.S. GAAP terminology is deferred income tax.
|--- |  | ---------------------------------------------

43
Sun Life Financial Services of Canada Inc.



---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|vi) |  | Future income tax asset and liability (contd):                                                                             

|                                                      |  |                         |     |                             |  |      |      |      |  |   |      |   |  |   |       |  
|----------------------------------------------------- |  | ----------------------- | --- | --------------------------- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ----- | -
|                                                      |  | 2001                   
|                                                      |  |                        
|                                                      |  | Future income tax asset |     | Future income tax liability
|                                                      |  |                         |     |                            
|                                                      |  | Cdn.                    |     | U.S.                        |  | Cdn. |      | U.S.
|                                                      |  | GAAP                    |     | GAAP                        |  | GAAP |      | GAAP
|                                                      |  |                         |     |                             |  |      |      |     
|Investments                                           |  | $                       | 115 |                             |  | $    | 35   |      |  | $ | (19  | ) |  | $ | 706   |  
|Actuarial liabilities                                 |  |                         | 364 |                             |  |      | 800  |      |  |   | 290  |   |  |   | (895  | )
|Deferred acquisition costs                            |  |                         | 324 |                             |  |      | (275 | )    |  |   | 144  |   |  |   | 1,190 |  
|Losses available for carry forward                    |  |                         | 66  |                             |  |      | 8    |      |  |   | (560 | ) |  |   | (617  | )
|Other                                                 |  |                         | 117 |                             |  |      | (57  | )    |  |   | (14  | ) |  |   | 311   |  
|                                                      |  |                         |     |                             |  |      |      |      |  |   |      |   |  |   |       |  
|Future tax asset/liability before valuation
Allowance |  |                         | 986 |                             |  |      | 511  |      |  |   | (159 | ) |  |   | 695   |  
|Valuation allowance                                   |  |                         | (18 | )                           |  |      | (15  | )    |  |   | 488  |   |  |   | 351   |  
|                                                      |  |                         |     |                             |  |      |      |      |  |   |      |   |  |   |       |  
|Total                                                 |  | $                       | 968 |                             |  | $    | 496  |      |  | $ | 329  |   |  | $ | 1,046 |  
|                                                      |  |                         |     |                             |  |      |      |      |  |   |      |   |  |   |       |  

vii) Actuarial liabilities and contract holder deposits:Under Cdn. GAAP,
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. Under U.S. GAAP, 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.

viii) Deferred net realized gains:Cdn. GAAP defers and amortizes realized
gains and losses on sales of invested assets. Under U.S. GAAP, realized gains
and losses are recognized in income immediately.

ix) Premium revenue, fee income, maturities and surrenders, and interest on
claims and deposits:Under Cdn. GAAP, 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. Under U.S. GAAP, 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.

x) Segregated funds(1):Under Cdn. GAAP, assets and liabilities of segregated
funds are shown separately from general assets and liabilities of the Company.
U.S. GAAP requires these separate accounts to be included within the financial
statements of the Company. Under Cdn. GAAP, the Companys investment in
segregated funds is included in other invested assets. Under U.S. GAAP, any
excess of the separate account assets over separate account liabilities
represents the Companys investment in segregated funds.



|(1) |  | U.S. GAAP terminology is separate accounts.
|--- |  | -------------------------------------------

xi) Redemption of subordinated debts:On December 19, 2001, the Company
notified the holders of the 8.49% capital debentures of its intention to redeem
the $300 debenture before the maturity date of July 28, 2005. Under Cdn. GAAP,
the redemption premiums of $30, net of taxes of $7, were recorded in 2001.
Under U.S. GAAP, the redemption premiums were not recorded as an extraordinary
item until the capital debentures were repaid in 2002.

xii) Minimum pension liabilities:Under U.S. GAAP, recognition of the
additional minimum pension liability is required if the unfunded accumulated
benefit obligation exists and the prepaid benefit asset has been recorded, the
accrued benefit liability is less than the unfunded accumulated benefit
obligation, or no prepaid benefit asset or accrued benefit liability has been
recognized. If an additional minimum liability is required to be recorded and
it exceeds unamortized past service cost, the excess is reported as additional
minimum pension liability in other comprehensive income. Under Cdn. GAAP,
there is no requirement to record the additional minimum pension liability.



