##### 



EXHIBIT 2

(SUNLIFE LOGO)





Sun Life Financial Inc.



Managements Discussion and AnalysisFor the Year Ended December 31, 2003









February 17, 2004





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< Table of Contents >

FINANCIAL HIGHLIGHTS
    
    
    1ENTERPRISE MISSION, VISION, STRATEGIES AND IMPERATIVES
    
    
    2BUSINESS DEVELOPMENTS
    
    
    4OVERVIEW OF BUSINESS
    
    
    6FINANCIAL PERFORMANCE OVERVIEW
    
    
    8CONSOLIDATED RESULTS OF OPERATIONS
    
    
    10SUN LIFE FINANCIAL CANADA
    
    
    14SUN LIFE FINANCIAL UNITED STATES
    
    
    21MFS INVESTMENT MANAGEMENT
    
    
    28SUN LIFE FINANCIAL ASIA
    
    
    31SUN LIFE FINANCIAL UNITED KINGDOM
    
    
    34CORPORATE CAPITAL
    
    
    35RISK MANAGEMENT
    
    
    36CRITICAL ACCOUNTING ESTIMATES
    
    
    40ACCOUNTING POLICIES
    
    
    43INVESTMENTS
    
    
    45FINANCIAL POSITION AND LIQUIDITY
    
    
    49ADDITIONAL INFORMATION
    
    
    54


Unless otherwise indicated, all information in this Managements Discussion
and Analysis (MD&A) is presented as at and for the year ended December 31,
2003 and amounts are expressed in Canadian dollars. Where information at and
for the year ended December 31, 2003 is not available, information available
for the latest period before December 31, 2003 is used. Competitive
statistics included in this document do not include the impact of mergers
and acquisitions closing after December 31, 2003. Financial information,
except where otherwise noted, is presented in accordance with Canadian
generally accepted accounting principles (GAAP), including the accounting
requirements of the Office of the Superintendent of Financial Institutions.
Further information is available from Sun Life Financial Inc.s Annual Information Form (AIF) for
the year ended December 31, 2003, which has been filed with applicable securities regulators in Canada and may be accessed at
www.sedar.com and has also been filed with the Securities and Exchange Commission in the United States.



|Forward-looking Statements

Some of the statements contained or incorporated by reference in this MD&A,
including those relating to Sun Life Financials strategies and other
statements that are predictive in nature, that depend upon or refer to future
events or conditions, or that include words such as expects, anticipates,
intends, plans, believes, estimates or similar expressions, are
forward-looking statements within the meaning of securities laws. Forward
looking statements include, without limitation, the information concerning
possible or assumed future results of operations of Sun Life Financial as set
forth under Enterprise, Mission, Vision, Strategies and Imperatives,
Overview of Business, Financial Performance Overview, Sun Life Financial
Canada, Sun Life Financial United States, MFS Investment Management,
Sun Life Financial Asia, Sun Life Financial United Kingdom, Corporate
Capital, Investments and Financial Position and Liquidity. These
statements are not historical facts but instead represent only Sun Life
Financials expectations, estimates and projections regarding future events.

The forward-looking statements contained or incorporated by reference in this
MD&A are not guarantees of future performance and involve certain risks and
uncertainties that are difficult to predict. The future results and stockholder
value of Sun Life Financial may differ materially from those expressed in the
forward looking statements contained or incorporated by reference in this MD&A
due to, among other factors, the matters set forth under Risk Factors
contained in Sun Life Financials AIF filed with Canadian and U.S. securities
regulators and the factors detailed in Sun Life Financials other filings with
Canadian and/or U.S. securities regulators, including the factors detailed in Sun Life
Financials annual and interim financial statements and the notes thereto. Sun
Life Financial does not undertake any obligation to update or release any
revisions to these forward-looking statements to reflect events or
circumstances after the date of this MD&A or to reflect the occurrence of
unanticipated events, except as required by law.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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MANAGEMENTS DISCUSSION AND ANALYSIS

Financial Highlights

(in millions of Canadian dollars, except earnings and dividends per share)
    
    2003
    
    2002(1)
    
    2001Shareholders Net Income- Operating(2)
    
    
    1,520
    
    
    
    1,260
    
    
    
    872- Reported
    
    
    1,309
    
    
    
    998
    
    
    
    882Basic Earnings per Share (EPS)- Operating(2)
    
    
    2.50
    
    
    
    2.32
    
    
    
    2.06- Reported
    
    
    2.15
    
    
    
    1.84
    
    
    
    2.08Return on Shareholders Equity (ROE)- Operating(2)
    
    
    10.6
    %
    
    
    10.7
    %
    
    
    12.7
    %- Reported
    
    
    9.2
    %
    
    
    8.5
    %
    
    
    12.8
    %Dividends Per Common Share
    
    
    0.68
    
    
    
    0.56
    
    
    
    0.48Fee Income
    
    
    2,810
    
    
    
    3,095
    
    
    
    3,216Total Revenue
    
    
    22,056
    
    
    
    23,101
    
    
    
    16,815Premiums, Deposits and Fund SalesPremium Revenue
    
    
    13,543
    
    
    
    14,875
    
    
    
    9,437Segregated Fund Deposits
    
    
    5,968
    
    
    
    6,642
    
    
    
    5,851Mutual Fund Sales
    
    
    26,970
    
    
    
    31,668
    
    
    
    39,466Managed Fund Sales
    
    
    25,202
    
    
    
    29,683
    
    
    
    31,953Total Premiums, Deposits and Fund Sales
    
    
    71,683
    
    
    
    82,868
    
    
    
    86,707Assets Under Management (at December 31)General Fund Assets(3)
    
    
    109,209
    
    
    
    123,452
    
    
    
    80,328Segregated Fund Net Assets
    
    
    54,086
    
    
    
    52,755
    
    
    
    48,544Other Assets Under Management
    
    
    195,729
    
    
    
    184,407
    
    
    
    222,875Total Assets Under Management(3)
    
    
    359,024
    
    
    
    360,614
    
    
    
    351,747Capital(at December 31)Subordinated Debt
    
    
    2,504
    
    
    
    2,922
    
    
    
    1,730Sun Life ExchangEable Capital Securities (SLEECS)
    
    
    1,150
    
    
    
    1,150
    
    
    
    950Preferred Shares
    
    
    155
    
    
    
    158
    
    
    
    Total Equity
    
    
    13,976
    
    
    
    14,909
    
    
    
    7,725Total Capital
    
    
    17,785
    
    
    
    19,139
    
    
    
    10,405MCCSR
Ratio(4)(at December 31)
    
    
    238
    %
    
    
    222
    %
    
    
    184
    %


Quarterly Information

2003(1)
    

2002(1)Q4
    
    Q3
    
    Q2
    
    Q1
    
    Q4
    
    Q3
    
    Q2
    
    Q1Shareholders Net Income- Operating(2)
    
    
    417
    
    
    
    394
    
    
    
    366
    
    
    
    343
    
    
    
    361
    
    
    
    350
    
    
    
    293
    
    
    
    256- Reported
    
    
    206
    
    
    
    394
    
    
    
    366
    
    
    
    343
    
    
    
    310
    
    
    
    361
    
    
    
    71
    
    
    
    256Basic earnings per Share- Operating(2)
    
    
    0.69
    
    
    
    0.65
    
    
    
    0.60
    
    
    
    0.56
    
    
    
    0.58
    
    
    
    0.57
    
    
    
    0.59
    
    
    
    0.59- Reported
    
    
    0.34
    
    
    
    0.65
    
    
    
    0.60
    
    
    
    0.56
    
    
    
    0.50
    
    
    
    0.58
    
    
    
    0.14
    
    
    
    0.59Total Revenue
    
    
    5,437
    
    
    
    5,282
    
    
    
    5,579
    
    
    
    5,758
    
    
    
    6,028
    
    
    
    5,803
    
    
    
    5,832
    
    
    
    5,438Total Assets Under Management(3)
    
    
    359,024
    
    
    
    348,481
    
    
    
    342,176
    
    
    
    336,803
    
    
    
    360,614
    
    
    
    347,002
    
    
    
    368,664
    
    
    
    356,896




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|(1) |  | Includes the results of Clarica Life Insurance Company (Clarica) from the date of acquisition May 29, 2002.                                                                                                                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes special items as described on page 13. Operating earnings, operating earnings per share and operating ROE are non-GAAP
measures and have no standardized definition under GAAP. These measures are presented to facilitate comparison to prior year earnings
and may not be comparable to similar measures presented by other
issuers. Financial results not specifically referred to as operating
have been determined in accordance with GAAP.
|   
|(3) |  | Amounts for 2002 and for the quarters Q2 2002, Q3 2002 and Q4 2002 have been restated.                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) |  | Represents the MCCSR ratio of the Companys principal operating subsidiary, Sun Life Assurance Company of Canada.                                                                                                                                                                                                                                                                                                                                          



Ratings(5)(as at December 31, 2003)




A.M. Best
    
    
    A++
    (6)Moodys
    
    Aa2Standard & Poors
    
    AA+(6)







|(5) |  | Represents financial strength ratings for Sun Life Assurance Company of Canada.
|--- |  | -------------------------------------------------------------------------------
|   
|(6) |  | With negative outlook.                                                         

|Sun Life Financial Inc. | 1
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS

Enterprise Mission, Vision, Strategies and Imperatives

Sun Life Financial Inc. (together with its consolidated subsidiaries, the
Company or Sun Life Financial) is a leading international financial
services organization providing a diverse range of wealth accumulation and
protection products and services to individual and corporate customers.

The international financial services industry continues to undergo significant
evolution driven by:



| |  | Ongoing industry consolidation and convergence
|- |  | ----------------------------------------------

| |  | Changing consumer needs arising from shifting demographic characteristics
|- |  | -------------------------------------------------------------------------

| |  | Maturing of certain markets
|- |  | ---------------------------

| |  | Political, economic and regulatory uncertainties
|- |  | ------------------------------------------------

| |  | Advances in technology
|- |  | ----------------------

Sun Life Financial has developed a clear vision and business strategies
supported by an established international operating platform and strong
financial capability, positioning it to be a strong competitor in this
environment. The Company operates under a business model that strives to
provide scale operations in diversified markets of strategic importance. It
also balances the higher growth prospects of wealth management with the
stability of protection earnings. Furthermore, the Companys operations in
wealth management and protection are complementary and form an integrated
product platform to provide one-stop financial solutions for customers. A
summary of the Companys mission, vision, strategies, strategic imperatives,
accomplishments and priorities is provided below.

(MISSION STATEMENT)

|Sun Life Financial Inc. | 2
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS

2003 ACCOMPLISHMENTS  
    
    Successful integration of Clarica generating value, building growth and enhancing operational effectiveness  
    
    Proactively managed capital through share repurchases, increased dividend payments, sale of U.K. group business and
early redemption of subordinated debt  
    
    Addressed challenging interest rate conditions in the U.S. market by application of risk management techniques and
through product repricing and restructuring  
    
    Obtained regulatory approval to begin preparation of life insurance operations in Beijing, China  
    
    The Companys operations in Asia generated significant growth with earnings up 54 per cent and sales in India up 174
per cent  
    
    Named as one of the top 100 employers in Canada  
    
    Ranked 3rd in 2003 Globe and Mail Report on Business study of corporate governance practices


2004 PRIORITIES  
    
    Leverage strong Canadian market position by enhancing product offerings and capitalizing on the strength of the
distribution channels  
    
    Strengthen U.S. position by focusing on operational efficiency and scale through improved distribution productivity,
integrating support services across business units and potential strategic transactions  
    
    Address issues arising from U.S. regulatory investigations into the investment management industry  
    
    Continuously pursue operational excellence by improving support services and related infrastructure across all
operations  
    
    Successfully launch life insurance operations in Beijing  
    
    Continue to effectively manage capital through a share repurchase program, dividend payment policy, product
repricing and restructuring, and optimization of corporate structures  
    
    Continue to develop employee capabilities and apply appropriate performance measurement techniques


|Sun Life Financial Inc. | 3
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS

Business Developments

The following significant developments occurred in 2003.

CORPORATE DEVELOPMENT

Increase in Ownership Stake in CI Fund Management Inc.

In March 2003, the Company increased its economic interest in CI Fund
Management Inc. (CI), a major Canadian mutual fund manager, from 31.7 per cent
to 34 per cent by issuing two million of its common shares in exchange for
approximately five million common shares of CI. This additional investment
furthered the Companys strategic objective of achieving leadership positions
in key target markets in North America.

In the fourth quarter, CI acquired Synergy Asset Management Inc. which closed
October 6, 2003, and the Canadian operations of Assante Corporation which
closed November 14, 2003. CI acquired Synergy and Assante for a combination of
cash and common shares of CI. Sun Life Financial supported these transactions
and maintained its 34 per cent ownership interest in CI by acquiring an
additional 21 million common shares of CI for $266 million in cash.

The growth in assets and distribution capability through these transactions
will solidify CIs position as a top tier Canadian fund company and allow it to
take advantage of economies of scale to the benefit of CI shareholders.

Sale of Claricas U.S. Operations

Clarica U.S., Inc. (Clarica U.S.) was acquired as part of the Companys
acquisition of Clarica Life Insurance Company (Clarica) on May 29, 2002. After
a review of Clarica U.S. operations, the Company concluded that it was not a
strategic fit for the Companys U.S. operations and sold Clarica U.S. to
Midland National Life Insurance Company on January 7, 2003.

Sale of U.K. Group Business

The Company sold its U.K. group insurance business to Unum Limited, a U.K.
subsidiary of UnumProvident Corporation on February 28, 2003 as part of its
efforts to realize the underlying value of its U.K. operations. Under the sale
agreements, Unum Limited acquired the renewal rights to the group life business.
For the Companys U.K. group income protection business, the business was fully
reinsured with Unum Limited effective February 28, 2003 and formally
transferred under a Court Scheme effective July 1, 2003. The sale of these
operations was consistent with the Companys focus on businesses that can
maintain or achieve competitive scale or scope.

OTHER BUSINESS INITIATIVES

Clarica Integration

By the end of 2003, the Company substantially completed the integration of
Clarica into its existing operations. The integration work was completed on
target and represents the culmination of almost two years of focused effort and
management resources. The Companys Canadian operations are now positioned to
continue realizing the benefits of synergy savings and operational efficiencies
gained from common business platforms and integrated distribution networks as
well as to compete effectively in a consolidating market place.

Beijing Expansion

The Companys joint venture in China received regulatory approval to begin
preparation for life insurance operations in Beijing, China. The expansion
into Chinas capital city complements an existing operation in Tianjin and
positions the Company as a major player in northern China. The Company views
this as a significant milestone for the joint venture. China, the worlds
largest emerging market, is a key building block for the Companys long-term
growth plans in Asia.

Amalgamation of Keyport and Sun Life (U.S.)

Effective December 31, 2003, the Company amalgamated its U.S. subsidiaries,
Keyport Life Insurance Company (Keyport) and Sun Life Assurance Company of
Canada (U.S.) (Sun Life (U.S.)). The amalgamation will simplify the Companys
corporate structure in the United States with a view to streamlining
operations, achieving operational expense savings and optimizing the use of
capital.

GOVERNANCE

Corporate Governance

The Company believes that transparency of financial and other key information
is critically important to establish and maintain the confidence of its

|Sun Life Financial Inc. | 4
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS

stakeholders in the Companys operating integrity and financial strength. In
2003, the Company established a Disclosure Committee which will play a key role
in ensuring the quality of stakeholder information.

During 2003, the Company implemented a number of measures in response to
stakeholder needs and an evolving corporate governance environment:



| |  | Separated the roles of Chairman of the Board of Directors and Chief Executive Officer
|- |  | -------------------------------------------------------------------------------------

| |  | Discontinued the distribution of stock options to Directors
|- |  | -----------------------------------------------------------

| |  | Reviewed and modified employee compensation plans
|- |  | -------------------------------------------------

| |  | Started a review process to ensure compliance with rules promulgated by the Securities and Exchange Commission in the
United States pursuant to the Sarbanes-Oxley Actand the Investor Confidence Rules of the Canadian Securities
Administrators
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CAPITAL MANAGEMENT INITIATIVES

In 2003, the Company generated significant capital, creating flexibility for
share buybacks, dividend payments and debt redemption to enhance capital
efficiency and improve returns on capital employed.

Share Repurchase Program

In 2003, the Company put in place a share repurchase program to enhance
shareholder value. A normal course issuer bid was effective between February
14, 2003 and January 5, 2004. During the period from February 14, 2003 to
December 31, 2003, the Company repurchased approximately 18 million common
shares at a cost of $527 million, representing approximately three per cent of
the number of shares outstanding at the beginning of the program.

On January 8, 2004, the Board of Directors renewed the share repurchase program
and authorized the purchase of up to five per cent of the common shares
outstanding at that time. The purchases will be made under the renewed normal
course issuer bid over the period January 12, 2004 to January 11, 2005.

Increased Quarterly Shareholder Dividend

The quarterly dividend payout per common share was increased from $0.14 in 2002
to $0.17 in 2003, representing an increase of 21 per cent. On January 29, 2004,
the Board of Directors approved an additional 24 per cent increase in the
quarterly dividend to $0.21 per share.

Redemption of Subordinated Notes

In September 2003, Sun Canada Financial Co., a subsidiary of Sun Life Financial
Inc., redeemed $165 million of its 6 5/8 per cent Subordinated Notes due
December 15, 2007. The amount repurchased represented 81.6 per cent of the
original amount issued.

OTHER DEVELOPMENTS

On February 5, 2004,
Massachusetts Financial Services Company (MFS) reached settlements with U.S. federal and state
regulators related to administrative proceedings against it alleging false and
misleading information in certain MFS fund prospectuses regarding market timing
and related issues. Under the terms of the settlements, MFS neither admitted
nor denied wrongdoing. As part of the settlement with the United States
Securities and Exchange Commission (SEC), MFS agreed to pay US$225 million to
compensate certain fund shareholders, of which US$50 million is a penalty, and
agreed with the New Hampshire Bureau of Securities Regulation to pay an
administrative fine in the amount of US$1 million. The Company recorded a $211
million after-tax charge to income in the fourth quarter of 2003 in connection
with the matters discussed above. MFS further agreed with the Attorney General
of the State of New York to reduce fees on the funds it advises by
approximately US$25 million annually over the next five years.

|Sun Life Financial Inc. | 5
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS

Overview of Business

The Companys operations are divided into six business segments: Sun Life
Financial Canada (SLF Canada), Sun Life Financial United States (SLF U.S.),
MFS, Sun Life Financial United
Kingdom (SLF U.K.), Sun Life Financial Asia (SLF Asia), and Corporate Capital.
These reportable segments reflect the Companys management and internal
financial reporting structures. Each segment has its own management and is
responsible for its financial performance. Generally, the segments derive their
earnings from wealth management and protection products and services. Corporate
Capital primarily includes investments and expenses of a corporate nature for
which management responsibility resides in the Companys corporate office.

Revenue and Earnings in 2003 by Segment*

(PIE CHARTS)

The Company operates under a strategic business model that balances growth with
earnings stability. As product features become increasingly more complex and
innovative, the lines between product categories have started to blur. However,
the Company generally classifies its products into two principal categories:
wealth management and protection. Revenues and expenses not directly
attributable to protection or wealth management are included in Corporate and
Other.



|1) |  | Wealth management comprises the Companys operations related to
equity-linked and fixed income products and services in the areas of asset
management, mutual funds, pensions and annuities;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2) |  | Protection or insurance comprises the Companys individual life and
health, group life and health and reinsurance operations.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------

Wealth management represents the Companys higher potential growth market. As
at December 31, 2003, wealth management had assets of $300.6 billion,
representing 84 per cent of the Companys business in terms of assets under
management. The wealth management revenue is driven principally by: (i)
investment advisory fees, (ii) distribution and servicing fees, (iii)
mortality and expense fees, (iv) annuity premiums, and (v) net investment
yield on general fund assets held primarily in the pension and fixed annuity
businesses.

Protection represents a steady and consistent growth market for the Company.
The premium income from protection recorded a compound annual growth rate of 14
per cent in the period from 1998 to 2003. The principal sources of protection
revenue are: (i) premiums earned on individual life and health, group life and
group health, and reinsurance contracts, and (ii) net investment income on
assets supporting actuarial liabilities associated with protection products.

