##### 



(COVER PAGE)





---



##### 



The Story Behind Our Values

WHO WE ARE

Sun Life Financial is a leading international financial services organization
providing a diverse range of wealth accumulation and protection products and
services to individuals and corporate customers. Tracing its roots back to 1865,
Sun Life Financial and its partners today have operations in key markets
worldwide, including Canada, the United States, the United Kingdom, Hong Kong,
the Philippines, Japan, Indonesia, India, China and Bermuda. As of December 31,
2002, the Sun Life Financial group of companies has total assets under
management of CDN$360.6 billion. Sun Life Financial Services of Canada Inc.
trades on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock
exchanges under ticker symbol SLF.

OUR MISSION: TO PROVIDE LIFETIME FINANCIAL SECURITY

We are in business to help people achieve and maintain the peace of mind that
comes from having in place sound financial solutions that will evolve and adapt
to their changing needs throughout their lifetimes. We accomplish this mission
by providing innovative, customer-focused protection and wealth management
products and services to individuals directly, or as members of the savings,
pension and retirement plans we offer through their employers.

OUR VISION: TO BE AN INTERNATIONAL LEADER IN WEALTH MANAGEMENT AND PROTECTION

We aim to be the leader in the markets in which we choose to compete. We will
accomplish this by standing out on the international stage as an organization
whose operational excellence and integrity are second to none. We will prove our
excellence in everything we do: by designing, selecting and distributing
superior products and services, by focusing on our customers and by measured
growth through strategic acquisitions and judicious expansion.

OUR VALUES:

Integrity

We aspire to the highest standards of business ethics and good governance.

Excellence

We pursue operational excellence through the people we employ, constant
innovation, superior service and value-based risk management.

Customer Focus

We always work with the customers interest in mind, and partner with them
directly or through their employers to provide sound financial solutions over
their lifetimes.

Building Value

Everything we do, from the products and services we offer to the way in which we
deliver them, adds value for our customers and builds value for our
stakeholders.





---



##### 



Financial Highlights

OVERVIEW
As at, or for the year ended, December 31

|                                  |             |      |         |       |      |      |         |     |  |  |         |     |  |  |         |     | 
|--------------------------------- | ----------- | ---- | ------- | ----- | ---- | ---- | ------- | --- |  |  | ------- | --- |  |  | ------- | --- | 
|                                  |             |      | 2002    |       | 2001
|                                  |             |      |         |       |     
|(in millions)                     |             | CDN$ |         | US$   |      | CDN$ |         | US$
|                                  |             |      |         |       |      |      |         |    
|Shareholders Net Income          |             |      |         |       |      |      |         |     |  |  |         |     |  |  |         |    
|                                  | - Operating |      |         | 1,260 |      |      |         | 797 |  |  |         | 872 |  |  |         | 548 | 
|                                  | - Reported  |      |         | 998   |      |      |         | 632 |  |  |         | 882 |  |  |         | 555 | 
|Revenue                           |             |      | 23,101  |       |      |      | 14,621  |     |  |  | 16,815  |     |  |  | 10,575  |    
|Total Assets Under Management     |             |      | 360,600 |       |      |      | 228,228 |     |  |  | 351,747 |     |  |  | 221,225 |    
|Exchange Rate (as at December 31) |             |      |         |       |      |      | 1.58    |     |  |  |         |     |  |  | 1.59    |    

(FINANCIAL CHARTS)



1
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Letter to Shareholders

(DONALD A. STEWART PHOTO)

DONALD A. STEWART
Chairman & Chief Executive Officer

Sun Life Financial achieved respectable operating results for 2002 in the face of
declining capital markets and difficult business conditions. Shareholders net
income for the year was $998 million, an increase of 13.2 per cent from the
$882 million earned in 2001. Operating earnings per share were $2.32, an increase
of 12.6 per cent over the $2.06 earned in 2001.

We completed the most significant transaction in our 138-year history in 2002 as
we welcomed the shareholders, policyholders and employees of Clarica Life
Insurance Company into the Sun Life Financial organization. This landmark
combination created a much stronger organization, with enhanced products,
expanded distribution power, greater management depth and lower cost structures.
The Clarica integration is on schedule and has achieved its interim performance
objectives. We remain confident that integration will be successfully completed
by the end of this year. Further information on the status of the Clarica
integration can be found on page 9.

Another key strategic initiative in 2002 resulted in Sun Life Financials
acquisition of a significant interest in CI Fund Management Inc., one of
Canadas largest mutual fund managers. We expect this strategic repositioning in
the Canadian wealth management business to serve us well going forward.

I reported to you last year on the acquisition of Keyport Life Insurance Company
and Independent Financial Marketing Group in the United States. Both of those
companies have made very positive contributions in 2002,strengthening our
strategic positioning in the important U.S. annuities market and adding to
financial returns. Additional details appear in the following pages of this
report.

Our goal is to achieve sufficient scale in the focused businesses in which we
choose to compete. With competitive scale we can invest more effectively in
product development, technology, marketing and distribution capabilities. We
expect to continue to pursue selective acquisitions in the consolidating North
American financial services sector consistent with our disciplined objectives
for strategic fit and financial return.

Our North American growth strategy complements managements long-term focus on
expanding our presence in some of the worlds most promising markets, which
includes our strategic investments in India and China. Our intent is to build
these operations in tandem with the growing demand for household financial
planning in these emerging markets. Early signs of attractive revenue growth
from these emerging businesses have been encouraging.

Operational excellence is the key to superior organic growth. Innovation,
discipline, strong brands, competitive products and outstanding customer service
are all areas in which we must maintain world-class capabilities. At Sun Life
Financial, we have made a specific commitment to three distinctive capabilities:
people and performance management, value-based risk management and
internationalization, or maximizing the advantages of the geographic diversity
and scale of our operations. You will hear more from us on these capabilities
going forward.

2
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



I encourage you to review the Risk Management section of our Managements
Discussion and Analysis, where you will find an overview of our enterprise-wide
risk management framework. Our risk identification program,market risk tolerance
limits, earnings-at-risk measurement model and other management tools and
policies provide a brief overview of our focus on understanding and managing the
risks inherent in our businesses. We are continually evolving these tools under
the guidance of the Risk Review Committee of the Board, which deals exclusively
with matters of risk and compliance within the organization.

Much has been said and written about the financial scandals that have destroyed
billions of dollars of shareholder wealth and rocked public trust in markets and
corporate leadership. At Sun Life Financial, we know that it is a privilege to
play a role in helping individuals and their families to achieve financial
security. We are committed to the highest standards of business conduct and
integrity. In the end, of course, it is our actions rather than our words by
which we will be judged. We will work to earn the trust of our customers and
stakeholders every day.

An important contribution to maintaining leadership in the marketplace has been
our ability to attract and retain a talented and energetic workforce of
committed employees. Sun Life Financial is proud to have been selected as one of
Canadas top 100 employers for its industry leadership in 2002. I would like to
thank our employees, whose commitment and hard work have helped to strengthen
our organization through a very challenging year.

On April 3, 2003, we announced that William W. Stinson, Lead Director of Sun
Life Financial, would be appointed Chairman of the Board immediately following
the Annual Meeting on June 4, 2003. I have appreciated the advice and guidance I
have received from Bill over the past four years in his capacity as Lead
Director, and I look forward to continuing our working relationship.

We thank our customers and shareholders, whose ongoing support has enabled Sun
Life Financial to achieve its current position. We will continue to work hard
to build value.

-s- DONALD A. STEWART

Donald A. Stewart
Chairman & Chief Executive Officer



3
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



A Message from the Lead Director

(WILLIAM W. STINSON PHOTO)

WILLIAM W. STINSON
Lead Director

I am pleased to have this opportunity to write to you on behalf of the Board of
Directors of Sun Life Financial.

The role of Boards of Directors in the oversight of public companies has been
the focus of much recent debate. Public confidence in the ability or willingness
of boards to provide leadership in governance has been eroded. Shareholders and
other stakeholders are demanding increased accountability, either directly or
through regulatory or policy initiatives.

Sun Life Financial is committed to honouring its promises to its customers and
delivering long-term value to shareholders. We know that the corporation can
only deliver on these commitments in todays business environment if the
corporation maintains world-class standards of operational accountability and
integrity at all levels. We believe strongly that it does. Our fully engaged
Board will continue to play an active part in ensuring that this remains the
case.

Immediately following the Annual Meeting on June 4, 2003, I will assume the role
of Chairman of the Board of Sun Life Financial. We believe strongly that our
structure of governance has served us well and been effective. However, it has
become clear that support for combining these roles has significantly decreased.
Separating the roles of the Chairman and Chief Executive Officer demonstrates
our ongoing commitment to the highest standards of corporate governance. I look
forward to building on my long association with Sun Life Financial and to
working with Don and the other Board members to continue our successful progress
as a public company.

Dian N. Cohen, CM, LLD and The Honourable Donald S. Macdonald PC, CC retired
from the Board of Directors at the 2002 Annual Meeting. Mr. Macdonald served as a
director for 11 years and Ms. Cohen served as a director
for six years. Iwish to
extend my sincere thanks to Dian and Donald for their outstanding contributions
to the stewardship of Sun Life Financial.

The Board was strengthened in 2002 by the election of six new Directors: Robert M. Astley  President, SunLife Financial
Canada, David A. Ganong  President, Ganong Bros. Limited, Germaine Gibara, CFA  President, Avvio Management Inc.,
Krystyna T. Hoeg, CA  President and Chief Executive Officer, Corby Distilleries Limited, Idalene F. Kesner  Frank P.
Popoff Chair of Strategic Management, Kelley School of Business, Indiana University and C. James Prieur  President and
Chief Operating Officer. I am delighted to welcome these new directors to the Board.

I would also like to take this opportunity on behalf of the Board of Directors
to congratulate and thank the management and employees of Sun Life Financial for
their achievements during 2002.

-s- WILLIAM W. STINSON

William W. Stinson
Lead Director

4
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Board of Directors

(BOARD OF DIRECTORS PHOTO)

5
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Board Governance

Sun Life Financials corporate governance structure and practices are designed
to strengthen the ability of the Board of Directors to oversee the management of
the organization and ensure the integrity and transparency of financial
reporting, thereby fostering the creation of long-term shareholder value.

The organizations governance system is consistent with The Toronto Stock
Exchange Guidelines for Effective Corporate Governance, including revisions to
the TSX Guidelines that were proposed in 2002. Sun Life Financials governance
model is also consistent with Guidelines issued in January 2003 by the Office of
the Superintendent of Financial Institutions for Effective Corporate Governance
in Federally Regulated Financial Institutions. The Board will continue to review
and amend its corporate governance practices to respond to new standards.

Point-by-point
comparison to the TSX Guidelines and with certain New York Stock
Exchange proposals is contained in the Management Information Circular issued in
connection with the 2003 Annual Meeting. Board and Board Committee Charters are
posted on the Sun Life Financial Web site: www.sunlife.com.

STEWARDSHIP RESPONSIBILITIES

The Board has
approved a written Charter that outlines the Boards overall
stewardship responsibilities. These responsibilities include the selection,
evaluation and compensation of the Chief Executive Officer and other senior
executives, succession planning for these positions, approving strategic plans
and monitoring performance against these plans, approving the risk management
framework for the enterprise, approving material transactions and reviewing the
financial performance and condition of Sun Life Financial. Board and Board
Committee meeting agendas are structured to allow the Board to discuss these
matters at every regularly scheduled meeting. The Board has also clearly
outlined matters that require Board approval and those that have been delegated
to the Chief Executive Officer and management.

LEADERSHIP

William W. Stinson, the Lead Director, provides independent leadership to the
Board of Directors. During 2002, the Board reviewed its leadership structure and
increased the duties and responsibilities of the Lead Director. Immediately
following the 2003 Annual Meeting, William W. Stinson will be appointed Chairman
of the Board.

COMPOSITION

The strength of the Board depends on the background, skills and experience of
its members. The Board of Directors has adopted a written standard of Director
attributes that each Director must consider in evaluating his or her
participation on the Board and which are used as the basis of an annual peer
review evaluation. The Governance Committee bases its recommendations for
Director nominees on these criteria.

The Board was strengthened by the addition of six new directors in 2002,
primarily as a result of the combination transaction with Clarica Life Insurance
Company. As at December 31, 2002, the Board consisted of 18 directors. These
directors also serve as the Board of the operating subsidiary, Sun Life
Assurance Company of Canada.

Three of the
directors are related Management Directors, Donald A. Stewart, C. James Prieur, President and Chief
Operating Officer and Robert M. Astley, President, Sun Life Financial Canada. John D. McNeil, who retired as Chairman and
Chief Executive Officer in April 1999, is also considered a related Director.

INDEPENDENCE

The Board has practices in place that allow the non-management Directors to act
with a high level of independence from management. William W. Stinson, Lead
Director, chairs a session following every Board meeting attended only by
non-management Directors. All aspects of the Boards stewardship
responsibilities are discussed at these sessions. All members of the Board
Committees are non-management Directors. Each Board Committee also holds regular
sessions without any member of management present. Each Audit Committee meeting
includes a private session with the External

6
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Auditors. In addition, non-management Directors hold Board membership on a number of Sun Life
Financials major foreign subsidiaries.

EFFECTIVENESS

The Board has practices in place to ensure its effectiveness. The Governance
Committee monitors the membership of the Board and Board Committees. Each year,
the Lead Director manages a Board effectiveness evaluation process and peer
review assessment. The Lead Director also meets at least once a year with each
director to discuss Board and individual performance. The Governance Committee
oversees the orientation program for new directors. In addition to the annual
Board strategy meeting, Directors seminars are held during the year to provide
directors with background on the organizations ongoing activities.

RECENT DEVELOPMENTS

The roles of Chairman and Chief Executive Officer will be separated immediately
following the 2003 Annual Meeting. SunLife Financial was one of the first major
corporations to expense the cost of stock options when it adopted the practice
in the second quarter of 2002. The Board has adopted a formal written policy
restricting the use of the External Auditors for non-audit services.
Certifications of Sun Life Financials annual financial results have been signed
by Donald A. Stewart, Chief Executive Officer and Paul W. Derksen, Chief
Financial Officer. An anonymous employee complaint hotline operating on a 24/7
basis to address complaints related to accounting and auditing matters has been
put in place.

BOARD COMMITTEES

The Board delegates certain responsibilities to standing Board Committees to
allow an in-depth review of these issues. The Chair of each Board Committee
reports to the full Board on the Committees deliberations following each
meeting and during these reports makes recommendations on behalf of the
Committee on matters requiring full Board approval. Each Board Committee has a
written Charter that is regularly reviewed. The following is a brief summary of
some of the key responsibilities of the five Board Committees:

Audit Committee:

The Audit Committee oversees the integrity of financial statements and
information provided to shareholders and others, the adequacy and effectiveness
of the internal control environment implemented and maintained by management and
the independence and performance of the External Auditors,who are accountable to
the Audit Committee, Board of Directors and shareholders.

Conduct Review Committee:

The Conduct Review Committee reviews the related party procedures and practices
of the organization in accordance with statutory requirements.

Governance Committee:

The Governance Committee is responsible for assessing the effectiveness of the
corporate governance process and recommending nominees for election as
directors. On an annual basis, the Governance Committee makes recommendations to
the Board with regard to the process relating to meetings of the Board,
including the timing and frequency of meetings, the content of agendas and
informational requirements of the Directors.

Management Resources Committee:

The Management Resources Committee is responsible for succession planning for
the position of Chief Executive Officer and other senior management positions,
reviewing the performance of the Chief Executive Officer and senior management
and approving their remuneration, assessing compensation policies and overseeing
employee pension plans.

Risk Review Committee:

The Risk Review Committee is responsible for overseeing the major areas of risk
facing the organization, including approving and reviewing compliance with
investment, risk management and regulatory compliance policies.

7
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Canada

Sun Life Financial Canadas operations enjoyed an excellent year. Strong
financial performance was achieved due to a combination of solid organic growth
and rapid progress in integrating Clarica into our existing Canadian business.

Sun Life Financial
Canada contributed $513 million to shareholders net income in
2002 as all major business lines achieved aggressive performance objectives.
These results include seven months of earnings from the acquisition of Clarica,
which closed on May 29, 2002.

Additional highlights include an innovative partnership,consistent with our
goal of market leadership in Canada, formed when the mutual fund subsidiaries
of Clarica and Sun Life Financial were sold to CI Funds in return for a
significant equity interest in one of Canadas leading fund managers. Our
customers gained access to a wider range of quality market-based products
through CI Funds expanded distribution reach to our dedicated retail sales
force.

Our Independent Career Advisor channel continued to show robust growth,reaching
a level of more than 4,200 advisors. This exclusive sales force markets life,
health and wealth management products under the Clarica brand. The affluent
market is served by the newly established Synera Financial Services,which
handles retail products featuring the Sun Life Financial brand. With the
objective of delivering a consistent customer experience, we have leveraged our
brands and distribution channels to meet the needs of each market segment. This
strategy has given our 21st century distribution model a leading
position in
retail life and health product sales, including critical illness and long-term
care.

Group Retirement Services is the #1 provider of defined contribution pension
and savings plans in Canada and in 2002, became the first Canadian insurer to
top $1 billion in new business. Group Benefits, which provides group life and
health insurance, serves more than 10,000 Canadian employers. Group Benefits and Group
Retirement Services have jointly developed an innovative, integrated services
platform that allows plan sponsors and plan members seamless access to both our
benefits and retirement services products. This advanced technology platform
provides a significant advantage in attracting and retaining clients as
it addresses the rapidly evolving customer preference to directly access both
sets of products via the Internet.

We continue to emphasize the importance of local community relationships from
both a business and citizenship perspective. The major operations of Clarica and
Sun Life Financial are based in multiple locations for client proximity and to
preserve the combined organizations strong talent base. In
addition to Sun Life
Financials recognition as a leading employer in Canada, Claricas community
involvement was acknowledged with the Outstanding Philanthropic National
Corporation award in Ottawa. Clarica was also included in the top 25 Canadian
corporate citizens by Corporate Knights, an organization dedicated to
encouraging socially responsible business.

8
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Clarica Integration

Since Sun Life Financial and Clarica announced their intention to combine the
two organizations in December 2001, our people have forged ahead to achieve an
integration that will deliver real economic value to shareholders through
enhanced business opportunities and expense synergies. In the intense effort to
integrate these two companies, it would be easy to lose sight of what must
always remain our highest priority  the needs and expectations of our
customers. We have worked hard to prevent slippage on this front, and extensive
customer communication has been a hallmark of the integration effort.

Because both Clarica and Sun Life Financial employees were committed to the
success of the integration from the very beginning, integration planning was
able to commence immediately following the announcement of the proposed
transaction. Early in the process, we were able to help employees understand the
implications of integration for their work and careers. By quickly bringing
certainty to the process we were able to build confidence among our employees
and thereby benefit from their very best efforts. Significant progress has been
made in harmonizing processes and systems and meeting targeted expense levels.

Key objectives achieved:



| |  | Completion of the integration of the retail distribution channels and the
creation of Synera Financial Services and Clarica Financial Services.                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Enhancement of Group Benefits and Group Retirement Services administration
systems to support the combined blocks of business. Conversion to a single
platform will be completed this year.
| 
| |  | Outsourcing of selected corporate systems functions.                                                                                                                                       
| 
| |  | Consolidation of mainframe computer operations to Waterloo.                                                                                                                                
| 
| |  | Conversion of segregated fund and mutual fund operations to CI Funds.                                                                                                                      

On November 27, 2002, shareholders and voting policyholders of Clarica Life
Insurance Company and Sun Life Assurance Company of Canada voted in favour of
the amalgamation of the two companies, effective December 31, 2002, under the
name of Sun Life Assurance Company of Canada. Amalgamation assists our
integration efforts by streamlining business operations and financial processes,
reducing operating costs and lowering integration risks.

We are now past the halfway point of the integration. Our people have
enthusiastically embraced the challenges of change, the need to accept new roles
and new responsibilities and the opportunity to work with new colleagues. We are
meeting our integration objectives by focusing on people, acting with speed and
decisiveness and building a strong culture.

This year will bring new and different challenges. Our people are dedicated to
delivering excellent returns to shareholders and serving a growing customer base
of seven million people that has made us a Canadian market leader.

9
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



United States

The diversity of our U.S. businesses and the traction gained from the Keyport
Life Insurance Company and Independent Financial Marketing Group acquisitions
enabled solid performance in 2002. Both Individual and Group insurance
businesses made strong contributions to overall earnings in the U.S., and
achieved impressive growth rates. The impact of falling equity markets on our
variable annuity business was tempered by Keyports complementary profile of
fixed annuities and Sun Life Financials proactive risk management initiatives.

Our stated goal is to reach a top 10 position in select protection and wealth
management markets in the U.S. Operational excellence, product innovation,
strategic acquisitions and world-class distribution define our U.S. growth
strategy.

Keyports fixed annuity expertise and Independent Financials leading bank
distribution channel enhanced our position in the important annuity
marketplace. The successful integration of Keyport resulted in the net
contribution of $116 million to 2002 earnings, significantly improved
operational efficiencies and added depth to our product offerings. Independent
Financial, a leading distributor of mutual funds and annuities in banks,
significantly enhanced our market position through the bank channel. In its
first full year as a Sun Life Financial company, Independent Financial
delivered a record performance with total proprietary sales exceeding
$3 billion.

In the U.S., we also established a new annuity distribution company by
integrating the annuity distribution arms of MFS Investment
Management and Sun
Life Financial. The combined organization provides a superior distribution
model offering an array of annuity products, while providing one face to the
customer.

In addition to record sales in our Group business, Sun Life Financial marked its
20th year in the group medical stop-loss market, making the Company one of the
oldest providers of stop-loss. Since launching the product, Sun Life Financial
has built a reputation for innovation and integrity and has grown to be one of
the largest providers of stop-loss in the country. Our Individual business also
had a very strong year and we continue to expand our wholesaler distribution
network to further enhance sales in the high net worth and private placement
markets. We have also achieved significant operational efficiencies and expense
savings by transferring Individual and Group Life claims processing to our back
office operations in Ireland.

During a year in which many consumers and shareholders questioned business
practices, Sun Life Financials ongoing commitment to integrity was acknowledged
in the U.S., where it received the Better Business Bureaus Torch Award. This
award exemplifies a commitment to, and demonstration of, ethical business
practices in the marketplace, and high standards of behaviour toward customers,
employees, shareholders and communities.

10
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



MFS Investment Management®

For more than 75 years, MFS has been offering investors an array of products to
help them to pursue their individual investment objectives. Today, millions of
individuals and thousands of institutions all over the world look to MFS to
manage their assets with insight and care. The organizations success is built
on its orientation to the human side of money management.
At MFS, investors are seen as people with aspirations and dreams, not just
entities with money to invest. Every MFS employee is motivated to make a
difference  dedicated to providing investors with clear paths to investment
goals. As a tribute to our approach, MFS has again earned a position on
Fortunes annual list of the 100 Best Companies to Work for.

Investors choose MFS for:



| |  | Global asset management expertise across a broad array of asset classes.
|- |  | ------------------------------------------------------------------------
| 
| |  | Time-tested money management process for achieving consistent results.  
| 
| |  | Full spectrum of investment products backed by MFS Original Research.   
| 
| |  | Resources and services that match real-life needs.                      

In 2002, sales across all distribution channels remained strong despite a very
difficult market environment. Gross sales for the year were US$38 billion. MFS
experienced good growth in several of its business units, including
institutional, international, private portfolios and 401(k), which accounted
for half of its retail mutual fund sales. Overall retail sales reflected the
generally slower trend throughout the industry. MFS nearly doubled the
percentage of its business sourced from outside the U.S., from 6 per cent in
2001 to 11 per cent in 2002. MFS in Europe, Japan and Latin America all showed
good growth, and asset mix became more balanced as value equity, international
equity and fixed income all showed increases, while growth equity remained its
largest asset category.

The continued momentum of sales can be attributed largely to solid investment
performance, as 72 per MFS cent  equity funds and 90 per cent of MFSfixed
income funds outperformed their category average over the past three years.

The strong performance across all categories is a testament to the MFS Original
Research process, a fundamental, bottom-up research process that has proven
effective across all asset classes. The success of this process in equities and
fixed income, and in both the U.S. and international markets, underscores MFS
recognized capabilities as a global asset management firm.

MFS has realigned its operating structure to be competitive in the current
environment, provide capital to invest for future growth and enhance operating
leverage to benefit from an eventual return to appreciating markets. MFS has
continued to invest in new products and global distribution channels that will
provide returns in three to five years. Andit will continue to add to its
investment staff on a global basis to ensure strong performance.



11
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



International

Our vision is to be
the leader in wealth management and protection in the
markets in which we choose to compete. In North America, we are well on our
way thanks to a focused and disciplined growth strategy. This strategy has led us
to selective acquisitions that position us within the top tier of financial
services organizations in North America. In Canada, Sun Life Financial is
a market leader. In the United States, strategic acquisitions have strengthened
our overall portfolio in the worlds largest market. This strong North American
base is the foundation for our international growth strategy.

We are setting our sights on some of the most exciting and promising markets in
the world. Birla Sun Life Insurance Company, a joint venture with the Aditya
Birla Group in India, successfully completed its first year of operations,
achieving the highest average policy premium sales in the market. The company
expanded its distribution capacity by signing a bancassurance agreement with
Credit Bank Ltd., building on existing arrangements with Citibank and Deutsche
Bank in India. Birla Sun Life Insurance was the first company in India to
introduce a 10-day free-look policy for every life insurance policy sold. Sun
Life Financial sponsored a trade mission of Canadian business executives to India, which was led by Canadas
Minister for International Trade, the Honourable Pierre Pettigrew. In Mumbai,
the Minister hosted an event for agents to mark the first year
anniversary of
Birla Sun Life Insurance.

Birla Sun Life Asset Management also achieved solid growth and recognition in
India. Assets under management increased over 50 per cent during the year
through 16 funds, including 2 offshore funds. The sales network now spans
57 locations across India, a growth of nearly 100 per cent. Several service
initiatives were undertaken to position the joint venture as a leading,
innovative and investor-focused asset manager, including life insurance cover
and remote customer access through the Internet and its call centre. It also
earned a number of awards from several respected financial publications for the
performance of its funds and capacity to create wealth.

On April 22, 2002, Sun Life Everbright started the sale of life insurance in
Tianjin, China. The joint venture registered more than 30 million RMB in new
business premiums while providing service to over 21,000 policyholders through a
sales force of 1,600 agents. This is one of the fastest launch performances by a
new joint venture company in China. We attribute this early success to the
quality of products, innovation and service standards. For example, the joint
ventures critical illness product is the leader of its kind in China. The joint
venture is well positioned for more growth and possible future expansion as
Chinas financial services sector is further liberalized.

12
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Business expansion continues in the Philippines and Hong Kong. In the
Philippines, we signed an agreement with the Philippine Stock Exchange to
distribute Sun Life Prosperity mutual funds through the local bourse. This
distribution agreement will pave the way for the eventual listing of Sun Life
Financials mutual funds on the Philippine Stock Exchange, which is expected to
occur in 2003. As a result of our revitalization program in Hong Kong, the
companys market rank improved from 21 in 2001 to 13 in 2002,
and premiums this
year have more than doubled those in 2001.

With offices in Boston, London, Singapore and Tokyo, the MFS global research
platform pursues the best investment opportunities around the world. Based on
its top tier position in the worlds largest financial services market, MFS
views the international marketplace as its largest opportunity. Overseas
markets have gone from 6 to 11 per cent of sales, becoming the fastest growing
category at MFS as international sales doubled from 2001 to reach $4 billion.

Sun Life Financial reported solid financial performance in the United Kingdom
in 2002 based on the strategic rationalization undertaken the previous year.
Our scaled-back operations contributed attractive returns to shareholders.
Day-to-day operations were outsourced in 2002, bringing greater certainty to
the operations cost structure and significantly reducing operating risk. In
the first quarter of 2003,we closed the sale of our U.K. Group insurance
business to Unum Limited, a U.K. subsidiary of Unum Provident Corporation. The
transaction is a continuing part of our efforts to refine Sun Life Financials
business profile in order to focus on markets where we are well positioned for
future growth.

13
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Public Accountability

At Sun Life Financial, we are in business to help people achieve and maintain
the peace of mind that comes from having in place sound financial solutions that
will meet their changing needs throughout their lifetimes. This is our mission,
founded on over 130 years of providing innovative products and services to our
customers and building value for our stakeholders. But building value has a
deeper meaning than quality products, share price or bottom line. Our
responsibility to society goes beyond fiscal performance and customer
satisfaction. We are proud to participate in a series of charitable,
philanthropic and sponsorship initiatives. These acts of support are intended to
create a ripple effect that spreads greater good throughout the communities we
serve.

Public accountability is an integral part of the way we do business. We are
committed to creating partnerships and supporting local initiatives that improve
the quality of life in the communities where we live and work worldwide. The
full roster of our sponsorships, donations and support programs is listed in a
separate report, Sharing the Warmth of the Sun, Sun Life Financials 2002
Public Accountability Statement. Some examples among the many detailed in that
report include our funding of the Research Chair in Adolescent Mental Health at
Dalhousie University, our involvement in national organ donations programs in
Canada, our support for several childrens cultural and health initiatives in
the United States and our sponsorship of two childrens health clinics in China.

Although this Public Accountability Statement is our first, 2002 was by no means
our first year of community investment. Our commitment to social causes and
philanthropy is as old as our history. It has been enacted in every country
around the world in which we have business operations and partnerships and has
been profoundly evident in the community we call home  Canada. Historically,we
focused our core philanthropic contributions on health care and public health
activities. In recent years, with the diversification of our business, we have
expanded our support to include other areas of social responsibility such as
children, education, social services, community relations, arts and culture.

Our participation in a wide range of national and international programs of
social and community betterment is a reflection of Sun Life Financials policies
and practices on which our reputation for business excellence has been built and
exemplifies the practical application of our core values. We believe in our
responsibility to society and to the communities where we live, work and do
business. We invite you to review Sharing the Warmth of the Sun, our Public
Accountability Statement where we detail the ways we act on this belief.

14
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Financial Review

|    |  |                                                  |  | 
|--- |  | ------------------------------------------------ |  | 
|17  |  | Managements Discussion and Analysis             |  | 
|    |  | 17  Financial Highlights                        
|    |  | 18  Enterprise Vision, Objectives and Strategies
|    |  | 21  Overview of Business                        
|    |  | 23  Financial Performance Overview              
|    |  | 24  Consolidated Results of Operations          
|    |  | 28  Sun Life Financial Canada                   
|    |  | 35  Sun Life Financial United States            
|    |  | 40  MFS Investment Management                   
|    |  | 42  Sun Life Financial United Kingdom           
|    |  | 43  Sun Life Financial Asia                     
|    |  | 45  Corporate Capital                           
|    |  | 46  Risk Management                             
|    |  | 48  Critical Accounting Policies                
|    |  | 50  Investments                                 
|    |  | 53  Financial Position and Liquidity            
|59  |  | Financial Reporting Responsibilities             |  | 
|60  |  | Consolidated Financial Statements                |  | 
|65  |  | Notes to the Consolidated Financial              |  | 
|    |  | Statements                                       |  | 
|110 |  | Appointed Actuarys Report/Auditors             |  | 
|    |  | Report                                           |  | 
|111 |  | Six-Year Summary                                 |  | 
|112 |  | Eleven-Year Summary                              |  | 
|114 |  | Corporate Information                            |  | 

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, 2002
and amounts are expressed in Canadian dollars. Financial information, except
where noted otherwise, is presented in accordance with Canadian generally
accepted accounting principles (GAAP) as applied to life insurance companies
in Canada, including the accounting requirements of the Office of the
Superintendent of Financial Institutions.

Forward-looking Statements/This MD&A includes forward-looking statements with
respect to Sun Life Financials objectives, including its strategies and
expectations of financial performance. These statements involve risks and
uncertainties and actual results may differ materially from those expressed or
implied in these forward-looking statements. Factors that may cause actual
results to differ materially from Sun Life Financials expectations include but
are not limited to, general economic and market conditions including interest
rates, legislative and regulatory changes, industry competition, technological
developments and other factors. The reader is therefore cautioned against
reliance on these forward-looking statements.