44
www.sunlife.com Annual Report 2002



---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28.   |  | Summary of Material Differences Between Accounting Principles
Generally Accepted in Canada and in the United States (Contd)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------
|     
|xiii) |  | Earnings per share:                                                                                                         

|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ---- | ---- |  | - | ---- | --- |  | - | ---- | --- |  | - | ----- | ---
|                                                                                                  |  | 2002 |       | 2001 |  | 2000
|                                                                                                  |  |      |       |      |  |     
|                                                                                                  |  | Cdn. |       | U.S. |  | Cdn. |       | U.S. |  | Cdn. |      | U.S.
|                                                                                                  |  | GAAP |       | GAAP |  | GAAP |       | GAAP |  | GAAP |      | GAAP
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |     
|Basic earnings per share                                                                          |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Shareholders net income before discontinued operations
and extraordinary item                    |  | $    | 1,034 |      |  | $    | 443   |      |  | $    | 882  |      |  | $ | 796  |     |  | $ | 629  |     |  | $ | 929   |    
|Income (loss) from discontinued operations, net of income taxes                                   |  |      | (36   | )    |  |      | (36   | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   |      |    
|Extraordinary item, net of taxes                                                                  |  |      |      |      |  |      | (30   | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   | (45   | )  
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Shareholders net income                                                                          |  | $    | 998   |      |  | $    | 377   |      |  | $    | 882  |      |  | $ | 796  |     |  | $ | 629  |     |  | $ | 884   |    
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Shareholders net income excluding goodwill amortization                                          |  | $    | 998   |      |  | $    | 377   |      |  | $    | 901  | (1)  |  | $ | 815  | (1) |  | $ | 647  | (1) |  | $ | 902   | (1)
|Weighted average number of shares outstanding (in millions)                                       |  |      | 543   |      |  |      | 543   |      |  |      | 424  |      |  |   | 424  |     |  |   | 421  |     |  |   | 421   |    
|Basic earnings per share before discontinued operations
and extraordinary item                    |  | $    | 1.91  |      |  | $    | 0.82  |      |  | $    | 2.08 |      |  | $ | 1.88 |     |  | $ | 1.49 |     |  | $ | 2.21  |    
|Basic earnings (loss) per share from discontinued operations                                      |  |      | (0.07 | )    |  |      | (0.07 | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   |      |    
|Extraordinary item per share                                                                      |  |      |      |      |  |      | (0.06 | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   | (0.11 | )  
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Basic earnings per share                                                                          |  | $    | 1.84  |      |  | $    | 0.69  |      |  | $    | 2.08 |      |  | $ | 1.88 |     |  | $ | 1.49 |     |  | $ | 2.10  |    
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Basic earnings per share excluding goodwill amortization                                          |  | $    | 1.84  |      |  | $    | 0.69  |      |  | $    | 2.13 |      |  | $ | 1.92 |     |  | $ | 1.54 |     |  | $ | 2.14  |    
|Diluted earnings per share                                                                        |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Shareholders net income before discontinued operations
and extraordinary item                    |  | $    | 1,034 |      |  | $    | 443   |      |  | $    | 882  |      |  | $ | 796  |     |  | $ | 629  |     |  | $ | 929   |    
|Less: Effect of stock options of subsidiaries                                                     |  |      | 3     |      |  |      | 3     |      |  |      | 5    |      |  |   | 5    |     |  |   | 4    |     |  |   | 4     |    
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Shareholders net income before discontinued operations
and extraordinary item on a diluted basis |  | $    | 1,031 |      |  | $    | 440   |      |  | $    | 877  |      |  | $ | 791  |     |  | $ | 625  |     |  | $ | 925   |    
|Income (loss) from discontinued operations, net of income taxes                                   |  |      | (36   | )    |  |      | (36   | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   |      |    
|Extraordinary item, net of taxes                                                                  |  |      |      |      |  |      | (30   | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   | (45   | )  
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Shareholders net income on a diluted basis                                                       |  | $    | 995   |      |  | $    | 374   |      |  | $    | 877  |      |  | $ | 791  |     |  | $ | 625  |     |  | $ | 880   |    
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Shareholders net income excluding goodwill amortization
on a diluted basis                       |  | $    | 995   |      |  | $    | 374   |      |  | $    | 896  | (1)  |  | $ | 810  | (1) |  | $ | 643  | (1) |  | $ | 898   | (1)
|Weighted average number of shares outstanding
on a diluted basis (in millions)                    |  |      | 543   |      |  |      | 543   |      |  |      | 424  |      |  |   | 424  |     |  |   | 421  |     |  |   | 421   |    
|Diluted earnings per share before discontinued operations
and extraordinary item                  |  | $    | 1.90  |      |  | $    | 0.82  |      |  | $    | 2.07 |      |  | $ | 1.87 |     |  | $ | 1.48 |     |  | $ | 2.20  |    
|Diluted earnings (loss) per share from discontinued operations                                    |  |      | (0.07 | )    |  |      | (0.07 | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   |      |    
|Extraordinary item per share                                                                      |  |      |      |      |  |      | (0.06 | )    |  |      |     |      |  |   |     |     |  |   |     |     |  |   | (0.11 | )  
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Diluted earnings per share                                                                        |  | $    | 1.83  |      |  | $    | 0.69  |      |  | $    | 2.07 |      |  | $ | 1.87 |     |  | $ | 1.48 |     |  | $ | 2.09  |    
|                                                                                                  |  |      |       |      |  |      |       |      |  |      |      |      |  |   |      |     |  |   |      |     |  |   |       |    
|Diluted earnings per share excluding goodwill amortization                                        |  | $    | 1.83  |      |  | $    | 0.69  |      |  | $    | 2.11 |      |  | $ | 1.91 |     |  | $ | 1.53 |     |  | $ | 2.13  |    