Revenue and Earnings in 2003 by Principal Product Category*

(PIE CHARTS)

The profitability of the Companys operations depends on, or is impacted by, in
large part the following primary factors:



| |  | External factors, including changes in equity market performance, interest rates, currency exchange rates and regulations
|- |  | -------------------------------------------------------------------------------------------------------------------------

| |  | The amount and composition of assets under management
|- |  | -----------------------------------------------------

| |  | The management of market and credit risks
|- |  | -----------------------------------------

| |  | The maintenance of spreads between credited rates and investment returns
|- |  | ------------------------------------------------------------------------

|Sun Life Financial Inc. | 6
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS



| |  | The management of the risks inherent in products with guaranteed benefit options
|- |  | --------------------------------------------------------------------------------

| |  | Mortality and morbidity rates
|- |  | -----------------------------

| |  | Surrender and lapse rates
|- |  | -------------------------

| |  | The management of product pricing
|- |  | ---------------------------------

| |  | Expense management
|- |  | ------------------

An expanded description of the Companys risk factors can be found on pages 21
to 26 of the Companys Annual Information Form (AIF).

The Companys portfolio of products and services by each of the business
segments is summarized in the following table:

Products and Services by Business Segment

(PRODUCTS AND SERVICES MAP)

|Sun Life Financial Inc. | 7
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS

Financial Performance Overview

2003 Performance

The Company reported a third consecutive year of record operating earnings.
Shareholders operating net income1 for the year was $1,520 million, up 21 per
cent compared to the $1,260 million in 2002. Shareholders net income for the
year was $1,309 million, up 31 per cent compared to the $998 million in 2002.
The strong financial results were achieved even though the Company faced a
number of challenges in 2003.

Within the Companys Canadian operations, significant management attention was
focused on the challenges of the Clarica integration to ensure its successful
completion and realization of the anticipated synergy savings and operational
efficiencies. The largest integration in the Canadian insurance industry was
successfully completed while maintaining business momentum with earnings per
share accretion of $0.26, surpassing the Companys target of $0.20. The Company
also increased its ownership position in CI, a significant and growing player
in the Canadian mutual fund industry.

In the early part of 2003, equity markets were exerting pressure on the
Companys fee-based businesses that were sensitive to market valuations.
Throughout the year, interest rates remained at historically low levels and
adversely affected the Companys U.S. fixed annuity business as the net spread
between the interest earned on investments and the interest credited on this
business was reduced (spread compression). The challenging capital market
conditions were addressed by the application of risk management techniques,
product repricing and restructuring, and effective management of operating
expenses.

Despite challenging economic conditions including the impact of the SARS
outbreak, the Companys long-term growth engine in Asia generated an increase
in earnings over 2002 of 54 per cent. Insurance sales in India increased 174
per cent and the Company
received approval to begin preparation for the launch of life insurance
operations in Beijing China.

The Companys ability to maintain strong financial performance in a difficult
economy and challenging operational environment reflects the strength of its
diversified and well-balanced portfolio, prudent and disciplined investment
strategies and effective risk management. The detailed discussion of the
Companys consolidated results in 2003 is provided in the sections located on
pages 10 to 13 of this Managements Discussion and Analysis.

Outlook

As an international organization with significant operations in Canada, the
United States, the United Kingdom, the Philippines, India, China and other
countries, the Companys earnings are affected by the economic, business,
political, regulatory and capital market conditions in which it conducts
business as well as fluctuations of foreign currencies. To mitigate these
exposures, the Company has adopted a disciplined risk management program that
includes a formal process for the identification and potential mitigation of
risks to the Companys earnings, liquidity and capital strength.

The Companys wealth management business, in particular, is impacted by changes
in the level of interest rates. Minimum rate guarantees built into certain
annuity products reduce the spread between the Companys interest earned and
interest-credited rate in a low interest environment. Management proactively
takes actions, such as product repricing, that it believes will provide for
long-term profitability. During 2003, several U.S. states reduced the statutory
required minimum rate guarantee. The Company has, where possible, reduced
interest crediting rates to these minimums. In addition, the Company uses
derivatives and asset/liability matching programs to help reduce the impact of
interest rate volatility on its earnings.

The Companys earnings are also impacted by volatility in the equity markets
due to asset-based fees, equity based investment income and segregated fund and
annuity guarantees. The Company proactively attempts to reduce the impact of
this volatility, on guarantees in particular, through the use of derivative
arrangements. In addition, cost containment measures undertaken by MFS and SLF
U.S.s annuities business unit to bring expenses in line with market driven
growth have better positioned both of these businesses to achieve profitable
organic growth in flat or



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|1 |  | Excludes special items as described on page 13. Operating net income is a
non-GAAP measure and has no standardized definition under GAAP. This measure is
presented to facilitate comparison to prior year earnings and may not be
comparable to similar measures presented by other issuers. Financial results
not specifically referred to as operating have
been determined in accordance with GAAP.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Sun Life Financial Inc. | 8
|----------------------- | -

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MANAGEMENTS DISCUSSION AND ANALYSIS

declining markets and to leverage these operational efficiencies in strong
markets.

Competition continues to increase as the North American life insurance market
continues to consolidate. In such an environment, achieving scale and
operational efficiencies becomes critical to maintaining a significant
presence. With the integration of Clarica substantially complete, the Companys
Canadian operations are now in a position to capitalize on the operational
efficiencies attained and re-focus on product development and customer service
to achieve long-term growth.

In response to the increasingly competitive U.S. life insurance environment,
the Company undertook several strategic measures in 2003 in order to be
positioned to compete more effectively in the future. First, MFS and SLF U.S.
integrated their annuity distribution platforms to form a common distribution
company, MFS/Sun Life Financial Distributors, Inc. (MFSLF). Going forward, the
creation of this shared distribution company is expected to enable both
entities to improve sales growth and achieve economies of scale. Second, SLF
U.S. has started the process of combining the customer service, administrative
and other support functions into a single service centre supporting all its
business units. This initiative is expected to achieve significant cost savings
and improve operational efficiency. In addition, the Company believes it has
sufficient access to capital to pursue acquisitions that will complement and
add scale in its target market segments.

In November 2003, the SEC and Morgan Stanley DW, Inc. (Morgan Stanley) settled
an enforcement action against Morgan Stanley relating to the receipt of fees
from certain mutual fund companies in return for preferred marketing of their
funds. MFS was one of the 14 fund companies reported to be on Morgan Stanleys
preferred list. As a result, MFS has been under investigation by the SEC
relating to its directed brokerage and revenue-sharing arrangements with
various distributors of its products, including Morgan Stanley. MFS is
cooperating with the SECs investigation, which is ongoing. In addition,
certain of
the Companys subsidiaries have received requests for information from the SEC
and other regulators in connection with enquiries into directed brokerage and
revenue-sharing arrangements and are responding to these requests.

As part of an industry-wide investigation of variable insurance product
sponsors, certain subsidiaries of the Company received requests from the SEC
for information regarding practices with respect to subaccount market timing,
practices with respect to receiving and processing exchange orders from
contract owners, and oversight of such activities in separate accounts. The
Company has responded to the SECs request.

The outcome of these investigations is not yet determinable and may result in
sanctions, compensation payments or other financial penalties.

For additional information about this and related matters, please see page 2 of
the Companys 2003 AIF and Risk Factors 
Investigations into U.S. Investment Industry on page 22 of the 2003 AIF.

Since the Company conducts business in multiple geographic locations outside
Canada, its earnings are impacted by the fluctuations of foreign currencies, in
particular the U.S. dollar, against the Canadian dollar. With the acquisition
and integration of Clarica into its operations, the proportion of the Companys
earnings subject to such fluctuations has decreased.

The Company is also subject to changes in statutes, regulations and regulatory
policies in the jurisdictions in which the Company operates. Such changes could
impact the Companys profitability or its competitive position in its target
markets.

In spite of the factors outlined above that impact the Companys earnings,
management believes the Companys long-term growth momentum remains strong. In
particular, the Company believes its balanced business model sufficiently
diversifies the Companys operations geographically and between the wealth
management and protection businesses to achieve stable long-term growth into
the future.

|Sun Life Financial Inc. | 9
|----------------------- | -

---



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Consolidated Results of Operations

Shareholders Net Income

For the year ended December 31, 2003, shareholders net income was $1.3
billion, representing an increase of 31 per cent over $998 million for 2002.
Earnings per share increased to $2.15 from $1.84 in 2002. The appreciation of
the Canadian dollar against foreign currencies in the year reduced net income
by $53 million.

Operating earnings1, which exclude special items outlined on page 13, increased
by 21 per cent to $1.5 billion in 2003 from $1.3 billion in 2002. Operating
earnings per share were $2.50, up eight per cent from $2.32 in 2002. The
strong operating earnings performance reflected the Companys continuing
success in growing its core businesses and diversifying its earnings stream.
The appreciation of the Canadian dollar against foreign currencies in the year
reduced operating earnings by $78 million.

Earnings and Earnings Per Share

($ millions)
    
    2003
    
    2002
    
    2001Net Income fromContinuing Operations
    
    
    1,308
    
    
    
    1,033
    
    
    
    881Less: Loss fromDiscontinued Operations
    
    
    
    
    
    
    36
    
    
    
    Total Net Income
    
    
    1,308
    
    
    
    997
    
    
    
    881Less: Participating
Policyholders Net Income
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Shareholders Net Income
    
    
    1,309
    
    
    
    998
    
    
    
    882Less: Special Items
    
    
    (211
    )
    
    
    (262
    )
    
    
    10Operating Earnings
    
    
    1,520
    
    
    
    1,260
    
    
    
    872Basic Earnings Per Share from: Continuing Operations
    
    
    2.15
    
    
    
    1.91
    
    
    
    2.08 Shareholders Net Income
    
    
    2.15
    
    
    
    1.84
    
    
    
    2.08 Operating Earnings
    
    
    2.50
    
    
    
    2.32
    
    
    
    2.06Diluted Earnings Per Share from: Continuing Operations
    
    
    2.15
    
    
    
    1.90
    
    
    
    2.07 Shareholders Net Income
    
    
    2.15
    
    
    
    1.83
    
    
    
    2.07 Operating Earnings
    
    
    2.50
    
    
    
    2.32
    
    
    
    2.06


Earnings from continuing operations for 2003 were $1.3 billion, compared to
$1.0 billion for 2002. Earnings from continuing operations for 2002 exclude a
$36 million loss from the discontinued operations of Clarica U.S.

The Clarica acquisition added 26 cents to the Companys earnings per share in
2003, exceeding the financial target set at the time of the acquisition of 20
cents. This compared to the 6 cents accretion for the seven months after
acquisition in May 2002.

During 2003, the Companys operations in protection continued to perform well
and again demonstrated their underlying strength in generating stable earnings
in challenging times. The Companys protection earnings were $747 million for
the year, up $144 million or 24 per cent relative to $603 million, which
excluded an after-tax charge of $150 million for the run-off block of
reinsurance, in 2002. This strong earnings performance reflected the full year
impact of Clarica, the realization of synergy benefits from the integration of
Clarica, and favourable claims experience.

The Companys reported earnings in wealth management were $521 million. The
reported earnings included an after-tax charge of $211 million in connection with the SEC and New Hampshire settlements related to frequent trading in certain MFS mutual funds. Adjusting for
this item, the Companys operating earnings in wealth management were $732
million, up $64 million, or 10 per cent, compared to $668 million in 2002. The
rebound in the equity markets in the latter half of the year in conjunction
with cost containment measures helped mitigate the earnings pressures from
declining interest rates and the impact of the strengthening of the Canadian
currency relative to the U.S. dollar. The equity-sensitive segment of the
Companys operations earned $227 million in 2003 before the aforementioned
charge related to MFS, compared to $231 million in 2002. The decrease was
primarily due to lower fee income on lower average assets under management from
the variable annuities business in the U.S. and reduced contribution from MFS
because of the weaker U.S. dollar. These
unfavourable factors were partially offset by the full year impact of Clarica.



---

|1 |  | Operating earnings and other financial information based on operating
earnings, such as operating earnings per share and operating return on equity,
are non-GAAP measures and have no standardized definitions under GAAP. They are
presented to facilitate the comparison of quarterly and full-year data and may
not be comparable to similar measures presented by other issuers. Financial
results not specifically referred to as operating have been determined in
accordance with GAAP.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Sun Life Financial Inc. | 10
|----------------------- | --

---



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Corporate and Other, which includes results not directly attributable to the
Companys underlying wealth management and protection operations, earned $41
million for the year, compared to a loss of $123 million in 2002. The
favourable change relative to 2002 was largely due to the impact of the
restructuring and other related charges arising from the Clarica acquisition in
2002.

Shareholders Net Income*/** by
Principal Product Category
($ millions)

(SHAREHOLDER'S NET INCOME)

Return on Equity

In 2003, return on shareholders equity (ROE) based on operating earnings was
10.6 per cent compared to the 2002 level of 10.7 per cent. Return on
shareholders equity based on shareholders net income was 9.2 per cent,
compared to 8.5 per cent for 2002. The increase in return on equity, based on
reported earnings in 2003, reflected higher earnings as well as the impact of
the Companys share repurchases on average equity levels.

Assets Under Management

The Companys assets under management (AUM) comprise general funds, segregated
funds and other assets under management which include mutual and managed funds.
Managed funds represent institutional and other third-party assets that are
managed by the Company. Total assets under management were $359.0 billion as at
December 31, 2003, down $1.6 billion, compared to $360.6 billion as at December
31, 2002.

The Companys general fund assets decreased to $109.2 billion, down $14.2
billion, or 11.5 per cent,
from the 2002 level. The decrease was primarily due to strengthening of the
Canadian dollar against foreign currencies which reduced asset values by $11.7
billion, and a reduction from the sale of Clarica U.S. which had assets of $5.3
billion as at December 31, 2002.

The Companys segregated fund assets increased to $54.1 billion as at December
31, 2003, up $1.3 billion or three per cent, relative to $52.8 billion as at
December 31, 2002. Increases in asset values of $7.1 billion due to market
improvements were partially offset by an unfavourable impact of $5.5 billion
due to the strengthening of the Canadian dollar and net outflows of $264
million.

The Companys other assets under management, excluding the Companys share of
CIs assets, increased to $195.7 billion, up $11.3 billion from the December
31, 2002 level. The impact of the strengthening Canadian currency against the
U.S. dollar was more than offset by net inflows of $9.9 billion and an increase
of $33.5 billion resulting from market value improvements.

Assets Under Management
($ billions)

(ASSET UNDER MANAGEMENT)

Revenue

In 2003, the Companys total revenue decreased to $22.1 billion, down $1.0
billion or five per cent from $23.1 billion in 2002. The strong increase in
life insurance premiums and higher investment income were more than offset by
lower sales of U.S. annuities, lower U.K. revenues and the unfavourable impact
of a stronger Canadian currency.

Life insurance premiums grew by $922 million or 17 per cent in 2003, primarily
reflecting the full year impact of the Clarica acquisition, and increased sales
of universal life products by the U.S. operations, partially offset by the
impact of the strengthening of the Canadian currency. Health insurance premiums
increased by $343 million, or 17 per cent, primarily due to the additional
contribution from Clarica.

|Sun Life Financial Inc. | 11
|----------------------- | --

---



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Annuity premiums decreased by $2.6 billion. The decrease was primarily due to
lower sales of U.S. annuities and the currency impact of a weakening U.S.
dollar. Fixed annuity sales declined as minimum guaranteed interest rates and
commission rates were reduced to counter the effects of spread compression. The
lower fixed annuity sales were partially offset by a 58 per cent increase in
equity indexed annuity sales on a U.S. dollar basis.

Investment income increased by $572 million, or 11 per cent, in 2003. The
increase was primarily due to lower asset provisions, net gains on derivatives
and the full year impact of Clarica, partially offset by the impact of the
strengthening of the Canadian dollar. Investment income in 2002 included a gain
of $173 million on the sale of Spectrum Investment Management Limited
(Spectrum).

Fee income declined by $285 million or nine per cent. The decrease reflected an
unfavourable impact of $274
million due to the strengthening of the Canadian currency versus the U.S.
dollar.

Total Revenue

($ millions)
    
    2003
    
    2002
    
    2001PremiumsAnnuities
    
    
    4,805
    
    
    
    7,402
    
    
    
    4,196Life Insurance
    
    
    6,325
    
    
    
    5,403
    
    
    
    3,759Health Insurance
    
    
    2,413
    
    
    
    2,070
    
    
    
    1,482Total Premium
    
    
    13,543
    
    
    
    14,875
    
    
    
    9,437Net Investment Income
    
    
    5,703
    
    
    
    5,131
    
    
    
    4,162Fee Income
    
    
    2,810
    
    
    
    3,095
    
    
    
    3,216Total
    
    
    22,056
    
    
    
    23,101
    
    
    
    16,815


Benefit Payments

The Company has a variety of current and future benefit payment obligations
that impact overall earnings performance. Payments to policyholders,
beneficiaries and depositors were $12.8 billion, up $1.1 billion or 10 per cent
from 2002, primarily due to the acquisition of Clarica in May 2002. Transfers
to segregated funds decreased by 59 per cent in 2003, reflecting reduced demand
for equity market-based products in the first half of the year. The increase
in actuarial liabilities was $2.2 billion lower than the 2002 level of $3.8
billion, reflecting the impact of lower fixed annuity sales and higher
surrenders.

Benefit Payments

($ millions)
    
    2003
    
    2002
    
    2001Payments to Policyholders,
Beneficiaries and Depositors
    
    
    12,812
    
    
    
    11,688
    
    
    
    6,880Net Transfer to Segregated Funds
    
    
    544
    
    
    
    1,329
    
    
    
    2,606Increase in Actuarial Liabilities
    
    
    1,624
    
    
    
    3,822
    
    
    
    1,697Total
    
    
    14,980
    
    
    
    16,839
    
    
    
    11,183


Expenses and Other

Commission expenses decreased to $1.8 billion in 2003, down $61 million from
the 2002 level. The decrease reflected lower annuity sales and the impact of a
weaker U.S. dollar, partially offset by increased commissions from higher sales
of life and health insurance products due to the full year impact of Clarica.

Excluding a pre-tax regulatory-related charge of $320
million related to MFS, operating expenses were $2.8 billion, down $11 million
from 2002. Increases due to the full year impact of Clarica were more than
offset by the favourable impact of a strengthening Canadian dollar, synergy
savings related to the Clarica integration, operational efficiencies, and
reduced transformation costs in SLF U.K.

Interest expenses increased by $17 million to $209 million in 2003. The
increase reflected the full year impact of the interest expenses associated
with Claricas $700 million subordinated debt and the $800 million of new
subordinated debentures issued in mid-2002, partially offset by the impact of
the September 2003 redemption of $165 million of subordinated notes.

Expenses and Other

($ millions)
    
    2003
    
    2002
    
    2001Commissions
    
    
    1,848
    
    
    
    1,909
    
    
    
    1,600Operating Expenses
    
    
    2,768
    
    
    
    2,779
    
    
    
    2,496Regulatory Settlement
Provisions related to MFS
    
    
    320
    
    
    
    
    
    
    
    Premium Taxes
    
    
    171
    
    
    
    168
    
    
    
    113Interest Expenses
    
    
    209
    
    
    
    192
    
    
    
    168Income Taxes
    
    
    387
    
    
    
    98
    
    
    
    306Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    65
    
    
    
    83
    
    
    
    68Loss from Discontinued
Operations, Net of Taxes
    
    
    
    
    
    
    36
    
    
    
    Participating Policyholders
Net Income (Loss)
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Total
    
    
    5,767
    
    
    
    5,264
    
    
    
    4,750


|Sun Life Financial Inc. | 12
|----------------------- | --

---



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Income taxes were $387 million in 2003, compared to $98 million in 2002. The
Companys consolidated effective income tax rate for 2003 was 22 per cent,
compared to eight per cent for 2002. The effective tax rate in 2002 reflected
the impact of favourable tax settlements resulting from the completion of prior
year tax reviews and the recognition and utilization of capital losses.
Excluding these events, the Companys 2002 effective tax rate would have been
approximately 28 per cent. In 2003, excluding similar adjustments and the
impact of statutory rate increases on future income taxes, the Companys
effective tax rate would have been 24 per cent.