---



##### 







---



##### 



Managements Discussion and Analysis

Financial Highlights

|                                                             |                                                   |                |        |         |       |      |        |         |      |   |        |         |      |  
|------------------------------------------------------------ | ------------------------------------------------- | -------------- | ------ | ------- | ----- | ---- | ------ | ------- | ---- | - | ------ | ------- | ---- | -
|(in millions of Canadian dollars, except earnings per share) |                                                   | 2002           |        | 2001    |       | 2000
|                                                             |                                                   |                |        |         |       |     
|SHAREHOLDERS NET INCOME                                     |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             |                                                   |  Operating(1) |        |         | 1,260 |      |        |         | 872  |   |        |         | 792  |  
|                                                             |                                                   |  Reported     |        |         | 998   |      |        |         | 882  |   |        |         | 792  |  
|BASIC EARNINGS PER SHARE (EPS)                               |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             |                                                   |  Operating(1) |        |         | 2.32  |      |        |         | 2.06 |   |        |         | 1.90 |  
|                                                             |                                                   |  Reported     |        |         | 1.84  |      |        |         | 2.08 |   |        |         | 1.90 |  
|RETURN ON SHAREHOLDERS EQUITY (ROE)                         |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             |                                                   |  Operating(1) |        |         | 10.7  | %    |        |         | 12.7 | % |        |         | 13.1 | %
|                                                             |                                                   |  Reported     |        |         | 8.5   | %    |        |         | 12.8 | % |        |         | 13.1 | %
|TOTAL REVENUE(2)                                             |                                                   |                | 23,101 |         |       |      | 16,815 |         |      |   | 16,546 |        
|FEE INCOME                                                   |                                                   |                | 3,095  |         |       |      | 3,216  |         |      |   | 3,318  |        
|PREMIUMS, DEPOSITS AND FUND SALES                            |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             | Premium Revenue                                   |                |        | 14,875  |       |      |        | 9,437   |      |   |        | 9,389   |     
|                                                             | Segregated Fund Deposits                          |                |        | 6,642   |       |      |        | 5,851   |      |   |        | 8,318   |     
|                                                             | Mutual Fund Sales                                 |                |        | 31,668  |       |      |        | 39,466  |      |   |        | 45,614  |     
|                                                             | Managed Fund Sales                                |                |        | 29,683  |       |      |        | 31,953  |      |   |        | 25,869  |     
|                                                             |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             | Total Premiums, Deposits and Fund Sales           |                |        | 82,868  |       |      |        | 86,707  |      |   |        | 89,190  |     
|                                                             |                                                   |                |        |         |       |      |        |         |      |   |        |        
|ASSETS UNDER MANAGEMENT (At December 31)                     |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             | General Fund Assets                               |                |        | 123,438 |       |      |        | 80,328  |      |   |        | 55,010  |     
|                                                             | Segregated Fund Net Assets                        |                |        | 52,755  |       |      |        | 48,544  |      |   |        | 49,533  |     
|                                                             | Mutual Fund and Other Assets Under Management     |                |        | 184,407 |       |      |        | 222,875 |      |   |        | 223,990 |     
|                                                             |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             | Total Assets Under Management                     |                |        | 360,600 |       |      |        | 351,747 |      |   |        | 328,533 |     
|                                                             |                                                   |                |        |         |       |      |        |         |      |   |        |        
|CAPITAL (At December 31)                                     |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             | Subordinated Debt                                 |                |        | 1,974   |       |      |        | 776     |      |   |        | 749     |     
|                                                             | Cumulative Capital Securities                     |                |        | 948     |       |      |        | 954     |      |   |        | 900     |     
|                                                             | Sun
Life ExchangEable Capital Securities (SLEECS) |                |        | 1,150   |       |      |        | 950     |      |   |        |        |     
|                                                             | Preferred Shares                                  |                |        | 158     |       |      |        |        |      |   |        |        |     
|                                                             | Total Equity                                      |                |        | 14,909  |       |      |        | 7,725   |      |   |        | 6,517   |     
|                                                             |                                                   |                |        |         |       |      |        |         |      |   |        |        
|                                                             | Total Capital                                     |                |        | 19,139  |       |      |        | 10,405  |      |   |        | 8,166   |     
|                                                             |                                                   |                |        |         |       |      |        |         |      |   |        |        
|MCCSR RATIO (At December 31)                                 |                                                   |                | 230    | %       |       |      | 190    | %       |      |   | 295    | %      

QUARTERLY INFORMATION

|                              |                |  |         |      |      |  |         |      |    |  |         |      |    |  |         |      |    |  |         |      |  |  |         |      |  |  |         |      |  |  |         |      | 
|----------------------------- | -------------- |  | ------- | ---- | ---- |  | ------- | ---- | -- |  | ------- | ---- | -- |  | ------- | ---- | -- |  | ------- | ---- |  |  | ------- | ---- |  |  | ------- | ---- |  |  | ------- | ---- | 
|                              |                |  | 2002    |      | 2001
|                              |                |  |         |      |     
|                              |                |  | Q4      |      | Q3   |  | Q2      |      | Q1 |  | Q4      |      | Q3 |  | Q2      |      | Q1
|                              |                |  |         |      |      |  |         |      |    |  |         |      |    |  |         |      |   
|Shareholders Net Income      |                |  |         |      |      |  |         |      |    |  |         |      |    |  |         |      |    |  |         |      |  |  |         |      |  |  |         |      |  |  |         |     
|                              |  Operating(1) |  |         | 361  |      |  |         | 350  |    |  |         | 293  |    |  |         | 256  |    |  |         | 243  |  |  |         | 215  |  |  |         | 212  |  |  |         | 202  | 
|                              |  Reported     |  |         | 310  |      |  |         | 361  |    |  |         | 71   |    |  |         | 256  |    |  |         | 253  |  |  |         | 215  |  |  |         | 212  |  |  |         | 202  | 
|Basic Earnings per Share      |                |  |         |      |      |  |         |      |    |  |         |      |    |  |         |      |    |  |         |      |  |  |         |      |  |  |         |      |  |  |         |     
|                              |  Operating(1) |  |         | 0.58 |      |  |         | 0.57 |    |  |         | 0.59 |    |  |         | 0.59 |    |  |         | 0.57 |  |  |         | 0.51 |  |  |         | 0.50 |  |  |         | 0.48 | 
|                              |  Reported     |  |         | 0.50 |      |  |         | 0.58 |    |  |         | 0.14 |    |  |         | 0.59 |    |  |         | 0.59 |  |  |         | 0.51 |  |  |         | 0.50 |  |  |         | 0.48 | 
|Total Revenue(2)              |                |  | 6,028   |      |      |  | 5,803   |      |    |  | 5,832   |      |    |  | 5,438   |      |    |  | 4,906   |      |  |  | 3,561   |      |  |  | 3,979   |      |  |  | 4,369   |     
|Total Assets Under Management |                |  | 360,600 |      |      |  | 346,949 |      |    |  | 368,609 |      |    |  | 356,896 |      |    |  | 351,747 |      |  |  | 299,198 |      |  |  | 326,448 |      |  |  | 316,279 |     



---

|(1) |  | Excludes special items as described on page 26. Operating earnings,
operating earnings per share and operating ROE are non-GAAP measures.                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amounts for periods prior to Q4 2002 have been restated to reflect the
reclassification of certain reinsurance business lines to continuing operations
as discussed on page 50.

|                  |  |        |     | 
|----------------- |  | ------ | --- | 
|RATINGS(3)        |  |        |     | 
|                 
|A.M. Best         |  |        | A++ | 
|Fitch             |  | AA    
|Moodys           |  | Aa2   
|Standard & Poors |  | AA+(4)



---

|(3) |  | Represents financial strength ratings for Sun Life Assurance Company of Canada.
|--- |  | -------------------------------------------------------------------------------
|   
|(4) |  | With negative outlook.                                                         

17
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Managements Discussion and Analysis

Enterprise Vision, Objectives and Strategies

Sun Life Financial Services of
Canada 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 Companys operations in
wealth management and protection are complementary and form an integrated
product platform to provide one-stop solutions for the financial well-being of
individuals.

The global financial services industry is undergoing a period of significant
evolution, driven by consumer needs for convenience, choice and simplicity.
Domestic and global competition is increasing dramatically in response to these
changing needs, demographic shifts, and advances in technology. There is a
competitive opportunity for greater economies of scale and brand recognition
which, in turn, is driving further industry consolidation.

This challenging global financial services environment, however, offers strong
growth opportunities for organizations such as SunLife Financial, which have a
clear vision and committed business strategies supported by an established
international operating platform and strong financial capacity. 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.

(VISION, OBJECTIVES AND STRATEGIES)

18
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

Consistent with its strategies, the Company undertook several significant
initiatives in 2002.

ACQUISITION OF CLARICA LIFE INSURANCE COMPANY

Sun Life Financial Services of Canada Inc. (SLF Inc.) acquired Clarica Life
Insurance Company (Clarica) on May 29, 2002. Clarica was a leading provider of
insurance and investment products in the Canadian market. With this acquisition,
the Company extended its leadership position in most of its Canadian markets of
strategic significance and became one of the largest publicly traded North
American life insurance organizations measured by market capitalization. The
acquisition created a stronger, Canada-based international financial services
organization with enhanced products, expanded distribution channels, greater
management depth and lower cost structures.

On December 31, 2002, Clarica was amalgamated with SLF Inc.s wholly-owned
subsidiary Sun Life Assurance Company of Canada (Sun Life Assurance). The
amalgamated company operates under the legal name of Sun Life Assurance Company
of Canada and continues to market retail insurance and wealth management
products under the Clarica brand in Canada. The amalgamation has significantly
simplified business operations and is expected to reduce operating costs over
time.

The Clarica acquisition was completed through an all-share transaction pursuant
to which holders of Clarica common shares received 1.5135 common shares of SLF
Inc. for each Clarica common share held. As a result, approximately 185 million
common shares of SLF Inc. were issued at an ascribed price of $33.88 per share.
Including the Clarica common shares that were owned by the Company at the date
of acquisition, the Clarica transaction was valued at $6.9 billion for
accounting purposes.

CI FUND MANAGEMENT TRANSACTION

On July 25, 2002, the Company acquired a 30% equity interest in
CI Fund Management Inc. (CI) in exchange for the Companys Canadian mutual
fund subsidiaries, Spectrum Investment Management Limited (Spectrum) and
Clarica Diversico Ltd. (Diversico). The transaction also included a strategic
distribution agreement giving CI access for its products to the Companys
Canadian direct sales force of more than 4,200 independent career advisors.

With the CI transaction, the Company acquired a strategic stake in a top tier
player with requisite scale in the Canadian mutual fund industry. CI is a
premier Canadian money manager with top-ranked investment expertise and strong
brand recognition. Asa result of this transaction, it became the fourth-largest
mutual fund company in Canada based on long-term assets under management. As at
December 31, 2002, CI had $33.8 billion of assets under management, including
approximately $27.9 billion of mutual fund assets.

As a result of this transaction, the Company acquired approximately 71 million
common shares of CI valued at $9.15 per share at closing on July 25, 2002. These
common shares, together with those owned by the Company at closing, represent a
31% economic interest in CI. The Company has entered agreements with CI to
facilitate its ability to increase its ownership interest in CI over time.

LAUNCH OF LIFE INSURANCE OPERATIONS IN CHINA

In April 2002, the Company, together with its joint venture partner, China
Everbright Group Limited, launched life insurance operations in the municipality
of Tianjin, China. This joint venture, SunLife Everbright Life Insurance Company
Limited, is the first foreign-owned life insurer in Tianjin, which has a
population of approximately 10 million people.

The commencement of the Companys Chinese operations represents a significant
step in the Companys long-term growth plan in Asia. This business unit has
already built a sales force of 1,600 agents, and the initial sales of life
insurance products in the Tianjin market have been strong.

SALE OF CLARICAS U.S. OPERATIONS

In October 2002, the Company signed a definitive agreement with Midland National Life Insurance
Company to sell its subsidiary, Clarica U.S., Inc. (Clarica U.S.), acquired as part of the Clarica
acquisition. After its review of Clarica U.S. operations, the Company concluded that it was not a
strategic fit with the Companys existing U.S. operations. The sale of Clarica U.S., which closed on
January 7, 2003, was consistent with the Companys focus on businesses that can maintain or achieve
competitive scale or scope.

The proceeds from the sale were approximately $452 million, or US$286 million,
in cash, including repayment of approximately $76 million of existing Clarica
U.S. debt. As a result of the sale, the Company took an after-tax charge of $48
million in 2002.

SALE OF U.K. GROUP BUSINESS

In January 2003, the Company, as part of its continuing efforts to realize the underlying value of
its U.K. operations, signed a definitive agreement to sell its U.K. group insurance business to Unum
Limited, a U.K. subsidiary of Unum Provident Corporation. Under the agreement, Unum Limited will
acquire the Companys U.K. group income protection business together with the renewal rights to its
group life business. The transaction closed in the first quarter of 2003.

19
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

ENHANCEMENT OF CAPITAL EFFICIENCY

The Company undertook several financing initiatives in 2002 to enhance capital
efficiency and to optimize its capital structure. In January 2002, it completed
the early redemption of high-cost subordinated debt of $300 million due in 2005.
In June 2002, $800 million of subordinated debentures and $200 million of a
second series of Sun Life ExchangEable Capital Securities (SLEECS) were
issued. The issuance of these two securities provided the Company
with low cost
capital and enhanced its financial flexibility. In addition, it allowed the
Company to adjust the leverage of its capital structure in concert with its new
business profile after the Clarica acquisition.

OUTSOURCING OF THE BACK OFFICE OPERATIONS OF U.K. INDIVIDUAL BUSINESS

In March 2002, the Company signed agreements with the Marlborough Stirling
Group, a U.K.-based software and service provider specializing in financial
services sectors, to outsource the administration of its closed book of U.K.
individual life and pension business. This outsourcing is expected to reduce the
Companys operating risk and enhance 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. operations. The Company currently
expects to save approximately $50 million in operating expenses over the initial
five years of this outsourcing contract.

OUTSOURCING OF INFORMATION TECHNOLOGY OPERATIONS WITH IBM

In July 2002, the Company signed an outsourcing contract with IBM Canada Ltd.,
which will provide the Company with a wide range of technology services over a
seven-year period. The contract is valued at approximately $250 million over
its life.

This outsourcing initiative will enhance the Companys ability to deliver
world-class financial services on the strength of IBMs technology expertise and
computing resources.

EXPENSING EMPLOYEE STOCK OPTION COSTS

The Company has employee stock option plans designed to align the interests of
shareholders and employees and to reward employees for creating shareholder
value. The Company recognizes that stock options represent a form of
compensation and the cost should be appropriately reflected in financial
results. In June 2002, the Company implemented a policy of expensing the cost of
employee stock options. The Companys stock option expenses amounted to $21
million in 2002, representing a reduction of 3 cents per share in shareholders
net income. Sun Life Financial was the first major Canadian financial
institution to expense stock options.

ENHANCEMENT OF FINANCIAL TRANSPARENCY

The Company believes that financial transparency is critically important to
establish and maintain the confidence of its stakeholders in the Companys
operating integrity and financial strength. In 2002, the Company undertook a
number of significant initiatives to enhance its financial disclosure and
reporting:

|  |  |                                                 |  |                                                        
|- |  | ----------------------------------------------- |  | -------------------------------------------------------
| |  | Started expensing stock options                
| |  | Provided significant new disclosures including:
|  |  |                                                |  | business line income statements                        
|  |  |                                                |  | special items materially affecting earnings performance

|  |  |                                                                                                                                                            
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In compliance with the Sarbanes-Oxley Act, the Companys Chief Executive
Officer and Chief Financial Officer have certified the 2002 financial
disclosures.

The Companys Board of Directors and its Audit Committee continued to play a
significant role in enhancing the Companys financial reporting practices.

20
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Managements Discussion and Analysis

Overview of Business

The Companys operations are divided into six business segments primarily based
on geographic location: Sun Life Financial Canada (SLF Canada), Sun Life
Financial United States (SLF U.S.), Massachusetts Financial Services Company
(MFS), Sun Life Financial United Kingdom (SLF U.K.), Sun Life Financial Asia
(SLF Asia), and Other Operations (Other or 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 revenues from
wealth management and protection products and services. Other Operations
primarily includes investments of a corporate nature for which management
responsibility resides in the Companys Corporate Office.

(REVENUE AND EARNINGS IN 2002 BY SEGMENT* CHART)

The Company operates under a strategic business model that balances growth with
earnings stability. While many products and services offered by the Company are
increasingly integrated in nature, its overall operations generally comprise two
principal product categories: wealth management and protection. Revenue and
expenses not directly attributable to wealth management or protection 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, with
$295.8 billion or 82% of the Companys total assets under management as at
December 31, 2002. The Companys operations in wealth management have achieved a
compound annual growth rate of 13% in assets under management and 16% in fee
income over the period from 1997 to 2002. 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 13% in
the period from 1997 to 2002. The principal sources of protection revenue are:
(i)premiums earned on individual life and health, group life and health, and
reinsurance contracts, and (ii) net investment income on assets supporting
actuarial liabilities associated with protection products.

(REVENUE AND EARNINGS IN 2002 BY PRINCIPAL PRODUCT CATEGORY* CHART)

The profitability of the Companys operations in wealth management and
protection depends in large part on:



| |  | external factors, including changes in equity market performance and changing
regulations
|- |  | -----------------------------------------------------------------------------------------
| 
| |  | the amount and composition of assets under management                                    
| 
| |  | the management of product pricing                                                        
| 
| |  | mortality and morbidity rates                                                            
| 
| |  | expense management                                                                       
| 
| |  | the maintenance of spreads between credited rates and investment returns                 
| 
| |  | surrender and lapse rates                                                                
| 
| |  | the management of market and credit risks                                                
| 
| |  | the management of the risks inherent in products with guaranteed benefits
options        



21
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Managements Discussion and Analysis

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

PRODUCTS AND SERVICES BY SEGMENT

|                                         |  |            |  |          |  |     |  |          |  |         
|---------------------------------------- |  | ---------- |  | -------- |  | --- |  | -------- |  | --------
|                                         |  | SLF Canada |  | SLF U.S. |  | MFS |  | SLF Asia |  | SLF U.K.
|                                         |  |            |  |          |  |     |  |          |  |         
|WEALTH MANAGEMENT                        |  |            |  |          |  |     |  |          |  |         
| Individual annuity and saving products |  |           |  |         |  |    |  |          |  |        
| Group pensions and retirement products |  |           |  |          |  |    |  |         |  |         
| Mutual funds                           |  |           |  |          |  |    |  |         |  |         
| Asset management services              |  |           |  |         |  |    |  |          |  |         
|PROTECTION                               |  |            |  |          |  |     |  |          |  |         
| Individual life                        |  |           |  |         |  |     |  |         |  |        
| Individual health                      |  |           |  |          |  |     |  |          |  |         
| Group life and health                  |  |           |  |         |  |     |  |         |  |        
| Reinsurance  life retrocession        |  |           |  |          |  |     |  |          |  |         

|         |  |                                                                                                                                                                                    
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SEGMENTS |  | COMPETITIVE POSITIONS                                                                                                                                                              
|CANADA   |  | A leader in most Canadian markets of strategic relevance with over seven million customers in Canada and the
largest direct sales force with over 4,200 independent career advisors

| |   |  |                                                                                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------
| |  |  | 1st in individual life and annuities based on annualized premiums                                                             
| |  |  | 1st in group pensions based on assets under management and group benefits based on
annualized premiums and premium equivalents
| |  |  | 4th in mutual funds based on long-term assets through a strategic interest (31%) in CI                                        

|              |  |                                                                         
|------------- |  | ------------------------------------------------------------------------
|UNITED STATES |  | A significant player in annuity and high-end specialty insurance markets

| |   |  |                                                                                    
| | - |  | -----------------------------------------------------------------------------------
| |  |  | 16th in variable annuities and 15th 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 by premiums                                               

|    |  |                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------
|MFS |  | A premier money manager in the U.S. with total assets under management of $179 billion as at
December 31, 2002

| |   |  |                                                                                                   
| | - |  | --------------------------------------------------------------------------------------------------
| |  |  | 10th largest retail mutual fund company based on long-term assets under management of $101 billion
| |  |  | 5th largest manager of variable annuities based on assets under management of $31 billion         

|     |  |                                                          
|---- |  | ---------------------------------------------------------
|ASIA |  | Poised for long-term growth with expansion in key markets

| |   |  |                                                                                                       
| | - |  | ------------------------------------------------------------------------------------------------------
| |  |  | 2nd in individual life insurance by annualized premiums in the Philippines                            
| |  |  | 4th largest private mutual fund and a leading foreign insurance company
through joint venture in India
| |  |  | a leading provider of unit-linked life insurance products in Hong Kong                                
| |  |  | 1st foreign life insurance joint venture in Tianjin, one of the largest
municipalities in China       

|               |  |                                                                              
|-------------- |  | -----------------------------------------------------------------------------
|UNITED KINGDOM |  | Decisive repositioning has enhanced profitability and reduced operating risks

| |   |  |                                                                                        
| | - |  | ---------------------------------------------------------------------------------------
| |  |  | in-force individual insurance and annuity businesses generate a strong return on equity

All rankings shown above are based on published information at and for the year
ended December 31, 2002 or the information available for the latest period
before December 31, 2002.

22
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

Financial Performance Overview

2002 PERFORMANCE

Equity markets
continued to experience significant volatility in 2002. The
reports of significant accounting irregularities, particularly in the United
States, further damaged the already fragile confidence of consumers and
investors in the financial markets. Despite these market challenges and the
integration of Clarica, the Company reported a third consecutive year of record
earnings. Shareholders net income for the year was $998 million, up 13%
compared to the $882 million in 2001. Operating earnings(1), which exclude
special items outlined on page 27, increased by 44% to $1,260 million in 2002
from $872 million in 2001. Operating earnings per share were $2.32, representing
an increase of 12.6% from $2.06 in 2001.

The Companys ability to maintain strong financial performance in a difficult
economy reflects the strength of its diversified and well-balanced business
portfolio, prudent and disciplined investment strategies, and effective risk
management. The detailed discussion of the Companys consolidated results in
2002 is provided in the sections located on pages 24 to 27 of this Managements
Discussion and Analysis.

PRIORITIES FOR 2003

The acquisition of Clarica in 2002 placed the Company among the top North
American life insurers in terms of market capitalization and earnings. On the
strength of the combined SunLife Financial and Clarica brands, the Company will
work to expand its market leadership in Canada. The Company intends
to leverage
its diversified product portfolio and strong distribution capabilities to
solidify its U.S. annuity operations in a challenging market. Further, with a
disciplined financial approach emphasizing value creation, the Company is well
positioned to compete in a consolidating environment in the U.S. annuity
business. In Asia, the Company will endeavour to leverage its operating strength
and financial resources to expand its existing market presence.

On the operational front, management priorities in 2003 are to complete the
integration of the Clarica operations and to achieve the targeted operating cost
and revenue synergies. The Company will continue to focus on delivering the
benefits that have been indicated to customers and shareholders. Operational
efficiency and capital optimization will continue to be key drivers of the
Companys financial performance for 2003.

In 2003, management will leverage the Companys expanded operational resources
to solidify its competitive positions in the marketplace and facilitate its
commitment to build long-term shareholder value. The Company has established
clear operational and financial goals for 2003 and has well-defined execution
plans to deliver these targets. Management will continuously assess
its business
environment, and take preventive steps and timely actions to minimize adverse
effects resulting from changing economic and market conditions.

OUTLOOK

The Companys operations in general and its wealth management business in
particular are exposed to economic uncertainties and equity market fluctuations.
Management has been proactively taking strategic and operational measures that
will help maintain its business and financial strength in a challenging
environment.

Through prudent diversification and disciplined risk management, the Company has
maintained a high quality investment portfolio. In addition, the Companys
hedging programs have mitigated its exposures to substantial equity market
declines experienced during the past year. The Companys prudent risk management
practices and the hedging programs will continue to provide mitigation against
any continuation of soft equity markets.

With the acquisition of Clarica, SLF Canada is well positioned with a strong
product platform, a robust distribution network and efficient operating
infrastructure. Based on the progress that has been made to date, management
expects that the Clarica integration will be substantially completed by year-end
2003 and the Company will deliver targeted cost savings and enhanced earnings
contributions.

In the U.S., the successful integration of Keyport Life Insurance Company
(Keyport) and Independent Financial Marketing Group, Inc. (IFMG), both
acquired in October 2001, has significantly strengthened the Companys annuity
operations with increased operating scale, product depth and distribution
capabilities. The Company is in a better position to compete in a consolidating
insurance and annuity business.

MFS has taken further cost containment actions to bring expenses more closely in
line with decreased asset and revenue levels resulting from market declines in
the past year. Management believes MFS proven business model and strong
investment management capabilities will facilitate its continuing growth and
allow it to maintain its leadership positions in its targeted markets. Through
product and distribution expansion and diversification, management believes that
MFS is well positioned to continue organic growth even in flat equity markets
and to benefit from an eventual market recovery.



---

|(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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Managements Discussion and Analysis

In the U.K., the Company has further reduced its operating costs through outsourcing. Its
repositioned business profile will also enable the Companys U.K. operations to generate steady and
solid earnings in the medium term.

The Company has been expanding in its existing Asian markets. Management
believes that these operations should become major contributors to sales growth
in the near term and earnings growth over the longer term as the Company builds
business scale in the region.

Management believes that the Companys long-term growth momentum remains strong
and that the Company is well positioned to achieve its strategic objectives over
its business cycle. In the near-term, the Companys balanced business model
should continue to help it maintain a stable earnings performance if equity
markets remain soft.

Consolidated Results of Operations

SHAREHOLDERS NET INCOME

For the year ended December 31, 2002, shareholders net income was $998 million,
or $1.84 per share. Operating earnings, excluding special items as described on
page 26, were $1,260 million, representing an increase of $388 million or 44%
over $872 million earned in 2001. Operating earnings per share were $2.32, up
13% from $2.06 in 2001.

The strong operating earnings performance reflected the Companys continuing
success in growing its core businesses and diversifying its earnings stream. The
acquisitions of Clarica in 2002 and Keyport in 2001 have significantly
strengthened the Companys business platform and have been accretive to
shareholder returns.

In the seven months after the Clarica acquisition in 2002, Clarica added $258
million in earnings, excluding the after-tax charge of $48 million on the sale
of Clarica U.S. This performance resulted in 6 cents accretion to the Companys
operating earnings per share, exceeding the interim financial target set at the
time of the Clarica acquisition. For the five months after the completion of
the CI transaction in 2002, CI contributed $21 million in earnings.

In 2002, Keyport contributed earnings of $116 million, net of financing costs,
representing an increase of $104 million from the 2001 amount of $12 million it
contributed after its acquisition on October 31, 2001. The strong earnings from
Keyport resulted in 16 cents accretion to the Companys operating earnings per
share in 2002.

During 2002, the Companys operations in protection continued to perform well
and again demonstrated their underlying strength in generating stable earnings
in challenging times. Excluding the one-time after-tax charge of $150 million
related to guaranteed minimum income benefits and non-Unicoverrelated accident
and health risks in the run-off block of the Companys accident and health
reinsurance business, the Companys protection earnings were $603 million for
the year, up $196 million or 48% relative to $407 million in 2001. This strong
earnings performance was broadly based and consistent in most of the Companys
protection business lines. The protection lines of Clarica contributed $180
million to the total protection earnings in 2002.

Despite continuing economic uncertainties and difficult market conditions in
2002, the Companys operations in wealth management contributed earnings of $668
million, up $155 million or 30% compared to $513 million in 2001. The Companys
strategy to broaden its wealth management earnings platform and its vigorous
cost containment measures helped mitigate the earnings pressures from severe
equity market declines in the year. Keyport, which focuses primarily on fixed
annuity products, contributed $181 million, before financing costs, to the total
increase in wealth management earnings. The Keyport contribution was partially
offset by reduced earnings from the Companys equity-linked wealth management
products and services. The equity-sensitive segment of the Companys operations
in wealth management represented only 18% of the combined wealth management and
protection earnings in 2002, compared to 31% in 2001.

(EARNING BY PRINCIPAL PRODUCT BAR CHART)

Corporate and Other, which includes results not directly attributable to the
Companys underlying wealth management and protection operations, had a loss of
$123 million for the year, compared to a loss of $38 million in 2001. The
unfavourable change relative to 2001 primarily reflected the impact of the
restructuring and other related charges arising from the Clarica acquisition.

24
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

RETURN ON EQUITY

The Companys acquisitions of Clarica and Keyport have resulted in an increase
in the amount of goodwill. Total goodwill arising from these two acquisitions
amounted to $5.7 billion as at December 31, 2002, most of which was backed by
the Companys equity capital. In 2002, return on shareholders equity (ROE),
based on operating earnings, decreased to 10.7% from the 2001 level of 12.7%,
reflecting the impact of the Clarica and Keyport goodwill. ROE based on reported
earnings decreased to 8.5% from the 2001 level of 12.8%, reflecting increased
goodwill and unfavourable impact of special items in 2002.

ASSETS UNDER MANAGEMENT

The Companys assets under management comprise general funds, segregated funds,
and mutual, managed and other assets under management. Managed funds represent
institutional and other third-party assets that are managed by the Company. Total
assets under management were $360.6 billion as at December 31, 2002, up $8.9
billion, compared to $351.7 billion as at December 31, 2001.

The Companys general fund assets increased to $123.4 billion, up $43.1 billion
or 54% from the 2001 level. This increase primarily comprised $38.1 billion from
the acquisition of Clarica and $4.3 billion resulting from business growth.

The Companys segregated fund assets rose to $52.8 billion as
at December 31, 2002, up $4.3 billion or 9%, relative to $48.5 billion as at
December 31, 2001. The increase was attributed to the acquisition of Claricas
segregated fund assets of $11.2 billion and net sales of $605 million during the
year. These increases were, however, partially offset by a reduction of
$7.9 billion in asset value due to market declines.

The Companys mutual, managed and other assets under management, which excluded
CIs assets of $33.8 billion at December 31, 2002, decreased to $184.4 billion,
down $38.5 billion from the December 31, 2001 level. The decrease comprised $40.6
billion resulting from declines of global equity markets in 2002,
$6.5 billion
related to the sale of Spectrum to CI, and $1.0 billion arising from
the unfavourable currency translation impact of the strengthening Canadian dollar
relative to the U.S. dollar. These decreases were partially offset by
$9.6 billion from net sales of mutual and managed funds.

REVENUE

For the year ended December 31, 2002, the Companys total revenue increased to
$23.1 billion, up $6.3 billion or 38% from $16.8 billion in 2001. The
acquisitions of Clarica and Keyport contributed $2.8 billion and $3.9 billion,
respectively, to the increase in total revenue in 2002. The Companys strong
performance in insurance premiums and higher investment income were partially
offset by lower sales of U.S. investment products and annuity products with the
dollar cost averaging feature, and decreased fee income in MFS resulting from
lower asset levels caused by market value declines.

Life insurance premiums grew by $1.6 billion or 44% in 2002, primarily
reflecting the addition of $1.1 billion from Clarica, and increased sales of
universal life products in the United States and Hong Kong, and of group life
products in the United States. Health insurance premiums increased by $588
million or 40%, primarily due to the contribution of $407 million from Clarica
and strong sales and improved pricing of group health products in the United
States.

Annuity premiums increased by $3.2 billion, including the addition of $399
million from Clarica and increased annuity premiums of $3.1 billion from
Keyport. These increases were partially offset by reduced premiums from dollar
cost averaging annuity products, consistent with the overall weakness in the
U.S. equity-linked annuity market in 2002.

Investment income increased by $969 million or 23% in 2002. The increase
included the addition of $751 million from Clarica, the increased Keyport
contribution of $630 million, and the gain of $173 million on the sale of
Spectrum. These increases were partially offset by higher asset provisions of
$361 million, the gain of $195 million on the sales of Sun Bank plc and SLC
Asset Management Limited in the fourth quarter of 2001, and the investment
income of $173 million earned in 2001 by the two subsidiaries sold.

Fee income declined by $121 million or 4%. The decrease reflected a lower
average level of assets under management in fee-based businesses relative to
2001, partially offset by the increased contribution of $200 million in fee
income from Clarica and Keyport.

TOTAL REVENUE

|                  |                  |      |        |        |  |      |        |       |  |  |        |       | 
|----------------- | ---------------- | ---- | ------ | ------ |  | ---- | ------ | ----- |  |  | ------ | ----- | 
|($ millions)      |                  | 2002 |        | 2001   |  | 2000
|                  |                  |      |        |        |  |     
|Premiums          |                  |      |        |        |  |      |        |       |  |  |        |      
|                  | Annuities        |      |        | 7,402  |  |      |        | 4,196 |  |  |        | 4,371 | 
|                  | Life Insurance   |      |        | 5,403  |  |      |        | 3,759 |  |  |        | 3,523 | 
|                  | Health Insurance |      |        | 2,070  |  |      |        | 1,482 |  |  |        | 1,495 | 
|                  |                  |      |        |        |  |      |        |       |  |  |        |      
|                  | Total Premium    |      |        | 14,875 |  |      |        | 9,437 |  |  |        | 9,389 | 
|Investment Income |                  |      | 5,131  |        |  |      | 4,162  |       |  |  | 3,839  |      
|Fee Income        |                  |      | 3,095  |        |  |      | 3,216  |       |  |  | 3,318  |      
|                  |                  |      |        |        |  |      |        |       |  |  |        |      
|Total             |                  |      | 23,101 |        |  |      | 16,815 |       |  |  | 16,546 |      
|                  |                  |      |        |        |  |      |        |       |  |  |        |      

25
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

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 $11.7 billion, up $4.8 billion or 70% from 2001. Increased
payments of $4.5 billion due to the acquisitions of Clarica and Keyport were
partially offset by lower maturities and surrenders in other operations.
Transfers to segregated funds decreased by 49% in 2002, reflecting the slowdown
of sales of dollar cost averaging annuity products in the United States and
reduced demand for equity market-based products. The increase in actuarial
liabilities was $2.1 billion higher than the 2001 level of $1.7 billion,
reflecting decreased transfers to segregated funds and higher insurance and
fixed annuity sales.

BENEFIT PAYMENTS

|                                                        |  |      |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|($ millions)                                            |  | 2002 |        | 2001 |  | 2000
|                                                        |  |      |        |      |  |     
|Payments to Policyholders,
Beneficiaries and Depositors |  |      | 11,688 |      |  |      | 6,880  |  |  |  | 6,729  | 
|Net Transfer to
Segregated Funds                        |  |      | 1,329  |      |  |      | 2,606  |  |  |  | 2,562  | 
|Increase in Actuarial
Liabilities                       |  |      | 3,822  |      |  |      | 1,697  |  |  |  | 1,611  | 
|                                                        |  |      |        |      |  |      |        |  |  |  |        | 
|Total                                                   |  |      | 16,839 |      |  |      | 11,183 |  |  |  | 10,902 | 
|                                                        |  |      |        |      |  |      |        |  |  |  |        | 

EXPENSES AND OTHER

Commission expenses
increased to $1.9 billion in 2002, up $309 million from the
2001 level. Excluding the increased commissions of $421 million from Clarica and
Keyport, commission expenses decreased by 7%, reflecting lower variable annuity
and mutual fund sales. These decreases were partially offset by increased sales
of life and health insurance products.

Operating expenses were $2.8 billion, up $283 million from 2001. The increase
was attributable to $379 million of increased expenses associated with the
acquired Clarica and Keyport operations, $158 million of charges associated with
the Clarica acquisition, $21 million of stock option expenses in 2002, and $35
million resulting from unfavourable currency translation. These increases
totalling $593 million were partially offset by reduced expenses of $89 million
incurred by divested operations and decreased expenses of $107 million
associated with the U.K. rationalization initiative. Excluding the impact of
these items, operating expenses were $2.1 billion, $114 million or 5% below the
comparable level in 2001. This decrease reflects the Companys continuing
efforts to reduce costs.

In the Companys protection operations, the operating expenses to premium
revenue ratio declined to 12% from 13% in 2001. The decreased expense ratio was
primarily attributable to improved cost structures in the Companys protection
operations, which were in part driven by synergy savings that have already been
realized from the Clarica acquisition.

Interest expenses increased by $24 million to $192 million in 2002. The increase
reflected the interest expenses associated with Claricas subordinated debt of
$700 million and $800 million of new subordinated debentures issued in 2002.

Income taxes were
$98 million in 2002, compared to $306 million in 2001. The
Companys consolidated effective income tax rate for 2002 was 8.1%, compared to
24.4% for 2001. The lower effective tax rate in 2002 was primarily attributable
to the effect of favourable tax settlements resulting from the completion of
prior year tax reviews of the Companys operations and the recognition and
utilization of capital losses. Excluding these events, the Companys effective
tax rate would have been approximately 28%, which is consistent
with expectations.

Clarica U.S. became a held-for-sale investment as the Company signed a
definitive agreement for its sale in 2002 and completed the sale in January
2003. As a result, Clarica U.S. was reclassified as a discontinued operation. In
2002, loss from discontinued operations was $36 million, including the loss of
$48 million on the sale of Clarica U.S., partially offset by the earnings of $12
million from the seven months of its operations since its acquisition.