---

|(1) |  | Goodwill amortization of $19 and $18 for 2001 and 2000, respectively was
added back to shareholders net income for the calculation of basic and diluted
earnings per share excluding goodwill amortization.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45
Sun Life Financial Services of Canada Inc.





---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting
Principles Generally Accepted in Canada and in the United
States (Contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

xiv) Acquisitions of Clarica, Keyport and IFMG:The Company acquired all of
the outstanding common shares of Clarica that were not beneficially owned by
the Company effective May 29, 2002 and acquired 100% of the outstanding common
shares of Keyport and IFMG effective October 31, 2001 as described in Note 4.
The following amounts of the assets, liabilities and goodwill at the dates of
acquisition under Cdn. and U.S. GAAP are different due to the different
accounting policies used for the two standards.

|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |       | 
|----------------------------------------------------------- | -------------------------------------------------- | - | --------- | ----- | ------------ | - | --------- | ----- | --------- | - | ------ | ----- |  | - | ------ | ----- | 
|                                                            |                                                    |   | Clarica   |       | Keyport/IFMG
|                                                            |                                                    |   |           |       |             
|                                                            |                                                    |   | Cdn. GAAP |       | U.S. GAAP    |   | Cdn. GAAP |       | U.S. GAAP
|                                                            |                                                    |   |           |       |              |   |           |       |          
|Invested assets acquired                                    |                                                    | $ | 31,693    |       |              | $ | 31,697    |       |           | $ | 22,479 |       |  | $ | 24,168 |      
|Other assets acquired (1)                                   |                                                    |   | 2,672     |       |              |   | 5,374     |       |           |   | 1,436  |       |  |   | 1,104  |      
|Segregated funds assets acquired                            |                                                    |   |          |       |              |   | 11,204    |       |           |   |       |       |  |   | 3,944  |      
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|                                                            |                                                    |   | 34,365    |       |              |   | 48,275    |       |           |   | 23,915 |       |  |   | 29,216 |      
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|Actuarial liabilities and other policy liabilities acquired |                                                    |   | 24,787    |       |              |   | 16,801    |       |           |   | 22,656 |       |  |   |       |      
|Amounts on deposit acquired                                 |                                                    |   | 1,277     |       |              |   | 1,235     |       |           |   |       |       |  |   |       |      
|Contract holder deposits acquired                           |                                                    |   |          |       |              |   | 10,235    |       |           |   |       |       |  |   | 21,518 |      
|Other liabilities acquired                                  |                                                    |   | 5,093     |       |              |   | 5,387     |       |           |   | 493    |       |  |   | 2,223  |      
|Segregated funds liabilities acquired                       |                                                    |   |          |       |              |   | 11,193    |       |           |   |       |       |  |   | 3,902  |      
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|                                                            |                                                    |   | 31,157    |       |              |   | 44,851    |       |           |   | 23,149 |       |  |   | 27,643 |      
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|Net balance sheet assets acquired                           |                                                    | $ | 3,208     |       |              | $ | 3,424     |       |           | $ | 766    |       |  | $ | 1,573  |      
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|Considerations given:                                       |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|                                                            | Common shares issued or exchanged                  |   | $         | 6,284 |              |   | $         | 6,284 |           |   |        |      |  |   |        |      | 
|                                                            | Carrying value of investments in acquirees shares |   |           | 540   |              |   |           | 540   |           |   |        |      |  |   |        |      | 
|                                                            | Fair value of outstanding Clarica stock options    |   |           | 48    |              |   |           | 48    |           |   |        |      |  |   |        |      | 
|                                                            | Transaction and other related costs                |   |           | 57    |              |   |           | 57    |           |   |        |      |  |   |        |      | 
|                                                            | Cash cost of acquisition                           |   |           |      |              |   |           |      |           |   |        | 2,744 |  |   |        | 2,744 | 
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|                                                            |                                                    | $ | 6,929     |       |              | $ | 6,929     |       |           | $ | 2,744  |       |  | $ | 2,744  |      
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      
|Goodwill on acquisition                                     |                                                    | $ | 3,721     |       |              | $ | 3,505     |       |           | $ | 1,978  |       |  | $ | 1,171  |      
|                                                            |                                                    |   |           |       |              |   |           |       |           |   |        |       |  |   |        |      