Special Items Affecting Net Income

The Company undertakes strategic and operational activities to grow and
strengthen its business platform
on an ongoing basis. These activities can result in special gains or losses
that are not directly related to its operations and usually are not recurring.
The Company generally measures its financial performance based on its operating
earnings, which exclude the impact of these special items. Such measurement
facilitates the annual and quarterly comparison of the Companys underlying
financial results on a consolidated basis.

In late 2003 regulatory investigations were launched, on an industry wide
basis, in the U.S. mutual fund industry regarding market timing and late
trading of mutual funds. On February 5, 2004, MFS reached a settlement with
certain regulators regarding these issues. The Company recorded a $211 million
after-tax charge in the fourth quarter in connection with the SEC and New
Hampshire settlements.

In 2002, the sale of Spectrum to CI resulted in an after-tax gain of $173 million, which was partially offset
by the net loss of $48 million on the disposition of Clarica U.S. The special items in 2002 also included after-tax
restructuring and other charges of $217 million in connection with the acquisition of Clarica, an after-tax charge
of $150 million related to guaranteed minimum income benefits and non Unicover-related accident and
health risks in the Companys run-off reinsurance business, and other special items which had a net
unfavourable impact of $20 million on net income. As a result of these special items, the Companys net
income was reduced by $262 million in 2002.

Special Items

($ millions)
    
    2003
    
    2002
    
    2001Q4
    
    Q3
    
    Q2
    
    Q1
    
    Total
    
    Q4
    
    Q3
    
    Q2
    
    Q1
    
    Total
    
    TotalReported Earnings(Canadian GAAP based)
    
    
    206
    
    
    
    394
    
    
    
    366
    
    
    
    343
    
    
    
    1,309
    
    
    
    310
    
    
    
    361
    
    
    
    71
    
    
    
    256
    
    
    
    998
    
    
    
    882After-Tax Gains (Losses) on Special ItemsRegulatory Settlement Provisions related to MFS
    
    
    (211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211
    )Net Gain on Sale of Spectrum
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    173Net Loss on Sale of Clarica U.S.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )SLF Canada Restructuring and Other Charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )
    
    
    
    
    
    
    (217
    )Charge to the Run-off Block of Reinsurance Business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    (150
    )Net Gains on Sales of U.K. Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125U.K. Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88
    )Subordinated Debt
Redemption Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (12
    )
    
    
    (5
    )
    
    
    
    
    
    
    (20
    )
    
    
    3Total Special Items
    
    
    (211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211
    )
    
    
    (51
    )
    
    
    11
    
    
    
    (222
    )
    
    
    
    
    
    
    (262
    )
    
    
    10Operating Earnings
    
    
    417
    
    
    
    394
    
    
    
    366
    
    
    
    343
    
    
    
    1,520
    
    
    
    361
    
    
    
    350
    
    
    
    293
    
    
    
    256
    
    
    
    1,260
    
    
    
    872


The earnings impact of the special items described above on a per share basis is summarized in the following table.

Impact of Special Items on Earnings Per Share

($ per share)
    
    2003
    
    2002
    
    2001EPS  Reported
    
    
    2.15
    
    
    
    1.84
    
    
    
    2.08(Canadian GAAP based)Net Gains (Losses) on Special Items
    
    
    (0.35
    )
    
    
    (0.48
    )
    
    
    0.02EPS  Operating
    
    
    2.50
    
    
    
    2.32
    
    
    
    2.06


|Sun Life Financial Inc. | 13
|----------------------- | --

---





---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial Canada

Business Profile

SLF Canada has a leadership position in the Canadian market with a customer
base exceeding seven million people, representing almost a quarter of Canadas
population. Through its five operating units, consisting of Retail Insurance,
Retail and Other Wealth Management, Group Benefits, Group Retirement Services
and Reinsurance, SLF Canada offers a full range of protection and wealth
management products and services.

Competitive Position1

A significant player in most Canadian markets of strategic relevance with over
seven million customers in Canada and the largest exclusive sales force, the
Independent Career Advisor (ICA) channel, consisting of 4,135 independent
sales advisors, managers and product specialists.



| |  | 1st in defined contribution plans based on assets under administration
|- |  | ----------------------------------------------------------------------

| |  | 1st in critical illness and long-term care based on annualized premiums
|- |  | -----------------------------------------------------------------------

| |  | 2nd in group benefits based on annualized premiums and premium equivalents
|- |  | --------------------------------------------------------------------------

| |  | 3rd in individual annuities based on premiums and deposits
|- |  | ----------------------------------------------------------

| |  | 3rd in individual life based on annualized premiums
|- |  | ---------------------------------------------------

The Company has a strategic interest (34 per cent) in CI, which is the 2nd
largest Canadian fund manager based on long-term assets under
management2.

Strategy



| | 4 |  | Solidify leadership position in its core businesses with focus on
scale and operating capabilities
| | - |  | --------------------------------------------------------------------------------------------------

| | 4 |  | Aggressively grow the retail business by leveraging industry leading
brands and distribution network
| | - |  | ----------------------------------------------------------------------------------------------------

| | 4 |  | Grow the business through leveraging the ability to provide
integrated service to group life and health and group retirement
services clients
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| | 4 |  | Be a high performance and customer-focused organization
| | - |  | -------------------------------------------------------

2003 Highlights  
    
    Shareholders net income increased to $829 million, up 62 per cent over 2002 
    
    Successful integration of Clarica with run rate synergy savings target achieved 
    
    Established common platforms for business growth across all business units 
    
    Named as one of the top 100 employers in Canada by The Globe and Mailfor second consecutive year


Priorities for 2004  
    
    Grow the retail business with increased advisor productivity and expand offering of innovative, new products 
    
    Increase customer and advisor satisfaction and loyalty 
    
    Leverage synergy savings achieved through integration and pursue further
benefits through continuous improvement


Integrated Platform for Growth

With the integration of Clarica substantially complete, SLF Canada offers the
domestic market competitive products and delivery systems through two strong brands. The Sun Life
Financial brand is used in group retirement services, group benefits and
selected retail products and distribution channels. The Clarica brand is used
to serve the individual retail market through the ICA channel.

Consolidated Financial Results

In spite of the challenges of integration and the increasingly competitive life
insurance industry, earnings from SLF Canada increased to $829 million, up $316
million or 62 per cent relative to $513 million



---

|1 |  | Competitive statistics are based on published information at and for the year
ended December 31, 2003 or the information available for the latest period
before December 31, 2003 and do not include the impact of mergers and
acquisitions closing after December 31, 2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|2 |  | Long-term assets under management include mutual, segregated, labour-sponsored
and other funds and pools and exclude money market funds.                                                                                                                                    

|Sun Life Financial Inc. | 14
|----------------------- | --

---



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

in 2002. The increase was primarily due to the full year impact of Clarica,
the synergies arising from the integration of Clarica, favourable mortality and
morbidity experience in group insurance and the impact of improved equity
markets on Retail and Other Wealth Management.

Revenue for the year was $8.6 billion, up about $2.1 billion or 32 per cent,
compared to $6.6 billion in 2002. The increase reflected the revenue
contribution from Clarica for the full year in 2003 versus the seven months
after its acquisition in 2002.

ROE increased to 11.9 per cent from the 2002 level of 11.3 per cent, primarily
due to increased earnings.

Total assets under management increased to $100.2 billion as at December 31,
2003, up $11.0 billion from $89.2 billion as at December 31, 2002. The asset
growth reflected improved equity markets and higher net sales in SLF Canadas
segregated and managed funds.

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Premiums
    
    
    5,605
    
    
    
    4,145
    
    
    
    2,236Net Investment Income
    
    
    2,546
    
    
    
    1,974
    
    
    
    1,267Fee Income
    
    
    485
    
    
    
    444
    
    
    
    352Total Revenue
    
    
    8,636
    
    
    
    6,563
    
    
    
    3,855Client Disbursements & Change
in Actuarial Liabilities
    
    
    5,891
    
    
    
    4,625
    
    
    
    2,800Commissions & Other Expenses
    
    
    1,566
    
    
    
    1,219
    
    
    
    724Income Taxes
    
    
    342
    
    
    
    191
    
    
    
    106Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    11
    
    
    
    14
    
    
    
    18Par Policyholders Income (Loss)
    
    
    (3
    )
    
    
    1
    
    
    
    (5
    )Shareholders Net Income
    
    
    829
    
    
    
    513
    
    
    
    212Selected Financial InformationReturn on Equity
    
    
    11.9
    %
    
    
    11.3
    %
    
    
    16.5
    %Total AUM (billions)
    
    
    100.2
    
    
    
    89.2
    
    
    
    52.5Capital Employed
    
    
    8,925
    
    
    
    8,600
    
    
    
    1,637Goodwill
    
    
    3,765
    
    
    
    3,764
    
    
    
    66


|Sun Life Financial Inc. | 15
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial Canada  Retail Insurance

Business Profile

The Companys Canadian Retail Insurance business unit offers a full range of
life and health insurance products tailored to the needs of individual
customers. Its principal products include universal life, term life,
permanent life, critical illness, long-term care and personal health
insurance. These products are marketed through a distinctive, multi-channel
distribution model consisting of the Clarica branded exclusive sales force
with 4,135 independent sales advisors, managers and product specialists, and
a partnership-based wholesale channel.

The Company is a leading provider of retail life and health insurance in
Canada based on premium income. With its significant scale, extensive
distribution network, strong brand recognition and efficient operating
structure, management believes that the Company is well positioned to compete
effectively in a highly competitive and mature market.

Retail Insurance is a cornerstone of the Companys business platform in
Canada. It provides distribution capabilities and financial resources to
facilitate the Companys overall growth in the Canadian market.

2003 Highlights  
    
    Strong earnings of $246 million, up $106 million or 76 per cent from 2002 
    
    Insurance sales increased to $141 million, up 22 per cent from 2002 
    
    Conversion of over 560,000 retail policies to a common systems platform


Retail Insurance completed the necessary work in 2003 to have Clarica and Sun
Life Financial branded product families administered on common systems
platforms. The integrated systems are expected to provide ongoing operational
efficiencies and profitable returns in the future. With integration largely
behind the business unit, the focus will be on product development, business
excellence and customer and advisor service.

Financial Results

Earnings increased to $246 million, up 76 per cent from $140 million in 2002.
The increase in earnings was largely due to synergy savings from the Clarica
acquisition and having a full year of the business acquired compared to seven
months in 2002. Revenue for the year grew to $2.7 billion, up 43 per cent from
2002. The increase in revenue was primarily due to the full year impact of
Clarica.

Sales of individual life and health products for the year were $141 million, up
22 per cent from 2002 primarily as a result of the full year impact of the
Clarica acquisition. The sales of Clarica branded individual health products
continued to be strong in 2003, with annualized premiums increasing 127 per
cent over 2002. Sales in the wholesale channel were down as a result of
integration challenges and channel rationalization. With the completion of
integration, the focus will return to product development and profitable growth
of the business.

The increased scale and synergy savings from the Clarica acquisition continued
to improve operating margins and reduce unit costs.

Summary Statement of Operations

($ millions)
    
    2003
    
    2002
    
    2001Premiums
    
    
    1,860
    
    
    
    1,297
    
    
    
    580Net Investment Income
    
    
    876
    
    
    
    620
    
    
    
    388Fee Income
    
    
    7
    
    
    
    7
    
    
    
    3Total Revenue
    
    
    2,743
    
    
    
    1,924
    
    
    
    971Client Disbursements & Change
in Actuarial Liabilities
    
    
    1,741
    
    
    
    1,289
    
    
    
    750Commissions & Other Expenses
    
    
    617
    
    
    
    443
    
    
    
    194Income Taxes
    
    
    142
    
    
    
    51
    
    
    
    (7
    )Par Policyholders Income (Loss)
    
    
    (3
    )
    
    
    1
    
    
    
    (5
    )Shareholders Net Income
    
    
    246
    
    
    
    140
    
    
    
    39Sales  New Annualized Premiums
    
    
    141
    
    
    
    116
    
    
    
    61


|Sun Life Financial Inc. | 16
|----------------------- | --

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---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial Canada  Retail and Other Wealth Management

Business Profile

The Companys Canadian Retail and Other Wealth Management business unit
includes the Companys individual annuity business, its 56 per cent owned
subsidiary McLean Budden Limited (McLean Budden) and its 34 per cent owned
strategic partner CI. McLean Budden is one of the premier providers of
investment management services in Canada with assets under management of
$29.3 billion as at December 31, 2003. CI is the
2nd largest fund company in Canada, based on long-term assets under
management1 of $39.5
billion as at December 31, 2003.

Retail and Other Wealth Management provides a strong platform for the Company
to grow its retail wealth management business in Canada. CI, which is a
cornerstone of this growth platform, has an outstanding track record in
investment management and offers a broad selection of investment funds. CIs
competitive advantages also include its superior operating capabilities,
highly efficient back office operations and its preferred access to the
Companys strong retail distribution network.

2003 Highlights  
    
    Achieved earnings of $188 million, up 94 per cent from 2002 
    
    Invested $266 million in CI to support CIs acquisition of Assante and
Synergy and to maintain its equity investment at 34 per cent


Financial Results

Earnings from Retail and Other Wealth Management increased to $188 million, up
$91 million or 94 per cent, compared to 2002. The increase resulted from the
full year impact of Clarica, improved investment spreads, stronger stock market
performance in the latter half of the year, and improved pricing for segregated
fund guarantees.

Revenue for the year grew to $1.6 billion, up $358 million or 28 per cent. The
revenue growth resulted primarily from the full year impact of Clarica
partially offset by a reduction in fee income as a result of the sale of
Spectrum in 2002.

Total assets under management, which exclude CIs assets under management,
increased to $44.2 billion as at December 31, 2003, up $7.1 billion from 2002.
The increased assets were primarily in McLean Budden which benefited from net
positive flows from both existing and new clients.

Summary Statement of Operations

($ millions)
    
    2003
    
    2002
    
    2001Premiums
    
    
    648
    
    
    
    519
    
    
    
    227Net Investment Income
    
    
    781
    
    
    
    506
    
    
    
    300Fee Income
    
    
    193
    
    
    
    239
    
    
    
    248Total Revenue
    
    
    1,622
    
    
    
    1,264
    
    
    
    775Client Disbursements & Change
in Actuarial Liabilities
    
    
    1,139
    
    
    
    863
    
    
    
    433Commissions & Other Expenses
    
    
    239
    
    
    
    251
    
    
    
    244Income Taxes
    
    
    45
    
    
    
    44
    
    
    
    35Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    11
    
    
    
    9
    
    
    
    18Shareholders Net Income
    
    
    188
    
    
    
    97
    
    
    
    45


Retail and Other Wealth ManagementAssets Under Management
($ billions)

(Bar Chart)



---

|1 |  | Long-term assets under management include mutual, segregated, labour-sponsored
and other funds and pools and exclude money market funds.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|Sun Life Financial Inc. | 17
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial Canada  Group Benefits

Business Profile

The Companys Group Benefits business unit is a leading provider of group life
and health insurance products in Canada. The Company has approximately 21 per
cent market share in the Canadian group benefits business and services more
than 10,000 employers in Canada. The Company provides life, dental, drug,
extended health care, health spending accounts, and disability and flex
benefit plans. Its group products are custom-designed and are positioned to
fulfil the protection needs of employers of all sizes. The Company competes on
its strength of scale, product offerings and industry leading e-business
capabilities. The group benefit products are marketed and distributed across
Canada by its experienced sales representatives in co-operation with
independent brokers and benefit consultants.

2003 Highlights  
    
    Strong earnings of $233 million, up 48
per cent from 2002 
    
    Completed conversion of Clarica clients to a common systems platform 
    
    Awarded IBM Canadas group health and dental benefits business 
    
    Received ITX award for Information Technology leadership from CIO Canadamagazine


In 2003, Group Benefits focused on integration activities while leveraging its
core competencies to win new customers.

The Company capitalized on its innovative approach of providing integrated
group benefits and group retirement services. This integrated approach provides
seamless, one-stop solutions that significantly streamline the increasingly
complex administration of group plans. It allows plan members to manage their
benefit claims and retirement investments on a centralized, Internet-based
platform efficiently and effectively.

Financial Results

Group Benefits reported strong results for the year, with earnings of $233
million, an increase of 48 per cent over 2002. The increase in earnings
reflected better mortality and morbidity experience and the full year impact of
Clarica.

Revenue for the year increased by $531 million, or 24 per cent to $2.7 billion.
The growth in revenue was attributable to the addition of Clarica for the full
year. Sales, measured by annualized premiums and premium equivalents, dropped
by six per cent from 2002 to $181 million for 2003. This reflects the low sales
activity in the large case market, which generated the large premium sales.

Summary Statement of Operations

($ millions)
    
    2003
    
    2002
    
    2001Premiums
    
    
    2,244
    
    
    
    1,765
    
    
    
    1,211Net Investment Income
    
    
    383
    
    
    
    358
    
    
    
    280Fee Income
    
    
    117
    
    
    
    90
    
    
    
    53Total Revenue
    
    
    2,744
    
    
    
    2,213
    
    
    
    1,544Client Disbursements & Change in Actuarial Liabilities
    
    
    1,964
    
    
    
    1,629
    
    
    
    1,176Commissions & Other Expenses
    
    
    451
    
    
    
    345
    
    
    
    226Income Taxes
    
    
    96
    
    
    
    82
    
    
    
    61Shareholders Net Income
    
    
    233
    
    
    
    157
    
    
    
    81Sales  Annualized Premiums and ASO Premium Equivalents
    
    
    181
    
    
    
    192
    
    
    
    235


|Sun Life Financial Inc. | 18
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial Canada  Group Retirement Services

Business Profile

The Companys Group Retirement Services (GRS) business unit is the leading
provider of defined contribution plans in Canada as measured by Benefits
Canadas 2003 Defined Contribution Plan Survey. GRS also offers other group
retirement services and products, including investment only segregated funds
and fixed rate annuities, group life annuities and pensioner payroll services.
With its strength in product and investment offerings, plan sponsor and member
services and infrastructure capabilities, GRS is well equipped to meet the
complex plan and service requirements of medium to large corporations and
associations, and to provide cost effective solutions to smaller markets. The
Company had approximately a 30 per cent market share in Canada based on assets
under management, and its group products covered approximately 1.1 million
plan participants at the end of 2003. The Companys products and services are
distributed through pension consultants, and its own in-house sales force,
brokers and advisors.

GRS represents a key part of the Companys wealth management growth platform
in Canada. GRS significant scale allows it to make effective use of
technology and to price competitively without compromising operating margins.

2003 Highlights  
    
    Earnings increased to $88 million, up 54
per cent from 2002 
    
    Completed conversion of $10 billion in Clarica client assets to a
common systems platform 
    
    Ranked top supplier of defined contribution plans by Benefits Canada
magazine 
    
    First Canadian defined contribution pension plan supplier to obtain
ISO 9001:2000 quality assurance certification 
    
    Received ITX award for Information Technology leadership from CIO
Canada magazine


Financial Results

GRS continued its focus on sales, business retention and cost controls in light
of fast changing market conditions in 2003. Earnings for the year were $88
million, up $31 million or 54 per cent, primarily reflecting the full year
impact of the Clarica acquisition, improved investment spreads and increased
fee revenue.

Revenue increased by $160 million, or 18 per cent, to $1.0 billion primarily
due to the full year impact of Clarica.

GRS sales were $1.0 billion for 2003, down 14 per cent from the 2002 level.
The decrease primarily reflected market uncertainty in light of the rapid
consolidation in the defined contribution pension plan industry.

Assets under management increased to $25.8 billion from $23.3 in 2002,
primarily as a result of improving equity markets.

GRS provided services to approximately 6,800 Canadian companies as at December
31, 2003.

