##### 



Managements
Discussion & Analysis for the six months ended June 30, 2004
 EARNINGS AND PROFITABILITY  FINANCIAL SUMMARY
Unaudited Quarterly Results
    
    
    Year to Date2Q04
    
    1Q04
    
    4Q03
    
    3Q03
    
    2Q03
    
    
    2004
    
    2003Revenues ($mm)
    
    
    5,551
    
    
    
    5,538
    
    
    
    5,437
    
    
    
    5,282
    
    
    
    5,579
    
    
    
    
    11,089
    
    
    
    11,337Shareholders Net Income ($mm)
    
    
    438
    
    
    
    366
    
    
    
    206
    
    
    
    394
    
    
    
    366
    
    
    
    
    804
    
    
    
    709Operating
Earnings1($mm)
    
    
    438
    
    
    
    425
    
    
    
    417
    
    
    
    394
    
    
    
    366
    
    
    
    
    863
    
    
    
    709Earnings Per Share (EPS) ($)
    
    
    0.73
    
    
    
    0.61
    
    
    
    0.34
    
    
    
    0.65
    
    
    
    0.60
    
    
    
    
    1.34
    
    
    
    1.16Operating EPS1($)
    
    
    0.73
    
    
    
    0.71
    
    
    
    0.69
    
    
    
    0.65
    
    
    
    0.60
    
    
    
    
    1.44
    
    
    
    1.16Return on Equity (ROE) (%)
    
    
    12.0
    
    
    
    10.3
    
    
    
    5.9
    
    
    
    11.3
    
    
    
    10.3
    
    
    
    
    11.2
    
    
    
    9.6Operating ROE1(%)
    
    
    12.0
    
    
    
    12.0
    
    
    
    11.8
    
    
    
    11.3
    
    
    
    10.3
    
    
    
    
    12.0
    
    
    
    9.6Average Shares Outstanding (mm)
    
    
    600.7
    
    
    
    600.0
    
    
    
    601.4
    
    
    
    603.3
    
    
    
    610.3
    
    
    
    
    600.4
    
    
    
    613.5S&P 500 Index (daily average)
    
    
    1,123
    
    
    
    1,132
    
    
    
    1,056
    
    
    
    1,000
    
    
    
    938
    
    
    
    
    1,128
    
    
    
    900
 Sun Life Financial Inc. (the Company or together with its subsidiaries and
joint ventures Sun Life Financial or SLF) reported earnings of $438 million
for the quarter ended June 30, 2004. EPS of 73 cents was up 22 per cent from 60
cents a year ago. The Canadian, United States and Asian business groups all
contributed to the increase in earnings, which grew in part due to higher
equity markets, enhanced spreads and improved credit experience. On a year-to-date basis, the Company reported operating earnings1 of $863
million, up 22 percent from the first half of 2003, despite the impact of the
strengthened Canadian dollar, which reduced earnings by approximately $27
million. This increase in operating earnings reflected the impact of higher
average equity markets, enhanced spreads and improved credit experience.
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). Operating ROE1 for the first half of 2004 increased 240 basis points
compared to the same period in 2003, driven by higher earnings. Operating EPS1
of $1.44 was up 24 per cent from $1.16 in the first half of 2003. Including the
$59 million charge, shareholders net income for the first half of 2004 was
$804 million, EPS was $1.34 and ROE was 11.2 per cent.   1
    
    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. 1




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##### 



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. Sun Life Financial Canada  Quarterly Results
    
    
    Year to Date2Q04
    
    1Q04
    
    4Q03
    
    3Q03
    
    2Q03
    
    
    2004
    
    2003Revenues ($mm)
    
    
    2,139
    
    
    
    2,261
    
    
    
    2,265
    
    
    
    2,109
    
    
    
    2,112
    
    
    
    
    4,400
    
    
    
    4,262Net Income ($mm)Retail Operations
    
    
    129
    
    
    
    121
    
    
    
    124
    
    
    
    106
    
    
    
    103
    
    
    
    
    250
    
    
    
    189Group Benefits
    
    
    44
    
    
    
    75
    
    
    
    57
    
    
    
    50
    
    
    