EXPENSES AND OTHER

|                                                        |  |      |       |      |  |      |       |   |  |  |       | 
|------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | 
|($ millions)                                            |  | 2002 |       | 2001 |  | 2000
|                                                        |  |      |       |      |  |     
|Commissions                                             |  |      | 1,909 |      |  |      | 1,600 |   |  |  | 1,687 | 
|Operating Expenses                                      |  |      | 2,779 |      |  |      | 2,496 |   |  |  | 2,426 | 
|Premium Taxes                                           |  |      | 168   |      |  |      | 113   |   |  |  | 117   | 
|Interest Expenses                                       |  |      | 192   |      |  |      | 168   |   |  |  | 159   | 
|Income Taxes                                            |  |      | 98    |      |  |      | 306   |   |  |  | 386   | 
|Non-Controlling Interests in
Net Income of Subsidiaries |  |      | 83    |      |  |      | 68    |   |  |  | 67    | 
|Loss from Discontinued
Operations, Net of Taxes         |  |      | 36    |      |  |      |      |   |  |  |      | 
|Participating Policyholders
Net Income (Loss)           |  |      | (1    | )    |  |      | (1    | ) |  |  | 10    | 
|                                                        |  |      |       |      |  |      |       |   |  |  |       | 
|Total                                                   |  |      | 5,264 |      |  |      | 4,750 |   |  |  | 4,852 | 
|                                                        |  |      |       |      |  |      |       |   |  |  |       | 

26
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

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 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 block of accident and health 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)                              |                                                     | 2002 |     | 2001 |   | 2000
|                                          |                                                     |      |     |      |   |     
|                                          |                                                     | Q4   |     | Q3   |   | Q2   |     | Q1   |   | Total |     |      |   | 
|                                          |                                                     |      |     |      |   |      |     |      |   |       |     |      |   | 
|Earnings Before Stock Option Expenses     |                                                     |      | 317 |      |   |      | 368 |      |   |       | 78  |      |   |  | 256 |   |  |  | 1,019 |      |   |  | 882 |     |   |  | 792 |  
|Stock Option Expenses                     |                                                     |      | 7   |      |   |      | 7   |      |   |       | 7   |      |   |  |    |   |  |  | 21    |      |   |  |    |     |   |  |    |  
|                                          |                                                     |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     |     |   |  |     |   | 
|Reported Earnings (Canadian GAAP based)   |                                                     |      | 310 |      |   |      | 361 |      |   |       | 71  |      |   |  | 256 |   |  |  | 998   |      |   |  | 882 |     |   |  | 792 |  
|After-Tax Gains (Losses) on Special Items |                                                     |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     |     |   |  |     |  
|                                          | Net Gain on Sale of Spectrum                        |      |     |      |   |      |     | 173  |   |       |     |      |   |  |     |   |  |  |       | 173  |   |  |     |     |   |  |     |   | 
|                                          | Net 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                   |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     | 125 |   |  |     |   | 
|                                          | U.K. Restructuring                                  |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     | (88 | ) |  |     |   | 
|                                          | Subordinated Debt Redemption Costs                  |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     | (30 | ) |  |     |   | 
|                                          | Other                                               |      |     | (3   | ) |      |     | (12  | ) |       |     | (5   | ) |  |     |   |  |  |       | (20  | ) |  |     | 3   |   |  |     |   | 
|                                          |                                                     |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     |     |   |  |     |   | 
|                                          | Total Special Items                                 |      |     | (51  | ) |      |     | 11   |   |       |     | (222 | ) |  |     |  |  |  |       | (262 | ) |  |     | 10  |   |  |     |  | 
|                                          |                                                     |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     |     |   |  |     |   | 
|Operating Earnings                        |                                                     |      | 361 |      |   |      | 350 |      |   |       | 293 |      |   |  | 256 |   |  |  | 1,260 |      |   |  | 872 |     |   |  | 792 |  
|                                          |                                                     |      |     |      |   |      |     |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     |     |   |  |     |   | 

The special items in
2001 amounted to $10 million, primarily representing the net effect
of the implementation of the Company's U.K.
rationalization initiative. In 2001, the Company realized total
after-tax gains of $125 million on the sales of Sun Bank plc and SLC Asset
Management Limited. These gains were largely offset by an after-tax
charge of $88 million primarily related to the U.K. restructuring
activities, and after-tax costs of $30 million associated with the
early redemption of $300 million of the Company's subordinated debt.
This debt was originally issued to provide funding to the Company's
U.K. operations. As a result of the U.K. asset sales, the funding was
no longer required.

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)                        |  | 2002 |       | 2001 |  | 2000
|                                     |  |      |       |      |  |     
|EPS  Reported (Canadian GAAP based) |  |      | 1.84  |      |  |      | 2.08 |  |  |  | 1.90 | 
|Net Gains (Losses) on
Special Items  |  |      | (0.48 | )    |  |      | 0.02 |  |  |  |     | 
|                                     |  |      |       |      |  |      |      |  |  |  |      | 
|EPS  Operating                      |  |      | 2.32  |      |  |      | 2.06 |  |  |  | 1.90 | 
|                                     |  |      |       |      |  |      |      |  |  |  |      | 

27
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

Sun Life Financial Canada

BUSINESS PROFILE

The Company is a leader in most Canadian markets of strategic relevance. SLF
Canada offers a full range of protection and wealth management products and
services. The operations in protection comprise (i) retail insurance, offering a
comprehensive suite of life and health insurance products, (ii) group benefits,
offering customized group products to meet the protection needs of employers of
all sizes, and (iii) reinsurance, primarily life retrocession. The operations in
wealth management include (i) group retirement products and services, and (ii)
retail and other wealth management products, including individual annuities, and
mutual funds and asset management services primarily conducted by the Companys
31%-owned strategic partner, CI, and 56%-owned McLean Budden Limited (McLean
Budden).

STRATEGY



| |  | Solidify SLF Canadas leadership position in all core businesses with focus on
scale and operating capabilities
|- |  | ---------------------------------------------------------------------------------------------------------------
| 
| |  | Leverage its powerful operating platform to
deliver business growth and financial performance                  
| 
| |  | Aggressively grow the retail
business by leveraging its competitive distribution network                       
| 
| |  | Strengthen the
group business by building an integrated service platform                                       
| 
| |  | Build a high
performance and customer-focused organization with greater identity and market
dominance          

2002 HIGHLIGHTS



| |  | Clarica integration on track with 2002 synergy saving targets achieved                                                                       
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Completed the CI transaction with tangible benefits already realized                                                                         
| 
| |  | Maintained a high level of customer satisfaction and achieved strong
financial performance in the new Sun Life Financial/ Clarica environment
| 
| |  | Realigned corporate culture through identification of common values                                                                          
| 
| |  | Named as
one of the top 100 employers in Canada by The Globe and Mail                                                                        

PRIORITIES FOR 2003



| |  | Complete the Clarica integration                                                                                                           
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Deliver visible economic benefits, including targeted cost saving run rate of
$270 million, from the Sun Life Financial/Clarica combination
| 
| |  | Maintain business momentum and customer focus in both the retail and group
businesses                                                      
| 
| |  | Increase brand identity and market visibility                                                                                              
| 
| |  | Reinforce high
performance values                                                                                                          

SLF CANADA  A NEW MARKET LEADER

With the acquisition of Clarica, SLF Canada became a leading player in most of
its markets in Canada. Its commanding position in both the retail and group
businesses reflects its strength in scale, product depth and breadth,
distribution and operating capabilities.

In the retail business market, the Company has a customer base of 2.5 million
people and a multi-channel, multi-brand distribution network consisting of an
exclusive, independent career advisors (ICA) sales force of over 4,200, a
partnership-based wholesale channel, and Internet driven direct marketing. This
21st century retail distribution model is orchestrated to efficiently segment
the market and individually address the specific needs of each group of clients.

In the group businesses, the Company is a premier provider of both group
benefits service and group retirement services. The significant scale of the
Companys group operations enables it to invest in advanced technology platforms
that enable the Company to offer integrated group benefits and group retirement
services. Management believes that the Company is well positioned to benefit
from employers increasing preference for one-stop solutions in the group
market.

A NEW CANADIAN MARKET LEADER

|                                                 |  |  |       | 
|------------------------------------------------ |  |  | ----- | 
|(as at and for the year ended December 31, 2002) |  |  |       | 
|                                                 |  |  |       | 
|Shareholders Net Income ($ millions)            |  |  | 513   | 
|Revenue ($ billions)                             |  |  | 6.6   | 
|Assets Under Management (AUM) ($ billions)       |  |  | 89.1  | 
|Insurance In-Force ($ billions)                  |  |  | 465   | 
|Independent Career Advisors                      |  |  | 4,216 | 

|            |                                               |                                         | 
|----------- | --------------------------------------------- | --------------------------------------- | 
|Customers   |                                               |                                         | 
|            | Retail                                        | 2.5 million individuals                
|            | Group                                         | 17,000 clients covering 7 million lives
|           
|Market Rank |                                               |                                        
|            | Retail Insurance                              | #1                                     
|            | Group Benefits                                | #1                                     
|            | Group Retirement                              | #1                                     
|            | Life Retrocession Reinsurance (North America) | #2                                     

28SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

(SLF CANADA FLOWCHART)

With the acquisition of Clarica, SLF Canada plays a more prominent role in the
Companys overall financial performance. SLF Canadas earnings power provides
significant financial resources for the Companys continuing growth in Canada
and internationally.

(FINANCIAL CONTRIBUTION FROM SLF CANADA BAR CHART)

CONSOLIDATED FINANCIAL RESULTS

SLF Canada faced significant market and operational challenges in 2002. The
Companys business in Canada experienced pressures from a continued soft economy
and equity market declines. At the same time, the Company embarked on a
reorganization driven by the Clarica acquisition. Despite these challenges, SLF
Canada reported strong performance in 2002.

Earnings from SLF
Canada increased to $513 million, up $301 million or 142%
relative to $212 million in 2001. In the seven months ended December 31, 2002
after its acquisition, Claricas Canadian operations posted strong earnings of
$230 million. Excluding Claricas contribution, earnings from SLF Canada would
have been $283 million, $71 million higher than in 2001. The increase was due
primarily to favourable health claims experience in the group benefits business,
increased earnings in McLean Budden, and interest on a tax refund.

Revenue for the year was $6.6 billion, up $2.7 billion or 70%, compared to $3.9
billion in 2001. The increase reflected the revenue contribution from Clarica
for the seven months after its acquisition.

As a result of the Clarica acquisition, equity capital in SLF Canada increased
significantly to $6.8 billion as at the end of 2002, of which $3.7 billion was
represented by goodwill arising from the acquisition. Consistent with increased
capital usage in SLF Canada, ROE decreased to 11.4% from the 2001 level of
16.5%.

Total assets under management increased to $89.1 billion as at December 31,
2002, up $36.6 billion from $52.5 billion as at December 31, 2001. The asset
growth reflected Claricas contribution of $42.1 billion, net of Diversico,which
was sold to CI subsequent to the acquisition. This contribution was partially
offset by a reduction of $6.6 billion as a result of the sale of Spectrum to CI.

SUMMARY STATEMENT OF OPERATIONS

|                                                        |  |      |       |      |  |      |       |   |  |  |       |  
|------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|($ millions, except as noted)                           |  | 2002 |       | 2001 |  | 2000
|                                                        |  |      |       |      |  |     
|Premiums                                                |  |      | 4,145 |      |  |      | 2,236 |   |  |  | 2,240 |  
|Investment Income                                       |  |      | 1,974 |      |  |      | 1,267 |   |  |  | 1,363 |  
|Fee Income                                              |  |      | 444   |      |  |      | 352   |   |  |  | 343   |  
|                                                        |  |      |       |      |  |      |       |   |  |  |       |  
|Total Revenue                                           |  |      | 6,563 |      |  |      | 3,855 |   |  |  | 3,946 |  
|Client
Disbursements &
Change in Actuarial
Liabilities  |  |      | 4,625 |      |  |      | 2,800 |   |  |  | 2,883 |  
|Commissions & Other Expenses                            |  |      | 1,219 |      |  |      | 724   |   |  |  | 721   |  
|Income Taxes                                            |  |      | 191   |      |  |      | 106   |   |  |  | 131   |  
|Non-Controlling Interests in
Net Income of Subsidiaries |  |      | 14    |      |  |      | 18    |   |  |  | 16    |  
|Par Policyholders
Income (Loss)                        |  |      | 1     |      |  |      | (5    | ) |  |  | 11    |  
|                                                        |  |      |       |      |  |      |       |   |  |  |       |  
|Shareholders Net Income                                |  |      | 513   |      |  |      | 212   |   |  |  | 184   |  
|                                                        |  |      |       |      |  |      |       |   |  |  |       |  
|Selected Financial Information                          |  |      |       |      |  |      |       |   |  |  |       |  
|Return on Equity                                        |  |      | 11.4  | %    |  |      | 16.5  | % |  |  | 12.2  | %
|Total AUM (billions)                                    |  |      | 89.1  |      |  |      | 52.5  |   |  |  | 50.5  |  
|Capital Employed                                        |  |      |       |      |  |      |       |   |  |  |       |  
|Debt                                                    |  |      | 1,745 |      |  |      | 425   |   |  |  | 427   |  
|Equity                                                  |  |      | 6,823 |      |  |      | 1,212 |   |  |  | 1,635 |  
|                                                        |  |      |       |      |  |      |       |   |  |  |       |  
|Total                                                   |  |      | 8,568 |      |  |      | 1,637 |   |  |  | 2,062 |  
|Goodwill                                                |  |      | 3,694 |      |  |      | 66    |   |  |  | 73    |  

29
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

Sun Life Financial Canada  Retail Insurance

BUSINESS PROFILE

The Companys Canadian Retail Insurance operations offer a full range of life
and health insurance products tailored to the needs of individual customers. Its
principal products include universal life, variable universal life, term life,
permanent life and health insurance. These products are marketed through a
distinctive, multi-channel distribution model consisting of an exclusive sales
force of over 4,200 independent career advisors, a partnership-based wholesale
channel, and Internet driven direct marketing.

The Company is the largest provider of retail 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 effectively compete in a highly
competitive and mature market.

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

2002 OPERATIONAL HIGHLIGHTS



| |  | Insurance sales increased to $116 million, up 90% from 2001, reflecting
strong sales from Clarica                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Number of independent career advisor sales
professionals increased to over 4,200 at December 31, 2002                                        
| 
| |  | Strengthened wholesale channel by forming strategic marketing and
distribution alliance with additional partners including Hub Financial Inc.
| 
| |  | Strong earnings of $140 million, up $101 million or 259% relative to 2001,
reflecting the contribution of Clarica                            

Retail Insurance experienced significant growth during 2002 as a result of the
combination of Claricas and the Companys existing Canadian retail insurance
operations. It established a 21st century retail distribution model featuring
multi-channel, multi-brand distribution capabilities. The potential for channel
conflict was effectively addressed by using separate branding, products,
commission systems and management. This distribution model has become an
integral part of the platform for the Companys Canadian retail insurance
business.

FINANCIAL RESULTS

Despite being in the midst of building a new organization in 2002, Retail
Insurance maintained its strong business momentum and achieved a high level of
customer satisfaction for its products and services.

Earnings increased to $140 million, up 259% from $39 million in 2001. The
increase was attributable to Claricas contribution of $102 million. Revenue for
the year grew to $1.9 billion, up 98% from the 2001 level of $971 million. The
increase in revenue was primarily driven by the contribution from Clarica.
During the year, the Company established a reinsurance treaty for its
participating policies, resulting in a reduction in renewal premiums from
participating products.

Sales of individual life and health products for the year were $116 million, up
$55 million from 2001, reflecting strong sales performance by Clarica. The sales
of Clarica-branded individual health products continued to be strong in 2002.

The increased scale and synergy savings from the Clarica combination allowed the
Company to continue to improve its operating margin and reduce unit costs.
Operating expenses to premium ratio declined to 18% in 2002 from 21% in 2001.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |  |      |       |      |  |      |     |   |  |  |     |  
|------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | --- | - |  |  | --- | -
|($ millions)                                           |  | 2002 |       | 2001 |  | 2000
|                                                       |  |      |       |      |  |     
|Premiums                                               |  |      | 1,297 |      |  |      | 580 |   |  |  | 555 |  
|Investment Income                                      |  |      | 620   |      |  |      | 388 |   |  |  | 412 |  
|Fee Income                                             |  |      | 7     |      |  |      | 3   |   |  |  | 2   |  
|                                                       |  |      |       |      |  |      |     |   |  |  |     |  
|Total Revenue                                          |  |      | 1,924 |      |  |      | 971 |   |  |  | 969 |  
|Client Disbursements &
Change in Actuarial
Liabilities |  |      | 1,289 |      |  |      | 750 |   |  |  | 715 |  
|Commissions & Other Expenses                           |  |      | 443   |      |  |      | 194 |   |  |  | 198 |  
|Income Taxes                                           |  |      | 51    |      |  |      | (7  | ) |  |  | (3  | )
|Par Policyholders Income
(Loss)                       |  |      | 1     |      |  |      | (5  | ) |  |  | 11  |  
|                                                       |  |      |       |      |  |      |     |   |  |  |     |  
|Shareholders Net Income                               |  |      | 140   |      |  |      | 39  |   |  |  | 48  |  
|                                                       |  |      |       |      |  |      |     |   |  |  |     |  
|New Annualized Premiums                                |  |      | 116   |      |  |      | 61  |   |  |  | 62  |  

30SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



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 operations include the
Companys individual annuity business, its subsidiary McLean Budden and its
31%-owned strategic partner CI. McLean Budden is one of the premier providers of
investment management services in Canada with assets under management of $22.5
billion as at December 31, 2002. CI is the fourth largest retail mutual fund
company in Canada, based on long-term mutual fund assets of $25.6 billion as at
December 31, 2002.

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 the broadest selection of investment funds in the Canadian
market. CIs competitive advantages also include its superior operating
capabilities, highly efficient back office operations and its exclusive access
to the Companys strong retail insurance distribution network.

2002 OPERATIONAL HIGHLIGHTS



| |  | Achieved solid earnings of $97 million, up 116% from 2001                                                                                                                                   
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Strong accumulation annuity and payout annuity sales reflecting consumer
preference for guaranteed products in volatile markets                                                             
| 
| |  | Integration of Spectrum and Diversico with CI took less than five months,
allowing CI to quickly realize synergy savings and sales opportunities with
SLF Canadas exclusive ICA sales force
| 
| |  | CIs mutual fund sales stabilized and showed significant signs of recovery in
the second part of 2002                                                                                       

FINANCIAL RESULTS

Earnings from Retail and Other Wealth Management increased to $97 million, up
$52 million or 116%, compared to 2001. The increase reflected the contribution
of $44 million from Clarica, strong earnings performance in McLean Budden and
CI, and expense reductions. These favourable changes were partially offset by
reduced earnings resulting from the sale of Spectrum.

Revenue for the year grew to $1.3 billion, up $489 million or 63%. The revenue
growth resulted primarily from the contribution of $549 million from Clarica,
and increased annuity sales, partially offset by the lost revenue related to the
sale of Spectrum. Fee income decreased marginally as Claricas contribution
largely offset the reduced fees due to the Spectrum sale.

Total assets under management, which exclude CIs assets, increased to $37.1
billion as at December 31, 2002, up $6.7 billion from 2001. The increased assets
were attributable primarily to Claricas contribution of $12.4 billion, net of
Diversico, partially offset by a reduction of $6.6 billion resulting from the
sale of Spectrum to CI. The impact of market declines was largely offset by net
sales for the year.

SUMMARY STATEMENT OF OPERATIONS

|                                                        |  |      |       |      |  |      |     |  |  |  |     | 
|------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | --- |  |  |  | --- | 
|($ millions)                                            |  | 2002 |       | 2001 |  | 2000
|                                                        |  |      |       |      |  |     
|Premiums                                                |  |      | 519   |      |  |      | 227 |  |  |  | 285 | 
|Investment Income                                       |  |      | 506   |      |  |      | 300 |  |  |  | 338 | 
|Fee Income                                              |  |      | 239   |      |  |      | 248 |  |  |  | 257 | 
|                                                        |  |      |       |      |  |      |     |  |  |  |     | 
|Total Revenue                                           |  |      | 1,264 |      |  |      | 775 |  |  |  | 880 | 
|Client Disbursements &
Change in Actuarial
Liabilities  |  |      | 863   |      |  |      | 433 |  |  |  | 574 | 
|Commissions & Other Expenses                            |  |      | 251   |      |  |      | 244 |  |  |  | 240 | 
|Income Taxes                                            |  |      | 44    |      |  |      | 35  |  |  |  | 26  | 
|Non-Controlling Interests in
Net Income of Subsidiaries |  |      | 9     |      |  |      | 18  |  |  |  | 16  | 
|                                                        |  |      |       |      |  |      |     |  |  |  |     | 
|Shareholders Net Income                                |  |      | 97    |      |  |      | 45  |  |  |  | 24  | 
|                                                        |  |      |       |      |  |      |     |  |  |  |     | 

(RETAIL AND OTHER WEALTH BAR CHART)



31ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

Sun Life Financial Canada  Group Benefits

BUSINESS PROFILE

The Companys Group Benefits operations are the largest provider of group life
and health insurance products in Canada. The Company has approximately 22%
market share in the Canadian group benefits business based on premiums and
premium equivalents. The Company provides extended health care as well as
short-term and long-term disability insurance. 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 advanced technology. The group benefit products are marketed and distributed
across Canada by its experienced sales representatives in co-operation with
independent brokers and benefit consultants.

Group Benefits has provided consistent growth and earnings. It represents a
significant growth area for SLF Canada. The Company intends to continue to
expand its market dominance by leveraging its ability to provide integrated
group benefits and group retirement services.

2002 OPERATIONAL HIGHLIGHTS



| |  | Maintained high standards of customer service despite the challenges arising
from the Clarica integration                                            
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Successfully launched online Pay-Direct drug card and expanded Internet-based
services to cover health spending accounts, vision care and drug claims
| 
| |  | Strong earnings of $157 million, up $76 million or 94%, including $46 million
from Clarica                                                           

In 2002, Group Benefits expanded its market dominance by leveraging its
increased scale and product depth resulting from the Clarica acquisition. In the
smaller and medium size market, the Company continued to increase its market
share by providing custom-designed products and high quality service.

In the large case market, the Company is well positioned to capitalize on its
groundbreaking 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 with easy
access.

(FLOW CHART)

FINANCIAL RESULTS

Group Benefits reported strong results for the year, with earnings up $76
million or 94% to $157 million relative to 2001. Excluding the contribution of
$46 million from Clarica, the increase in earnings of $30 million reflected
better morbidity experience and improved operating margins.

Revenue for the year
increased by $669 million, or 43%, to $2.2 billion. The
strong growth in revenue was attributable to the addition of $636 million from
Clarica and, in part, reflected the Companys successful expansion in key
product lines and customer segments. New business premiums increased to $130
million, up$21 million or 9% from 2001. The increase was due to Claricas
contribution of $12 million and increased group health premiums. Fee income
earned on the administrative services only business in the group health business
line grew 66% in 2002 to $88 million, of which $24 million was contributed by
Clarica.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |  |      |       |      |  |      |       |  |  |  |       | 
|------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|($ millions)                                           |  | 2002 |       | 2001 |  | 2000
|                                                       |  |      |       |      |  |     
|Premiums                                               |  |      | 1,765 |      |  |      | 1,211 |  |  |  | 1,120 | 
|Investment Income                                      |  |      | 358   |      |  |      | 280   |  |  |  | 307   | 
|Fee Income                                             |  |      | 90    |      |  |      | 53    |  |  |  | 41    | 
|                                                       |  |      |       |      |  |      |       |  |  |  |       | 
|Total Revenue                                          |  |      | 2,213 |      |  |      | 1,544 |  |  |  | 1,468 | 
|Client Disbursements &
Change in Actuarial
Liabilities |  |      | 1,629 |      |  |      | 1,176 |  |  |  | 1,119 | 
|Commissions & Other Expenses                           |  |      | 345   |      |  |      | 226   |  |  |  | 215   | 
|Income Taxes                                           |  |      | 82    |      |  |      | 61    |  |  |  | 66    | 
|                                                       |  |      |       |      |  |      |       |  |  |  |       | 
|Shareholders Net Income                               |  |      | 157   |      |  |      | 81    |  |  |  | 68    | 
|                                                       |  |      |       |      |  |      |       |  |  |  |       | 
|Sales  Group Life
and Health                          |  |      | 130   |      |  |      | 109   |  |  |  | 141   | 

32
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



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 largest
provider in Canada of group retirement products and services, including defined
contribution plans, defined benefit plans, and group savings and annuities. With
its strength in product offerings, customer services and infrastructure
capabilities, the Company is well equipped to meet the complex plan and service
requirements of medium to large corporations and associations, and to provide
cost effective solutions for smaller markets. The Company had approximately 29%
market share in Canada based on assets under management, and its group products
covered approximately 805,000 plan members at the end of 2002. The Companys
products are marketed and distributed through both its in-house sales force and
pension consultants.

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.

2002 OPERATIONAL HIGHLIGHTS



| |  | Achieved record sales of $1.2 billion, the highest in the industry                                           
|- |  | -------------------------------------------------------------------------------------------------------------
| 
| |  | Signed up a number of significant new clients for the integrated group
retirement and group benefits services
| 
| |  | Earnings up $19 million, or 50%,
including contribution of $15 million from Clarica                          

FINANCIAL RESULTS

GRS increased its focus on sales, business retention and cost controls in light
of difficult investment market conditions in 2002. The excellent performance in
these areas contributed to strong financial results in GRS. Earnings for the
year were $57 million, up $19 million or 50%. Without the contribution of $15
million from Clarica, the increase would have been $4 million, or 11%, compared
to 2001. Fee-based business reported strong earnings as a result of the
continuing shift in pricing to member-based fees. In addition, fixed income
products such as payout annuities benefited from higher spreads between the
earned rate on the Companys investments and credited rates for policyholders.

Revenue increased by $332 million, or 62%, to $871 million, due to the
contribution of $322 million from Clarica. The increased fee income of $10
million, before Claricas contribution of $45 million, reflected the impact of
the Companys client specific pricing actions and continuing shift to fee-based
services.

(GROSS SALES BAR CHART)

GRS generated impressive sales of $1.2 billion in 2002, including contracts from
several major Canadian corporations and institutions.

Assets under management increased by $11.5 billion, or 96%, to $23.3 billion as
at December 31, 2002. The acquisition of Clarica almost doubled GRS assets
under management.

GRS provided services to approximately 6,100 Canadian companies in 2002, with
805,000 plan members as at December 31, 2002. The number of plan members
increased by 480,000, or 148%, compared to 325,000 as at December 31, 2001. The
significant change in 2002 reflected, in large part, the impact of Clarica,
which was already one of the leading players in the group retirement services
market prior to its acquisition.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |                               |      |     |      |  |      |     |      |  |  |     |      | 
|------------------------------------------------------ | ----------------------------- | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | ---- | 
|($ millions, except as noted)                          |                               | 2002 |     | 2001 |  | 2000
|                                                       |                               |      |     |      |  |     
|Premiums                                               |                               |      | 335 |      |  |      | 218 |      |  |  | 280 |     
|Investment Income                                      |                               |      | 435 |      |  |      | 275 |      |  |  | 298 |     
|Fee Income                                             |                               |      | 101 |      |  |      | 46  |      |  |  | 42  |     
|                                                       |                               |      |     |      |  |      |     |      |  |  |     |     
|Total Revenue                                          |                               |      | 871 |      |  |      | 539 |      |  |  | 620 |     
|Client Disbursements &
Change in Actuarial
Liabilities |                               |      | 668 |      |  |      | 415 |      |  |  | 475 |     
|Commissions & Other Expenses                           |                               |      | 115 |      |  |      | 57  |      |  |  | 57  |     
|Income Taxes                                           |                               |      | 31  |      |  |      | 29  |      |  |  | 43  |     
|                                                       |                               |      |     |      |  |      |     |      |  |  |     |     
|Shareholders Net Income                               |                               |      | 57  |      |  |      | 38  |      |  |  | 45  |     
|                                                       |                               |      |     |      |  |      |     |      |  |  |     |     
|Selected Financial Information                         |                               |      |     |      |  |      |     |      |  |  |     |     
|                                                       | AUM (billions)                |      |     | 23.3 |  |      |     | 11.9 |  |  |     | 12.1 | 
|                                                       | Number of Plan Members (000s) |      |     | 805  |  |      |     | 325  |  |  |     | 314  | 

33
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



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% 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.

2002 OPERATIONAL HIGHLIGHTS



| |  | Maintained strong earnings and revenue performance following the closing of
the Clarica transaction                                                                                 
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Life retrocession In-force grew by 6% to $183 billion
from $172 billion as at the closing of the Clarica acquisition                                                                
| 
| |  | Strengthened international structure and capabilities through the creation of
a new Barbados branch operation and the continued development of its
reinsurance subsidiary in Ireland

FINANCIAL RESULTS

SLF Canadas reinsurance business was acquired as part of the Clarica
transaction. For the seven months in 2002 as part of the Sun Life Financial
organization, Reinsurance reported strong earnings of $32 million. This solid
performance was a result of effective product design and pricing, as well as
expense control. Reinsurance embarked on a number of initiatives that
strengthened its business focus and solidified its leadership position in an
increasingly challenging business environment.

Revenue was $258 million from seven months of operations in 2002. Sales of
in-force insurance for the year were $16 billion, representing a strong
performance in light of a continued soft reinsurance market in 2002.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |  |      |     |      |  |      |   |  |  |  |   | 
|------------------------------------------------------ |  | ---- | --- | ---- |  | ---- | - |  |  |  | - | 
|($ millions, except as noted)                          |  | 2002 |     | 2001 |  | 2000
|                                                       |  |      |     |      |  |     
|Premiums                                               |  |      | 229 |      |  |      |  |  |  |  |  | 
|Investment Income                                      |  |      | 26  |      |  |      |  |  |  |  |  | 
|Fee Income                                             |  |      | 3   |      |  |      |  |  |  |  |  | 
|                                                       |  |      |     |      |  |      |   |  |  |  |   | 
|Total Revenue                                          |  |      | 258 |      |  |      |  |  |  |  |  | 
|Client Disbursements &
Change in Actuarial
Liabilities |  |      | 176 |      |  |      |  |  |  |  |  | 
|Commissions & Other Expenses                           |  |      | 40  |      |  |      |  |  |  |  |  | 
|Income Taxes                                           |  |      | 10  |      |  |      |  |  |  |  |  | 
|                                                       |  |      |     |      |  |      |   |  |  |  |   | 
|Shareholders Net Income                               |  |      | 32  |      |  |      |  |  |  |  |  | 
|                                                       |  |      |     |      |  |      |   |  |  |  |   | 
|In-force business (billions)                           |  |      | 183 |      |  |      |   |  |  |  |   | 

Sun Life Financial Canada  Investment Portfolio & Other

BUSINESS PROFILE

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

FINANCIAL RESULTS

For the year ended December 31, 2002, Canadian Investment Portfolio & Other
reported earnings of $30 million, compared to earnings of $9 million in 2001. The
increased earnings of $21 million were primarily attributable to interest on a
tax refund, a reduction in tax expenses from the resolution of past issues with
the tax authorities and provisions for a legal settlement in 2001. These
favourable items were partially offset by increased net loan loss provisions.

SUMMARY STATEMENT OF OPERATIONS

|                                                        |  |      |     |      |  |      |     |   |  |  |    |  
|------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | -- | -
|($ millions)                                            |  | 2002 |     | 2001 |  | 2000
|                                                        |  |      |     |      |  |     
|Premiums                                                |  |      |    |      |  |      |    |   |  |  |   |  
|Investment Income                                       |  |      | 29  |      |  |      | 24  |   |  |  | 8  |  
|Fee Income                                              |  |      | 4   |      |  |      | 2   |   |  |  | 1  |  
|                                                        |  |      |     |      |  |      |     |   |  |  |    |  
|Total Revenue                                           |  |      | 33  |      |  |      | 26  |   |  |  | 9  |  
|Client Disbursements &
Change in Actuarial
Liabilities  |  |      |    |      |  |      | 26  |   |  |  |   |  
|Commissions & Other Expenses                            |  |      | 25  |      |  |      | 3   |   |  |  | 11 |  
|Income Taxes                                            |  |      | (27 | )    |  |      | (12 | ) |  |  | (1 | )
|Non-Controlling Interests in
Net Income of Subsidiaries |  |      | 5   |      |  |      |    |   |  |  |   |  
|                                                        |  |      |     |      |  |      |     |   |  |  |    |  
|Shareholders Net Income
(Loss)                         |  |      | 30  |      |  |      | 9   |   |  |  | (1 | )
|                                                        |  |      |     |      |  |      |     |   |  |  |    |  

34
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 





Managements Discussion and Analysis

Sun Life Financial United States

BUSINESS PROFILE

SLF U.S. concentrates on individual annuity products, high-end and emerging
affluent segments of the individual insurance market, and high growth group
business lines. The Company, through its Retirement Product and Services
business unit, offers innovative and enhanced fixed and variable annuities in
the United States. The Company participates primarily in two insurance
businesses: (i) individual life, including fixed and variable universal life,
corporate and bank-owned life insurance, and (ii) group life and health
insurance including life insurance, short and long-term disability benefits and
medical stop-loss plans.

STRATEGY



| |  | Grow and become a top 10 player in selected protection and wealth management
markets
|- |  | ------------------------------------------------------------------------------------
| 
| |  | Leverage product innovation strength and operational excellence                     
| 
| |  | Build world-class wholesale distribution capabilities                               
| 
| |  | Strengthen operational
capabilities and information infrastructure                  

2002 HIGHLIGHTS



| |  | Keyport fully integrated with savings run rate exceeding the target of $50
million           
|- |  | ---------------------------------------------------------------------------------------------
| 
| |  | Earnings of $208 million from Keyport exceeding 2002 target set at its
acquisition           
| 
| |  | Strong earnings growth of 20% and 11% in group business and
individual life, respectively    
| 
| |  | Decisive risk management actions significantly
reduced market exposures of variable annuities

PRIORITIES FOR 2003

     Achieve earnings growth through revenue growth and operational efficiency

     Continue to optimize capital structure

     Grow market share by expanding and
strengthening distribution capabilities

     Achieve greater scale in core
businesses

CONSOLIDATED FINANCIAL RESULTS

For the year ended December 31, 2002, SLF U.S. reported strong earnings of $374
million, up $152 million or 69% relative to the 2001 level of $222 million. This
increase reflected solid contribution from the Keyport acquisition and strong
growth momentum in individual and group insurance businesses. These
contributions were partially offset by increased bond provisions in
SLF U.S.
Keyport reported earnings of $208 million before financing costs in 2002,
exceeding the management target set at the time of its acquisition. Keyport,
acquired on October 31, 2001, contributed $27 million to the Companys earnings
in 2001.

Revenue for the year was $11.9 billion, up $4.1 billion or 52% from $7.8 billion
in 2001. The increase was largely driven by the addition of Keyport and strong
premium growth in both the individual and group insurance businesses. These
contributions were partially offset by decreased sales of dollar cost averaging
annuity products primarily resulting from weak U.S. equity market performance.

ROE decreased to 7.3% from the 2001 level of 11.8%. The decrease reflected the
full year impact of increased capital usage associated with the Keyport
acquisition and higher capital requirements for the Companys variable annuity
business due to equity market declines.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |                      |        |        |       |       |      |       |       |       |  |       |      |       | 
|------------------------------------------------------ | -------------------- | ------ | ------ | ----- | ----- | ---- | ----- | ----- | ----- |  | ----- | ---- | ----- | 
|($ millions, except as noted)                          |                      | 2002   |        | 2001  |       | 2000
|                                                       |                      |        |        |       |       |     
|Premiums                                               |                      |        | 9,165  |       |       |      | 5,821 |       |       |  | 5,502 |     
|Investment Income                                      |                      |        | 2,069  |       |       |      | 1,505 |       |       |  | 1,238 |     
|Fee Income                                             |                      |        | 643    |       |       |      | 485   |       |       |  | 419   |     
|                                                       |                      |        |        |       |       |      |       |       |       |  |       |     
|Total Revenue                                          |                      |        | 11,877 |       |       |      | 7,811 |       |       |  | 7,159 |     
|Client Disbursements &
Change in Actuarial
Liabilities |                      |        | 9,838  |       |       |      | 6,470 |       |       |  | 5,834 |     
|Commissions &
Other Expenses                           |                      |        | 1,641  |       |       |      | 1,090 |       |       |  | 1,069 |     
|Income Taxes                                           |                      |        | 38     |       |       |      | 25    |       |       |  | 28    |     
|Par Policyholders Income                              |                      |        | (2     | )     |       |      | 4     |       |       |  | (1    | )   
|Loss (Income) from
Discontinued Operations             |                      |        | (12    | )     |       |      |      |       |       |  |      |     
|                                                       |                      |        |        |       |       |      |       |       |       |  |       |     
|Shareholders Net Income                               |                      |        | 374    |       |       |      | 222   |       |       |  | 229   |     
|                                                       |                      |        |        |       |       |      |       |       |       |  |       |     
|Selected Financial Information                         |                      |        |        |       |       |      |       |       |       |  |       |     
|Return on Equity                                       |                      |        | 7.3    | %     |       |      | 11.8  | %     |       |  | 20.1  | %   
|                                                       | Total AUM (billions) |        |        | 83.3  |       |      |       | 78.5  |       |  |       | 47.3 |      
|                                                       | Capital Employed     |        |        |       |       |      |       |       |       |  |       |      |      
|                                                       |                      | Debt   |        |       | 1,749 |      |       |       | 1,643 |  |       |      | 473   | 
|                                                       |                      | Equity |        |       | 5,411 |      |       |       | 4,543 |  |       |      | 1,312 | 
|                                                       |                      |        |        |       |       |      |       |       |       |  |       |     
|                                                       |                      | Total  |        |       | 7,160 |      |       |       | 6,186 |  |       |      | 1,785 | 
|                                                       | Goodwill             |        |        | 2,010 |       |      |       | 1,952 |       |  |       |     |      

35
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

Sun Life Financial United States  Retirement Products and Services

BUSINESS PROFILE

The Companys Retirement Products and Services (RPS) is a major provider of
individual annuity products in the U.S. market. RPS offers a full annuity
product suite supported by its product development strength, broad distribution
capabilities, strong operating efficiency, and effective investment and risk
management.