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Premiums
    
    
    445
    
    
    
    335
    
    
    
    218Net Investment Income
    
    
    434
    
    
    
    435
    
    
    
    275Fee Income
    
    
    152
    
    
    
    101
    
    
    
    46Total Revenue
    
    
    1,031
    
    
    
    871
    
    
    
    539Client Disbursements & Change in Actuarial Liabilities
    
    
    743
    
    
    
    668
    
    
    
    415Commissions & Other Expenses
    
    
    162
    
    
    
    115
    
    
    
    57Income Taxes
    
    
    38
    
    
    
    31
    
    
    
    29Shareholders Net Income
    
    
    88
    
    
    
    57
    
    
    
    38Selected Financial InformationAUM (billions)
    
    
    25.8
    
    
    
    23.3
    
    
    
    11.9Number of DC Plan
Participants (000s)
    
    
    1,082
    
    
    
    1,067
    
    
    
    447




Gross Sales  GRS

($ millions)


(Gross Sales - GRS Bar Chart)

|Sun Life Financial Inc. | 19
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial Canada  Reinsurance

Business Profile

The Companys Canadian Reinsurance operations provide customized reinsurance
solutions, with a primary focus on the life retrocession business in North
America. The Company is a market leader in North America with 27 per cent
market share based on life retrocession in force. The Companys leadership
position in life retrocession reflects its strong expertise in pricing and
mortality risk management as well as its high credit rating.

The Companys reinsurance business represents an important franchise and
contributes solid earnings. The Company intends to selectively pursue growth
opportunities in the core life retrocession business in North America and
Europe.

2003 Highlights  
    
    Achieved leading position in terms of new individual life retrocession business in the North American market with a 40 per
cent share 
    
    Established an Irish branch in support of the development of a European business platform


Financial Results

SLF Canadas reinsurance business was acquired as part of the Clarica
acquisition. Reinsurance reported higher earnings of $56 million for the full
year in 2003 compared to $32 million for the seven months subsequent to
acquisition in 2002. Reinsurance continued to concentrate on strengthening its
business focus and solidifying its leadership position through effective
product design and pricing, as well as expense control.

Revenue increased to $447 million in 2003, up 73 per cent from 2002, primarily
reflecting the full year impact of Clarica. Sales of in-force insurance for the
full year were $28 billion compared to $16 billion for 2002 for the seven
months following the Clarica acquisition. This increase reflected a strong
performance given the ongoing consolidation among reinsurers.

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Premiums
    
    
    408
    
    
    
    229
    
    
    
    Net Investment Income
    
    
    34
    
    
    
    26
    
    
    
    Fee Income
    
    
    5
    
    
    
    3
    
    
    
    Total Revenue
    
    
    447
    
    
    
    258
    
    
    
    Client Disbursements & Change
in Actuarial Liabilities
    
    
    304
    
    
    
    176
    
    
    
    Commissions & Other Expenses
    
    
    67
    
    
    
    40
    
    
    
    Income Taxes
    
    
    20
    
    
    
    10
    
    
    
    Shareholders Net Income
    
    
    56
    
    
    
    32
    
    
    
    Selected Financial InformationSales (in-force, billions)
    
    
    28
    
    
    
    16
    
    
    
    Business In-Force (billions)
    
    
    160
    
    
    
    183
    
    
    
    


Sun Life Financial Canada  Investment Portfolio and Other

Business Profile

The Companys Canadian Investment Portfolio and Other operations include
investment income and expenses not directly attributable to the Canadian
strategic business units.

Financial Results

For the year ended December 31, 2003, Canadian Investment Portfolio and Other
reported earnings of $18 million, compared to earnings of $30 million in 2002.
The decrease in 2003 earnings primarily reflected the fact that 2002 earnings
included one-time settlements of tax issues of $20 million that were only
partially offset by higher investment income in 2003.

Summary Statement of Operations

($ millions)
    
    2003
    
    2002
    
    2001Premiums
    
    
    
    
    
    
    
    
    
    
    Net Investment Income
    
    
    38
    
    
    
    29
    
    
    
    24Fee Income
    
    
    11
    
    
    
    4
    
    
    
    2Total Revenue
    
    
    49
    
    
    
    33
    
    
    
    26Client Disbursements & Change
in Actuarial Liabilities
    
    
    
    
    
    
    
    
    
    
    26Commissions & Other Expenses
    
    
    30
    
    
    
    25
    
    
    
    3Income Taxes
    
    
    1
    
    
    
    (27
    )
    
    
    (12
    )Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    
    
    
    
    5
    
    
    
    Shareholders Net Income
    
    
    18
    
    
    
    30
    
    
    
    9


|Sun Life Financial Inc. | 20
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial United States

Business Profile

SLF U.S. concentrates on three core businesses in the U.S.: annuities,
individual life insurance for affluent customers, and group life and
health insurance for small to medium sized companies. The Annuities
business unit offers fixed and variable annuities, and investment
management services. The Individual Life Insurance business unit offers
primarily fixed and variable universal life, and corporate-owned and
bank-owned life insurance. The Group Insurance business unit offers group
life insurance and group health insurance, which includes short and
long-term disability benefits and medical stop-loss plans.

Competitive Position1

A significant player in annuity and high-end speciality insurance
markets.



| |  | 20th in variable annuities and 16th in fixed annuities based on
annualized premiums
|- |  | -----------------------------------------------------------------------------------

| |  | 1st in third-party distribution of annuities in U.S. bank channel
based on premiums
|- |  | -----------------------------------------------------------------------------------

| |  | 2nd in universal life by average policy size
|- |  | --------------------------------------------

| |  | 3rd in medical stop-loss plans based on business in force
|- |  | ---------------------------------------------------------

Strategy



| |  | Become a top tier player in selected markets
|- |  | --------------------------------------------

| |  | Leverage product manufacturing and risk management strengths
|- |  | ------------------------------------------------------------

| |  | Focus and enhance distribution capabilities and coverage
|- |  | --------------------------------------------------------

| |  | Strengthen operational scale and efficiency
|- |  | -------------------------------------------

2003 Highlights  
    
    IFMG maintained its #1 position in the Kehrer Report for the sale of annuities, mutual funds and securities through
banks 
    
    Management actions were taken to reduce exposure to spread compression in fixed annuities 
    
    Established a centralized service centre structure to increase the efficiency of operations


Priorities for 2004  
    
    Strengthen market positions in the annuity markets 
    
    Align distribution channels and increase wholesaler coverage in desired markets 
    
    Improve cost efficiency of operations by consolidating back-office services 
    
    Enhance capital efficiency through product design


In response to a period of difficult market conditions, SLF U.S. made several
organizational and product changes to help strengthen its operations and its
ability to profitably grow the business. As a result of these changes, the
Company believes SLF U.S. is poised for more efficient and profitable growth as
the business cycle improves. Toward the end of 2003, SLF U.S. launched a plan
to create a service centre that combines information technology, customer
service and administrative functions into one unit to support its annuities,
individual insurance and group life and health businesses. This is expected to
lower unit costs while increasing efficiency and improving service. The service
centre will be fully operational in three years.

During 2003, SLF U.S. continued to take steps to optimize its use of capital
through a combination of reinsurance arrangements, streamlining of business
structures, re-balancing of the investment portfolio and the introduction of
new capital efficient products.



---

|1 |  | Competitive statistics are based on published information at and for the year
ended December 31, 2003 or the information available for the latest period
before December 31, 2003 and do not include the impact of mergers and
acquisitions closing after December 31, 2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Sun Life Financial Inc. | 21
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Consolidated Financial Results

SLF U.S. reported earnings of $303 million, down $71 million or 19 per cent
from 2002. This decrease was primarily due to the impact of spread compression
on fixed annuities and an unfavourable currency impact of $36 million due to
the weakening of the U.S. dollar partially offset by improving credit
conditions. The improvements in the equity markets at December 31, 2003 would
have allowed the Company to lower reserves held for guaranteed minimum death
benefits. However, the reserves were not released in order to provide
additional protection in the event of a decline in equity markets. Prior year
results include $12 million of income from Clarica U.S., which was sold in
January 2003. Revenue for the year was $9.7 billion, down $2.2 billion or 19
per cent from 2002. The decrease was largely driven by lower annuity sales and
an unfavourable currency impact of $1.2 billion arising from the decline of the
U.S. dollar relative to the Canadian currency. Fixed annuity sales declined as
product terms and commission levels were adjusted to offset the impact of
spread compression and to protect operating margins.

Return on shareholders equity remained at 7.3 per cent in 2003, unchanged from
2002, as the impact of the benefits from continued capital efficiency measures
offset the impact of reduced earnings.

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Premiums
    
    
    6,666
    
    
    
    9,165
    
    
    
    5,821Net Investment Income
    
    
    2,433
    
    
    
    2,069
    
    
    
    1,505Fee Income
    
    
    564
    
    
    
    643
    
    
    
    485Total Revenue
    
    
    9,663
    
    
    
    11,877
    
    
    
    7,811Client Disbursements &
Change in Actuarial Liabilities
    
    
    7,709
    
    
    
    9,838
    
    
    
    6,470Commissions & Other Expenses
    
    
    1,552
    
    
    
    1,641
    
    
    
    1,090Income Taxes
    
    
    97
    
    
    
    38
    
    
    
    25Par Policyholders Income (Loss)
    
    
    2
    
    
    
    (2
    )
    
    
    4Loss (Income) from
Discontinued Operations
    
    
    
    
    
    
    (12
    )
    
    
    Shareholders Net Income
    
    
    303
    
    
    
    374
    
    
    
    222Selected Financial InformationReturn on Equity
    
    
    7.3
    %
    
    
    7.3
    %
    
    
    11.8
    %Total AUM (billions)
    
    
    68.0
    
    
    
    83.3
    
    
    
    78.5Capital Employed
    
    
    5,058
    
    
    
    7,160
    
    
    
    6,186Goodwill
    
    
    1,607
    
    
    
    2,010
    
    
    
    1,952


|Sun Life Financial Inc. | 22
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial United States  Annuities

Business Profile

The Companys Annuities business unit is a nationwide provider of individual
annuity products in the U.S. market. The Company offers a variety of annuity
products supported by broad distribution capabilities, operating
efficiencies and investment and risk management expertise.

Annuities represents an integral part of the Companys growth platform in
the U.S.

2003 Highlights  
    
    Launched new fixed annuity products and adapted the current asset
portfolio to mitigate the risk of spread compression 
    
    Implemented organizational changes to achieve cost savings 
    
    Amalgamated Keyport into Sun Life (U.S.) to streamline operations


The U.S. annuities market continues to be challenging due to the persistently
low interest rate environment and volatile equity markets. In 2003, the Company
took actions to mitigate these environmental risks by introducing new fixed
annuity products and lowering minimum interest rate guarantees. Primarily as a
result of the measures taken to maintain profitability, fixed annuity sales
decreased by 35 per cent on a U.S. dollar basis, while market ranking in the
U.S., based on annualized premiums, dropped to # 16 from # 15 a year ago.

The Companys goal is to regain its position as a significant player in the
U.S. annuities marketplace. The Company intends to achieve this goal by adding
new product features, repricing fixed products, increasing the focus on sales
of market value adjusted annuities and containing costs. To ensure that
customer needs are adequately addressed, the Company has established a market
centre that will focus on the customer through competitive analyses and
customer research.

Financial Results

Earnings decreased to $163 million or 39 per cent from 2002. Of this decline,
$20 million was due to the impact of the strengthening of the Canadian currency
against the U.S. dollar. The balance of the decline was largely attributable to
spread compression, partially offset by lower bond provisions and lower new
business strain in the second half of 2003.

Revenue for the year decreased to $5.6 billion, down 33 per cent from 2002.
This decline was primarily due to lower annuity sales and the impact of the
weakening U.S. dollar against the Canadian currency, which resulted in a
reduction of $667 million in revenue.

Annuity sales for 2003 declined 30 per cent to $5.0 billion compared to 2002.
Variable annuity sales declined primarily as a result of the lack of a living
benefit feature for the first half of the year and distractions arising from
the reorganization of the distribution system during the formation of MFS/Sun
Life Financial Distributors Inc. (MFSLF). A living benefit feature was
launched mid-year and new product enhancements are planned for early 2004. The
formation of MFSLF, which will be expanding the number of wholesalers in 2004,
enhanced the wholesale distribution network dedicated to annuities. Fixed
annuity sales declined as a result of managements decision to protect
operating margins in a low interest rate environment. Indexed annuity sales
recovered strongly in the latter half of the year due to more favourable
product options and an expansion of the distribution channels. The
strengthening of the Canadian currency against the U.S. dollar reduced annuity
sales by $604 million.

At December 31, 2003, assets under management were $52.0 billion, down 16 per
cent from a year ago.

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Premiums
    
    
    3,503
    
    
    
    6,297
    
    
    
    3,525Net Investment Income
    
    
    1,649
    
    
    
    1,446
    
    
    
    714Fee Income
    
    
    412
    
    
    
    505
    
    
    
    433Total Revenue
    
    
    5,564
    
    
    
    8,248
    
    
    
    4,672Client Disbursements & Change
in Actuarial Liabilities
    
    
    4,693
    
    
    
    7,069
    
    
    
    4,146Commissions & Other Expenses
    
    
    645
    
    
    
    836
    
    
    
    451Income Taxes
    
    
    63
    
    
    
    74
    
    
    
    11Shareholders Net Income
    
    
    163
    
    
    
    269
    
    
    
    64Selected Financial InformationGross
Sales  Premiums and DepositsVariable Annuities
    
    
    2,750
    
    
    
    3,986
    
    
    
    4,554Fixed Annuities
    
    
    1,565
    
    
    
    2,653
    
    
    
    353Indexed Annuities
    
    
    729
    
    
    
    521
    
    
    
    82Total
    
    
    5,044
    
    
    
    7,160
    
    
    
    4,989Total AUM (billions)
    
    
    52.0
    
    
    
    62.1
    
    
    
    65.1


|Sun Life Financial Inc. | 23
|----------------------- | --

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---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Excluding the impact of a weaker U.S. dollar, AUM increased three per cent
compared to 2002 primarily due to equity market improvements.

The improvements in the equity markets at December 31, 2003 would have allowed
the Company to lower reserves held for guaranteed minimum death benefits.
However, these reserves were not released, as allowed by the Canadian actuarial
standards, in order to provide additional protection in the event of a decline
in equity markets. The decline in interest rates has increased the value to
the customer of the minimum interest rate guarantee contained in the fixed
annuities and has been provided for in the Companys fixed annuity reserves.

|Sun Life Financial Inc. | 24
|----------------------- | --

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---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial United States  Individual Life

Business Profile

The Companys U.S. Individual Life operations are positioned to attract and
service high net worth individuals in the U.S. market. Individual Life ranked
#2 in terms of policy size in universal life products in 2003. The Company
focuses on competitively priced, high-quality products including universal
life, variable universal life, bank-owned life insurance (BOLI), private
placement variable universal life, and corporate-owned life insurance (COLI)
universal life and variable universal life. The Companys core distribution
channels, consisting principally of general agents and third party
intermediaries, provide access to its target customers.

Individual Life represents a core franchise of the Companys business
platform in the U.S. This business unit competes aggressively in the high
growth estate protection and wealth transfer segments, and the COLI and BOLI
markets.

2003 Highlights  
    
    Strong growth in offshore products with sales up 63 per cent 
    
    Commenced sales of variable universal life products in the State of New York


Financial Results

Individual Life in the U.S. continued to deliver stable performance in 2003.
Earnings were $106 million compared to $118 million in 2002. Excluding the
impact of the weakening U.S. dollar against the Canadian dollar, earnings would
have been up slightly from 2002.

Revenue for the year grew to $2.9 billion, up 10 per cent, reflecting strong
sales momentum in offshore products and U.S. issued universal life products.
This increase was unfavourably affected by a weaker U.S. dollar, which caused a
reduction of $351 million in revenue.

Core product sales, were up 26 per cent over 2002 and up 43 per cent on a U.S.
dollar basis. The increase reflected the Companys efforts to grow its U.S.
issued universal life product business and offshore product business, which
experienced a sales increase of 63 per cent over 2002 on a U.S. dollar basis.
COLI and BOLI sales were down as cases were delayed due to an unfavourable
legislative proposal that was subsequently modified.

Summary Statement of Operations

($ millions)
    
    2003
    
    2002
    
    2001Premiums
    
    
    2,243
    
    
    
    1,943
    
    
    
    1,502Net Investment Income
    
    
    662
    
    
    
    701
    
    
    
    693Fee Income
    
    
    22
    
    
    
    19
    
    
    
    11Total Revenue
    
    
    2,927
    
    
    
    2,663
    
    
    
    2,206Client Disbursements & Change
in Actuarial Liabilities
    
    
    2,320
    
    
    
    2,066
    
    
    
    1,705Commissions & Other Expenses
    
    
    456
    
    
    
    435
    
    
    
    354Income Taxes
    
    
    43
    
    
    
    46
    
    
    
    37Par Policyholders Income (Loss)
    
    
    2
    
    
    
    (2
    )
    
    
    4Shareholders Net Income
    
    
    106
    
    
    
    118
    
    
    
    106Sales  New Annualized PremiumsCore Products
    
    
    240
    
    
    
    190
    
    
    
    123COLI and BOLI
    
    
    65
    
    
    
    217
    
    
    
    146Premiums and Deposits
    
    
    2,539
    
    
    
    3,404
    
    
    
    2,112




Growth in U.S. Individual Life
($ millions)

(BAR CHARTS)

|Sun Life Financial Inc. | 25
|----------------------- | --

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---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial United States  Group Life and Health

Business Profile

The Companys U.S. Group Life and Health operations provide customer-focused
products and services to meet the group benefit needs of primarily small to
medium-sized companies. Group Life and Health leverages its strong
distribution capabilities to market group life, disability and medical
stop-loss products throughout the United States. With strong underwriting
expertise and distribution capabilities, the Company is a competitive
provider of group life and disability products for 3.6 million group plan
members. The Companys group insurance products are marketed and distributed
by its sales representatives in 20 regional sales offices in the United
States. These representatives maintain close relationships with independent
brokers and consultants who deal directly with employers.

2003 Highlights  
    
    Maintained #3 position in stop-loss market based on in-force business 
    
    Maintained #13 position in group life and disability market based on sales 
    
    Achieved sales on a U.S. dollar basis up 22 per cent from prior year with double digit increases in all product lines 
    
    Continued to build distribution presence in many markets


The business unit continued to grow its group life and health business in the
U.S. in 2003 through its network of highly trained field representatives. U.S.
Group Life and Healths distribution and risk management have been key to the
performance of the group insurance business.

The Company maintained its leadership position in the stop-loss insurance
market through risk retention, disciplined underwriting practices and
innovative managed care programs.

Financial Results

Earnings were $42 million, a decrease of 14 per cent compared to 2002. The
decrease was primarily driven by the impact of the weakening U.S. dollar. On
the operational front, improved mortality and favourable stop-loss performance
were offset by increased disability claims. The operating expense-to-insurance
premium ratio in 2003 remained at 13 per cent, unchanged from 2002 as U.S.
Group Life and Health maintained expenses in line with business growth.

Revenue for the year decreased to $992 million, down $16 million or two per
cent. Excluding the impact of a weaker U.S. dollar relative to the Canadian
currency, revenue increased 10 per cent over the previous year, primarily
driven by higher sales.

Summary Statement of Operations

($ millions)
    
    2003
    
    2002
    
    2001Premiums
    
    
    920
    
    
    
    925
    
    
    
    794Net Investment Income
    
    
    69
    
    
    
    80
    
    
    
    75Fee Income
    
    
    3
    
    
    
    3
    
    
    
    2Total Revenue
    
    
    992
    
    
    
    1,008
    
    
    
    871Client Disbursements & Change
in Actuarial Liabilities
    
    
    696
    
    
    
    699
    
    
    
    616Commissions & Other Expenses
    
    
    237
    
    
    
    241
    
    
    
    200Income Taxes
    
    
    17
    
    
    
    19
    
    
    
    14Shareholders Net Income
    
    
    42
    
    
    
    49
    
    
    
    41




Growth in U.S. Group Life and Health
($ millions)

(BAR CHARTS)

|Sun Life Financial Inc. | 26
|----------------------- | --

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---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial United States  Investment Portfolio and Other

Business Profile

The Companys U.S. Investment Portfolio and Other operations include investment
income and expenses not directly attributable to the U.S. core business units
and the Companys distribution subsidiaries, Independent Financial Marketing
Group, Inc. (IFMG) and MFS/Sun Life Financial Distributors, Inc. (MFSLF). In
the U.S., IFMG is a leading distributor of insurance and investment products to
retail customers through banks.

