##### 



INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Operations (unaudited, in millions of Canadian dollars,except for per share amounts)FOR THE THREE MONTHS ENDED
    
    FOR THE SIX MONTHS ENDEDJUNE 30
    
    JUNE 30
    
    JUNE 30
    
    JUNE 302004
    
    2003
    
    2004
    
    2003REVENUEPremium income:Annuities
    
    $
    1,311
    
    
    $
    1,288
    
    
    $
    2,515
    
    
    $
    2,837Life insurance
    
    
    1,412
    
    
    
    1,581
    
    
    
    2,873
    
    
    
    3,104Health insurance
    
    
    600
    
    
    
    566
    
    
    
    1,189
    
    
    
    1,1583,323
    
    
    
    3,435
    
    
    
    6,577
    
    
    
    7,099Net investment income
    
    
    1,484
    
    
    
    1,460
    
    
    
    2,992
    
    
    
    2,849Fee income
    
    
    744
    
    
    
    684
    
    
    
    1,520
    
    
    
    1,3895,551
    
    
    
    5,579
    
    
    
    11,089
    
    
    
    11,337POLICY BENEFITS AND EXPENSESPayments to policyholders, beneficiaries and depositors:Maturities and surrenders
    
    
    1,344
    
    
    
    1,753
    
    
    
    3,151
    
    
    
    2,905Annuity payments
    
    
    383
    
    
    
    401
    
    
    
    758
    
    
    
    815Death and disability benefits
    
    
    628
    
    
    
    638
    
    
    
    1,326
    
    
    
    1,311Health benefits
    
    
    438
    
    
    
    344
    
    
    
    897
    
    
    
    761Policyholder dividends and interest on claims and deposits
    
    
    288
    
    
    
    308
    
    
    
    535
    
    
    
    6313,081
    
    
    
    3,444
    
    
    
    6,667
    
    
    
    6,423Net transfers to segregated funds
    
    
    108
    
    
    
    143
    
    
    
    363
    
    
    
    119Increase in actuarial liabilities (Note 6)
    
    
    527
    
    
    
    218
    
    
    
    391
    
    
    
    1,320Commissions
    
    
    492
    
    
    
    449
    
    
    
    975
    
    
    
    915Operating expenses
    
    
    687
    
    
    
    705
    
    
    
    1,422
    
    
    
    1,375Premium taxes
    
    
    45
    
    
    
    45
    
    
    
    91
    
    
    
    89Interest expense
    
    
    47
    
    
    
    53
    
    
    
    93
    
    
    
    1084,987
    
    
    
    5,057
    
    
    
    10,002
    
    
    
    10,349INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTERESTS
    
    
    564
    
    
    
    522
    
    
    
    1,087
    
    
    
    988Income taxes
    
    
    100
    
    
    
    133
    
    
    
    235
    
    
    
    238Non-controlling interests in net income of subsidiaries
    
    
    22
    
    
    
    20
    
    
    
    39
    
    
    
    39TOTAL NET INCOME
    
    
    442
    
    
    
    369
    
    
    
    813
    
    
    
    711Less participating policyholders net income
    
    
    4
    
    
    
    3
    
    
    
    9
    
    
    
    2SHAREHOLDERS NET INCOME
    
    $
    438
    
    
    $
    366
    
    
    $
    804
    
    
    $
    709Average exchange rates:U.S. Dollars
    
    
    1.36
    
    
    
    1.40
    
    
    
    1.34
    
    
    
    1.46U.K. Pounds
    
    
    2.46
    
    
    
    2.26
    
    
    
    2.44
    
    
    
    2.34Basic earnings per share(Note 4)
    
    $
    0.73
    
    
    $
    0.60
    
    
    $
    1.34
    
    
    $
    1.16Diluted earnings per share(Note 4)
    
    $
    0.72
    
    
    $
    0.60
    
    
    $
    1.33
    
    
    $
    1.15
 The attached notes form part of these interim consolidated financial statements. 1Sun Life
Financial Inc.