---

|(1) |  | Other assets acquired included value of business acquired of $2,368 under
U.S. GAAP.
|--- |  | ------------------------------------------------------------------------------------

In 2002, adjustments were made to the purchase price allocations of Keyport and
IFMG. This resulted in an increase in other assets, contract holder deposits
and other liabilities of $75, $21 and $14, respectively, and a decrease in
other invested assets and goodwill of $20 and $20, respectively, under U.S.
GAAP.

xv) Stock-based compensation:The intrinsic value method of accounting was
used to account for stock options that were granted in 2001 under Cdn. and U.S.
GAAP. In 2002, the Company changed its accounting policy for stock options
granted to employees from the intrinsic value method to the fair value method
effective January 1, 2002 on a prospective basis. Had the fair value method
been used for the options granted in 2001, the net income for the year ended
December 31, 2002 would have been reduced by $15 ($17 in 2001), and both basic
and diluted earnings per share reduced by $0.03 ($0.04 in 2001) per share. The
weighted average fair value of options at the grant date for the year ended
December 31, 2002 was estimated to be $10.62 ($9.66 in 2001) per share using
the Black-Scholes option pricing model. This pricing model assumes the
following weighted average information: risk-free interest rate of 5.4% (4.2%
to 5.4% in 2001), an expected life of 7 years (7 years in 2001), an expected
common stock volatility of 25% (26% in 2001) and an expected dividend yield of
1.7% (1.5% in 2001).

On March 30, 2001, the Company granted stock options under the Executive Stock
Option Plan, prior to the shareholders approval of the plan at the Annual and
Special Meeting on April 25, 2001. Under Cdn. GAAP, no compensation expense is
recognized for these options on the grant date, since the exercise price is set
at the closing price of the common shares on the trading day preceding the
grant date. Under U.S. GAAP, the options were accounted for as if they were
granted on April 25, 2001. The intrinsic value of the options, being the
difference between the April 25, 2001 closing price and the exercise price of
the common shares, is allocated over a four-year vesting period as compensation
expense.

xvi) Shares purchased and cancelled under the Normal Course Issuer Bid
Program:The paid in capital equity account and retained earnings were reduced
by different amounts under Cdn. and U.S. GAAP for the purchase and cancellation
of common shares, as the average cost per share under both accounting standards
are not the same.

xvii) Impact of the terrorist attacks on September 11, 2001:The terrorist
attacks on September 11, 2001 in the United States resulted in significant
financial losses and human casualties. However, the direct financial impact to
the Company of these attacks, which is primarily due to death claims, was not
material. For the year ended December 31, 2002, the Company did not incur any losses ($4 in 2001) related to these
claims. The losses reported for 2002 and 2001 do not include the impact on
revenue from the wealth management business due to the decline in asset market
values and any indirect investment losses.



46
www.sunlife.com Annual Report 2002



---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | Summary of Material Differences Between Accounting
Principles Generally Accepted in Canada and in the United
States (Contd)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

xviii) Demutualization:
For 2000, demutualization and public offering costs under Cdn. GAAP are a
capital transaction reducing surplus. Under U.S. GAAP, demutualization and
secondary offering costs are an extraordinary expense.

c) Statements of cash flows:Under Cdn. GAAP, deposits, maturities and
withdrawals related to investment-type contracts and universal life contracts
are included in operating activities. Under U.S. GAAP, deposits, maturities
and withdrawals are reflected as financing activities; these cash flow items
are as follows:

|                                                               |  |      |        |      |  |      |       |  |  |   |       | 
|-------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                               |  | 2002 |        | 2001 |  | 2000
|                                                               |  |      |        |      |  |     
|Deposits and withdrawals reclassified to financing activities: |  |      |        |      |  |      |       |  |  |   |       | 
|Deposits to policyholders accounts                            |  | $    | 13,327 |      |  | $    | 4,276 |  |  | $ | 4,100 | 
|                                                               |  |      |        |      |  |      |       |  |  |   |       | 
|Withdrawals from policyholders accounts                       |  | $    | 6,680  |      |  | $    | 4,724 |  |  | $ | 4,279 | 
|                                                               |  |      |        |      |  |      |       |  |  |   |       | 

