##### 



Managements Discussion and Analysis
for the nine months ended September 30, 2004 Earnings and Profitability Financial Summary Unaudited
    
    Quarterly Results
    
    
    Year to DateQ304
    
    
    Q204
    
    
    Q104
    
    
    Q403
    
    
    Q303
    
    
    
    2004
    
    
    2003Revenues
($ millions)
    
    
    5,390
    
    
    
    5,551
    
    
    
    5,538
    
    
    
    5,437
    
    
    
    5,282
    
    
    
    
    16,479
    
    
    
    16,619Shareholders Net Income ($ millions)
    
    
    439
    
    
    
    438
    
    
    
    366
    
    
    
    206
    
    
    
    394
    
    
    
    
    1,243
    
    
    
    1,103Operating Earnings(2)($ millions)
    
    
    439
    
    
    
    438
    
    
    
    425
    
    
    
    417
    
    
    
    394
    
    
    
    
    1,302
    
    
    
    1,103Earnings Per Share (EPS) ($)
    
    
    0.73
    
    
    
    0.73
    
    
    
    0.61
    
    
    
    0.34
    
    
    
    0.65
    
    
    
    
    2.07
    
    
    
    1.81Operating EPS(2)($)
    
    
    0.73
    
    
    
    0.73
    
    
    
    0.71
    
    
    
    0.69
    
    
    
    0.65
    
    
    
    
    2.17
    
    
    
    1.81Return on Equity (ROE) (%)
    
    
    11.9
    
    
    
    12.0
    
    
    
    10.3
    
    
    
    5.9
    
    
    
    11.3
    
    
    
    
    11.4
    
    
    
    10.3Operating ROE(2)(%)
    
    
    11.9
    
    
    
    12.0
    
    
    
    12.0
    
    
    
    11.8
    
    
    
    11.3
    
    
    
    
    11.9
    
    
    
    10.3Average Shares Outstanding (millions)
    
    
    598.7
    
    
    
    600.7
    
    
    
    600.0
    
    
    
    601.4
    
    
    
    603.3
    
    
    
    
    599.8
    
    
    
    610.1S&P500 Index (daily average)
    
    
    1,104
    
    
    
    1,123
    
    
    
    1,132
    
    
    
    1,056
    
    
    
    1,000
    
    
    
    
    1,120
    
    
    
    934
 Sun Life Financial
Inc.(1) reported earnings of $439 million for the quarter
ended September 30, 2004. EPS of 73 cents was up 12 per cent from 65 cents in
the third quarter a year ago. Net income increased $45 million or 11 per cent
compared to a year ago supported by increases in equity markets compared to
market levels in the third quarter of 2003. Earnings for the quarter also
included a positive impact due to the resolution of prior years tax issues
offset by a strengthening of reserves and the cost of the premium on the early
redemption of debentures. On a year-to-date basis, the Company reported earnings of $1.2 billion, up 13
per cent from the first nine months of 2003, while operating
earnings(2) were
$1.3 billion, up 18 per cent, despite the impact of the strengthened Canadian
dollar, which reduced earnings by approximately $32 million. This increase in
earnings reflected the impact of higher average equity markets, improved credit
experience and enhanced spreads as well as the impact on earnings of the
aforementioned net contribution from the resolution of tax issues, reserve
strengthening and premium on the redemption of debentures. Operating earnings
year-to-date exclude a $59 million charge for the settlement announced on March
31, 2004 of administrative proceedings by the Securities and Exchange
Commission (SEC) against Massachusetts Financial Services Company (MFS). ROE
for the first nine months of the year was 11.4 per cent compared to 10.3 per
cent in the same period in 2003, while operating ROE(2) increased 160 basis
points driven by higher earnings and share buybacks. Operating
EPS(2) of $2.17
was up 20 per cent from $1.81 in the first nine months of 2003. Including the
$59 million charge, shareholders net income for the first nine months of 2004
was $1.2 billion and EPS was $2.07. Performance by Business Group The Company has six reportable segments: Sun Life Financial Canada, Sun Life
Financial U.S., MFS Investment Management, Sun Life Financial Asia, Sun Life Financial U.K. and Corporate Capital. Where
appropriate, information on a reportable segment has been presented both in
Canadian dollars and the segments functional currency to facilitate the
analysis of underlying business trends. Additional details of the segments and
the purpose and use of the segmented information are outlined in Note 5 to the
interim consolidated financial statements, which are prepared in accordance
with Canadian generally accepted accounting principles.  (1)
    