    64
    
    
    
    
    119
    
    
    
    126Group Retirement Services
    
    
    27
    
    
    
    23
    
    
    
    24
    
    
    
    23
    
    
    
    22
    
    
    
    
    50
    
    
    
    41Reinsurance & Other
    
    
    30
    
    
    
    26
    
    
    
    16
    
    
    
    27
    
    
    
    29
    
    
    
    
    56
    
    
    
    46Total
    
    
    230
    
    
    
    245
    
    
    
    221
    
    
    
    206
    
    
    
    218
    
    
    
    
    475
    
    
    
    402ROE (%)
    
    
    12.7
    
    
    
    13.5
    
    
    
    12.4
    
    
    
    12.0
    
    
    
    12.7
    
    
    
    
    13.1
    
    
    
    11.7Certain comparative figures have been restated to conform with the presentation adopted in the second quarter of 2004.
 In the second quarter of 2004, Sun Life Financial Canadas earnings increased 6
per cent over the second quarter of 2003 and 18 percent on a year-to-date basis
due to increased earnings from the investment in CI Fund Management Inc. (CI),
improved credit performance in Retail Operations and the synergies attained
through integration efforts, partially offset by lower Group Benefits results.
Year-to-date ROE has increased 140 basis points over the same period in 2003.  
    
    Retail Operations earnings improved by 25 per cent relative to the
second quarter of 2003, due to increased earnings from the investment
in CI and improved credit performance.
    
    Second quarter earnings for Group Benefits were lower than in the
second quarter of 2003 and the first quarter of 2004 due to worse
experiences in group life and increased investments in customer service
initiatives.
    
    Group Retirement Services earnings increased 23 per cent over the
second quarter of 2003, due to higher fee income and improved
investment performance. Fee income rose as assets under management
increased by 14 per cent over the second quarter of 2003 as a result
of strong sales in the previous two quarters and higher equity market
levels. 2




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##### 



Sun Life Financial U.S.  Quarterly Results
    
    
    Year to Date2Q04
    
    1Q04
    
    4Q03
    
    3Q03
    
    2Q03
    
    
    2004
    
    2003Revenues (US$mm)
    
    
    1,807
    
    
    
    1,781
    
    
    
    1,654
    
    
    
    1,622
    
    
    
    1,878
    
    
    
    
    3,588
    
    
    
    3,611Revenues (C$mm)
    
    
    2,453
    
    
    
    2,349
    
    
    
    2,177
    
    
    
    2,239
    
    
    
    2,627
    
    
    
    
    4,802
    
    
    
    5,247Net Income (US$mm)Annuities
    
    
    33
    
    
    
    62
    
    
    
    39
    
    
    
    43
    
    
    
    15
    
    
    
    
    95
    
    
    
    29Individual Life
    
    
    33
    
    
    
    10
    
    
    
    20
    
    
    
    21
    
    
    
    20
    
    
    
    
    43
    
    
    
    36Group Life & Health
    
    
    14
    
    
    
    2
    
    
    
    9
    
    
    
    6
    
    
    
    9
    
    
    
    
    16
    
    
    
    15Total (US$mm)
    
    
    80
    
    
    
    74
    
    
    
    68
    
    
    
    70
    
    
    
    44
    
    
    
    
    154
    
    
    
    80Total (C$mm)
    
    
    109
    
    
    
    97
    
    
    
    89
    
    
    
    97
    
    
    
    63
    
    
    
    
    206
    
    
    
    117ROE (%)
    
    
    11.2
    
    
    
    10.0
    
    
    
    9.1
    
    
    
    9.6
    
    
    
    6.0
    
    
    
    
    10.6
    
    
    
    5.4Certain 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$3 million in the second quarter of
2004 compared to the second quarter of 2003 and by CDN$18 million for the first
six months of 2004. In U.S. dollars, second quarter 2004 earnings increased US$36 million over the
second quarter of 2003 and year-to-date earnings increased by US$74 million
from a year ago. ROE increased to 11.2 per cent for the second quarter of 2004
from 6 per cent in the second quarter of 2003. The increase in earnings was
primarily due to the positive impact of improving equity markets, lower bond
provisions and a lower effective tax rate.  
    