RPS represents an integral part of the Companys growth platform in the U.S. and is well positioned to compete in a consolidating environment in the U.S. annuity
market.

2002 OPERATIONAL HIGHLIGHTS



| |  | Sun Life Financial and Keyport, as a combined carrier, were rated by
Operations Managers Roundtable in the top grouping of annuity writers                                       
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Combined the annuity distribution operations of RPS and MFS to increase scale
and leverage the recognition of both the MFS and SunLife Financial brands                          
| 
| |  | Merged the Companys subsidiaries Sun Life Insurance and Annuity Company of New
York and Keyport Benefit Life Insurance Company to streamline its operating
structure in the U.S.

FINANCIAL RESULTS

The Company, like other variable annuity providers in the U.S., experienced
further pressures from a continuing sluggish economy and increased market
volatility in 2002. The decline in the equity markets resulted in, among other
things, lower fee income and higher provisions for annuity products with a
guaranteed minimum death benefits feature. In spite of these adverse factors,
earnings from RPS increased to $269 million, up
$205 million or 320% from $64
million in 2001. This excellent performance provided tangible evidence of the
critical importance of the Keyport acquisition to the Companys earnings
diversification strategy. Keyports earnings increased by $181 million,
reflecting its full year contribution in 2002. The solid performance of Keyport,
which operates principally in the fixed annuity market, compensated for the
slowdown in the growth momentum of the Companys variable annuity business, which
is sensitive to market performance.

The Company
established an S&P 500 Index based hedge program in 2001. This
program hedges against increases in actuarial liabilities that would arise from
declines in the equity market. The Company has also entered into reinsurance
arrangements for a portion of its variable annuity block of business that
includes the guaranteed minimum death benefits feature. The reinsurance
arrangements mitigate increasing death claims arising from the impact that
market declines would have on guaranteed minimum death benefits requirements.
The S&P 500 Index hedge and the reinsurance arrangements were effective in
substantially mitigating the earnings impact that market declines had on these
exposures.

Revenue for the year
increased to $8.2 billion, up 77% from $4.7 billion in 2001.
This significant growth was primarily due to the full year contribution of
Keyport. Annuity sales were largely flat, as increased fixed annuity sales
offset lower variable annuity sales. The increase in fixed annuity sales
reflected the full year impact of Keyports contribution. On the variable annuity
side, the decreased sales were consistent with industry experience. The Company
refrained from selling annuity products with certain guaranteed features due to
a lack of acceptable risk mitigants for these products.

Assets under management were $62.1 billion as at December 31, 2002 compared to
$65.1 billion as at December 31, 2001. The decrease of $3.0 billion reflected
the impact of market declines on the Companys variable annuity assets.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |                      |                    |       |      |       |      |       |      |       |  |       |      |       | 
|------------------------------------------------------ | -------------------- | ------------------ | ----- | ---- | ----- | ---- | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|($ millions, except as noted)                          |                      | 2002               |       | 2001 |       | 2000
|                                                       |                      |                    |       |      |       |     
|Premiums                                               |                      |                    | 6,297 |      |       |      | 3,525 |      |       |  | 3,523 |     
|Investment Income                                      |                      |                    | 1,446 |      |       |      | 714   |      |       |  | 474   |     
|Fee Income                                             |                      |                    | 505   |      |       |      | 433   |      |       |  | 409   |     
|                                                       |                      |                    |       |      |       |      |       |      |       |  |       |     
|Total Revenue                                          |                      |                    | 8,248 |      |       |      | 4,672 |      |       |  | 4,406 |     
|Client
Disbursements &
Change in Actuarial
Liabilities |                      |                    | 7,069 |      |       |      | 4,146 |      |       |  | 3,822 |     
|Commissions
&
Other Expenses                           |                      |                    | 836   |      |       |      | 451   |      |       |  | 497   |     
|Income Taxes                                           |                      |                    | 74    |      |       |      | 11    |      |       |  | 14    |     
|                                                       |                      |                    |       |      |       |      |       |      |       |  |       |     
|Shareholders Net Income                               |                      |                    | 269   |      |       |      | 64    |      |       |  | 73    |     
|                                                       |                      |                    |       |      |       |      |       |      |       |  |       |     
|Selected Financial Information                         |                      |                    |       |      |       |      |       |      |       |  |       |     
|                                                       | Gross
Sales
Annuity 
|                                                       |                      | Variable Annuities |       |      | 3,986 |      |       |      | 4,554 |  |       |      | 6,501 | 
|                                                       |                      | Fixed Annuities    |       |      | 2,653 |      |       |      | 353   |  |       |      |      | 
|                                                       |                      | Indexed Annuities  |       |      | 521   |      |       |      | 82    |  |       |      |      | 
|                                                       |                      |                    |       |      |       |      |       |      |       |  |       |     
|                                                       |                      | Total              |       |      | 7,160 |      |       |      | 4,989 |  |       |      | 6,501 | 
|                                                       | Total AUM (billions) |                    |       | 62.1 |       |      |       | 65.1 |       |  |       | 36.2 |      

36

SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



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 policy size in universal life products in 2002. 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 strong
access to its target customers.

Individual Life represents a core franchise of the Companys business platform
in the U.S., providing a reliable stream of strong earnings. To maintain its
earnings strength, this business unit competes aggressively in the high growth
estate protection and wealth transfer segments, and the COLI and BOLI markets.

2002 OPERATIONAL HIGHLIGHTS



| |  | Strong earnings and effective capital management resulted in excellent
returns                           
|- |  | ---------------------------------------------------------------------------------------------------------
| 
| |  | Achieved strong top-line growth with total sales up 51% relative to
2001                                 
| 
| |  | Launched a new family of universal life products designed to suit the needs
of high net worth individuals

FINANCIAL RESULTS

Individual Life in the U.S. continued to deliver strong performance in 2002.
Earnings increased to $118 million, up $12 million or 11% from 2001. The increase
largely reflected the growth of In-force business driven by continued sales of
profitable products, partially offset by worse mortality experience relative to
2001. Management continued to focus on profitability improvement through pricing
and margin improvement. The operating expense to insurance premium ratio in 2002
decreased to 6% from the 2001 level of 9%.

Revenue for the year grew to $2.7 billion, up $457 million or 21%. This
increase, along with the 51% increase in total sales, is primarily the result of
strong sales momentum in offshore products and U.S. issued universal life
products, as well as increased sales in COLI products.

During 2002, Individual Life began to expand its core product wholesale
distribution, with wholesalers increasing from 6 in 2001 to 14 at the end of the
year. In addition, it extended its BOLI focus to the mid-size case market.

SUMMARY STATEMENT OF OPERATIONS

|                                                        |                     |          |       |       |     |      |       |       |     |  |       |       |     | 
|------------------------------------------------------- | ------------------- | -------- | ----- | ----- | --- | ---- | ----- | ----- | --- |  | ----- | ----- | --- | 
|($ millions)                                            |                     | 2002     |       | 2001  |     | 2000
|                                                        |                     |          |       |       |     |     
|Premiums                                                |                     |          | 1,943 |       |     |      | 1,502 |       |     |  | 1,347 |      
|Investment Income                                       |                     |          | 701   |       |     |      | 693   |       |     |  | 628   |      
|Fee Income                                              |                     |          | 19    |       |     |      | 11    |       |     |  | 6     |      
|                                                        |                     |          |       |       |     |      |       |       |     |  |       |      
|Total Revenue                                           |                     |          | 2,663 |       |     |      | 2,206 |       |     |  | 1,981 |      
|Client
Disbursements &

Change in Actuarial
Liabilities |                     |          | 2,066 |       |     |      | 1,705 |       |     |  | 1,512 |      
|Commissions
&
Other Expenses                            |                     |          | 435   |       |     |      | 354   |       |     |  | 338   |      
|Income Taxes                                            |                     |          | 46    |       |     |      | 37    |       |     |  | 57    |      
|Par Policyholders Income
(Loss)                        |                     |          | (2    | )     |     |      | 4     |       |     |  | (1    | )    
|                                                        |                     |          |       |       |     |      |       |       |     |  |       |      
|Shareholders Net Income                                |                     |          | 118   |       |     |      | 106   |       |     |  | 75    |      
|                                                        |                     |          |       |       |     |      |       |       |     |  |       |      
|Selected Financial Information                          |                     |          |       |       |     |      |       |       |     |  |       |      
|                                                        | Gross Sales         |          |       |       |     |      |       |       |     |  |       |       |    
|                                                        |                     | Non-BOLI |       |       | 270 |      |       |       | 130 |  |       |       | 140 | 
|                                                        |                     | BOLI     |       |       | 137 |      |       |       | 139 |  |       |       | 127 | 
|                                                        | Premiums & Deposits |          |       | 3,404 |     |      |       | 2,112 |     |  |       | 2,668 |    

(GROWTH IN U.S. INDIVIDUAL LIFE BAR CHART)

37
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



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 value-added 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 leading provider of stop-loss products, ranking #3 based on
sales in 2002. The Companys group insurance products are marketed and
distributed by its sales representatives in its 20 regional sales offices in the
United States. These representatives maintain close relationships with
independent brokers and consultants who deal directly with employers.

Group Life and Health has provided consistent growth and earnings. It represents
a core growth area for the Company in the U.S. marketplace.

2002 OPERATIONAL HIGHLIGHTS



| |  | Achieved excellent revenue growth of 16% and earnings growth of 20%                     
|- |  | ----------------------------------------------------------------------------------------
| 
| |  | Aggressively pursued product repricing and market share growth in the
stop-loss business
| 
| |  | Continued to build strong distribution presence in all markets                          

FINANCIAL RESULTS

The growth momentum in the Companys Group Life and Health in the U.S. remained
strong in 2002. Management continued to take a disciplined approach to renewal
underwriting. Most products, particularly stop-loss, were priced to meet or
exceed target hurdle rates.

Earnings increased to $49 million, up $8 million or 20%, compared to 2001. The
increase was primarily driven by favourable claims experience in group health,
improved pricing in stop-loss products and continued margin improvement. The
operating expense to insurance premium ratio in 2002 decreased to 13% from 14%
in 2001.

Revenue for the year grew to $1.0 billion, up $137 million or 16%. The increase
was primarily driven by increased health premiums resulting from better pricing
and additional new business.

In 2002, Group Life and Health continued to pursue growth opportunities in the
group life business with added focus on expanding its presence in the segment of
national accounts that include employers with up to 10,000 lives. The growth in
group life was supported by the Companys investments in servicing
infrastructure and expansion of sales force. On the stop-loss front, the Company
continued to expand its relationships with preferred partners to strengthen its
distribution capabilities.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |  |      |       |      |  |      |     |  |  |  |     |  | 
|------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | --- |  |  |  | --- |  | 
|($ millions)                                           |  | 2002 |       | 2001 |  | 2000
|                                                       |  |      |       |      |  |     
|Premiums                                               |  |      | 925   |      |  |      | 794 |  |  |  | 632 | 
|Investment Income                                      |  |      | 80    |      |  |      | 75  |  |  |  | 64  | 
|Fee Income                                             |  |      | 3     |      |  |      | 2   |  |  |  | 3   | 
|                                                       |  |      |       |      |  |      |     |  |  |  |     | 
|Total Revenue                                          |  |      | 1,008 |      |  |      | 871 |  |  |  | 699 | 
|Client Disbursements & Change in Actuarial Liabilities |  |      | 699   |      |  |      | 616 |  |  |  | 491 | 
|Commissions & Other Expenses                           |  |      | 241   |      |  |      | 200 |  |  |  | 169 | 
|Income Taxes                                           |  |      | 19    |      |  |      | 14  |  |  |  | 14  | 
|                                                       |  |      |       |      |  |      |     |  |  |  |     | 
|Shareholders Net Income                               |  |      | 49    |      |  |      | 41  |  |  |  | 25  | 
|                                                       |  |      |       |      |  |      |     |  |  |  |     | 

(GROWTH IN U.S. GROUP LIFE BAR CHART)

38
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

Sun Life Financial United States  Investment Portfolio & Other

BUSINESS PROFILE

The Companys
U.S. Investment Portfolio & Other operations include investment
income and expenses not directly attributable to the U.S. core business units as
well as IFMG and other distribution subsidiaries in the U.S. IFMG is a premier
distributor of insurance and investment products to retail customers through
banks in the U.S.

2002 OPERATIONAL HIGHLIGHTS



| |  | IFMG retained the #1 ranking in sales of third-party annuities through
the bank distribution channel
|- |  | ----------------------------------------------------------------------------------------------------
| 
| |  | Total sales in IFMG reached $14.2 billion, including proprietary sales
of $3.2 billion              

FINANCIAL RESULTS

For the year ended December 31, 2002, U.S. Investment Portfolio & Other had a
loss of $62 million, compared to the earnings of $11 million in 2001. The
unfavourable change of $73 million was primarily attributable to significant
bond provisions taken in 2002 primarily related to the U.S. telecommunication,
airline and energy sectors. These provisions reduced earnings by $57 million,
which was relatively moderate given the magnitude of the overall credit defaults
experienced by the U.S. corporate debt market during 2002. The reduction in
earnings was also attributable to lower investment income resulting from a
decrease in invested assets that are held in this unit. These decreases were
partially offset by the contribution of $12 million from Clarica U.S., which was
classified as discontinued operations in 2002, and increased tax recoveries due
to the resolution of past issues with the tax authorities in the United States.

Revenue for the year decreased by $104 million, reflecting reduced investment
income partially offset by higher fee income. Lower investment income was
primarily caused by bond provisions taken during the year and unfavourable
spread between investment returns and credited rates on invested assets managed
for other SLF U.S. business units. The increase in fee income was largely due to
the full year impact of sales in IFMG.

IFMG, acquired together with Keyport in October 2001, reported strong sales in
2002 in spite of volatile stock markets and weak consumer confidence. Total
sales reached $14.2 billion, reflecting its continued aggressive expansion
through the hiring of experienced sales representatives and the addition of key
bank partners.

The proprietary sales at IFMG, which represent the sales of products from its
parent and affiliated companies, rose to $3.2 billion. In 2002, the Company
intensified its efforts to leverage IFMGs strength in the bank channel to
market the Companys variable and fixed annuity products and MFS mutual funds.
IFMG also started distributing the Companys life insurance products.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |  |      |      |      |  |      |     |   |  |  |     |   | 
|------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | --- | - |  |  | --- | - | 
|($ millions)                                           |  | 2002 |      | 2001 |  | 2000
|                                                       |  |      |      |      |  |     
|Premiums                                               |  |      |     |      |  |      |    |   |  |  |    |  
|Investment Income                                      |  |      | (158 | )    |  |      | 23  |   |  |  | 72  |  
|Fee Income                                             |  |      | 116  |      |  |      | 39  |   |  |  | 1   |  
|                                                       |  |      |      |      |  |      |     |   |  |  |     |  
|Total Revenue                                          |  |      | (42  | )    |  |      | 62  |   |  |  | 73  |  
|Client Disbursements & Change in Actuarial Liabilities |  |      | 4    |      |  |      | 3   |   |  |  | 9   |  
|Commissions & Other Expenses                           |  |      | 129  |      |  |      | 85  |   |  |  | 65  |  
|Income Taxes                                           |  |      | (101 | )    |  |      | (37 | ) |  |  | (57 | )
|Loss (Income) from Discontinued Operations             |  |      | (12  | )    |  |      |    |   |  |  |    |  
|                                                       |  |      |      |      |  |      |     |   |  |  |     |  
|Shareholders Net Income (Loss)                        |  |      | (62  | )    |  |      | 11  |   |  |  | 56  |  
|                                                       |  |      |      |      |  |      |     |   |  |  |     |  

(IFMG SALE GRAPH)

39
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

MFS Investment Management

BUSINESS PROFILE

MFS is a significant U.S. based mutual fund and investment management
company, offering investment products and services in the U.S. and other global
markets to both retail and institutional investors. MFS manages mutual
funds, variable annuity products, pension funds and other institutional funds. It
also provides mutual fund and variable annuity distribution services. As at
December 31,2002, the Companys equity interest in MFS was 91.7%.The remaining
8.3%was owned by MFS employees.

MFS objective is to become a premier global asset manager that generates stable
earnings through product and market diversification.

STRATEGIES



| |  | 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 preferred access to the wholesale distribution channel                                
| 
| |  | Continue to strengthen efficient operating infrastructure                                      

2002 HIGHLIGHTS



| |  | Positive net sales of $5.1 billion in a very difficult market,
reflecting strong sales momentum in institutional products
|- |  | -------------------------------------------------------------------------------------------------------------------------
| 
| |  | Realigned cost structure to mitigate earnings risks from significant
equity market declines                              
| 
| |  | Strong showings in the Lipper and Morningstar performance rankings of
U.S. retail mutual funds                           
| 
| |  | Ranked as one of the 100 Best Companies to Work for in the U.S. for the
fourth consecutive year by Fortune Magazine      

PRIORITIES FOR 2003



| |  | Continue to focus on asset retention                                          
|- |  | ------------------------------------------------------------------------------
| 
| |  | Grow institutional and international businesses                               
| 
| |  | Continue investing in new products and distribution channels for future
growth

FINANCIAL RESULTS

In 2002, global equity markets continued to languish as the pessimism about a
quick economic recovery persisted. The S&P 500 Index averaged 994 in 2002, a
decline of 17% from the 2001 average level of 1,194. Falling market valuations
exerted significant earnings pressures on asset managers such as MFS, as their
asset bases continued to decline. Assets under management at MFS decreased to
$179.4 billion as at December 31, 2002, down 19% from the 2001 level of $220.2
billion. This decrease was in line with overall market declines in 2002. Despite
severe market conditions, MFS contributed $174 million in
earnings in 2002. This
solid earnings performance reflected MFS success in leveraging its core
investment management capabilities to diversify its product platform, and
improvements in its operating efficiency.

SUMMARY STATEMENT OF OPERATIONS

|                                                        |                               |        |       |       |      |      |       |       |      |  |       |       |      | 
|------------------------------------------------------- | ----------------------------- | ------ | ----- | ----- | ---- | ---- | ----- | ----- | ---- |  | ----- | ----- | ---- | 
|($ millions, except as noted)                           |                               | 2002   |       | 2001  |      | 2000
|                                                        |                               |        |       |       |      |     
|Investment Income                                       |                               |        | 9     |       |      |      | 16    |       |      |  | 19    |      
|Fee Income                                              |                               |        | 1,970 |       |      |      | 2,257 |       |      |  | 2,363 |      
|                                                        |                               |        |       |       |      |      |       |       |      |  |       |      
|Total Revenue                                           |                               |        | 1,979 |       |      |      | 2,273 |       |      |  | 2,382 |      
|Commissions & Other Expenses                            |                               |        | 1,673 |       |      |      | 1,856 |       |      |  | 1,899 |      
|Income Taxes                                            |                               |        | 109   |       |      |      | 144   |       |      |  | 176   |      
|Non-Controlling Interests in Net Income of Subsidiaries |                               |        | 23    |       |      |      | 42    |       |      |  | 51    |      
|                                                        |                               |        |       |       |      |      |       |       |      |  |       |      
|Shareholders Net Income                                |                               |        | 174   |       |      |      | 231   |       |      |  | 256   |      
|                                                        |                               |        |       |       |      |      |       |       |      |  |       |      
|Selected Financial Information                          |                               |        |       |       |      |      |       |       |      |  |       |      
|                                                        | Return on Equity              |        |       | 46.2  | %    |      |       | 63.0  | %    |  |       | 87.0  | %   
|                                                        | Sales (billions)              |        |       |       |      |      |       |       |      |  |       |       |     
|                                                        |                               | Gross  |       |       | 56.3 |      |       |       | 67.3 |  |       |       | 67.6 | 
|                                                        |                               | Net    |       |       | 5.1  |      |       |       | 26.4 |  |       |       | 31.6 | 
|                                                        | Total AUM (billions)          |        |       | 179.4 |      |      |       | 220.2 |      |  |       | 222.8 |     
|                                                        | Average Net Assets (billions) |        |       | 192.8 |      |      |       | 214.7 |      |  |       | 220.2 |     
|                                                        | Capital Employed              |        |       |       |      |      |       |       |      |  |       |       |     
|                                                        |                               | Debt   |       |       | 158  |      |       |       | 159  |  |       |       | 150  | 
|                                                        |                               | Equity |       |       | 316  |      |       |       | 440  |  |       |       | 270  | 
|                                                        |                               |        |       |       |      |      |       |       |      |  |       |      
|                                                        |                               | Total  |       |       | 474  |      |       |       | 599  |  |       |       | 420  | 

40
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

On the sales front, MFS achieved net sales of $5.1 billion in 2002, which
partially alleviated the severity of market value declines on assets under
management. MFS reported impressive net sales of $6.9 billion and $1.3 billion
in institutional and international products respectively, reflecting its
increasingly strong presence in these markets. These net sales were partially
offset by weakness in domestic mutual funds and annuity products, which had net
outflows of $1.4 billion and $1.7 billion, respectively.

(INSTITUTIONAL FUNDS ASSETS BAR CHART)

On the operational front, MFS implemented further cost containment measures to
realign its cost structure with its reduced revenue base. The total number of
employees in MFS decreased to 2,521 at the end of 2002, down 9% relative to a
year ago. Excluding the one-time charge of $10 million related to MFS cost
containment measures implemented in 2002, operating expenses decreased by $96
million or 9% compared to 2001. MFS returned to the top spot in Overall
Operations Support with a #1 ranking in DALBARs most recent annual evaluation of
Servicing within the U.S. mutual fund industry. MFS also placed 2nd in Overall
Marketing Support.

Consistent with market declines, MFS earnings in 2002 decreased by $57 million,
or 25%, compared to 2001. Fee income, primarily driven by asset level, was down
$287 million, or 13% as average net assets declined by 10% to $192.8 billion in
2002. ROE for the year decreased to 46.2% from 63.0% in 2001, reflecting the
lower earnings.

During 2002, MFS continued to strengthen its competitive position in a
challenging market environment. It reinforced the distinctive, broad-ranged
investment style of its mutual funds to meet investors increasingly
sophisticated needs for asset allocation and diversification. On the strength of
its proven research-driven investment model, MFS maintained its strong relative
investment performance.

As at December 31, 2002, MFS had 18 mutual funds with overall Morningstar
ratings of 4 or 5 stars, representing 46% of MFS domestic retail mutual fund
assets. In the Lipper survey, 77% of the total number of MFS equity and fixed
income funds ranked by Lipper achieved either the first or second quartile
performance for the one-year period. Results for 3-, 5- and 10-year periods were
equally impressive, with 81%, 73% and 78% achieving the top two-quartile
rankings.

(PER CENT NUMBER OF EQUITY AND FIXED ASSETS BAR CHART)

Based on long-term open-end mutual fund assets, MFS retained its top 10 position
among mutual fund companies in the United States. As at December 31, 2002, MFS
had total open-end mutual fund assets of $104.0 billion, of which $100.5 billion
were long- term mutual funds.

41
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

Sun Life Financial United Kingdom

BUSINESS PROFILE

SLF U.K. manages a large block of in-force individual annuity and insurance
policies. In March 2001, the Company stopped offering individual annuity and
insurance products to new customers. The U.K. in-force individual policies now
constitute a run-off block of business.

STRATEGIES



| |  | Realize the underlying value of in-force individual businesses
|- |  | --------------------------------------------------------------
| 
| |  | Maximize return on equity by effective capital management     
| 
| |  | Minimize operational risks and regulatory exposures           

2002 HIGHLIGHTS



| |  | Maintained strong earnings performance, contributing $190 million to the
Company
|- |  | --------------------------------------------------------------------------------
| 
| |  | ROE increased to 21.9% from 15.8% in 2001                                       
| 
| |  | Outsourced the administration of in-force individual businesses to
reduce risk  

PRIORITIES FOR 2003



| |  | Further reduce the administration costs of In-force business                           
|- |  | ---------------------------------------------------------------------------------------
| 
| |  | Enhance capital efficiency by deploying excess capital to core markets
outside the U.K.
| 
| |  | Complete sale of U.K. group business                                                   

FINANCIAL RESULTS

For the year ended December 31, 2002, SLF U.K. contributed $190 million to the
Companys earnings, $10 million more than the $180 million contributed in 2001.
The results for 2001 included the earnings of $28 million and the revenue of
$241 million from Sun Bank plc and SLC Asset Management Limited, both of which
were sold in late 2001. Adjusted for the lost earnings from these businesses,
the earnings of SLF U.K. increased by $38 million or 25% compared to 2001. This
earnings improvement was largely attributable to decreased operating costs
resulting from the Companys actions to reposition its U.K. business profile,
better health claims experience, and a reduction in tax expenses due to the
recognition and utilization of capital losses and the resolution of past issues
with the tax authorities. These favourable changes were partially offset by the
adverse impact of equity market declines, unfavourable mortality experience and
reserve strengthening.

The strong earnings performance continued to underscore the success of the
Companys strategic shift, implemented in 2001, to focus on realizing the value
of the Companys U.K. in-force individual annuity and insurance businesses. The
Companys decision to exit the direct sales force business eliminated new
business acquisition costs and significantly lowered operation costs.

Revenue declined by $239 million or 12% compared to 2001, primarily due to the
sales of the U.K. assets and the absence of new sales in individual annuity and
insurance products. ROE increased to 21.9% from 15.8% in 2001, primarily
reflecting the strong earnings performance and lower average equity employed in
2002.

Equity capital increased to $1.0 billion, up $125 million compared to 2001. The
increase was due to earnings contribution of $190 million and currency
translation impact of $80 million resulting from the appreciation of the British pound sterling relative to the
Canadian dollar. These contributions were partially offset by the redeployment
of equity capital of $145 million from SLF U.K. to other business units of the
Company.

Earnings from the U.K. group business were $40 million, up 43% compared to $28
million in 2001. The strong earnings performance was attributable to improved
claim experience. As described on page 19, the Company announced the agreement to
sell its U.K. group business. The transaction closed in the first quarter of
2003.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |                      |        |       |      |       |      |       |      |       |  |       |      |       | 
|------------------------------------------------------ | -------------------- | ------ | ----- | ---- | ----- | ---- | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|($ millions, except as noted)                          |                      | 2002   |       | 2001 |       | 2000
|                                                       |                      |        |       |      |       |     
|Premiums                                               |                      |        | 990   |      |       |      | 967   |      |       |  | 1,069 |     
|Investment Income                                      |                      |        | 730   |      |       |      | 934   |      |       |  | 968   |     
|Fee Income                                             |                      |        | 108   |      |       |      | 166   |      |       |  | 223   |     
|                                                       |                      |        |       |      |       |      |       |      |       |  |       |     
|Total Revenue                                          |                      |        | 1,828 |      |       |      | 2,067 |      |       |  | 2,260 |     
|Client Disbursements & Change in Actuarial Liabilities |                      |        | 1,426 |      |       |      | 1,499 |      |       |  | 1,677 |     
|Commissions & Other Expenses                           |                      |        | 230   |      |       |      | 395   |      |       |  | 440   |     
|Income Taxes                                           |                      |        | (18   | )    |       |      | (7    | )    |       |  | 24    |     
|                                                       |                      |        |       |      |       |      |       |      |       |  |       |     
|Shareholders Net Income                               |                      |        | 190   |      |       |      | 180   |      |       |  | 119   |     
|                                                       |                      |        |       |      |       |      |       |      |       |  |       |     
|Selected Financial Information                         |                      |        |       |      |       |      |       |      |       |  |       |     
|                                                       | Return on Equity     |        |       | 21.9 | %     |      |       | 15.8 | %     |  |       | 11.1 | %    
|                                                       | Total AUM (billions) |        |       | 19.8 |       |      |       | 20.3 |       |  |       | 29.7 |      
|                                                       | Capital Employed     |        |       |      |       |      |       |      |       |  |       |      |      
|                                                       |                      | Debt   |       |      | 380   |      |       |      | 347   |  |       |      | 336   | 
|                                                       |                      | Equity |       |      | 1,020 |      |       |      | 895   |  |       |      | 1,102 | 
|                                                       |                      |        |       |      |       |      |       |      |       |  |       |     
|                                                       |                      | Total  |       |      | 1,400 |      |       |      | 1,242 |  |       |      | 1,438 | 

42
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



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, and group insurance in the Philippines and India, and
wealth management in India and the Philippines.

STRATEGIES



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

2002 HIGHLIGHTS



| |  | Launched life insurance joint venture operations in China, with sales of
over $5 million in the first eight months of operations
|- |  | --------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Insurance sales up 40% over 2001 in the region, over 600% in India and 91%
in Hong Kong                                         
| 
| |  | Another year of strong earnings of $41 million from the
Philippines operations                                                  

PRIORITIES FOR 2003



| |  | Maintain sales growth momentum                                     
|- |  | -------------------------------------------------------------------
| 
| |  | Grow unit-linked products                                          
| 
| |  | Develop and expand bancassurance channels                          
| 
| |  | Strengthen customer service capabilities                           
| 
| |  | Further improve the profitability of traditional insurance products

FINANCIAL RESULTS

For the year ended
December 31, 2002, SLF Asia reported $24 million in
shareholders net income, up $4 million or 20% from 2001. This increase
primarily reflected the reduced unit costs in its insurance operations in the
Philippines and Hong Kong. The Companys Philippines operations had another year
of solid earnings, contributing $41 million relative to $40 million in 2001. The
earnings from the Philippines operations continued to serve as the principal
source of funding for the Companys growth in other Asian markets.

Revenue increased to $661 million, up $197 million or 42% from 2001, reflecting
strong overall sales in Hong Kong, increased single premium business in the
Philippines and Hong Kong, and improved investment performance. SLF Asias ROE
for 2002 increased to 4.8% from 4.2% in 2001, due to improved earnings. The ROE
level in 2002 reflected the impact of the Companys continuing investments in
the region in pursuit of longer term returns.

SUMMARY STATEMENT OF OPERATIONS

|                                                       |                      |        |     |      |     |      |     |     |     |  |     |     |     | 
|------------------------------------------------------ | -------------------- | ------ | --- | ---- | --- | ---- | --- | --- | --- |  | --- | --- | --- | 
|($ millions, except as noted)                          |                      | 2002   |     | 2001 |     | 2000
|                                                       |                      |        |     |      |     |     
|Premiums                                               |                      |        | 504 |      |     |      | 325 |     |     |  | 296 |    
|Investment Income                                      |                      |        | 155 |      |     |      | 136 |     |     |  | 117 |    
|Fee Income                                             |                      |        | 2   |      |     |      | 3   |     |     |  |    |    
|                                                       |                      |        |     |      |     |      |     |     |     |  |     |    
|Total Revenue                                          |                      |        | 661 |      |     |      | 464 |     |     |  | 413 |    
|Client Disbursements & Change in Actuarial Liabilities |                      |        | 450 |      |     |      | 280 |     |     |  | 232 |    
|Commissions & Other Expenses                           |                      |        | 176 |      |     |      | 159 |     |     |  | 142 |    
|Income Taxes                                           |                      |        | 11  |      |     |      | 5   |     |     |  | 12  |    
|                                                       |                      |        |     |      |     |      |     |     |     |  |     |    
|Shareholders Net Income                               |                      |        | 24  |      |     |      | 20  |     |     |  | 27  |    
|                                                       |                      |        |     |      |     |      |     |     |     |  |     |    
|Selected Financial Information                         |                      |        |     |      |     |      |     |     |     |  |     |    
|                                                       | Return on Equity     |        |     | 4.8  | %   |      |     | 4.2 | %   |  |     | 6.7 | %  
|                                                       | Gross Sales          |        |     |      |     |      |     |     |     |  |     |     |    
|                                                       | Individual Life      |        |     | 92   |     |      |     | 66  |     |  |     | 59  |    
|                                                       | Total AUM (billions) |        |     | 2.2  |     |      |     | 1.9 |     |  |     | 1.5 |    
|                                                       | Capital Employed     |        |     |      |     |      |     |     |     |  |     |     |    
|                                                       |                      | Debt   |     |      |    |      |     |     |    |  |     |     |    | 
|                                                       |                      | Equity |     |      | 519 |      |     |     | 514 |  |     |     | 401 | 
|                                                       |                      |        |     |      |     |      |     |     |     |  |     |    
|                                                       |                      | Total  |     |      | 519 |      |     |     | 514 |  |     |     | 401 | 

43
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

THE PHILIPPINES

In the Philippines, the Company continued to solidify its strong market position
by broadening product portfolios and enhancing customer services in 2002. The
Philippines operation, which accounted for 47% of the Companys total insurance
premiums in Asia, maintained its growth momentum in 2002 with total premiums up
31% relative to 2001.

(GROWTH IN PHILIPPINES BAR CHART)

The Companys mutual fund operation in the Philippines continued to perform
strongly. Mutual fund assets were $79 million as at December 31, 2002, up 276%
compared to the 2001 level. The Philippines operation continued to strengthen its
business platform to meet product needs in the retirement and education areas
and became a top 10 provider of these pre-need services in the Philippines in
2002.

HONG KONG

In Hong Kong, the Company continued to focus on the bancassurance distribution
channel. Sales through this channel have been growing strongly since it was
established in 2001. Bancassurance sales increased to $19 million, up 560%
relative to 2001. The bancassurance channel accounted for 47% of total sales in
2002 compared to 18% in 2001.

(GROWTH IN HONG KONG BAR CHART)

The Company continued to strengthen its product offerings by focusing on
unit-linked insurance products such as variable universal life and by enhancing
traditional insurance products. The Company introduced unit-linked products in
2001 and has since grown its market share rapidly, capturing a top five position
in the unit-linked product market based on sales in 2002. Unit- linked products
accounted for 38% of sales in 2002, compared to 4% in 2001.

INDIA

The Companys India life insurance joint venture, Birla Sun Life Insurance
Company Limited, continued to grow strongly by launching innovative,
customer-focused products and expanding distribution capabilities in individual
insurance, group insurance and savings. Sales in 2002 increased by 674% over
2001. By focusing on unit-linked life products, the Company achieved the highest
average policy premium sales in the market. As at December 31, 2002, Birla Sun
Life Insurance Company Limited had a direct sales force of 3,740 agents with
sales offices in 16 cities and alternate channels with 75 corporate agents. While
the direct sales force served as a principal distribution channel, alternate
channels were also significant contributors, generating approximately 28% of
total sales in 2002.

Despite lingering uncertainty of global equity markets, the Companys India
asset management joint venture, Birla Sun Life Asset Management Company Limited,
maintained its asset and customer base and is currently the fourth largest
private mutual fund in India, measured by long-term mutual fund assets. During
the year, major initiatives were launched to enhance its operating
infrastructure and to increase its brand awareness. As at December 31, 2002, it
had $1.9 billion in assets under management and approximately 346,000 investor
accounts.

CHINA

The Company launched life insurance operations in the municipality of Tianjin in
April 2002 through its China joint venture, Sun Life Everbright Life Insurance
Company Limited. This joint venture has since been growing rapidly. It launched
a highly competitive product portfolio consisting of life, critical illness,
education saving products and unit-linked products, all of which were well
received in the market. By the end of 2002, it had a sales force of 1,600
agents. The sales in the first eight months of its operations in 2002 were over
$5 million, an excellent result in comparison with other insurance joint
ventures that recently started operating in China.