    The Company or together with its subsidiaries and joint ventures
Sun Life Financial or SLF.(2)
    
    Operating earnings, operating EPS and operating ROE are non-GAAP
measures and have no standardized definition under GAAP. They are
presented to facilitate the comparison of quarterly and year-to-date
earnings and may not be comparable to similar measures presented by
other issuers. Operating earnings for the first quarter of 2004 exclude
a $59 million charge related to the settlement, on March 31, 2004, of
administrative proceedings by the SEC against MFS regarding disclosure
of brokerage allocation practices in connection with fund sales.
Descriptions of operating earnings and reconciliations of non-GAAP
measures in each period are contained in the Managements Discussion &
Analysis (MD&A) for the relevant period.
Financial results not specifically referred to as operating have been
determined in accordance with GAAP. See the Companys 2003 Annual MD&A
for additional information concerning the Companys use of non-GAAP
financial measures. www.sunlife.com     3




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##### 



Managements Discussion and Analysis Sun Life Financial Canada Quarterly Results
    
    
    Year to DateQ304
    
    
    Q204
    
    
    Q104
    
    
    Q403
    
    
    Q303
    
    
    
    2004
    
    
    2003Revenues ($ millions)
    
    
    2,081
    
    
    
    2,139
    
    
    
    2,261
    
    
    
    2,265
    
    
    
    2,109
    
    
    
    
    6,481
    
    
    
    6,371Net Income ($ millions)Individual Insurance & Investments
    
    
    121
    
    
    
    129
    
    
    
    121
    
    
    
    124
    
    
    
    106
    
    
    
    
    371
    
    
    
    295Group Benefits
    
    
    66
    
    
    
    44
    
    
    
    75
    
    
    
    57
    
    
    
    50
    
    
    
    
    185
    
    
    
    176Group Retirement Services
    
    
    28
    
    
    
    27
    
    
    
    23
    
    
    
    24
    
    
    
    23
    
    
    
    
    78
    
    
    
    64Reinsurance & Other
    
    
    27
    
    
    
    30
    
    
    
    26
    
    
    
    16
    
    
    
    27
    
    
    
    
    83
    
    
    
    73Total
    
    
    242
    
    
    
    230
    
    
    
    245
    
    
    
    221
    
    
    
    206
    
    
    
    
    717
    
    
    
    608ROE (%)
    
    
    13.4
    
    
    
    12.7
    
    
    
    13.5
    
    
    
    12.4
    
    
    
    12.0
    
    
    
    
    13.2
    
    
    
    11.8
 Certain comparative figures have been restated to conform with the presentation
adopted in the second quarter of 2004. In the third quarter of 2004, Sun Life Financial Canadas earnings increased 17
per cent over the third quarter of 2003 and 18 per cent on a year-to-date basis
due to increased earnings from the investment in CI Fund Management Inc. (CI),
improved equity markets and higher earnings in Group Benefits. Year-to-date ROE
increased 140 basis points over the same period in 2003.  
    
    Individual Insurance & Investments (formerly Retail Operations)
earnings improved by 14 per cent relative to the third quarter of 2003
due to increased earnings from the investment in CI and improved credit
performance.
    
    Third quarter earnings for Group Benefits were 32 per cent higher
than in the third quarter of 2003 and 50 per cent higher than in the
second quarter of 2004. Sun Life Financial continues to invest in
customer service initiatives in Group Benefits. The higher costs in the
quarter from these initiatives were more than offset by experience
improvements in the group life business.
    