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##### 



INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets (unaudited, in millions of Canadian dollars)AS ATJUNE 30
    
    DECEMBER 31
    
    JUNE 302004
    
    2003
    
    2003ASSETSBonds
    
    $
    67,840
    
    
    $
    66,090
    
    
    $
    65,455Mortgages
    
    
    13,827
    
    
    
    13,601
    
    
    
    14,138Stocks
    
    
    3,847
    
    
    
    3,473
    
    
    
    3,324Real estate
    
    
    3,161
    
    
    
    3,067
    
    
    
    3,005Cash, cash equivalents and short-term securities
    
    
    6,424
    
    
    
    4,972
    
    
    
    6,463Policy loans and other invested assets
    
    
    6,251
    
    
    
    5,973
    
    
    
    5,986Invested assets
    
    
    101,350
    
    
    
    97,176
    
    
    
    98,371Goodwill
    
    
    5,650
    
    
    
    5,573
    
    
    
    5,640Other assets
    
    
    6,635
    
    
    
    6,460
    
    
    
    7,544Total general fund assets
    
    $
    113,635
    
    
    $
    109,209
    
    
    $
    111,555Segregated funds net assets
    
    $
    57,598
    
    
    $
    54,086
    
    
    $
    49,746LIABILITIES AND EQUITYActuarial liabilities and other policy liabilities (Note 6)
    
    $
    79,730
    
    
    $
    77,354
    
    
    $
    78,385Amounts on deposit
    
    
    3,172
    
    
    
    3,120
    
    
    
    3,067Deferred net realized gains
    
    
    3,487
    
    
    
    3,124
    
    
    
    3,088Other liabilities
    
    
    8,494
    
    
    
    7,795
    
    
    
    9,044Total general fund liabilities
    
    
    94,883
    
    
    
    91,393
    
    
    
    93,584Subordinated debt
    
    
    2,551
    
    
    
    2,504
    
    
    
    2,707Non-controlling interests in subsidiaries
    
    
    1,331
    
    
    
    1,336
    
    
    
    1,333Total equity
    
    
    14,870
    
    
    
    13,976
    
    
    
    13,931Total general fund liabilities and equity
    
    $
    113,635
    
    
    $
    109,209
    
    
    $
    111,555Segregated funds contract liabilities
    
    $
    57,598
    
    
    $
    54,086
    
    
    $
    49,746Exchange rate at balance sheet date:U.S. Dollars
    
    
    1.35
    
    
    
    1.29
    
    
    
    1.34U.K. Pounds
    
    
    2.43
    
    
    
    2.30
    
    
    
    2.25
 The attached notes form part of these interim consolidated financial statements. Approved on behalf of the Board of Directors   -s- Donald A. Stewart Donald A. Stewart
Chief Executive Officer   -s- Ronald W. Osborne Ronald W. Osborne
Director 2www.sunlife.com Second Quarter 2004




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##### 



INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Equity (unaudited, in millionsof Canadian dollars)FOR THE SIX MONTHS ENDEDPARTICIPATING
    
    
    
    
    
    JUNE 30
    
    JUNE 30POLICYHOLDERS
    
    SHAREHOLDERS
    
    2004
    
    2003SHARE CAPITALBalance, beginning of period
    
    $
    
    
    
    $
    7,289
    
    
    $
    7,289
    
    
    $
    7,420Common shares issued, net of issuance costs as considerationfor business acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Stock options exercised
    
    
    
    
    
    
    46
    
    
    
    46
    
    
    
    4Common shares purchased for cancellation (Note 3)
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )
    
    
    (136
    )Balance, end of period
    
    
    
    
    
    
    7,316
    
    
    
    7,316
    
    
    
    7,351CONTRIBUTED SURPLUSBalance, beginning of period
    
    
    
    
    
    
    76
    
    
    
    76
    
    
    
    57Stock option compensation
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    16Stock options exercised
    
    
    
    
    
    
    (11
    )
    
    
    (11
    )
    
    
    (1
    )Balance, end of period
    
    
    
    
    
    
    72
    
    
    
    72
    
    
    
    72RETAINED EARNINGSBalance, beginning of period
    
    
    72
    
    
    