d) U.S. generally accepted accounting standard not yet adopted by the Company:
FASB issued Statement of Financial Accounting Standard No. 143 Accounting for
Asset Retirement Obligations (SFAS 143). The Company will adopt SFAS 143 on
January 1, 2003. SFAS 143 requires companies to record the fair value of an
asset retirement obligation in the period in which it is incurred and increase
the carrying amount of the related long-lived asset. Interest expense on the
asset retirement obligation is accrued each period and the capitalized cost is
depreciated over the useful life of the related asset. If the obligation is
not settled for its recorded amount, a gain or loss on settlement will be
realized. The impact of this change is not expected to be material to the
consolidated financial statements.

FASB issued Statement of Financial Accounting Standard No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections (SFAS 145). The Company will adopt SFAS 145 on January
1, 2003. SFAS 145 amends various existing authoritative pronouncements to make
technical corrections, clarify meanings or describe their applicability under
changed conditions. The Company does not expect this standard to have a
material effect on the consolidated financial statements.

FASB issued Statement of Financial Accounting Standard No. 146, Accounting for
Costs Associated with Exit or Disposal Activities (SFAS 146). The Company
will adopt SFAS 146 on January 1, 2003. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
except those incurred in connection with a purchase business combination. The
standard requires that a liability for costs associated with an exit or
disposal activity be recognized and measured initially at its fair value in the
period of which the liability is incurred. The provisions of this standard are
effective for exit or disposal activities initiated after December 31, 2002.
The SFAS 146 will impact the Companys consolidated financial statements if and
when future restructuring activities occur.

FASB issued Financial Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others (FIN 45). The Company will adopt the provisions of FIN
45 related to the recognition of guarantees as liabilities on January 1, 2003.
FIN 45 requires companies to recognize liabilities of certain guarantees at
fair values. The Company does not expect this interpretation to have a
material impact on its consolidated financial statements.

FASB issued Financial Interpretation No. 46, Consolidation of Variable
Interest Entities on January 17, 2003. The Interpretation clarifies the
application of Accounting Research Bulletin No. 51  Consolidated Financial
Statements to those entities (defined as Variable Interest Entities and more
commonly referred to as special purpose entities) in which equity investors do
not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The Company is
involved with various special purpose entities in connection with its
structured finance and securitization activities and holds interests in certain
Collateralized Debt Obligations (CDO) for which it manages the underlying
collateral securities for a fee. Under this interpretation, the Company may be
required to consolidate the CDO and certain other special purpose entities.
The Company is in the process of determining the impact of this interpretation
on the consolidated financial statements.



|29. |  | Comparative Figures
|--- |  | -------------------

Certain comparative figures have been restated to conform with the presentation
adopted in 2002.

47
Sun Life Financial Services of Canada Inc.





---



##### 



APPOINTED ACTUARYS REPORT/AUDITORS REPORT

Appointed Actuarys Report

THE SHAREHOLDERS AND DIRECTORS
OF SUN LIFE FINANCIAL SERVICES OF CANADA INC.

I have valued the policy liabilities of Sun Life Financial Services of Canada
Inc. for its consolidated balance sheets at December 31, 2002 and 2001 and
their change in the consolidated statements of operations for the years then
ended in accordance with accepted actuarial practice, including selection of
appropriate assumptions and methods.

In my opinion, the amount of policy liabilities makes appropriate provision for
all policyholders obligations and the consolidated financial statements fairly
present the results of the valuation.

(Robert W. Wilson)

Robert W. Wilson
Fellow, Canadian Institute of Actuaries

Toronto, Canada
February 12, 2003

Auditors Report

THE SHAREHOLDERS
OF SUN LIFE FINANCIAL SERVICES OF CANADA INC.

We have audited the consolidated balance sheets of Sun Life Financial Services
of Canada Inc. and the separate consolidated statements of segregated funds net
assets as at December 31, 2002 and 2001, and the consolidated statements of
operations, equity, cash flows and changes in segregated funds net assets for
each of the years in the three-year period ended December 31, 2002. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its segregated
funds as at December 31, 2002 and 2001 and the results of the Companys
operations, its cash flows and the changes in its segregated funds net assets
for each of the years in the three-year period ended December 31, 2002 in
accordance with Canadian generally accepted accounting principles including the
accounting requirements of the Superintendent of Financial Institutions Canada.

(Deloitte & Touche LLP SIGNATURE)

Deloitte & Touche LLP
Chartered Accountants

Toronto, Canada
February 12, 2003

48
www.sunlife.com Annual Report 2002