    Group Retirement Services earnings increased 22 per cent over the
third quarter of 2003 due to higher fee income and improved mortality
and experience gains. Fee income rose on higher assets under management
that increased as a result of strong sales in the first half of 2004
and higher equity market levels. Sun Life Financial U.S. Quarterly Results
    
    
    Year to DateQ304
    
    
    Q204
    
    
    Q104
    
    
    Q403
    
    
    Q303
    
    
    
    2004
    
    
    2003Revenues (US$ millions)
    
    
    1,832
    
    
    
    1,807
    
    
    
    1,781
    
    
    
    1,654
    
    
    
    1,622
    
    
    
    
    5,420
    
    
    
    5,233Revenues (CDN$ millions)
    
    
    2,399
    
    
    
    2,453
    
    
    
    2,349
    
    
    
    2,177
    
    
    
    2,239
    
    
    
    
    7,201
    
    
    
    7,486Net Income (US$ millions)Annuities
    
    
    44
    
    
    
    33
    
    
    
    62
    
    
    
    39
    
    
    
    43
    
    
    
    
    139
    
    
    
    72Individual Life
    
    
    19
    
    
    
    33
    
    
    
    10
    
    
    
    20
    
    
    
    21
    
    
    
    
    62
    
    
    
    57Group Life & Health
    
    
    7
    
    
    
    14
    
    
    
    2
    
    
    
    9
    
    
    
    6
    
    
    
    
    23
    
    
    
    21Total (US$ millions)
    
    
    70
    
    
    
    80
    
    
    
    74
    
    
    
    68
    
    
    
    70
    
    
    
    
    224
    
    
    
    150Total (CDN$ millions)
    
    
    92
    
    
    
    109
    
    
    
    97
    
    
    
    89
    
    
    
    97
    
    
    
    
    298
    
    
    
    214ROE (%)
    
    
    9.9
    
    
    
    11.2
    
    
    
    10.0
    
    
    
    9.1
    
    
    
    9.6
    
    
    
    
    10.4
    
    
    
    6.7
 Certain comparative figures have been restated to conform with the presentation
adopted in the second quarter of 2004. The appreciation of the Canadian dollar against the U.S. dollar reduced
earnings in Sun Life Financial U.S. by CDN$5 million in the third quarter of
2004 compared to the third quarter of 2003 and by CDN$23 million for the first
nine months of 2004. In U.S. dollars, third quarter 2004 earnings of US$70 million were flat with
the third quarter of 2003, while year-to-date earnings increased by 49 per cent
or US$74 million from a year ago. The increase in the year-to-date earnings reflects the impact of improved
equity markets, higher spreads on fixed annuities including improved credit
experience, and a lower effective tax rate attributable to prior
years tax audits.
Year-to-date ROE increased to 10.4 per cent from 6.7 per cent for the same
period in 2003.  
    
    Annuities earnings increased $11 million compared to the second
quarter of 2004. The second quarter earnings were affected by a net
reserve strengthening.
    
    Individual Life earnings decreased US$14 million from the second
quarter of 2004. The second quarter earnings were favourably impacted
by the implementation of a hedging program for universal life contract
guarantees. 4     Sun Life Financial Inc. / Third Quarter 2004




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##### 



Managements Discussion and Analysis  
    
    Group Life & Health earnings decreased US$7 million from the second
quarter of 2004 mainly due to favourable claims experience in the
second quarter, which returned to expected levels in the third quarter. The Company and its U.S. subsidiaries are cooperating with the SEC and other
regulators in their continuing investigations and examinations with respect to
various issues, including market timing related issues, directed brokerage and
revenue sharing arrangements with distributors and recordkeeping requirements. MFS Investment Management Quarterly Results
    
    
    Year to DateQ304
    
    
    Q204
    
    
    Q104
    
    
    Q403
    
    
    Q303
    
    
    
    2004
    
    
    2003Revenues (US$ millions)
    
    
    316
    
    
    
    319
    
    
    
    341
    
    
    
    325
    
    
    
    317
    
    
    
    
    976
    
    
    
    881Revenues (CDN$ millions)
    
    
    414
    
    
    
    434
    
    
    
    450
    
    
    
    428
    
    
    
    437
    
    
    
    
    1,298
    
    
    
    1,256Net Income/(Loss) (US$ millions)
    
    
    32
    
    
    
    30
    
    
    
    (10
    )
    
    
    (123
    )
    
    
    36
    
    
    
    
    52
    
    
    
    84Operating Earnings (US$ millions)
    
    
    32
    
    
    
    30
    
    
    
    35
    
    
    