2003 Highlights  
    
    IFMG retained the #1 ranking in sales of third-party annuities through the bank distribution channel 
    
    Total sales by IFMG remained at 2002 level in highly unfavourable market conditions 
    
    IFMG signed contract extensions to 2005 and beyond with its three largest banks 
    
    Formed integrated company, MFSLF, to gain operational efficiencies and broader
market penetration


Financial Results

For the year ended December 31, 2003, U.S. Investment Portfolio and Other had a
loss of $8 million, compared to a loss of $62 million in 2002. The favourable
change of $54 million was primarily attributable to significant bond provisions
of $57 million after-tax taken in 2002 primarily related to the U.S.
telecommunication, airline and energy sectors, compared to provisions of $3
million in 2003.

IFMG had sales through its distribution channels of $10.2 billion in 2003
despite a low interest rate environment, reflecting its continued expansion
through the hiring of experienced sales representatives and the addition of key
bank relationships.

The MFSLF integrated distribution company was launched in 2003 and had sales of
$2.4 billion for the year. MFSLF will continue to focus on building a cohesive
sales force network and developing its customer solution approach to product
sales.

Summary Statement of Operations

($ millions)
    
    2003
    
    2002
    
    2001Premiums
    
    
    
    
    
    
    
    
    
    
    Net Investment Income
    
    
    53
    
    
    
    (158
    )
    
    
    23Fee Income
    
    
    127
    
    
    
    116
    
    
    
    39Total Revenue
    
    
    180
    
    
    
    (42
    )
    
    
    62Client Disbursements & Change
in Actuarial Liabilities
    
    
    
    
    
    
    4
    
    
    
    3Commissions & Other Expenses
    
    
    214
    
    
    
    129
    
    
    
    85Income Taxes
    
    
    (26
    )
    
    
    (101
    )
    
    
    (37
    )Loss (Income) from
Discontinued Operations
    
    
    
    
    
    
    (12
    )
    
    
    Shareholders Net Income (Loss)
    
    
    (8
    )
    
    
    (62
    )
    
    
    11


|Sun Life Financial Inc. | 27
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

MFS Investment Management

Business Profile

MFS is a significant U.S.-based asset management company, offering investment
products and services in the U.S. and in other global markets to both retail
and institutional investors. MFS offers mutual funds and manages variable
annuities, retirement plans and other institutional separate accounts. It also
provides distribution and transfer agent services for mutual funds and
retirement plans. As at December 31, 2003, the Companys equity interest in
MFS was 93.2 per cent. The remaining 6.8 per cent was owned by MFS employees.

Competitive Position1



| |  | A premier global manager with total assets under management of $182.0 billion as at December 31, 2003
|- |  | -----------------------------------------------------------------------------------------------------

| |  | 11th largest retail mutual fund company based on long-term assets under management2 of $98 billion
|- |  | --------------------------------------------------------------------------------------------------

| |  | 6th largest manager of variable annuities based on assets under management of
$31 billion
|- |  | -----------------------------------------------------------------------------------------

Strategy



| |  | Leverage superior long-term investment performance built on the strength of investment research
|- |  | -----------------------------------------------------------------------------------------------

| |  | Broaden business platform to include added focus on institutional and international products
|- |  | --------------------------------------------------------------------------------------------

| |  | Solidify position in the wholesale distribution channel with superior products, quality service and value-added sales
support
|- |  | -----------------------------------------------------------------------------------------------------------------------------

| |  | Capitalize on efficient operating infrastructure
|- |  | ------------------------------------------------

2003 Highlights  
    
    Net sales of institutional products increased by 16 per cent on a U.S. dollar basis 
    
    Obtained substantial operational efficiencies from cost reduction efforts


Priorities for 2004  
    
    Continue expanding global distribution 
    
    Increase U.S. retail market share 
    
    Exceed investment performance benchmarks with at least 75 per cent of assets across all asset categories 
    
    Address issues arising from U.S. regulatory investigations into the investment
management industry


Financial Results

Equity markets saw a general upward trend during the latter half of 2003. While
the overall average of the S&P 500 was 965 for 2003 compared to 994 for 2002,
the average for the fourth quarter of 2003 was 1,056, an increase of 19 per
cent over fourth quarter 2002 average of 886. Primarily as a result of the
improving equity markets in the latter half of the year, AUM increased by
24 per cent on a U.S. dollar basis. For 2003, MFS had a loss of $43 million,
compared to earnings of $174 million for 2002. Excluding an after-tax charge
of $211

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Net Investment Income
    
    
    (9
    )
    
    
    9
    
    
    
    16Fee Income
    
    
    1,693
    
    
    
    1,970
    
    
    
    2,257Total Revenue
    
    
    1,684
    
    
    
    1,979
    
    
    
    2,273Commissions & Other
Expenses
    
    
    1,727
    
    
    
    1,673
    
    
    
    1,856Income Taxes
    
    
    5
    
    
    
    109
    
    
    
    144Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    (5
    )
    
    
    23
    
    
    
    42Shareholders Net Income
(Loss)  Reported
    
    
    (43
    )
    
    
    174
    
    
    
    231Less Regulatory Settlement
Provisions
    
    
    (211
    )
    
    
    
    
    
    
    Shareholders
Net Income  Operating
    
    
    168
    
    
    
    174
    
    
    
    231Selected Financial InformationSales (billions)Gross
    
    
    47.9
    
    
    
    56.3
    
    
    
    67.3Net
    
    
    6.0
    
    
    
    5.1
    
    
    
    26.4Total AUM (billions)
    
    
    182.0
    
    
    
    179.4
    
    
    
    220.2Average Net Assets (billions)
    
    
    174.7
    
    
    
    192.8
    
    
    
    214.7Capital Employed
    
    
    235
    
    
    
    474
    
    
    
    599




---

| |  | 1 Competitive statistics are based on published information at and for the year
ended December 31, 2003 or the information available for the latest period
before December 31, 2003 and do not include the impact of mergers and
acquisitions closing after December 31, 2003.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2 Long-term open-end
mutual funds, excluding closed-end and money market funds.                                                                                                                                                                                               

|Sun Life Financial Inc. | 28
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

million for the cost of the regulatory settlements related to
frequent trading, and an unfavourable currency impact of $20 million, operating earnings1 in 2003
would have increased by eight per cent compared to 2002. This solid earnings
performance reflected MFS expense management and diversification of
its product platform.

Fee income was down $277 million, or 14 per cent primarily due to the weakening
of the U.S. dollar against the Canadian currency.

MFS reduced operating
expenses, excluding the aforementioned charge, to $810 million from $938
million in 2002. Correspondingly, operating expense-to-average net asset ratio
decreased to 46 basis points from 49 basis points in 2002.

On the sales front, MFS reported gross sales of $47.9 billion in 2003, down
five per cent from 2002 on a U.S. dollar basis. Growth in institutional and
non-U.S. retail sales partially offset declines in U.S. mutual funds and
variable annuities. On a net basis, MFS recorded positive sales of $6.0 billion
compared to $5.1 billion in 2002. Excluding currency impact, net sales
increased by 31 per cent over 2002.

During 2003, MFS continued to diversify its product portfolio and broaden its
presence in institutional markets. At the end of 2003, institutional and
international products represented 35 per cent of total assets under
management, compared to 29 per cent as at December 31, 2002. This strategy
enabled MFS to apply its investment management capabilities to a wider
spectrum of products and markets, helping improve earnings stability.

Institutional Funds Assets Under Management*
(US$ billions)

(INSTITUTIONAL FUNDS)

MFS proven investment philosophy and research capability continued to produce
superior investment performance in 2003. In the Lipper survey as at December
31, 2003, 72 per cent of the total number of MFS equity and fixed income funds
ranked by Lipper achieved either the first or second quartile performance for
the 3-year period. Results for 5 and 10-year periods were equally impressive,
with 79 per cent and 73 per cent respectively, achieving the top two-quartile
rankings.

Per Cent of the Number of Equity and
Fixed Income Funds Ranked in the Top Half
(as of December 31, 2003)

(INSTITUTIONAL FUNDS)

MFS was ranked #11 among mutual fund companies in the U.S. based on long-term
open-end mutual fund assets at the end of 2003 compared to #10 in 2002. The
drop in MFS ranking reflected the merger of two competitors in 2003. As at
December 31, 2003, MFS had total open-end mutual fund assets of $99.8 billion,
of which $98.0 billion were long-term mutual funds.

On February 5, 2004, MFS reached settlements with U.S. federal and state
regulators related to administrative proceedings against it alleging false and
misleading information in certain MFS fund prospectuses regarding market timing
and related issues. Under the terms of the settlements, MFS neither admitted
nor denied wrongdoing. The Company recorded a $211 million after-tax charge in
the fourth quarter in connection with the SEC and New Hampshire settlements. As
part of the settlement, MFS agreed with the Attorney General of the State of
New York to reduce fees on the funds it advises by approximately US$25 million
annually over the next five years.



---

| |  | 1 Operating net income is a non-GAAP measure and has no standardized definition
under GAAP. This measure is presented to facilitate comparison to prior year
earnings and may not be comparable to similar measures presented by other
issuers. Financial results not specifically referred to as operating have
been determined in accordance with GAAP.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Sun Life Financial Inc. | 29
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Robert Pozen, a former Vice Chairman of Fidelity Investments and John Olin
Visiting Professor at Harvard Law School, has been appointed Chairman
of MFS.
Robert J. Manning, has been named Chief Executive Officer, President and Chief
Investment Officer of MFS. Mr. Manning, who joined MFS in 1984, is a member of
the Management Committee and the Board of Directors of MFS and served as Chief
Fixed Income Officer since 2001.

In addition to steps MFS had previously adopted to reinforce its frequent
trading policies and procedures, MFS agreed to undertake a number of other
governance reforms, including retaining an independent compliance consultant,
creating an internal compliance controls committee, establishing a code of
ethics oversight committee, and hiring a corporate ombudsman.

|Sun Life Financial Inc. | 30
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial Asia

Business Profile

SLF Asia provides individual insurance in the Philippines, Hong Kong, India,
China and Indonesia, group insurance in the Philippines and India, and wealth
management products in India and the Philippines.

Competitive Position1

Poised for long-term growth with expansion in key markets.



| |  | 2nd in individual life insurance by total premiums in the Philippines
|- |  | ---------------------------------------------------------------------

| |  | 2nd largest private insurer and 4th largest private mutual fund company in
India through joint venture
|- |  | ------------------------------------------------------------------------------------------------------



---

|1 |  | Competitive statistics are based on published information at and for the year
ended December 31, 2003 or the information available for the latest period
before December 31, 2003 and do not include the impact of mergers and
acquisitions closing after December 31, 2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Strategies



| |  | Build SLF Asia into a significant long-term revenue and earnings growth operation
|- |  | ---------------------------------------------------------------------------------

| |  | Expand in core markets by leveraging the Companys expertise in high return protection products and wealth management
products and services
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | Support growth by building critical mass, expanding product offerings,
broadening distribution channels and strengthening operating infrastructure
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

2003 Highlights  
    
    Individual insurance sales up 174 per cent in India and 79 per cent in China in local currencies 
    
    India life joint venture named best insurance company workplace in India 
    
    China joint venture had a successful first full year of operations achieving $8 million of sales 
    
    China joint venture obtained approval to begin preparation for life insurance operations in Beijing 
    
    Increased efficiency of the Philippine operations through back office
consolidation and process improvements


Priorities for 2004  
    
    Continue to develop and expand alternative channels including
bancassurance in core markets 
    
    Continue to strengthen the agency channel as a foundation for growth 
    
    Expand distribution reach particularly in India and China 
    
    Successfully launch life insurance operations in Beijing market and
prepare for further China expansion 
    
    Ensure optimal infrastructure to support growth


Financial Results

For the year ended December 31, 2003, SLF Asia reported $37 million in
earnings, up $13 million or 54 per cent from 2002. This increase was primarily
due to effective expense management and higher investment income, partially
offset by an unfavourable impact of $7 million due to currency movements. The
Companys Philippine operations had another year of solid earnings,
contributing $47 million relative to $41 million in 2002. The earnings from the
Philippine operations continued to serve as the principal source of funding for
the Companys growth in other Asian markets.

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Premiums
    
    
    421
    
    
    
    504
    
    
    
    325Net Investment Income
    
    
    162
    
    
    
    155
    
    
    
    136Fee Income
    
    
    4
    
    
    
    2
    
    
    
    3Total Revenue
    
    
    587
    
    
    
    661
    
    
    
    464Client Disbursements & Change
in Actuarial Liabilities
    
    
    388
    
    
    
    450
    
    
    
    280Commissions & Other Expenses
    
    
    150
    
    
    
    176
    
    
    
    159Income Taxes
    
    
    12
    
    
    
    11
    
    
    
    5Shareholders Net Income
    
    
    37
    
    
    
    24
    
    
    
    20Selected Financial InformationReturn on Equity
    
    
    7.8
    %
    
    
    4.8
    %
    
    
    4.2
    %Sales  New Annualized PremiumsIndividual Life*
    
    
    128
    
    
    
    105
    
    
    
    68Total AUM (billions)
    
    
    2.1
    
    
    
    2.2
    
    
    
    1.9Capital Employed
    
    
    443
    
    
    
    519
    
    
    
    514




---

|* |  | Includes 100% of sales for joint ventures. Individual life sales would be
$97 million, $92 million, and $68 million for 2003, 2002 and 2001,
respectively, if joint venture sales were included at 50%.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Sun Life Financial Inc. | 31
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Revenue decreased to $587 million, down $74 million or 11 per cent from 2002,
reflecting the unfavourable effect of currency movement due to a stronger
Canadian dollar and a decrease in the sale of single premium products in the
Philippines. SLF Asias ROE for 2003 increased to 7.8 per cent from 4.8 per
cent in 2002 due to improved earnings. Despite the improvement in 2003, the ROE
in Asia remained in the single digit percentage, reflecting the impact of the
Companys continuing investments in the region in pursuit of long-term returns.

The Philippines

In 2003, the Philippine business unit ranked 2nd by total insurance premiums in
the Philippine market. Competition in the industry intensified with new players
broadening into non-agency channels, while consumer demand remained sluggish
due to unfavourable economic conditions. The total insurance premiums in the
Philippines decreased by 16 per cent to $198 million for the year ended
December 31, 2003, primarily as a result of a decrease in sales of single
premium products and also the decline of the Philippine peso against the
Canadian dollar, which had an unfavourable impact of $31 million. Growth in
sales of pre-need products remained strong, with sales increasing 19 per cent
over 2002 on a local currency basis.

Philippines Operations
Total Insurance Premiums
(PHP billions)

(PHILIPPINES OPERATIONS)

On a local currency basis, earnings in the Philippines grew by 32 per cent in
2003. During 2003, the operation embarked on process re-engineering to enhance
customer focus and to improve operating efficiencies. This will help ensure
more sustainable business growth in the long term.

The mutual fund operations in the Philippines continued to perform strongly as
gross sales increased by 31 per cent in 2003 compared to a year ago on a local
currency basis. Mutual fund assets under management were $100 million as at
December 31, 2003 and were up 64 per cent on a local currency basis compared to
the 2002 level.

Hong Kong

After a growth in sales of 94 per cent in 2002, sales declined 15 per cent in
2003 on a local currency basis. Sales in the earlier months of 2003 were very
low, being severely affected by the shift in consumer preference away from
variable products and by the SARS outbreak. Anticipated growth in unit-linked
products did not occur because of shifts in consumer preference and market
volatility.

The Hong Kong operations responded to the market conditions by launching two
new retirement products, revamping existing traditional products, restructuring
the agency channel and continuing to strengthen the bancassurance and other
channels. Also, there has been a considerable focus on improving the back
office infrastructure and client service operations. These initiatives provide
a solid platform for further growth moving forward.

Hong Kong Operations
New Annualized Premiums
(HK$ millions)

(HONG KONG OPERATIONS)

India


The Companys India life insurance joint venture, Birla Sun Life Insurance
Company Limited (Birla Sun Life), continued to experience rapid sales growth in
2003, with individual life sales up 156 per cent to $55 million for the year.
On a local currency basis, individual life sales were up 174 per cent. In
2003, its third year of operation, Birla Sun Lifes achievements include:



|l |  | Ranked second amongst private insurers in terms of first year annualized premiums
|- |  | ---------------------------------------------------------------------------------

|l |  | #1 in alternate channels based on annualized premiums
|- |  | -----------------------------------------------------

|l |  | Highest average premium for individual life sales
|- |  | -------------------------------------------------

|l |  | Named the best insurance company workplace in India
|- |  | ---------------------------------------------------

|Sun Life Financial Inc. | 32
|----------------------- | --

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MANAGEMENTS DISCUSSION AND ANALYSIS

Birla Sun Life
New Annualized Premiums*
($ millions)

(INDIA OPERATIONS)

Birla Sun Life operated 33 branches in 27 cities in India at the end of 2003.
To capture the high growth potential in the Indian market, the joint venture
expanded its direct sales force to over 9,000 agents in 2003 compared to less
than 4,000 a year ago. The joint venture has also diversified the sources of
production via other channels such as bancassurance.

The Companys India asset management joint venture, Birla Sun Life Asset
Management Company Limited, increased its asset base to $2.8 billion at the end
of 2003 compared to $1.9 billion in 2002. The number of investor accounts grew
to approximately 499,000 from 346,000 a year ago. It was the fourth largest
private mutual fund company in India at the end of 2003.

China

The year 2003 marked another important milestone for the Companys China joint
venture, Sun Life Everbright Life Insurance Company Limited. Following the
successful launch of its life insurance operations in Tianjin in April 2002,
the joint venture received regulatory approval to begin preparation for life
insurance operations in Beijing.

Despite the SARS outbreak, the Tianjin operations maintained strong sales
momentum, with sales increasing to $8 million in 2003, representing an increase
of 79 per cent relative to 20021 on a local currency basis. The launch of new
products, active agency management and strong performance in some rural
districts provided the sales increase. While the joint venture continued to
grow its primary distribution channel, the agency force, to approximately 2,500
agents as at the end of 2003 from 1,600 a year ago, it also expanded into
bancassurance through an alliance with three local banks as at December 31,
2003.

Indonesia

After a slow first quarter, sales improved progressively with the launch of a
unit-linked product at the end of 2002, which contributed approximately 50 per
cent of the sales for 2003. Total sales in 2003 grew 61 per cent over 2002 on
a local currency basis. The strong sales increase was mainly driven by the
variable unit-linked product and improved agent productivity.



---

|1 |  | Since the joint venture commenced operations in April 2002, sales for 2002
represented only eight months versus twelve months in 2003.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------

|Sun Life Financial Inc. | 33
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sun Life Financial United Kingdom

Business Profile

SLF U.K. manages a large block of in-force annuity and insurance policies.
The Company no longer offers annuity or insurance products to new customers
and the in-force policies now constitute a run-off block of business.

Strategies



| |  | Realize the underlying value of in-force business
|- |  | -------------------------------------------------

| |  | Maximize return on equity by effective capital management
|- |  | ---------------------------------------------------------

| |  | Minimize operational risks and regulatory exposures
|- |  | ---------------------------------------------------

2003 Highlights  
    
    Maintained a high level of ROE at 21.5 per cent 
    
    Sold the group business 
    
    Completed migration of individual life and pension policies from legacy systems onto one common system 
    
    Transferred £125 million of capital for redeployment in other business areas


Priorities for 2004  
    
    Deliver stable net income from the underlying insurance business 
    
    Continue to reduce administration costs of in-force business 
    
    Maintain good level of customer service 
    
    Continue to maximize shareholder value


Financial Results

For the year ended December 31, 2003, SLF U.K. contributed $203 million to the
Companys earnings, an increase of seven per cent relative to 2002. Earnings
from the U.K. individual insurance business increased by $36 million or 24 per
cent compared to 2002. This improvement was largely attributable to a reduction
in operating expenses, improvements in equity markets and the favourable impact
of reinsurance arrangements effected in 2003.

The strong earnings performance continued to underscore the success of the
Companys strategic shift, implemented in 2001. In 2003, the sale of the U.K.
group health business and the renewal rights of the group life business, along
with the outsourcing of the back office operations for the remaining U.K. group
life business, further allowed the Company to focus on realizing the value of
its U.K. in-force annuity and insurance business.

Revenue declined by $385 million or 21 per cent compared to 2002, primarily due
to the sale of the group business, lower individual premiums as the closed
block of business runs off and a reduction in annuity vestings. ROE for the
year was 21.5 per cent, primarily reflecting the strong earnings performance
and the impact of capital transfers to the Company.