    7,212
    
    
    
    7,284
    
    
    
    6,694Net income
    
    
    9
    
    
    
    804
    
    
    
    813
    
    
    
    711Dividends on common shares
    
    
    
    
    
    
    (252
    )
    
    
    (252
    )
    
    
    (208
    )Common shares purchased for cancellation (Note 3)
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )
    
    
    (181
    )Balance, end of period
    
    
    81
    
    
    
    7,726
    
    
    
    7,807
    
    
    
    7,016CURRENCY TRANSLATION ACCOUNTBalance, beginning of period
    
    
    (5
    )
    
    
    (668
    )
    
    
    (673
    )
    
    
    738Changes for the period
    
    
    1
    
    
    
    347
    
    
    
    348
    
    
    
    (1,246
    )Balance, end of period
    
    
    (4
    )
    
    
    (321
    )
    
    
    (325
    )
    
    
    (508
    )Total equity
    
    $
    77
    
    
    $
    14,793
    
    
    $
    14,870
    
    
    $
    13,931
 The attached notes form part of these interim consolidated financial statements. 3Sun Life
Financial Inc.




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##### 



INTERIM CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Statements of Cash Flows (unaudited, in millions of Canadian dollars)FOR THE THREE MONTHS ENDED
    
    FOR THE SIX MONTHS ENDEDJUNE 30
    
    JUNE 30
    
    JUNE 30
    
    JUNE 302004
    
    2003
    
    2004
    
    2003CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIESTotal net income
    
    $
    442
    
    
    $
    369
    
    
    $
    813
    
    
    $
    711New mutual fund business acquisition costs capitalized
    
    
    (21
    )
    
    
    (46
    )
    
    
    (51
    )
    
    
    (87
    )Redemption fees of mutual funds
    
    
    17
    
    
    
    19
    
    
    
    35
    
    
    
    40Items not affecting cash
    
    
    1,011
    
    
    
    130
    
    
    
    706
    
    
    
    1,587Net cash provided by operating activities
    
    
    1,449
    
    
    
    472
    
    
    
    1,503
    
    
    
    2,251CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIESBorrowed funds
    
    
    (132
    )
    
    
    (50
    )
    
    
    (6
    )
    
    
    65Issuance of common shares on exercise of stock options
    
    
    17
    
    
    
    2
    
    
    
    35
    
    
    
    3Common shares purchased for cancellation (Note 3)
    
    
    (49
    )
    
    
    (201
    )
    
    
    (57
    )
    
    
    (317
    )Dividends paid on common shares
    
    
    (126
    )
    
    
    (103
    )
    
    
    (252
    )
    
    
    (208
    )Net cash provided by (used in) financing activities
    
    
    (290
    )
    
    
    (352
    )
    
    
    (280
    )
    
    
    (457
    )CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIESSales, maturities and repayments of bonds, mortgages,
stocks and real estate
    
    
    10,355
    
    
    
    10,437
    
    
    
    21,672
    
    
    
    18,912Purchases of bonds, mortgages, stocks and real estate
    
    
    (10,350
    )
    
    
    (11,461
    )
    
    
    (21,487
    )
    
    
    (21,048
    )Policy loans
    
    
    (14
    )
    
    
    (36
    )
    
    
    (1
    )
    
    
    (62
    )Short-term securities
    
    
    (1,014
    )
    
    
    422
    
    
    
    (999
    )
    
    
    228Other investments
    
    
    52
    
    
    
    50
    
    
    
    (21
    )
    
    
    (28
    )Net cash provided by (used in) investing activities
    
    
    (971
    )
    
    
    (588
    )
    
    
    (836
    )
    
    
    (1,998
    )Net cash provided by 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, beginning of period
    
    
    3,386
    
    
    
    4,474
    
    
    
    3,178
    
    
    
    4,156Cash 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
    
    
    
    2,656Cash, cash equivalents and short-term securities, end of period
    
    $
    6,424
    
    
    $
    6,463
    
    
    $
    6,424
    
    
    $
    6,463Supplementary InformationCash and cash equivalents:Cash
    
    
    
    
    
    
    