    37
    
    
    
    36
    
    
    
    
    97
    
    
    
    84Net Income/(Loss) (CDN$ millions)
    
    
    42
    
    
    
    41
    
    
    
    (13
    )
    
    
    (162
    )
    
    
    49
    
    
    
    
    70
    
    
    
    119Operating Earnings (CDN$
millions)
    
    
    42
    
    
    
    41
    
    
    
    46
    
    
    
    49
    
    
    
    49
    
    
    
    
    129
    
    
    
    119Average Net Assets (US$ billions)
    
    
    132
    
    
    
    138
    
    
    
    144
    
    
    
    135
    
    
    
    129
    
    
    
    
    138
    
    
    
    121Assets Under Management (US$
billions)
    
    
    134
    
    
    
    137
    
    
    
    142
    
    
    
    140
    
    
    
    129
    
    
    
    
    134
    
    
    
    129Net New Sales (Redemptions) (US$
billions)
    
    
    (2.5
    )
    
    
    (5.3
    )
    
    
    (1.2
    )
    
    
    0.8
    
    
    
    (0.8
    )
    
    
    
    (9.0
    )
    
    
    3.4Market Movement (US$ billions)
    
    
    (0.9
    )
    
    
    0.5
    
    
    
    3.1
    
    
    
    10.8
    
    
    
    2.3
    
    
    
    
    2.7
    
    
    
    12.5S&P500 Index (daily average)
    
    
    1,104
    
    
    
    1,123
    
    
    
    1,132
    
    
    
    1,056
    
    
    
    1,000
    
    
    
    
    1,120
    
    
    
    934
 MFS contributed net income of CDN$42 million for the third quarter of 2004. The
appreciation of the Canadian dollar against the U.S. dollar reduced earnings
for MFS by CDN$2 million in the third quarter of 2004 compared to the third
quarter of 2003 and reduced operating earnings by CDN$10 million for the first
nine months of 2004. Sun Life Financial took a charge of US$45 million in the first quarter of 2004
related to the settlement between MFS and the SEC regarding disclosure by MFS
of brokerage allocation practices in connection with fund sales. Including this
charge, MFS had earnings of US$52 million for the first nine months of 2004.
Without this charge, operating earnings were US$97 million, an increase of 15
per cent over the first nine months of 2003. MFS contribution to Sun Life Financials earnings in the third quarter of 2004
was US$32 million, down 11 per cent from the third quarter of 2003. Revenues
were relatively flat compared to the prior year. However, expenses grew by 4
per cent driven by additional costs for market data and third-party research
along with higher legal and compliance costs. Year-to-date growth in operating
earnings of 15 per cent to US$97 million compared to the prior year was driven
primarily by the equity market recovery in the second half of 2003. Operating earnings in the third quarter of 2004 increased by 7 per cent
compared to the second quarter of 2004. Earnings improved due to reductions in
transitional expenses related to management changes and out-of-pocket legal
costs incurred in the second quarter. Average assets under management of US$132
billion for the quarter fell by 4 per cent compared to the prior quarter due to
a combination of net outflows and negative market activity in the period. Net
flows have improved significantly, with net outflows
dropping from US$5.3 billion in the second quarter to US$2.5 billion in the
third quarter of 2004. In the month of September, net sales were flat,
attaining the highest levels since January of 2004. Sun Life Financial Asia Quarterly Results
    
    
    Year to DateQ304
    
    
    Q204
    
    
    Q104
    
    
    Q403
    
    
    Q303
    
    
    
    2004
    
    
    2003Revenues ($ millions)
    
    
    175
    
    
    
    154
    
    
    
    145
    
    
    
    158
    
    
    
    144
    
    
    
    
    474
    
    
    
    429Net Income ($
millions)
    
    
    10
    
    
    
    10
    
    
    
    7
    
    
    
    13
    
    
    
    11
    
    
    
    
    27
    
    
    
    24ROE (%)
    
    
    9.3
    
    
    
    9.0
    
    
    
    6.2
    
    
    
    11.5
    
    
    
    10.0
    
    
    
    
    8.2
    
    
    