INDONESIA

The Companys operation in Indonesia was repositioned in 2002, and major
initiatives were launched to improve its infrastructure. A unit-linked product
was launched in September and is becoming a major contributor to sales growth.

44
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



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 results of the Companys 32% equity investment in Administradora de
Fondos de Pensiones Cuprum, S.A. (Cuprum), one of the leading pension fund
administrators in Chile. It also includes the Companys accident and health
reinsurance line, which is a closed block of business in run-off mode.

2002 HIGHLIGHTS



| |  | Issued $800 million of subordinated debt and $200 million of SLEECS                               
|- |  | --------------------------------------------------------------------------------------------------
| 
| |  | Further optimized the Companys overall capital structure through tax
efficient capital management

PRIORITIES FOR 2003



| |  | Achieve targeted synergy savings from the Clarica integration at the
corporate office level
|- |  | -------------------------------------------------------------------------------------------
| 
| |  | Continue to develop, evaluate and execute value creation opportunities                     

FINANCIAL RESULTS

For the year ended December 31, 2002, Corporate Capital reported a loss of $277
million compared to earnings of $17 million in 2001. The 2002 results were
affected by certain significant items including after-tax costs of $217 million
arising from the acquisition of Clarica, an after-tax charge of $150 million in
the Companys run-off block of accident and health reinsurance business, the
after-tax loss of $48 million on the disposition of Clarica U.S., and the
after-tax gain of $173 million on the sale of Spectrum. Excluding the impact of
these events, the loss for 2002 would have been $35 million. The unfavourable
change of$52 million relative to 2001 was primarily caused by the cost of$21
million recognized for employee stock options and reduced net investment income
due to lower average capital employed relative to 2001.

Equity increased by $699 million from the $121 million as at December 31, 2001,
primarily reflecting the transfer of excess capital from operating units to
Corporate Capital during the year.

Cuprum had total assets under management of $8.6 billion as at December 31,
2002, compared to $8.8 billion as at December 31, 2001. The Companys investment
in Cuprum contributed $12 million in earnings in 2002, compared to $15 million
before goodwill amortization of $5 million in 2001. The decrease in earnings
primarily reflected the unfavourable impact of the depreciation of Chile an
currency relative to Canadian dollars.

SUMMARY STATEMENT OF OPERATIONS*

|                                                        |                      |        |      |      |       |      |     |     |     |  |     |     |       | 
|------------------------------------------------------- | -------------------- | ------ | ---- | ---- | ----- | ---- | --- | --- | --- |  | --- | --- | ----- | 
|($ millions, except as noted)                           |                      | 2002   |      | 2001 |       | 2000
|                                                        |                      |        |      |      |       |     
|Premiums                                                |                      |        | 71   |      |       |      | 88  |     |     |  | 282 |    
|Investment Income                                       |                      |        | 500  |      |       |      | 444 |     |     |  | 277 |    
|Fee Income                                              |                      |        | (4   | )    |       |      | 1   |     |     |  | 1   |    
|                                                        |                      |        |      |      |       |      |     |     |     |  |     |    
|Total Revenue                                           |                      |        | 567  |      |       |      | 533 |     |     |  | 560 |    
|Client Disbursements & Change in Actuarial Liabilities  |                      |        | 500  |      |       |      | 134 |     |     |  | 276 |    
|Commissions & Other Expenses                            |                      |        | 483  |      |       |      | 341 |     |     |  | 292 |    
|Income Taxes                                            |                      |        | (233 | )    |       |      | 33  |     |     |  | 15  |    
|Non-controlling Interests in Net Income of Subsidiaries |                      |        | 46   |      |       |      | 8   |     |     |  |    |    
|Loss (Income) from Discontinued Operations              |                      |        | 48   |      |       |      |    |     |     |  |    |    
|                                                        |                      |        |      |      |       |      |     |     |     |  |     |    
|Shareholders Net Income (Loss)                         |                      |        | (277 | )    |       |      | 17  |     |     |  | (23 | )  
|                                                        |                      |        |      |      |       |      |     |     |     |  |     |    
|Selected Financial Information                          |                      |        |      |      |       |      |     |     |     |  |     |    
|                                                        | Total AUM (billions) |        |      | 4.0  |       |      |     | 2.4 |     |  |     | 3.5 |      
|                                                        | Capital Employed     |        |      |      |       |      |     |     |     |  |     |     |      
|                                                        |                      | Debt   |      |      | 198   |      |     |     | 106 |  |     |     | 263   | 
|                                                        |                      | Equity |      |      | 820   |      |     |     | 121 |  |     |     | 1,796 | 
|                                                        |                      |        |      |      |       |      |     |     |     |  |     |    
|                                                        |                      | Total  |      |      | 1,018 |      |     |     | 227 |  |     |     | 2,059 | 



|* |  | Excluding consolidation adjustments of activities between segments
|- |  | ------------------------------------------------------------------

45
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

Risk Management

The Board of Directors has appointed a standing committee, the Risk Review
Committee, which is dedicated to the oversight of risk management within the
Company. No member of this committee is an employee of 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 Company has developed an enterprise-wide risk management framework to
augment risk management within major operating areas and business units. The
framework is designed to:



| |  | improve the ability of senior management to identify and manage
business risks across the organization; and
|- |  | -----------------------------------------------------------------------------------------------------------
| 
| |  | enhance the Companys ability to achieve consistent risk management in
all business units.                 

The framework includes:



| |  | the appointment of a chief risk officer, and the establishment of a
network of risk teams and committees reporting to an Executive Risk
Committee that meets monthly;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the development and maintenance of risk policies;                                                                                                                    
| 
| |  | the formulation of risk tolerance limits;                                                                                                                            
| 
| |  | the measurement of and exception reporting against risk
policies and tolerance limits; and                                                                           
| 
| |  | the development and periodic reporting of the Companys aggregate risk
profile to management and the Board of Directors.                                             

RISK POLICIES

The Company has established risk policies that set out the risks that the
Company is prepared to undertake, and the types of control and monitoring
programs that are required to be in place. These risk policies are reviewed and
approved by the Risk Review Committee at least annually. Management reports at
least annually, in writing, on compliance with such policies to the Risk Review
Committee.

RISK IDENTIFICATION

The Company has a formal risk identification program in which management for
each business group identifies the most important current key risks which may
impact upon the business, the appropriateness of such risks, early warning
indicators in place, and risk control programs and the individuals accountable
for them. The results of such reporting are taken into consideration in
establishing risk plans, and at least annually an aggregate risk profile is
developed from such analyses 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 that provides to management and the Risk Review Committee an
analysis of capital market risks, at a 95th percentile level, of the maximum
deviation of earnings by major businesses based on a one-year forward projection
of income. The Earnings-at-Risk model is also able to project the complete
deviation of earnings distribution to further assist in risk management
activities.

The following table sets out the sensitivity of the Companys earnings to
changes in current long-term interest rates and equity markets. These amounts
are estimated assuming limited management actions were taken to mitigate the
impact of these changes.

SENSITIVITIES OF EARNINGS

|                             |              |             |                     |      |  
|---------------------------- | ------------ | ----------- | ------------------- | ---- | -
|                             |              |             | Increase (Decrease)
|($ millions)                 |              | in Earnings
|                             |              |            
|Interest Rate Sensitivity(1) |              |             |                     |     
|                             | 1% Increase  |             |                     | 53   |  
|                             | 1% Decrease  |             |                     | 3    |  
|Equity Market Sensitivity(2) |              |             |                     |     
|                             | 10% Increase |             |                     | 131  |  
|                             | 10% Decrease |             |                     | (156 | )



|(1) |  | Represents the change of 100 basis points in interest rates across the
entire yield curve.
|--- |  | ------------------------------------------------------------------------------------------
|   
|(2) |  | Represents the percentage change in equity markets.                                       

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.

To control interest rate risk (the risk of economic losses arising from changes
in interest rates and the cash flow impact of these changes on investments), the
Company has a matching policy for each portfolio of assets and associated
liabilities in order to keep

46
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

potential losses within acceptable limits. The primary approach for
interest-sensitive business lines, primarily individual and group annuities, is
management of the duration gap of assets and liabilities. Duration gap
analysis measures the sensitivity of 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.

To control market risk (the risk of financial losses due to adverse changes in
market prices), 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 are diversified by industry type
and by 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.

CLAIMS RISK MANAGEMENT

To control claims risk (the risk of incurring higher than anticipated mortality
and morbidity claim losses on any one policy or group of policies), 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.

PRICING RISK

To control pricing risk (the risk that the actual experience with a product may
deviate from the assumptions used in pricing that product as a result of
uncertainty concerning future investment yields, mortality and morbidity
experience, expenses, rates of policy termination and taxes), the Company sets
standards and guidelines that address pricing methods and assumptions, profit
margin objectives, required scenario analysis, documentation, internal peer
review, and pricing approval processes. The 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.

CREDIT RISK MANAGEMENT

To control credit risk associated with fixed income investments, the Company
uses detailed credit and underwriting policies, detailed diversification
requirements, comprehensive due diligence, and aggregate counterparty 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
through actuarial reserves.

LIQUIDITY RISK MANAGEMENT

To control liquidity risk (the ability of the Company to meet its obligations to
policyholders and other creditors), the Company maintains, on a consolidated
basis and as a matter of policy, liquefiable assets equal to at least 100% of
all liabilities payable on demand. In addition, minimum levels of cash and money
market investments as a percentage of total investment assets are maintained
both on a consolidated level and within each national operation. Standby credit
facilities are also maintained with a variety of banks throughout the world.
Separate investment guidelines are maintained within each product line, with
liquidity management taking into account the particular liquidity needs of each
product line.

CONCENTRATION RISK MANAGEMENT

To control concentration risk (the risk of major losses resulting from an
overexposure to a single entity, group of related entities or industry segment),
the Companys investment guidelines establish limits on the level of investment
which can be made in any single entity, group of related entities or industry
segment and these limits are reviewed and amended, as necessary, at least
annually. These limits are consolidated across all investment types to capture
total exposure to any single borrower or investment. On a broader industry
segment approach, the Companys investment guidelines also require that the risk
levels of the various investment sectors be monitored with allocations adjusted
accordingly. The Company maintains a reinsurance ceded policy to establish
limits and 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.

FOREIGN CURRENCY RISK MANAGEMENT

To control foreign currency risk (the risk of losses resulting from changes in
currency exchange rates), the Companys assets and liabilities held in each
jurisdiction in which it conducts business are predominantly denominated in
local currencies. This approach, together with the requirement for the Companys
non-Canadian operations to function on a self-sustaining basis, provides an

47
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

effective operational hedge against currency fluctuations. Foreign exchange
controls imposed by jurisdictions in which the Company carries on business do
not have a material impact on the Companys business or operations.

DERIVATIVE RISK MANAGEMENT

As part of its asset/liability management program, the Company uses derivative
instruments, including swaps, financial futures, options and forward contracts,
to manage risks associated with currency, interest rate and stock market
fluctuations. Guidelines for the use of derivatives specifically prohibit the
use of derivative strategies that increase risks beyond the limits established
for direct investments.

All derivative instruments used by the Company are monitored monthly on a marked
to market basis and all derivative positions are reported quarterly to the Board
of Directors. Each derivative position is monitored as to its purpose and as to
whether it is still required for hedging purposes. The Company generally enters
into derivative contracts only with counterparties rated AA or better. In
limited circumstances, the Company will enter into transactions with lower rated
counterparties if the counter- party obligation can be fully collateralized or
if other credit enhancement features are included.

Where through its risk management monitoring and control programs the Company
identifies a significant embedded guarantee in its protection or wealth
management products, which has very high sensitivity to market movements, it
will generally undertake to reduce such market sensitivity by using derivative
contracts if it can do so on a cost effective basis.

Detailed information regarding the Companys derivatives outstanding is provided
in Note 11 to the Companys Consolidated Financial Statements.

OPERATIONAL RISK MANAGEMENT

To control operational risk (arising from errors, inefficiencies or a lack of
effectiveness of people, processes or systems), the Company has worldwide
policies and guidelines as well as specific policies and guidelines for each
market in which it operates.

Ongoing training through internal and external programs is designed to prepare
staff at all levels for the demands of their positions. Operating and reporting
processes are reviewed and updated regularly, with monitoring completed on an
ongoing basis by the internal audit group. Information systems and technology
are reviewed regularly and upgraded where necessary.

The Company maintains a comprehensive insurance program that reviews and
provides protection against potential losses. This program includes appropriate
levels of self-insurance. The Company maintains insurance both on properties
that it owns and those securing its mortgage investments.

The Companys environmental risk management program is designed to ensure
compliance with applicable laws and to protect investment assets from losses due
to environmental problems. The senior investment officer in each national
operation is responsible for ensuring that the local environmental policy is
appropriate for local operating conditions.

Critical Accounting Policies

The Companys significant accounting policies, including actuarial policies, are
described in detail in Notes 1, 2, 3 and 13 to the Companys Consolidated
Financial Statements. Certain of these policies require management to make
judgements involving assumptions and estimates, some of which may relate to
matters that are inherently uncertain. The policies described below are
considered particularly critical to the understanding of the Companys financial
performance. As part of the Companys financial control and reporting, judgments
involving assumptions and estimates are reviewed internally and by independent
advisors on a regular basis. Policies 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, interest rates, equity market performance, and mortality rates over the
life of its products.

The Company uses best estimate assumptions for expected future experience in
calculating actuarial liabilities. Additional provisions are included in the
actuarial liabilities to provide for possible adverse deviations from the best
estimates. Best estimate assumptions are normally set based on the Companys
recent average experience. Accordingly, the assumptions are expected to change
slowly over time. Due to the long-term nature of benefit obligations, the
provision for possible adverse deviations generally increases for contingencies
further in the future. The best estimate assumptions and provisions for adverse
deviations are reviewed at least annually and revisions are made where deemed
necessary and prudent.

48
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

The actuarial estimates that are critical
to the determination of the Companys
actuarial liabilities are outlined below.
The impacts of assumption changes in
interest rates and equity market
performance summarized below are described
in the context of determining the value of
actuarial liabilities as at December 31,
2002, and therefore are not an indication
of their full impact on earnings.

INTEREST RATES

The Company generally maintains distinct
asset portfolios for each line of
business. To ensure the adequacy of assets
backing the liabilities, the Company
performs cash flow testing using a set of
plausible future interest rates and
general economic conditions. Some of these
scenarios are prescribed by professional
standards. The aggregate actuarial
liabilities are set at least as high as
that determined under the worst of the
prescribed scenarios.

The Company uses duration gap analysis to
examine if assets and the corresponding
policy obligations they support are
appropriately matched. This analysis
measures the sensitivity of assets and
liabilities to interest rate changes
across the entire yield curve. Interest
rate sensitivity is provided for in the
actuarial liabilities for all policies,
with adequate provisions to absorb
moderate changes in interest rates.

Among the Companys different lines of
products, annuities are the most sensitive
to changes in interest rates. The annuity
businesses represent 57% of the Companys
total actuarial liabilities. For the
Companys annuity businesses, an immediate
1% parallel increase in assumed interest
rates across the entire yield curve used
to determine actuarial liabilities as at
December 31, 2002, without management
investment action to mitigate the impact
of this change, would result in an
estimated decrease of $59 million in net
income. Conversely, an immediate 1%
parallel decrease in assumed interest
rates, again without any management
investment action, would result in an
estimated increase of $5 million in net
income.

MORTALITY

Mortality refers to the rate at which
death occurs for a defined group of
people. Insurance mortality is generally
based on the Companys average five-year
experience. For annuities, the 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
from time to time to reflect expected
improvements in mortality. Mortality
improvement assumptions are applied on a
conservative basis. Assumed mortality
rates for life insurance contracts do not
reflect any future improvement which might
occur.

For products such as payout annuities,
where lower mortality would be financially
adverse to the Company, a 1% reduction in
the mortality assumption would result in a
decrease of $45 million in net income.

EQUITY MARKET PERFORMANCE

The Company has substantial variable
annuity operations, which are subject to
equity market movements. The Company
monitors its experience on a monthly
basis, and has hedged a portion of its
market exposure with long dated put
options against the S&P 500. The actuarial
liabilities for the Companys
market-linked products with guarantees are
particularly sensitive to changes in the
equity markets. For these products, a
decrease from the assumed equity market
growth over their lives could result in a
significant reduction in shareholders net
income.

ALLOWANCE FOR INVESTMENT LOSSES

The Company had total general fund
invested assets of $110.5 billion as at
December 31, 2002, 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. It takes comprehensive assessments
of credit and investment risks and ensures
the adequacy of allowances for impaired
assets. In determining the level of
allowance, management, based on its
experience, makes significant judgments
about general economic and business
conditions, industry trends, and specific
developments with respect to single
issuers.

The Companys total impaired assets
amounted to $952 million as at December
31, 2002, against which $495 million of
allowances were provided. In addition, the
Company held $1.9 billion for possible
future asset defaults included in its
actuarial liabilities as at December 31,
2002.

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 $6.1 billion in goodwill
as at December 31, 2002, consisting
primarily of $3.7 billion arising from the
Clarica acquisition and $2.0 billion
arising from the Keyport acquisition.

Identifiable intangible assets consist of
finite-life and indefinite-life intangible
assets. As at December 31, 2002, the
Companys finite-life intangible assets
had a carrying value of $625 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 $671 million, reflecting
fund management contracts, brand names and
state licenses.

As described in Note 3 to the Companys
Consolidated Financial Statements, the
Company adopted the standard on goodwill
and other intangible assets set out in the
Canadian Institute of Chartered
Accountants (CICA) Handbook Section
3062. Under this accounting standard,
goodwill and indefinite-life intangible
assets are no longer amortized but are
tested at least annually for

49
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

impairment at the reporting unit level.
Impairment is determined by comparing the
fair value of a reporting unit to its
carrying value. The Company uses a number
of valuation methods including embedded
value to determine the fair value of a
reporting unit. These valuation methods
involve the use of assumptions and
estimates that require managements
judgment. The use of different valuation
methods and estimates could produce
different values to apply in the
impairment test.

IMPACT OF SIGNIFICANT CHANGES IN
ACCOUNTING POLICIES IN 2002

In 2002, the Company adopted certain new accounting
standards and policies which are detailed
in Note 3 to the Companys Consolidated
Financial Statements. The policies that
could materially affect the Companys
financial results are summarized below.

STOCK-BASED COMPENSATION

In the second quarter of 2002, the Company
changed its accounting policy for stock
options granted to employees from the
intrinsic value method to the fair value
method effective January 1, 2002 on a
prospective basis. Under the fair value
method, fair value of the stock options is
estimated at the grant date and the total
fair value of the stock options is
amortized over the vesting periods as
compensation expense with an offset to
share capital. When the stock options are
exercised, the proceeds received by the
Company are credited to share capital.

The adoption of the fair value method for
the stock options granted since January 1,
2002 for purposes other than a business
acquisition resulted in a reduction in net
income of $21 million and a decrease of 3
cents in basic and diluted earnings per
share for 2002.

GOODWILL AND OTHER INTANGIBLES

The Company adopted CICA Handbook Section
3062, Goodwill and Other Intangible
Assets, on January 1, 2002 on a
prospective basis. This standard requires
that intangible assets with an indefinite life and goodwill not be
amortized. If the goodwill had not been
amortized in 2001, net income for 2001
would have been increased by the
amortization expense of $19 million.

This standard also requires that
intangible assets with an indefinite life
and goodwill be tested for impairment on
an annual basis. The Company performed
impairment tests for goodwill in 2002 as
required and none of the goodwill balances
were impaired. Impairment losses, if any,
arising from the future annual impairment
tests will be charged to income.

In July 2001, the Company adopted Business
Combinations, CICA Handbook Section 1581
and the transitional provisions of
Goodwill and Other Intangible Assets, CICA
Handbook Section 3062. These standards and
provisions, which are applicable to
acquisitions completed on or after July 1,
2001, require that acquisitions of
businesses be accounted for using the
purchase method, and that goodwill and
intangible assets with indefinite lives
arising from these acquisitions not be
amortized. The Companys acquisitions of
Keyport and IFMG were accounted for in
accordance with these accounting standards
in 2001, as was Clarica in 2002.

DISPOSAL OF LONG-LIVED ASSETS AND
DISCONTINUED OPERATIONS

The Company adopted CICA Handbook Section 3475,
Disposal of Long-Lived Assets and
Discontinued Operations, in the fourth
quarter of 2002, effective January 1,
2002, for transactions occurring on or
after January 1, 2002 and discontinued
operations existing at that date. This
standard establishes the accounting
requirements for long-lived assets to be
disposed of by sale and discontinued
operations. As a result of adopting this
standard, the Company has reclassified its
accident and health reinsurance and
guaranteed minimum income benefit
businesses to continuing operations, as
these lines of business no longer qualify
as discontinued operations. However,
Clarica U.S. was reclassified as a
discontinued operation, since it was a
held-for-sale investment in 2002 and was
sold on January 7, 2003.

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 areas of operation. 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

50
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

by the Companys Corporate Office on a
regular basis. In addition, management is
required to advise the Board of Directors
annually, in writing, of adherence to
these policies.

INVESTMENT PROFILE

The Company had total consolidated general
fund invested assets of $110.5 billion at
December 31, 2002, compared to
$73.3 billion at December 31, 2001. The
significant increase in invested assets
reflected the addition of Claricas
assets, which were $32.5 billion at
December 31, 2002, normal business growth,
and proceeds of $1.0 billion from the
issuance of subordinated debt and SLEECS
in 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 stance is quite conservative,
with 93% of the general funds in cash and
fixed income investments as at December
31, 2002. Real estate was only 3% of the
general funds, of which approximately 68%
related to the participating
policyholders account. Common stock was
approximately 4% of the general funds, of
which approximately 75% 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

|                                       |  |          |         |            |  |       |     |            |  |       |        |            |  |          |     |  |  |  |        |  |  |  |     | 
|-------------------------------------- |  | -------- | ------- | ---------- |  | ----- | --- | ---------- |  | ----- | ------ | ---------- |  | -------- | --- |  |  |  | ------ |  |  |  | --- | 
|($ millions)                           |  | 2002     |         | 2001       |  | 2000 
|                                       |  |          |         |            |  |      
|                                       |  | Carrying |         |            |  |       |     | Carrying   |  |       |        |            |  | Carrying |     |  |  | 
|                                       |  | Value    |         | % of Total |  | Value |     | % of Total |  | Value |        | % of Total
|                                       |  |          |         |            |  |       |     |            |  |       |        |           
|Bonds                                  |  |          | 73,423  |            |  |       | 66  |            |  |       | 48,077 |            |  |          | 65  |  |  |  | 27,534 |  |  |  | 54  | 
|Mortgages                              |  |          | 15,799  |            |  |       | 14  |            |  |       | 8,622  |            |  |          | 12  |  |  |  | 10,179 |  |  |  | 20  | 
|Stocks                                 |  |          | 4,221   |            |  |       | 4   |            |  |       | 4,882  |            |  |          | 7   |  |  |  | 4,583  |  |  |  | 9   | 
|Real Estate                            |  |          | 3,223   |            |  |       | 3   |            |  |       | 2,316  |            |  |          | 3   |  |  |  | 2,327  |  |  |  | 4   | 
|Cash and Equivalent Investments        |  |          | 7,152   |            |  |       | 7   |            |  |       | 4,809  |            |  |          | 7   |  |  |  | 3,962  |  |  |  | 8   | 
|Policy Loans and Other Invested Assets |  |          | 6,726   |            |  |       | 6   |            |  |       | 4,558  |            |  |          | 6   |  |  |  | 2,416  |  |  |  | 5   | 
|                                       |  |          |         |            |  |       |     |            |  |       |        |            |  |          |     |  |  |  |        |  |  |  |     | 
|Total Carrying Value                   |  |          | 110,544 |            |  |       | 100 |            |  |       | 73,264 |            |  |          | 100 |  |  |  | 51,001 |  |  |  | 100 | 
|                                       |  |          |         |            |  |       |     |            |  |       |        |            |  |          |     |  |  |  |        |  |  |  |     | 
|Total Market Value                     |  |          | 115,049 |            |  |       |     |            |  |       | 74,763 |            |  |          |     |  |  |  | 52,977 |  |  |  |     | 

BONDS

The Companys bond portfolio represented
66% of invested assets at December 31,
2002 compared to 65% 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, while ensuring that the asset
portfolio remains matched to liability
requirements. At December 31, 2002, the
bond portfolio had a carrying value of
$73.4 billion and a market value of $77.6
billion compared with $48.0 billion and
$49.3 billion at the end of 2001. The
increase in bond investments was primarily
attributable to the acquisition of Clarica
in 2002.

At December 31, 2002 and 2001 the Company
held $17.4 billion and $14.1 billion,
respectively, of non-public bonds, which
constituted 24% and 29%, respectively, of
the Companys overall bond portfolio. Of
such amounts, non-public bonds rated A
or its equivalent or higher represented
52% and 51%, respectively, of total
non-public bonds, and non-public bonds
rated BBB or its equivalent or higher
represented 89% and 91%, respectively, of
total non-public bonds at such dates. The
increased non-public bond holdings were
due to the addition of Claricas bond
portfolio, which is also broadly
diversified.

The Companys bond portfolio is also
diversified by country. As at December 31,
2002, 34% of the total bond portfolio was
invested in Canada, 50% in the U.S. and 11% in the
U.K., based on the jurisdiction of the
incorporation of issuers.

BOND PIE CHART

MORTGAGES

The Companys mortgage portfolio
represented 14% of invested assets at
December 31, 2002 compared to 12% at the
end of 2001. The Companys mortgage
portfolio totalled approximately $15.8
billion compared to $8.6 billion at the
end of 2001. The increase in mortgage
investments was primarily attributable to
the acquisition of Clarica. As at December
31, 2002, 64% of the total mortgage
portfolio was invested in Canada, 34% in
the U.S., and 2% 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%, it may invest in
mortgages with a higher loan to value
ratio in Canada if the mortgage is
insured.

51
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Managements Discussion and Analysis

As at December 31, 2002, commercial
mortgages accounted for 73% and residential
mortgages accounted for 27% of the
Companys total mortgage portfolio.
Approximately 45% of mortgage loans mature
by December 31, 2007. 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 2002, the
Company offered $497 million of commercial
mortgage-backed securities in the U.S. The
Company had $1.8 billion in managed
mortgage assets as at December 31, 2002,
compared to $1.5 billion at the end of
2001.

STOCKS

The Companys equity portfolio represented
4% of invested assets at December 31, 2002
compared to 7% at the end of 2001. At
December 31, 2002, the Companys stock
portfolio had a carrying value of $4.2
billion compared with $4.9 billion at the
end of 2001. The market value of its stock
portfolio was $3.1 billion compared with
$4.4 billion at the end of 2001 primarily
due to the decline of equity market
valuations. The Companys equity
investments held in the participating
policyholders account accounted for 75%
of the Companys total stock holding as at
December 31, 2002.

The Companys equity portfolio is
diversified by country. At December 31,
2002, $734 million or 17% of the Companys
equity portfolio related to Canadian
issuers, $1.0 billion or 25% to U.S.
issuers, $2.2 billion or 53% to U.K.
issuers, and $215 million or 5% to issuers
from other jurisdictions. The portfolio is
also well diversified by industry
classification and issuer.

REAL ESTATE

The Companys real estate portfolio
represented 3% of invested assets at
December 31, 2002, unchanged from the end
of 2001. At December 31, 2002, 59% of the
portfolio was located in Canada, 29% in
the U.S. and 12% in the U.K. The Companys
real estate portfolio had a carrying value
of approximately $3.2 billion and a market
value of approximately $3.4 billion at
December 31, 2002, compared with
$2.3 billion and $2.6 billion,
respectively, at the end of 2001. The
increase in real estate investments was
primarily attributable to the acquisition
of Clarica.

Commercial office properties are the major
component of the real estate portfolio,
representing approximately 51% of real
estate investments at December 31, 2002.

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 business of advisory
and management of third-party properties.

IMPAIRED ASSETS

Total impaired assets, net of allowances,
amounted to $457 million at December 31,
2002, compared to $129 million as at
December 31, 2001. The increase of $328
million was primarily attributable to the
impaired assets associated with the
Companys bond holdings in the U.S.
telecommunication, energy and airline
sectors. As a result of this increase in
impaired assets, the Companys net
impaired ratio, defined as net impaired
assets to total invested assets, increased
to 0.41% from 0.18% as at December 31,
2001.

The Company had allowances of $495 million
against gross impaired assets of $952
million as at December 31, 2002. In
addition, the Company had $1.9 billion for
possible future asset defaults included in
its actuarial liabilities as at December
31, 2002 compared with $943 million in
2001. The increase reflected the amount
included in Claricas actuarial
liabilities.

The Company takes provisions for impaired
bonds and mortgages. In 2002, the Company
took provisions of $366 million, net of
recoveries, on invested assets compared to
net provisions of $4 million in 2001. The
2002 provisions were primarily related to
bond investments 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 annual rate of
15% and 10%, respectively, of the
unamortized balance.

The Company had $3.5 billion in deferred
net realized gains as at December 31,
2002, of which $2.6 billion represented
net gains on invested assets backing
actuarial liabilities and $825 million
represented net gains on invested assets
backing capital. Gains on bonds and stocks
collectively represented 95% of total
deferred net realized gains as at December 31, 2002.

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

52
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

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. Consequently, the related
amounts are credited to or charged against
income.

The Company had $4.5 billion in net
unrealized gains as at December 31, 2002
compared to $1.5 billion as at December
31, 2001. The increased unrealized gains
were related to the Companys bond
portfolio. Net unrealized gains on
investments backing capital were
approximately $271 million as at
December 31, 2002 compared to approximately
$122 million as at December 31, 2001.

Financial Position and Liquidity

The Company maintains a strong financial
position and adequate liquidity to ensure
that 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 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.

The Company maintained a strong cash
position, with a positive net cash flow of
$1.6 billion in 2002. Net cash provided by
operating activities in 2002 was $4.4
billion which, together with Claricas
cash of $2.8 billion acquired at the
closing of the Clarica transaction, was
largely used to fund investing activities.
The Company generated cash flow of $329
million from financing activities,
primarily comprised of the increase of
$500 million in subordinated debt and the
increase of $200 million in SLEECS, net of
shareholders dividends of $294 million.

During 2001, the Company generated
positive net cash flow of $80 million. Net
cash provided by operating activities in
2001 was $2.0 billion which, together with
$908 million generated from financing
activities, was used to fund investing
activities. The Company raised new capital
through the issue of 11 million common
shares for $330 million and the issue of
the first series of SLEECS, for $950 million to partially
finance the acquisition of Keyport and
IFMG. The Company decreased short-term
borrowings by approximately $104 million
and paid $204 million of dividends to
shareholders. In addition, the Company
bought back approximately one million
shares for $35 million in early 2001.

At December 31, 2002, the Company
maintained cash, cash equivalents and
short-term investments totalling $7.2
billion compared to $4.8 billion as at
December 31, 2001. In addition, the
Company had available lines of credit in
an aggregate amount of $1.2 billion and had
drawn an aggregate of approximately $237
million as at December 31, 2002. These
lines of credit generally have terms
ranging from one to five years.

CASH FLOW

|                                                                |  |      |        |      |  |      |        |   |  |  |        |  
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|($ millions)                                                    |  | 2002 |        | 2001 |  | 2000
|                                                                |  |      |        |      |  |     
|Net
Cash Provided by Operating Activities (1)                   |  |      | 4,416  |      |  |      | 1,957  |   |  |  | 2,341  |  
|Net Cash Provided by (Used in) Financing Activities             |  |      | 329    |      |  |      | 908    |   |  |  | (159   | )
|Net
Cash Provided by (Used in) Investing Activities (2)         |  |      | (3,216 | )    |  |      | (2,953 | ) |  |  | (1,713 | )
|Changes due to Fluctuations in Exchange Rates                   |  |      | 44     |      |  |      | 168    |   |  |  | 36     |  
|                                                                |  |      |        |      |  |      |        |   |  |  |        |  
|Increase (Decrease) in Cash and Cash Equivalents                |  |      | 1,573  |      |  |      | 80     |   |  |  | 505    |  
|Cash and Cash Equivalents, beginning of period                  |  |      | 2,583  |      |  |      | 2,503  |   |  |  | 1,998  |  
|                                                                |  |      |        |      |  |      |        |   |  |  |        |  
|Cash and Cash Equivalents, end of period                        |  |      | 4,156  |      |  |      | 2,583  |   |  |  | 2,503  |  
|Short-term Securities, end of period                            |  |      | 2,996  |      |  |      | 2,226  |   |  |  | 1,459  |  
|                                                                |  |      |        |      |  |      |        |   |  |  |        |  
|Cash, Cash Equivalents and Short-term Securities, end of period |  |      | 7,152  |      |  |      | 4,809  |   |  |  | 3,962  |  
|                                                                |  |      |        |      |  |      |        |   |  |  |        |  



---

|(1) |  | Includes net cash provided by discontinued operations.                                                                                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The amounts in 2002 include Claricas cash and cash equivalents of $2.8
billion acquired and in 2001 include Keyports cash and cash equivalents of
$919 million acquired.

53
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



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 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 of these
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 that qualify as
Tier 1 capital for regulatory capital
purposes, cumulative capital securities
and subordinated debt. Shareholders
equity increased to $14.8 billion, up $7.2
billion from the 2001 level of $7.6
billion. The increase was primarily due to
the new common shares issued in connection
with the Clarica acquisition and the
contribution of earnings during the year,
partially offset by shareholder dividends.
Currency translation increased equity by
$107 million primarily as a result of
depreciation of the Canadian dollar
relative to the British pound sterling in
2002.

The number of SLF Inc. common shares outstanding increased
to 618.4 million as at December 31, 2002,
compared to 431.7 million as at December
31, 2001. The increase was primarily
related to the new common shares issued in
connection with the Clarica acquisition.

Sun Life
Assurance had preferred shares outstanding of $158 million as at December 31, 2002. These shares were originally
issued by Clarica.

The Company, through Sun Life Capital
Trust, issued $200 million of Series B
SLEECS in the second quarter of 2002. In
certain limited circumstances, the Series B SLEECS can be converted into Sun Life
Assurance preferred shares that are exchangeable into SLF Inc. common shares
at a price equal to 95% of the trading
price at the time of exchange. These
securities, with an effective yield of
7.093%, represent low cost and tax
efficient funding that provides the
Company with increased capital
flexibility.

The Companys long-term debt increased
with the issue of $800 million of
subordinated debentures and the addition
of $700 million of subordinated debentures
from Clarica, net of the redemption in
January 2002 of $300 million of
subordinated debt due in 2005. At the end
of December 31, 2002, the Company had
cumulative capital securities of $948
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 $472 million issued in U.S.
dollars with maturities between 2007 and
2015.

Including the SLEECS and preferred shares
as part of debt, the Companys
debt-to-total capital ratio decreased to
22% as at December 31, 2002 from 26% at
December 31, 2001.

SHAREHOLDER DIVIDENDS

SLF Inc. increased its quarterly
shareholder dividend to $0.14 per share,
up 17% from $0.12 per share in 2001. Total
shareholder dividends for 2002 were $0.56
per share, representing a payout ratio of
approximately 24% in respect to the
Companys earnings in the year. SLF 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 stringent policies to
ensure that its capital levels are
adequately maintained and are in
compliance with regulatory requirements in
the countries in which it has operations.
In Canada, the Company is subject to
Minimum Continuing Capital and Surplus
Requirements (MCCSR) established by the
Office of the Superintendent of Financial
Institutions (OSFI). MCCSR is the ratio
of the available capital of a life
insurance company to its required capital,
representing a measure of the capital
adequacy of a company. Under the
guidelines of OSFI, the Company is
generally expected to maintain a minimum
MCCSR of 150%.

