##### 



Exhibit 99.1

SUN LIFE LOGO





SUN LIFE FINANCIAL SERVICES OF
CANADA INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2002





---



##### 



< Table of Contents >

|                                             |  |  |    | 
|-------------------------------------------- |  |  | -- | 
|FINANCIAL HIGHLIGHTS                         |  |  | 1  | 
|ENTERPRISE VISION, OBJECTIVES AND STRATEGIES |  |  | 2  | 
|OVERVIEW OF BUSINESS                         |  |  | 5  | 
|FINANCIAL PERFORMANCE OVERVIEW               |  |  | 7  | 
|CONSOLIDATED RESULTS OF OPERATIONS           |  |  | 9  | 
|SUN LIFE FINANCIAL CANADA                    |  |  | 13 | 
|SUN LIFE FINANCIAL UNITED STATES             |  |  | 20 | 
|MFS INVESTMENT MANAGEMENT                    |  |  | 25 | 
|SUN LIFE FINANCIAL UNITED KINGDOM            |  |  | 27 | 
|SUN LIFE FINANCIAL ASIA                      |  |  | 28 | 
|CORPORATE CAPITAL                            |  |  | 30 | 
|RISK MANAGEMENT                              |  |  | 31 | 
|CRITICAL ACCOUNTING POLICIES                 |  |  | 34 | 
|INVESTMENTS                                  |  |  | 37 | 
|FINANCIAL POSITION AND LIQUIDITY             |  |  | 40 | 



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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### 



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 12. 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 36.

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.                                                         

Sun Life Financial Services of Canada Inc.     1





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##### 



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 Sun Life 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.

Enterprise Vision, Objectives and Strategies Chart

Sun Life Financial Services of Canada
Inc.     2





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##### 



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, Canadian-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. As a 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.
This joint venture, Sun Life Everbright Life
Insurance Company Limited, is the first
foreign-owned life insurer in Tianjin,
China, 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 UnumProvident Corporation.



Sun Life Financial Services of Canada Inc.     3





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##### 



Managements Discussion and Analysis

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, which is subject to
approval from U.K. regulators, is expected
to close in the first quarter of 2003.

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:



|l |  | Started expensing stock options                
|- |  | -----------------------------------------------
| 
|l |  | Provided significant new disclosures including:



| |  |  | business line income statements                        
| | - |  | -------------------------------------------------------
|
| |  |  | special items materially affecting earnings performance



|l |  | 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.

Sun Life Financial Services of Canada Inc.     4





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##### 



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*

Revenue and Earnings in 2002 by Segmentc Pie 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 group 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*

Revenue and Earnings in 2002 Pie 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        

Sun Life Financial Services of Canada Inc.     5





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##### 



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

Products and Services by Segment Graph

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.

Sun Life Financial Services of Canada Inc.     6





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##### 



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
earnings1, which exclude special items
outlined on page 12, 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 13% 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 9 to 12 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 Sun Life 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



---

|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.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Sun Life Financial Services of Canada Inc.     7





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##### 



Managements Discussion and Analysis

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.

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.

Sun Life Financial Services of Canada Inc.     8





---



##### 



Managements Discussion and Analysis

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
12, 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
acquisition 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
Unicover-related 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.

Earnings by Principal Product Category
($ millions)

Earnings by Principal Product Category 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.

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



Sun Life Financial Services of Canada Inc.     9





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##### 



Managements Discussion and Analysis

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 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 |      
|                  |                  |      |        |        |  |      |        |       |  |  |        |      

Sun Life Financial Services of Canada Inc.     10





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##### 



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 | 
|                                                        |  |      |       |      |  |      |       |   |  |  |       | 



Sun Life Financial Services of Canada Inc.     11





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##### 



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

|                                          |                                            |    |      |     |      |    |      |      |   |       |     |      |   |  |     |   |  |  |       |      |   |  |     |     |   |  |     |   | 
|----------------------------------------- | ------------------------------------------ | -- | ---- | --- | ---- | -- | ---- | ---- | - | ----- | --- | ---- | - |  | --- | - |  |  | ----- | ---- | - |  | --- | --- | - |  | --- | - | 
|                                          |                                            |    | 2002 |     | 2001 |    | 2000
|                                          |                                            |    |      |     |      |    |     
|($ millions)                              |                                            | 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 |    |      |     |      |    |      | (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 | 
|                                     |  |      |       |      |  |      |      |  |  |  |      | 

