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(ANNUAL REPORT 2004 FRONT COVER)




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CORPORATE PROFILE About Sun Life
Financial Sun Life Financial is a leading international financial services organization providing a
diverse range of wealth accumulation and protection products and services to individuals and
corporate customers. Tracing its roots back to 1865, Sun Life Financial and its partners today have
operations in key markets worldwide, including Canada, the United States, the United Kingdom, Hong
Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of December 31, 2004, the Sun
Life Financial group of companies had total assets under management
of CDN $360 billion.
Sun Life Financial Inc. trades on the Toronto ( TSX ), New York ( NYSE ), and
Philippine ( PSE ) stock exchanges under ticker symbol SLF. 1
    
    Financial Summary2
    
    At a Glance4
    
    Chairmans Message5
    
    Chief Executive Officers Message8
    
    Financial Review100
    
    Sources of Earnings101
    
    Six-Year Summary102
    
    Eleven-Year Summary104
    
    Board Governance106
    
    International Leadership108
    
    Subsidiary Companies110
    
    Major Offices111
    
    Corporate and Shareholder Information
 OUR MISSION
    
    To provide lifetime financial security.OUR VISION
    
    To be an international leader in wealth management and protection.OUR VALUES
    
    INTEGRITYWe aspire to the highest standards of business ethics and good governance.EXCELLENCEWe pursue operational excellence through the people we employ, constant
innovation, superior service and value-based risk management.CUSTOMER FOCUSWe always work with the customers interest in mind, and partner with them directly
or through their employers to provide sound financial solutions over their lifetimes.BUILDING VALUEEverything we do, from the products and services we offer to the way in which we
deliver them, adds value for our customers and builds value for our stakeholders.
 We invite you to read Sun Life Financials 2004 Public Accountability Statement which details
our support to communities in Canada and around the world. This report will be available online at
www.sunlife.com in mid-May 2005.




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##### 



FINANCIAL SUMMARY   Overview (in millions of Canadian dollars, except earnings and dividends per share)
    
    
    2004
    
    
    2003
    
    
    2002Shareholders Net Income
    
     Operating(1)
    
    
    1,740
    
    
    
    1,520
    
    
    
    1,260 Reported
    
    
    1,681
    
    
    
    1,309
    
    
    
    998Basic Earnings per Share ($)
    
     Operating(1)
    
    
    2.91
    
    
    
    2.50
    
    
    
    2.32 Reported
    
    
    2.81
    
    
    
    2.15
    
    
    
    1.84Return on Shareholders Equity
    
     Operating(1)
    
    
    12.0
    %
    
    
    10.6
    %
    
    
    10.7
    % Reported
    
    
    11.6
    %
    
    
    9.2
    %
    
    
    8.5
    %Total Revenue
    
    
    
    
    
    
    21,748
    
    
    
    22,056
    
    
    
    23,101Total Assets Under Management
    
    
    
    
    
    
    359,604
    
    
    
    359,024
    
    
    
    360,614Dividends
per Common Share ($)
    
    
    
    
    
    
    0.86
    
    
    
    0.68
    
    
    
    0.56
 (FINANCIAL OVERVIEW CHARTS)  (1)

Operating earnings and other financial information based on operating earnings, such
as operating earnings per share and operating return on equity, are non-GAAP measures and have no
standardized definitions under GAAP. They are presented to facilitate the comparison of quarterly
and full year data and may not be comparable to similar measures presented by other issuers.
Financial results not specifically referred to as operating have been determined in accordance
with GAAP. Annual Report 2004 | www.sunlife.com     1




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(WORLD MAP) 2     Sun Life Financial Inc. | Annual Report 2004




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(WORLD MAP) Annual Report 2004 | www.sunlife.com     3




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CHAIRMANS MESSAGE   (CHAIRMAN'S MESSAGE) As we publish this 2004 annual report, Sun Life Financial has just marked its fifth anniversary as
a public company. The Board of Directors and management of this young public company, with roots as
one of Canadas oldest international companies, are committed to excellence  in the returns we
deliver to shareholders and in the way we conduct our business. Your Board of Directors has been actively engaged in building shareholder value by guiding the
Companys strategic direction. Our goal is to be a growing, major force in the international
protection and wealth management industries. At every regular meeting, the Board monitors the
environment and considers strategic activities and financial and operating performance to achieve
that aim. Our share price performance, steadily increasing shareholder dividends and strong
financial results demonstrate our ability to deliver returns to shareholders. The Board of Directors and management are committed to sustaining a culture of integrity throughout
the organization. Independent directors on our Board Committees regularly assess risk management,
governance and compliance processes to ensure our business is conducted in a highly ethical manner.
The Board receives and discusses reports on those assessments as a standard part of its agenda. The strength of our governance structure begins with the Board of Directors. We know we must set
the tone at the top by regularly reviewing our effectiveness as a Board, the workings of our
Board Committees and our contributions as individual Board members. Meetings I held this year with
each independent director to discuss feedback from their peers enhanced our evaluation process. The
Board also focused on renewal and succession planning. Two new directors, George Carmany and David
Kerr, were appointed to the Board since the last Annual Meeting. I will be retiring following the
May 11, 2005 Annual Meeting and, as recently announced, the Board of Directors intends to appoint
Ron Osborne, one of our independent directors, as my successor. I am confident that Ron will do an
outstanding job in providing leadership to the Board. I have enjoyed my tenure on the Board and look forward to benefiting as a shareholder from
continuing enhancement of shareholder value. On behalf of the Board of Directors, I congratulate
and thank the management and employees of Sun Life Financial for their achievements during 2004. -s- W.W. Stinson W.W. Stinson
Chairman of the Board 4     Sun Life Financial Inc. | Annual Report 2004




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CHIEF EXECUTIVE OFFICERS MESSAGE   (CEO'S MESSAGE) In 2004 Sun Life Financial advanced our businesses and delivered strong results for our
shareholders. Highlights compared with 2003 are:  

Record operating earnings of $1.7 billion dollars, an increase of 14.5%

Operating earnings per share of $2.91, up 16.4%

Operating return on equity of 12.0%, up from 10.6%

Shareholder value enhanced through the repurchase of 10.1 million shares and a 29% increase
in quarterly dividends

Share price up 24.3% over the year These results were delivered in a challenging environment featuring an increasingly robust Canadian
dollar, uneven equity markets and persistently low interest rates. 2004  A YEAR OF ACHIEVEMENT Beyond the numbers, there are many Sun Life Financial stories of significance throughout our
operations. Pursuing our commitment to excellence, we have strengthened our management, made
significant investments in distribution, launched innovative products and enhanced customer
service. Sun Life Financial Canada saw its Group Retirement Services business unit again ranked as the
leading provider of employer-sponsored retirement plans in Canada and the fastest growing supplier. The United States continues to represent significant potential for Sun Life Financial. In 2004, the
Group Insurance business unit opened new offices in four major cities to capitalize on the
considerable reputation built with employers, brokers and third-party administrators. In response
to growing business needs in the U.S., we also established a new customer service centre
in Lethbridge, Alberta. MFS Investment Management made considerable headway. It delivered particularly robust
investment performance in international equities and fixed income funds and continued to strengthen
performance across all other portfolios. MFS was recognized for setting the standard for
reform in the mutual fund industry, with a series of pro-investor measures aimed at increasing
transparency and accountability. We remain very excited by the huge potential in the Asian markets, where Sun Life Financial has
built a solid foundation for future growth. In India, with our joint venture partner we are the second largest private life insurance company.
Birla Sun Life has a sales force of 9,500, branches in 42 cities and more than 50 corporate
distribution relationships. The joint venture has a significant share of the upscale life insurance
market in India. In China, Sun Life Everbright Life Insurance Company is expanding to take advantage of the ability
to open in new cities. We are developing regional branches providing Annual Report 2004 | www.sunlife.com     5




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Chief Executive Officers Message   We look to our strategic vision to guide us forward. Our game plan centres on five key areas
across our operations: customer focus, leadership development, enhancing productivity, accelerating
growth, and risk management.
 local support, backed by our home office operations in the Beijing-Tianjin corridor. In
Tianjin, we moved into the number four position and, in the spring of 2004, began selling life
insurance in Beijing. Sales in Hong Kong continued to rise as we doubled the size of our career agency force and made
further inroads into the bancassurance channel. In the Philippines, where weve been in business
for more than a century, a new joint venture with the Standard Chartered Bank will expand our
distribution reach beyond our very successful career agency channel. STRATEGY FOR 2005 While it is worth reflecting on our past successes, we look to our strategic vision to guide
us forward. In September 2004, this was the central theme of a gathering of our senior management
from around the world. Our game plan centres on five key areas across our operations: customer
focus, leadership development, enhancing productivity, accelerating growth, and risk management. For customers, we are delivering new products and enhancing service. In Canada, our Total Benefits
platform for group clients is built on our industry-leading technology, enabling customers to view
and manage  in one place, online  their employer-sponsored life and health benefits and
retirement savings plans, as well as other benefits administered by third parties. This
comprehensive product offering is unique in the Canadian marketplace and a distinct competitive
advantage for us. We are developing the next generation of leaders for the Company, through a continuous
strengthening of the leadership team in all business groups. To enhance productivity, our business groups will continue to share technology, knowledge and
resources across business lines and geography. In addition, our acquisition strategy is based in
part on the need to find opportunities that enable efficiencies and savings that will ultimately
benefit both our customers and our shareholders. Acquisitions that are the right fit, and come at the right price, will contribute to accelerating
the Companys growth. So too will our program of committing resources to nurture profitable
businesses by investing and partnering in distribution. Disciplined risk management permits the Company to mitigate the impact of difficult and
unpredictable economic factors, such as the performance of equity markets, interest rates and
currencies, and other risks we face in insurance and operations. 2005 PRIORITIES So how does our strategic vision drive our main priorities? In Canada, Sun Life Financial is aggressively expanding in the wholesale market where significant
growth opportunities exist. We will also seize opportunities to increase both the 6     Sun Life Financial Inc. | Annual Report 2004




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Chief Executive Officers Message   In 2005, we enter our sixth year as a public company. We launched our Initial Public Offering
in 2000 with a market capitalization of $5 billion. At December 31, 2004, it approached $24
billion, putting us among the top 10 insurance companies in North America.
 Group Benefits and Group Retirement Services market shares by leveraging our Total Benefits
platform. Our United States team is focused on expanding distribution of variable annuities. By building
distribution scale, we will ultimately realize our objective of becoming one of the top 10
competitors in this business. MFS will continue to focus on investment performance to generate additional sales in
retail mutual funds and annuities, complementing its successes with institutional clients. In Asia, we will continue our sales momentum in India and, in China, we will deliver on our city
expansion strategy. In our more established markets  Hong Kong and the Philippines  we are
pursuing greater penetration of the bancassurance distribution channel. A PROMISING FUTURE In 2005, Sun Life Financial will enter its sixth year as a public company. We launched our
Initial Public Offering on March 23, 2000, with a share price of $12.50 and a market capitalization
of $5 billion. At December 31, 2004, our shares closed above $40 and our market capitalization
approached $24 billion, putting us among the top 10 insurance companies in North America. We reflect with pride on the acquisition and successful integration of Clarica, which has given us
a market-leading position in Canada. Our 34% interest in CI Fund Management
continues to provide superior results and we derive significant benefits from the distribution
alliance between CI and Sun Life Financial. And, our recent corporate reorganization
will provide increased flexibility that will lead to enhanced shareholder value. We have
accomplished a great deal and look confidently to the future. Our business success over the past year also allows us to meet our philanthropic objectives of
supporting the social, health and cultural needs of our communities, at home in Canada and
internationally. We believe that it is the building and sustaining of financial strength and
shareholder value that enable us to look outward to others. We are proud that our approach was
recognized recently when Sun Life Financial was named as one of only six Canadian companies in the
Global 100 Most Sustainable Corporations in the World. Our accomplishments in 2004 and our future promise are made possible by the vision and discipline
of our leaders, the commitment and loyalty of our employees and partners, the confidence of our
customers, and the support of our shareholders. Thank you for your contributions to our success. -s- Donald A. Stewart Donald A. Stewart
Chief Executive Officer Annual Report 2004 | www.sunlife.com     7




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FINANCIAL REVIEW   Table of Contents 9
    
    Managements Discussion and Analysis9
    
    
    Financial Highlights10
    
    
    Enterprise Mission, Vision and Strategy11
    
    
    Financial Performance and Objectives11
    
    
    Overview of Business12
    
    
    Performance Overview14
    
    
    Consolidated Results of Operations17
    
    
    Non-GAAP Financial Measures18
    
    
    Sun Life Financial Canada23
    
    
    Sun Life Financial United States27
    
    
    MFS Investment Management28
    
    
    Sun Life Financial Asia31
    
    
    Sun Life Financial United Kingdom32
    
    
    Corporate Capital32
    
    
    Corporate Developments33
    
    
    Critical Accounting Estimates36
    
    
    Accounting Policies36
    
    
    Risk Management38
    
    
    Investments41
    
    
    Financial Position and Liquidity46
    
    
    Legal and Regulatory Proceedings46
    
    
    Additional Information47
    
    Consolidated Financial Statements47
    
    
    Financial Reporting Responsibilities48
    
    
    Consolidated Financial Statements53
    
    
    Notes to the Consolidated Financial Statements99
    
    
    Appointed Actuarys Report99
    
    
    Auditors Report
 In the Managements Discussion and Analysis (MD&A), Sun Life Financial Inc. (SLF Inc.) and its
consolidated subsidiaries, significant equity investments and joint ventures are collectively
referred to as Sun Life Financial or the Company. Unless otherwise indicated, all information
in the MD&A is presented as at and for the year ended December 31, 2004 and amounts are expressed
in Canadian dollars. Where information at and for the year ended December 31, 2004 is not
available, information available for the latest period before December 31, 2004 is used. Financial
information, except where otherwise noted, is presented in accordance with Canadian generally
accepted accounting principles (GAAP), and the accounting requirements of the Office of the
Superintendent of Financial Institutions, Canada (OSFI). Further information is available in SLF
Inc.s Annual Information Form (AIF) for the year ended December 31, 2004, filed with applicable
securities regulators in Canada, which may be accessed at www.sedar.com, and with the United States
Securities and Exchange Commission (the SEC), which may be accessed at www.sec.gov. USE OF NON-GAAP FINANCIAL MEASURES Management evaluates the Companys performance on the basis of financial measures prepared in
accordance with Canadian GAAP, including earnings, earnings per share (EPS) and return on equity
(ROE). Management also measures the Companys performance based on certain non-GAAP measures,
including operating earnings and other financial measures based on operating earnings, such as
operating EPS and operating ROE. These non-GAAP financial measures exclude certain special items
that are not operational or ongoing in nature. Management also uses financial performance measures
which exclude the impact of currency fluctuations during the period for which a comparison is made.
These amounts are determined by reference to the exchange rates of the corresponding periods.
Management believes that these non-GAAP financial measures provide information useful to investors
in understanding the Companys performance and facilitate the comparison of the quarterly and
full-year results of the Companys ongoing business operations. These non-GAAP financial measures
do not have any standardized meaning and may not be comparable with similar measures used by other
companies. They should not be viewed as alternative to measures of financial performance determined
in accordance with GAAP. Additional information concerning the Companys use of non-GAAP financial measures and a
reconciliation of those non-GAAP measures to the most directly comparable GAAP measures is included
in the MD&A under the heading Non-GAAP Financial Measures on page 17. FORWARD-LOOKING STATEMENTS Some of the statements contained or incorporated by reference in the MD&A, including those relating
to Sun Life Financial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 Sun Life Financial set out under Enterprise Mission,
Vision and Strategy, Overview of Business, Performance Overview, Sun Life Financial Canada,
Sun Life Financial United States, MFS Investment Management, Sun Life Financial Asia, Sun
Life Financial United Kingdom, Corporate Capital, Investments and Financial Position and
Liquidity. These statements are not historical facts but instead represent only Sun Life
Financials expectations, estimates and projections regarding future events. The forward-looking statements contained or incorporated by reference in the MD&A are not
guarantees of future performance and involve certain risks and uncertainties that are difficult to
predict. The future results and stockholder value of SLF Inc. may differ materially from those
expressed in the forward-looking statements contained or incorporated by reference in the MD&A due
to, among other factors, the matters set out under Risk Factors contained in SLF Inc.s AIF and
the factors detailed in its other filings with Canadian and U.S. securities regulators, including
its annual and interim financial statements and the notes thereto. SLF Inc. 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 the MD&A or to reflect the occurrence of unanticipated events,
except as required by law. 8     Sun Life Financial Inc. | Annual Report 2004




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MANAGEMENTS DISCUSSION AND ANALYSIS   Financial Highlights (in millions of Canadian dollars, except earnings and dividends per share)
    
    
    2004
    
    
    2003
    
    
    2002(1)Shareholders Net Income
    
     Operating(2)
    
    
    1,740
    
    
    
    1,520
    
    
    
    1,260 Reported
    
    
    1,681
    
    
    
    1,309
    
    
    
    998Basic Earnings per Share (EPS)
    
     Operating(2)
    
    
    2.91
    
    
    
    2.50
    
    
    
    2.32 Reported
    
    
    2.81
    
    
    
    2.15
    
    
    
    1.84Return on Shareholders Equity (ROE)
    
     Operating(2)
    
    
    12.0
    %
    
    
    10.6
    %
    
    
    10.7
    % Reported
    
    
    11.6
    %
    
    
    9.2
    %
    
    
    8.5
    %Dividends per Common Share
    
    
    
    
    
    
    0.86
    
    
    
    0.68
    
    
    
    0.56Dividend Payout Ratio(3)
    
    
    
    
    
    
    30
    %
    
    
    27
    %
    
    
    24
    %Fee Income
    
    
    
    
    
    
    2,903
    
    
    
    2,810
    
    
    
    3,095Total Revenue
    
    
    
    
    
    
    21,748
    
    
    
    22,056
    
    
    
    23,101Premiums, Deposits and Fund SalesPremium Revenue
    
    
    
    
    
    
    12,921
    
    
    
    13,543
    
    
    
    14,875Segregated Fund Deposits
    
    
    
    
    
    
    7,127
    
    
    
    5,968
    
    
    
    6,642Mutual Fund Sales
    
    
    
    
    
    
    19,061
    
    
    
    26,970
    
    
    
    31,668Managed Fund Sales
    
    
    
    
    
    
    23,981
    
    
    
    25,202
    
    
    
    29,683Total
Premiums, Deposits and Fund Sales
    
    
    63,090
    
    
    
    71,683
    
    
    