54
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

The MCCSR ratio of the Company at December
31, 2002 increased to 230% from 190% at
December 31, 2001, reflecting the impact
of its strong earnings and the financing
activities during the year. The Companys
required capital increased by $1,151
million relative to 2001, primarily due to
the acquisition of Clarica.

MINIMUM CONTINUING CAPITAL AND SURPLUS REQUIREMENTS

|                              |                               |      |       |         |  |      |       |        |   |  |       |       |   | 
|----------------------------- | ----------------------------- | ---- | ----- | ------- |  | ---- | ----- | ------ | - |  | ----- | ----- | - | 
|($ millions)                  |                               | 2002 |       | 2001    |  | 2000
|                              |                               |      |       |         |  |     
|Total MCCSR Capital Available |                               |      |       |         |  |      |       |        |   |  |       |      
|                              | Shareholders Equity          |      |       | 14,833  |  |      |       | 7,645  |   |  |       | 6,438 |  
|                              | Preferred Shares              |      |       | 158     |  |      |       |       |   |  |       |      |  
|                              | SLEECS                        |      |       | 1,150   |  |      |       | 950    |   |  |       |      |  
|                              | Cumulative Capital Securities |      |       | 948     |  |      |       | 954    |   |  |       | 900   |  
|                              | Subordinated Debt             |      |       | 1,974   |  |      |       | 656    |   |  |       | 689   |  
|                              | Other                         |      |       | 57      |  |      |       | 579    |   |  |       | 921   |  
|                              | Less Goodwill                 |      |       | (6,108) |  |      |       | (2,203 | ) |  |       | (230  | )
|                              |                               |      |       |         |  |      |       |        |   |  |       |       |   | 
|                              | Total                         |      |       | 13,012  |  |      |       | 8,581  |   |  |       | 8,718 |  
|                              |                               |      |       |         |  |      |       |       
|Total MCCSR Capital Required  |                               |      | 5,667 |         |  |      | 4,516 |        |   |  | 2,951 |      
|MCCSR Ratio                   |                               |      | 230   | %       |  |      | 190   | %      |   |  | 295   | %    

To assess its capital adequacy and
financial strength under adverse
conditions, the Company performs Dynamic
Capital Adequacy Testing on an annual
basis. The process analyzes the Companys
potential future financial condition over
a five-year period by reviewing the impact
of a variety of adverse economic and
business scenarios which include declining
interest rates and stock market
performances, worsening mortality and
morbidity rates, and increased expenses
The results of the testing completed in
2002 confirmed the Companys financial
strength and its ability to withstand
significant adversity

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:



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

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)                   |                                  | 2002                                             |  | 2001 
|                               |                                  |                                                  |  |      
|As at December 31              |                                  |                                                  |  |       |     |  |  |      
|                               | Balance of Securitized Assets    |                                                  |  | 3,050 |     |  |  | 2,526 |    
|                               | The Companys Retained Interests |                                                  |  | 136   |     |  |  | 122   |    
|For the Year Ended December 31 |                                  |                                                  |  |       |     |  |  |      
|                               | Cash Flow Received on Retained   |                                                  |  |       |     |  |  |       |    
|                               |                                  | Interests and Servicing Fees                     |  |       | 19  |  |  |       | 13  | 
|                               | Sales Proceeds from              |                                                  |  |       |     |  |  |       |    
|                               |                                  | New Securitizations Including
Gains Before Taxes |  |       | 525 |  |  |       | 269 | 

55
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

In February 2002, the Company sold
commercial mortgages with a carrying value
of $497 million to a U.S. trust that
subsequently issued securities backed by
the commercial mortgages. In 2001, the
Company sold commercial mortgages with a
carrying value of $265 million to a
Canadian trust which subsequently issued
commercial mortgage-backed securities. 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 a gain of approximately $28
million, before taxes, and approximately
$4 million, before taxes, respectively.
These gains were included in deferred net
realized gains and amortized over time.

The Company, through MFS, manages three
separate collateralized debt obligations
that were issued in 2002, 2001 and 2000.
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, 2002 was $8
million and the expected annual management
fees are approximately $3 million.

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)                   |                              | 2002 |  | 2001 
|                               |                              |      |  |      
|As at December 31              |                              |      |  |       |  |  |  |      
|                               | Balance of Securities Loaned |      |  | 1,675 |  |  |  | 2,428 | 
|                               | Value of Collateral          |      |  | 1,884 |  |  |  | 2,628 | 
|For the Year Ended December 31 |                              |      |  |       |  |  |  |      
|                               | Fee Income Received          |      |  | 4     |  |  |  | 1     | 

The Companys loaned securities, which are
included in invested assets, had a
carrying value and market value as at
December 31, 2002 of approximately $1.7
billion and $1.8 billion, respectively. As
at December 31, 2001, the Companys loaned
securities had a carrying value and market
value of approximately $2.4 billion and
$2.5 billion, respectively.

FINANCIAL DERIVATIVES

The Company uses derivative instruments,
including interest rate swaps, currency
swaps, financial futures, options and
forward contracts, to manage risks
associated with currency, interest rate
and stock market fluctuations. Equity
options, equity futures and equity swaps
are also used to reduce exposure to market
movements in the actuarial liabilities
associated with certain products with
guarantees.

The Company uses financial models and
techniques to ensure the continuing
effectiveness of its hedging strategies.
It monitors the gap in market sensitivity
between assets and liabilities for
specific insurance and annuity business
segments. That gap is managed within
defined tolerance limits by the use of
derivative instruments. All derivative
positions are reported quarterly to the
Companys Board of Directors.

Since counterparty failure in a derivative
transaction could render it ineffective
for hedging purposes, the Company
generally enters into derivative contracts
only with counterparties rated AA or
better. In limited circumstances, the
Company will enter into transactions with
lower rated counterparties if credit
enhancement features are included.

Most of the Companys derivatives are
entered for hedging an identified
exposure. Changes in the fair value of
these almost completely offset either
changes in the fair value of on-balance
sheet items or changes in the amount of
future cash flows. Under Canadian GAAP,
these derivatives qualify for hedge
accounting. The details of such accounting
are described in Note 1 to the Companys
Consolidated Financial Statements.

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

|                  |                       |                   |  |        |    |  |  |        |    | 
|----------------- | --------------------- | ----------------- |  | ------ | -- |  |  | ------ | -- | 
|($ millions)      |                       | 2002              |  | 2001  
|                  |                       |                   |  |       
|As at December 31 |                       |                   |  |        |    |  |  |       
|                  | Total Notional Amount |                   |  | 24,858 |    |  |  | 16,982 |   
|                  | Net Fair Value        |                   |  | 130    |    |  |  | 37     |   
|                  | Risk-Weighted Credit  |                   |  |        |    |  |  |        |   
|                  |                       | Equivalent Amount |  |        | 48 |  |  |        | 35 | 

56
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Managements Discussion and Analysis

Derivative transactions are measured in
terms of notional amounts which serve as
the basis for calculating payments and are
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
counterparties. The risk-weighted credit
equivalent amount is determined in
accordance with guidelines provided by
OSFI.

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 remote.
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)                   |                              | 2002 |  | 2001
|                               |                              |      |  |     
|As at December 31              |                              |      |  |      |  |  |  |  
|                               | In-Force Business Equivalent |      |  | 458  |  |  |  |  | 
|                               | Risk-Weighted Amount         |      |  | 1    |  |  |  |  | 
|For the Year Ended December 31 |                              |      |  |      |  |  |  |  
|                               | Fee Income Received          |      |  | 5    |  |  |  |  | 

In-force business 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.

COMMITMENTS AND CONTINGENCIES

The Companys commitments and
contingencies are summarized in Note 26 to
the Companys Consolidated Financial
Statements.

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 $678 million as at December 31, 2002.

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, 2002, there were outstanding
contractual commitments of $927 million.
The majority of these commitments are to extend credit under
commercial and residential mortgage loans.

LETTERS OF CREDIT

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

CONTRACTUAL OBLIGATIONS

|                              |                         |                        |       |     |               |  |           |     |           |  |              |    |  |  |     |   |  |  |       |   | 
|----------------------------- | ----------------------- | ---------------------- | ----- | --- | ------------- |  | --------- | --- | --------- |  | ------------ | -- |  |  | --- | - |  |  | ----- | - | 
|($ millions)                  |                         | Payments Due by Period
|                             
|                              |                         |                        | Total |     | Within 1 Year |  | 1-3 Years |     | 4-5 Years |  | Over 5 Years
|                              |                         |                        |       |     |               |  |           |     |           |  |             
|Long-Term Debt                |                         |                        | 4,072 |     |               |  |          |     |           |  |             |    |  |  | 236 |   |  |  | 3,836 |  
|Operating Leases              |                         |                        | 678   |     |               |  | 123       |     |           |  | 227          |    |  |  | 175 |   |  |  | 153   |  
|Credit-Related Arrangements   |                         |                        |       |     |               |  |           |     |           |  |              |    |  |  |     |   |  |  |       |  
|                              | Contractual Commitments |                        |       | 927 |               |  |           | 900 |           |  |              | 27 |  |  |     |  |  |  |       |  | 
|                              | Letters of Credit       |                        |       | 547 |               |  |           | 547 |           |  |              |   |  |  |     |  |  |  |       |  | 
|                              |                         |                        |       |     |               |  |           |     |           |  |              |    |  |  |     |   |  |  |       |  
|Total Contractual Obligations |                         |                        | 6,224 |     |               |  | 1,570     |     |           |  | 254          |    |  |  | 411 |   |  |  | 3,989 |  
|                              |                         |                        |       |     |               |  |           |     |           |  |              |    |  |  |     |   |  |  |       |  

OUTSOURCING AGREEMENTS

The Company enters into a number of
long-term outsourcing contracts in the
normal course of business. These
outsourcing contracts allow the Company to
focus on its core business and enhance
customer services.

In January 2002, the Company entered into
a five-year outsourcing contract with the
Marlborough Stirling Group to outsource the administration of its closed
book of U.K. individual life and pension
business, consisting of over 800,000
policies. The contract was subsequently
extended by two years through to 2009. The
value of the contract is estimated at
approximately $309 million over its term.
The future payments to Marlborough
Stirling are estimated to be approximately
$55 million in 2003 and $156 million for
the remaining term of this contract after
2003.

57
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Managements Discussion and Analysis

In August 2002, the Company entered into
an outsourcing contract with IBM Canada
Limited to provide a wide range of
technology services to the Company over a
seven-year period. The value of the
contract is estimated at approximately
$250 million. The future payments to IBM
based on currently anticipated usage
levels are estimated to be $35 million a
year for the remaining term of this
contract.

UNICOVER

The Company has been engaged in
arbitration proceedings against Cragwood
Managers LLC (formerly Unicover Managers
Inc.) and members of the Unicover
reinsurance pool. The Company has also
been engaged in arbitration proceedings
with three of the companies that provide
retrocessional protection to the Company
in respect of Unicover and non-Unicover
claims. Those companies dispute their
obligation to provide retrocessional cover
to the Company.

The arbitration with Cragwood and the
Unicover pool companies has been resolved
on a basis that fell short of rescission
but which was broadly favourable to the
Company. One of the retrocessional
arbitrations was resolved in favour of the
retrocessionaire. The other two
retrocessional arbitrations are scheduled
to be heard in 2003.

Based on information known to date, the
Company believes it has made adequate
provision for its exposure to the Unicover
business.

U.K. PROVISIONS

The Company continues to be subject to
regulatory scrutiny in the United Kingdom,
including reviews of past business sold.
The Company has regularly engaged in
discussions with regulators in the United
Kingdom with respect to these and other
matters. In addition, the Company has sold
a variety of endowment products in the
United Kingdom. Endowment policies are
generally sold to provide customers with a
method of repaying mortgage debt at the
end of a mortgage term. The sale of
endowment policies by life insurance
companies has attracted criticism from the
press and politicians in the United
Kingdom. There can be no guarantee that
United Kingdom regulators will not in the
future seek to require providers of
endowment products to bear some or all of
the additional costs required to ensure
that such policies meet their targets.

At December 31, 2002, the Company had
provisions for potential future
policyholder costs, including pension
review, and expenses for decommissioning
the pension review team of $227 million
compared to $566 million at December 31,
2001.

58
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Financial Reporting Responsibilities

Financial Reporting Responsibilities

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

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

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

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

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

The Appointed Actuary, who is a member of
management, is appointed by the Board to
discharge the various actuarial
responsibilities required under the
Insurance Companies Act of Canada, and
conducts the valuation of the Companys
actuarial liabilities. The role of the
Appointed Actuary is described in more
detail in Note 2 on page 69. The report of
the Appointed Actuary appears on page 110.

The Companys external auditors, Deloitte
& Touche LLP, Chartered Accountants,
conduct an independent examination of the
financial statements and meet separately
with both management and the Audit
Committee to discuss the results of their
examination. The auditors report to the
shareholders appears on page 110.

(DONALD A. STEWART)

Donald A. Stewart
Chairman and Chief Executive Officer

(PAUL W. DERKSEN)

Paul W. Derksen
Executive Vice-President and Chief Financial Officer

Toronto, February 12, 2003

59
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Consolidated Financial Statements

Consolidated Statements of Operations

|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |       | 
|--------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------------------------------------------- | ------ | ----- | ----- | ---- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|YEARS ENDED DECEMBER 31 (in millions of Canadian dollars, except for per share amounts) |                                                                        | 2002                                                       |        | 2001  |       | 2000
|                                                                                        |                                                                        |                                                            |        |       |       |     
|REVENUE                                                                                 |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                                        | Premium income:                                                        |                                                            |        |       |       |      |        |       |       |   |        |       |      
|                                                                                        |                                                                        | Annuities                                                  |        | $     | 7,402 |      |        | $     | 4,196 |   |        | $     | 4,371 | 
|                                                                                        |                                                                        | Life insurance                                             |        |       | 5,403 |      |        |       | 3,759 |   |        |       | 3,523 | 
|                                                                                        |                                                                        | Health insurance                                           |        |       | 2,070 |      |        |       | 1,482 |   |        |       | 1,495 | 
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                                        |                                                                        |                                                            | 14,875 |       |       |      | 9,437  |       |       |   | 9,389  |      
|                                                                                        | Net investment income (Note 11)                                        |                                                            |        | 5,131 |       |      |        | 4,162 |       |   |        | 3,839 |      
|                                                                                        | Fee income                                                             |                                                            |        | 3,095 |       |      |        | 3,216 |       |   |        | 3,318 |      
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                                        |                                                                        |                                                            | 23,101 |       |       |      | 16,815 |       |       |   | 16,546 |      
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|POLICY BENEFITS AND EXPENSES                                                            |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                                        | Payments to policyholders, beneficiaries and depositors:               |                                                            |        |       |       |      |        |       |       |   |        |       |      
|                                                                                        |                                                                        | Maturities and surrenders                                  |        |       | 5,476 |      |        |       | 2,610 |   |        |       | 2,270 | 
|                                                                                        |                                                                        | Annuity payments                                           |        |       | 1,486 |      |        |       | 952   |   |        |       | 1,076 | 
|                                                                                        |                                                                        | Death and disability benefits                              |        |       | 2,067 |      |        |       | 1,196 |   |        |       | 1,083 | 
|                                                                                        |                                                                        | Health benefits                                            |        |       | 1,573 |      |        |       | 1,162 |   |        |       | 1,259 | 
|                                                                                        |                                                                        | Policyholder dividends and interest on claims and deposits |        |       | 1,086 |      |        |       | 960   |   |        |       | 1,041 | 
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                                        |                                                                        |                                                            | 11,688 |       |       |      | 6,880  |       |       |   | 6,729  |      
|                                                                                        | Net transfers to segregated funds                                      |                                                            |        | 1,329 |       |      |        | 2,606 |       |   |        | 2,562 |      
|                                                                                        | Increase in actuarial liabilities (Note 13)                            |                                                            |        | 3,822 |       |      |        | 1,697 |       |   |        | 1,611 |      
|                                                                                        | Commissions                                                            |                                                            |        | 1,909 |       |      |        | 1,600 |       |   |        | 1,687 |      
|                                                                                        | Operating expenses (Note 24)                                           |                                                            |        | 2,779 |       |      |        | 2,496 |       |   |        | 2,426 |      
|                                                                                        | Premium taxes                                                          |                                                            |        | 168   |       |      |        | 113   |       |   |        | 117   |      
|                                                                                        | Interest expense (Notes 16, 17 and 18)                                 |                                                            |        | 192   |       |      |        | 168   |       |   |        | 159   |      
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|                                                                                        |                                                                        |                                                            | 21,887 |       |       |      | 15,560 |       |       |   | 15,291 |      
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|OPERATING INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTERESTS                      |                                                                        |                                                            | 1,214  |       |       |      | 1,255  |       |       |   | 1,255  |      
|                                                                                        | Income taxes (Note 25)                                                 |                                                            |        | 98    |       |      |        | 306   |       |   |        | 386   |      
|                                                                                        | Non-controlling interests in net income of subsidiaries (Note 19)      |                                                            |        | 83    |       |      |        | 68    |       |   |        | 67    |      
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|NET INCOME FROM CONTINUING OPERATIONS                                                   |                                                                        |                                                            | 1,033  |       |       |      | 881    |       |       |   | 802    |      
|                                                                                        | Loss from discontinued operations, net of income taxes (Note 5)        |                                                            |        | 36    |       |      |        |      |       |   |        |      |      
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|TOTAL NET INCOME                                                                        |                                                                        |                                                            | 997    |       |       |      | 881    |       |       |   | 802    |      
|                                                                                        | Less:                                                                  |                                                            |        |       |       |      |        |       |       |   |        |       |      
|                                                                                        | Net income from mutual operations (prior to demutualization)           |                                                            |        |      |       |      |        |      |       |   |        | 179   |      
|                                                                                        | Participating policyholders net income (loss) (after demutualization) |                                                            |        | (1    | )     |      |        | (1    | )     |   |        | (6    | )    
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|SHAREHOLDERS NET INCOME (AFTER DEMUTUALIZATION)                                        |                                                                        | $                                                          | 998    |       |       | $    | 882    |       |       | $ | 629    |      
|                                                                                        |                                                                        |                                                            |        |       |       |      |        |       |       |   |        |      
|Basic earnings per share from continuing operations (Note 21)                           |                                                                        | $                                                          | 1.91   |       |       | $    | 2.08   |       |       | $ | 1.49   | (1)  
|Basic earnings per share (Note 21)                                                      |                                                                        | $                                                          | 1.84   |       |       | $    | 2.08   |       |       | $ | 1.49   | (1)  
|Diluted earnings per share from continuing operations (Note 21)                         |                                                                        | $                                                          | 1.90   |       |       | $    | 2.07   |       |       | $ | 1.48   | (1)  
|Diluted earnings per share (Note 21)                                                    |                                                                        | $                                                          | 1.83   |       |       | $    | 2.07   |       |       | $ | 1.48   | (1)  



---

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

The attached notes form part of these consolidated financial statements.

60
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Consolidated Financial Statements

Consolidated Balance Sheets

|                                                    |                                                              |      |   |         |  |  |   |        | 
|--------------------------------------------------- | ------------------------------------------------------------ | ---- | - | ------- |  |  | - | ------ | 
|AS AT DECEMBER 31 (in millions of Canadian dollars) |                                                              | 2002 |   | 2001   
|                                                    |                                                              |      |   |        
|ASSETS                                              |                                                              |      |   |         |  |  |   |       
|                                                    | Bonds (Note 11)                                              |      | $ | 73,423  |  |  | $ | 48,077 | 
|                                                    | Mortgages (Note 11)                                          |      |   | 15,799  |  |  |   | 8,622  | 
|                                                    | Stocks (Note 11)                                             |      |   | 4,221   |  |  |   | 4,882  | 
|                                                    | Real estate (Note 11)                                        |      |   | 3,223   |  |  |   | 2,316  | 
|                                                    | Cash, cash equivalents and short-term securities             |      |   | 7,152   |  |  |   | 4,809  | 
|                                                    | Policy loans and other invested assets                       |      |   | 6,726   |  |  |   | 4,558  | 
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    | Invested assets                                              |      |   | 110,544 |  |  |   | 73,264 | 
|                                                    | Goodwill (Notes 3 and 12)                                    |      |   | 5,899   |  |  |   | 2,080  | 
|                                                    | Other assets (Note 12)                                       |      |   | 6,995   |  |  |   | 4,984  | 
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    | Total general fund assets                                    |      | $ | 123,438 |  |  | $ | 80,328 | 
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    | Segregated funds net assets                                  |      | $ | 52,755  |  |  | $ | 48,544 | 
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    |                                                              |      |   |         |  |  |   |       
|LIABILITIES AND EQUITY                              |                                                              |      |   |         |  |  |   |       
|                                                    | Actuarial liabilities and other policy liabilities (Note 13) |      | $ | 89,862  |  |  | $ | 59,527 | 
|                                                    | Amounts on deposit                                           |      |   | 3,262   |  |  |   | 1,898  | 
|                                                    | Deferred net realized gains (Note 11)                        |      |   | 3,456   |  |  |   | 3,744  | 
|                                                    | Other liabilities (Note 15)                                  |      |   | 7,671   |  |  |   | 4,661  | 
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    | Total general fund liabilities                               |      |   | 104,251 |  |  |   | 69,830 | 
|                                                    | Subordinated debt (Note 17)                                  |      |   | 1,974   |  |  |   | 776    | 
|                                                    | Cumulative capital securities of a subsidiary (Note 18)      |      |   | 948     |  |  |   | 954    | 
|                                                    | Non-controlling interests in subsidiaries (Note 19)          |      |   | 1,356   |  |  |   | 1,043  | 
|                                                    | Total equity                                                 |      |   | 14,909  |  |  |   | 7,725  | 
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    | Total general fund liabilities and equity                    |      | $ | 123,438 |  |  | $ | 80,328 | 
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    |                                                              |      |   |         |  |  |   |       
|                                                    | Segregated funds contract liabilities                        |      | $ | 52,755  |  |  | $ | 48,544 | 
|                                                    |                                                              |      |   |         |  |  |   |       

The attached notes form part of these consolidated financial statements.

Approved on behalf of the Board of Directors

(DONALD A. STEWART)

Donald A. Stewart
Chairman and Chief Executive Officer

(RONALD W. OSBORNE)

Ronald W. Osborne
Director

61
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Consolidated Financial Statements

Consolidated Statements of Equity

|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |       |  
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | ------------- | ------------ | - | ---- | ------ | ----- | - | ---- | ------ | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                                          |                                                                                                                                                |               | Participating |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |      
|YEARS ENDED DECEMBER 31 (in millions of Canadian dollars) |                                                                                                                                                | Policyholders |               | Shareholders |   | 2002 |        | 2001  |   | 2000
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |     
|SHARE CAPITAL                                             |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|                                                          | Balance, beginning of year                                                                                                                     |               | $             |             |   |      | $      | 1,100 |   |      | $      | 1,100 |   |   | $     | 795   |   |   | $     |      |  
|                                                          | Common shares issued, net of issuance costs and
fair value of stock options granted as consideration
for business acquisition (Notes 4 and 20) |               |               |             |   |      |        | 6,329 |   |      |        | 6,329 |   |   |       |      |   |   |       |      |  
|                                                          | New common shares issued for cash (Notes 8 and 20)                                                                                             |               |               |             |   |      |        |      |   |      |        |      |   |   |       | 330   |   |   |       | 844   |  
|                                                          | Stock option compensation (Notes 3 and 20)                                                                                                     |               |               |             |   |      |        | 21    |   |      |        | 21    |   |   |       |      |   |   |       |      |  
|                                                          | Stock options exercised (Notes 20 and 23)                                                                                                      |               |               |             |   |      |        | 27    |   |      |        | 27    |   |   |       |      |   |   |       |      |  
|                                                          | Commissions and offering costs, net of taxes (Notes 8 and 20)                                                                                  |               |               |             |   |      |        |      |   |      |        |      |   |   |       | (23   | ) |   |       | (49   | )
|                                                          | Purchase and cancellation of common shares (Note 20)                                                                                           |               |               |             |   |      |        |      |   |      |        |      |   |   |       | (2    | ) |   |       |      |  
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|                                                          | Balance, end of year                                                                                                                           |               |               |             |   |      |        | 7,477 |   |      |        | 7,477 |   |   |       | 1,100 |   |   |       | 795   |  
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|RETAINED EARNINGS/SURPLUS                                 |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|                                                          | Balance, beginning of year                                                                                                                     |               |               | 77           |   |      |        | 5,917 |   |      |        | 5,994 |   |   |       | 5,350 |   |   |       | 5,283 |  
|                                                          | Demutualization costs, net of taxes (Note 8)                                                                                                   |               |               |             |   |      |        |      |   |      |        |      |   |   |       |      |   |   |       | (114  | )
|                                                          | Net income as a mutual company                                                                                                                 |               |               |             |   |      |        |      |   |      |        |      |   |   |       |      |   |   |       | 179   |  
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|                                                          | Balance, March 22, 2000, as at demutualization                                                                                                 |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       | 5,348 |  
|                                                          | Cash distribution to policyholders at demutualization                                                                                          |               |               |             |   |      |        |      |   |      |        |      |   |   |       |      |   |   |       | (570  | )
|                                                          | Balance of participating policyholders account of
Clarica Life Insurance Company at date of acquisition                                       |               |               | (3           | ) |      |        |      |   |      |        | (3    | ) |   |       |      |   |   |       |      |  
|                                                          | Net income (loss) as a stock company                                                                                                           |               |               | (1           | ) |      |        | 998   |   |      |        | 997   |   |   |       | 881   |   |   |       | 623   |  
|                                                          | Dividends on common shares                                                                                                                     |               |               |             |   |      |        | (294  | ) |      |        | (294  | ) |   |       | (204  | ) |   |       | (51   | )
|                                                          | Purchase and cancellation of common shares (Note 20)                                                                                           |               |               |             |   |      |        |      |   |      |        |      |   |   |       | (33   | ) |   |       |      |  
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|                                                          | Balance, end of year                                                                                                                           |               |               | 73           |   |      |        | 6,621 |   |      |        | 6,694 |   |   |       | 5,994 |   |   |       | 5,350 |  
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|CURRENCY TRANSLATION ACCOUNT                              |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|                                                          | Balance, beginning of year                                                                                                                     |               |               | 3            |   |      |        | 628   |   |      |        | 631   |   |   |       | 372   |   |   |       | 407   |  
|                                                          | Changes for the year (prior to demutualization)                                                                                                |               |               |             |   |      |        |      |   |      |        |      |   |   |       |      |   |   |       | (17   | )
|                                                          | Changes for the year (after demutualization)                                                                                                   |               |               |             |   |      |        | 107   |   |      |        | 107   |   |   |       | 259   |   |   |       | (18   | )
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|                                                          | Balance, end of year                                                                                                                           |               |               | 3            |   |      |        | 735   |   |      |        | 738   |   |   |       | 631   |   |   |       | 372   |  
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      
|Total equity                                              |                                                                                                                                                | $             | 76            |              |   | $    | 14,833 |       |   | $    | 14,909 |       |   | $ | 7,725 |       |   | $ | 6,517 |      
|                                                          |                                                                                                                                                |               |               |              |   |      |        |       |   |      |        |       |   |   |       |       |   |   |       |      

The attached notes form part of these consolidated financial statements.

62
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Consolidated Financial Statements

Consolidated Statements of Cash Flows

|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |        |         |      |  
|------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------------- | ------ | ------- | ---- | ----- | ------ | ------- | ---- | ----- | ------ | ------- | ---- | -
|YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)     |                                                                                   | 2002                                                       |                                                            | 2001   |         | 2000
|                                                              |                                                                                   |                                                            |                                                            |        |         |     
|CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES         |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Net income from continuing operations                                             |                                                            | $                                                          | 1,033  |         |      | $     | 881    |         |      | $     | 802    |        
|                                                              | Items not affecting cash:                                                         |                                                            |                                                            |        |         |      |       |        |         |      |       |        |        
|                                                              |                                                                                   | Increase in actuarial and other policy related liabilities |                                                            |        | 3,759   |      |       |        | 1,191   |      |       |        | 1,282   |     
|                                                              |                                                                                   | Amortization of:                                           |                                                            |        |         |      |       |        |         |      |       |        |         |     
|                                                              |                                                                                   |                                                            | Net deferred realized and unrealized gains on investments  |        |         | (140 | )     |        |         | (451 | )     |        |         | (548 | )
|                                                              |                                                                                   |                                                            | Goodwill, deferred acquisition costs and intangible assets |        |         | 333  |       |        |         | 328  |       |        |         | 286  |  
|                                                              |                                                                                   | (Gain) or loss on sale of subsidiaries                     |                                                            |        | (177    | )    |       |        | (195    | )    |       |        | 5       |     
|                                                              |                                                                                   | Future income taxes                                        |                                                            |        | (87     | )    |       |        | 47      |      |       |        | 120     |     
|                                                              |                                                                                   | Provisions for losses on investments                       |                                                            |        | 366     |      |       |        | 4       |      |       |        | 107     |     
|                                                              |                                                                                   | Other changes in other assets and liabilities              |                                                            |        | (695    | )    |       |        | 343     |      |       |        | 692     |     
|                                                              | New mutual fund business acquisition costs capitalized                            |                                                            |                                                            | (194   | )       |      |       | (296   | )       |      |       | (506   | )      
|                                                              | Redemption fees of mutual funds                                                   |                                                            |                                                            | 115    |         |      |       | 105    |         |      |       | 101    |        
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Net cash provided by operating activities                                         |                                                            |                                                            | 4,313  |         |      |       | 1,957  |         |      |       | 2,341  |        
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES         |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Borrowed funds                                                                    |                                                            |                                                            | (103   | )       |      |       | (104   | )       |      |       | (294   | )      
|                                                              | Issuance of subordinated debt (Note 17)                                           |                                                            |                                                            | 799    |         |      |       |       |         |      |       |       |        
|                                                              | Redemption of subordinated debt (Note 17)                                         |                                                            |                                                            | (300   | )       |      |       |       |         |      |       |       |        
|                                                              | Payments to certain participating policyholders and underwriters (Notes 8 and 20) |                                                            |                                                            |       |         |      |       | (29    | )       |      |       | (658   | )      
|                                                              | Issuance of common shares (Notes 8 and 20)                                        |                                                            |                                                            |       |         |      |       | 330    |         |      |       | 844    |        
|                                                              | Issuance of common shares on exercise of stock options (Note 23)                  |                                                            |                                                            | 27     |         |      |       |       |         |      |       |       |        
|                                                              | Issuance of Sun Life Exchangeable Capital Securities  Series A and B (Note 19)   |                                                            |                                                            | 200    |         |      |       | 950    |         |      |       |       |        
|                                                              | Purchase and cancellation of common shares (Note 20)                              |                                                            |                                                            |       |         |      |       | (35    | )       |      |       |       |        
|                                                              | Dividends paid on common shares                                                   |                                                            |                                                            | (294   | )       |      |       | (204   | )       |      |       | (51    | )      
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Net cash provided by (used in) financing activities                               |                                                            |                                                            | 329    |         |      |       | 908    |         |      |       | (159   | )      
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES         |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Sales, maturities and repayments of:                                              |                                                            |                                                            |        |         |      |       |        |         |      |       |        |        
|                                                              |                                                                                   | Bonds                                                      |                                                            |        | 30,556  |      |       |        | 13,427  |      |       |        | 9,621   |     
|                                                              |                                                                                   | Mortgages                                                  |                                                            |        | 3,528   |      |       |        | 1,487   |      |       |        | 1,638   |     
|                                                              |                                                                                   | Stocks                                                     |                                                            |        | 4,285   |      |       |        | 3,241   |      |       |        | 3,815   |     
|                                                              |                                                                                   | Real estate                                                |                                                            |        | 432     |      |       |        | 240     |      |       |        | 378     |     
|                                                              | Purchases of:                                                                     |                                                            |                                                            |        |         |      |       |        |         |      |       |        |        
|                                                              |                                                                                   | Bonds                                                      |                                                            |        | (38,300 | )    |       |        | (13,833 | )    |       |        | (11,848 | )   
|                                                              |                                                                                   | Mortgages                                                  |                                                            |        | (2,904  | )    |       |        | (2,001  | )    |       |        | (1,771  | )   
|                                                              |                                                                                   | Stocks                                                     |                                                            |        | (2,818  | )    |       |        | (3,278  | )    |       |        | (3,190  | )   
|                                                              |                                                                                   | Real estate                                                |                                                            |        | (227    | )    |       |        | (118    | )    |       |        | (282    | )   
|                                                              | Policy loans                                                                      |                                                            |                                                            | (151   | )       |      |       | (88    | )       |      |       | (46    | )      
|                                                              | Short-term securities                                                             |                                                            |                                                            | (317   | )       |      |       | (249   | )       |      |       | (389   | )      
|                                                              | Other investments                                                                 |                                                            |                                                            | (39    | )       |      |       | (319   | )       |      |       | 30     |        
|                                                              | Acquisitions, net of cash acquired from continuing operations (Note 4)            |                                                            |                                                            | 2,749  |         |      |       | (1,825 | )       |      |       |       |        
|                                                              | Disposals, net of cash disposed of (Note 4)                                       |                                                            |                                                            | (10    | )       |      |       | 363    |         |      |       | 331    |        
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Net cash used in investing activities                                             |                                                            |                                                            | (3,216 | )       |      |       | (2,953 | )       |      |       | (1,713 | )      
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|Net cash provided by discontinued operations                  |                                                                                   |                                                            | 103                                                        |        |         |      |      |        |         |      |      |       
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|Changes due to fluctuations in exchange rates                 |                                                                                   |                                                            | 44                                                         |        |         |      | 168   |        |         |      | 36    |       
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|Increase in cash and cash equivalents                         |                                                                                   |                                                            | 1,573                                                      |        |         |      | 80    |        |         |      | 505   |       
|Cash and cash equivalents, beginning of year                  |                                                                                   |                                                            | 2,583                                                      |        |         |      | 2,503 |        |         |      | 1,998 |       
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|Cash and cash equivalents, end of year                        |                                                                                   |                                                            | 4,156                                                      |        |         |      | 2,583 |        |         |      | 2,503 |       
|Short-term securities, end of year                            |                                                                                   |                                                            | 2,996                                                      |        |         |      | 2,226 |        |         |      | 1,459 |       
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|Cash, cash equivalents and short-term securities, end of year |                                                                                   | $                                                          | 7,152                                                      |        |         | $    | 4,809 |        |         | $    | 3,962 |       
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|SUPPLEMENTARY INFORMATION                                     |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|Cash and cash equivalents:                                    |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Cash                                                                              |                                                            | $                                                          | 328    |         |      | $     | 396    |         |      | $     | 476    |        
|                                                              | Cash equivalents                                                                  |                                                            |                                                            | 3,828  |         |      |       | 2,187  |         |      |       | 2,027  |        
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              |                                                                                   | $                                                          | 4,156                                                      |        |         | $    | 2,583 |        |         | $    | 2,503 |       
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|Cash disbursements made for:                                  |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Interest on borrowed funds, subordinated debt and cumulative capital securities   |                                                            | $                                                          | 201    |         |      | $     | 167    |         |      | $     | 159    |        
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       
|                                                              | Income taxes, net of refunds                                                      |                                                            | $                                                          | 229    |         |      | $     | 269    |         |      | $     | 357    |        
|                                                              |                                                                                   |                                                            |                                                            |        |         |      |       |        |         |      |       |       

The attached notes form part of these consolidated financial statements.