Equity capital employed in the U.K. decreased to $908 million, down $112
million compared to 2002. The decrease was largely due to the transfer of
capital for redeployment in other business areas of the Company, as well as a
decline in the British pound sterling against the Canadian dollar.

Summary Statement of Operations

($ millions, except as noted)
    
    2003
    
    2002
    
    2001Premiums
    
    
    724
    
    
    
    990
    
    
    
    967Net Investment Income
    
    
    626
    
    
    
    730
    
    
    
    934Fee Income
    
    
    93
    
    
    
    108
    
    
    
    166Total Revenue
    
    
    1,443
    
    
    
    1,828
    
    
    
    2,067Client Disbursements & Change
in Actuarial Liabilities
    
    
    1,069
    
    
    
    1,426
    
    
    
    1,499Commissions & Other Expenses
    
    
    163
    
    
    
    230
    
    
    
    395Income Taxes
    
    
    8
    
    
    
    (18
    )
    
    
    (7
    )Shareholders Net Income
    
    
    203
    
    
    
    190
    
    
    
    180Selected Financial InformationReturn on Equity
    
    
    21.5
    %
    
    
    21.9
    %
    
    
    15.8
    %Total AUM (billions)
    
    
    17.6
    
    
    
    19.8
    
    
    
    20.3Capital Employed
    
    
    1,207
    
    
    
    1,400
    
    
    
    1,242


|Sun Life Financial Inc. | 34
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Corporate Capital

Business Profile

Corporate Capital refers to investment income, expenses, capital and other
items not allocated to the Companys operating units. This reporting unit
also includes the Companys run-off reinsurance line, which is a closed block
of mostly accident and health reinsurance business.

2003 Highlights  
    
    Purchased and cancelled 18 million shares as part of stock repurchase program 
    
    Redeemed $165 million of subordinated debentures


Priorities for 2004  
    
    Continue to develop, evaluate and execute value enhancing opportunities 
    
    Continue to optimize the Companys overall capital structure


Financial Results

For the year ended December 31, 2003, Corporate Capital reported a loss of $20
million compared to a loss of $277 million in 2002. Full year 2003 results
improved by $257 million over 2002 results, which included a $217 million
restructuring charge. The improvements in equity markets at December 31, 2003
would have allowed the Company to set lower reserves held for guaranteed
minimum income benefits. However, the reserves were only partially released in
order to provide additional protection in the event of a future decline in
equity markets.

Equity increased to $1.4 billion from the $788 million as at December 31, 2002,
primarily reflecting the transfer of capital from operating units to Corporate
Capital during the year, partially reduced by amounts for the Companys share
buyback program and shareholder dividends paid out in the year.

Summary Statement of Operations*

($ millions)
    
    2003
    
    2002**
    
    2001Premiums
    
    
    127
    
    
    
    71
    
    
    
    88Net Investment Income
    
    
    297
    
    
    
    500
    
    
    
    444Fee Income
    
    
    16
    
    
    
    (4
    )
    
    
    1Total Revenue
    
    
    440
    
    
    
    567
    
    
    
    533Client Disbursements & Change
in Actuarial Liabilities
    
    
    (77
    )
    
    
    500
    
    
    
    134Commissions & Other Expenses
    
    
    555
    
    
    
    483
    
    
    
    341Income Taxes
    
    
    (77
    )
    
    
    (233
    )
    
    
    33Non-controlling Interests in
Net Income of Subsidiaries
    
    
    59
    
    
    
    46
    
    
    
    8Loss
(Income) from Discontinued Operations
    
    
    
    
    
    
    48
    
    
    
    Shareholders Net Income (Loss)
    
    
    (20
    )
    
    
    (277
    )
    
    
    17Capital Employed
    
    
    1,917
    
    
    
    986
    
    
    
    227


* Excluding consolidation adjustments of activities between segments.

** As restated.

|Sun Life Financial Inc. | 35
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Risk Management

Risk Framework

The basis of risk management within the Company is embedded in the
enterprise-wide risk management framework, which was developed and adopted to
enable the Company to effectively manage its risks. The framework provides
oversight to the risk management activities within major operating areas and
business units, as it is designed to provide discipline and consistency to the
practice of risk management in all business units.

(Risk Management Chart)

Objectives:The framework specifies the four key objectives of the risk
management program: (i) avoidance of risks that could materially affect the
value of the Company; (ii) contribution to sustainable earnings; (iii)
acceptance of risks that the Company can manage in order to increase returns;
and (iv) transparent disclosure of the Companys risks.

Risk Philosophy:The Company is in the business of accepting risks for
appropriate return. It will take on those risks that meet the objectives of the
organization. The program design aligns risk management with the corporate
vision and strategy and embeds it within the business management practices of
the business units.

Risk Culture:The risk culture of the Company entails a common philosophy and
principles about risk, supported by consistent expectations, beliefs, attitudes
and behaviours.

Accountabilities:Accountability provides clear lines of responsibility and
authority for risk acceptance and risk taking. The Board of Directors has
appointed a standing committee, the Risk Review Committee, composed of
independent directors, which is dedicated to the oversight of risk management
within the Company. The committees key duties include responsibility for: (i)
ensuring that the major areas of risk of the business activities of the Company
are identified and reviewed by management, and (ii) approving, and reviewing
compliance with, the policies and programs implemented by the Company for the
management and control of risk. The responsibility for the management of risk
has been delegated to management who report on key risk issues to the committee
on a regular basis.

The foundation of the Companys risk framework is the risk identification,
assessment and management program, which utilizes common categorization of
risk; risk management processes; and risk policies to govern the activities of
the organization by providing standards for measurement and control of the
risks to which the Company is exposed.

Key Risk Processes

The Company has a formal risk management program which is implemented by
management in each business group. The risk management program includes a
process that applies qualitative and quantitative analysis of the risk
exposures, with appropriate reporting to senior management and the Board of
Directors. The results of such reporting are utilized to develop a
company-wide view of the most significant risks, which is developed on an
annual basis and reported to the Risk Review Committee.

Market Risk Tolerance and Earnings at Risk

The Company has established market risk tolerance limits that set out the
maximum income sensitivity of business groups to changes in interest rates,
equities and foreign exchange markets. These limits are based on the
sensitivity of a one-year forward projection of income tested by business
groups against a set of internally prescribed market shocks. Deviations from
the applicable limits are reported to the Risk Review Committee.

To complement the above, the Company has also developed an Earnings-at-Risk
measurement model. The model provides to management and the Risk Review
Committee an analysis of capital market risks at a 95th percentile confidence
level of the maximum deviation of earnings by major businesses based on a
one-year forward projection. The Earnings-at-Risk model is also able to project
a distribution of possible deviations of earnings to further assist in risk
management activities.

|Sun Life Financial Inc. | 36
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Sensitivity of Earnings

The following table sets out the sensitivity of the Companys earnings to
changes in the interest rate environment and equity markets based on the
existing business mix. These amounts are estimated assuming limited management
actions to mitigate the impact of the changes, but do reflect activities
undertaken in early 2004 to reduce interest rate sensitivities. Interest rate
sensitivity has increased from 2002 as a result of the sustained low interest
rate environment.

Increase (Decrease)($ millions)
    
    in EarningsInterest Rate Sensitivity(1)1% Increase
    
    
    1071% Decrease
    
    
    (100
    )Equity Market Sensitivity(2)10% Increase
    
    
    17110% Decrease
    
    
    (110
    )




---

|(1) |  | Represents a 100 basis point parallel shift in assumed interest rates
across the entire yield curve
|--- |  | ---------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents the percentage change in equity markets                                                 

Risk Policies

The Company has adopted consolidated risk management policies to provide a
consistent approach to measurement, mitigation and control and monitoring of
risk exposures. Risk policies have been established with respect to the major
risks facing the Company.

Risk Categories

The risks facing the Company can generally be classified into four categories:



|l |  | Market risk:the uncertainty arising from changes in market prices or
indices and the cost of embedded options and guarantees related to
equity markets and/or interest rates;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|l |  | Credit risk:the uncertainty surrounding the likelihood of default;
|- |  | ------------------------------------------------------------------

|l |  | Insurance risk:the uncertainty due to differences between the actual
and expected amounts of claims and benefit payments and the cost of
embedded options and guarantees related to insurance risks;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|l |  | Operational risk:the uncertainty arising from events caused by failures of
people, process and technology as well as external dependencies.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------

(MARKET RISK CHART)

MARKET RISK

Asset/Liability Management

The Companys asset/liability management maximizes long-term economic value
within established risk tolerance limits and constraints. The Companys
insurance liabilities are segmented according to major product type with
investment guidelines established for each segment. Asset mix, asset quality,
liquidity and interest rate exposure are regularly measured and compared to
policy objectives and liability requirements for each product segment.



|Interest rate risk is the risk of asset-liability mismatch resulting from interest rate volatility.
|---------------------------------------------------------------------------------------------------

To manage interest rate risk, the Company has a matching policy for each
portfolio of assets and associated liabilities in order to keep potential
losses within acceptable limits. For interest sensitive business lines, such as
individual and group annuities, the primary approach is to manage the
sensitivity of the duration gap between assets and liabilities. Duration gap
analysis measures the sensitivity of a change of the duration gap between
assets, liabilities and off-balance sheet instruments to interest rate changes.
Specifically, the Company employs a key rate duration technique that examines
the duration gap of assets and liabilities at discrete points on the yield
curve. These gaps are managed within specified tolerance limits.



|Market risk is the uncertainty arising from changes in market prices or indices and the cost of embedded options and guarantees related to equity markets and/or interest rates.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To manage market risk, the Companys exposure to these market risks is
monitored and managed against established risk tolerance limits, such as the Earnings-at-Risk monitoring
tools noted above. Stock holdings

|Sun Life Financial Inc. | 37
|----------------------- | --

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MANAGEMENTS DISCUSSION AND ANALYSIS

are diversified by industry type and corporate entity. Real estate holdings are
diversified by location and property type. The effects of a large and sustained
adverse market movement are regularly monitored through Dynamic Capital
Adequacy Testing and other stress testing techniques.

Other important factors to consider in assessing the Companys exposure to
market risk include the use of derivatives and the Companys policies regarding
liquidity management and foreign exchange risk. Additional discussion on the
Companys use of derivatives and its policies on liquidity management are
disclosed in the Financial Position and Liquidity section. Discussion on the
impact of currency fluctuations and other risk factors can be found on pages 21
to 26 in the Companys 2003 AIF.

CREDIT RISK

Credit Risk Management



|Credit risk is the uncertainty surrounding the likelihood of default.
|---------------------------------------------------------------------

To manage credit risk associated with fixed income investments, the Company
uses detailed credit and underwriting policies, detailed diversification
requirements, comprehensive due diligence and aggregate counter-party exposure
limits within fixed income portfolios. A numerical credit risk factor is
assigned to all fixed income investments and an aggregate credit risk factor is
developed for major operations and the Company in aggregate, which are
monitored against pre-established limits and reported periodically to the Board
of Directors. Provisions for impaired assets are charged against the carrying
value of the asset. Allowances for possible future asset defaults are also
provided for in the actuarial reserves.

Reinsurance Ceded Risk Management



|Reinsurance ceded risk is the counterparty risk relating to externally reinsuring exposures.
|--------------------------------------------------------------------------------------------

The Company maintains a reinsurance ceded policy to establish limits and to
monitor the level of reinsurance ceded to any single reinsurer or group of
reinsurers. These limits are also consolidated across operations to capture
total exposure to any single reinsurer.

INSURANCE RISK

Product Design & Pricing Risk



|Product design & pricing risk is the risk arising from inappropriate or
inadequate product design and pricing including deviations from the assumptions
used in pricing products as a result of uncertainty concerning future
investment yields, mortality and morbidity experience, expenses, rates of
policy termination and taxes.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To manage product design and pricing risk the Company sets standards and
guidelines that address product design and pricing methods, pricing
assumptions, profit margin objectives, required scenario analysis,
documentation, internal peer review and pricing approval processes. The product
design and pricing risk management process also includes completion of an
annual compliance assessment by all business units and the internal audit of
business unit pricing on a rotating basis.

Mortality and Morbidity Risk Management



|Mortality and morbidity risk is the risk of incurring higher than anticipated
mortality and morbidity claim losses on any one policy or group of policies.
|----------------------------------------------------------------------------------------------------------------------------------------------------------

To manage mortality and morbidity risk, the Company follows detailed uniform
underwriting procedures to determine the insurability of applicants and to
manage exposure to large claims. Underwriting requirement limits are regularly
scrutinized against industry standards.

Group insurance policies are underwritten prior to the issue of the policy and
again at each renewal. The Companys group insurance underwriting is driven by
risk selection, plan design and rating techniques.

The risk policies approved by the Board of Directors include limits on the
maximum amount of insurance that may be issued and the maximum amount that may
be retained. These limits vary by geographic region. Amounts in excess of these
limits are reinsured.

OPERATIONAL RISK

Operational Risk Management



|Operational risk is the uncertainty arising from events caused by failures of
people, processes or technology as well as external dependencies.
|-----------------------------------------------------------------------------------------------------------------------------------------------

To manage operational risk, the Company has worldwide policies and guidelines
as well as specific

|Sun Life Financial Inc. | 38
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

policies and guidelines for each business in which it operates.

The Company has established a formal risk identification program in which
management for each business group identifies the current key risks that may
impact upon the business. Exposures to these risks are assessed on a
qualitative and quantitative basis. Risk control programs are documented and
action plans are established for mitigating the exposure. Utilizing the input
from the Business Groups, the Company also identifies the key risks that may
materially impact the corporation as a whole. These risks are monitored
regularly by senior management and reported to the Risk Review Committee on an
annual basis.

The Company maintains a comprehensive insurance program that provides
protection against potential losses. This program includes appropriate levels
of self-insurance. The Companys environmental risk management program is
designed to protect investment assets from losses due to environmental problems
and to ensure compliance with applicable laws. The Environmental risks arise
primarily from the Companys real estate, mortgages and structured finance
portfolios. The senior investment officer in each Business Group is responsible
for ensuring that the local environmental policy is appropriate for local
operating conditions.

An expanded description of the Companys risk factors can be found on pages 21
to 26 of the Companys 2003 AIF.

|Sun Life Financial Inc. | 39
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS


Critical Accounting Estimates

The Companys significant accounting policies, including actuarial policies,
are described in detail in Notes 1, 2, 8, 9 and 11 to the Companys
Consolidated Financial Statements. These policies require management to make
judgments involving assumptions and estimates, some of which may relate to
matters that are inherently uncertain. The estimates described below are
considered particularly critical to understanding the Companys financial
performance. As part of the Companys financial control and reporting,
judgements involving assumptions and estimates are reviewed internally and by
independent advisors on a regular basis. Accounting policies requiring
estimates are applied consistently in the determination of the Companys
financial results.

BENEFITS TO POLICYHOLDERS

The Companys benefit payment obligations over the life of its annuity and
insurance products are determined by internal valuation models and are recorded
in its financial statements, primarily in the form of actuarial liabilities.
The determination of the value of these obligations is fundamental to the
Companys financial results and it requires management to make certain
assumptions about, among other factors, mortality and morbidity rates, policy
terminations, equity market performance, interest rates, asset default,
inflation and expenses over the life of its products.

In calculating actuarial liabilities and other policy liabilities, assumptions
must be made about the timing and amount of many events, including death,
accident or sickness disability, investment, inflation, policy termination,
expenses, taxes, premiums, commissions and policyholder dividends. The general
approaches to the setting of the assumptions used by the Company are described
later in this section.

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 are likely to 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.

In determining these provisions, the Company ensures:



|l |  | 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.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|l |  | In total, the cumulative effect of all provisions is reasonable with
respect to the total actuarial liabilities.
|- |  | ----------------------------------------------------------------------------------------------------------------

With the passage of time and resulting reduction in estimation risk, the
provisions are released into income. In recognition of 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.

4  Mortality

Mortality refers to the rate at which death occurs for a defined group of
people. Insurance mortality assumptions are 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 that
might occur.

For products where higher mortality would be financially adverse to the
Company, a one per cent increase in the best estimate assumption would decrease
the net income by $84 million. For products where lower mortality would be
financially adverse to the Company, a one per cent reduction in the mortality
assumption would decrease the net income by $30 million.

4  Morbidity

Morbidity refers to the rate of accident or sickness, and recovery therefrom,
for a defined group of people. Most of the Companys disability insurance is
marketed on a group basis. In Canada, the Company offers critical illness
policies on an individual basis and long-term
care both on a group and
individual basis. Medical stop loss insurance is offered on a

|Sun Life Financial Inc. | 40
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS


group basis in the United States. In Canada, group morbidity assumptions are based on the
Companys five-year average experience, modified to reflect the trend in
recovery rates. For long-term care and critical illness insurance, assumptions
are developed in collaboration with our reinsurers and are largely based on
their experience. In the United States, Company experience is used for both
medical stop loss and disability assumptions, with some consideration for
industry experience. Larger provisions for adverse deviation are used for those
benefits where Company or industry experience is limited. For products where
the morbidity is a significant assumption, a one per cent change in that
assumption would reduce the net income by $17 million.

4  Policy Termination Rates

Policyholders may allow their policies to terminate prior to the end of the
contractual coverage period by choosing not to continue to pay premiums or by
exercising one of the non-forfeiture options in the contract. Assumptions for
termination experience on life insurance are generally based on the Companys
average five-year experience. Termination 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.

For individual life insurance products where fewer terminations would be
financially adverse to the Company, net income would be decreased by $56
million if the termination rate assumption was reduced by 10 per cent starting
in policy year six (five per cent for participating policies and policies with
adjustable premiums). For products where more terminations would be
financially adverse to the Company, net income would be decreased by $61
million if an extra one per cent of the in-force policies were assumed to
terminate each year beginning in policy year six (0.5 per cent for
participating policies and policies with adjustable premiums).

4  Equity Markets and Segregated Fund Guarantees

The Company has a large volume of accumulation annuities primarily in the
United States subject to equity market movements. The Company also reinsures
the guarantees offered on accumulation annuities issued by other insurance
companies in the United States, although the Company no longer accepts new
business on these reinsurance treaties. The Company monitors its experience
for these guarantees on a monthly basis, and has hedged a large percentage of
its exposure with long dated put options against the S&P 500. Effective January
1, 2004, the rules for accounting for hedge instruments have changed. Taking
account of this, and in recognition of the fact that equity markets, in
particular the S&P 500, have risen significantly in the past few months, the
Company decided to revise its hedging strategy going forward to more
effectively manage the impact of equity market changes over a broader range of
the S&P 500 index. In addition, the improvement in equity markets at December
31, 2003 would have allowed the Company to set lower reserves held for
guaranteed minimum death benefit and guaranteed minimum income benefit.
However, the reserves were not released in order to provide additional
protection in the event of a future decline in equity markets.

The Company has a block of unit-linked products in the United Kingdom which
offer guaranteed annuity purchase price options. While not segregated fund
guarantees, the exposure to the annuity options is dependent on the equity
market movements.

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, 2003 would decrease the
net income for segregated fund guarantees by $77 million. The impact of this
change on net income is included in the equity market sensitivities reported in
the table on page 37.

4  Interest Rates

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. This mismatch may result in the need to either sell assets to meet
policy payments and expenses, or to 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.

|Sun Life Financial Inc. | 41
|----------------------- | --

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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS


Asset/liability management programs are in
place to implement this policy. The primary approach used is duration gap
analysis, which measures the sensitivity of assets and liabilities to interest
rate changes across the entire yield curve. Key rate 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. These
changes occur routinely as interest rates change, and reflect the normal
operation of these policies according to their contractual terms.

An immediate one per cent parallel increase in interest rates at December 31,
2003 across the entire yield curve, assuming the Company did not take any
investment actions other than those taken in early 2004, would result in an
estimated increase in net income of $107 million. Conversely, an immediate one
per cent parallel decrease in interest rates, assuming no investment actions
other than those taken in early 2004, would result in an estimated decrease in
net income of $100 million. Included in the impact in earnings is the impact
on the change in actuarial reserves.

4  Asset Default

In addition to the allowances for losses on invested assets outlined in Note 8
of the Companys 2003 Consolidated Financial Statements, the actuarial
liabilities included an amount of $2.0 billion determined on a pre-tax basis 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.