    82,868Assets Under Management (at December 31)General Fund Assets
    
    
    
    
    
    
    107,757
    
    
    
    109,209
    
    
    
    123,452Segregated Fund Net Assets
    
    
    
    
    
    
    56,564
    
    
    
    54,086
    
    
    
    52,755Other Assets Under Management
    
    
    
    
    
    
    195,283
    
    
    
    195,729
    
    
    
    184,407Total Assets Under Management
    
    
    
    
    
    
    359,604
    
    
    
    359,024
    
    
    
    360,614Capital (at December 31)Subordinated Debt
    
    
    
    
    
    
    2,182
    
    
    
    2,504
    
    
    
    2,922Sun
Life ExchangEable Capital Securities (SLEECS)
    
    
    1,150
    
    
    
    1,150
    
    
    
    1,150Preferred Shares
    
    
    
    
    
    
    152
    
    
    
    155
    
    
    
    158Total Equity
    
    
    
    
    
    
    14,412
    
    
    
    13,976
    
    
    
    14,909Total Capital
    
    
    
    
    
    
    17,896
    
    
    
    17,785
    
    
    
    19,139
 SHAREHOLDERS NET INCOME Operating
earnings(2) increased by 14% to $1,740 million in 2004 from $1,520 million in
2003. Basic operating EPS were $2.91, up 16% from $2.50 in 2003. The strong operating
earnings performance reflected the Companys continuing success in growing its core businesses and
diversifying its earnings stream. Excluding the impact of currency exchange rate changes, operating
earnings would have been $1,787 million, up 18% from 2003, and operating EPS would have
been $2.99, up 20% from a year ago. For the year ended December 31, 2004, reported shareholders net income reached $1,681 million,
representing an increase of $372 million over $1,309 million for the year ended December 31, 2003.
Basic EPS increased to $2.81 from $2.15 in 2003. The appreciation of the Canadian dollar
against foreign currencies in the year reduced shareholders net income by $43 million. FINANCIAL STRENGTH RATINGS - SUN LIFE
ASSURANCE COMPANY OF CANADA (as at December 31, 2004)A.M. Best
    
    
    A++Moodys
    
    Aa2Standard & Poors
    
    AA+
  (1)

Includes the results of Clarica Life Insurance Company from the date of
acquisition, May 29, 2002.(2)

Operating earnings, operating EPS and operating ROE are non-GAAP measures and
exclude special items described in this MD&A in Non-GAAP Financial Measures on page 17.(3)

Represents ratio of common shareholders dividends to shareholders operating net income. Annual Report 2004 | www.sunlife.com     9




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Managements Discussion and Analysis Enterprise Mission, Vision
and Strategy Sun Life Financial is a leading international financial services organization providing a
wide range of life and health insurance, savings, retirement and pension products and services to
individual and corporate customers. The international financial services industry continues to undergo significant evolution driven by:  

An accelerated pace of industry consolidation, with the largest, best capitalized industry
participants gaining greater market share

Changing customer needs driven by demographic shifts, creating new product development
opportunities focussed on retirement planning

Volatility in equity markets and low interest rates  the development of sophisticated risk
mitigation tools allows Sun Life Financial to operate profitably in this environment

Maturing of North American markets  expertise gained from these markets in product
development, distribution and technology is readily re-deployed into Sun Life Financials
rapidly expanding Asian operations

Advances in technology, allowing for faster, more efficient delivery of products and services
to customers

Political, economic and regulatory uncertainties Sun Life Financial has developed a clear mission, vision and strategy supported by an established
international operating platform, a culture of compliance and solid financial capability,
positioning it to be a significant competitor in this environment. The Company operates under a
business model that strives to establish scale operations in diversified markets in which it
chooses to compete. It also balances the higher growth prospects of certain businesses with the
relative stability of earnings from more mature operations. Furthermore, the Companys operations
in insurance, retirement and savings products are complementary and form an integrated product
platform to provide a broad range of financial solutions for customers. The Companys mission,
vision, strategy and objectives are summarized below.   MISSION To provide lifetime financial security VISION To be an international leader in wealth management and protection STRATEGY In addition to a significant focus on the customer, the Companys strategy is derived from its
belief that the creation of shareholder value in its businesses is fundamentally driven by
operational excellence, scale, balance and fit. The Companys strategy is to:  

Maintain a highly efficient and cost effective business platform characterized by operational excellence

Focus on markets where effective scale and scope can be built and sustained

Balance the stability of mature businesses with the higher growth potential of emerging businesses

Enhance fit among Sun Life Financials various businesses, finding opportunities to
integrate the businesses to create additional value   ENTERPRISE
OBJECTIVES  key areas of focus helping to achieve strategic objectives: Customer Focus
    
    Leadership Development
    
    Enhancing Productivity
    
    Accelerating Growth
    
    Risk ManagementTo infuse the voice of the
customer into the
organization, leading to
enhanced customer and
advisor experience
    
    To ensure the recruitment,
development and
retention of individuals
with appropriate skills to
lead the business in
meeting evolving
customer needs and
business requirements
    
    To ensure ongoing
productivity
improvements in support
of enhanced customer and
advisor services and
improved profitability
through efficiency gains
    
    To grow both top and
bottom lines through
product and service
innovation, distribution
expansion and optimizing
the use of capital
    
    To ensure the ongoing
development and
execution of risk
management processes
and practices to mitigate
risks and maximize returns
 10     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis Financial Performance and
Objectives Medium-Term
    
    
    
    
    
    
    2004 AchievementsMeasure
    
    Goals
    
    
    2004 Results
    
    
    vs. GoalsOperating
EPS(1)GrowthSun Life Financials earnings are sensitive to a
number of external factors including equity capital
markets, interest rates and currency exchange rates
    
    
    10%*
    
    
    
    16.4%**
    
    
    Exceeded targetOperating ROE(1)GrowthGrowth in ROE is a significant driver of
shareholder value and continues to be a major
    
    
    75 to 100focus for management across all businesses
    
    basis points*
    
    140 basis points**
    
    Exceeded targetDividend Payout Ratio(2)The payment of common share dividends is an
indicator of managements confidence in the
Companys long-term ability to generate capital
as well as its significant capital strength and
flexibility
    
    25% to 35%
    
    
    30%
    
    
    Met target
  *

The medium-term goals assume the following conditions: 

A rise in the average level of key equity market indices, primarily
the S&P 500, by approximately 7% to 8%

A steady increase in North American interest rates of approximately
100 basis points across the yield curve, with 5-year and 10-year U.S. Treasury
bonds the primary focus

Stability in exchange rates between the Canadian dollar and foreign
currencies, primarily the U.S. dollar and the pound sterling **

Excluding the impact of currency exchange rate changes, operating EPS and operating
ROE would have been up 19.6% and 190 basis points, respectively, from 2003.   (1)

Operating EPS and operating ROE are non-GAAP measures. For additional information see
the section under the heading Non-GAAP Financial Measures on page 17.(2)

Represents ratio of common shareholders dividends to shareholders operating net
income. Overview of Business Sun Life Financial is a leading international financial services organization, operating
under a balanced business model by providing a wide range of savings, investment management,
retirement, pension and life and health insurance products and services to individual and corporate
customers. Sun Life Financials operations are divided into reportable segments that reflect its
management and internal financial reporting structures. Each segment has its own management and is
responsible for its financial performance. Generally, the segments derive their earnings from
wealth management and protection products and services. As of December 31, 2004, the Companys
business segments were: Sun Life Financial Canada (SLF Canada), Sun Life Financial United
States (SLF U.S.), MFS Investment Management (MFS), Sun Life
Financial Asia (SLF Asia), Sun Life Financial United Kingdom (SLF U.K.) and
Corporate Capital. Corporate Capital primarily included investments and expenses of a corporate
nature for which management responsibility resided in the Companys corporate office. Where
appropriate, information on a reportable segment has been presented both in Canadian dollars and
the segments local currency to facilitate the analysis of underlying business trends. DRIVERS OF PROFITABILITY The profitability of the Companys operations depends on, or is affected by, in large part, the
following primary factors:  

External factors, including changes in equity market performance, interest rates,
currency exchange rates and regulations

The amount and composition of assets under management

The management of market and credit risks

The maintenance of spreads between interest credited to policyholders and investment returns

The management of the risks inherent in products with guaranteed benefit options

Mortality and morbidity rates

Surrender and lapse rates

The management of product pricing

Expense management A description of the Companys risk factors can be found in SLF Inc.s 2004 Annual
Information Form (AIF) under the heading Risk Factors. Annual Report 2004 | www.sunlife.com     11




---



##### 



Managements Discussion and Analysis PRODUCTS AND SERVICES BY BUSINESS SEGMENT The Companys portfolio of products and services by business segment is summarized in the following
table. SLF Canada
    
    
    SLF U.S.
    
    
    MFS
    
    
    SLF Asia
    
    
    SLF U.K.Individual life insurance
    
    
    l
    
    
    
    l
    
    
    
    
    
    
    
    l
    
    
    
    lIndividual annuity and saving products
    
    
    l
    
    
    
    l
    
    
    
    l
    
    
    
    l
    
    
    
    lGroup life and health insurance
    
    
    l
    
    
    
    l
    
    
    
    
    
    
    
    lGroup pensions and retirement products
    
    
    l
    
    
    
    
    
    
    
    l
    
    
    
    lMutual funds
    
    
    l
    
    
    
    
    
    
    
    l
    
    
    
    lAsset management services
    
    
    l
    
    
    
    l
    
    
    
    l
    
    
    
    lIndividual health insurance
    
    
    lReinsurance  life retrocession
    
    
    l
 DISTRIBUTION The Company distributes its individual wealth and protection products through multiple distribution
channels, including career or direct sales agents, independent general agents and brokers,
financial intermediaries and banks. The Companys group life and health products are distributed through sales representatives in
co-operation with independent brokers and benefit consultants. Group retirement products are
distributed primarily through pension consultants, the Companys in-house sales force and brokers
and advisors. Performance Overview 2004 PERFORMANCE The Company reported a fourth consecutive year of record earnings, with shareholders operating net
income(1)for the year of $1,740 million, up 14% compared to $1,520 million in 2003. The
solid financial results were achieved despite the significant strengthening of the Canadian dollar
against foreign currencies during 2004, which reduced 2004 shareholders operating net income by
$47 million. Reported shareholders net income for the year was $1,681 million, up $372 million
compared to $1,309 million in 2003. Reported shareholders net income for 2004 and 2003 included
regulatory settlement provisions of $59 million and $211 million, respectively, described in
Non-GAAP Financial Measures on page 17. With the completion of the integration of Clarica Life Insurance Company (Clarica), SLF
Canada renewed its focus on customer service and product development. During 2004, the Group
Benefits and Group Retirement Services (GRS) business units launched new customer service
websites and introduced industry-leading technology to enhance the customer experience. GRS
won awards from Benefits Canadaand the Life Communicators Association for its excellence and
innovation in customer service and communications. In the fourth quarter of 2004, the Individual
Insurance and Investments business unit introduced a repriced universal life product to provide a
more competitive position in the wholesale distribution channel and began expanding wholesale
distribution relationships. SLF U.S. undertook several key initiatives in 2004 to achieve operational efficiencies,
strengthen customer relationships, and enhance its product lines. With the business strategy to
streamline operational and administrative functions across its business units, a new service centre
was created to provide centralized back-office services and a call centre for all of the business units of SLF U.S. The service centre
will help lower unit costs, while increasing efficiency and improving service. In July 2004, the
Group Life and Health business unit expanded its distribution capabilities by opening four new
sales offices, SLF U.S.s largest expansion of group sales offices to date. This business
unit also increased the size of its distribution force by 26% to 130 representatives in 2004.
During 2004, the Annuities business unit rebranded and updated its variable annuity line to include
new minimum guarantees and living benefit features. The equity-indexed annuity products were also
updated. SLF U.S.s Multipoint product was the third best selling indexed annuity product
in the United States in 2004. During 2004, both SLF Canada and SLF U.S. revitalized their senior management
teams, which are well aligned to champion initiatives in customer focus, operational excellence and
business growth. In 2004, MFS implemented a number of reforms to address regulatory issues affecting the
U.S. mutual fund industry and as a result of its settlements with the United States
Securities and Exchange Commission (SEC) and other U.S. regulators. It
abolished the use of brokerage commissions, or soft dollar arrangements, to acquire third-party
research and market data services. Measures such as increased staffing and systems capabilities and
the imposition of redemption fees on mutual funds were taken to enhance the monitoring of
shareholder trading practices, and to deter market timing and late trading. MFS also
improved the transparency of its mutual fund operations through expanded disclosure of fund
expenses, portfolio turnover and brokerage costs. These reforms helped restore investor confidence
and MFSs reputation in the marketplace.  (1)

Operating net income is a non-GAAP measure and excludes the charges for the MFS
regulatory settlements described in this MD&A under the heading Non-GAAP Financial Measures on
page 17. 12     Sun Life Financial Inc. | Annual Report 2004




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##### 



Managements Discussion and Analysis SLF Asia demonstrated its high growth potential in 2004, reporting brisk sales in all
business units despite the stronger Canadian dollar. On a local currency basis, sales doubled from
2003, primarily driven by robust individual life sales in India. In 2004, SLF Asia
improved its operational efficiencies through the integration of the three Philippine subsidiaries
and the migration to a new administration system in the Hong Kong operations. It also expanded its
distribution presence in Asia, with the number of career agents more than doubled in Hong Kong, up
45% in Indonesia, and up 29% in the Philippines. The Companys ability to maintain strong financial performance in the face of a challenging
operational environment and the weakening of foreign currencies against the Canadian dollar
reflects the strength of its diversified and well-balanced portfolio, prudent and disciplined
investment strategies and effective risk management. 2005 OUTLOOK Sun Life Financials earnings are affected by the international nature of its significant
operations in Canada, the United States, the United Kingdom, the Philippines, India, China and
other countries, and the economic, business, political, regulatory and capital market conditions in
these areas as well as fluctuations of foreign currencies. The Company has a disciplined risk
management program that includes a formal process for the identification and potential mitigation
of these risks to the Companys earnings, liquidity and capital strength. The Companys fixed income products, in particular, are affected by changes in interest rates.
Minimum rate guarantees built into certain annuity products reduce the spread between the Companys
interest earned and interest-credited rates in a low interest environment. Management will continue
to take the required actions, including changes in product design and pricing, to help provide for
long-term profitability. As more U.S. states enact legislation reducing statutory
required minimum interest rate guarantees, the Company will continue to adjust credited interest
rates on new products as permitted. The Company also uses derivatives and asset/liability matching
programs to help reduce the impact of interest rate volatility on its earnings. A portion of the Companys earnings is also affected by volatility in the equity markets due to
asset-based fees, equity-based investment income and segregated fund and annuity guarantees. The
Company attempts to reduce the impact of this volatility, on guarantees in particular, through
hedging by using derivative arrangements. The Canadian life insurance industry is now heavily influenced by three companies, of which Sun
Life Financial is one. The Company has completed its major integration activities, arising from its
acquisition of Clarica, ahead of the competition and is well positioned to capitalize on the
operational efficiencies attained and to re-focus on product development and customer service in
2005 to achieve long-term growth. The Company is also positioned to achieve top-line growth in 2005 with the planned revitalization
of the wholesale distribution channel in Canada, expansion of its wholesale annuity and group
insurance distribution networks in the United States, and expected continuation of the sales
momentum achieved in SLF Asia in 2004. In addition, MFS is positioned to benefit from
growth in equity markets. It is expected that the regulatory environment in the North American insurance and investment
industries will continue to evolve in 2005, with ongoing investigations into contingent
commissions, market timing, frequent trading and other matters. The economic environment in the
Asian jurisdictions in which the Company operates continues to change with legislative proposals
for easing of foreign ownership restrictions in India, changes in China providing for geographical
and product segment expansion, and a new government in Indonesia. Management views these changes as
positive growth opportunities for 2005 and beyond. The South Asia region suffered the disastrous effects of a tsunami in late 2004, which caused
significant loss of life and devastation. In addition to an immediate $100,000 donation, Sun Life
Financial, along with its employees and advisors, has established a special campaign and hopes
jointly to raise $1 million to contribute to the relief efforts. Sun Life Financials operations in
this region were not materially affected and Sun Life Financial suffered no material financial
losses. In 2004, almost half of the Companys earnings were derived from jurisdictions outside of Canada
and were affected by the fluctuations of foreign currencies, in particular the U.S.
dollar, against the Canadian dollar. The strengthening of the Canadian dollar during 2004
reduced reported shareholders net income by $43 million. Continued strengthening of the Canadian
dollar in the future could suppress earnings levels. In spite of the factors outlined above that may affect the Companys earnings, management believes
the Companys long-term growth momentum remains sound. In particular, management believes its
balanced business model sufficiently diversifies the Companys operations geographically and
between the insurance and asset-based product lines to achieve stable long-term growth into the
future. Annual Report 2004 | www.sunlife.com     13




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##### 



Managements Discussion and Analysis Consolidated Results of
Operations SHAREHOLDERS NET INCOME Operating earnings(1), which exclude special items outlined on page 17, increased by 14%
to $1,740 million in 2004 from $1,520 million in 2003. Basic operating EPS were $2.91, up
16% from $2.50 in 2003. The solid operating earnings performance reflected the Companys continuing
success in growing its core businesses and diversifying its earnings stream. Excluding the impact
of currency exchange rate changes, operating earnings would have been $1,787 million, up 18% from
2003, and operating EPS would have been $2.99, up 20% from a year ago. For the year ended December 31, 2004, reported shareholders net income reached $1,681 million,
representing an increase of $372 million over $1,309 million for the year ended December 31, 2003.
Basic EPS increased to $2.81 from $2.15 in 2003. The appreciation of the Canadian dollar
against foreign currencies in the year reduced shareholders net income by $43 million. EARNINGS AND EARNINGS PER SHARE ($ millions)
    
    2004
    
    
    2003
    
    
    2002Net Income fromContinuing Operations
    
    
    1,694
    
    
    
    1,308
    
    
    
    1,033Less: Loss fromDiscontinued Operations
    
    
    
    
    
    
    
    
    
    
    36Total Net Income
    
    
    1,694
    
    
    
    1,308
    
    
    
    997Less: ParticipatingPolicyholders Net Income
    
    
    13
    
    
    
    (1
    )
    
    
    (1
    )Shareholders Net Income
    
    
    1,681
    
    
    
    1,309
    
    
    
    998Less: Special Items
    
    
    (59
    )
    
    
    (211
    )
    
    
    (262
    )Operating Earnings
    
    
    1,740
    
    
    