    6.9
 Revenues in the third quarter of 2004 grew by 30 per cent compared to the third
quarter of 2003 on a local currency basis. The 2004 year-to-date individual
life sales increased significantly over sales for the first nine months of 2003
with the Philippines up 12 per cent, Hong Kong up 35 per cent, India up 197 per
cent, China up 39 per cent and Indonesia up 179 per cent, in local currencies. Third quarter net income, excluding the effect of the Canadian dollar
appreciation, was unchanged from 2003. Improved investment yields in Hong Kong
contributed to higher earnings in Sun Life Financial Asia for the first nine
months of 2004 over the same period last year. The appreciation in the Canadian
dollar during the first nine months of 2004 reduced Sun Life Financial Asia net
income by $4 million. www.sunlife.com     5




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##### 



Managements Discussion and Analysis Sun Life Financial U.K. Quarterly Results
    
    
    Year to DateQ304
    
    
    Q204
    
    
    Q104
    
    
    Q403
    
    
    Q303
    
    
    
    2004
    
    
    2003Net Income (£ millions)
    
    
    17
    
    
    
    17
    
    
    
    19
    
    
    
    21
    
    
    
    28
    
    
    
    
    53
    
    
    
    68Net Income
(CDN$ millions)
    
    
    39
    
    
    
    42
    
    
    
    47
    
    
    
    47
    
    
    
    63
    
    
    
    
    128
    
    
    
    156ROE (%)
    
    
    21.2
    
    
    
    18.9
    
    
    
    19.1
    
    
    
    20.4
    
    
    
    27.9
    
    
    
    
    19.6
    
    
    
    22.3
 The appreciation of the British pound against the Canadian dollar increased
earnings in Sun Life Financial U.K. by CDN$3 million in the third quarter of
2004 compared to third quarter of 2003 and by CDN$6 million for the first nine
months of 2004. Sun Life Financial U.K.s third quarter 2004 earnings decreased by £11 million
from third quarter 2003 and year-to-date 2004 earnings decreased by £15 million
from year-to-date 2003, primarily due to reduced earnings in the Group Life
business. The renewal rights on the existing block of Group Life business were
sold in 2003, and the Group Life business will continue to run-off over the
next several quarters. In addition, the third quarter 2003 and year-to-date
2003 earnings included the positive impact of the settlement of prior years
outstanding tax issues with Inland Revenue in the U.K. Corporate Capital
Corporate Capital refers to investment income, expenses, capital and other
items not allocated to Sun Life Financials other business groups, and the
results of the run-off reinsurance business. Quarterly Results
    
    
    Year to DateQ304
    
    
    Q204
    
    
    Q104
    
    
    Q403
    
    
    Q303
    
    
    
    2004
    
    
    2003Net Income/(Loss)
($ millions)
    
    
    14
    
    
    
    6
    
    
    
    (17
    )
    
    
    (2
    )
    
    
    (32
    )
    
    
    
    3
    
    
    
    (18
    )
 Corporate Capital results improved by $46 million in the third quarter compared
to the same quarter a year ago and by $21 million year-to-date from the
previous year. The third quarter of 2004 included a $93 million positive effect
from the resolution of outstanding tax issues that was offset by $80 million of
reserve increases and a $12 million cost for a premium on the early
redemption of debentures. The increased earnings on both a quarterly and year-to-date basis reflected
improved results in run-off reinsurance. The 2003 year-to-date results included
a gain related to the sale of the U.K. group insurance business that was only
partially offset by the gain in the second quarter of 2004 on the sale of IQON
Financial Services Inc. Additional Financial Disclosure Revenue
Third quarter 2004 revenue of $5.4 billion was up $108 million from the third
quarter of 2003. Revenues increased, mostly due to growth in the Sun Life
Financial U.S. Individual Life and Annuity operations, partly offset by the
strengthening of the Canadian dollar against foreign currencies that reduced
revenue levels by $148 million when compared to third quarter 2003 exchange
rates. Premium revenue was up $95 million from the third quarter of 2003 with growth
in Sun Life Financial U.S. Individual Life and Annuity operations partly offset
by a reduction of $96 million due to currency fluctuations. Investment income of $1.4 billion for the three months ended September 30, 2004
was comparable with the 2003 period. Increased income from stock gains and
lower asset provisions was offset by a reduction of $23 million due to currency
fluctuations. Fee income of $699 million in the third quarter of 2004 was $8 million lower
than in the third quarter of 2003 with the positive impact of stronger equity
markets being more than offset by a decline of $29 million due to the
strengthening of the Canadian dollar against foreign currencies. Total revenue of $16.5 billion for the nine months ended September 30, 2004 was
$140 million lower than the $16.6 billion reported in the comparable period in
2003. The decrease was the result of the strengthening of the Canadian dollar
against foreign currencies which reduced revenues $674 million compared to 2003
rates. Excluding the effect of currency, all operating business groups except
Sun Life Financial U.K. had revenue growth. Sun Life Financial U.K. operations
revenues were lower as the result of the run-off of the closed block of
Individual Insurance operations and the sale of the Group Insurance operations
in 2003. 6     Sun Life Financial Inc. / Third Quarter 2004