    
    
    $
    342
    
    
    $
    368Cash equivalents
    
    
    
    
    
    
    
    
    
    
    3,288
    
    
    
    3,439$
    3,630
    
    
    $
    3,807Cash disbursements made for:Interest on borrowed funds and subordinated debt
    
    $
    92
    
    
    $
    102
    
    
    $
    94
    
    
    $
    107Income taxes, net of refunds
    
    $
    124
    
    
    $
    44
    
    
    $
    116
    
    
    $
    50
 The attached notes form part of these interim consolidated financial statements. 4www.sunlife.com Second
Quarter 2004




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##### 



INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Changes in Segregated Funds Net Assets (unaudited, in millions of Canadian dollars)FOR THE THREE MONTHS ENDED
    
    FOR THE SIX MONTHS ENDEDJUNE 30
    
    JUNE 30
    
    JUNE 30
    
    JUNE 302004
    
    2003
    
    2004
    
    2003ADDITIONS TO SEGREGATED FUNDSDeposits:Annuities
    
    $
    1,615
    
    
    $
    1,263
    
    
    $
    3,376
    
    
    $
    2,466Life insurance
    
    
    218
    
    
    
    161
    
    
    
    309
    
    
    
    2291,833
    
    
    
    1,424
    
    
    
    3,685
    
    
    
    2,695Net transfers from general funds
    
    
    108
    
    
    
    143
    
    
    
    363
    
    
    
    119Net realized and unrealized gains
    
    
    545
    
    
    
    3,811
    
    
    
    1,254
    
    
    
    2,035Other investment income
    
    
    466
    
    
    
    450
    
    
    
    675
    
    
    
    7442,952
    
    
    
    5,828
    
    
    
    5,977
    
    
    
    5,593DEDUCTIONS FROM SEGREGATED FUNDSPayments to policyholders and their beneficiaries
    
    
    1,746
    
    
    
    1,561
    
    
    
    3,637
    
    
    
    3,509Management fees
    
    
    157
    
    
    
    140
    
    
    
    311
    
    
    
    270Taxes and other expenses
    
    
    13
    
    
    
    32
    
    
    
    60
    
    
    
    58Effect of changes in currency exchange rates
    
    
    (880
    )
    
    
    2,532
    
    
    
    (1,543
    )
    
    
    4,7651,036
    
    
    
    4,265
    
    
    
    2,465
    
    
    
    8,602Net additions (reductions) to segregated funds for the period
    
    
    1,916
    
    
    
    1,563
    
    
    
    3,512
    
    
    
    (3,009
    )Segregated funds net assets, beginning of period
    
    
    55,682
    
    
    
    48,183
    
    
    
    54,086
    
    
    
    52,755Segregated funds net assets, end of period
    
    $
    57,598
    
    
    $
    49,746
    
    
    $
    57,598
    
    
    $
    49,746
 Consolidated Statements of Segregated Funds Net Assets (unaudited, in millions of Canadian dollars)AS ATJUNE 30
    
    DECEMBER 31
    
    JUNE 302004
    
    2003
    
    2003ASSETSSegregated and mutual fund units
    
    $
    44,339
    
    
    $
    40,721
    
    
    $
    36,947Stocks
    
    
    7,421
    
    
    
    7,892
    
    
    
    6,900Bonds
    
    
    5,723
    
    
    
    5,546
    
    
    
    5,198Cash, cash equivalents and short-term securities
    
    
    1,254
    
    
    
    686
    
    
    
    1,373Real estate
    
    
    157
    
    
    
    148
    
    
    
    123Mortgages
    
    
    73
    
    
    
    78
    
    
    
    121Other assets
    
    
    2,133
    
    
    
    580
    
    
    
    1,49861,100
    
    
    
    55,651
    
    
    
    52,160LIABILITIES
    
    
    3,502
    
    
    
    1,565
    
    
    
    2,414Net assets attributable to segregated funds policyholders
    
    $
    57,598
    
    
    $
    54,086
    
    
    $
    49,746
 The attached notes form part of these interim consolidated financial statements. 5Sun Life
Financial Inc.