    1,520
    
    
    
    1,260Basic EPS from: Continuing Operations
    
    
    2.81
    
    
    
    2.15
    
    
    
    1.91 Shareholders Net Income
    
    
    2.81
    
    
    
    2.15
    
    
    
    1.84 Operating Earnings
    
    
    2.91
    
    
    
    2.50
    
    
    
    2.32Diluted EPS from: Continuing Operations
    
    
    2.79
    
    
    
    2.15
    
    
    
    1.90 Shareholders Net Income
    
    
    2.79
    
    
    
    2.15
    
    
    
    1.83 Operating Earnings
    
    
    2.88
    
    
    
    2.50
    
    
    
    2.32
 SLF Canada produced solid results in 2004, with earnings rising to $967 million, 17%
higher than 2003. Benefiting from favourable equity market conditions, Group Retirement Services
reported earnings growth in excess of 20% and earnings from the Companys equity ownership in
CI Fund Management Inc. (CI Funds) grew 52%, reflecting in part the increasing
benefits of the strategic partnership between the Company and CI Funds. Improved Group
Benefits results and better mortality experience in the Reinsurance operations also contributed to
the increase. Despite a 7% depreciation of the U.S. currency against the Canadian dollar during 2004,
which reduced SLF U.S. earnings by $30 million, SLF U.S. reported earnings of
$391 million, an increase of 29% from last year. The increase reflected the impact of higher equity
market levels, improved credit experience and a lower effective tax rate due to favourable
experience in respect of prior years audits and other items. As described on page 17, the Company took charges of $59 million after tax in the first quarter of
2004 and $211 million after tax in the fourth quarter of 2003 in relation to settlements reached
between MFS and certain regulators. Excluding these charges, MFS earnings
increased 3% over the prior year to $173 million in 2004. The impact of currency movements during
2004 reduced earnings by $13 million. SLF Asia reported earnings of $45 million in 2004, or $8 million higher than 2003. The
increase was primarily driven by higher investment yields in Hong Kong and expense management
initiatives in the Philippines. On a local currency basis, earnings increased 40% compared to 2003. SLF U.K.s 2004 earnings declined 15% from 2003 primarily due to reduced earnings in the
group life business mostly arising from worse claims experience. The renewal rights on the existing
block of business were sold in 2003, and the group life business is expected to be substantially
run off by the end of 2005. Corporate Capital losses reduced by $11 million compared to a year ago, mostly reflecting better
results in the run-off reinsurance operations. The Companys need to strengthen certain actuarial liabilities reduced its operating income before
taxes and non-controlling interests. The impact of this on shareholders net income was offset by
the reduction in income taxes due to the resolution of prior years tax issues. (NET INCOME AND ROE BAR GRAPHS)  (1)

Operating earnings and other financial information based on operating earnings,
such as operating earnings per share and operating ROE, are non-GAAP measures and exclude the
regulatory settlements and other significant items described in this MD&A under the heading
Non-GAAP Financial Measures on page 17. 14     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Managements Discussion and Analysis RETURN ON EQUITY In 2004, ROE based on operating earnings was 12.0% compared to 10.6% in 2003. Return on
shareholders equity based on reported shareholders net income was 11.6% in 2004, compared to 9.2%
in 2003. The increase in ROE reflected higher earnings as well as the impact of SLF
Inc.s share repurchases, increased dividend payments and currency exchange rates on average
equity levels. Excluding the impact of the strengthening of the Canadian dollar against foreign
currencies, ROE based on operating and reported earnings would have been 12.5% and 12.0%,
respectively, in 2004. ASSETS UNDER MANAGEMENT The Companys assets under management (AUM) comprise general funds, segregated funds and
other assets under management, which include mutual and managed funds consisting of institutional
and other third-party assets that are managed by the Company. Total AUM were $359.6
billion as at December 31, 2004, up $580 million, compared to $359.0 billion as at December 31,
2003. Increases due to market improvements and continuing business growth more than offset
reductions due to net outflows of mutual, managed and segregated funds and the strengthening of the
Canadian dollar against foreign currencies. The Companys general fund assets decreased to $107.7 billion, down $1.5 billion, or 1%, from the
December 31, 2003 level. The decrease was primarily due to the strengthening of the Canadian dollar
against foreign currencies, which reduced asset values by $3.3 billion. This decrease was partially
offset by business growth primarily in the SLF Canada Individual Insurance and
Investments and the SLF U.S. Individual Life operations. Segregated fund assets increased to $56.6 billion as at December 31, 2004, up 5% from the December
31, 2003 level. Increases in asset values of $4.6 billion due to market improvements were partially
offset by an unfavourable impact of $1.8 billion due to the strengthening of the Canadian dollar
and net outflows of $323 million as claims and withdrawals exceeded new sales. Other assets under management, not including the assets managed by CI Funds, decreased
slightly to $195.3 billion, down $446 million from the December 31, 2003 level. Market growth of
$20.0 billion was offset by net outflows of $9.2 billion and the unfavourable impact of $11.2
billion due to the strengthening of the Canadian dollar. (ASSETS UNDER MANAGEMENT BAR GRAPH) REVENUE In 2004, the Companys total revenue decreased to $21.7 billion, down $308 million from 2003,
primarily as a result of the unfavourable impact of $911 million due to the stronger Canadian
dollar. Excluding the effect of currency, revenue increased $603 million with all operating
business groups, except SLF U.K., reporting revenue growth. SLF U.K.s revenues
declined due to the continued run-off of the closed-block business. Life insurance premiums declined by $359 million primarily due to an unfavourable impact of $250
million arising from the strengthening of the Canadian dollar. The run-off of SLF U.K.s
individual and group life insurance operations also contributed $207 million to the decline. Health
insurance premiums were largely unchanged from the prior years level as higher premiums in SLF
Canada and SLF U.S. were offset by the impact of the sale of SLF U.K.s
group business in 2003 and an unfavourable currency exchange rate impact of $47 million. Annuity premiums decreased 5% to $4.6 billion in 2004 compared to $4.8 billion in 2003 primarily
due to the currency impact of a strengthening Canadian dollar. Investment income increased $221 million or 4% in 2004 from $5.7 billion in 2003. The increase was
primarily due to lower provisions for investment losses and higher equity-based income, partially
offset by the impact of the strengthening of the Canadian dollar, which reduced investment income
by $180 million. Fee income climbed to $2.9 billion in 2004, or 3% above the 2003 level. The increase reflected
growth in fee-based assets, partially offset by an unfavourable impact of $174 million due to the
strengthening of the Canadian dollar versus foreign currencies. TOTAL REVENUE ($ millions)
    
    2004
    
    
    2003
    
    
    2002PremiumsAnnuities
    
    
    4,588
    
    
    
    4,805
    
    
    
    7,402Life Insurance
    
    
    5,966
    
    
    
    6,325
    
    
    
    5,403Health Insurance
    
    
    2,367
    
    
    
    2,413
    
    
    
    2,070Total Premiums
    
    
    12,921
    
    
    
    13,543
    
    
    
    14,875Net Investment Income
    
    
    5,924
    
    
    
    5,703
    
    
    
    5,131Fee Income
    
    
    2,903
    
    
    
    2,810
    
    
    
    3,095Total
    
    
    21,748
    
    
    
    22,056
    
    
    
    23,101
 Annual Report 2004 | www.sunlife.com     15




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##### 



Managements Discussion and Analysis BENEFIT PAYMENTS The Company has a variety of current and future benefit payment obligations that affect overall
earnings performance. Payments to policyholders, beneficiaries and depositors in 2004 were $12.5
billion, down $394 million from 2003, primarily due to the effect of the strengthening of the
Canadian dollar. Transfers to segregated funds increased 10%, reflecting higher demand for equity
market-based products. The 2004 increase in actuarial liabilities was $85 million lower than 2003,
reflecting primarily the impact of a stronger Canadian dollar and the net outflow of fixed annuity
products, partially offset by the impact of higher U.S. equity-indexed annuity sales. BENEFIT PAYMENTS ($ millions)
    
    
    2004
    
    
    
    2003
    
    
    
    2002Payments to Policyholders,
Beneficiaries and Depositors
    
    
    12,532
    
    
    
    12,926
    
    
    
    11,688Net Transfers to Segregated Funds
    
    
    600
    
    
    
    544
    
    
    
    1,329Increase in Actuarial Liabilities
    
    
    1,425
    
    
    
    1,510
    
    
    
    3,822Total
    
    
    14,557
    
    
    
    14,980
    
    
    
    16,839
 EXPENSES AND OTHER Commission expenses increased $68 million in 2004, up 4% from 2003. The increase reflected
primarily the impact of higher equity-indexed annuity sales in the U.S., partially offset
by the strengthening of the Canadian dollar against the U.S. currency. Excluding pre-tax regulatory-related charges of $62 million in 2004 and $320 million in 2003
related to MFS regulatory settlements, 2004 operating expenses of $2.8 billion were comparable
to 2003. The increase as a result of increased investments in customer service initiatives in
SLF Canada, as well as higher MFS operating expenses related to compliance with 2003 regulatory issues, was mostly
offset by the $123 million impact of a stronger Canadian dollar. Interest expense decreased $14 million to $195 million in 2004 compared to $209 million in 2003.
The decrease primarily reflected the impact of the redemption of $165 million of subordinated notes
by Sun Canada Financial Co., a subsidiary of SLF Inc., in September 2003, as well as the
impact of the weakened U.S. currency on U.S. dollar denominated interest
payments. EXPENSES AND OTHER ($ millions)
    
    2004
    
    
    2003
    
    
    2002Commissions
    
    
    1,916
    
    
    
    1,848
    
    
    
    1,909Operating Expenses
    
    
    2,769
    
    
    
    2,768
    
    
    
    2,779Regulatory Settlement
Provisions Related to MFS
    
    
    62
    
    
    
    320
    
    
    
    Premium Taxes
    
    
    182
    
    
    
    171
    
    
    
    168Interest Expense
    
    
    195
    
    
    
    209
    
    
    
    192Income Taxes
    
    
    293
    
    
    
    387
    
    
    
    98Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    80
    
    
    
    65
    
    
    
    83Loss from Discontinued
Operations, Net of Taxes
    
    
    
    
    
    
    
    
    
    
    36Participating Policyholders
Net Income (Loss)
    
    
    13
    
    
    
    (1
    )
    
    
    (1
    )Total
    
    
    5,510
    
    
    
    5,767
    
    
    
    5,264
 QUARTERLY INFORMATION Key quarterly financial information for the most recent two fiscal years is summarized in the table
below: Quarterly Information ($ millions)
    
    2004
    
    
    
    2003Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Shareholders Net Income Operating(1)
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    425
    
    
    
    
    417
    
    
    
    394
    
    
    
    366
    
    
    
    343 Reported
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    366
    
    
    
    
    206
    
    
    
    394
    
    
    
    366
    
    
    
    343Basic EPS Operating(1)
    
    
    0.74
    
    
    
    0.73
    
    
    
    0.73
    
    
    
    0.71
    
    
    
    
    0.69
    
    
    
    0.65
    
    
    
    0.60
    
    
    
    0.56 Reported
    
    
    0.74
    
    
    
    0.73
    
    
    
    0.73
    
    
    
    0.61
    
    
    
    
    0.34
    
    
    
    0.65
    
    
    
    0.60
    
    
    
    0.56Total Revenue
    
    
    5,269
    
    
    
    5,390
    
    
    
    5,551
    
    
    
    5,538
    
    
    
    
    5,437
    
    
    
    5,282
    
    
    
    5,579
    
    
    
    5,758Total Assets Under Management
    
    
    359,604
    
    
    
    355,391
    
    
    
    372,956
    
    
    
    369,602
    
    
    
    
    359,024
    
    
    
    348,481
    
    
    
    342,176
    
    
    
    336,803
  (1)

Operating earnings, operating EPS and operating ROE are non-GAAP measures and
exclude special items described on page 17. For additional information see the section under the
heading Non-GAAP Financial Measures on page 17. 16     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis Non-GAAP Financial Measures Management evaluates the Companys performance on the basis of financial measures prepared in
accordance with Canadian generally accepted accounting principles (GAAP), including
earnings, EPS and ROE. Management also measures the Companys performance based on
certain non-GAAP measures, including operating earnings and other financial measures
based on operating earnings, such as operating EPS and operating ROE. These
non-GAAP financial measures exclude certain special items that are not operational or
ongoing in nature. Management believes that these non-GAAP financial measures provide
information useful to investors in understanding the Companys performance and facilitate the
comparison of the quarterly and full-year results of the Companys ongoing business operations.
These non-GAAP financial measures do not have any standardized meaning and may not be
comparable with similar measures used by other companies. They should not be viewed as alternative
to measures of financial performance determined in accordance with GAAP. Financial
results and measures used in this MD&A that are not referred to as operating and not
expressed as excluding the impact of currency fluctuations have been determined in accordance with GAAP. The special items discussed below are not included in the Companys operating earnings, operating
EPS and operating ROE. The Company recorded a $59 million after-tax charge to income in the first quarter of 2004 in
connection with the March 31, 2004 settlements by MFS of an administrative proceeding
with the SEC regarding disclosure of brokerage allocation practices. Under the terms of
that settlement MFS agreed to pay a US $50 million penalty to compensate certain MFS funds. The Company recorded a $211 million after-tax charge to income in the fourth quarter of 2003 in
connection with the February 5, 2004, settlements with federal and state regulators with respect to
alleged false and misleading information in certain MFS fund prospectuses regarding
market timing and related issues. In these settlements, MFS agreed to pay
US $225 million to compensate investors in certain funds. Additional information concerning these MFS regulatory settlements is included in this
MD&A under the headings MFS Investment Management and Legal and Regulatory
Proceedings. In 2002, the Companys net income was reduced by $262 million, as a result of the following special
items: (i) the $173 million after-tax gain on the sale of Spectrum Investment Management Limited
(Spectrum) to CI Funds, (ii) the net loss of $48 million on the disposition of Clarica
U.S., (iii) after-tax restructuring and other charges of $217 million in connection with
the acquisition of Clarica, (iv) an after-tax charge of $150 million related to guaranteed minimum
income benefits and non-Unicover related accident and health risks in the Companys run-off
reinsurance business, and (v) other special items which had a net unfavourable impact of $20
million on net income. The earnings per share impact of the items described above is summarized in the following table. IMPACT OF SPECIAL ITEMS ON BASIC EARNINGS PER SHARE ($ per share)
    
    2004
    
    
    2003
    
    
    2002EPS  Reported
    
    
    2.81
    
    
    
    2.15
    
    
    
    1.84(GAAP-based)Net Gains (Losses) on Special Items
    
    
    (0.10
    )
    
    
    (0.35
    )
    
    
    (0.48
    )EPS  Operating
    
    
    2.91
    
    
    
    2.50
    
    
    
    2.32
 RECONCILIATION OF OPERATING EARNINGS ($ millions)
    
    2004
    
    
    
    2003
    
    
    
    2002Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Total
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Total
    
    
    
    TotalReported Earnings (GAAP-based)
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    366
    
    
    
    1,681
    
    
    
    
    206
    
    
    
    394
    
    
    
    366
    
    
    
    343
    
    
    
    1,309
    
    
    
    
    998After-Tax Gains (Losses) on Special ItemsProvisions for MFS Regulatory Settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (59
    )
    
    
    
    (211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211
    )Net Gain on Sale of Spectrum
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Net Loss on Sale of Clarica U.S.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )SLF Canada Restructuring and Other Charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )Charge to the Run-off Block of Reinsurance Business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )Total Special Items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (59
    )
    
    
    
    (211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211
    )
    
    
    
    (262
    )Operating Earnings
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    425
    
    
    
    1,740
    
    
    
    
    417
    
    
    
    394
    
    
    
    366
    
    
    
    343
    
    
    
    1,520
    
    
    
    
    1,260
 Annual Report 2004 |
www.sunlife.com   17




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##### 



Managements Discussion and Analysis Sun Life Financial Canada BUSINESS PROFILE SLF Canada has a leadership position in the Canadian market with a customer base
exceeding 7 million people, representing almost a quarter of Canadas population. Through its four
operating units  Individual Insurance and Investments (including the Companys 34% interest in
CI Funds), Group Benefits, Group Retirement Services, and Reinsurance, McLean Budden and
Other, SLF Canada offers a full range of financial products and services including
individual life and health insurance, individual annuities, mutual funds, group life and health
insurance and group retirement products and services. SLF Canada also offers investment
management services primarily conducted by the 56%-owned subsidiary McLean Budden Limited (McLean
Budden). In 2004, SLF Canadas operations also included a life retrocession reinsurance
operation.   INDUSTRY PROFILE The life insurance industry in Canada has undergone considerable consolidation in the past decade,
resulting in three large insurers, a handful of medium-sized companies and a number of smaller
companies operating in niche markets. The three largest companies collectively represent
approximately two-thirds of Canadian life and health insurance and annuity market segments by
in-force business. With a slow-growing Canadian population, the Canadian insurance market is faced
with limited growth. However, the aging of the population creates opportunities in other markets
such as health and retirement products. Given this industry structure and demographic trend,
economy of scale, customer service experience, distribution capabilities and technology innovation
become increasingly critical to business success. COMPETITIVE POSITION(1) Sun Life Financial is one of three major Canadian life insurance organizations and is a significant
and leading player in most of the Canadian markets in which it chooses to compete. It has the
necessary scale and critical mass to successfully compete in these markets. It has the largest
exclusive sales force in the Canadian life insurance industry. SLF Canada is: 


1st in defined contribution pension plans based on assets under administration

2nd in individual life insurance based on direct premiums

2nd in individual critical illness based on annualized premiums in force

3rd in group benefits based on annualized premiums and premium equivalents in force

3rd in individual annuities sales based on premiums and deposits
 In addition, CI Funds is the second largest Canadian investment fund company based on
long-term assets under management.(2) STRATEGY SLF Canada offers the domestic market competitive products and delivery systems through
two recognizable brands. The Sun Life Financial brand is used for group retirement services, group
benefits and selected individual products and distribution channels. The Clarica brand is used to
serve the individual retail market through its exclusive sales force. SLF Canadas strategy is to: 

Solidify its leadership position in its core businesses with focus on scale and
operating capabilities

Aggressively grow its Individual Insurance and Investments business by expanding its
distribution network and leveraging the industry-leading brands

Grow the group businesses by leveraging its ability to provide integrated service to
both Group Benefits and Group Retirement Services clients