4  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. The sensitivity of actuarial liabilities
to a 10 per cent increase in unit expenses company-wide would result in a
decrease in net income of $238 million.

MARKET VALUE OF INVESTMENTS

As described in Note 1 to the Companys 2003 Consolidated Financial Statements,
stocks, including certain other equity type investments, and real estate are
originally recorded at cost and the carrying value is adjusted toward fair
value each quarter at rates of five per cent and three per cent, respectively.
Fair values of stocks and certain other equity investments are disclosed in
Note 8(a) of the Companys Consolidated Financial Statements and are based on
quoted market prices or references to market values for similar investments.
For real estate, market values are determined by qualified appraisers.
Appraisals are obtained annually for high value properties and at least once
every three years for other properties.

Certain equity derivatives are accounted for on the same basis as stocks, while
other equity index futures, swaps, forwards and options are reported at their
fair values on the balance sheet with increases and decreases in their value
reported in net investment income. For more details, refer to Note 1 to the
Companys 2003 Consolidated Financial Statements.

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

Market values are subject to fluctuations as economic and business conditions
change. Where a readily observable market value is not available, management
judgement is required in determining market values. As at December 31, 2003,
the market value of stocks, including certain other equity type investments,
and real estate comprised approximately eight per cent of invested assets.

|Sun Life Financial Inc. | 42
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MANAGEMENTS DISCUSSION AND ANALYSIS


ALLOWANCE FOR INVESTMENT LOSSES

The Company had total general fund invested assets of $97.2 billion as at
December 31, 2003, the majority of which was invested in medium to long-term,
high quality fixed income instruments. The Company maintains a prudent policy
in setting the allowance for investment losses. Comprehensive reviews are
performed on the Companys invested assets on a regular basis. Management
considers various factors to identify invested assets of potential concern.
Consideration is given to general economic and business conditions, industry
trends, specific developments with regard to security issuers and current
market values where available. When an asset is classified as impaired,
allowances for losses are established to adjust the carrying value of the asset
to its estimated recoverable amount. The determination of the estimated
recoverable amount is based on estimates of net realizable value. The use of
different methodologies and assumptions may have a material effect on the
estimates of net realizable value. Sectoral allowances are also established
for classes of assets when there is concern about the ultimate collection of
principal or interest because of a general deterioration of a particular
business sector. These allowances represent managements best estimate, based
on market conditions, of probable losses within a portfolio that have not yet
been specifically identified. Provisions for losses on investments, which
increase the allowances, are charged against net investment income.
Write-offs, net of any recoveries, reduce the allowances.

As at December 31, 2003, the Companys total impaired assets amounted to $457
million, which were net of specific allowances of $242 million. The
corresponding market value of these impaired assets was approximately $456
million as at December 31, 2003.

GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of the cost of businesses acquired over the fair
value of the net identifiable tangible and intangible assets. The Company had a
carrying value of $6.0 billion in goodwill as at December 31, 2003, consisting
primarily of $3.7 billion arising from the Clarica acquisition and $1.6 billion
arising from the Keyport acquisition.

Identifiable intangible assets consist of finite-life and indefinite-life
intangible assets. As at December 31, 2003, the Companys finite-life
intangible assets had a carrying value of $601 million, reflecting primarily
the value of the banking distribution channel, the sales potential of its field
force, and asset administration contracts. The Companys indefinite-life
intangible assets had a carrying value of $906 million, reflecting fund
management contracts, brand names 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.

Accounting Policies

Changes in Accounting Policies in 2003

In 2003, the Company adopted certain new accounting standards and policies that
are detailed in Note 2 to the Companys 2003 Consolidated Financial Statements.
None of these changes are considered material to the determination of the
Companys financial position or results.

Future Adoption

The Company intends to adopt the following recently issued accounting standards
in future years. The standards are summarized below and detailed in Note 2 to
the Companys 2003 Consolidated Financial Statements.

4  Hedging Relationships

The Company will adopt Hedging Relationships, CICA Handbook Accounting
Guideline 13, on January 1, 2004. This Guideline requires that all conditions
with respect to identification, documentation, designation and effectiveness of
hedges be met before hedge accounting can be adopted and applies to all hedges
existing on or after January 1, 2004. Certain of the derivatives that are
still considered to be part of a hedging relationship, including the options
that hedge the guaranteed minimum death benefit products, will not qualify for
hedge accounting under the new requirements in Accounting Guideline 13. As a
result, these derivatives will be carried at their fair values effective
January 1, 2004. The resulting transitional gain will be deferred and
recognized into income in the same period as the original hedged items.
Subsequent increases or decreases in the fair values of these derivatives will
be reported in net investment income in the consolidated statements of
operations.

|Sun Life Financial Inc. | 43
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MANAGEMENTS DISCUSSION AND ANALYSIS


4  Consolidation of Variable Interest Entities

The Company will adopt Consolidation of Variable Interest Entities, CICA
Handbook Accounting Guideline 15 on January 1, 2005. This Guideline provides
guidance for application of consolidation principles to those entities defined
as variable interest entities (VIEs) 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 Guideline requires that
all entities be designated as either voting interest entities or variable
interest entities. VIEs are subject to consolidation by the Primary
Beneficiary which is defined as the party who has exposure to the majority of a
VIEs expected losses and/or expected residual returns.

The CICA is monitoring the developments of the Financial Accounting Standards
Board (FASB) relating to recently issued revised FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, the U.S. GAAP equivalent of
Accounting Guideline 15, since the intention is to harmonize the Accounting
Guideline with U.S. GAAP. The Company will continue to review the status of
VIEs as this harmonization occurs.

4  Financial Instruments Disclosure and Presentation

The Company will adopt the amendments to the accounting requirements in CICA
Handbook Section 3860, Financial Instruments  Disclosure and Presentation on
January 1, 2005. Securities issued by the Company that give the Company an
unrestricted obligation to settle the principal amount in cash or in the
equivalent value of its own shares, must be classified as debt.

In the third quarter 2003 interim financial statements, the Company indicated
that it would adopt these amendments on January 1, 2004. Subsequent to the
issue of those financial statements, the CICA announced the postponement of the
effective date of implementation to January 1, 2005. As a result, the Company
will not be adopting the new accounting requirements until January 1, 2005, and
therefore will no longer be required to reclassify the Sun Life ExchangEable
Capital Securities issued by Sun Life Capital Trust (the Trust) from
non-controlling interests in subsidiaries to other liabilities, as it is
expected that the Trust will be deconsolidated upon adoption of the
Consolidation of Variable Interest Entities, Accounting Guideline 15, on the
same date.

4  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 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. The
Company does not expect this standard to have a material effect on the
consolidated financial statements.

|Sun Life Financial Inc. | 44
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MANAGEMENTS DISCUSSION AND ANALYSIS


Investments

The Company holds a diverse set of portfolios for its asset management, mutual
fund and variable annuity operations, as well as for the Companys general
funds. The Company maintains prudent, uniform investment policies with
specific guidelines appropriate for each of its business groups. For its
general funds, the Company focuses on maintaining high-quality,
well-diversified portfolios that are appropriate for its general fund
obligations. The investment of the Companys general funds is described below.

Investment Policies

The primary aim of the Companys investment strategy for its general fund
assets is to ensure that all investments are properly structured relative to
the maturities of their liabilities and that adequate liquidity is maintained
at all times. The Risk Review Committee of the Board of Directors regularly
reviews and approves investment policies that set prudent standards and
procedures for the investment of the Companys assets. These policies include
limits for interest rate, credit, equity market, real estate market, liquidity,
concentration, currency and derivative risks. Compliance with these policies
is monitored and reported upon by the Companys Corporate Office on a regular
basis. In addition, management is required to advise the Board of Directors
annually, in writing, whether there has been adherence to these policies.

Investment Profile

The Company had total consolidated general fund invested assets of $97.2
billion at December 31, 2003, compared to $110.5 billion at December 31, 2002.
The decrease was primarily due to the strengthening of the Canadian dollar,
which reduced assets by $10.6 billion, and the sale of Clarica U.S. in January
2003, which had invested assets of $5.1 billion at December 31, 2002.

The investment portfolio is broadly diversified and carefully managed with
respect to the nature of the Companys underlying policy obligations. The
Company invests the majority of its general funds in medium to long term fixed
income instruments such as bonds and mortgages. The Companys portfolio
composition is very conservative, with approximately 90 per cent of the general
funds in cash and fixed income investments as at December 31, 2003. Real
estate comprised three per cent of the general funds, of which approximately 67
per cent related to the participating policyholders account. Common stock
comprised approximately four per cent of the general funds, of which
approximately 73 per cent was related to the participating policyholders
account. The Companys shareholders net income generally is not affected by
the performance of investments held in the participating policyholders
account.

Investments

2003
    
    2002
    
    2001($ millions)
    
    Carrying Value
    
    % of Total
    
    Carrying Value
    
    % of Total
    
    Carrying Value
    
    % of TotalBonds
    
    
    66,090
    
    
    
    68
    
    
    
    73,367
    
    
    
    66
    
    
    
    48,077
    
    
    
    65Mortgages
    
    
    13,601
    
    
    
    14
    
    
    
    15,799
    
    
    
    14
    
    
    
    8,622
    
    
    
    12Stocks
    
    
    3,473
    
    
    
    4
    
    
    
    4,221
    
    
    
    4
    
    
    
    4,882
    
    
    
    7Real Estate
    
    
    3,067
    
    
    
    3
    
    
    
    3,223
    
    
    
    3
    
    
    
    2,316
    
    
    
    3Cash and Equivalent Investments
    
    
    4,972
    
    
    
    5
    
    
    
    7,152
    
    
    
    7
    
    
    
    4,809
    
    
    
    7Policy Loans and Other Invested Assets
    
    
    5,973
    
    
    
    6
    
    
    
    6,726
    
    
    
    6
    
    
    
    4,558
    
    
    
    6Total Carrying Value
    
    
    97,176
    
    
    
    100
    
    
    
    110,488
    
    
    
    100
    
    
    
    73,264
    
    
    
    100Total Market Value
    
    
    102,252
    
    
    
    
    
    
    
    114,993
    
    
    
    
    
    
    
    74,763


Bonds

The Company's bond portfolio represented 68 per cent of invested assets at December 31, 2003, compared to 66 per cent at the end of the previous year. The Company's bond portfolio is actively managed through a regular program of purchases and sales directed at optimizing yield, quality and liquidity,

Bonds by Investment Grade

(PIE CHART)

|Sun Life Financial Inc. | 45
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MANAGEMENTS DISCUSSION AND ANALYSIS


while ensuring that the asset portfolio remains matched to liability
requirements. At December 31, 2003, the bond portfolio had a carrying value of
$66.1 billion and a market value of $70.1 billion compared with $73.4 billion
and $77.5 billion at the end of 2002. The decrease in bond investments was
primarily attributable to the strengthening of the Canadian dollar, which had
the effect of reducing bonds by $8.2 billion, and the sale of Clarica U.S. in
January 2003 which had bonds of $3.9 billion at December 31, 2002.

At December 31, 2003 and 2002 the Company held $15.1 billion and $17.4 billion,
respectively, of non-public bonds, which constituted 23 per cent and 24 per
cent, respectively, of the Companys overall bond portfolio. Of such amounts,
non-public bonds rated A or higher represented 54 per cent and 52 per cent,
respectively, of total non-public bonds, and non-public bonds rated BBB or
higher represented 91 per cent and 89 per cent, respectively, of total
non-public bonds at such dates. The decrease in non-public bond holdings was
primarily due to the impact of the strengthening of the Canadian dollar and the
sale of Clarica U.S. in January 2003.

The Companys bond portfolio is also diversified by country. As at December
31, 2003, 39 per cent of the total bond portfolio was invested in Canada, 44
per cent in the U.S. and 11 per cent in the U.K., based on the jurisdiction of
the incorporation of issuers.

Mortgages

The Companys mortgage portfolio represented 14 per cent of invested assets at
December 31, 2003, unchanged from the end of 2002. The Companys mortgage
portfolio totalled approximately $13.6 billion compared to $15.8 billion at the
end of 2002. The decrease in mortgage investments was primarily attributable to
the disposition of Clarica U.S., the impact of the strengthening of the
Canadian dollar and the securitization of mortgages during 2003 in the United
States. As at December 31, 2003, 72 per cent of the total mortgage portfolio
was invested in Canada, 26 per cent in the U.S., and two per cent in the U.K.

The Companys mortgage portfolio is almost entirely first mortgages. While the
Company generally requires a maximum loan to value ratio of 75 per cent, it may
invest in mortgages with a higher loan to value ratio in Canada if the mortgage
is insured.

As at December 31, 2003, commercial mortgages accounted for 70 per cent and
residential mortgages accounted for 30 per cent of the Companys total mortgage
portfolio. Approximately 48 per cent of mortgage loans mature by December 31,
2008. As part of its ongoing investment activities, the Company seeks to renew
a significant proportion of those mortgages that meet the Companys investment
criteria.

The Company also originates and manages mortgage-backed investments for
institutional clients. This fee-based business allows the Company to leverage
its extensive commercial mortgage underwriting expertise and enhance its asset
management strength. In 2003, the Company offered $623 million of commercial
mortgage-backed securities in the U.S. The Company had $1.9 billion in managed
mortgage assets as at December 31, 2003, compared to $1.8 billion at the end of
2002.

Stocks

The Companys equity portfolio represented four per cent of invested assets at
December 31, 2003, unchanged from the end of 2002. At December 31, 2003, the
Companys stock portfolio had a carrying value of $3.5 billion compared with
$4.2 billion at the end of 2002. The decrease was primarily due to the sale of
equities in the U.K. and the impact of the strengthening of the Canadian dollar
during 2003. The market value of its stock portfolio remained at $3.1 billion
at the end of 2003, unchanged from the end of 2002 as the decrease in carrying
value and the unfavourable currency impact due to the strengthening of the
Canadian dollar against foreign currencies were offset by higher equity
valuations. The Companys equity investments held in the participating
policyholders account accounted for 73 per cent of the Companys total stock
holding as at December 31, 2003.

The Companys equity portfolio is diversified by country. At December 31,
2003, $802 million or 23 per cent of the Companys equity portfolio related to
Canadian issuers, $1.0 billion or 29 per cent to U.S. issuers, $1.5 billion or
43 per cent to U.K. issuers, and $152 million or five per cent to issuers from
other jurisdictions. The portfolio is also well diversified by industry
classification and specific issuer.

Real Estate

The Companys real estate portfolio represented three per cent of invested
assets at December 31, 2003, unchanged from the end of 2002. At December 31,
2003, 61 per cent of the portfolio was located in Canada, 27 per cent in the
United States and 12 per cent in the United Kingdom. The Companys real

|Sun Life Financial Inc. | 46
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MANAGEMENTS DISCUSSION AND ANALYSIS


estate portfolio had a carrying value of approximately $3.1 billion and a market value
of approximately $3.3 billion at December 31, 2003, compared with $3.2 billion
and $3.4 billion, respectively, at the end of 2002.

Commercial office properties are the major component of the real estate
portfolio, representing approximately 50 per cent of real estate investments at
December 31, 2003.

The Company actively manages its real estate portfolio, focusing on
acquisitions and dispositions, leasing and the management of properties. The
Company is also engaged in the real estate advisory business and management of
third-party properties.

Impaired Assets

Total impaired assets, net of total specific and sectoral allowances, amounted
to $333 million at December 31, 2003, compared to $457 million as at December
31, 2002. The decrease of $124 million reflects the disposal of certain
impaired holdings, the impact of the additional allowances taken during the
year, and the strengthening of the Canadian dollar, which was offset primarily
by the addition of impaired bonds in the U.S. securitization sector. The
Companys net impaired ratio, defined as net impaired assets to total invested
assets, decreased to 0.34 per cent from 0.41 per cent at the end of 2002.

The Company had allowances of $366 million against gross impaired assets of
$699 million as at December 31, 2003. Impaired assets are primarily bonds
related to the U.S. securitization, utilities and transportation sectors.

In addition, the Company had $2.0 billion for possible future asset defaults
included in its actuarial liabilities as at December 31, 2003, compared with
$1.9 billion in 2002. The increase is primarily attributable to changes in
methodology, largely offset by the sale of Clarica U.S. and the strengthening
of the Canadian dollar against other currencies.

The Company takes provisions for impaired bonds and mortgages. In 2003, the
Company took provisions of $113 million, net of recoveries, on invested assets
compared to net provisions of $365 million in 2002. The 2003 provisions were
primarily related to investments in the airline and securitization sectors in
both the United States and Canada. The 2002 provisions were primarily related
to bond investments in the communications, airlines and energy sectors in the
United States.

Deferred Net Realized Gains

Deferred net realized gains represent net gains on the sale of invested assets
that have not yet been recognized in income. In accordance with Canadian
generally accepted accounting methods for insurance companies, net realized
gains on the sales of bonds and mortgages are deferred and amortized into
future investment income on a constant yield basis over the remaining period to
maturity. Net realized gains on the sale of stocks and real estate are
deferred and amortized into future investment income at the quarterly rate of
five per cent and three per cent, respectively, of the unamortized balance.

The Company had $3.1 billion in deferred net realized gains as at December 31,
2003, of which $2.3 billion represented net gains on invested assets backing
actuarial liabilities and $0.8 billion represented net gains on invested assets
backing capital. Gains on bonds and stocks collectively represented 95 per
cent of total deferred net realized gains as at December 31, 2003.

Net Unrealized Gains

Net unrealized gains represent the difference between market value and carrying
value of investments, which are not recorded on the Companys balance sheet
other than with respect to stocks and real estate. Carrying values for stocks
and real estate are determined on a moving average market method of accounting
whereby a portion of unrealized gains or losses is included in the carrying
value of investments. The related changes in unrealized gains and losses are
credited to or charged against income.

The Company had $5.1 billion in net unrealized gains as at December 31, 2003
compared to $4.5 billion as at December 31, 2002. The increased unrealized
gains were primarily related to the Companys stock portfolio.

Hedging Activities

The Company has entered into several derivative arrangements to hedge specific
exposures.

As described on page 41, the Company hedged its exposure to annuity guarantees
with long-dated put options against the S&P 500. Under the current accounting
rules, these options were carried at their intrinsic value on the balance sheet
with changes in this value being included in the increase in actuarial

|Sun Life Financial Inc. | 47
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MANAGEMENTS DISCUSSION AND ANALYSIS


reserves, offsetting the change in actuarial liabilities from equity market
fluctuation of these products. In 2003, there was no impact on earnings from
this hedging arrangement. Under the new accounting rules effective January 1,
2004, this arrangement will not qualify as a hedge and therefore the options
will be carried at fair value with the resulting transitional gain deferred and
amortized over the remaining term of the options. While the revised hedging
strategy allows the Company to manage the impact of changes in equity markets
over a broader range of the S&P 500 index, the Companys earnings will be
subject to more volatility because the derivatives will be carried at fair
value. To address this change in the accounting rules and changes in equity
market conditions, the Company revised its future hedging strategy through the
use of a basket of put options to more effectively manage the impact of equity
market changes over a broader range of the S&P 500 index.

Cross currency swaps are used to reduce the impact of currency fluctuations on
certain investment financing activities. The accounting for these contracts is
consistent with the underlying investment. Changes in exchange gains and losses
on cross currency swaps hedging the investment financing activities are
included in other liabilities and the currency translation account in equity,
offsetting the respective exchange gains and losses arising from the conversion
of the investment financing activities. The net interest income or expense on
these swaps is recorded as investment income with the offset to other assets or
other liabilities. The net impact of this arrangement on earnings was not
material in 2003 and is not expected to have a material impact on future
earnings.

Total return swaps are used to reduce the impact of changes in the fair value
of the Companys restricted share units. The total return swaps are adjusted to
fair value over the vesting period of the restricted share units with changes
in the fair value recorded in operating expenses to offset the changes in the
fair value of the restricted share units. In 2003, the impact on earnings of
this relationship was immaterial. Effective 2004, this arrangement will not
qualify as a hedge under the new accounting rules and the derivative will
therefore be recorded at fair value on the balance sheet. This change is not
expected to have a material impact on the Companys earnings.

|Sun Life Financial Inc. | 48
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MANAGEMENTS DISCUSSION AND ANALYSIS

Financial Position and Liquidity

The Company maintains a strong financial position and adequate liquidity to
ensure it can meet its obligations.