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##### 



CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS Condensed Notes to the Interim Consolidated Financial Statements   1.
    
    Basis of Presentation Sun Life Financial Inc. together with all its subsidiaries, including its
wholly-owned consolidated subsidiary Sun Life Assurance Company of Canada (Sun
Life Assurance), are collectively referred to as Sun Life Financial or the
Company. The Company prepares its interim consolidated financial statements
according to Canadian generally accepted accounting principles (GAAP). The
accounting policies and methods of computation applied in these interim
consolidated financial statements are the same as those applied in the 2003
annual consolidated financial statements, except as described in Note 2. The
interim consolidated financial statements should be read in conjunction with
the most recent annual consolidated financial statements, as they do not
include all information and notes required by GAAP for annual consolidated
financial statements.  2.
    
    Changes in Accounting Policies Hedging Relationships:The Company adopted Hedging Relationships, Canadian
Institute of Chartered Accountants (CICA) Handbook Accounting Guideline 13,
effective January 1, 2004, on a prospective basis. This Accounting Guideline
requires that all conditions with respect to identification, documentation,
designation and effectiveness of hedges be satisfied before companies choose to
use hedge accounting. These conditions are applicable to hedges existing on or
after January 1, 2004. Certain derivatives that were considered to be part of
a hedging relationship, including the options that hedge the Guaranteed Minimum
Death Benefit (GMDB) products, did not qualify for hedge accounting under the
new requirements in Accounting Guideline 13 as described in Note 2 of the 2003
annual consolidated financial statements. As a result, these derivatives are
reported in other invested assets on the interim consolidated balance sheets at
their fair values effective January 1, 2004. The resulting transitional gain of
$46 as at January 1, 2004, was deferred in other liabilities on the interim
consolidated balance sheet and will be recognized in income in the same period
as the original hedged items. Increases or decreases in the fair values of
these derivatives subsequent to January 1, 2004, are reported in net investment
income in the interim consolidated statements of operations. This change in
accounting policy did not have a material impact on these interim consolidated
financial statements. Generally Accepted Accounting Principles:The Company adopted Generally
Accepted Accounting Principles, CICA Handbook Section 1100, on January 1, 2004.
This standard establishes standards for financial reporting in accordance with
GAAP, and provides guidance on sources to consult when selecting accounting
policies and determining appropriate disclosures when a matter is not dealt
with explicitly in the primary sources of GAAP. While the Company is
continuing to assess the implications of this section on its consolidated
financial statements, the changes identified to date have not had a material
effect on these interim consolidated financial statements. Employee future benefits:In January 2004, CICA Handbook Section 3461,
Employee Future Benefits (CICA 3461R) was amended to require additional annual
disclosure about the assets and cash flows and additional interim disclosure of
the net periodic benefit cost of defined benefit pension plans and other
post-retirement benefit plans. The new annual disclosures are effective for
years ending on or after June 30, 2004, and the new interim disclosures are
effective for periods ending on or after that date. The additional interim
period disclosures of the Companys pension and other post-retirement benefit
plans are provided in Note 7.  3.
    
    Normal Course Issuer Bid and Cancellation of Common Shares On January 8, 2004, the Company announced that the Board of Directors had
authorized the purchase of up to 30 million common shares, representing
approximately 5% of the common shares issued and outstanding at that time. The
purchases will be made under a normal course issuer bid pursuant to the rules
of the Toronto Stock Exchange (Exchange). This normal course issuer bid covers
the period from January 12, 2004 to January 11, 2005, unless the maximum number
of common shares is purchased before January 11, 2005. Transactions were and
will be executed on the Exchange at the prevailing market price in amounts and
times determined by the Company. The Company will make no purchases of common
shares other than open-market purchases. The shares purchased as part of the
normal course issuer bid are cancelled following purchases. In the first two
quarters of 2004, the Company purchased approximately 2 million of its common
shares at an average price of $37.26 per share for a total amount of $57. An
additional $11 were subscribed for but not settled at June 30, 2004. 6www.sunlife.com Second
Quarter 2004




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##### 



CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS  4.
    