    Annuities earnings increased by US$18 million compared to the second
quarter of 2003 primarily due to favourable equity markets and
improved spreads on fixed annuities arising from higher investment
yields and lower bond provisions. Earnings decreased compared to the
first quarter of 2004 mainly due to the impact of market value
fluctuations in the Guaranteed Minimum Death Benefit (GMDB) hedge and
reserve strengthening.
    
    Individual Life earnings increased US$13 million from the second
quarter of 2003 primarily due to higher interest rates and a reduction
in reserve requirements arising from the implementation of a hedging
program for universal life contract guarantees.
    
    Group Life & Health earnings increased US$5 million from the second
quarter of 2003 primarily due to improved claims experience in the
Life and Disability lines. Group Life & Health earnings increased
US$12 million from the first quarter of 2004 mainly due to favourable
claims experience and an adjustment to premiums receivable in the
first quarter. As confirmed in a press release
on March 31, 2004, the Company and its U.S. affiliates are cooperating with the
SEC in its industry-wide investigations into market timing related issues and
directed brokerage and revenue-sharing arrangements with distributors. 3




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##### 



MFS Investment
Management Quarterly Results
    
    
    Year to Date2Q04
    
    1Q04
    
    4Q03
    
    3Q03
    
    2Q03
    
    
    2004
    
    2003Revenues (US$mm)
    
    
    319
    
    
    
    341
    
    
    
    325
    
    
    
    317
    
    
    
    294
    
    
    
    
    660
    
    
    
    564Revenues (C$mm)
    
    
    434
    
    
    
    450
    
    
    
    428
    
    
    
    437
    
    
    
    411
    
    
    
    
    884
    
    
    
    819Net Income/(Loss) (US$mm)
    
    
    30
    
    
    
    (10
    )
    
    
    (123
    )
    
    
    36
    
    
    
    30
    
    
    
    
    20
    
    
    
    48Operating Earnings (US$mm)
    
    
    30
    
    
    
    35
    
    
    
    37
    
    
    
    36
    
    
    
    30
    
    
    
    
    65
    
    
    
    48Net Income/(Loss) (C$mm)
    
    
    41
    
    
    
    (13
    )
    
    
    (162
    )
    
    
    49
    
    
    
    42
    
    
    
    
    28
    
    
    
    70Operating Earnings (C$mm)
    
    
    41
    
    
    
    46
    
    
    
    49
    
    
    
    49
    
    
    
    42
    
    
    
    
    87
    
    
    
    70Operating ROE (%)
    
    
    133.9
    
    
    
    149.6
    
    
    
    66.6
    
    
    
    78.6
    
    
    
    72.3
    
    
    
    
    141.8
    
    
    
    54.7Average Net Assets (US$B)
    
    
    138
    
    
    
    144
    
    
    
    135
    
    
    
    129
    
    
    
    122
    
    
    
    
    141
    
    
    
    117Assets Under Management (US$B)
    
    
    137
    
    
    
    142
    
    
    
    140
    
    
    
    129
    
    
    
    128
    
    
    
    
    137
    
    
    
    128Net New Sales (Redemptions) (US$B)
    
    
    (5.3
    )
    
    
    (1.2
    )
    
    
    0.8
    
    
    
    (0.8
    )
    
    
    2.9
    
    
    
    
    (6.5
    )
    
    
    4.2Market Movement (US$B)
    
    
    0.5
    
    
    
    3.1
    
    
    
    10.8
    
    
    
    2.3
    
    
    
    12.6
    
    
    
    
    3.6
    
    
    
    10.2S&P 500 Index (daily average)
    
    
    1,123
    
    
    
    1,132
    
    
    
    1,056
    
    
    
    1,000
    
    
    
    938
    
    
    
    
    1,128
    
    
    