Be a high performance and customer-focused organization
   2004 ACCOMPLISHMENTS  

Shareholders net income increased to $967 million, up 17% over 2003

ROE increased 150 basis points from 11.9% in 2003 to 13.4% in 2004

Ranked #1 supplier of defined contribution plans, group Registered Retirement Savings
Plans (RRSPs) and deferred profit sharing plans by Benefits Canadain 2004 

Introduced a unique critical illness insurance product providing coverage for childhood diseases

Reached agreement with Assicurazioni Generali SpA to be the exclusive Canadian member
of the international Generali Employee Benefits Network, enabling Sun Life Financial to
offer plan members access to local benefit programs in more than 70 countries

Continued to see enhanced satisfaction ratings in all business areas in regular
customer surveys

Continued to leverage synergies, streamline operations and optimize administrative
functions resulting in reduced expenses
  (1)

Competitive statistics are based on published information at and for the year
ended December 31, 2004 or the information available for the latest period before December 31, 2004.(2)

Long-term assets under management include mutual, segregated,
labour-sponsored and other funds and pools and exclude money market funds. 18     Sun Life Financial Inc. | Annual Report 2004




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##### 



Managements Discussion and Analysis  

The SLF Canada integration of Clarica and Sun Life Assurance Company of Canada (Sun
Life Assurance) operations was recognized as Project of the Year at the ProjectWorld
Canada National Conference and Trade Show for excellence in project management

GRS received six awards for investor education and advertising from the Life
Communicators Association 2005 PRIORITIES  

Grow its Individual Insurance and Investments business by increasing distribution
strength to achieve $25 million in sales in the wholesale channel, increasing the
productivity of its exclusive Clarica Sales Force and developing more competitive products

Leverage the unique Total Benefits offering in the Group Benefits and GRS businesses

Take advantage of the opportunity created by being the first of the big three
insurers to complete integration by refocusing on product development and customer service
to gain market share

Continue to increase customer and advisor satisfaction and loyalty

Continue to streamline business processes to reduce operating costs and enhance the customer experience   FINANCIAL AND BUSINESS RESULTS SLF Canadas shareholders net income increased to $967 million, up $138 million or 17%
from $829 million in 2003. The increase was primarily due to increased earnings from the investment
in CI Funds, improved equity markets, improved mortality experience in Reinsurance and
higher earnings in Group Benefits. Revenue for the year was $8.6 billion, comparable to the 2003 level. Driven by the shift in
consumer preference for equity market-based products, individual annuity premiums decreased $192
million, offsetting business growth in other areas of SLF Canada. Improving equity
markets throughout the year and increased deposits and sales in the asset-based lines of business
helped increase fee income by 11% to $536 million. ROE rose to 13.4% compared to 11.9% a year ago, reflecting the strong growth in earnings. Total assets under management were $106.3 billion at the end of 2004, up 6% from the 2003 level.
The growth was driven by higher equity market levels and net sales of segregated and managed funds. OUTLOOK With consolidation in the Canadian life insurance market largely complete, competition is
increasingly based upon customer experience and operational excellence. Being the first of the
major Canadian life insurance companies to complete the integration of its recent acquisition, SLF
Canada has refocused on customer service, product development, technological innovation and
operational efficiencies, and is well positioned to capitalize on its competitive strengths to
retain existing customers and acquire new business. SUMMARY STATEMENT OF OPERATIONS ($ millions, except as noted)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    5,372
    
    
    
    5,605
    
    
    
    4,145Net Investment Income
    
    
    2,706
    
    
    
    2,546
    
    
    
    1,974Fee Income
    
    
    536
    
    
    
    485
    
    
    
    444Total Revenue
    
    
    8,614
    
    
    
    8,636
    
    
    
    6,563Client Disbursements & Change
in Actuarial Liabilities
    
    
    5,649
    
    
    
    5,891
    
    
    
    4,625Commissions & Other Expenses
    
    
    1,683
    
    
    
    1,566
    
    
    
    1,219Income Taxes
    
    
    289
    
    
    
    342
    
    
    
    191Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    14
    
    
    
    11
    
    
    
    14Par Policyholders Income (Loss)
    
    
    12
    
    
    
    (3
    )
    
    
    1Shareholders Net Income
    
    
    967
    
    
    
    829
    
    
    
    513Selected Financial InformationReturn on Equity
    
    
    13.4
    %
    
    
    11.9
    %
    
    
    11.3
    %Total AUM ($ billions)
    
    
    106.3
    
    
    
    100.2
    
    
    
    89.2
 Sun Life Financial Canada
 Individual Insurance and Investments BUSINESS PROFILE SLF Canadas Individual Insurance and Investments business unit offers a full range of
life and health insurance products as well as savings and retirement products tailored to the needs
of individual customers. Its principal insurance products include universal life, term life,
permanent life, critical illness, long-term care and personal health insurance. Its principal
investment products include payout and accumulation annuities, market-based funds and Registered
Retirement Income Funds. These products are marketed through a distinctive, multi-channel
distribution model comprising the exclusive Clarica Sales Force with sales advisors, managers and
product specialists helping customers meet their financial needs through face-to-face advice, and a
wholesale distribution channel built upon partnerships with investment dealers, mutual fund
dealers, other insurance companies and managing general agents (MGA). The Companys earnings from its 34% ownership interest in CI Funds are included in the
results of SLF Canadas Individual Insurance and Investments unit. As one of Canadas
largest investment fund companies, CI Funds had assets under management of $51.5 billion
as at December 31, 2004. The Clarica Sales Force is an important contributor to CI Funds sales. Annual Report 2004 | www.sunlife.com     19




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##### 



Managements Discussion and Analysis   2004 ACCOMPLISHMENTS  

Earnings of $493 million were up 18% over 2003

Individual health insurance sales increased to $29 million, up 16% from 2003

Sales in market-based products through the Clarica Sales Force increased 51% over 2003

Launched new critical illness and joint term life insurance products, and repriced
level cost of insurance universal life products

Re-entered the MGA channel by contracting with a number of new MGAs across Canada   FINANCIAL AND BUSINESS RESULTS In response to customer and advisor needs, Individual Insurance and Investments successfully
launched several new products during 2004. In particular, SLF Canadas new critical
illness product offers coverage for two additional illnesses and provides access to the Best
Doctors service to give customers access to medical advice. The focus of the business unit will
continue to be on increasing sales through the wholesale channel, improving advisor productivity,
developing innovative products, and enhancing customer and advisor services. Earnings increased to $493 million from $419 million in 2003. These increased earnings resulted
from improved mortality and morbidity, better investment spreads primarily due to favourable credit
experience, stronger stock market performance, improved pricing for segregated fund guarantees and
reduced unit expenses, partially offset by higher new business acquisition costs and unfavourable
lapse experience. The increased scale and synergy savings from the Clarica acquisition continued to improve operating
margins and reduce unit costs during 2004. Increased productivity in the Clarica-branded exclusive sales force offset by lower sales in the
wholesale channel resulted in an overall decrease in 2004 life and health insurance sales by 4%
from the 2003 level to $136 million. SLF Canada is committed to profitable sales through
the wholesale channel and will increase its life and health insurance product offerings, expand the
number of its investment dealer and MGA relationships, and enhance its underwriting,
sales illustrations and services to this channel. Consumer preference for market-based funds due to strong market performance and lower interest
rates resulted in increased segregated fund deposits, partially offset by lower premiums from
guaranteed products. In total, wealth product sales were up 8% over 2003. SUMMARY STATEMENT OF OPERATIONS ($ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    2,267
    
    
    
    2,508
    
    
    
    1,816Net Investment Income
    
    
    1,787
    
    
    
    1,657
    
    
    
    1,126Fee Income
    
    
    142
    
    
    
    141
    
    
    
    209Total Revenue
    
    
    4,196
    
    
    
    4,306
    
    
    
    3,151Client Disbursement & Change
in Actuarial Liabilities
    
    
    2,681
    
    
    
    2,880
    
    
    
    2,152Commissions & Other Expenses
    
    
    863
    
    
    
    835
    
    
    
    696Income Taxes
    
    
    147
    
    
    
    175
    
    
    
    79Non-Controlling Interests in
Net Income of Subsidiaries
    
    
    
    
    
    
    
    
    
    
    Par Policyholders Net Income (Loss)
    
    
    12
    
    
    
    (3
    )
    
    
    1Shareholders Net Income
    
    
    493
    
    
    
    419
    
    
    
    223Selected Financial InformationIndividual
Wealth
Premiums and Deposits*
    
    
    1,442
    
    
    
    1,340
    
    
    
    835Individual
Life and Health
Sales  New Annualized
Premiums
    
    
    136
    
    
    
    141
    
    
    
    116
  *

Excludes sales of CI Funds by Clarica Sales Force. Sun Life Financial Canada
 Group Benefits BUSINESS PROFILE SLF Canadas Group Benefits business unit is a leading provider of group life and health
insurance products in Canada. The Company has a market share of approximately 21% based on premium
and premium equivalents, and provides services to more than 10,000 employers in Canada. The
business unit provides life, dental, drug, extended health care, health spending accounts,
disability and flexible benefit plans to employers of all sizes. SLF Canada competes on
its strength of scale, product offerings, regional delivery model, industry-leading technology and
e-business capabilities. The group benefit products are marketed and distributed across Canada by
experienced sales representatives in co-operation with independent brokers and benefit consultants.   2004 ACCOMPLISHMENTS  

Achieved earnings of $246 million, up 6% from 2003

Sales increased to $212 million, up 17% from 2003. Good client retention, with
cancellation rates at less than 4% of premium and premium equivalents

Industry-leading technology provided through a new member services website and
launching Benefits Explorer on the website used by plan members   20     Sun Life Financial Inc. | Annual Report 2004




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##### 



Managements Discussion and Analysis FINANCIAL AND BUSINESS RESULTS In 2004, Group Benefits increased investments in customer service initiatives aimed at improving
retention of existing customers and winning new business. The new service initiatives focused on
incorporating the voice of the customer to enhance customer satisfaction and loyalty. Group Benefits continued to grow profitably through its innovative approach of providing integrated
group benefits and group retirement services. This integrated approach allows plan members to
manage their group benefits and retirement investments through a single point of access and a
branded member site specific to their employer. The launch of Benefits Explorer, a web-based tool,
further enhanced the plan member experience by providing easy access to relevant benefits coverage
information. In addition to introducing new technology innovations, Group Benefits launched a new group critical
illness product and announced new international benefits solutions for clients with employees
working outside Canada. Group Benefits reported earnings of $246 million in 2004, an increase of $13 million or 6%,
compared to 2003. The increase in earnings reflected continued growth in the business in force. Revenue for the year grew by $42 million, or 2%, to $2.8 billion primarily due to increased
premiums from business growth. Sales, measured by annualized premiums and premium equivalents, increased 17% to $212 million for
2004. The increase reflected the addition of several large cases. SUMMARY STATEMENT OF OPERATIONS ($ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    2,284
    
    
    
    2,244
    
    
    
    1,765Net Investment Income
    
    
    382
    
    
    
    383
    
    
    
    358Fee Income
    
    
    120
    
    
    
    117
    
    
    
    90Total Revenue
    
    
    2,786
    
    
    
    2,744
    
    
    
    2,213Client Disbursement & Change
in Actuarial Liabilities
    
    
    1,962
    
    
    
    1,964
    
    
    
    1,629Commissions & Other Expenses
    
    
    489
    
    
    
    451
    
    
    
    345Income Taxes
    
    
    89
    
    
    
    96
    
    
    
    82Shareholders Net Income
    
    
    246
    
    
    
    233
    
    
    
    157Selected Financial InformationSales  Annualized Premiums
and ASO Premium Equivalents
    
    
    212
    
    
    
    181
    
    
    
    192
 Sun Life Financial Canada  Group Retirement Services BUSINESS PROFILE SLF Canadas Group Retirement Services business unit is the number one provider of
defined contribution plans in Canada.(1) GRS also offers other group
retirement services and products, including investment only segregated funds and fixed rate
annuities, group life annuities and pensioner payroll services. With its strength in product and
investment offerings, plan sponsor and member services and technology capabilities, GRS
is well equipped to meet the complex plan and service requirements of medium to large
corporations and associations, and to provide cost effective solutions to smaller markets. GRS
had a market share of approximately 32% in Canada based on assets under management, and its
group products covered almost 1.2 million plan participants at the end of 2004. GRSs
products and services are distributed through pension consultants, brokers and advisors.   2004 ACCOMPLISHMENTS  

Led the Canadian industry in new business performance in 2004, with $1.8 billion in sales

Earnings increased to $106 million, up 20% from 2003

Ranked top supplier of defined contribution plans, group RRSPs and deferred profit
sharing plans by Benefits Canadain 2004

Successful ISO 9001:2000 certification for National Account Plan Administration

Received six awards for investor education and advertising from the Life Communicators Association

Achieved record asset retention levels with over $315 million retained in 2004   FINANCIAL AND BUSINESS RESULTS With the Clarica integration completed, GRS increased its focus on sales, asset retention
and improving member experience in 2004. GRSs net income increased $18 million or 20%
over 2003, mainly due to an increase in fees earned on higher average asset levels, improved
investment gains, and higher mortality and experience gains related to payout annuities. Sales
increased 78% to $1.8 billion, with
improvement in all product categories including small clients, large clients, payout annuities and
asset retention products. Fee income increased $14 million, mainly due to strong equity markets, positive cash flow and new
sales. Guaranteed annuity premiums were down 6% in 2004 compared to 2003 as participants
increasingly shifted their contributions toward market-based products over guaranteed funds.  (1)

As measured by Benefits Canadas 2004 Capital Accumulation Plan Report. Annual Report 2004 | www.sunlife.com     21




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##### 



Managements Discussion and Analysis SUMMARY STATEMENT OF OPERATIONS ($ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    419
    
    
    
    445
    
    
    
    335Net Investment Income
    
    
    417
    
    
    
    434
    
    
    
    435Fee Income
    
    
    166
    
    
    
    152
    
    
    
    101Total Revenue
    
    
    1,002
    
    
    
    1,031
    
    
    
    871Client Disbursement & Change
in Actuarial Liabilities
    
    
    679
    
    
    
    743
    
    
    
    668Commissions & Other Expenses
    
    
    175
    
    
    
    162
    
    
    
    115Income Taxes
    
    
    42
    
    
    
    38
    
    
    
    31Shareholders Net Income
    
    
    106
    
    
    
    88
    
    
    
    57Selected Financial InformationAUM ($ billions)
    
    
    26.4
    
    
    
    25.8
    
    
    
    23.3Number of Defined Contribution
Plan Participants (000s)
    
    
    1,162
    
    
    
    1,082
    
    
    
    1,067
 (GROSS SALES BAR GRAPH) Sun Life Financial Canada  Reinsurance, McLean Budden and Other Operations BUSINESS PROFILE In 2004, SLF Canadas Reinsurance, McLean Budden and Other operations included the
business groups reinsurance business, the 56%-owned subsidiary McLean Budden, and investment
income and expenses not directly attributable to SLF Canadas core business units. Sun Life Financials Reinsurance operations provide customized reinsurance solutions with a primary
focus on the life retrocession business in North America. The business unit is a market leader in
North America with a 29% market share based on individual life retrocession in force. The business
units leadership position in life retrocession reflects its strong expertise in pricing and
mortality risk management as well as Sun Life Assurances high financial strength rating. McLean Budden is one of the premier institutional providers of investment management services in
Canada with assets under management of $34.7 billion as at December 31, 2004.   2004 ACCOMPLISHMENTS  

Strong earnings of $122 million, up 37% from 2003

Reinsurance sales included two large blocks of in-force life retrocession business

Implemented new ceded reinsurance administration system to enhance productivity

McLean Budden awarded a large global investment management mandate, bringing total
2004 global mandate accounts to over $1.7 billion, up 62% from 2003   FINANCIAL AND BUSINESS RESULTS Reinsurance, McLean Budden and Other operations reported earnings of $122 million in 2004 compared
to $89 million in 2003. The increased earnings reflected better results in the Reinsurance
operations primarily due to better mortality experience, and stronger performance in McLean Budden
due to improved equity markets. Excluding the impact of the strengthening of the Canadian dollar against the U.S. currency,
Reinsurance revenue increased 9% over the 2003 level, reflecting robust growth within the group
life and critical illness lines of business. Sales of in-force insurance were $24 billion and included the successful
placement of two sizeable in-force mortality blocks. Although sales were down slightly from 2003,
this reflected strong performance given the ongoing consolidation within the life reinsurance
market. With higher equity market levels in 2004, McLean Buddens assets under management were $34.7
billion as at December 31, 2004, up 18% from $29.3 billion a year ago. 22     Sun Life Financial Inc. | Annual Report 2004




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##### 



Managements Discussion and Analysis SUMMARY STATEMENT OF OPERATIONS ($ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    402
    
    
    
    408
    
    
    
    229Net Investment Income
    
    
    120
    
    
    
    72
    
    
    
    55Fee Income
    
    
    108
    
    
    
    75
    
    
    
    44Total Revenue
    
    
    630
    
    
    
    555
    
    
    
    328Client Disbursement & Change
in Actuarial Liabilities
    
    
    327
    
    
    
    304
    
    
    
    176Commissions & Other Expenses
    
    
    156
    
    
    
    118
    
    
    
    63Income Taxes
    
    
    11
    
    
    
    33
    
    
    
    (1
    )Non-controlling Interests
    
    
    14
    
    
    
    11
    
    
    
    14Shareholders Net Income
    
    
    122
    
    
    
    89
    
    
    
    76
 Selected Financial Information
    
    2004
    
    
    2003
    
    
    2002Reinsurance
Sales (in-force, $ billions)
    
    
    24
    
    
    
    28
    
    
    
    16Business (in-force, $ billions)
    
    
    153
    
    
    
    160
    
    
    
    183McLean
Budden
AUM ($ billions)
    
    
    34.7
    
    
    
    29.3
    
    
    
    22.6
 Sun Life Financial United States BUSINESS PROFILE SLF U.S. has three core businesses: annuities, individual life insurance for affluent
consumers and business owners, and group life and health insurance for small to medium-sized
companies. The Annuities business unit offers fixed annuities, variable annuities, equity-indexed
annuities and investment management services. The Individual Life business unit offers single and
joint universal life and variable universal life, corporate-owned and bank-owned life insurance
(COLI/BOLI), and private placement variable annuities and variable universal life for
high net worth clients. The Group Life and Health unit offers group life insurance and group health
insurance, which includes short- and long-term disability benefits and medical stop-loss plans.   INDUSTRY PROFILE The life, health and annuity insurance markets in the United States comprise a large number of
industry players. Ongoing consolidation has led to dominance by the top 10 competitors in many of
those markets, representing a market share of over 50%. The marginalization of smaller players
creates potential acquisition opportunities for larger, better-capitalized organizations. The continued growth in the baby boomer market, which now exceeds 76 million in the United States,
continues to provide significant opportunities for SLF U.S. An increasing number of
Americans are entering retirement, and their life expectancies are on the rise. Together with a
heightened consumer awareness of the value of asset allocation and diversification, these
demographic trends provide a significant opportunity for both wealth accumulation and protection
products in the United States. COMPETITIVE POSITION(1) SLF U.S. is a significant player in the U.S. annuity and high-end specialty
insurance markets:  