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##### 



Managements Discussion and Analysis Assets Under Management
Assets Under Management (AUM) were $355.4 billion at September 30, 2004
compared to $373.0 billion at June 30, 2004 and $348.5 billion at September 30,
2003. The decrease of $17.6 billion between June 30, 2004 and September 30,
2004 was primarily the result of: i.
    
    a reduction of $13.8 billion due to fluctuations in currency exchange rates;ii.
    
    net redemptions of mutual, managed and
segregated funds of $2.9 billion; andiii.
    
    a reduction of $1.4 billion due to equity market
impacts;partly offset by business growth in other areas. AUM increased $6.9 billion between September 30, 2003 and September 30, 2004.
The change was primarily the result of market growth of $24.5 billion and other
business growth partly offset by: i.
    
    currency losses of $12.1 billion; andii.
    
    net redemptions of mutual, managed and segregated funds of $8.3 billion. Changes in the Balance Sheet and Shareholders Equity
Total general fund assets of $111.0 billion at September 30, 2004 were $1.8
billion higher than the December 31, 2003 balance of $109.2 billion mainly due
to business growth in the Sun Life Financial Canada Individual Insurance and
Investments and the Sun Life Financial U.S. Individual Life and Annuity
operations. Total general fund assets at the end of the third quarter of 2004 were up $386
million from the end of the third quarter of 2003 with business growth in the
Sun Life Financial Canada Individual Insurance and Investments and Sun Life
Financial U.S. Life and Annuity lines partly offset by a reduction of $2.4
billion due to the effect of the fluctuation in currency exchange rates. Actuarial and other policyholder liabilities increased $481 million between
December 31, 2003 and September 30, 2004 primarily from growth in the Sun Life
Financial U.S. operations, partly offset by a reduction of $356 million due to
the effect of changes in currency exchange rates. Actuarial and other policyholder liabilities of $77.8 billion at September 30,
2004 were $0.5 billion lower than at September 30, 2003 largely as the result
of the impact of currency fluctuations which reduced liability values by $1.9
billion, partly offset by growth in the U.S. operations Individual Life and
Annuity businesses. Shareholders equity increased from $13.9 billion at December 31, 2003 to $14.6
billion at September 30, 2004. Shareholders net income, before stock option
costs of $11 million, contributed $1,254 million and was partly offset by
dividend payments of $384 million and $144 million for the cost of common
shares repurchased and cancelled, net of new issues for stock options. The
strengthening of the Canadian dollar against foreign currencies decreased
shareholders equity by $59 million for the first nine months of 2004. Shareholders equity was $14.6 billion at September 30, 2004, down $217 million
from June 30, 2004 and up $486 million from September 30, 2003. Third quarter
shareholders net income, before stock option costs of $4 million, contributed
$443 million, partially offset by dividend payments of $132 million. Common
shares repurchased and cancelled, net of new issues for stock options, reduced
shareholders equity by $122 million and the strengthening of the Canadian
dollar against foreign currencies reduced shareholders equity by $406 million. At September 30, 2004 Sun Life Financial Inc. had 596,646,259 common shares
outstanding and 13,132,146 outstanding stock options. www.sunlife.com     7




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Managements Discussion and Analysis Cash Flows Quarterly Results
    
    
    Year to Date($ millions)
    