Principal Sources of Funds

The primary source of funds for the Company is cash provided by operating
activities, including premiums, investment management fees and net investment
income. These funds are used primarily to pay policy benefits, dividends to
policyholders, claims, commissions, operating expenses and interest. Cash
flows generated from operating activities are generally invested to support
future payment requirements, including the payment of dividends to
shareholders. The Company may also raise funds from time to time through
borrowing and the issue of securities to finance growth, acquisitions or other
needs.

Net cash, cash equivalents and short-term securities declined by $2.2 billion
in 2003 primarily because of lower net cash from operating activities of $1.2
billion and lower net cash provided by financing activities of $1.5 billion.
Net cash generated from operating activities was lower than 2002 largely as a
result of
lower premiums and higher surrenders, in particular, in U.S. annuities. Net
cash provided by financing activities was lower in 2003 primarily reflecting
the impact of share repurchases of $527 million and an increase of $119 million
in dividend payments. In addition, financing activities in 2002 included
inflows of $799 million and $200 million, respectively, from the issuance of
subordinated debentures and Sun Life ExchangEable Capital Securities (SLEECS).

At December 31, 2003, the Company maintained cash, cash equivalents and
short-term securities totalling $5.0 billion. Short-term securities in 2003
included $0.8 billion, up from $0.6 billion in 2002, relating to certain
derivative strategies and $0.9 billion, down from $1.2 billion in 2002, held in
conjunction with bond repurchase agreements. In addition to providing for
near-term funding commitments, cash, cash equivalents and short-term securities
include amounts which support short-term liabilities.

The Company had a $323 million line of credit from a financial institution of
which $284 million was unused. This line of credit has a term of two years.

Cash Flow

($ millions )
    
    2003
    
    2002
    
    2001Net Cash Provided by Operating Activities1
    
    
    3,245
    
    
    
    4,453
    
    
    
    1,957Net Cash Provided by (Used in) Financing Activities
    
    
    (1,204
    )
    
    
    292
    
    
    
    908Net Cash Provided by (Used in) Investing Activities
    
    
    (2,564
    )
    
    
    (3,216
    )
    
    
    (2,953
    )Changes due to Fluctuations in Exchange Rates
    
    
    (455
    )
    
    
    44
    
    
    
    168Increase (Decrease) in Cash and Cash Equivalents
    
    
    (978
    )
    
    
    1,573
    
    
    
    80Cash and Cash Equivalents, beginning of period
    
    
    4,156
    
    
    
    2,583
    
    
    
    2,503Cash and Cash Equivalents, end of period
    
    
    3,178
    
    
    
    4,156
    
    
    
    2,583Short-term Securities, end of period
    
    
    1,794
    
    
    
    2,996
    
    
    
    2,226Cash, Cash Equivalents and Short-term Securities, end of period
    
    
    4,972
    
    
    
    7,152
    
    
    
    4,809




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|1 |  | Includes net cash provided by discontinued operations.
|- |  | ------------------------------------------------------

|Sun Life Financial Inc. | 49
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MANAGEMENTS DISCUSSION AND ANALYSIS

Liquidity

The Companys primary liquidity requirement is to meet operating cash outflow
obligations such as the payment of claims and expenses and debt servicing, and
to ensure its ability to pay shareholder dividends. The Company generally
maintains a conservative liquidity position that exceeds on a consolidated
basis all the liabilities payable on demand. To further strengthen its
liquidity, the Company actively manages and monitors its capital levels, the
asset/liability matching position, the diversification and credit quality of
its investments, and its cash forecasts and actual amounts against established
targets. In addition, the Company maintains standby credit facilities with a
variety of banks. The agreements relating to the Companys debt, letters of
credit, and lines of credit contain covenants of the nature normally found in
these types of agreements relating to solvency, credit ratings and other such
matters. The Company is in material compliance with these covenants.

The Company is subject to various regulations in the jurisdictions in which it
operates. The ability of the Companys operating subsidiaries to pay dividends
and transfer funds within the Company is regulated in certain jurisdictions.
Transfers of funds across certain jurisdictions or among the Companys
subsidiaries require local regulatory approvals and the satisfaction of certain
conditions. Through effective cash management and capital planning, the
Company ensures that its subsidiary operations, as a whole and on a stand-alone
basis, are properly funded and maintain adequate liquidity to meet obligations,
both individually and in aggregate.

Based on the Companys historic cash flows and current strong financial
performance, management believes that the cash flow from the Companys
operating activities will continue to provide sufficient liquidity for the
Company to satisfy debt service obligations and to pay other expenses.

Capital Structure

The Companys capital consists of equity, preferred shares, SLEECS which
qualify as Tier 1 capital for regulatory capital purposes, cumulative capital
securities and subordinated debt. Shareholders equity decreased to $13.9
billion, down $924 million from the 2002 level. The decrease was primarily due
to the currency translation impact of $1.4 billion resulting from the
strengthening of the Canadian currency against the U.S. dollar and the British
pound sterling, share repurchases of $527 million, as well as
shareholder dividends of $413 million. The decrease was partially offset by
the earnings during the year.

The number of Sun Life Financial Inc. common shares outstanding decreased to
600 million as at December 31, 2003, compared to 618 million as at December 31,
2002. The decrease was primarily due to the Companys share repurchase program,
which repurchased approximately 18 million common shares in 2003.

The Company has also granted stock options to certain employees and directors
that may be exercised at the closing price of the common shares on the trading
day preceding the grant date. During 2003 the Company stopped granting stock
options to directors and therefore no stock options have been granted to
directors since 2002.

As at January 31, 2004, there were 599,970,665 common shares and 15,052,890
stock options outstanding.

Sun Life Assurance Company of Canada (Sun Life Assurance), the principal
operating subsidiary of the Company, had preferred shares outstanding of $155
million as at December 31, 2003. These shares were originally issued by
Clarica Life Insurance Company.

Through a subsidiary of Sun Life Financial Inc., Sun Life Capital Trust, the
Company has $950 million of Series A SLEECS and $200 million of Series B SLEECS
outstanding. In certain limited circumstances, these securities can be
converted into 40 Sun Life Assurance preferred shares per thousand dollars face
amount. These preferred shares are exchangeable into Sun Life Financial Inc.
common shares at a price equal to 95 per cent of the trading price at the time
of exchange. The number of common shares ultimately issuable upon the
conversion of the SLEECS depends on the prevailing market price of the common
shares at the time of exchange and is thus not determinable until the
conversion date.

The Companys long-term debt decreased with the redemption of $165 million of
its 6 5/8 per cent subordinated notes. At December 31, 2003, the Company had
cumulative capital securities of $774 million, which were issued in U.S.
dollars with no scheduled maturity date, $1.5 billion of subordinated
debentures issued in Canadian dollars with maturities between 2013 and 2028,
and subordinated notes of $228 million issued in U.S. dollars with maturities
between 2007 and 2015.

|Sun Life Financial Inc. | 50
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MANAGEMENTS DISCUSSION AND ANALYSIS

Including the SLEECS and preferred shares as part of debt, the Companys
debt-to-total capital ratio decreased to 21 per cent as at December 31, 2003
from 22 per cent at December 31, 2002.

Shareholder Dividends

Sun Life Financial Inc. increased its quarterly shareholder dividend to $0.17
per share, up 21 per cent from $0.14 per share in 2002. Total shareholder
dividends for 2003 were $0.68 per share, representing a payout ratio of
approximately 27 per cent. On January 29, 2004, the Board of Directors
approved an additional 24 per cent increase to $0.84 per share. Sun Life
Financial Inc.s dividend policy is reviewed periodically by the Board of
Directors, and is dependent upon the Companys earnings, financial condition
and capital requirements.

Capital Adequacy

The Company has policies in place that ensure that adequate capital levels are
maintained in the countries in which it has operations. In Canada, the Company
has been subject to the Minimum Continuing Capital and Surplus Requirements
(MCCSR) established by the Office of the Superintendent of Financial
Institutions (OSFI). In September 2003, OSFI indicated that it is developing a
capital regime for non-operating insurance holding companies. The guidelines
are anticipated to be issued in the first quarter of 2004 and are expected to
recommend that the MCCSR test no longer be applied at the consolidated
insurance holding company level to assess solvency. In lieu of this measure,
OSFI is expected to use leverage and servicing ratios to measure capital
adequacy. Sun Life Financial Inc. has maintained strong debt-to-capital ratios
and believes that it is well positioned to meet the new guidelines. Sun Life Financial Inc.
also maintains a strong capital position that is well in excess of the MCCSR
requirements that currently apply to it.

Total Debt-to-Capital Ratio*

(TOTAL DEBT-TO-CAPITAL RATIO)

It is anticipated that Sun Life Assurance will continue to be subject to MCCSR
requirements. MCCSR is the ratio of available capital to required capital of a
life insurance company. Under the guidelines of OSFI, insurance companies are
generally expected to maintain a minimum MCCSR ratio of 150 per cent. Sun Life
Assurances MCCSR ratio was well in excess of these guidelines as at December
31, 2003. The increase in MCCSR ratios was primarily driven by the positive
effect of improving equity market conditions on capital required and the sale
of Clarica U.S.

MCCSR Ratio*

(MCCSR RATIO)

Off-Balance Sheet Arrangements

The Company and its subsidiaries, in the normal course of business, are engaged
in a variety of financial arrangements. The principal purposes of these
arrangements are:



|(i) |  | to earn management fees and additional spread on a matched book of
business;
|--- |  | ----------------------------------------------------------------------------

|(ii) |  | to hedge and match the Companys liabilities, and reduce risks associated
with currency, interest rate and stock market fluctuations;
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------

|(iii) |  | to reduce financing costs.
|----- |  | --------------------------

While most of these activities are reflected on the Companys balance sheet
with respect to assets and liabilities, certain of them are either not recorded
or are recorded on the Companys balance sheet in amounts that differ from the
full contract or notional amounts. The types of off-balance sheet activities
the Company undertakes primarily include:



|l |  | asset securitization 
|- |  | ---------------------
|l |  | security lending     
|l |  | financial derivatives
|l |  | financial reinsurance

|Sun Life Financial Inc. | 51
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MANAGEMENTS DISCUSSION AND ANALYSIS

4  Asset Securitization

The Companys asset securitization program primarily comprises mortgage-backed
securities and collateralized bond obligations. The purpose of these
structures is to leverage the Companys investment expertise to source and
manage assets for third party customers for which the Company is paid
origination or management fees.

The Company generally uses special purpose entities (SPEs) to carry out these
activities. SPEs may be organized as trusts, partnerships or corporations. In
an asset securitization, the Company transfers assets to an SPE in exchange for
cash. The SPE obtains the cash needed to pay for the assets it receives by
issuing securities to investors. As part of the SPE arrangement, the Company
may subscribe to a subordinated investment in the securities issued by the SPE.
The Company is generally retained to manage the asset in the SPE on a
fee-for-service basis. All of the asset securitization transactions undertaken
by the Company are structured on a non-recourse basis under which the Company
has no exposure to the default risks associated with the assets in the SPE,
other than through any retained interest held by the Company, which is not
expected to be material.

The Companys asset securitization program, excluding MFS securitization
activities, is summarized in the following table.

($ millions)
    
    2003
    
    2002As at December 31Balance of Securitized Assets
    
    
    3,075
    
    
    
    3,050The Companys Retained Interests
    
    
    165
    
    
    
    136For the year ended December 31Cash Flow Received on Retained Interests and Servicing Fees
    
    
    26
    
    
    
    19Sales Proceeds from New Securitizations
Including Gains Before Taxes
    
    
    693
    
    
    
    525


During 2003, the Company sold commercial mortgages with a carrying value of
$623 million to a U.S. trust that subsequently issued securities backed by the
commercial mortgages. In 2002, the Company sold commercial mortgages with a
carrying value of $497 million to a U.S. trust which subsequently issued
securities backed by the commercial mortgages. The Company was retained by
both trusts to service and administer the mortgages. It also retained a
subordinated investment in both issued securities. These transactions resulted
in pre-tax gains of approximately $70 million and approximately $28 million,
respectively. These gains are being amortized into income over time.

The Company, through MFS, manages collateralized debt obligations. The
Companys exposure in these collateralized debt obligations is limited to its
equity investment and the management fee income earned. The net carrying value
of the Companys equity investment at December 31, 2003 was $4 million and the
expected annual management fees are approximately $3 million.

4  Securities Lending

The Company maintains a securities lending program through which certain
securities from its investment portfolio are loaned to other institutions for
short periods. The purpose of this program is to generate additional fee
income. The Company conducts its program only with well-established, reputable
banking institutions that carry a minimum rating of AA. Collateral that
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.

The Companys securities lending program is summarized in the following table.

($ millions)
    
    2003
    
    2002As at December 31Balance of Securities Loaned
    
    
    568
    
    
    
    1,675Value of Collateral
    
    
    642
    
    
    
    1,884For the Year Ended December 31Fee Income Received
    
    
    3
    
    
    
    4


The Companys loaned securities, which are included in invested assets, had a
carrying value and market value as at December 31, 2003 of approximately $568
million and $609 million, respectively. As at December 31, 2002, the Companys
loaned securities had a carrying value and market value of approximately $1.7
billion and $1.8 billion, respectively.

|Sun Life Financial Inc. | 52
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MANAGEMENTS DISCUSSION AND ANALYSIS

4  Financial Derivatives

The Company uses derivative instruments for hedging and risk management
purposes or in replication strategies to reproduce permissible investments.
The Company does not engage in the speculative use of derivatives. The
permissible derivative instruments include swaps, financial futures, options
and forward contracts to manage risks or to replicate the exposures associated
with interest rate, currency and equity market fluctuations.

The Company generally enters into derivative transactions with counterparties
with an AA rating or better. Where a counterpartys rating is downgraded
below this level, the Company has credit support arrangements in place which
require additional collateral at lower thresholds.

The Company uses financial models and techniques to ensure the continuing
effectiveness of its hedging strategies. The Company monitors the gaps in
market sensitivities between liabilities and the supporting assets. The gap is
managed within defined tolerance limits by the use of derivative instruments.
From time to time, there may be little availability of assets having the
appropriate characteristics to maintain the gaps within predetermined risk
tolerances. Generally, a derivative transaction will be pursued if the asset
purchase or sale is not considered as financially beneficial compared to an
alternative transaction using permissible derivative instruments.

Changes in the fair value of derivatives entered into for hedging purposes
almost completely offset either changes in the fair value of an on balance
sheet item or changes in the amount of future cash flows. The details of
accounting policies in respect of derivatives are described in Note 1 of the
Consolidated Financial Statements.

The Companys derivative instruments are summarized in the following table.

($ millions)
    
    2003
    
    2002As at December 31Total Notional Amount
    
    
    26,163
    
    
    
    24,858Net Fair Value
    
    
    715
    
    
    
    130Risk-Weighted CreditEquivalent Amount
    
    
    53
    
    
    
    48


Derivative transactions are measured in terms of notional amounts which serve
as the basis for
calculating payments and are generally not actual amounts that are exchanged.
The net fair value represents the unrealized gains, net of unrealized losses,
of all derivative financial instruments. The risk-weighted credit equivalent
amount is a measure of credit risk, weighted according to the nature of the
derivative and the creditworthiness of the counter-parties. The risk-weighted
credit equivalent amount is determined in accordance with guidelines provided
by OSFI. Additional details regarding the Companys derivatives, including
investment income derived from both on- and off-balance sheet derivatives, can
be found in Notes 8 and 9 of the Companys Consolidated Financial Statements.
Information on the Companys derivatives reported on a U.S. GAAP basis can be
found in Note 23 of the Companys Consolidated Financial Statements.

4  Financial Reinsurance

The Company engages in financial reinsurance to generate fee income. Financial
reinsurance treaties are structured primarily to provide regulatory capital
relief for U.S. insurance companies. Such relief results in the ceding company
holding a lower reserve amount than would otherwise be required under
accounting requirements of the National Association of Insurance Commissioners
in the United States.

The Companys financial reinsurance transactions are structured so that the
risk of a loss in any one year is minimal. These reinsurance transactions are
usually structured for a term of five years or less.

The Companys financial reinsurance program is summarized in the following
table.

($ millions)
    
    2003
    
    2002As at December 31Business In Force Equivalent
    
    
    395
    
    
    
    458Risk-Weighted Amount*
    
    
    1
    
    
    
    1For the Year Ended December 31Fee Income Received
    
    
    5
    
    
    
    5




---

|* |  | Represents the risk equivalent amount weighted according to
the nature of the risk profile of each financial reinsurance treaty
|- |  | -------------------------------------------------------------------------------------------------------------------------------

Business in force equivalent is measured as the amount of capital relief that
is provided by financial reinsurance. The risk-weighted amount is a measure of
the underlying risk associated with financial reinsurance treaties. It
represents the economic capital required to support these treaties.

|Sun Life Financial Inc. | 53
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MANAGEMENTS DISCUSSION AND ANALYSIS

Contractual Obligations

Payments Due by Period($ millions)
    
    Total
    
    Within 1 Year
    
    1-3 Years
    
    4-5 Years
    
    Over 5 YearsLong-Term Debt
    
    
    3,654
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    3,619Operating Leases
    
    
    610
    
    
    
    120
    
    
    
    280
    
    
    
    46
    
    
    
    164Credit-Related Arrangements
Contractual Commitments
    
    
    1,700
    
    
    
    1,157
    
    
    
    543
    
    
    
    
    
    
    
    Letters of Credit
    
    
    514
    
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    
    6,478
    
    
    
    1,791
    
    
    
    823
    
    
    
    81
    
    
    
    3,783


Commitments, Guarantees, Contingencies and Reinsurance Matters

In the normal course of business, the Company enters into leasing agreements,
outsourcing arrangements, and agreements involving indemnities to third
parties. The Company is also engaged in arbitration proceedings in the U.S.
and U.K. with certain companies that have contracts to provide reinsurance to
the Company. Details regarding the Companys commitments, guarantees and
contingencies are summarized in Note 21 of the Companys Consolidated Financial
Statements.

4  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 were $610 million as
at December 31, 2003.

4  Contractual Commitments

In the normal course of business, the Company provides credit instruments to
its customers to facilitate their financial needs. These various contractual
commitments are not reflected in the Consolidated Financial Statements. At
December 31, 2003, there were outstanding contractual commitments of $1.7
billion. The majority of these commitments are to extend credit under
commercial and residential mortgage loans.

4  Letters of Credit

The Company issues letters of credit in the normal course of business. At
December 31, 2003, letters of credit in the amount of $514 million have been
issued.

4  Outsourcing Agreements

The Company enters into long-term outsourcing contracts from time to time to
allow the Company to focus on its core business and enhance customer services.
The following are the material long-term outsourcing contracts.

In March 2002, the Company entered into a five year outsourcing contract with
Marlborough Stirling Group, a U.K. based services provider, to outsource the
administration of its closed block of U.K. individual annuity and insurance
business, consisting of around 800,000 policies. The contract has subsequently
been extended by two years through
to 2009. The value of the main contract is estimated at approximately $315
million over its term. The future payments to Marlborough Stirling are
estimated to be approximately $33 million in 2004 and $122 million for the
remaining term of this contract after 2004. The outsourcing arrangement has
reduced the Companys operating costs and risks, enhanced its strategic
flexibility in the U.K. market, and represents another step in the
implementation of the Companys strategic initiative to rationalize its U.K.
operation.

In August 2002, the Company entered into an outsourcing contract with IBM
Canada Limited (IBM), under which IBM provides a wide range of technology
services to the Company over a seven-year period. The value of this contract
is estimated to be approximately $250 million over its life. Beginning in
2004, this agreement was broadened in scope to include e-Messaging and
mainframe services. The future payments to IBM, based on currently anticipated
usage levels are estimated to be approximately $37 million a year for the
remaining term of this contract.

Additional Information

Additional information relating to the
Company can be found in the Companys Consolidated Financial
Statements and accompanying notes for the year ended
December 31, 2003, the Companys 2003 AIF and other documents
filed with applicable securities regulators in Canada and may be
accessed at www.SEDAR.com and have also been filed with the Securities and Exchange Commission in the United States.

|Sun Life Financial Inc. | 54
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