1st in third-party distribution of annuities through banks, thrifts and credit unions

3rd in medical stop-loss insurance based on business in force

3rd in sales of equity-indexed annuities, featuring Multipoint, the #3 best selling product in the industry STRATEGY SLF U.S.s long-term objective is to achieve a top 10 market rank in selected markets
through the following strategies:  

Achieve recognition as product and solution experts by leveraging customer knowledge,
risk management and investment expertise

Strengthen operational scale and efficiency as a result of the implementation of the
service centre multi-site strategy

Focus and enhance distribution capabilities and coverage by increasing the size of
the individual life and annuity wholesale and group field representative networks

Pursue acquisitions to increase scale   2004 ACCOMPLISHMENTS  

Earnings improved by 38% on a local currency basis and ROE was up 310 basis points over 2003 levels

Achieved sales growth in all business lines

Opened four new group sales offices

Rose to #3 ranking in equity-indexed annuity sales in the United States  (1)

Competitive statistics are based on published information at and for the year ended
December 31, 2004 or the information available for the latest period before December 31, 2004. Annual Report 2004 | www.sunlife.com     23




---



##### 



Managements Discussion and Analysis  

Achieved net sales of US$105 million in Group Life and Health, up 31% from 2003

Advanced the service centre multi-site strategy by establishing a call centre in
Lethbridge, Alberta, and transferring certain information services functions to SLF U.S.s
Ireland technology centre

Enhanced capital efficiency through product design and structural reorganization 2005 PRIORITIES  

Continue to build distribution capabilities across all businesses. Significant
investments will be made to grow the annuities wholesale distribution force and improve
productivity levels

Continue service centre cost improvement initiatives

Pursue acquisitions for scale efficiencies and enhanced growth potential   FINANCIAL AND BUSINESS RESULTS For the year ended December 31, 2004, SLF U.S. reported earnings of $391 million, up $88
million or 29%, from 2003. The strengthening of the Canadian dollar against the U.S. currency during 2004 decreased earnings by $30 million. On a local currency basis, earnings increased 38% to US$300 million, primarily due to
improved equity markets, improved credit experience, and a lower effective tax rate due to
favourable experience in respect of prior years audits and other items. Revenue for the year was
US$7.2 billion, up US$358 million or 5% from 2003, as the increase in equity-indexed annuity sales more than offset the decline in fixed annuity sales. ROE improved to 10.4% in 2004 from 7.3% in 2003 as a result of improved earnings and the benefits of continued capital efficiency measures. OUTLOOK The U.S. marketplace is defined by increasing levels of competition and regulation as the
industry continues to consolidate. The core business units of SLF U.S. will benefit from
scale efficiencies resulting from service centre improvements, the organic growth from distribution
expansion and external growth from potential acquisitions. SUMMARY STATEMENT OF OPERATIONS (C$ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    6,465
    
    
    
    6,666
    
    
    
    9,165Net Investment Income
    
    
    2,355
    
    
    
    2,433
    
    
    
    2,069Fee Income
    
    
    609
    
    
    
    564
    
    
    
    643Total Revenue
    
    
    9,429
    
    
    
    9,663
    
    
    
    11,877Client Disbursement & Change
in Actuarial Liabilities
    
    
    7,330
    
    
    
    7,709
    
    
    
    9,838Commissions & Other Expenses
    
    
    1,652
    
    
    
    1,552
    
    
    
    1,641Income Taxes
    
    
    55
    
    
    
    97
    
    
    
    38Par Policyholders Income (Loss)
    
    
    1
    
    
    
    2
    
    
    
    (2
    )Loss (Income) from
Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    (12
    )Shareholders Net Income
    
    
    391
    
    
    
    303
    
    
    
    374Selected Financial Information(US$ millions, except as noted)Total Revenue
    
    
    7,245
    
    
    
    6,887
    
    
    
    7,562Shareholders Net Income
    
    
    300
    
    
    
    218
    
    
    
    238Return on Equity
    
    
    10.4
    %
    
    
    7.3
    %
    
    
    7.3
    %Total AUM (US$ billions)
    
    
    56.1
    
    
    
    52.7
    
    
    
    52.7
 Sun Life Financial United
States  Annuities BUSINESS PROFILE SLF U.S.s Annuities business unit represents an integral part of the Companys growth
platform in the United States. Annuities is a nationwide provider of individual annuity products in
the U.S. market. The business unit offers a complete portfolio of fixed, variable and
equity-indexed annuity products supported by broad distribution, and product and solution
capabilities arising from a combination of market focus and investment and risk management
expertise. The Annuities business unit includes SLF U.S. distribution subsidiaries, Sun
Life Financial Distributors, Inc. and Independent Financial Marketing Group, Inc. (IFMG).   2004 ACCOMPLISHMENTS  

Improved earnings by 66% on a local currency basis

Tripled equity-indexed annuity sales to achieve #3 ranking in the industry

Achieved #4 ranking out of 15, up two positions from 2003, in the Operations Managers
Roundtable (annuity industry insurance carrier and broker dealer survey)

Launched combination Guaranteed Minimum Accumulation Benefit and Guaranteed Minimum
Withdrawal Benefit (GMAB/GMWB) features

Launched innovative Secured Returns 2 rider, which has unique living benefit features
to suit a bear market and a unique bull market refund of fees at maturity   24     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Managements Discussion and Analysis FINANCIAL AND BUSINESS RESULTS Earnings improved to US$184 million, up 66% from 2003. The increase was primarily due to
the impact of improved equity markets, higher spreads on fixed annuities mostly from improved
credit experience and a lower effective tax rate attributable to favourable experience from prior
years audits. Revenue for the year increased US $257 million, 6% higher than the 2003 level due to the
increased sales of equity-indexed annuities and the impact of improved equity markets on fee
income. Overall annuity sales for 2004 improved to US$4.1 billion, up 13% from 2003, primarily on
the strength of equity-indexed annuity sales. Sales of equity-indexed annuities tripled from a year
ago primarily due to increased participation rates in the Multipoint product, advancing the Company
to the #3 ranking in nationwide equity-indexed annuity sales. During 2004, SLF U.S. more
than doubled the number of agents contracted to sell equity-indexed annuities. Fixed annuity sales of US$472 million decreased 57% from 2003, as the low interest rate environment
continued to challenge the sales of fixed income products. Variable annuity sales declined slightly from 2003, as the impact of the restructuring of the sales
force in 2004 more than offset the impact of the 2003 introduction of the living benefit feature
and the 2004 introduction of the Secured Returns 2 product rider. At December 31, 2004, total AUM were US$42.4 billion, up 5% from a year ago, primarily
due to equity market improvements. SUMMARY STATEMENT OF OPERATIONS (C$ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    3,482
    
    
    
    3,503
    
    
    
    6,297Net Investment Income
    
    
    1,601
    
    
    
    1,702
    
    
    
    1,288Fee Income
    
    
    577
    
    
    
    539
    
    
    
    621Total Revenue
    
    
    5,660
    
    
    
    5,744
    
    
    
    8,206Client Disbursement & Change
in Actuarial Liabilities
    
    
    4,435
    
    
    
    4,693
    
    
    
    7,073Commissions & Other Expenses
    
    
    975
    
    
    
    859
    
    
    
    965Income Taxes
    
    
    11
    
    
    
    37
    
    
    
    (27
    )Loss (Income) from
Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    (12
    )Shareholders Net Income
    
    
    239
    
    
    
    155
    
    
    
    207Selected Financial Information(US$ millions, except as noted)Total Revenue
    
    
    4,340
    
    
    
    4,083
    
    
    
    5,223Shareholders Net Income
    
    
    184
    
    
    
    111
    
    
    
    132Gross SalesVariable Annuities
    
    
    1,953
    
    
    
    1,973
    
    
    
    2,539Fixed Annuities
    
    
    472
    
    
    
    1,091
    
    
    
    1,690Equity-Indexed Annuities
    
    
    1,637
    
    
    
    525
    
    
    
    332Total
    
    
    4,062
    
    
    
    3,589
    
    
    
    4,561Total AUM (US$ billions)
    
    
    42.4
    
    
    
    40.3
    
    
    
    39.3
 Sun Life Financial United
States  Individual Life BUSINESS PROFILE SLF U.S.s Individual Life operations are primarily focused on servicing high net worth
individuals in the U.S. market. The business unit focuses on competitively priced,
high-quality products including single and joint universal life and variable universal life,
COLI/BOLI, and private placement variable annuities and variable universal life products
targeted at high net worth customers. The business units core distribution channels, consisting
principally of general agents and third-party intermediaries, provide access to its target
customers of affluent individuals and business owners.   2004 ACCOMPLISHMENTS  

Implemented a universal life product hedge strategy to help minimize the impact of a
low interest rate environment

High net worth private placement variable annuities and private placement variable
universal life sales grew to US$65 million, a 282% increase from 2003   FINANCIAL AND BUSINESS RESULTS Individual Life continued to deliver stable performance in 2004. Earnings were US$81
million compared to US$77 million in 2003. The increase was primarily due to higher
investment income and a lower effective tax rate due to a change in earnings mix, partially offset
by the effect of strain on new business. Revenue for the year increased US$23 million, reflecting higher investment income and
increased sales in core products, partially offset by lower sales in other lines primarily due to
the lowering of credited interest rates in 2004. Sales, excluding COLI and BOLI, were up 20% over 2003. The increase reflected
higher sales of the business units high net worth private placement products. COLI and
BOLI sales were higher in 2004 as 2003 sales were suppressed by the potential for
unfavourable legislative proposals, which were favourably modified in 2004. Annual Report
2004 | www.sunlife.com     25




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##### 



Managements Discussion and Analysis SUMMARY STATEMENT OF OPERATIONS (C$ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    2,033
    
    
    
    2,243
    
    
    
    1,943Net Investment Income
    
    
    683
    
    
    
    662
    
    
    
    701Fee Income
    
    
    28
    
    
    
    22
    
    
    
    19Total Revenue
    
    
    2,744
    
    
    
    2,927
    
    
    
    2,663Client Disbursement & Change
in Actuarial Liabilities
    
    
    2,200
    
    
    
    2,320
    
    
    
    2,066Commissions & Other Expenses
    
    
    417
    
    
    
    456
    
    
    
    435Income Taxes
    
    
    19
    
    
    
    43
    
    
    
    46Par Policyholders Income (Loss)
    
    
    1
    
    
    
    2
    
    
    
    (2
    )Shareholders Net Income
    
    
    107
    
    
    
    106
    
    
    
    118
 Selected Financial Information (US$ millions)
    
    2004
    
    
    2003
    
    
    2002Total Revenue
    
    
    2,119
    
    
    
    2,096
    
    
    
    1,697Shareholders Net Income
    
    
    81
    
    
    
    77
    
    
    
    75Sales  New Annualized PremiumsCOLI and BOLI
    
    
    105
    
    
    
    47
    
    
    
    138Other Individual
    
    
    207
    
    
    
    172
    
    
    
    120Premiums and Deposits
    
    
    2,015
    
    
    
    1,818
    
    
    
    2,167
 Sun Life Financial United
States  Group Life and Health BUSINESS PROFILE SLF U.S.s Group Life and Health operations provide customer-focused products and services to meet
the group benefits needs of primarily small to medium-sized companies. Group Life and Health
leverages its extensive distribution capabilities to market group life, long-term and short-term
disability and medical stop-loss products throughout the United States. With strong underwriting
expertise and distribution capabilities, the business unit is a competitive provider of group life
and disability products to nearly 4 million group plan members. The business units group insurance
products are marketed and distributed by its 130 sales representatives in 24 regional sales offices
in the United States. These representatives maintain close relationships with independent brokers
and consultants who deal directly with employers.   2004 ACCOMPLISHMENTS  

Opened four new sales offices

Maintained #3 ranking in the stop-loss market based on business in force

Achieved net sales of US$105 million, an increase of 31% from 2003

Maintained #9 ranking in group life sales and #13 ranking based on in-force premiums

Improved to #14 ranking in long-term disability sales from #15 in 2003, based on annualized premiums

Improved to #15 ranking in short-term disability sales from #19 in 2003, based on annualized premiums   FINANCIAL AND BUSINESS RESULTS Group Life and Health earnings were US$35 million, an increase of 17% compared to 2003. The
increase was primarily due to favourable long-term disability claims experience. The operating
expense-to-insurance premium ratio increased slightly to 14% in 2004 from 13% a year ago due to
additional investment in sales office expansion. Revenue for the year increased to US$786 million, up US$78 million or 11% primarily driven by higher sales and lower lapses. SUMMARY STATEMENT OF OPERATIONS (C$ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    950
    
    
    
    920
    
    
    
    925Net Investment Income
    
    
    71
    
    
    
    69
    
    
    
    80Fee Income
    
    
    4
    
    
    
    3
    
    
    
    3Total Revenue
    
    
    1,025
    
    
    
    992
    
    
    
    1,008Client Disbursement & Change
in Actuarial Liabilities
    
    
    695
    
    
    
    696
    
    
    
    699Commissions & Other Expenses
    
    
    260
    
    
    
    237
    
    
    
    241Income Taxes
    
    
    25
    
    
    
    17
    
    
    
    19Shareholders Net Income
    
    
    45
    
    
    
    42
    
    
    
    49Selected Financial Information(US$ millions)Total Revenue
    
    
    786
    
    
    
    708
    
    
    
    642Shareholders Net Income
    
    
    35
    
    
    
    30
    
    
    
    31Business In Force
    
    
    874
    
    
    
    764
    
    
    
    683
 26     Sun Life Financial Inc. | Annual Report 2004




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##### 



Managements Discussion and Analysis MFS Investment Management BUSINESS PROFILE MFS is a major U.S.-based investment management company, offering products and
services in the U.S. and other global markets to both retail and institutional investors.
MFS provides individual investors with mutual funds, college and retirement savings
plans, variable annuities, separate accounts and offshore investment products. MFS serves
institutional clients by providing asset management services for corporate retirement plans,
separate accounts, public or government funds and insurance company assets. MFS distributes retail products primarily through financial intermediaries providing sales
support, product administration and client service. Institutional clients are targeted through a
direct sales force and the independent consultant network. As at December 31, 2004, the Companys
ownership interest in MFS was 94.8%, with the remainder owned by MFSs employees.  INDUSTRY PROFILE The investment management industry is highly competitive, driven by investment performance and
customer service. High profile mutual fund regulatory investigations in the U.S. in 2004
affected the industry and are expected to increase the cost of operations. Retail sales of many
large fund groups, including MFS, were hampered by highly publicized investigations and
enforcement proceedings by the SEC, the New York Attorney General and other U.S.
regulators, while institutional clients have been quicker to refocus on managers ability to
deliver performance. Lingering results of the recent three-year equity bear market have focused
advisors on asset diversification and lower expected investment returns. COMPETITIVE POSITION MFS is a global asset manager with total assets under management of US$146.2 billion as at December 31, 2004.  

11th largest retail mutual fund company based on long-term assets under
management(1)of US$75 billion at December 31, 2004

5th largest investment manager of variable annuity assets as at September 30, 2004

Over 25% of gross sales are sourced from non-U.S. retail and institutional clients supported by 15 global offices

Serves over 5 million investor accounts STRATEGY  

Achieve superior long-term investment performance built on the strength of investment research

Broaden business platform to include added focus on institutional and international products

Improve position in the U.S. retail distribution channel with superior products,
quality service and value-added sales support

Diversify mix of assets under management across full range of asset categories

Capitalize on efficient operating infrastructure  2004 ACCOMPLISHMENTS  

Implemented operational and compliance changes to address regulatory concerns

Launched industry-leading initiatives in elimination of soft dollar arrangements,
improved shareholder expense reporting and independent fund governance

82% of funds ranked in the top half of their respective categories by Lipper Inc.(2)for 1-year performance 2005 PRIORITIES  

Continue to re-establish investor confidence in the MFS brand

Continue to improve performance in U.S. equity products

Build on global diversification of product lines  FINANCIAL AND BUSINESS RESULTS MFSs 2004 operating earnings were up $5 million or 3% from 2003 levels in spite of the
strengthening of the Canadian dollar against the U.S. currency during 2004, which
decreased MFSs earnings by $13 million. Additional costs for legal and compliance
initiatives as well as higher expenses due to the elimination of soft dollar arrangements added
to ongoing operating expenses. MFS incurred negative net asset flows of US$8.9 billion in 2004; however, this was more than offset by positive market action. Overall, assets
under management were US$146 billion as at December 31, 2004, an increase of 4% for the
year. Revenue for the year of US$1.3 billion was up 8% on higher average net assets. Net income
for MFS totalled US$88 million compared to a loss of US$39 million for 2003. Excluding the after-tax charges of US$45 million in 2004 and US$160 million in 2003 for the cost of regulatory settlements, operating earnings increased 10% from
US$121 million in 2003 to US$133 million in 2004. This increase reflected the benefits of improved equity markets, partially offset by increased expenses and a reduction in
revenues resulting from previous regulatory issues.  (1)

Long-term open-end mutual funds, excluding closed-end and money market funds.(2)

Lipper Inc. is an independent company providing mutual fund analysis and benchmarking
services. Annual Report 2004 | www.sunlife.com     27




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##### 



Managements Discussion and Analysis SUMMARY STATEMENT OF OPERATIONS (C$ millions)
    
    2004
    
    
    2003
    
    
    2002Net Investment Income
    
    
    (1
    )
    
    
    (9
    )
    
    
    9Fee Income
    
    
    1,701
    
    
    
    1,693
    
    
    
    1,970Total Revenue
    
    
    1,700
    
    
    
    1,684
    
    
    
    1,979Commissions & Other Expenses
    
    
    1,471
    
    
    
    1,727
    
    
    
    1,673Income Taxes
    
    
    108
    
    
    
    5
    
    
    
    109Non-controlling Interests in Net Income of Subsidiaries
    
    
    7
    
    
    
    (5
    )
    
    
    23Shareholders Net Income (Loss)  Reported
    
    
    114
    
    
    
    (43
    )
    