63
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Consolidated Financial Statements

Consolidated Statements of Changes in Segregated Funds Net Assets

|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |        |       | 
|----------------------------------------------------------- | ------------------------------------------------- | -------------- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|YEARS ENDED DECEMBER 31 (in millions of Canadian dollars)   |                                                   | 2002           |        | 2001   |       | 2000
|                                                            |                                                   |                |        |        |       |     
|ADDITIONS TO SEGREGATED FUNDS                               |                                                   |                |        |        |       |      |        |        |       |   |        |       
|                                                            | Deposits:                                         |                |        |        |       |      |        |        |       |   |        |        |      
|                                                            |                                                   | Annuities      |        | $      | 5,105 |      |        | $      | 5,162 |   |        | $      | 6,860 | 
|                                                            |                                                   | Life insurance |        |        | 1,537 |      |        |        | 689   |   |        |        | 1,458 | 
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|                                                            |                                                   |                | 6,642  |        |       |      | 5,851  |        |       |   | 8,318  |       
|                                                            | Net transfers from general funds                  |                |        | 1,329  |       |      |        | 2,606  |       |   |        | 2,562  |      
|                                                            | Net realized and unrealized gains (losses)        |                |        | (8,658 | )     |      |        | (7,372 | )     |   |        | (2,670 | )    
|                                                            | Other investment income                           |                |        | 1,343  |       |      |        | 1,499  |       |   |        | 1,331  |      
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|                                                            |                                                   |                | 656    |        |       |      | 2,584  |        |       |   | 9,541  |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|DEDUCTIONS FROM SEGREGATED FUNDS                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|                                                            | Payments to policyholders and their beneficiaries |                |        | 7,366  |       |      |        | 6,480  |       |   |        | 6,243  |      
|                                                            | Management fees                                   |                |        | 564    |       |      |        | 538    |       |   |        | 552    |      
|                                                            | Taxes and other expenses                          |                |        | 57     |       |      |        | 67     |       |   |        | 33     |      
|                                                            | Effect of changes in currency exchange rates      |                |        | (349   | )     |      |        | (1,824 | )     |   |        | (296   | )    
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|                                                            |                                                   |                | 7,638  |        |       |      | 5,261  |        |       |   | 6,532  |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|Net additions (reductions) to segregated funds for the year |                                                   |                | (6,982 | )      |       |      | (2,677 | )      |       |   | 3,009  |       
|Acquisition (Note 4)                                        |                                                   |                | 11,193 |        |       |      | 3,882  |        |       |   |       |       
|Disposal (Note 4)                                           |                                                   |                |       |        |       |      | (2,194 | )      |       |   |       |       
|Segregated funds net assets, beginning of year              |                                                   |                | 48,544 |        |       |      | 49,533 |        |       |   | 46,524 |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |       
|Segregated funds net assets, end of year                    |                                                   | $              | 52,755 |        |       | $    | 48,544 |        |       | $ | 49,533 |       
|                                                            |                                                   |                |        |        |       |      |        |        |       |   |        |       

Consolidated Statements of Segregated Funds Net Assets

|                                                          |                                                  |      |        |        |  |   |        |        | 
|--------------------------------------------------------- | ------------------------------------------------ | ---- | ------ | ------ |  | - | ------ | ------ | 
|AS AT DECEMBER 31 (in millions of Canadian dollars)       |                                                  | 2002 |        | 2001  
|                                                          |                                                  |      |        |       
|ASSETS                                                    |                                                  |      |        |        |  |   |        |       
|                                                          | Segregated and mutual fund units                 |      | $      | 38,377 |  |   | $      | 34,534 | 
|                                                          | Stocks                                           |      |        | 7,452  |  |   |        | 8,635  | 
|                                                          | Bonds                                            |      |        | 5,896  |  |   |        | 4,049  | 
|                                                          | Cash, cash equivalents and short-term securities |      |        | 1,530  |  |   |        | 1,796  | 
|                                                          | Real estate                                      |      |        | 170    |  |   |        | 491    | 
|                                                          | Mortgages                                        |      |        | 146    |  |   |        | 162    | 
|                                                          | Other assets                                     |      |        | 965    |  |   |        | 379    | 
|                                                          |                                                  |      |        |        |  |   |        |        | 
|                                                          |                                                  |      |        | 54,536 |  |   |        | 50,046 | 
|                                                          |                                                  |      |        |        |  |   |        |        | 
|                                                          |                                                  |      |        |        |  |   |        |        | 
|LIABILITIES                                               |                                                  |      | 1,781  |        |  |   | 1,502  |       
|                                                          |                                                  |      |        |        |  |   |        |        | 
|Net assets attributable to segregated funds policyholders |                                                  | $    | 52,755 |        |  | $ | 48,544 |       
|                                                          |                                                  |      |        |        |  |   |        |        | 

The attached notes form part of these consolidated financial statements.

64
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements
(Amounts in millions of Canadian dollars, except for per share amounts and where otherwise stated)

1.  Accounting Policies

DESCRIPTION OF BUSINESS

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

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

BASIS OF PRESENTATION

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

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

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



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

Actual results could differ from those estimates.

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

BASIS OF CONSOLIDATION

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

BONDS AND MORTGAGES

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

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

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

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

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

65
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

STOCKS

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

REAL ESTATE

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

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

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

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

DERIVATIVE FINANCIAL INSTRUMENTS

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

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

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

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

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

POLICY LOANS

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

CASH, CASH EQUIVALENTS AND SHORT-TERM SECURITIES

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

66
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

OTHER INVESTED ASSETS

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

DEFERRED ACQUISITION COSTS

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

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

GOODWILL AND OTHER INTANGIBLE ASSETS

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

CAPITAL ASSETS

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

LOANS SECURITIZATION

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

SEGREGATED FUNDS

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

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

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

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

AMOUNTS ON DEPOSIT

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

INCOME TAXES

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

Future income tax liabilities and assets are calculated based on income tax
rates and laws that, at the balance sheet date, are

67
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

expected to apply when the liability or asset is realized, which are normally
those enacted or considered substantively enacted at the consolidated balance
sheet dates.

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

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

PREMIUM INCOME AND RELATED EXPENSES

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

FOREIGN CURRENCY TRANSLATION

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

EMPLOYEE FUTURE BENEFITS

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

2.  Actuarial Policies

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

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

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

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

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

68
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

The significant actuarial policies and assumptions are summarized below.

MORTALITY

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

MORBIDITY

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

INVESTMENT RETURN

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

POLICY LAPSE RATES

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

OPERATING EXPENSES AND INFLATION

Actuarial liabilities provide for future policy-related expenses. These include
the costs of premium collection, claims adjudication and processing, actuarial
calculations, preparation and mailing of policy statements and related indirect
expenses and overhead. Expense assumptions are mainly based upon recent Company
experience using an internal expense allocation methodology. The increases
assumed in future expenses are consistent with the inflation rate used in the
scenario testing under the standards established by the Canadian Institute of
Actuaries.

PROVISION FOR POLICYHOLDER DIVIDENDS

An amount equal to the policyholder dividends expected to be allotted to
policyholders over the next 12 months is shown as a provision for policyholder
dividends. Actuarial liabilities provide for the payment of future policyholder
dividends beyond the next 12 months. Both liabilities are determined taking into
account the scale of dividends approved by the Board and the expectation that
future dividends will be adjusted to reflect future experience.

ROLE OF THE APPOINTED ACTUARY

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

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

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

3.  Changes in Accounting Policies

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

69
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

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

FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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

Impairment of Long-Lived Assets: The Company will adopt Impairment of
Long-Lived Assets, CICA Handbook Section 3063, on January 1, 2004. Under this
standard, the impairment test of long-lived assets is a two-step
process with the first step determining when an impairment is recognized and
the second step measuring the amount of the impairment. To test for and measure
impairment, assets are grouped at the lowest level for which identifiable cash
flows are largely independent. An impairment loss is recognized when the
carrying amount of an asset to be held and used exceeds the sum of the
undiscounted cash flows expected from its use and eventual disposition. An

70
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

impairment loss is measured as the amount by which the assets carrying amount
exceeds its fair value. An asset classified as held for sale is measured at the
lower of its carrying amount or fair value less cost to sell. The Company does
not expect this standard to have a material effect on the consolidated
financial statements.

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

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

4.  Acquisitions, Disposals and Subsequent Event

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

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

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

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

71
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

Supplemental unaudited pro forma condensed information:

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

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

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

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

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

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

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

72
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

The transactions are summarized below:

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



---

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

5.  Discontinued Operations

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

73
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

6.  Reorganization of the United Kingdom Operations

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

On January 14, 2002, the Company announced an agreement with the Marlborough
Stirling Group to outsource the administration of the Companys individual life
and pension business in the United Kingdom which had already been closed for
new business. During 2002, expenses related to the outsource contract, closed
branches, contract cancellations, system migrations and other related costs of
$88 were included in the operating expenses in the consolidated statements of
operations.

Cost savings relating to exiting the direct sales force distribution channel
and outsourcing the administrative function were realized in 2001 and 2002. As
at December 31, 2002, the accruals for the reorganizational costs were $49 ($33
in 2001).

SUBSEQUENT EVENT

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

7.  Restructuring and Other Related Charges

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

74
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

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

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

8. Demutualization

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

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

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

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

SUBSEQUENT EVENT

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

75
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

9. Segmented Information

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

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

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

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

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

76
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

77
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

10. Fair Value of Financial Instruments

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

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

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

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

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

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

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

78
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

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

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

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

11. Invested Assets and Derivative Financial Instruments

CONTRACTUAL MATURITIES

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

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

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

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

79
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

UNREALIZED GAINS AND LOSSES

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

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

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

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

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

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

CREDIT AND CONCENTRATION RISK MANAGEMENT

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

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

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

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

80
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

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

Residential mortgages include mortgages for single and multiple family
dwellings.

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

81
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

ALLOWANCES FOR LOSSES ON INVESTED ASSETS

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

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

Changes in the allowances for losses are as follows:

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

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

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

During 2002 and 2001, the Companys weighted average recorded investment in
impaired mortgage loans, before any allowances, was $67 and $45, respectively.
Interest on impaired mortgage loans is recorded as received and was $5 for 2002
and $3 for 2001. Impaired mortgage loans with no allowance for losses are loans
for which, at a minimum, either the fair value of the collateral or the
expected future cash flows exceed the carrying value.

82

SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

DEFERRED NET REALIZED GAINS

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

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

Changes in deferred net realized gains are as follows:

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

NET INVESTMENT INCOME

Net investment income has the following components:

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

83
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

DERIVATIVE FINANCIAL INSTRUMENTS

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

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

The Company has the following amounts outstanding at December 31:

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

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

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

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

SECURITIES LENDING

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

84
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

LOANS SECURITIZATION

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

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

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

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

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

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

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

12.  Other Assets

Other assets consist of the following:

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

85
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

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

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

86
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

13.  Actuarial Liabilities and Other Policy Liabilities

COMPOSITION OF ACTUARIAL LIABILITIES AND OTHER POLICY LIABILITIES

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

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

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

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

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

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



| |  | When taken one at a time, each provision is reasonable with respect to the
underlying best estimate assumption, and the extent of uncertainty present in
making that assumption.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In total, the cumulative effect of all provisions is reasonable with respect
to the total actuarial liabilities.                                                                

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

87
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

CHANGES IN ACTUARIAL LIABILITIES

Changes in actuarial liabilities during the year are as follows:

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



---

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

MEASUREMENT UNCERTAINTY AND
ASSUMPTIONS MOST SUSCEPTIBLE TO
CHANGE

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

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

Lapse rates: For individual life insurance
products where fewer lapses would be

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

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

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

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

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

88
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

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

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

TOTAL ASSETS SUPPORTING
ACTUARIAL LIABILITIES, EQUITY
AND OTHER

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

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

89
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

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

14. Reinsurance Agreements

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

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

15. Other Liabilities

Other liabilities consist of the following:

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

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

90
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

16. Borrowed Funds

The following obligations are included in borrowed funds:

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



---

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

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

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

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

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

17. Subordinated Debt

The following obligations are included in subordinated debt:

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



---

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

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

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

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

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

91
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

18. Cumulative Capital Securities of a Subsidiary

On May 6, 1997, Sun Life of Canada (U.S.)
Capital Trust I, a Delaware statutory
business trust of the Company, issued
U.S.$600 of 8.526% cumulative capital
securities (Securities). These Securities
were issued in U.S. dollars and have no
scheduled maturity date. Distributions are
payable semi-annually in arrears.

The payment of distributions is indirectly
guaranteed by Sun Life Assurance Company
of Canada on a subordinated basis. These
cumulative capital securities qualify as
capital for Canadian regulatory purposes.

19. Non-controlling Interests in Subsidiaries

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

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



---

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

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

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

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

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

20. Share Capital and Normal Course Issuer Bid

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



| |  | An unlimited number of common shares
without nominal or par value. Each
common share is entitled to one vote
at meetings of the shareholders of
Sun Life Financial Services of Canada
Inc. There are no pre-emptive,
redemption, purchase or conversion
rights attached to the common shares.                                                                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | An unlimited number of Class A and
Class B non-voting preferred shares,
issuable in series. The Board is
authorized to fix before issuing the
shares, the number, the consideration
per share, the designation of and the
rights and restrictions of the Class
A and Class B shares of each series,
subject to the special rights and
restrictions attached to all the
Class A and Class B shares.

92
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

21. Earnings Per Share

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



---

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

93
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements



22.   Minimum Capital Requirements

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

23.   Stock-Based Compensation

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

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

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

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

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

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

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

94
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Notes to the Consolidated Financial Statements



24.   Operating Expenses

Operating expenses consist of the following:

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

25.   Income Taxes

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

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

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

95
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Notes to the Consolidated Financial Statements



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

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

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

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

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

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

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

96
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Notes to the Consolidated Financial Statements



26.   Commitments and Contingencies

LEASE COMMITMENTS

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

CONTRACTUAL COMMITMENTS

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

LETTERS OF CREDIT

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

REINSURANCE MATTERS

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

UNICOVER

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

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

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

INDEMNITIES

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

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

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

LEGAL PROCEEDINGS

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

27.   Employee Future Benefits

PENSION PLANS

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

97
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Notes to the Consolidated Financial Statements



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

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

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

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

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

98
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Notes to the Consolidated Financial Statements



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

OTHER POST-RETIREMENT BENEFITS

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

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

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

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

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

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

99
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Notes to the Consolidated Financial Statements



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

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

A)   RECONCILIATION OF SELECTED CDN. GAAP FINANCIAL STATEMENT INFORMATION TO U.S. GAAP:

i)   Consolidated statements of operations:

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

---

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

100
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Notes to the Consolidated Financial Statements



ii)   Comprehensive income:

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

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

101
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Notes to the Consolidated Financial Statements



iii)   Consolidated balance sheets:

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

---

|(1) |  | U.S. GAAP terminology is short-term investments.
|--- |  | ------------------------------------------------
|(2) |  | U.S. GAAP terminology is deferred income tax.   
|(3) |  | U.S. GAAP terminology is separate accounts.     

102
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Notes to the Consolidated Financial Statements



iv)   Consolidated statements of equity:

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

---

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

103
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Notes to the Consolidated Financial Statements

v) Effect of material differences between Cdn. GAAP and U.S. GAAP net income:

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

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

B) THE FOLLOWING DESCRIBES THE MATERIAL
ACCOUNTING POLICY DIFFERENCES BETWEEN CDN.
GAAP AND U.S. GAAP APPLICABLE TO THE
COMPANY:

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

i) Bonds:Under Cdn. GAAP, bonds are
carried at amortized cost. Realized gains
and losses are deferred and amortized to
income using the constant yield method
over the remaining period to maturity.
Under U.S. GAAP, bonds are carried at
market value. The bonds are classified as
available for sale or trading and
unrealized gains and losses are included
in other comprehensive income if
classified as available for sale, and
included in net income if classified as
trading. Realized gains and losses are
included in net income when realized.
Under U.S. GAAP, certain bonds were
reclassified to mortgages and corporate
loans, as they do not meet the definition
of a security.

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

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

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

104
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

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

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

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

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

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

v) Deferred acquisition costs:Under Cdn.
GAAP, costs of acquiring new insurance and
annuity business, primarily commissions,
underwriting, issue expenses and agency
expenses, are implicitly recognized in
actuarial liabilities for most of the
policies. U.S. GAAP requires the explicit
deferral of acquisition costs.
Amortization of such costs is dependent on
the product to which the costs relate. For
participating life insurance contracts,
except for participating policies in the
United Kingdom, amortization is based on a
constant percentage of gross margin. For
universal life and investment-type
contracts, amortization is based on a
constant percentage of gross profit. For
other nonparticipating products, including
term, group and disability insurance, as
well as participating policies in the
United Kingdom, amortization is based on a
constant percentage of premium. In cases
where amortization is based on gross
profit or margin, and available for sale
bonds or stocks are used to support the
underlying contract liability or actuarial
reserve, a portion of the unrealized gains
and losses balance is removed from equity
and netted against the deferred
acquisition cost balance.

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

105
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

vi) Future income tax asset and
liability(1):Under both Cdn. and U.S.
GAAP, the Company provides for future
income taxes on temporary differences
between book and tax assets and
liabilities.

Differences between Cdn. GAAP and U.S.
GAAP arise from differing accounting
policies for assets and liabilities and
differences in the recognition of tax rate
changes. Differences are as follows:

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



---

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

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

vii) Actuarial liabilities and contract
holder deposits:Under Cdn. GAAP,
actuarial liabilities are calculated in
accordance with Canadian generally
accepted actuarial practice. This method
uses best estimate assumptions for future
experience factors adjusted to provide
modest margins for adverse deviation in
each experience factor. Under U.S. GAAP,
actuarial liabilities for participating
life policies, except those in the United
Kingdom, are computed using a net level
premium reserve method with interest and
mortality assumptions based primarily upon
those assumptions used for establishing
the cash surrender values in the contract.
For universal life-type and investment
contracts, contract holder deposits
represent account balances and U.S. GAAP
liabilities primarily equal account value
balances. The account values represent an
accumulation of gross deposits received
plus credited interest less withdrawals,
expenses and mortality charges. Other
non-participating products include term,
group and disability insurance. For these
products, as well as participating
contracts in the United Kingdom, a net
level premium method is used with
assumptions locked in at time of issue,
unless the business is in a loss
recognition position, in which case a best
estimate gross premium valuation is used.

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

ix) Premium revenue, fee income,
maturities and surrenders, and interest on
claims and deposits:Under Cdn. GAAP,
premiums for universal life and other
investment-type contracts are recorded as
revenue, and a liability for future policy
benefits is established as a charge to
income. Interest accrued on contracts is
shown as an increase in actuarial
liabilities. Payments to contract holders
upon maturity are reflected as an expense
with an offsetting reduction to the
increase in actuarial liabilities. Under
U.S. GAAP, amounts received for universal
life and investment-type contracts are not
included in the income statement but are
reported as deposits to contract holder
account balances. Revenues from these
contracts are limited to amounts assessed
against policyholders account balances
for mortality, policy administration and
surrender charges, and are included in fee
income when earned. Interest accrued on
contracts is included in interest on
claims and deposits. Payments upon
maturity or surrender are reflected as
reductions to the contract holder deposits
on the balance sheet. Other payments in
excess of the account value, such as death
claims, are reflected as an expense.

106
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

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



---

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

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

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

xiii) Earnings per share:

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



---

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

107
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Notes to the Consolidated Financial Statements

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

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



---

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

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

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

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

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

xvii) Impact of the terrorist attacks on
September 11, 2001:The terrorist attacks
on September 11, 2001 in the United States
resulted in significant financial losses
and human casualties. However, the direct
financial impact to the Company of these
attacks, which is primarily due to death
claims, was not material.

108
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Notes to the Consolidated Financial Statements

For the year ended December 31, 2002, the
Company did not incur any losses ($4 in
2001) related to these claims. The losses
reported for 2002 and 2001 do not include
the impact on revenue from the wealth
management business due to the decline in
asset market values and any indirect
investment losses.

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

C) STATEMENTS OF CASH FLOWS:

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

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

D) U.S. GENERALLY ACCEPTED ACCOUNTING
STANDARDS NOT YET ADOPTED BY THE COMPANY:

FASB issued Statement of Financial
Accounting Standard No. 143 Accounting
for Asset Retirement Obligations
(SFAS143). The Company will adopt SFAS 143
on January 1, 2003. SFAS 143 requires
companies to record the fair value of an
asset retirement obligation in the period
in which it is incurred and increase the
carrying amount of the related long-lived
asset. Interest expense on the asset
retirement obligation is accrued each
period and the capitalized cost is
depreciated over the useful life of the
related asset. If the obligation is not
settled for its recorded amount, a gain or
loss on settlement will be realized. The
impact of this change is not expected to
be material to the consolidated financial
statements.

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

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

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

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

29. Comparative Figures

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

109
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM





---



##### 



Appointed Actuarys Report / Auditors Report

Appointed Actuarys Report

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

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

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

(Robert W. Wilson Sig)

Robert W. Wilson
Fellow, Canadian Institute of Actuaries

Toronto, Canada
February 12, 2003



Auditors Report

THE SHAREHOLDERS OF SUN LIFE FINANCIAL SERVICES OF CANADA INC.

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

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

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

(Deloitte and Touche LLP Sig)
Deloitte & Touche LLP
Chartered Accountants

Toronto, Canada
February 12, 2003

110
SUN LIFE FINANCIAL SERVICES OF CANADA INC.





---



##### 



Six-Year Summary

Six-Year Summary by Segment

|                                                                       |                           |      |  |         |   |      |  |         |   |      |  |         |   |  |  |         |   |  |  |         |   |  |  |         |  
|---------------------------------------------------------------------- | ------------------------- | ---- |  | ------- | - | ---- |  | ------- | - | ---- |  | ------- | - |  |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|(in millions of Canadian dollars)                                      |                           | 2002 |  | 2001    |   | 2000 |  | 1999    |   | 1998 |  | 1997   
|                                                                       |                           |      |  |         |   |      |  |         |   |      |  |        
|Total Assets Under Management (As at December 31)                      |                           |      |  |         |   |      |  |         |   |      |  |         |   |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | SLF Canada                |      |  | 89,149  |   |      |  | 52,505  |   |      |  | 50,532  |   |  |  | 49,352  |   |  |  | 43,477  |   |  |  | 38,397  |  
|                                                                       | SLF United States         |      |  | 83,301  |   |      |  | 78,517  |   |      |  | 47,300  |   |  |  | 40,930  |   |  |  | 39,620  |   |  |  | 32,448  |  
|                                                                       | MFS                       |      |  | 179,384 |   |      |  | 220,163 |   |      |  | 222,832 |   |  |  | 200,394 |   |  |  | 153,200 |   |  |  | 101,095 |  
|                                                                       | SLF United Kingdom        |      |  | 19,814  |   |      |  | 20,329  |   |      |  | 29,661  |   |  |  | 31,276  |   |  |  | 30,578  |   |  |  | 24,552  |  
|                                                                       | SLF Asia                  |      |  | 2,229   |   |      |  | 1,852   |   |      |  | 1,472   |   |  |  | 1,348   |   |  |  | 1,215   |   |  |  | 893     |  
|                                                                       | Corporate Capital         |      |  | 3,948   |   |      |  | 2,396   |   |      |  | 3,470   |   |  |  | 2,978   |   |  |  | 3,537   |   |  |  | 3,324   |  
|                                                                       | Consolidation Adjustments |      |  | (17,225 | ) |      |  | (24,015 | ) |      |  | (26,734 | ) |  |  | (24,975 | ) |  |  | (21,021 | ) |  |  | (14,455 | )
|                                                                       |                           |      |  |         |   |      |  |         |   |      |  |         |   |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | Total Company             |      |  | 360,600 |   |      |  | 351,747 |   |      |  | 328,533 |   |  |  | 301,303 |   |  |  | 250,606 |   |  |  | 186,254 |  
|                                                                       |                           |      |  |         |   |      |  |         |   |      |  |         |   |  |  |         |   |  |  |         |   |  |  |        
|Net Income from Continuing Operations
(For the year ended December 31) |                           |      |  |         |   |      |  |         |   |      |  |         |   |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | SLF Canada                |      |  | 514     |   |      |  | 207     |   |      |  | 195     |   |  |  | 220     |   |  |  | 266     |   |  |  | 249     |  
|                                                                       | SLF United States         |      |  | 360     |   |      |  | 226     |   |      |  | 228     |   |  |  | 236     |   |  |  | 245     |   |  |  | 156     |  
|                                                                       | MFS                       |      |  | 174     |   |      |  | 231     |   |      |  | 256     |   |  |  | 187     |   |  |  | 113     |   |  |  | 86      |  
|                                                                       | SLF United Kingdom        |      |  | 190     |   |      |  | 180     |   |      |  | 119     |   |  |  | (297    | ) |  |  | (336    | ) |  |  | (72     | )
|                                                                       | SLF Asia                  |      |  | 24      |   |      |  | 20      |   |      |  | 27      |   |  |  | 38      |   |  |  | 28      |   |  |  | 36      |  
|                                                                       | Corporate Capital         |      |  | (229    | ) |      |  | 17      |   |      |  | (23     | ) |  |  | (220    | ) |  |  | (2      | ) |  |  | 56      |  
|                                                                       |                           |      |  |         |   |      |  |         |   |      |  |         |   |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | Total Company             |      |  | 1,033   |   |      |  | 881     |   |      |  | 802     |   |  |  | 164     |   |  |  | 314     |   |  |  | 511     |  
|                                                                       |                           |      |  |         |   |      |  |         |   |      |  |         |   |  |  |         |   |  |  |         |   |  |  |        

Six-Year Summary by Principal Product

|                                                                       |                     |      |  |         |   |      |  |         |   |      |  |         |  |  |  |         |   |  |  |         |   |  |  |         | 
|---------------------------------------------------------------------- | ------------------- | ---- |  | ------- | - | ---- |  | ------- | - | ---- |  | ------- |  |  |  | ------- | - |  |  | ------- | - |  |  | ------- | 
|(in millions of Canadian dollars)                                      |                     | 2002 |  | 2001    |   | 2000 |  | 1999    |   | 1998 |  | 1997   
|                                                                       |                     |      |  |         |   |      |  |         |   |      |  |        
|Total Assets Under Management (As at December 31)                      |                     |      |  |         |   |      |  |         |   |      |  |         |  |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | Wealth Management   |      |  | 295,824 |   |      |  | 315,159 |   |      |  | 293,840 |  |  |  | 268,949 |   |  |  | 220,646 |   |  |  | 158,839 | 
|                                                                       | Protection          |      |  | 53,149  |   |      |  | 33,163  |   |      |  | 30,345  |  |  |  | 27,471  |   |  |  | 26,918  |   |  |  | 23,074  | 
|                                                                       | Corporate and Other |      |  | 11,627  |   |      |  | 3,425   |   |      |  | 4,348   |  |  |  | 4,883   |   |  |  | 3,042   |   |  |  | 4,341   | 
|                                                                       |                     |      |  |         |   |      |  |         |   |      |  |         |  |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | Total Company       |      |  | 360,600 |   |      |  | 351,747 |   |      |  | 328,533 |  |  |  | 301,303 |   |  |  | 250,606 |   |  |  | 186,254 | 
|                                                                       |                     |      |  |         |   |      |  |         |   |      |  |         |  |  |  |         |   |  |  |         |   |  |  |        
|Net
Income from Continuing Operations
(For the year ended December 31) |                     |      |  |         |   |      |  |         |   |      |  |         |  |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | Wealth Management   |      |  | 668     |   |      |  | 513     |   |      |  | 469     |  |  |  | (31     | ) |  |  | (280    | ) |  |  | 113     | 
|                                                                       | Protection          |      |  | 452     |   |      |  | 406     |   |      |  | 330     |  |  |  | 147     |   |  |  | 460     |   |  |  | 307     | 
|                                                                       | Corporate and Other |      |  | (87     | ) |      |  | (38     | ) |      |  | 3       |  |  |  | 48      |   |  |  | 134     |   |  |  | 91      | 
|                                                                       |                     |      |  |         |   |      |  |         |   |      |  |         |  |  |  |         |   |  |  |         |   |  |  |        
|                                                                       | Total Company       |      |  | 1,033   |   |      |  | 881     |   |      |  | 802     |  |  |  | 164     |   |  |  | 314     |   |  |  | 511     | 
|                                                                       |                     |      |  |         |   |      |  |         |   |      |  |         |  |  |  |         |   |  |  |         |   |  |  |        

111
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Eleven-Year Summary

Eleven-Year Summary

|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |         |       | 
|---------------------------------------------------------- | ---------------------------------------------- | ---------------- | ---- | -------- | ---- | -------- | ----- | ---- | ---- | ---- | --------- | ------- | ----- |  | ------- | ------- | ----- |  | ------- | ------- | ----- |  | ------- | ------- | ----- | 
|                                                           |                                                |                  |      | 10-Year  |      | 5-Year   |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       | 
|                                                           |                                                |                  |      | Average  |      | Average  |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       | 
|                                                           |                                                |                  |      | Compound |      | Compound |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       | 
|                                                           |                                                |                  |      | Growth   |      | Growth   |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       | 
|(in millions of Canadian dollars)                          |                                                | Rate %           |      | Rate %   |      | 2002     |       | 2001 |      | 2000 |           | 1999   
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |        
|ASSETS (As at December 31)                                 |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|                                                           | General Fund Assets                            |                  |      | 14.7     |      |          |       | 20.0 |      |      |           | 123,438 |       |  |         | 80,328  |       |  |         | 55,010  |       |  |         | 54,241  |      
|                                                           | Segregated Fund Net Assets                     |                  |      | 20.1     |      |          |       | 11.6 |      |      |           | 52,755  |       |  |         | 48,544  |       |  |         | 49,533  |       |  |         | 46,524  |      
|                                                           | Mutual Funds and Other Assets Under Management |                  |      | 17.4     |      |          |       | 11.7 |      |      |           | 184,407 |       |  |         | 222,875 |       |  |         | 223,990 |       |  |         | 200,538 |      
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|                                                           | Total Assets Under Management                  |                  |      | 16.7     |      |          |       | 14.1 |      |      |           | 360,600 |       |  |         | 351,747 |       |  |         | 328,533 |       |  |         | 301,303 |      
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|TOTAL EQUITY                                               |                                                |                  | 14.6 |          |      |          | 21.1  |      |      |      | 14,909    |         |       |  | 7,725   |         |       |  | 6,517   |         |       |  | 5,690   |        
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|OPERATING RESULTS(1) (For the year ended December 31)      |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|Revenue                                                    |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|                                                           | Premiums                                       |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |         |      
|                                                           |                                                | Annuities        |      |          | 13.7 |          |       |      | 24.4 |      |           |         | 7,402 |  |         |         | 4,196 |  |         |         | 4,371 |  |         |         | 3,494 | 
|                                                           |                                                | Life Insurance   |      |          | 10.2 |          |       |      | 11.6 |      |           |         | 5,403 |  |         |         | 3,759 |  |         |         | 3,523 |  |         |         | 3,602 | 
|                                                           |                                                | Health Insurance |      |          | 10.2 |          |       |      | 9.3  |      |           |         | 2,070 |  |         |         | 1,482 |  |         |         | 1,495 |  |         |         | 1,723 | 
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|                                                           | Total Premiums                                 |                  |      | 11.8     |      |          |       | 16.5 |      |      |           | 14,875  |       |  |         | 9,437   |       |  |         | 9,389   |       |  |         | 8,819   |      
|                                                           | Net Investment Income                          |                  |      | 6.8      |      |          |       | 6.0  |      |      |           | 5,131   |       |  |         | 4,162   |       |  |         | 3,839   |       |  |         | 4,261   |      
|                                                           | Fee Income                                     |                  |      | 20.6     |      |          |       | 16.7 |      |      |           | 3,095   |       |  |         | 3,216   |       |  |         | 3,318   |       |  |         | 2,609   |      
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|Total Revenue                                              |                                                |                  | 11.1 |          |      |          | 13.6  |      |      |      | 23,101    |         |       |  | 16,815  |         |       |  | 16,546  |         |       |  | 15,689  |        
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|Payments to Policyholders, Beneficiaries and Depositors(2) |                                                |                  | 12.1 |          |      |          | 10.4  |      |      |      | 13,017    |         |       |  | 9,486   |         |       |  | 9,291   |         |       |  | 10,200  |        
|Increase in Actuarial Liabilities                          |                                                |                  | 6.9  |          |      |          | 40.0  |      |      |      | 3,822     |         |       |  | 1,697   |         |       |  | 1,611   |         |       |  | 934     |        
|Commissions & Expenses                                     |                                                |                  | 12.1 |          |      |          | 13.2  |      |      |      | 4,856     |         |       |  | 4,209   |         |       |  | 4,230   |         |       |  | 3,901   |        
|Interest Expenses                                          |                                                |                  | 14.2 |          |      |          | 5.8   |      |      |      | 192       |         |       |  | 168     |         |       |  | 159     |         |       |  | 161     |        
|Income Taxes                                               |                                                |                  | 0.2  |          |      |          | (18.3 | )    |      |      | 98        |         |       |  | 306     |         |       |  | 386     |         |       |  | 283     |        
|Non-controlling Interests in Net Income of Subsidiaries    |                                                |                  | N/A  |          |      |          | 59.7  |      |      |      | 83        |         |       |  | 68      |         |       |  | 67      |         |       |  | 46      |        
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|Net Income from Continuing Operations                      |                                                |                  | 16.0 |          |      |          | 15.1  |      |      |      | 1,033     |         |       |  | 881     |         |       |  | 802     |         |       |  | 164     |        
|Write-off of Confederation Life Goodwill                   |                                                |                  | N/A  |          |      |          | N/A   |      |      |      |          |         |       |  |        |         |       |  |        |         |       |  |        |        
|Loss from Discontinued Operations, Net of Income Taxes     |                                                |                  | N/A  |          |      |          | N/A   |      |      |      | 36        |         |       |  |        |         |       |  |        |         |       |  |        |        
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|Total Net Income                                           |                                                |                  | 15.6 |          |      |          | 14.3  |      |      |      | 997       |         |       |  | 881     |         |       |  | 802     |         |       |  | 164     |        
|                                                           |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|BUSINESS STATISTICS                                        |                                                |                  |      |          |      |          |       |      |      |      |           |         |       |  |         |         |       |  |         |         |       |  |         |        
|Life Insurance In Force(3)                                 |                                                |                  | 14.2 |          |      |          | 14.1  |      |      |      | 1,139,308 |         |       |  | 628,206 |         |       |  | 561,389 |         |       |  | 673,322 |        
|Mutual Fund Sales                                          |                                                |                  | 19.8 |          |      |          | 11.0  |      |      |      | 31,668    |         |       |  | 39,466  |         |       |  | 45,614  |         |       |  | 38,123  |        
|Managed Fund Sales(4)                                      |                                                |                  | 39.7 |          |      |          | 23.6  |      |      |      | 29,683    |         |       |  | 31,953  |         |       |  | 25,869  |         |       |  | 13,939  |        
|Segregated Fund Deposits                                   |                                                |                  | 15.5 |          |      |          | 14.1  |      |      |      | 6,642     |         |       |  | 5,851   |         |       |  | 8,318   |         |       |  | 4,137   |        
|Employees                                                  |                                                |                  | 6.2  |          |      |          | 7.9   |      |      |      | 14,905    |         |       |  | 11,702  |         |       |  | 11,328  |         |       |  | 11,046  |        



---

|(1) |  | Certain amounts for prior years were restated in 2002 to reflect the
reclassification of certain reinsurance business lines to continuing
operations.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes net transfers to segregated funds.                                                                                                          
|   
|(3) |  | Includes reinsurance assumed.                                                                                                                        
|   
|(4) |  | Includes intercompany sales.                                                                                                                         