Sun Life Financial Services of Canada Inc.     12





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##### 



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 60%-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
| 
| |  | Re-aligned 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 multichannel, 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

A New Canadian Market Leader
(as at and for the period 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                                         |  | 820,000 accounts        
|                                              |  | covering 7 million lives
|Market Rank                                   |  |                          |       | 
|Retail Insurance                              |  |                          | #1    | 
|Group Benefits                                |  |                          | #1    | 
|Group Retirement                              |  |                          | #1    | 
|Life Retrocession Reinsurance (North America) |  |                          | #2    | 

Sun Life Financial Services of Canada Inc.     13





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##### 



Managements Discussion and Analysis

Company is well positioned to benefit from
employers increasing preference for
one-stop solutions in the group market.

SLF Canada Retail Distribution Chart

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
(as a Percentage of total Company*)

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   |      
|                                                        |                      |        |       |       |       |      |       |      |       |  |       |     

Sun Life Financial Services of Canada Inc.     14





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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, multichannel 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  |  
|                                                       |  |      |       |      |  |      |     |   |  |  |     |  

Sun Life Financial Services of Canada Inc.     15





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Managements Discussion and Analysis

Sun Life Financial Canada  Retail and Other Wealth Management

Business Profile

The Companys Canadian Retail and Other Wealth Management 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 Management
Assets Under Management
($ billions)Retail and Other Wealth Management Assets Under Management Bar Graph

Sun Life Financial Services of Canada Inc.     16





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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.

Sun Life Financial Canada - Group Benefits 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   | 
|                                                       |  |      |       |      |  |      |       |  |  |  |       | 

Sun Life Financial Services of Canada Inc.     17





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Managements Discussion and Analysis

Sun Life Financial Canada  Group Retirement Services

Business Profile

The Companys Group Retirement Services (GRS) business unit is the 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  GRS
($ millions)

Gross Sales  GRS 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 (000s) |     |      | 805 |      |     |      | 325 |  |     |      | 314 | 
|                                                       |                |                 |     |      |     |      |     |      |     |  |     |     

Sun Life Financial Services of Canada Inc.     18





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Managements Discussion and Analysis

Sun Life Financial Canada  Reinsurance

Business Profile

The Companys Canadian Reinsurance operations provide customized reinsurance
solutions, with a primary focus on the life retrocession business in North
America. The Company is a market leader in North America with 27% 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  |      |  |      |  |  |  |  |  | 
|                                                       |  |      |     |      |  |      |   |  |  |  |   | 
|Business In-Force (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 | )
|                                                        |  |      |     |      |  |      |     |   |  |  |    |  

Sun Life Financial Services of Canada Inc.     19





---



##### 



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 |       |  |       |     |      
|                                                       |                      |        |        |       |       |      |       |       |       |  |       |     

Sun Life Financial Services of Canada Inc.     20





---



##### 



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 Sun
Life 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 a 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
include 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 |      
|                                                       |                       |                    |       |      |       |      |       |      |       |  |       |     

Sun Life Financial Services of Canada Inc.     21





---



##### 



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    |    
|                                                       |          |      |       |      |  |      |       |     |  |  |       |    
|Gross Sales                                            |          |      |       |      |  |      |       |     |  |  |       |    
|                                                       | Non-BOLI |      |       | 270  |  |      |       | 130 |  |  |       | 140 | 
|                                                       | BOLI     |      |       | 137  |  |      |       | 139 |  |  |       | 127 | 
|Premiums and Deposits                                  |          |      | 3,404 |      |  |      | 2,112 |     |  |  | 2,668 |    
|                                                       |          |      |       |      |  |      |       |     |  |  |       |    