    
    174Less Regulatory Settlement Provisions
    
    
    (59
    )
    
    
    (211
    )
    
    
    Shareholders Net Income  Operating
    
    
    173
    
    
    
    168
    
    
    
    174Selected Financial Information(US$ millions, except as noted)Total Revenue
    
    
    1,306
    
    
    
    1,206
    
    
    
    1,260Shareholders Net Income Reported
    
    
    88
    
    
    
    (39
    )
    
    
    111 Operating
    
    
    133
    
    
    
    121
    
    
    
    111Sales (US$ billions)Gross
    
    
    29.5
    
    
    
    34.2
    
    
    
    35.8Net
    
    
    (8.9
    )
    
    
    4.2
    
    
    
    3.2AUM (US$ billions)
    
    
    146
    
    
    
    140
    
    
    
    113Average Net Assets (US$ billions)
    
    
    138
    
    
    
    125
    
    
    
    123
 Gross sales remained strong despite a difficult retail mutual fund environment. Total sales by
MFS for the year ended December 31, 2004 of US$29.5 billion were down 14% from
2003 primarily due to a decline of US$4.4 billion in sales of retail funds. Redemptions slowed and net sales showed significant signs of improvement in the second half of
2004. Net outflows peaked in the second quarter of 2004 due to regulatory concerns and
underperformance in certain investment categories. Net flows improved to US$139 million
in the fourth quarter of 2004 driven by demand for institutional products. (MONTHLY NET FLOWS LINE CHART) MFSs portfolio of assets under management has become more diversified, with its mutual
fund assets as a percentage of total AUM decreasing from 66% in 2002 to 59% in 2004. OUTLOOK Positive net asset flows are expected to return in 2005 with a continued slowing of redemption
activity combined with ongoing expansion in institutional and offshore distribution channels. MFS made significant progress in 2004 in instituting investor-friendly reforms to address
regulatory issues affecting the U.S. mutual fund industry and to implement its
settlements with the SEC and other U.S. regulators. During 2004, MFS hired several industry veterans to oversee corporate governance and compliance issues,
strengthened measures to discourage frequent trading of its funds, eliminated soft-dollar
arrangements with brokers that trade stocks on MFSs behalf, and lowered management fees
on certain of its funds. These initiatives are restoring investor confidence in the MFS
brand and will enhance future growth potential. In the regulatory settlement with the Office of the New York Attorney General on February 5, 2004,
MFS agreed to reduce its fees on certain funds by approximately US$25 million
per year for five years. Sun Life Financial Asia BUSINESS PROFILE SLF Asia operates through subsidiaries in the Philippines, Hong Kong and Indonesia, and
through joint ventures with local partners in India and China. The Companys Hong Kong-based
Regional Headquarters provides an oversight role, acts as a value-added catalyst by providing
general business development support to the business units and is responsible for regional
expansion. SLF Asia provides individual life insurance products and services in all business units,
and savings, retirement and pension products and services in India and the Philippines. Group
insurance is also offered in the Philippines and India.  INDUSTRY PROFILE SLF Asia operates in environments ranging from well-developed markets to largely
state-dominated, emerging markets. Life insurance penetration(1)ranges from slightly
over 6% in Hong Kong to under 1% in Indonesia. The regulatory environments in which SLF
Asia operates continue to evolve. In India, movements towards market liberalization could
allow increased ownership by foreign companies of local joint venture life insurance  (1)

Premium as percentage of Gross Domestic Product. Source: Swiss Re  Sigma, volume 3/2004. 28     Sun Life Financial Inc. | Annual Report 2004




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##### 



Managements Discussion and Analysis businesses. As part of the conditions for its membership in the World Trade Organization,
China opened the group insurance market and lifted restrictions on city expansion in December 2004,
providing further business development opportunities to foreign participants. Regulators in several
jurisdictions have also imposed stricter licensing requirements on agents, which should improve
agent quality and productivity. COMPETITIVE POSITION(1)  

2nd in life insurance by total premiums and 3rd in mutual funds by assets under
management in the Philippines

2nd largest private insurer for individual and group business in India through joint
venture operations, based on adjusted annualized first year premiums(2) STRATEGY SLF Asias goal is to become a significant contributor to the Companys consolidated
revenues and net income over the medium term.
The business segments strategy is to focus on becoming or remaining among one of the top three
participants in each of the market segments in which it operates.   2004 ACCOMPLISHMENTS  

Sales grew by 88% over 2003 to $240 million. Without currency fluctuations, the
growth rate would have been 98%

In April 2004, the China joint venture started selling life insurance products in
Beijing, the capital of the Peoples Republic of China

The Indonesia operations field force increased by 45%, driving a sales increase of 93% over 2003

Strengthened the agency channel by increasing the number of agents across the region by 18%

Completed the migration to a new life insurance administration system in Hong Kong
with a similar initiative to be completed in Indonesia in the first quarter of 2005,
providing increased efficiencies, cross business unit synergy, and a platform for improved
customer service

Integrated the operations of the three subsidiaries in the Philippines resulting in
significant productivity improvement

On November 19, 2004, Sun Life Everbright Life Insurance Company Limited (Sun Life
Everbright), the Companys joint venture in China, signed a national co-operation
agreement with the Agricultural Bank of China to market life insurance through the banks
branches nationwide, starting in Tianjin and Beijing

Agreed to acquire the mutual fund business of Alliance Capital Management (India)
Private Limited in India. The transaction is expected to close during the second quarter
of 2005 2005 PRIORITIES  

Focus on building capability to support market expansion in China

Continue to focus on sales growth with further expansion of career agency channel in
all country operations and additional focus on channel diversification

Continue to focus on customer service initiatives to leverage recent investments in
individual insurance administration technology

Integrate the Alliance Capital mutual fund assets under management with India
operations to maximize the benefits of this acquisition   FINANCIAL AND BUSINESS RESULTS SLF Asia contributed $45 million in shareholders net income for the year ended December
31, 2004, representing a 22% increase over the $37 million earned in 2003. Higher investment yields
in Hong Kong and the beneficial effect of expense management initiatives in the Philippines
reflected in the fourth quarter, contributed to the increase in earnings over 2003. The increase
was partially offset by the strengthening of the Canadian dollar during 2004, which reduced
earnings by $7 million. Notwithstanding a continued depreciation in local currencies relative to the Canadian dollar in
2004, SLF Asias premium revenue grew by 22% over 2003 with strong sales and good
persistency. Higher profitability combined with prudent capital investments for long-term growth improved
SLF Asias ROE to 10.3% from 7.8% a year ago. SUMMARY STATEMENT OF OPERATIONS ($ millions, except as noted)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    515
    
    
    
    421
    
    
    
    504Net Investment Income
    
    
    179
    
    
    
    162
    
    
    
    155Fee Income
    
    
    3
    
    
    
    4
    
    
    
    2Total Revenue
    
    
    697
    
    
    
    587
    
    
    
    661Client Disbursements & Change
in Actuarial Liabilities
    
    
    482
    
    
    
    388
    
    
    
    450Commissions & Other Expenses
    
    
    156
    
    
    
    150
    
    
    
    176Income Taxes
    
    
    14
    
    
    
    12
    
    
    
    11Shareholders Net Income
    
    
    45
    
    
    
    37
    
    
    
    24Selected Financial InformationReturn on Equity
    
    
    10.3
    %
    
    
    7.8
    %
    
    
    4.8
    %Sales  New Annualized Premiums
Individual Life*
    
    
    240
    
    
    
    128
    
    
    
    105Total AUM ($ billions)
    
    
    2.4
    
    
    
    2.1
    
    
    
    2.2
  *
    
    Includes 100% of sales for joint ventures. Individual life sales would be $162 million,
$97 million and $92 million for 2004, 2003 and 2002, respectively, if joint venture sales
were included at 50%.(1)

Competitive statistics are based on published information at and for the year ended
December 31, 2004 or the information available for the latest period before December 31, 2004.(2)

Adjusted annualized first year premiums include single premium at 10%. Annual Report
2004 | www.sunlife.com     29




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##### 



Managements Discussion and Analysis The Philippines The Company offers customized financial product solutions in the Philippines, including individual
life insurance, group insurance, educational and pension savings plans, and mutual funds. These
products are distributed mainly to high net worth individuals, business owners and professional
communities, primarily through a career agency force as well as institutional dealers and brokers.
With a solid reputation in the country, Sun Life Financials Philippines operations had a #2
position in the life insurance market by total insurance premiums, #3 in mutual funds by assets
under management, and reached #5 in sales of savings plans in 2004 based on initial contribution.
The Philippines registered a 25% increase in sales in local currency, driven largely by higher
savings plan sales. Hong Kong Sun Life Financials Hong Kong operation offers traditional, universal life and unit-linked
products to the mass and affluent markets in Hong Kong through a multi-channel distribution
strategy. Sales of HK$240 million in 2004 improved 41% over 2003 as actions to strengthen the
operations agency channel were realized and agent numbers more than doubled. The Hong Kong
operation is pursuing additional bancassurance arrangements and is in the final stages of
developing a new distribution arrangement for unit-linked products. India Birla Sun Life Insurance Company Limited (Birla Sun Life), the Companys life insurance joint
venture in India, markets a full line of individual life insurance and pension products to the
upscale market segment through a career agent sales force of over 9,500 as well as bancassurance
and alternate channels. In addition, Birla Sun Life provides group life and pension products to
multi-national corporations and some of the largest local companies. Birla Sun Life completed its third year of operations in 2004 with total individual and group
insurance sales growth of 178% over the prior year in local currency. The success of Birla Sun Life
can be attributed to strong brand recognition, product innovation and a multi-channel distribution
network. As at the end of 2004, Birla Sun Life ranked second in the private sector in individual
life insurance with adjusted first year premiums of $142 million and was one of the leading group
insurance and pension providers. (BIRLA NEW ANNUALIZED PREMIUMS BAR CHART) Birla Sun Life Asset Management Company Limited, the Companys asset management joint venture in
India, offers a full array of mutual fund products through over 2,500 distributors. At the end of
2004, it was the fifth largest private mutual fund company in India by assets under management. China Sun Life Everbright, the Companys joint venture in China, attained a significant milestone in
April 2004, expanding operations into Beijing. Sun Life Everbright sells a comprehensive range of
traditional, unit-linked and participating life insurance products in both Tianjin and Beijing
primarily through career agents. (EVERBRIGHT NEW ANNUALIZED PREMIUMS BAR CHART) Indonesia SLF Asias Indonesian operations distribute traditional and unit-linked individual life
insurance in Indonesia through a career agency force. With a 45% increase in number of agents, higher agent productivity and larger average case size,
total sales in 2004 doubled the 2003 level in local currency. OUTLOOK Notwithstanding the challenges specific to each market, all regions and markets in which SLF
Asia participates offer opportunity for long-term organic growth. In the Philippines, while
competition is intensifying and the government is expected to tighten its policies to curb
inflation, the Company is well positioned to take on the challenges ahead with the recent
integration of its three subsidiaries and the diversification and expansion of its distribution
channels. While competition in the Indian insurance and mutual fund industries continues to intensify, the
Company believes its joint ventures have the brand recognition, solid infrastructure, and necessary
economies of scale to compete effectively in this high growth market. The Company has the right to
increase ownership in Birla Sun Life when the restrictions on foreign ownership of Indian insurance
companies are lifted. With the removal of most restrictions on geographical and cross-industry
expansion in late 2004 in accordance with WTO accession, China presents excellent growth
opportunities. To capitalize on these opportunities, Sun Life Everbright is focusing on agent
recruitment, expansion into new cities, and the evaluation of entering the group insurance market
in China. 30     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis Sun Life Financial United
Kingdom BUSINESS PROFILE SLF U.K. manages a large block of in-force life and pension policies. SLF U.K. no longer offers products to new customers and the in-force policies constitute a run-off
block of business. This business is managed by a small corporate governance team and most functions
have been outsourced to external service providers.   STRATEGY  

Realize the underlying value of in-force business

Maximize ROE by effective capital management

Minimize operational risks and regulatory exposure   2004 ACCOMPLISHMENTS  

Continued to produce 20% ROE and maximize shareholder value

Continued to maintain a high level of customer service

Reduced unit administration costs of in-force individual insurance business by 11% from 2003

Established a risk-based capital regime to provide greater certainty to future capital plans 2005 PRIORITIES  

Deliver stable net income from the underlying insurance business

Continue to manage costs to maintain the current level of unit administration costs of in-force business

Continue to improve quality and content of customer service communications

Continue to maximize shareholder value   FINANCIAL AND BUSINESS RESULTS For the year ended December 31, 2004, SLF U.K. earned $173 million compared to $203
million for 2003. The strengthening of the British pound against the Canadian dollar during 2004
increased earnings by $7 million. In local currency, 2004 earnings of £73 million were £16 million lower than 2003. The decrease was
primarily due to additional provisions for policyholder liabilities and reduced earnings in the
group life business as a result of adverse claims experience, partially offset by the effect of a
lower effective tax rate due to the favourable outcome of tax negotiations in the fourth quarter of
2004. ROE decreased to 20.6% from 21.5% in 2003, primarily reflecting the impact of lower
earnings from the group insurance business. Revenue declined by £103 million in 2004 compared to 2003 primarily due to the sale of the group
business and lower individual insurance premiums as the closed block of business runs off. The
group life business will have substantially run off by the end of 2005. SUMMARY STATEMENT OF OPERATIONS (C$ millions)
    
    2004
    
    
    2003
    
    
    2002Premiums
    
    
    530
    
    
    
    724
    
    
    
    990Net Investment Income
    
    
    630
    
    
    
    626
    
    
    
    730Fee Income
    
    
    98
    
    
    
    93
    
    
    
    108Total Revenue
    
    
    1,258
    
    
    
    1,443
    
    
    
    1,828Client Disbursement & Change
in Actuarial Liabilities
    
    
    958
    
    
    
    1,069
    
    
    
    1,426Commissions & Other Expenses
    
    
    131
    
    
    
    163
    
    
    
    230Income Taxes
    
    
    (4
    )
    
    
    8
    
    
    
    (18
    )Shareholders Net Income
    
    
    173
    
    
    
    203
    
    
    
    190Selected Financial Information(£ millions, except as noted)Total Revenue
    
    
    528
    
    
    
    631
    
    
    
    779Shareholders Net Income
    
    
    73
    
    
    
    89
    
    
    
    81Return on Equity
    
    
    20.6
    %
    
    
    21.5
    %
    
    
    21.9
    %Total AUM (£ billions)
    
    
    7.5
    
    
    
    7.7
    
    
    
    7.8
 Annual Report
2004 | www.sunlife.com     31




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Managements Discussion and Analysis Corporate Capital BUSINESS PROFILE Corporate Capital refers to investment income, expenses, capital and other items not allocated to
the Companys operating units. This business segment also includes the Companys run-off
reinsurance line, which is a closed block of mostly accident and health reinsurance business.   2004 ACCOMPLISHMENTS  

Purchased and cancelled approximately 10 million shares as part of the stock repurchase program

Redeemed $250 million of subordinated debentures 2005 PRIORITIES  

Use the capital management flexibility created by the corporate
reorganization(1)and continue to optimize the Companys overall capital
structure

Enhance shareholder value through share repurchases of up to $500 million   FINANCIAL AND BUSINESS RESULTS For the year ended December 31, 2004, Corporate Capital reported a loss of $9 million compared to a
loss of $20 million in 2003. The reduced losses were largely due to improved results in run-off
reinsurance and lower debt carrying costs, partially offset by fourth quarter foreign exchange
losses related to capital transactions with non-domestic operations and reduced gains on the
purchase by MFS management of shares in MFS. In addition, the 2003 results
included a gain on the sale of the U.K. group business that was only partially offset by
the 2004 gain from the sale of IQON Financial Management Inc. (IQON). SUMMARY STATEMENT OF OPERATIONS* ($ millions)
    
    2004
    
    
    2003
    
    
    2002**Premiums
    
    
    39
    
    
    
    127
    
    
    
    71Net Investment Income
    
    
    55
    
    
    
    (55
    )
    
    
    194Fee Income
    
    
    (44
    )
    
    
    (29
    )
    
    
    (72
    )Total Revenue
    
    
    50
    
    
    
    43
    
    
    
    193Client Disbursements & Change
in Actuarial Liabilities
    
    
    138
    
    
    
    (77
    )
    
    
    500Commissions & Other Expenses
    
    
    31
    
    
    
    158
    
    
    
    109Income Taxes
    
    
    (169
    )
    
    
    (77
    )
    
    
    (233
    )Non-controlling Interests in
Net Income of Subsidiaries
    
    
    59
    
    
    
    59
    
    
    
    46Loss (Income) from
Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    48Shareholders Net Income (Loss)
    
    
    (9
    )
    
    
    (20
    )
    
    
    (277
    )
  *

Including consolidation adjustments related to activities between segments.**

As restated. Corporate Developments The following significant developments occurred in 2004. CORPORATE REORGANIZATION On October 28, 2004, SLF Inc. and its wholly-owned subsidiary, Sun Life Assurance,
announced their intention, subject to receipt of regulatory approvals, to carry out a
reorganization plan under which most of Sun Life Assurances asset management businesses in Canada
and the United States, including the majority of its U.S. annuities business, would be
transferred to Sun Life Financial Corp., a newly incorporated subsidiary of SLF Inc. (the
Reorganization). The Reorganization was completed on January 4, 2005. Under the Reorganization, Sun Life Assurance transferred its shares of CI Funds, McLean
Budden, Massachusetts Financial Services Company and its other U.S. subsidiaries to the
new subsidiary. After the Reorganization, the operations remaining in Sun Life Assurance consist
primarily of the life, health and annuities businesses of the Companys Canadian operations, most of the life and health businesses of its United States
operations, and all of its operations in the United Kingdom and Asia. The Reorganization allows Sun Life Financial to position itself to benefit from the revised draft
capital guidelines for life insurance holding companies recently issued by OSFI. SALE OF IQON AND SYNERA TO CI FUNDS On June 3, 2004, Sun Life Assurance sold two distribution subsidiaries, IQON and Synera
Financial Services Inc., to Assante Corporation, a subsidiary of CI Funds in which the
Company holds a 34% equity interest. The sale reflects the further development of the Companys
strategic partnership with CI Funds, as well as another step in the evolution of its
wholesale distribution strategy in Canada.  (1)