    900
 MFS contributed net income of CDN$41 million for the second quarter of 2004.
The appreciation of the Canadian dollar against the U.S. dollar reduced
earnings for MFS by CDN$1 million in the second quarter of 2004 compared to the
second quarter of 2003 and reduced operating earnings by CDN$8 million for the
first six months of 2004. Sun Life Financial took a charge of CDN$59 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 CDN$28 million for the first six months of 2004.
Without this charge, operating earnings were CDN$87 million. In U.S. dollars, MFS contribution to Sun Life Financials earnings in the
second quarter of 2004 was US$30 million, unchanged from the second quarter of
2003. Revenues were up 9 per cent compared to the prior year, mainly due to
growth in average net assets. Expenses grew by 16 per cent driven by additional
costs for third-party research along with higher legal and compliance costs. A strong recovery in equity markets contributed to a 35 per cent growth in U.S.
dollar operating earnings for the first half of 2004 compared to the first six
months of 2003. Operating earnings in the second quarter of 2004 declined by 14 per cent
compared to the first quarter of 2004 driven by lower revenue. Revenues in the
second quarter of 2004 fell by 6 per cent versus the first quarter of 2004 due
to a 4 per cent decline in average net assets along with a full quarter of
reduced fees as agreed to in regulatory settlements. Management believes that under-performance in certain investment
categories was a significant contributor to net redemptions of
US$5.3 billion. Performance
in categories such as international equities and fixed income funds continued
to be strong and appropriate actions are being taken to strengthen investment
performance across all portfolios. 4




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##### 



Sun Life Financial Asia  Quarterly Results
    
    
    Year to Date2Q04
    
    1Q04
    
    4Q03
    
    3Q03
    
    2Q03
    
    
    2004
    
    2003Revenues ($mm)
    
    
    154
    
    
    
    145
    
    
    
    158
    
    
    
    144
    
    
    
    140
    
    
    
    
    299
    
    
    
    285Net Income ($mm)
    
    
    10
    
    
    
    7
    
    
    
    13
    
    
    
    11
    
    
    
    6
    
    
    
    
    17
    
    
    
    13ROE (%)
    
    
    9.0
    
    
    
    6.2
    
    
    
    11.5
    
    
    
    10.0
    
    
    
    5.9
    
    
    
    
    7.6
    
    
    
    5.8
 Revenues in the second quarter of 2004 grew by 17 per cent compared to the
second quarter of 2003, after removing the effects of currency exchange rates.
Individual life sales, including total joint venture sales, for Sun Life
Financial Asia in the second quarter of 2004 more than doubled sales for the
same period last year, with all business units showing double-digit growth in
local currency. Higher sales and improved investment yields in Hong Kong contributed to higher
earnings in Sun Life Financial Asia in the second quarter of 2004 compared to
the second quarter of 2003 and for the first six months of 2004 over the first
six months of 2003. Sun Life Financial U.K.  Quarterly Results
    
    
    Year to Date2Q04
    
    1Q04
    
    4Q03
    
    3Q03
    
    2Q03
    
    
    2004
    
    2003Net Income (£mm)
    
    
    17
    
    
    
    19
    
    
    
    21
    
    
    
    28
    
    
    
    19
    
    
    
    
    36
    
    
    
    40Net Income (C$mm)
    
    
    42
    
    
    
    47
    
    
    
    47
    
    
    
    63
    
    
    
    43
    
    
    
    
    89
    
    
    
    93ROE (%)
    
    
    18.9
    
    
    
    19.1
    
    
    
    20.4
    
    
    
    27.9
    
    
    
    18.3
    
    
    
    
    19.0
    
    
    
    19.1
 The appreciation of the British pound against the Canadian dollar increased
earnings in Sun Life Financial U.K. by CDN$3 million in the second quarter of
2004 compared to second quarter of 2003 and by CDN$4 million for the first six
months of 2004. Sun Life Financial U.K.s second quarter 2004 earnings decreased by £2 million
from second quarter 2003 and year-to-date 2004 earnings decreased by £4 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. At the end of the second quarter 2004, Sun Life Financial U.K. transferred £125
million for redeployment in other areas of the Company. 5




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##### 



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 Date2Q04
    
    1Q04
    
    4Q03
    
    3Q03
    
    2Q03
    
    
    2004
    
    2003Net Income/(Loss) ($mm)
    
    
    6
    
    
    
    (17
    )
    
    
    (2
    )
    
    
    (32
    )
    
    
    (6
    )
    