    Earnings Per Share For the three months ended
    
    For the six months endedJune 30
    
    June 30
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003BASIC EARNINGS PER SHAREShareholders net income
    
    $
    438
    
    
    $
    366
    
    
    $
    804
    
    
    $
    709Weighted average number of shares outstanding (in millions)
    
    
    601
    
    
    
    610
    
    
    
    600
    
    
    
    613Basic earnings per share
    
    $
    0.73
    
    
    $
    0.60
    
    
    $
    1.34
    
    
    $
    1.16DILUTED EARNINGS PER SHAREShareholders net income
    
    $
    438
    
    
    $
    366
    
    
    $
    804
    
    
    $
    709Less: Effect
of stock options of subsidiaries(1)
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Shareholders net income on a diluted basis
    
    $
    437
    
    
    $
    365
    
    
    $
    803
    
    
    $
    708Weighted
average number of shares outstanding on a diluted basis (in
millions)(1)
    
    
    604
    
    
    
    610
    
    
    
    603
    
    
    
    613Diluted earnings per share
    
    $
    0.72
    
    
    $
    0.60
    
    
    $
    1.33
    
    
    $
    1.15
  (1)
    
    The effect of stock options is calculated based on the treasury stock
method requirements which assume that any proceeds from the exercise of the
options would be used to purchase common shares at the average market prices
during the period.  5.
    
    Segmented Information The Company has six reportable segments: SLF Canada, SLF United States, MFS
Investment Management (MFS), SLF Asia, SLF United Kingdom, and Corporate
Capital. These reportable segments reflect the Companys management structure
and internal financial reporting. Each of these segments operates in the
financial services industry and has its own management. They derive their
revenues principally from wealth management operations (mutual funds,
investment management and annuities), protection services (life and health
insurance, life retrocession and financial reinsurance) or other (primarily
investments of a corporate nature and earnings on capital not attributed to the
strategic business units). Corporate Capital includes the run-off reinsurance operations and those other
operations for which management responsibility resides in head office. Net
income (loss) in this category is shown net of certain expenses borne
centrally. Inter-segment transactions consist primarily of internal financing agreements.
They are measured at market values prevailing when the arrangements were
negotiated. Inter-segment revenue for the three and six months ended June 30,
2004 consists of interest of $87 and $172, respectively ($88 and $185,
respectively, in 2003) and fee income of $11 and $23, respectively ($11 and
$23, respectively, in 2003). The results for the six months ended June 30, 2004, for MFS include the $59
provision for regulatory issues as described in Note 8. Results by segment for the three months ended June 30, 2004United States
    
    
    
    
    
    United
    
    Corporate
    
    ConsolidationCanada
    
    Sun Life
    
    MFS
    
    Asia
    
    Kingdom
    
    Capital
    
    Adjustments
    
    TotalRevenue
    
    $
    2,139
    
    
    $
    2,453
    
    
    $
    434
    
    
    $
    154
    
    
    $
    337
    
    
    $
    132
    
    
    $
    (98
    )
    
    $
    5,551Total net income (loss)
    
    $
    233
    
    
    $
    110
    
    
    $
    41
    
    
    $
    10
    
    
    $
    42
    
    
    $
    6
    
    
    $
    
    
    
    $
    442
 Results by segment for the three months ended June 30, 2003United States
    
    
    
    
    
    United
    
    Corporate
    
    ConsolidationCanada
    
    Sun Life
    
    MFS
    
    Asia
    
    Kingdom
    
    Capital
    
    Adjustments
    
    TotalRevenue
    
    $
    2,112
    
    
    $
    2,627
    
    
    $
    411
    
    
    $
    140
    
    
    $
    371
    
    
    $
    17
    
    
    $
    (99
    )
    
    $
    5,579Total net income (loss)
    
    $
    220
    
    
    $
    64
    
    
    $
    42
    
    
    $
    6
    
    
    $
    43
    
    
    $
    (6
    )
    
    $
    
    
    
    $
    369
 7Sun Life
Financial Inc.




---



##### 



CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS  5.
    