As described in this MD&A under Corporate Developments  Corporate Reorganization
on page 32. 32     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis BEIJING EXPANSION In April 2004, Sun Life Everbright started selling life insurance products in Beijing, China.
Between its start-up and the end of 2004, the Beijing operations accounted for 14% of the joint
ventures total sales in local currency. The Company is actively seeking to expand into other
cities in China. SHARE REPURCHASE PROGRAM SLF Inc. continued its share repurchase program in 2004, and repurchased approximately 10
million common shares at a cost of $388 million. On January 6, 2005, SLF Inc. renewed its
repurchase program for 2005 for the purchase of up to 5% of its outstanding common shares, starting
January 12, 2005. INCREASED QUARTERLY SHAREHOLDER DIVIDENDS In 2004, SLF Inc. increased its quarterly common share dividend by 29%, reflecting the
Companys strong financial performance, continued capital strength and positive outlook for the
Companys future. The quarterly dividend payout per common share was increased from $0.17 to $0.21
in the first quarter of 2004, and from $0.21 to $0.22 in the third quarter of 2004. In July 2004,
the Board of Directors set a new target dividend payout ratio of 25% to 35%, up from the previous
level of 20% to 30%. On January 27, 2005, the Board of Directors approved an additional 9% increase in the quarterly
dividend to $0.24 per share. REDEMPTION OF SUBORDINATED DEBENTURES On November 15, 2004, Sun Life Assurance redeemed $250 million of its outstanding debentures,
representing all of the 5.8% Debentures, Series 1, due May 15, 2013. The debentures were originally
issued by Clarica. ISSUANCE OF PREFERRED SHARES On February 8, 2005, the Board of Directors of SLF Inc. announced a domestic public
offering of $300 million of Class A Non-Cumulative Preferred Shares, Series 1. The preferred shares
will be priced at $25 per share and will pay non-cumulative quarterly dividends of $0.297 per
share, yielding 4.75% annually. REDEMPTION OF CLASS E PREFERRED SHARES On February 8, 2005, Sun Life Assurance announced that, subject to receipt of regulatory approval,
it intends to redeem all of its Non-Cumulative Redeemable Class E Preferred Shares, Series 1 on
June 30, 2005, for $25.00 per share plus declared but unpaid dividends thereon. Critical Accounting Estimates SLF Inc.s significant accounting and actuarial policies are described in detail in Notes
1, 2, 8, 9 and 12 to SLF Inc.s 2004 Consolidated Financial Statements. These policies
require management to make judgments involving assumptions and estimates, some of which may relate
to matters that are inherently uncertain. The estimates described below are considered particularly
significant to understanding the Companys financial performance. As part of the Companys
financial control and reporting, judgments involving assumptions and estimates are reviewed
internally, by SLF Inc.s independent auditor and by other independent advisors on a
periodic basis. Accounting policies requiring estimates are applied consistently in the
determination of the Companys financial results. BENEFITS TO POLICYHOLDERS The Companys benefit payment obligations over the life of its annuity and insurance products are
determined by internal valuation models and are recorded in its financial statements, primarily in
the form of actuarial liabilities. The determination of the value of these obligations is
fundamental to the Companys financial results and requires management to make certain assumptions
about mortality and morbidity rates, policy terminations, equity market performance, interest
rates, asset default, inflation, expenses and other factors over the life of its products. In calculating actuarial liabilities and other policy liabilities, assumptions must be made about
the timing and amount of many events, including death, accident or sickness, investment, inflation,
policy termination, expenses, taxes, premiums, commissions and policyholder dividends. The general
approaches to the setting of the assumptions used by SLF Inc. are described later in this section. SLF Inc. uses best estimate assumptions for expected future experience. Uncertainty is
inherent in the process, as no one can accurately predict the future. Some assumptions relate to
events that are anticipated to occur many years in the future and are likely to require subsequent
revision. Additional provisions are included in the actuarial liabilities to provide for possible
adverse deviations from the best estimates. If the assumption is more susceptible to change or if
the actuary is less certain about the underlying best estimate assumption, a correspondingly larger
provision is included in the actuarial liabilities. In determining these provisions, the Company ensures:  

when taken one at a time, each provision is
reasonable with respect to the underlying best estimate assumption, and the extent of uncertainty
present in making that assumption, and

in total, the cumulative effect of all provisions is
reasonable with respect to the total actuarial liabilities. With the passage of time and resulting reduction in estimation risk, the provisions are released
into income. In recognition of the long-term nature of policy liabilities, the margin for possible
deviations generally increases for contingencies further in the future. The best estimate
assumptions and margins for adverse deviations are reviewed annually and revisions are made where
deemed necessary and prudent. Mortality Mortality refers to the rate at which death occurs for a defined group of people. Insurance
mortality assumptions are generally based on the Companys average five-year experience. For
annuities, Company experience is combined with industry experience, since the Companys own
experience is insufficient to be statistically reliable. Assumed Annual Report 2004 | www.sunlife.com     33




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Managements Discussion and Analysis future mortality rates on annuities are adjusted to reflect expected improvements in
mortality. Assumed mortality rates for life insurance contracts do not reflect any future
improvement that might occur. For products for which higher mortality would be financially adverse to the Company, a 1% increase
in the best estimate assumption would decrease net income by $106 million. For products for which
lower mortality would be financially adverse to the Company, a 1% reduction in the mortality
assumption would decrease net income by $32 million. Morbidity Morbidity refers to the rate of accident or sickness, and recovery therefrom, for a defined group
of people. Most of the Companys disability insurance is marketed on a group basis. In Canada, the
Company offers critical illness policies and long-term care on an individual basis. Medical
stop-loss insurance is offered on a group basis in the United States. In Canada, group morbidity
assumptions are based on the Companys five-year average experience, modified to reflect the trend
in recovery rates. For long-term care and critical illness insurance, assumptions are developed in
collaboration with our reinsurers and are largely based on their experience. In the United States,
Company experience is used for both medical stop-loss and disability assumptions, with some
consideration for industry experience. Larger provisions for adverse deviation are used for those
benefits where Company or industry experience is limited. For products for which the morbidity is a
significant assumption, a 1% change in that assumption would reduce net income by $13 million. Policy Termination Rates Policyholders may allow their policies to terminate prior to the end of the contractual coverage
periods by choosing not to continue to pay premiums or by exercising one of the non-forfeiture
options in the contract. Assumptions for termination experience on life insurance are generally
based on the Companys average five-year experience. Termination rates vary by plan, age at issue,
method of premium payment and policy duration. For universal life contracts, it is also necessary
to set assumptions about premium cessation occurring prior to termination of the policy. Studies
prepared by industry or actuarial bodies are used for certain products where the Companys
experience is too limited to be statistically valid. For individual life insurance products for which fewer terminations would be financially adverse to
the Company, net income would be decreased by $62 million if the termination rate assumption were
reduced by 10% starting in policy year six (5% for participating policies and policies with
adjustable premiums). For products for which more terminations would be financially adverse to the
Company, net income would be decreased by $62 million if an extra 1% of the in-force policies were
assumed to terminate each year beginning in policy year six (0.5% for participating policies and
policies with adjustable premiums). Equity Markets For certain products, the value of the Companys obligations to policyholders is dependent on
assumptions about the future level of equity markets. The equity market return sensitivity is
provided for in the actuarial liabilities for all such products, with adequate provisions to absorb
moderate changes in rates of equity market return. For participating insurance products, the effect of changes in equity market movements is largely
passed through to policyholders as changes to the amount of dividends declared in accordance with
the normal operation of these policies according to their contractual terms. The actuarial liabilities for guarantees offered under certain blocks of business have significant
sensitivity to changes in expected equity market returns. For example, for variable annuity
guarantees primarily in the U.S. (including reinsured business) and for certain annuity
options in the U.K., a 1% reduction in the expected long-term equity market return
assumption would decrease net income by $65 million in respect of these guarantees. Interest Rates Interest rate sensitivity is provided for in the actuarial liabilities for all policies, with
adequate provisions to absorb moderate changes in interest rates. For certain product types, including participating insurance policies and certain forms of
universal life policies and annuities, the effect of changes in the interest rate environment is
largely passed through to policyholders as changes in the amount of dividends declared or in the
rate of interest credited. These changes occur routinely as interest rates change, and reflect the
normal operation of these policies according to their contractual terms. An immediate 1% parallel increase in interest rates at December 31, 2004, across the entire yield
curve would result in an estimated increase in net income of $36 million arising from the change in
actuarial liabilities. Conversely, an immediate 1% parallel decrease in interest rates would result
in an estimated decrease in net income of $134 million. Asset Default In addition to the allowances for losses on invested assets outlined in Note 8 to SLF
Inc.s 2004 Consolidated Financial Statements, the actuarial liabilities at December 31,
2004, included an amount of $2.2 billion determined on a pre-tax basis to provide for possible
future asset defaults and loss of asset value. This provision results from a reduction in the
expected future investment yield or a reduction in the value of equity assets recognized in the
computation of actuarial liabilities. The reduction varies depending on the creditworthiness of the
class of asset. Operating Expenses and Inflation Actuarial liabilities provide for future policy-related expenses. These include the costs of
premium collection, claims adjudication and processing, actuarial calculations, preparation and
mailing of policy statements and related indirect expenses and overheads. Expense assumptions are
mainly based on recent Company experience using an internal expense allocation methodology. The
increases assumed in future expenses are consistent with the inflation rate used in the scenario
testing under the standards established by the Canadian Institute of Actuaries. The sensitivity of
actuarial liabilities to a 10% increase in unit expenses Company-wide would result in a decrease in
net income of $248 million. 34     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis FAIR VALUE OF INVESTMENTS As described in Note 1 to SLF Inc.s 2004 Consolidated Financial Statements, stocks,
including certain other equity type investments, and real estate are originally recorded at cost
and the carrying value is adjusted toward fair value each quarter at rates of 5% for stocks and 3%
for real estate. Fair values of stocks and certain other equity investments are disclosed in Note 8
of SLF Inc.s 2004 Consolidated Financial Statements and are based on quoted market
prices or references to market values for similar investments. For real estate, market values are
determined by qualified appraisers. Appraisals are obtained annually for high value properties and
at least once every three years for other properties. Certain equity derivatives are accounted for on the same basis as stocks, while other equity index
futures, swaps, forwards and options are reported at their fair values on the balance sheet with
increases and decreases in their values reported in net investment income. Further details are set
out in Note 1 to SLF Inc.s 2004 Consolidated Financial Statements. Fair values of
interest rate swap and foreign exchange contracts are determined by discounting expected future
cash flows using market interest and exchange rates for similar instruments. Fair values of
options, financial futures and common stock index swaps are based on quoted market prices or the
value of the underlying securities or indices. Market values are subject to fluctuations as economic and business conditions change. Where a
readily observable market value is not available, management judgment is required in the process of
determining fair market values. As at December 31, 2004, the market value of stocks, including
certain other equity type investments, and real estate comprised approximately 8% of the market
value of total invested assets. ALLOWANCE FOR INVESTMENT LOSSES The Company had total general fund invested assets of $96.9 billion as at December 31, 2004, the
majority of which was invested in medium- to long-term, high-quality fixed income instruments. The
Company maintains a prudent policy in setting the allowance for investment losses. Comprehensive
reviews are performed on the Companys invested assets on a regular basis. Management considers
various factors to identify invested assets of potential concern. In addition to the Companys
ability and intent to hold the invested assets to maturity or until a recovery in value,
consideration is given to general economic and business conditions, industry trends, specific
developments with regard to security issuers, and available market values. When an asset is classified as impaired, allowances for losses are established to adjust the
carrying value of the asset to its estimated recoverable amount. The determination of the estimated
recoverable amount is based on estimates of net realizable value. The use of different
methodologies and assumptions may have a material effect on the estimates of net realizable value.
Sectoral allowances are also established for classes of assets when there is concern about the
ultimate collection of principal or interest because of a general deterioration of a particular
business sector. These allowances represent managements best estimate, based on market conditions,
of probable losses within a portfolio that have not yet been
specifically identified. Provisions for losses on investments, which increase the allowances, are
charged against net investment income. Write-offs, net of any recoveries, reduce the allowances. As at December 31, 2004, the Companys total impaired assets, net of specific allowances of $165
million, amounted to $276 million. The corresponding market value of these impaired assets was
approximately $286 million as at December 31, 2004. GOODWILL AND OTHER INTANGIBLES Goodwill represents the excess of the cost of businesses acquired over the fair value of the net
identifiable tangible and intangible assets. Goodwill is not amortized. The Company had a carrying
value of $5.5 billion in goodwill as at December 31, 2004, consisting primarily of $3.7 billion
arising from the Clarica acquisition and $1.5 billion arising from the acquisition of Keyport Life
Insurance Company in the United States. Identifiable intangible assets consist of finite-life and indefinite-life intangible assets. As at
December 31, 2004, the Companys finite-life intangible assets had a carrying value of $579
million, reflecting primarily the value of certain distribution channels and asset administration
contracts acquired as part of the IFMG and Clarica acquisitions. The Companys
indefinite-life intangible assets had a carrying value of $916 million, reflecting fund management
contracts, brand name and state licenses. Goodwill is assessed for impairment annually by comparing the carrying values of the appropriate
business segments, including any associated subsidiary segments, as required, to their respective
fair values. If any potential impairment is identified, it is quantified by comparing the carrying
value of the respective goodwill to its fair value. Indefinite-life intangibles are assessed for impairment annually by comparing their carrying values
to their fair values. If the carrying values of the indefinite life intangibles exceed their fair
values, these assets are considered impaired and a charge for impairment is recognized. The fair value is determined using various valuation models. These models require management to
make certain judgments and assumptions that could affect the fair value estimates and resulting
impairment write-downs. Management believes that the assumptions used are reasonable and
supportable based on the current economic and industry environment. As at December 31, 2004, the
fair values of the appropriate operating business segments, including any associated subsidiary
segments as required, and the fair values of the indefinite-life intangible assets were well in
excess of their carrying values. INCOME TAXES Sun Life Financials provision for income taxes is calculated based on the expected tax treatment
of transactions recorded in the Companys consolidated statements of operations for a particular
period. The determination of the required provision for current and future income taxes requires
the Company to interpret tax legislation in the jurisdictions in which it operates and to make
assumptions about the expected timing of realization of future tax assets and liabilities. Annual Report 2004 | www.sunlife.com     35




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Managements Discussion and Analysis To the extent that the Companys interpretations differ from those of tax authorities or the
timing of realization is not as expected, the provision for income taxes may increase or decrease
in future periods to reflect actual experience. The amount of any increases or decreases cannot be reasonably
estimated. Accounting Policies CHANGES IN ACCOUNTING POLICIES IN 2004 In 2004, SLF Inc. adopted certain new accounting standards and policies that are detailed in Note 2
to SLF Inc.s 2004 Consolidated Financial Statements. None of these changes are
considered material to the determination of the Companys financial position or results. FUTURE ADOPTION Consolidation of Variable Interest Entities The Company adopted Consolidation of Variable Interest Entities, Canadian Institute of Chartered
Accountants (CICA) Handbook Accounting Guideline 15 on January 1, 2005. This Guideline provides
guidance for application of consolidation principles to those entities defined as variable interest
entities (VIEs), in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties. The Guideline
requires that all entities be designated as either voting interest entities or variable interest
entities. VIEs are subject to consolidation by the Primary Beneficiary which is defined as the
party who has exposure to the majority of a VIEs expected losses and/or expected
residual returns, as defined in the Guideline. In August 2004, Accounting Guideline 15 was revised to ensure that the original CICA
Handbook Guideline was harmonized with revised Financial Accounting Standards Board
(FASB) Interpretation No. 46, Consolidation of Variable Interest Entities, the U.S.
GAAP equivalent of Accounting Guideline 15. The impact of this change was that SLF
Inc. reclassified approximately $1.2 billion of non-controlling interest in subsidiaries to
senior debentures recorded in other liabilities. Additional details of the impact of this Guideline are summarized in Section D, Variable Interest
Entities, in Note 23 to SLF Inc.s 2004 Consolidated Financial Statements. Financial Instruments  Disclosure and Presentation The Company adopted the amendments to the accounting requirements in CICA Handbook Section 3860,
Financial Instruments -Disclosure and Presentation, on January 1, 2005. Securities issued by the
Company that give the Company an unrestricted obligation to settle the principal amount in cash or
in the equivalent value of its own shares must be classified as debt. The Company does not expect
these amendments to have a material impact on its consolidated financial statements. Risk Management INTRODUCTION The Companys enterprise-wide risk management framework establishes processes and requirements for
risk measurement and worldwide practices. It provides oversight to the risk management activities
within major operating areas and business units. It is designed to provide discipline and
consistency to the practice of risk management in all business units. RISK FRAMEWORK Objectives The framework specifies the four key objectives of the risk management program: (i) avoid risks
that could materially affect the value of the Company, (ii) contribute to sustainable earnings,
(iii) take risks that the Company can manage in order to increase returns, and (iv) provide
transparency of the Companys risks through internal and external reporting. Risk Philosophy The Company is in the business of accepting risks for appropriate return. It will take on those
risks that meet the objectives of the organization. The program design aligns risk management with
the corporate vision and strategy and embeds it within the business management practices of the
business units. Risk Culture The Company aspires to a risk culture that supports an effective risk management program. The
elements of this risk culture include (i) acting with integrity, (ii) understanding the impact of
risk on our customers, (iii) embedding risk management into the business, (iv) promoting full and
transparent communications, (v) collaboration and (vi) alignment of objectives and incentives. Accountabilities Accountability provides clear lines of responsibility and authority for risk acceptance and risk
taking. The Risk Review Committee of SLF Inc.s Board of Directors, composed of
independent directors, oversees managements approach to risk management. The committees key areas
of focus include responsibility for ensuring that the major areas of risk of the Companys business
activities are identified and reviewed by management, and approving, and reviewing compliance with,
the policies and programs implemented by the Company for the management and control of risk.
Management is responsible for the management of risk and for reporting on key risk issues to the
committee on a regular basis. KEY RISK PROCESSES The Company has a formal risk management program implemented by management in each business group.
This program includes a process that applies qualitative and quantitative analysis of the risk
exposures, with appropriate reporting to senior management and the Board of 36     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis Directors. The results of this reporting are used to develop an annual Company-wide view of
the most significant risks, which is reported to the Risk Review Committee. Risk Identification The Company has established a formal risk identification program in which management of each
business group identifies the current key risks that may impact the business. Exposures to these
risks are assessed on a qualitative and quantitative basis. Risk control programs are documented
and action plans are established for mitigating the exposure. Using the input from the business
groups, the Company also identifies the key risks that may materially impact the organization as a
whole. These risks are monitored by senior management and reported to the Risk Review Committee on
an annual basis. Business Practices Reviews The Company reviews its business practices on an ongoing basis in light of evolving and emerging
business practices and standards and legal and regulatory requirements. RISK CATEGORIES The risks facing the Company can generally be classified into four categories:  