    
    
    (11
    )
    
    
    14
 Second quarter Corporate Capital results improved by $12 million compared to
the same quarter a year ago due to a number of small items including a gain
realized on the sale of IQON Financial Services Inc. and improved results in
the run-off reinsurance business. Year-to-date 2004 Corporate Capital results decreased by $25 million from the
previous year. The 2003 results included a gain related to the disposition of
the U.K. group insurance and the positive impact arising from the resolution of
prior years tax issues. ADDITIONAL FINANCIAL DISCLOSURE Revenue Second quarter 2004 revenue of $5.6 billion was equal to revenue in the quarter
ended June 30, 2003. Higher fee income arising from an increase in asset based
fees was offset by declines of $74 million due to the strengthening of the
Canadian dollar against foreign currencies and lower life insurance premiums
due to the run-off of the Sun Life Financial U.K. business and reduced U.S.
Individual Life insurance premiums. Premium revenue was down $112 million from the second quarter of 2003 mainly
due to reductions of $51 million from currency fluctuations, $45 million from
the run-off of U.K. premiums resulting from the sale of Group Life renewal
rights in 2003 and lower U.S. Individual Life insurance premiums. Investment income of $1.5 billion for the three months ended June 30, 2004 was
comparable with the 2003 period. Increased income from bonds, stocks and lower
asset provisions was offset by decreased derivative income. Fee income of $744 million in the second quarter of 2004 was $60 million higher
than in the second quarter of 2003 mainly due to the positive impact of
stronger equity markets which more than offset a decline of $15 million due to
the strengthening of the Canadian dollar against foreign currencies. Total revenue of $11.1 billion for the six months ended June 30, 2004 was $248
million lower than the $11.3 billion reported in the comparable period in 2003.
The change was mainly the result of the strengthening of the Canadian dollar
against foreign currency, which reduced 2004 revenues $518 million when
compared to 2003. Excluding the effect of currency, growth in fee income and
investment income was partially offset by a decline in fixed annuity premiums
in both Sun Life Financial U.S. and in Sun Life Financial Canada due to a shift
to equity-based products and lower life insurance premiums in Sun Life
Financial U.K. operations due to the run off of the individual business and
sale of the Group Insurance business. 6




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##### 



Assets Under Management Assets Under Management (AUM) were $373.0 billion at June 30, 2004 compared to
$369.6 billion at March 31, 2004 and $342.2 billion at June 30, 2003. The
increase of $3.4 billion between March 31, 2004 and June 30, 2004 was mainly
due to normal business growth and:  (i)
    
    market growth of $1.9 billion; and(ii)
    
    currency gains of $7.7 billion; partly offset by net
redemptions of mutual and managed funds. AUM increased $30.8 billion between June 30, 2003 and June 30, 2004. The
change was primarily the result of normal business growth and:  (i)
    
    market growth of $31.3 billion; and(ii)
    
    currency gains of $3.3 billion; partly offset by net
redemptions of mutual and managed funds. Changes in the Balance Sheet and Shareholders Equity Total general fund assets of $113.6 billion at June 30, 2004 were $4.4 billion
higher than the December 31, 2003 balance of $109.2 billion due to a
combination of business growth and $2.6 billion from the strengthening of
foreign currencies against the Canadian dollar. Total general fund assets at the end of the second quarter of 2004 were up $2.1
billion from the end of the second quarter of 2003 due to normal business
growth and the strengthening of the foreign currencies against the Canadian
dollar, which increased asset values by $1.0 billion. Actuarial and other policyholder liabilities increased $2.4 billion between
December 31, 2003 and June 30, 2004 primarily from the impact of currency
fluctuations which increased liability values by $2 billion and growth in the
Sun Life Financial U.S. operations. Actuarial and other policyholder liabilities of $79.7 billion at June 30, 2004
were $1.4 billion higher than at June 30, 2003 largely as the result of the
impact of currency fluctuations and growth in the U.S. operations Individual
Life and Annuity businesses. Shareholders equity increased from $13.9 billion at December 31, 2003 to $14.8
billion at June 30, 2004. Shareholders net income, before stock option costs
of $7 million, contributed $811 million and was partly offset by dividend
payments of $252 million and $22 million for the cost of common shares
repurchased and cancelled, net of new issues for stock options. The
strengthening of foreign currencies against the Canadian dollar also increased
shareholders equity by $347 million for the first six months of 2004. Shareholders equity was $14.8 billion at June 30, 2004, up $502 million from
March 31, 2004 and up $933 million from June 30, 2003. Second quarter
shareholders net income, before stock option costs of $3 million, contributed
$441 million, partially offset by dividend payments of $126 million. Common
shares repurchased and cancelled, net of new issues for stock options, reduced
shareholders equity by $32 million and the strengthening of foreign currencies
against the Canadian dollar increased shareholders equity by $219 million. 7