    Segmented Information (Contd) Results and assets by segment for the six months ended June 30, 2004United States
    
    
    
    
    
    United
    
    Corporate
    
    ConsolidationCanada
    
    Sun Life
    
    MFS
    
    Asia
    
    Kingdom
    
    Capital
    
    Adjustments
    
    TotalRevenue
    
    $
    4,400
    
    
    $
    4,802
    
    
    $
    884
    
    
    $
    299
    
    
    $
    659
    
    
    $
    240
    
    
    $
    (195
    )
    
    $
    11,089Total net income (loss)
    
    $
    483
    
    
    $
    207
    
    
    $
    28
    
    
    $
    17
    
    
    $
    89
    
    
    $
    (11
    )
    
    $
    
    
    
    $
    813ASSETSGeneral fund assets
    
    $
    52,163
    
    
    $
    43,317
    
    
    $
    1,059
    
    
    $
    2,226
    
    
    $
    10,795
    
    
    $
    4,856
    
    
    $
    (781
    )
    
    $
    113,635Segregated funds net assets
    
    $
    24,059
    
    
    $
    26,209
    
    
    $
    
    
    
    $
    20
    
    
    $
    7,310
    
    
    $
    
    
    
    $
    
    
    
    $
    57,598Other assets under
management
    
    $
    27,822
    
    
    $
    2,796
    
    
    $
    185,373
    
    
    $
    108
    
    
    $
    
    
    
    $
    
    
    
    $
    (14,376
    )
    
    $
    201,723
 Results and assets by segment for the six months ended June 30, 2003United States
    
    
    
    
    
    United
    
    Corporate
    
    ConsolidationCanada
    
    Sun Life
    
    MFS
    
    Asia
    
    Kingdom
    
    Capital
    
    Adjustments
    
    TotalRevenue
    
    $
    4,262
    
    
    $
    5,247
    
    
    $
    819
    
    
    $
    285
    
    
    $
    774
    
    
    $
    158
    
    
    $
    (208
    )
    
    $
    11,337Total net income (loss)
    
    $
    404
    
    
    $
    117
    
    
    $
    70
    
    
    $
    13
    
    
    $
    93
    
    
    $
    14
    
    
    $
    
    
    
    $
    711ASSETSGeneral fund assets
    
    $
    51,422
    
    
    $
    42,594
    
    
    $
    1,064
    
    
    $
    1,981
    
    
    $
    10,442
    
    
    $
    4,381
    
    
    $
    (329
    )
    
    $
    111,555Segregated funds net assets
    
    $
    19,664
    
    
    $
    23,561
    
    
    $
    
    
    
    $
    6
    
    
    $
    6,515
    
    
    $
    
    
    
    $
    
    
    
    $
    49,746Other assets under
management
    
    $
    22,042
    
    
    $
    2,339
    
    
    $
    170,434
    
    
    $
    68
    
    
    $
    
    
    
    $
    
    
    
    $
    (14,008
    )
    
    $
    180,875
  6.
    
    Changes in Actuarial Liabilities Changes in actuarial liabilities for the six months ended June 30, 2004 and
June 30, 2003 are as follows: 2004
    
    2003Actuarial liabilities, January 1
    
    $
    75,124
    
    
    $
    87,165Normal increase in liabilities from new policies and in-force business
    
    
    391
    
    
    
    1,314Significant changes in assumptions and methodology:Gross increases
    
    
    
    
    
    
    143Gross decreases
    
    
    
    
    
    
    (137
    )Increase in actuarial liabilities
    
    
    391
    
    
    
    1,320Changes in
intrinsic value of options that hedge the GMDB(1)
    
    
    
    
    
    
    (171
    )Dispositions
    
    
    
    
    
    
    (4,683
    )Other
    
    
    (72
    )
    
    
    (384
    )Effect of changes in currency exchange rates
    
    
    1,992
    
    
    
    (7,214
    )Actuarial liabilities, June 30
    
    
    77,435
    
    
    
    76,033Add: other policy liabilities
    
    
    2,295
    
    
    
    2,352Actuarial liabilities and other policy liabilities, June 30
    
    $
    79,730
    
    
    $
    78,385
  (1)
    
    The changes in intrinsic value of the options that hedge GMDB
products were included in the increase in actuarial liabilities in the
interim consolidated statements of operations and other invested assets
in the interim consolidated balance sheets for 2003. In 2004, these
options no longer qualify for hedge accounting as per CICA Handbook
Accounting Guideline 13, as described in Note 2.  7.
    