112
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Eleven-Year Summary

|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |        |       | 
|---------------------------------------------------------- | ---------------------------------------------- | ---------------- | ------- | ------- | ----- | ---- | ------- | ------- | ----- | ---- | ------- | ------- | ----- | ---- | ------- | ------- | ----- |  | ------- | ------- | ----- |  | ------- | ------ | ----- |  | ------- | ------ | ----- | 
|(in millions of Canadian dollars)                          |                                                | 1998             |         | 1997    |       | 1996 |         | 1995    |       | 1994 |         | 1993    |       | 1992
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |     
|ASSETS (As at December 31)                                 |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|                                                           | General Fund Assets                            |                  |         | 54,319  |       |      |         | 49,700  |       |      |         | 45,709  |       |      |         | 42,382  |       |  |         | 40,297  |       |  |         | 34,070 |       |  |         | 31,324 |      
|                                                           | Segregated Fund Net Assets                     |                  |         | 39,213  |       |      |         | 30,519  |       |      |         | 26,250  |       |      |         | 23,709  |       |  |         | 20,313  |       |  |         | 10,615 |       |  |         | 8,428  |      
|                                                           | Mutual Funds and Other Assets Under Management |                  |         | 157,074 |       |      |         | 106,035 |       |      |         | 69,820  |       |      |         | 57,196  |       |  |         | 46,465  |       |  |         | 44,069 |       |  |         | 37,078 |      
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|                                                           | Total Assets Under Management                  |                  |         | 250,606 |       |      |         | 186,254 |       |      |         | 141,779 |       |      |         | 123,287 |       |  |         | 107,075 |       |  |         | 88,754 |       |  |         | 76,830 |      
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|TOTAL EQUITY                                               |                                                |                  | 5,875   |         |       |      | 5,715   |         |       |      | 5,152   |         |       |      | 4,868   |         |       |  | 4,576   |         |       |  | 4,073   |        |       |  | 3,822   |       
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|OPERATING RESULTS(1) (For the year ended December 31)      |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|Revenue                                                    |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|                                                           | Premiums                                       |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |        |      
|                                                           |                                                | Annuities        |         |         | 2,408 |      |         |         | 2,488 |      |         |         | 1,917 |      |         |         | 2,242 |  |         |         | 2,409 |  |         |        | 1,917 |  |         |        | 2,057 | 
|                                                           |                                                | Life Insurance   |         |         | 3,541 |      |         |         | 3,126 |      |         |         | 2,968 |      |         |         | 2,809 |  |         |         | 2,540 |  |         |        | 2,291 |  |         |        | 2,047 | 
|                                                           |                                                | Health Insurance |         |         | 1,633 |      |         |         | 1,325 |      |         |         | 1,208 |      |         |         | 1,157 |  |         |         | 1,016 |  |         |        | 860   |  |         |        | 781   | 
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|                                                           | Total Premiums                                 |                  |         | 7,582   |       |      |         | 6,939   |       |      |         | 6,093   |       |      |         | 6,208   |       |  |         | 5,965   |       |  |         | 5,068  |       |  |         | 4,885  |      
|                                                           | Net Investment Income                          |                  |         | 4,097   |       |      |         | 3,836   |       |      |         | 3,526   |       |      |         | 3,443   |       |  |         | 2,786   |       |  |         | 2,645  |       |  |         | 2,669  |      
|                                                           | Fee Income                                     |                  |         | 2,017   |       |      |         | 1,430   |       |      |         | 1,113   |       |      |         | 832     |       |  |         | 679     |       |  |         | 558    |       |  |         | 477    |      
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|Total Revenue                                              |                                                |                  | 13,696  |         |       |      | 12,205  |         |       |      | 10,732  |         |       |      | 10,483  |         |       |  | 9,430   |         |       |  | 8,271   |        |       |  | 8,031   |       
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|Payments to Policyholders, Beneficiaries and Depositors(2) |                                                |                  | 9,155   |         |       |      | 7,945   |         |       |      | 6,719   |         |       |      | 6,483   |         |       |  | 4,895   |         |       |  | 4,422   |        |       |  | 4,137   |       
|Increase in Actuarial Liabilities                          |                                                |                  | 473     |         |       |      | 710     |         |       |      | 931     |         |       |      | 1,279   |         |       |  | 2,114   |         |       |  | 2,043   |        |       |  | 1,957   |       
|Commissions & Expenses                                     |                                                |                  | 3,238   |         |       |      | 2,617   |         |       |      | 2,193   |         |       |      | 1,977   |         |       |  | 1,891   |         |       |  | 1,579   |        |       |  | 1,556   |       
|Interest Expenses                                          |                                                |                  | 182     |         |       |      | 145     |         |       |      | 95      |         |       |      | 68      |         |       |  | 29      |         |       |  | 18      |        |       |  | 51      |       
|Income Taxes                                               |                                                |                  | 310     |         |       |      | 269     |         |       |      | 304     |         |       |      | 269     |         |       |  | 197     |         |       |  | 58      |        |       |  | 96      |       
|Non-controlling Interests in Net Income of Subsidiaries    |                                                |                  | 24      |         |       |      | 8       |         |       |      |        |         |       |      |        |         |       |  |        |         |       |  |        |        |       |  |        |       
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|Net Income from Continuing Operations                      |                                                |                  | 314     |         |       |      | 511     |         |       |      | 490     |         |       |      | 407     |         |       |  | 304     |         |       |  | 151     |        |       |  | 234     |       
|Write-off of Confederation Life Goodwill                   |                                                |                  | 260     |         |       |      |        |         |       |      |        |         |       |      |        |         |       |  |        |         |       |  |        |        |       |  |        |       
|Loss from Discontinued Operations, Net of Income Taxes     |                                                |                  |        |         |       |      |        |         |       |      |        |         |       |      |        |         |       |  |        |         |       |  |        |        |       |  |        |       
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|Total Net Income                                           |                                                |                  | 54      |         |       |      | 511     |         |       |      | 490     |         |       |      | 407     |         |       |  | 304     |         |       |  | 151     |        |       |  | 234     |       
|                                                           |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|BUSINESS STATISTICS                                        |                                                |                  |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |  |         |         |       |  |         |        |       |  |         |       
|Life Insurance In Force(3)                                 |                                                |                  | 670,094 |         |       |      | 588,773 |         |       |      | 514,337 |         |       |      | 476,657 |         |       |  | 421,082 |         |       |  | 343,653 |        |       |  | 300,831 |       
|Mutual Fund Sales                                          |                                                |                  | 33,849  |         |       |      | 18,791  |         |       |      | 13,150  |         |       |      | 7,453   |         |       |  | 6,628   |         |       |  | 7,025   |        |       |  | 5,198   |       
|Managed Fund Sales(4)                                      |                                                |                  | 12,255  |         |       |      | 10,304  |         |       |      | 3,860   |         |       |      | 3,448   |         |       |  | 3,324   |         |       |  | 1,306   |        |       |  | 1,047   |       
|Segregated Fund Deposits                                   |                                                |                  | 4,345   |         |       |      | 3,430   |         |       |      | 3,719   |         |       |      | 3,619   |         |       |  | 2,174   |         |       |  | 2,095   |        |       |  | 1,567   |       
|Employees                                                  |                                                |                  | 10,717  |         |       |      | 10,200  |         |       |      | 9,750   |         |       |      | 9,150   |         |       |  | 9,150   |         |       |  | 8,300   |        |       |  | 8,200   |       

113
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Corporate Information

Executive Officers

As at April 1, 2003




DONALD A. STEWART
Chairman & Chief Executive Officer C. JAMES PRIEUR
President & Chief Operating Officer ROBERT M. ASTLEY
President,
Sun Life Financial Canada




THOMAS A. BOGART
Executive Vice-President &
Chief Legal Officer DAVID W. DAVIES
Managing Director,
Sun Life Financial U.K. PAUL W. DERKSEN
Executive Vice-President &
Chief Financial Officer




DOUGLAS C. HENCK
President,
Sun Life Financial Asia ROBERT C. SALIPANTE
President,
Sun Life Financial U.S. JOHN R. WRIGHT
Executive Vice-President &
Chief Information Officer




Business Unit & Corporate Function Leaders

As at April 1, 2003




JAMES M. A. ANDERSON
Vice-President, Investments
United States DOUGLAS W. BROOKS
Vice-President & Chief Risk Officer GRETA CUSWORTH
Vice-President, Group Benefits
Canada C. JOSEPH DAHL
Vice-President, Underwriting PETER F. DEMUTH
Vice-President & Chief Strategy and
Business Development Officer
United States JANET M. DE SILVA
Chairman &
Chief Executive Officer
Sun Life Financial (Hong Kong) Limited MARK W. DETORA
Vice-President, Individual Insurance
United States KEVIN P. DOUGHERTY
Vice-President, Group Retirement Services
Canada H. ANTHONY FENN
Vice-President, Investments
Asia RONALD H. FRIESEN
Vice-President, Tax & Corporate Capital JANET FULLER
Legal & Compliance Director
United Kingdom




EDWARD GARDNER
Finance & Planning Director
United Kingdom BRIAN GILL
Vice-President & Chief Information Officer
Canada KATHARIN R. HARKINS
Vice-President, Public Relations &
Communications NIGEL I. HODGES
Vice-President & Controller CHRISTINE I. MACKIW
Vice-President & Chief Compliance Officer DR. ROSS MACKENZIE, FRCP (C), FACC
Vice-President & Chief Medical Director K. LOUISE MCLAREN
Vice-President, Human Resources DIKRAN OHANNESSIAN
Vice-President, Integration PHILIP K. POLKINGHORN
Vice-President,
Retirement Products & Services
United States THOMAS G. REID
Vice-President, Investor Relations &
Corporate Development GEOFFREY R. SAGGERS
President Director
PT Sun Life Financial
Indonesia DAVEY S. SCOON
Vice-President & Chief Administrative
and Financial Officer
United States




ROBERT J. SHARKEY
Senior Vice-President, Corporate Finance CANDACE SHAW
Vice-President, Corporate Investments MICHAEL E. SHUNNEY
Vice-President, Group Insurance
United States MICHAEL P. STRAMAGLIA
Executive Vice-President, Reinsurance &
Chief Investment Officer
Canada ESTHER C. TAN
President & Chief Executive Officer
Sun Life of Canada (Philippines), Inc. BARRY J. TRILLER
Executive Vice-President,
Retail Operations
Canada JAMES H. VAN HARMELEN
Vice-President & Chief Financial Officer
Asia ANGUS B. WARREN
Vice-President & General Manager
Reinsurance P. BRUCE WEST
Vice-President & Chief Financial Officer
Canada JOAN M. WILSON
Vice-President & Corporate Secretary ROBERT W. WILSON
Vice-President & Actuary




114
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Corporate Information



Massachusetts Financial Services
Company (MFS) JEFFREY L. SHAMES
Chairman JOHN W. BALLEN Chief
Executive Officer KEVIN R. PARKE
President




Independent Financial
Marketing Group, Inc. ROBERT L. SPADAFORA
President




MFS/Sun Life Financial
Distributors, Inc. THOMAS G. SEITZ
President




Clarica Financial
Services Inc. JACK F. GARRAMONE
President Birla Sun Life
Joint Ventures GARY M. COMERFORD
Vice-President, International
& General Manager, India




McLean Budden
Limited DOUGLAS W. MAHAFFY
Chairman & President Sun Life Everbright Life
Insurance Company Limited TIMOTHY CHEN
President &
Chief Executive Officer








115
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Corporate Information

Subsidiary Companies
SUN LIFE FINANCIAL SERVICES OF CANADA INC.
As at December 31, 2002 (in thousands of Canadian dollars)

|                                     |                                                                       |                                          |                                             |                                          |                                                          |                      |                      |  |       |      |               |     |               |     |   |  | 
|------------------------------------ | --------------------------------------------------------------------- | ---------------------------------------- | ------------------------------------------- | ---------------------------------------- | -------------------------------------------------------- | -------------------- | -------------------- |  | ----- | ---- | ------------- | --- | ------------- | --- | - |  | 
|                                     |                                                                       |                                          |                                             |                                          |                                                          |                      |                      |  |       |      | Book Value of |     | Per cent of  
|                                     |                                                                       |                                          |                                             |                                          |                                                          |                      |                      |  |       |      | Shares        |     | Voting Shares
|                                     |                                                                       |                                          |                                             |                                          |                                                          |                      | Address of Head      |  | Owned |      | Owned        
|Subsidiary (in alphabetical order)   |                                                                       | or Principal Office                      |                                             | by Company*                              |                                                          | by Company*         
|                                     |                                                                       |                                          |                                             |                                          |                                                          |                     
|Sun Life Assurance Company of Canada |                                                                       | Toronto, Canada                          |                                             |                                          |                                                          |                      |                      |  | 100   | %   
|                                     | 3060097 Nova Scotia Company                                           |                                          | Halifax, Canada                             |                                          |                                                          | 59,400               |                      |  |       | 100  | %            
|                                     | 3399435 Canada Inc.                                                   |                                          | Toronto, Canada                             |                                          |                                                          |                      |                      |  |       | 100  | %            
|                                     | Clarica Investco Inc.                                                 |                                          | Waterloo, Canada                            |                                          |                                                          | (2,340               | )                    |  |       | 100  | %            
|                                     | Clarica MEEL Holdings Limited                                         |                                          | Waterloo, Canada                            |                                          |                                                          |                      |                      |  |       | 100  | %            
|                                     | Clarica Reinsurance Holdings, Inc.                                    |                                          | Brookfield, USA                             |                                          |                                                          | 3,718                |                      |  |       | 100  | %            
|                                     |                                                                       | Sun Life Reinsurance Company Limited     |                                             | Bridgetown, Barbados                     |                                                          |                      |                      |  |       |      | 100           | %  
|                                     | Clarica Reinsurance (Ireland) Limited                                 |                                          | Dublin, Ireland                             |                                          |                                                          | 34,309               |                      |  |       | 100  | %            
|                                     | Clarica Trustco Inc.                                                  |                                          | Waterloo, Canada                            |                                          |                                                          | 277                  |                      |  |       | 100  | %            
|                                     |                                                                       | Clarica Financial Services Inc.          |                                             | Waterloo, Canada                         |                                                          |                      |                      |  |       |      | 100           | %  
|                                     |                                                                       | Clarica Trust Company                    |                                             | Waterloo, Canada                         |                                                          |                      |                      |  |       |      | 100           | %  
|                                     |                                                                       | Synera Financial Services Inc.           |                                             | Toronto, Canada                          |                                                          |                      |                      |  |       |      | 100           | %  
|                                     | Clarica U.S. Inc.                                                     |                                          | Wellesley Hills, USA                        |                                          |                                                          | (42,555              | )                    |  |       | 100  | %            
|                                     |                                                                       | Clarica Life Insurance Company  U.S.    |                                             | Wellesley Hills, USA                     |                                                          |                      |                      |  |       |      | 100           | %  
|                                     |                                                                       |                                          | Clarica Membership Services, Inc.           |                                          | Wellesley Hills, USA                                     |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          | WSLIC Marketing Corporation                 |                                          | Wellesley Hills, USA                                     |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          |                                             | Western States Development Corporation   |                                                          | Wellesley Hills, USA |                      |  |       |      |               |     | 100           | %  
|                                     | IQON Financial Management Inc.                                        |                                          | Winnipeg, Canada                            |                                          |                                                          | (656                 | )                    |  |       | 51   | %            
|                                     |                                                                       | IQON Financial Inc.                      |                                             | Winnipeg, Canada                         |                                                          |                      |                      |  |       |      | 100           | %  
|                                     | IQON Insurance Brokerage Inc.                                         |                                          | Winnipeg, Canada                            |                                          |                                                          |                      |                      |  |       | 75.5 | %            
|                                     | McLean Budden Limited                                                 |                                          | Toronto, Canada                             |                                          |                                                          | 13,961               |                      |  |       | 56   | %            
|                                     |                                                                       | McLean Budden Funds Inc.                 |                                             | Toronto, Canada                          |                                                          |                      |                      |  |       |      | 100           | %  
|                                     | PT Sun Life Financial Indonesia                                       |                                          | Jakarta, Indonesia                          |                                          |                                                          | 1,797                |                      |  |       | 80   | %            
|                                     | R.D.C. Property Services Ltd.                                         |                                          | Waterloo, Canada                            |                                          |                                                          |                      |                      |  |       | 100  | %            
|                                     | Sun Life Assurance Company of Canada (Barbados) Limited               |                                          | Bridgetown, Barbados                        |                                          |                                                          | 856                  |                      |  |       | 100  | %            
|                                     | Sun Life Assurance Company of Canada  U.S. Operations Holdings, Inc. |                                          | Wellesley Hills, USA                        |                                          |                                                          | 252,851              |                      |  |       | 100  | %            
|                                     |                                                                       | Sun Life Financial (Japan), Inc.         |                                             | Wellesley Hills, USA                     |                                                          |                      |                      |  |       |      | 100           | %  
|                                     |                                                                       | Sun Life Financial (U.S.) Holdings, Inc. |                                             | Wellesley Hills, USA                     |                                                          |                      |                      |  |       |      | 100           | %  
|                                     |                                                                       |                                          | IFMG Securities, Inc.                       |                                          | Purchase, USA                                            |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          | Independent Financial Marketing Group, Inc. |                                          | Purchase, USA                                            |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          |                                             | IFS Agencies of Alabama, Inc.            |                                                          | Purchase, USA        |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          |                                             | IFMG of Oklahoma, Inc.                   |                                                          | Purchase, USA        |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          |                                             | IFS Agencies, Inc.                       |                                                          | Purchase, USA        |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          |                                             | IFS Agencies of New Mexico, Inc.         |                                                          | Purchase, USA        |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          |                                             | IFS Insurance Agencies of Ohio, Inc.     |                                                          | Purchase, USA        |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          |                                             | IFS Insurance Agencies of Texas, Inc.    |                                                          | Purchase, USA        |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          | LSC Insurance Agency of Arizona, Inc.       |                                          | Purchase, USA                                            |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          | LSC Insurance Agency of Nevada, Inc.        |                                          | Purchase, USA                                            |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          | LSC Insurance Agency of New Mexico, Inc.    |                                          | Purchase, USA                                            |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          | MFS/Sun Life Financial Distributors, Inc.   |                                          | Wellesley Hills, USA                                     |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          |                                             | Sunesco Insurance Agency, Inc.           |                                                          | Wellesley Hills, USA |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          | Sun Life Financial (U.S.) Investments LLC   |                                          | Wellesley Hills, USA                                     |                      |                      |  |       |      |               | 100 | %            
|                                     |                                                                       |                                          |                                             | Sun Life of Canada (U.S.) Holdings, Inc. |                                                          | Wellesley Hills, USA |                      |  |       |      |               |     | 100           | %  
|                                     |                                                                       |                                          |                                             |                                          | Keyport Life Insurance Company                           |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Independence Life and Annuity Company                    |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Keyport Financial Services Corp.                         |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Sun Life Insurance and Annuity Company of New York       |                      | New York, USA        |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Sun Canada Financial Co.                                 |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Sun Life Assurance Company of Canada (U.S.)              |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Clarendon Insurance Agency, Inc.                         |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Sun Benefit Services Company, Inc.                       |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Sun Capital Advisers, Inc.                               |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %
|                                     |                                                                       |                                          |                                             |                                          | Sun Life of Canada (U.S.) Holdings General Partner, Inc. |                      | Wellesley Hills, USA |  |       |      |               |     |               | 100 | %

---

|* |  | The book value (in thousands of Canadian dollars) of shares and the percentage
held are stated at the equity in such investments held by the Company and other
subsidiaries of the Company.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

116
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



Corporate Information

|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 |                                             |                      |                   |        |       |   |               |     |               |      |   |  | 
|----------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | ---------------------- | ----------------------------------------------------------- | ----------------------------------------- | ----------------------------------------------- | ------------------------------------------- | -------------------- | ----------------- | ------ | ----- | - | ------------- | --- | ------------- | ---- | - |  | 
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 |                                             |                      |                   |        |       |   | Book Value of |     | Per cent of  
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 |                                             |                      |                   |        |       |   | Shares        |     | Voting Shares
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 |                                             |                      | Address of Head   |        | Owned |   | Owned        
|Subsidiary (in alphabetical order)                    |                                                                 | or Principal Office                    |                        | by Company*                                                 |                                           | by Company*                                    
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                
|                                                      |                                                                 |                                        |                        |                                                             |                                           | Sun Life of Canada (U.S.) SPE 97-1, Inc.        |                                             | Wellesley Hills, USA |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | Sun Life Financial Services Limited             |                                             | Hamilton, Bermuda    |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | Vision Financial Corporation                    |                                             | Neene, USA           |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             | Sun Life of Canada (U.S.) Capital Trust 1 |                                                 | Wellesley Hills, USA                        |                      |                   |        |       |   |               | 100 | %            
|                                                      |                                                                 |                                        |                        |                                                             |                                           | Sun Life of Canada (U.S.) Limited Partnership I |                                             | Wellesley Hills, USA |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             | Sun Life Financial (U.S.) Finance, Inc.   |                                                 | Wellesley Hills, USA                        |                      |                   |        |       |   |               | 100 | %            
|                                                      |                                                                 |                                        |                        | Sun Life of Canada (U.S.) Financial Services Holdings, Inc. |                                           | Boston, USA                                     |                                             |                      |                   |        |       |   | 99.7          | %  
|                                                      |                                                                 |                                        |                        |                                                             | Massachusetts Financial Services Company  |                                                 | Boston, USA                                 |                      |                   |        |       |   |               | 92  | %            
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Fund Distributors, Inc.                     |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Heritage Trust Company                      |                                             | Manchester, USA      |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 | New England Streaming Media, LLC            |                      | Boston, USA       |        |       |   |               |     |               | 86   | %
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 | E-City Radio Network, LLC                   |                      | Somerville, USA   |        |       |   |               |     |               | 100  | %
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Institutional Advisors, Inc.                |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 | MFS Institutional Advisors (Australia) Ltd. |                      | Sydney, Australia |        |       |   |               |     |               | 100  | %
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS International Ltd.                          |                                             | Hamilton, Bermuda    |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 | MFS International S.C. Ltda.                |                      | Sao Paulo, Brazil |        |       |   |               |     |               | 100  | %
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 | MFS International (U.K.) Ltd.               |                      | London, U.K.      |        |       |   |               |     |               | 100  | %
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Japan Holdings, LLC                         |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           |                                                 | MFS Investment Management K.K.              |                      | Tokyo, Japan      |        |       |   |               |     |               | 92.6 | %
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Investment Management (LUX) S.A.            |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Original Research Advisors, LLC             |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Original Research Partners, LLC             |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Retirement Services, Inc.                   |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | MFS Service Center, Inc.                        |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|                                                      |                                                                 |                                        |                        |                                                             |                                           | Vertex Investment Management, Inc.              |                                             | Boston, USA          |                   |        |       |   |               |     | 100           | %   
|Sun Life Capital Trust                                |                                                                 | Toronto, Canada                        |                        |                                                             | 1,706                                     |                                                 |                                             |                      | 100               | %     
|Sun Life Financial Advisory Inc.                      |                                                                 | Montreal, Canada                       |                        |                                                             |                                           |                                                 |                                             |                      | 100               | %     
|Sun Life Financial (Bermuda) Holdings, Inc.           |                                                                 | Wellesley Hills, USA                   |                        |                                                             | 100                                       |                                                 |                                             |                      | 100               | %     
|                                                      | Sun Life Financial Insurance and Annuity Company (Bermuda) Ltd. |                                        | Hamilton, Bermuda      |                                                             |                                           |                                                 |                                             |                      |                   | 100    | %    
|Sun Life Financial (Hong Kong) Limited                |                                                                 | Hong Kong                              |                        |                                                             | 48                                        |                                                 |                                             |                      | 100               | %     
|Sun Life Financial (Hungary) Investments Inc.         |                                                                 | Toronto, Canada                        |                        |                                                             |                                           |                                                 |                                             |                      | 100               | %     
|                                                      | Sun Life (Hungary) Group Financing Limited Liability Company    |                                        | Hrsz, Hungary          |                                                             |                                           | 73,785                                          |                                             |                      |                   | 100    | %    
|Sun Life Financial (India) Insurance Investments Inc. |                                                                 | Toronto, Canada                        |                        |                                                             | (1,740                                    | )                                               |                                             |                      | 100               | %     
|Sun Life Financial Quantitative Management Inc.       |                                                                 | Toronto, Canada                        |                        |                                                             |                                           |                                                 |                                             |                      | 100               | %     
|Sun Life Financial Realty Advisors Inc.               |                                                                 | Toronto, Canada                        |                        |                                                             | (34                                       | )                                               |                                             |                      | 100               | %     
|Sun Life Financial Trust Inc.                         |                                                                 | Toronto, Canada                        |                        |                                                             | (1,772                                    | )                                               |                                             |                      | 100               | %     
|Sun Life (India) AMC Investments Inc.                 |                                                                 | Toronto, Canada                        |                        |                                                             | 2,887                                     |                                                 |                                             |                      | 100               | %     
|Sun Life (India) Distribution Investments Inc.        |                                                                 | Toronto, Canada                        |                        |                                                             | 477                                       |                                                 |                                             |                      | 100               | %     
|                                                      | Birla Sun Life Distribution Company Limited                     |                                        | Mumbai, India          |                                                             |                                           |                                                 |                                             |                      |                   | 50.001 | %    
|                                                      |                                                                 | BSDL Insurance Advisory Services Ltd.  |                        | Maharashtra, India                                          |                                           |                                                 |                                             |                      |                   |        | 100   | %
|Sun Life (India) Securities Investments Inc.          |                                                                 | Toronto, Canada                        |                        |                                                             | 992                                       |                                                 |                                             |                      | 100               | %     
|Sun Life Information Services Ireland Limited         |                                                                 | Waterford, Ireland                     |                        |                                                             | 98                                        |                                                 |                                             |                      | 100               | %     
|Sun Life Inversiones S.A.                             |                                                                 | Santiago, Chile                        |                        |                                                             | 12,144                                    |                                                 |                                             |                      | 100               | %     
|Sun Life of Canada International Assurance Limited    |                                                                 | Bridgetown, Barbados                   |                        |                                                             | 1,013                                     |                                                 |                                             |                      | 100               | %     
|Sun Life of Canada UK Holdings plc                    |                                                                 | Basingstoke, U.K.                      |                        |                                                             | 212,654                                   |                                                 |                                             |                      | 100               | %     
|                                                      | SLC Financial Services (U.K.) Limited                           |                                        | Basingstoke, U.K.      |                                                             |                                           |                                                 |                                             |                      |                   | 100    | %    
|                                                      | Sun Life Assurance Company of Canada (U.K.) Limited             |                                        | Basingstoke, U.K.      |                                                             |                                           |                                                 |                                             |                      |                   | 100    | %    
|                                                      |                                                                 | BHO Lease Company Limited              |                        | Jersey, Channel Islands                                     |                                           |                                                 |                                             |                      |                   |        | 100   | %
|                                                      | Sun Life of Canada Nominees Limited                             |                                        | Basingstoke, U.K.      |                                                             |                                           |                                                 |                                             |                      |                   | 100    | %    
|                                                      | Sun Life Financial of Canada Trustee Limited                    |                                        | Basingstoke, U.K.      |                                                             |                                           |                                                 |                                             |                      |                   | 100    | %    
|Sun Life of Canada (U.K.) Overseas Investment Limited |                                                                 | Basingstoke, U.K.                      |                        |                                                             | 32,908                                    |                                                 |                                             |                      | 100               | %     
|                                                      | Sun Life of Canada (Netherlands) B.V.                           |                                        | Rotterdam, Netherlands |                                                             |                                           | (3,600                                          | )                                           |                      |                   | 100    | %    
|                                                      |                                                                 | Sun Life of Canada (Philippines), Inc. |                        | Manila, Philippines                                         |                                           |                                                 |                                             |                      |                   |        | 99.99 | %
|                                                      |                                                                 |                                        |                        | Sun Life Financial Plans, Inc.                              |                                           | Manila, Philippines                             |                                             |                      |                   |        |       |   | 100           | %  
|                                                      |                                                                 |                                        |                        | Sun Life Asset Management Company, Inc.                     |                                           | Manila, Philippines                             |                                             |                      |                   |        |       |   | 99.99         | %  
|Sun Life Securities Inc.                              |                                                                 | Toronto, Canada                        |                        |                                                             | 3,314                                     |                                                 |                                             |                      | 100               | %     

---

|* |  | The book value (in thousands of Canadian dollars) of shares and the percentage
held are stated at the equity in such investments held by the Company and other
subsidiaries of the Company.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

117
ANNUAL REPORT 2002 // WWW.SUNLIFE.COM



---



##### 



Corporate Information



Corporate, Investor Relations and Shareholder Information

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CORPORATE OFFICE
Sun Life Financial
Services of Canada Inc.
150 King Street West
Toronto, Ontario
Canada M5H 1J9
Tel: (416) 979-9966
www.sunlife.com 
INVESTOR
RELATIONS
For financial analysts, portfolio managers
and institutional investors requiring
financial information, please contact:
Thomas G. Reid,
Vice-President, Investor Relations
Tel: (416) 204-8163
Fax: (416) 597-9108
investor.relations@sunlife.com 
SHAREHOLDER
SERVICES
For shareholder account inquiries please
contact the Transfer Agent according to the
information on the next page. For
shareholder related matters please contact:
Jo-Anne Archibald,
Director, Shareholder Services
Fax: (416) 598-3121
English E-mail:
shareholderservices@sunlife.com
French E-mail:
servicesauxactionnaires@sunlife.com 
SUN LIFE FINANCIAL CONTACT LIST
For information about the Sun Life
Financial group of companies, corporate
news, financial results, your insurance
policies (including change of address
for your policy) or to receive investor
publications please contact: 
CANADAToronto
Office
225 King Street West
Toronto, Ontario
Canada M5V 3C5
Tel: (416) 408-7500
Call Centre:
1 800 SUN-LIFE/1 800 786-5433
Mon. to Fri. 8:00 a.m.  8:00 p.m. EST
www.sunlife.ca |  | Waterloo Office
Customer Service Centre
227 King Street South
P.O. Box 1601, STN Waterloo
Waterloo, Ontario
Canada N2J 4C5
Call Centre:
Tel:1 888 864-5463 (English)
Tel:1 888 456-2843 (French)
Mon. to Fri. 8:00 a.m.  8:00 p.m. EST
www.clarica.com Montreal
Office
1155 Metcalfe Street
Montreal, Quebec
Canada H3B 2V9
Tel: (514) 866-6411
Call Centre:
1 800 SUN-LIFE/1 800 786-5433
Mon. to Fri. 8:00 a.m.  8:00 p.m. EST
www.sunlife.ca 
UNITED
STATES
One Sun Life Executive Park SC 2132
Wellesley Hills, Massachusetts
USA 02481
Tel: (781) 237-6030
Call Centre:
1 800 SUN-LIFE/1 800 786-5433
Mon. to Fri. 8:00 a.m.  5:00 p.m. EST
www.sunlife-usa.com 
UNITED
KINGDOM
Matrix House
Basing View, Basingstoke
Hampshire
United Kingdom RG21 4DZ
Tel: (0870) 160 5040
Call Centre: (0870) 164 6060
Mon. to Fri. 8:00 a.m.  6:00 p.m.
www.sunlifeofcanada.co.uk 
ASIA
Regional
Headquarters
2008 Two Pacific Place
88 Queensway
Hong Kong
Tel: (852) 2918-3888
www.sunlife.com |  | Hong Kong
8th Floor, Sun Life Financial Tower
68 Yee Wo Street
Causeway Bay, Hong Kong
Tel: (852) 2103-8888
Call Centre: (852) 2103-8928
Mon. to Fri. 8:30 a.m.  5:00 p.m.
www.sunlife.com.hk Indonesia
PT
Sun Life Financial Indonesia
World Trade Centre, 8th Floor
JL Jend. Sudirman Kav 29-31
Jakarta, Indonesia 12920
Tel: (021) 521-1428 India
Birla
Sun Life Asset Management
Company
Ahura Centre, 2nd Floor
Mahakali Caves Road, Andheri (E)
Mumbai, India  400 093
Tel: 91-22-5692-8000 
Birla
Sun Life Insurance Company
Ahura Centre, 1st Floor
Mahakali Caves Road, Andheri (E)
Mumbai, India  400 093
Tel: 91-22-5691-7777
Mon. to Fri. 7:00 a.m.  11:00 p.m.
www.birlasunlife.com Peoples
Republic of China
Beijing Representative Office
Bright China Chang An Building
Suite 1010, Tower A
No.7 Jianguomennei Dajie
Beijing, Peoples Republic of China
100005
Tel: (8610) 6510-2783 Philippines
12th
Floor, The Enterprise Centre
Tower 2
6766 Ayala Avenue cor.
Paseo de Roxas
Makati City, Philippines
Tel: (632) 886-6188
Call Centre: (632) 849-9888
Mon. to Fri. 8:00 a.m.  6:00 p.m.
www.sunlife.com.ph

118
SUN LIFE FINANCIAL SERVICES OF CANADA INC.



---



##### 



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TRANSFER AGENT
For information on your Sun Life Financial
Services of Canada Inc. shareholdings,
please contact the Transfer Agent in the
country where you reside. If you do not
live in any of the countries listed, please
contact the Canadian office. Canada and the United States
CIBC Mellon Trust Company
PO Box 7010
Adelaide Street Postal Station
Toronto, Ontario
Canada M5C 2W9
Within North America:
Tel:1 877 224-1760 (English)
1 888 290-0048 (French)
Outside of North America:
Tel:(416) 348-9412
Fax:(416) 643-5501
Mon. to Fri. 8:30 a.m.  6:00 p.m. EST
inquiries@cibcmellon.com
www.cibcmellon.com United Kingdom
Capita IRG Plc
Bourne House
34 Beckenham Road
Beckenham, Kent
United Kingdom BR3 4TU
Within the U.K.:
Tel: (0845) 602 1587
Outside the U.K.:
Tel: +44 20 8639 2064
Mon. to Fri. 9:00 a.m.  5:00 p.m.
ssdblueco@capitaregistrars.com
www.capitaregistrars.com |  | Philippines
The Hongkong and Shanghai Banking
Corporation Limited
30/F The Discovery Suites
#25 ADB Avenue
Ortigas Centre, Pasig
Metro Manila, Philippines
From Metro Manila:
Tel: (632) 683-2601
From the Provinces:
Tel: 1 800 1 888-2422
Mon. to Fri. 9:00 a.m.  5:30 p.m.
www.hsbc.com.ph Hong Kong
Computershare Hong Kong Investor
Services Limited
Rooms 19011905, 19th Floor
Hopewell Centre
183 Queens Road East
Wanchai, Hong Kong
Tel: (852) 2862-8628
Mon. to Fri. 9:00 a.m.  5:30 p.m.
Sat. 9:00 a.m.  12:30 p.m.
hkinfo@computershare.com.hk
www.computershare.com |  | DIVIDENDS
Subject to the approval of the Board of
Directors, dividends are paid at the end
of each calendar quarter. 
STOCK EXCHANGE LISTINGS
Ticker Symbol: SLF
Sun Life Financial Services of Canada Inc.
common shares are listed on the
Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges. 
As
of March 31, 2003 there were
613,383,786 outstanding common shares,
which are the only voting securities. 
2003 ANNUAL MEETING
The Annual Meeting will be held on:
Date: Wednesday, June 4, 2003
Time: 10:00 a.m.
Place: Metro Toronto Convention Centre
South Building, Room 801
222 Bremner Boulevard
Toronto, Canada.

INTERBRAND PRINTING: BOWNE OF CANADA LTD.   PRINCIPAL PHOTOGRAPHY: BERNARD BOHN, GERALD ALLAIN





---



##### 



(SUNLIFE FINANCIAL LOGO)

SUN LIFE FINANCIAL SERVICES OF CANADA INC.
150 KING STREET WEST
TORONTO, ONTARIO
CANADA M5H 1J9

www.sunlife.com