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##### 



On July 29, 2004 the Board of Directors approved an additional 5 per cent
increase to shareholder dividends increasing quarterly dividends per share to
22 cents per share from 21 cents per share. As at June 30, 2004, 599,814,358 common shares and 13,389,884 stock options of
Sun Life Financial Inc. were outstanding. Cash Flows  Quarterly Results
    
    
    Year to Date($mm)
    
    2Q04
    
    2Q03
    
    
    2004
    
    2003Cash and cash equivalents, beginning of period
    
    
    3,386
    
    
    
    4,474
    
    
    
    
    3,178
    
    
    
    4,156Cash flows provided by (used in):Operating activities
    
    
    1,449
    
    
    
    472
    
    
    
    
    1,503
    
    
    
    2,251Financing activities
    
    
    (290
    )
    
    
    (352
    )
    
    
    
    (280
    )
    
    
    (457
    )Investing activities
    
    
    (971
    )
    
    
    (588
    )
    
    
    
    (836
    )
    
    
    (1,998
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273Changes due to fluctuations in exchange rates
    
    
    56
    
    
    
    (199
    )
    
    
    
    65
    
    
    
    (418
    )Increase (Decrease) in cash and cash equivalents
    
    
    244
    
    
    
    (667
    )
    
    
    
    452
    
    
    
    (349
    )Cash and cash equivalents, end of period
    
    
    3,630
    
    
    
    3,807
    
    
    
    
    3,630
    
    
    
    3,807Short-term securities, end of period
    
    
    2,794
    
    
    
    2,656
    
    
    
    
    2,794
    
    
    
    2,656Total cash, cash equivalents and short-term securities
    
    
    6,424
    
    
    
    6,463
    
    
    
    
    6,424
    
    
    
    6,463
 Net cash, cash equivalents and short-term securities at the end of the second
quarter of 2004 declined $39 million from the second quarter of 2003. The second quarter of 2004 had an increase of $244 million in cash and cash
equivalents compared to an outflow of $667 million in the second quarter of
2003. The improvement in cash flow was related to improved flows of $977
million from operations, mostly from lower annuity surrenders and fluctuation
of cash flows from other assets and liabilities partly offset by an increase of
$383 million in cash flows used in investing due to business growth.
Fluctuating currency exchange rates contributed $56 million to cash flows in
the second quarter of 2004 compared to reducing cash flows by $199 million in
the comparable period in 2003. The first six months of 2004 had positive cash flows of $452 million compared
to outflows of $349 million in the first six months of 2003. Lower inflows
from operating activities were more than offset by lower utilization of funds
for investing activity and a favourable contribution of $65 million in 2004
from currency fluctuations compared to a negative amount of $418 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. 8




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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 2004 and 2005. Economic growth, a healthy job creation environment,
and continued signs of modest inflation are all indications of a rising
interest rate environment. Should interest rates rise at a steady
rate, 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 would be protected by actions taken to mitigate
the risk of lower interest rates. U.S. Regulatory Proceedings and Litigation The SEC and other regulators
are conducting industry-wide investigations and examinations
into various issues, including
market timing and late trading of mutual funds and variable insurance products
and directed brokerage, revenue-sharing and other arrangements with
distributors. Certain of the Companys subsidiaries are cooperating in the examinations.
Additional information concerning these and related matters is provided in Note
8 to the Companys interim consolidated financial statements for the period
ended June 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. 9




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##### 



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. 10