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

Growth in U.S. Individual Life Bar Charts



Sun Life Financial Services of Canada Inc.     22





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##### 



Managements Discussion and Analysis

Sun Life Financial United States  Group Life and Health

Business Profile

The Companys U.S. Group Life and Health operations provide 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 office in the Unites 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 which 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 and Health
($ millions)

Growth in U.S. Group Life and Health Bar Charts

Sun Life Financial Services of Canada Inc.     23





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##### 



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
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  Sales
($ billions)

IFMG - Sales Bar Chart



Sun Life Financial Services of Canada Inc.     24





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##### 



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  | 
|                                                        |                               |        |       |       |      |      |       |       |      |  |       |      

Sun Life Financial Services of Canada Inc.     25





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##### 



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 Under Management*
($ billions)

Institutional Funds Assets Under Management 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 1-year period.
Results for 3-, 5- and 10-year periods were
equally impressive, with 81%, 73% and 78%
achieving the top two-quartile rankings.

Percent of the Number of Equity and
Fixed Income Funds Ranked in the Top Half
(as of December 31, 2002)

Percent of the Number of Equity and Fixed Income Funds 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.

Sun Life Financial Services of Canada Inc.     26





---



##### 



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 3, the Company
announced the agreement to sell its U.K.
group business. The transaction is expected
to close 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 | 
|                                                       |                      |        |       |      |       |      |       |      |       |  |       |     

Sun Life Financial Services of Canada Inc.     27





---



##### 



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 | 
|                                                       |                      |                 |     |      |     |      |     |     |     |  |     |    

Sun Life Financial Services of Canada Inc.     28





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##### 



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
operations, 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 Operations Insurance Premiums
($ millions)

Growth in Philippines Operations Insurance Premiums 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 operations
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 Operations Insurance Premiums
($ millions)

Growth in Hong Kong Operations Insurance Premiums 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 operations in Indonesia were
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.

Sun Life Financial Services of Canada Inc.     29





---



##### 



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
Chilean 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                          |                      |        |      |      |       |      |     |     |     |  |     |    
|                                                        | Return on Equity     |        |      | N/A  |       |      |     | 0.9 | %   |  |     | N/A |      
|                                                        | 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.
|- |  | -------------------------------------------------------------------

Sun Life Financial Services of Canada Inc.     30





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##### 



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)
|                             |              |  | in Earnings        
|                             |              |  |                    
|                             |              |  | ($ millions)       
|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

Sun Life Financial Services of Canada Inc.     31





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##### 



Managements Discussion and Analysis

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 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
counter-party exposure limits within fixed
income portfolios. A numerical credit risk
factor is assigned to all fixed income
investments, and an aggregate credit risk
factor is developed for major operations and
the Company in aggregate, which are
monitored against pre-established limits and
reported periodically to the Board of
Directors. Provisions for impaired assets
are charged against the carrying value of
the asset. Allowances for possible future
asset defaults are also provided 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,

Sun Life Financial Services of Canada Inc.     32





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##### 



Managements Discussion and Analysis

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 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 counter-parties rated AA or better. In
limited circumstances, the Company will
enter into transactions with lower rated
counter-parties 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.

Sun Life Financial Services of Canada Inc.     33





---



##### 



Managements Discussion and Analysis

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 judgments
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.

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.



|l |  | 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.



|l |  | 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.

Sun Life Financial Services of Canada Inc.     34





---



##### 



Managements Discussion and Analysis

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.



|l |  | 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 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.



|l |  | 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.

Sun Life Financial Services of Canada Inc.     35





---



##### 



Managements Discussion and Analysis



|l |  | 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.



|l |  | 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.

Sun Life Financial Services of Canada Inc.     36





---



##### 



Managements Discussion and Analysis

Investments

The Company holds a diverse set of
portfolios for its asset management, mutual
fund and variable annuity operations, as
well as for the Companys general funds.
The Company maintains prudent, uniform
investment policies with specific guidelines
appropriate for each of its 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 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 comprised only 3% of the general
funds, of which approximately 68% related to
the participating policyholders account.
Common stock comprised 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.