    Q304
    
    
    Q303
    
    
    
    2004
    
    
    2003Cash and cash equivalents, beginning of period
    
    
    3,630
    
    
    
    3,807
    
    
    
    
    3,178
    
    
    
    4,156Cash flows provided by (used in):Operating activities
    
    
    671
    
    
    
    (67
    )
    
    
    
    2,174
    
    
    
    2,184Financing activities
    
    
    (225
    )
    
    
    (453
    )
    
    
    
    (505
    )
    
    
    (910
    )Investing activities
    
    
    (809
    )
    
    
    1,033
    
    
    
    
    (1,645
    )
    
    
    (965
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273Changes due to fluctuations in exchange rates
    
    
    (83
    )
    
    
    36
    
    
    
    
    (18
    )
    
    
    (382
    )Increase (Decrease) in cash and cash equivalents
    
    
    (446
    )
    
    
    549
    
    
    
    
    6
    
    
    
    200Cash and cash equivalents, end of period
    
    
    3,184
    
    
    
    4,356
    
    
    
    
    3,184
    
    
    
    4,356Short-term securities, end of period
    
    
    2,751
    
    
    
    1,357
    
    
    
    
    2,751
    
    
    
    1,357Total cash, cash equivalents and short-term securities
    
    
    5,935
    
    
    
    5,713
    
    
    
    
    5,935
    
    
    
    5,713
 Net cash, cash equivalents and short-term securities at the end of the third
quarter of 2004 increased $222 million from the third quarter of 2003. The third quarter of 2004 had an outflow of $446 million in cash and cash
equivalents compared to an increase of $549 million in the third quarter of
2003. Improved flows of $738 million from operations, mostly from lower annuity
surrenders and fluctuation of cash flows from other assets and
liabilities, were
offset by an increase of $1.8 billion in cash flows used in investing due to
business growth. Fluctuating currency exchange rates reduced cash flows $83
million in the third quarter of 2004 compared to increasing cash flows by $36
million in the comparable period in 2003. The first nine months of 2004 had positive cash flows of $6 million compared to
$200 million in the first nine months of 2003. A reduction in outflows of $405
million used in financing activities as a result of changes in levels of debt
redemption and share repurchases was offset by an increase of $680 million in
outflows for investing activities mainly due to investment of cash balances in
longer term assets and no cash flows in 2004 from discontinued
operations. Fluctuation in currency exchange rates reduced cash
balances by $18 million in 2004 compared to a reduction of
$382 million in 2003. Risk Management
Sun Life Financial has developed a framework to assist in categorizing,
monitoring and managing the various risks to which it is exposed. The major
categories of risk are credit risk, market risk, insurance risk and operational
risk. Operational risk is a broad category which includes legal and regulatory
risks, people risks and systems and processing risks. Through its ongoing risk management procedures, Sun Life Financial reviews the
various risk factors identified in the framework and reports to senior
management on a monthly basis and to the Risk Review Committee of the Board
quarterly. Sun Life Financials risk management procedures and risk factors are
described in its annual MD&A and Annual Information Form (AIF). Interest rate
and equity market sensitivities are disclosed in the MD&A, but change as market
levels change, new business is added, or as management actions are taken. Outlook
The Companys annual MD&A includes a description and analysis of the key
factors and events that could impact future earnings. These factors and events
have, for the most part, remained substantially unchanged. While the outlook
for the North American economies is not as robust as earlier in the year, GDP
in Canada and the U.S. is still expected to grow at 3-4 per cent in 2005 and
2006. Economic growth, a healthy job creation environment, and continued signs
of modest inflation are all indicators of a rising interest rate environment.
Financial markets in North America continue to build the expectation of
increasing interest rates into a steep yield curve. However, the
slowing of economic growth due to a sustained price
of oil above $50 per barrel or the signaling from the central banks in Canada and
the U.S. that the cycle of interest rate tightening has ended, could portend an
extended period of lower interest rates. Should interest rates rise at a steady
100 to 200 basis points over the next 18-24 months, the Company would benefit,
particularly in the U.S. fixed annuity and universal life businesses.
Conversely, if interest rates were to decline, the Companys exposure would be
limited by actions taken to mitigate the risk of lower interest rates. The Boards of Directors of the Company and its wholly owned subsidiary, Sun
Life Assurance Company of Canada (Sun Life Assurance) have both approved a
reorganization plan under which most of Sun Life Assurances asset management
businesses in Canada and the U.S., including its U.S. Annuities
business will be transferred to a
newly-incorporated subsidiary of the Company, effective January 4, 2005. Under
this reorganization, Sun Life Assurance will transfer its shares of CI McLean
Budden Limited, MFS Investments and its other U.S. subsidiaries to
this new subsidiary. After the reorganization, the operations remaining in
Sun Life Assurance will consist primarily of the life, health and annuities
businesses in Sun Life Financial Canada, most of the life and health businesses
of Sun Life Financial U.S. and all of the operations of Sun Life Financial U.K.
and Sun Life Financial Asia. The reorganization will not impact the
existing rights and benefits of policyholders. The reorganization will allow Sun Life Financial
Inc. to optimize its capital structure by positioning it to benefit from 8     Sun Life Financial Inc. / Third Quarter 2004