    Pension Plans and Other Post-Retirement Benefits For the three months ended
    
    For the six months endedJune 30
    
    June 30
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003Pension benefit cost
    
    $
    2
    
    
    $
    1
    
    
    $
    5
    
    
    $
    3Other post-retirement benefit cost
    
    $
    5
    
    
    $
    4
    
    
    $
    13
    
    
    $
    12
  8.
    
    Contingencies Reinsurance Matters Certain of the arrangements in the Companys run-off reinsurance operations are
subject to litigation or arbitration. The liabilities of the Company under
these arrangements are subject to measurement uncertainty, but they are not
expected to have a material adverse effect on the consolidated financial
position of the Company. 8www.sunlife.com Second
Quarter 2004




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##### 



CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS  8.
    
    Contingencies (Contd) Legal and Regulatory Proceedings The United States Securities and Exchange Commission (SEC) and other regulators
are conducting investigations and examinations of certain of the Companys
subsidiaries relating 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. These subsidiaries
are co-operating in these examinations. The outcome of these investigations is
not yet determinable. The Company, MFS and certain of its officers and certain MFS funds and trustees
of these MFS funds, have been named as defendants in purported class action
lawsuits, individual actions or derivative actions filed in the United States
seeking damages of unspecified amounts. The lawsuits were purportedly filed on
behalf of people who purchased, owned and/or redeemed shares of MFS funds
(including variable accounts) during specified periods and participants in
certain retirement plan accounts. The suits generally allege that certain
defendants (i) permitted or acquiesced in market timing and/or late trading in
the MFS funds, inadequately disclosed MFS internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS funds, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS use of fund assets in this manner, which allegedly caused
financial injury to fund shareholders, or (iii) charged discriminatory and
excessive investment advisory fees, made excess profits from economies of
scale, and made improper use of directed brokerage and soft dollar
arrangements. All of these lawsuits seek an unspecified amount of damages. The
defendants are reviewing the allegations and will respond appropriately.
Additional lawsuits based upon similar allegations may be filed in the future.
The Company cannot predict the outcome of these actions with certainty and is
accordingly unable to determine the total potential impact that they may have
on the Companys results of operations, financial position and cash flows. On March 31, 2004, MFS and the SEC announced that they had reached a settlement
related to an administrative proceeding alleging that MFS failed to adequately
disclose its brokerage allocation practices in connection with fund sales.
Under the terms of the settlement, in which MFS neither admitted nor denied any
wrongdoing, MFS agreed to pay US one dollar in disgorgement and a US$50 penalty
to compensate certain MFS funds. The Company recorded a $59 net of minority
interest charge to income in the first quarter of 2004 in connection with this
settlement. Additional information concerning these and related matters is provided in Note
21 to the Companys 2003 annual consolidated financial statements. Provisions in the United Kingdom The Companys United Kingdom operations continue to be subject to regulatory
overview in the United Kingdom, including reviews of past business sold, and
the Company has regularly engaged in discussions with United Kingdom regulators
with respect to these and other matters. The Companys past business sold in the United Kingdom includes a variety of
endowment products. Endowment policies are sometimes sold to provide customers
with a method of repaying mortgage debt at the end of a mortgage term. There
can be no assurance that United Kingdom regulators will not, in the future,
require providers of endowment products to bear some or all of the additional
costs required to ensure that such policies meet their target mortgage debts. The Company has provisions
for future compensation payments and related expenses relating to all
reviews of past business sold in both actuarial liabilities and in other
liabilities. At June 30, 2004, the combined provision was $133 ($134 in 2003).  9.
    
    Comparative Figures Certain comparative figures have been restated to conform with the presentation
adopted in 2004. 9Sun Life
Financial Inc.