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

Bonds by Investment Grade

Bonds by Investment Grade Pie Chart

Investments

|                                       |  |          |         |       |  |          |     |       |  |          |        |       |  |  |     |  |  |  |        |  |  |  |     | 
|-------------------------------------- |  | -------- | ------- | ----- |  | -------- | --- | ----- |  | -------- | ------ | ----- |  |  | --- |  |  |  | ------ |  |  |  | --- | 
|                                       |  | 2002     |         | 2001  |  | 2000    
|                                       |  |          |         |       |  |         
|                                       |  | Carrying |         | % of  |  | Carrying |     | % of  |  | Carrying |        | % of 
|($ millions)                           |  | Value    |         | Total |  | Value    |     | Total |  | Value    |        | 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 |  |  |  |     | 
|                                       |  |          |         |       |  |          |     |       |  |          |        |       |  |  |     |  |  |  |        |  |  |  |     | 

Sun Life Financial Services of Canada Inc.     37





---



##### 



Managements Discussion and Analysis

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 nonpublic 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 nonpublic 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.

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 United
Kingdom.

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.

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
United States and 12% in the United Kingdom.
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,

Sun Life Financial Services of Canada Inc.     38





---



##### 



Managements Discussion and Analysis

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 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.

Sun Life Financial Services of Canada Inc.     39





---



##### 



Managements Discussion and Analysis

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 1 to 5 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.

Sun Life Financial Services of Canada Inc.     40





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##### 



Managements Discussion and Analysis

Liquidity

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

The 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 which 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

Sun Life Financial Services of Canada Inc.     41





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##### 



Managements Discussion and Analysis

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%.

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 analyses 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
| 
|l |  | 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.

Sun Life Financial Services of Canada Inc.     42





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##### 



Managements Discussion and Analysis

|                               |                                                                      |      |  |       |  |  |  |       | 
|------------------------------ | -------------------------------------------------------------------- | ---- |  | ----- |  |  |  | ----- | 
|($ 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   | 

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.



|l |  | 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.



|l |  | 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 counter-party failure in a derivative
transaction could render it ineffective for
hedging purposes, the Company generally
enters into derivative contracts only with
counter-parties rated AA or better. In
limited circumstances, the Company will
enter into transactions with lower rated
counter-parties 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

Sun Life Financial Services of Canada Inc.     43





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##### 



Managements Discussion and Analysis

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 of 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     | 

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 counter-parties. The
risk-weighted credit equivalent amount is
determined in accordance with guidelines
provided by the OSFI.



|l |  | 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              |                              |      |  |      |  |  |  |  
|                               | Business In Force Equivalent |      |  | 458  |  |  |  |  | 
|                               | Risk-Weighted Amount         |      |  | 1    |  |  |  |  | 
|For the Year Ended December 31 |                              |      |  |      |  |  |  |  
|                               | Fee Income Received          |      |  | 5    |  |  |  |  | 

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

Commitments and Contingencies

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



|l |  | 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.



|l |  | 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.



|l |  | 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.

Sun Life Financial Services of Canada Inc.     44





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##### 



Managements Discussion and Analysis

Contractual Obligations

|                              |                         |       |                        |               |  |           |       |           |  |              |     |    |  |  |     |   |  |  |       |   | 
|----------------------------- | ----------------------- | ----- | ---------------------- | ------------- |  | --------- | ----- | --------- |  | ------------ | --- | -- |  |  | --- | - |  |  | ----- | - | 
|                              |                         |       | Payments Due by Period
|                              |                         |       |                       
|($ millions)                  |                         | Total |                        | Within 1 Year |  | 1-3 Years |       | 4-5 Years |  | Over 5 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 |  
|                              |                         |       |                        |               |  |           |       |           |  |              |     |    |  |  |     |   |  |  |       |  



|l |  | 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.

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 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.



|l |  | 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 recission 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.



|l |  | 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 pensions review, and
expenses for decommissioning the pension
review team of $227 million compared to $566
million at December 31, 2001.

Sun Life Financial Services of Canada Inc.     45