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Managements Discussion and Analysis the new capital rules for life insurance holding companies recently proposed by
the Office of the Superintendent of Financial Institutions (OSFI) in Canada.
The reorganization is subject to final approval from certain of the
Companys regulators which are expected to be received by
January 4, 2005. Regulatory Matters
Regulators are investigating certain compensation arrangements and
other business practices between insurance companies and brokers. The
Company is reviewing its commission and other business practices
involving brokers in Canada and the U.S. In addition, the Company is not aware of
any instances where it has engaged in market distorting activities
and the Company and its subsidiaries have not received any subpoenas
with respect to these matters. In connection with an
industry-wide review of trading practices in the Canadian mutual fund
industry, Sun Life
Financials 34 per cent owned affiliate, CI has received a notice from the Ontario Securities
Commission of potential enforcement proceedings as a result of CI
permitting frequent trading to occur in certain accounts. The outcome
of this matter and its financial impact on the Company is not yet
determinable. The Company and its U.S. subsidiaries are cooperating with the SEC and other
regulators in their continuing investigations and examinations with respect to
various issues, including market timing and late trading of mutual funds and
variable insurance products, directed brokerage, revenue sharing and other
arrangements with distributors and recordkeeping requirements. Additional
information concerning these and related matters is provided in Note 8 to the
Companys interim consolidated financial statements for the period ended
September 30, 2004, in the Business Developments, Financial Performance
Overview and MFS Investment Management sections in the Companys 2003 MD&A and
in the Overview and Risk Factors-Investigations into U.S. Investment Industry
sections of the Companys 2003 Renewal AIF. Copies of these documents are
available at www.sedar.com. Forward-Looking Statements
Some of the statements contained in this document, including those relating to
the Companys strategies and other statements that are predictive in nature,
that depend upon or refer to future events or conditions, or that include words
such as expects, anticipates,
intends, plans, believes, estimates
or similar expressions, are forward-looking statements within the meaning of
securities laws. Forward-looking statements include, without limitation, the
information concerning possible or assumed future results of operations of the
Company. These statements are not historical facts but instead represent only
the Companys expectations, estimates and projections regarding future events. Forward-looking statements are not guarantees of future performance and involve
certain risks and uncertainties that are difficult to predict. The future
results and stockholder value of the Company may differ materially from those
expressed in these forward-looking statements due to, among other factors, the
matters set out under Risk Factors in the Companys 2003 Renewal AIF and the
factors detailed in its other filings with Canadian and U.S. securities
regulators, including its annual and interim MD&A, and the annual and interim
financial statements and accompanying notes. These documents are available for
review at www.sedar.com. Factors that could cause actual results to differ materially from expectations
include, but are not limited to: external factors, including changes in equity
market performance, interest rates, currency exchange rates and government
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 risks inherent in products with guaranteed benefit options;
and the results of regulatory investigations into the practices of the mutual
fund, insurance, annuity and financial product distribution industries in the
United States, including private legal proceedings and class actions that have
been commenced or threatened in connection with these practices. The Company
does not undertake any obligation to update or release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this presentation or to reflect the occurrence of unanticipated events, except
as required by law. www.sunlife.com     9