Market risk: the uncertainty arising from changes in market prices or indices and the cost of
embedded options and guarantees related to equity markets and/or interest rates

Credit risk: the uncertainty surrounding the likelihood of default or credit downgrade

Insurance risk: the uncertainty due to differences between the actual and expected amounts of
claims and benefit payments and the cost of embedded options and guarantees related to
insurance risks

Operational risk: the uncertainty arising from events caused by failures of people, process
and technology as well as external dependencies RISK MEASUREMENT Market Risk Tolerance and Earnings-at-Risk The Company has established market risk tolerance limits that set out the maximum target income
sensitivity of business groups to changes in interest rates, and equity and foreign exchange
markets. These limits are based on the sensitivity of a one-year forward projection of income
tested by business groups against a set of internally prescribed market shocks. Deviations from the
applicable limits are reported to the Risk Review Committee. To complement the above, the Company has also developed an Earnings-at-Risk measurement model. The
model provides to management and the Risk Review Committee an analysis of capital market risks. The
Earnings-at-Risk model is also able to project a distribution of possible deviations of earnings to
further assist in risk management activities. Sensitivity of Earnings The following table sets out the sensitivity of the Companys earnings to changes in the interest
rate environment and equity markets based on the existing business mix. These amounts are estimated
assuming limited management actions to mitigate the impact of the changes. Increase (Decrease)($ millions)
    
    in EarningsInterest Rate Sensitivity(1)1% Increase
    
    
    451% Decrease
    
    
    (99
    )Equity Market Sensitivity(2)10% Increase
    
    
    7510% Decrease
    
    
    (91
    )
  (1)

Represents a 100 basis point parallel shift in assumed interest rates across the
entire yield curve.(2)

Represents the percentage change in equity markets. RISK POLICIES The Company has adopted worldwide consolidated risk management policies to provide a consistent
approach to measurement, mitigation and control and monitoring of risk exposures. Risk policies
have been established with respect to the major risks facing the Company. MARKET RISK Asset/Liability Management The Companys asset/liability management maximizes the long-term economic value within established
risk tolerance limits and constraints. The Companys insurance liabilities are segmented according
to major product type with investment guidelines established for each segment. Asset mix, asset
quality, liquidity and interest rate exposure are regularly measured and compared to policy
objectives and liability requirements for each product segment. Interest rate risk is
the risk of asset-liability mismatch resulting from interest rate
volatility. To manage interest rate risk, the Company has a matching policy for each portfolio of assets and
associated liabilities in order to keep potential losses within acceptable limits. For
interest-sensitive business lines, such as individual and group annuities, the primary approach is
to manage the sensitivity of the duration gap between assets, liabilities and off-balance sheet
instruments to interest rate changes. Specifically, the Company employs a key rate duration
technique that examines the duration gap of assets and liabilities at discrete points on the yield
curve. These gaps are managed within specified tolerance limits. Market risk is the uncertainty arising from changes in market prices or indices and the cost of
embedded options and guarantees related to equity markets and/or interest rates. The Companys exposure to market risk is monitored and managed against established risk tolerance
limits, using the Earnings-at-Risk monitoring tools noted above. Individual stock holdings are
diversified by industry type and corporate entity. Real estate holdings are diversified by location and property type. The effects of a large and
sustained adverse market movement in real estate values are regularly monitored through Dynamic
Capital Adequacy Testing and other stress-testing techniques. Other important factors to consider in assessing the Companys exposure to market risk include the
use of derivatives and the Companys policies regarding liquidity management and foreign exchange
risk. For additional discussion on the Companys use of derivatives and its Annual Report 2004 | www.sunlife.com     37




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Managements Discussion and Analysis policies on liquidity management, see pages 41 to 46 in this MD&A under the heading
Financial Position and Liquidity. Discussion of the impact of currency fluctuations and other
risk factors can be found on pages 22 to 26 in SLF Inc.s 2004 AIF under the heading
Risk Factors. CREDIT RISK Credit Risk Management Credit risk is the
uncertainty surrounding the likelihood of default or credit
downgrade. To manage credit risk associated with fixed income investments, the Company uses detailed credit
and underwriting policies, detailed diversification requirements, comprehensive due diligence and
aggregate counterparty exposure limits within fixed income portfolios. A numerical credit risk
factor is assigned to all fixed income investments and an aggregate credit risk factor is developed
for major operations and the Company in aggregate, which are monitored against pre-established
limits and reported periodically to the Board of Directors. Provisions for impaired assets are
charged against the carrying value of the assets. Allowances for possible future asset defaults are
also provided for in the actuarial liabilities of the Company. Reinsurance Ceded Risk Management Reinsurance ceded risk is the counterparty risk relating to externally reinsuring exposures. The Company maintains a reinsurance ceded policy to establish limits and to monitor the level of
reinsurance ceded to any single reinsurer or group of reinsurers. These limits are also
consolidated across operations to capture total exposure to any single reinsurer. INSURANCE RISK Product Design and Pricing Risk Product design and pricing risk arises from inappropriate or inadequate product design and pricing
including deviations from the assumptions used in pricing products as a result of uncertainty
concerning future investment yields, mortality and morbidity experience, expenses, rates of policy
termination, and taxes. To manage product design and pricing risk the Company sets standards and guidelines that address
product design and pricing methods, pricing assumptions, profit margin objectives, required
scenario analysis, documentation, internal peer review and pricing approval processes. The product
design and pricing risk management process also includes completion of an annual compliance
assessment by all business units and the internal audit of business unit pricing processes on a
rotating basis. Mortality and Morbidity Risk Management Mortality and morbidity risk is the risk of incurring higher than anticipated mortality and
morbidity claim losses on any one policy or group of policies. To manage mortality and morbidity risk, the Company follows detailed uniform underwriting
procedures to determine the insurability of applicants and to manage exposure to large claims.
Underwriting requirements are regularly scrutinized against industry guidelines. Group insurance policies are underwritten prior to the issue of the policy and again at each
renewal period. The Companys group insurance underwriting is driven by risk selection, plan design
and rating techniques. The risk policies approved by the Board of Directors include limits on the maximum amount of
insurance that may be issued under one policy and the maximum amount that may be retained. These
limits vary by geographic region. Amounts in excess of these limits are reinsured. OPERATIONAL RISK Operational Risk Management Operational risk is the uncertainty arising from events caused by failures of people, processes or
technology as well as external dependencies. To manage operational risk, the Company has worldwide policies and guidelines as well as specific
policies and guidelines for each business which it operates. The Company also maintains a comprehensive insurance program that provides protection against
potential losses. This program includes appropriate levels of self-insurance. The Companys
environmental risk management program is designed to help protect investment assets from losses due
to environmental issues and to help ensure compliance with applicable laws. Environmental risks
arise primarily from the Companys real estate, mortgage and structured finance portfolios. The
senior investment officer in each business group is responsible for ensuring that the local
environmental policy is appropriate for local operating conditions. A description of the Companys risk factors can be found on pages 22 to 26 of SLF Inc.s 2004
AIF under the heading Risk Factors. Investments The Company holds a diverse set of investment portfolios for its general funds. The Company
maintains prudent, uniform investment policies for the general funds with specific guidelines
appropriate for each of its business groups and focuses on maintaining high-quality,
well-diversified portfolios that are appropriate for its general fund obligations. The investment
of the Companys general funds is described below. INVESTMENT POLICIES The primary aim of the Company for its general fund assets is to ensure that all investments are
properly aligned with business objectives, including ensuring policyholder obligations are being
met and that adequate liquidity is maintained at all times. The Risk Review Committee regularly
reviews and approves investment policies that set prudent standards and procedures for the
investment of the Companys general fund assets. These policies include requirements, 38     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis restrictions and limitations for interest rate, credit, equity market, real estate market,
liquidity, concentration, currency and derivative risks. Compliance with these policies is
monitored on a regular basis. Management is also required to advise the Risk Review Committee
annually whether there has been adherence to these policies. INVESTMENT PROFILE The Company had total consolidated general fund invested assets of $96.9 billion at December 31,
2004, compared to $97.2 billion at December 31, 2003. The decrease was primarily due to the
strengthening of the Canadian dollar against foreign currencies during 2004, which reduced assets
by $3.0 billion, partially offset by the impact of growth in business during the year. The investment portfolio is broadly diversified and carefully managed with respect to the nature of
the Companys underlying policyholder obligations. The Company invests the majority of its general
funds in medium- to long-term fixed income instruments such as bonds and mortgages. The Companys
portfolio composition is very conservative, with approximately 90% of the general funds in cash and
fixed income investments as at December 31, 2004. Real estate comprised 3% of the general funds, of
which approximately 68% related to the participating policyholders account. Common stock comprised
approximately 4% of the general funds, of which approximately 73% was related to the participating
policyholders account. The Companys shareholders net income is not materially affected by the
performance of investments held in the participating policyholders account. INVESTMENTS ($ millions)
    
    2004
    
    
    2003
    
    2002Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    % of Total
    
    
    Value
    
    
    % of Total
    
    
    Value
    
    
    % of TotalBonds
    
    
    64,496
    
    
    
    67
    
    
    
    66,090
    
    
    
    68
    
    
    
    73,367
    
    
    
    66Mortgages
    
    
    13,862
    
    
    
    14
    
    
    
    13,601
    
    
    
    14
    
    
    
    15,799
    
    
    
    14Stocks
    
    
    3,463
    
    
    
    4
    
    
    
    3,473
    
    
    
    4
    
    
    
    4,221
    
    
    
    4Real Estate
    
    
    3,148
    
    
    
    3
    
    
    
    3,067
    
    
    
    3
    
    
    
    3,223
    
    
    
    3Cash and Equivalent Investments
    
    
    5,966
    
    
    
    6
    
    
    
    4,972
    
    
    
    5
    
    
    
    7,152
    
    
    
    7Policy Loans and Other Invested Assets
    
    
    5,982
    
    
    
    6
    
    
    
    5,973
    
    
    
    6
    
    
    
    6,726
    
    
    
    6Total Carrying Value
    
    
    96,917
    
    
    
    100
    
    
    
    97,176
    
    
    
    100
    
    
    
    110,488
    
    
    
    100Total Market Value
    
    
    102,798
    
    
    
    
    
    
    
    102,252
    
    
    
    
    
    
    
    114,993
 BONDS The Companys bond portfolio represented 67% of invested assets at December 31, 2004, compared to
68% at the end of the previous year. The Companys bond portfolio is actively managed through a
regular program of purchases and sales directed at optimizing yield, quality and liquidity, while
ensuring that the asset portfolio remains matched to liability requirements. At December 31, 2004,
the bond portfolio had a carrying value of $64.5 billion and a market value of $68.6 billion
compared with $66.1 billion and $70.1 billion, respectively, at the end of 2003. The decrease in
bond investments was primarily attributable to the strengthening of the Canadian dollar against
foreign currencies, which had the effect of reducing bonds by $2.3 billion. (BONDS BY INVESTMENT GRADE PIE CHART) At December 31, 2004, the Company held $15.5 billion of non-public bonds, which constituted 24% of
the Companys overall bond portfolio. Non-public bonds rated A or higher represented 59% of
total non-public bonds, and non-public bonds rated BBB or higher represented 94% of
total non-public bonds at December 31, 2004. The Companys bond portfolio is also diversified by country. As at December 31, 2004, based on the
jurisdiction of the incorporation of issuers, 40% of the total bond portfolio was invested in
Canada, 43% in the U.S. and 11% in the U.K. MORTGAGES The Companys mortgage portfolio represented 14% of invested assets at December 31, 2004, unchanged
from the end of 2003. The Companys mortgage portfolio totalled approximately $13.9 billion
compared to $13.6 billion at the end of 2003. As at December 31, 2004, 67% of the total mortgage
portfolio was invested in Canada, 31% in the U.S., and 2% in the U.K. The Companys mortgage portfolio is almost entirely first mortgages. While the Company
generally requires a maximum loan to value ratio of 75%, it may invest in mortgages with a higher
loan to value ratio in Canada if the mortgage is insured. As at December 31, 2004, commercial mortgages accounted for 72% and residential mortgages accounted
for 28% of the Companys total mortgage portfolio. Approximately 44% of mortgage loans mature by
December 31, 2009. As part of its ongoing investment activities, the Company seeks to renew a
significant proportion of those mortgages that meet the Companys investment criteria. Annual Report 2004 | www.sunlife.com     39




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Managements Discussion and Analysis The Company also originates and manages mortgage-backed investments for institutional
clients. This fee-based business allows the Company to leverage its extensive commercial mortgage
underwriting expertise and enhance its asset management strength. In 2004, the Company securitized
$161 million of commercial mortgage-backed securities. The Company had $1.7 billion in managed
mortgage assets as at December 31, 2004, compared to $1.9 billion at the end of 2003. STOCKS The Companys equity portfolio represented 4% of invested assets at December 31, 2004, unchanged
from the end of 2003. At December 31, 2004, the stock portfolio had a carrying value of $3.5
billion, unchanged from the 2003 level. The market value of its stock portfolio rose to $3.4
billion at the end of 2004, up 9% from the end of 2003 as higher equity market values more than
offset the unfavourable currency impact due to the strengthening of the Canadian dollar against
foreign currencies. The Companys equity portfolio is diversified by country. At December 31, 2004, $791 million or 23%
of the Companys equity portfolio related to Canadian issuers, $1.1 billion or 32% to U.S. issuers, $1.4 billion or 41% to U.K. issuers, and $150 million or 4% to issuers
from other jurisdictions. The portfolio is also well diversified by specific issuer. Excluding the
Companys equity interest in CI Funds, no single issuer exceeded 2% of the portfolio at
December 31, 2004. REAL ESTATE The Companys real estate portfolio represented 3% of invested assets at December 31, 2004,
unchanged from the end of 2003. At December 31, 2004, 59% of the portfolio was located in Canada,
29% in the United States and 12% in the United Kingdom. The Companys real estate portfolio had a
carrying value of approximately $3.1 billion and a market value of approximately $3.4 billion at
December 31, 2004, compared with $3.1 billion and $3.3 billion, respectively, at the end of 2003. Commercial office properties are the major component of the real estate portfolio, representing
approximately 46% of real estate investments at December 31, 2004. During 2004, the Company sold the majority of its property management contracts pertaining to its
commercial properties in Canada to Bentall Capital LP, enabling the investment management team of
the Company to better focus on the core asset management aspects of the real estate portfolio. IMPAIRED ASSETS Total impaired assets, net of total specific and sectoral allowances, amounted to $178 million at
December 31, 2004, compared to $333 million as at December 31, 2003. The decrease of $155 million
reflects the disposal of certain impaired holdings, the impact of the additional allowances taken
during the year, and the strengthening of the Canadian dollar against foreign currencies. The
Companys net impaired ratio, defined as net impaired assets to total invested assets, decreased to
0.18% at December 31, 2004, from 0.34% at the end of 2003. The Company had allowances of $263 million against gross impaired assets of $441 million as at
December 31, 2004, compared to $366 million and $699 million respectively, at December 31, 2003.
Impaired assets are primarily bonds related to the U.S. securitization, transportation
and utilities sectors. In addition, the Company had $2.2 billion for possible future asset defaults included in its
actuarial liabilities as at December 31, 2004, compared with $2.0 billion in 2003. The Company takes provisions for certain bonds and mortgages designated as impaired. In 2004, the
Company took provisions of $21 million on invested assets compared to provisions of $113 million in
2003. The 2004 provisions reflect an improvement in impaired asset levels. The 2003 provisions were
primarily related to investments in the airline and securitization sectors in both the United
States and Canada. DEFERRED NET REALIZED GAINS Deferred net realized gains represent net gains on the sale of invested assets that have not yet
been recognized in income. In accordance with Canadian generally accepted accounting principles for
insurance companies, net realized gains on the sales of bonds and mortgages are deferred and
amortized into future investment income on a constant yield basis over the remaining period to
maturity. Net realized gains on the sale of stocks and real estate are deferred and amortized into
future investment income at the quarterly rate of 5% and 3%, respectively, of the unamortized
balance. The Company had $3.5 billion in deferred net realized gains as at December 31, 2004, of which $2.6
billion represented net gains on invested assets backing actuarial liabilities and $0.9 billion
represented net gains on invested assets backing capital. Gains on bonds and stocks collectively
represented 90% of total deferred net realized gains as at December 31, 2004. NET UNREALIZED GAINS Net unrealized gains represent the difference between market value and carrying value of
investments, which are not recorded on the Companys balance sheet other than with respect to
stocks and real estate. Carrying values for stocks and real estate are determined on a moving
average market method of accounting whereby a portion of unrealized gains or losses is included in
the carrying value of investments. The related changes in unrealized gains and losses are credited
to or charged against income. The Company had $5.9 billion in net unrealized gains as at December 31, 2004 compared to $5.1
billion as at December 31, 2003. A significant portion of the net unrealized gains relate to
invested assets backing actuarial liabilities. Additional information is provided in Notes 7 and 8
to SLF Inc.s 2004 Consolidated Financial Statements. 40     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis Financial Position and Liquidity The Company maintains a strong financial position and adequate liquidity to ensure it can
meet its obligations. PRINCIPAL SOURCES OF FUNDS The primary source of funds for the Company is cash provided by operating activities, including
premiums, investment management fees and net investment income. These funds are used primarily to
pay policy benefits, dividends to policyholders, claims, commissions, operating expenses and
interest. Cash flows generated from operating activities are generally invested to support future
payment requirements, including the payment of dividends to shareholders. The Company may also
raise funds from time to time through borrowing and issuing of securities to finance growth,
acquisitions or other needs. Net cash, cash equivalents and short-term securities increased by $994 million in 2004 primarily
because of lower net cash used in investing activities, lower negative impact of currency exchange
fluctuations and reduced net cash used in financing activities. Net cash
used in investing activities was lower primarily due to a net reduction in the level of investments
in long-term assets compared to a year ago. Net cash used in financing activities was lower in 2004
primarily reflecting $106 million higher repayment of borrowed funds in 2003 and an increase of $37
million in proceeds from share issuance related to the exercise of employee stock options. Lower
share repurchases by $139 million in 2004 were mostly offset by an increase in common share
dividend payments of $102 million. In addition, financing activities reflect debt redemptions of
$267 million and $189 million in 2004 and 2003, respectively. At December 31, 2004, the Company maintained cash, cash equivalents and short-term securities
totalling $6.0 billion, of which 32% were held in relation to certain derivative strategies and
bond repurchase agreements. The corresponding percentage was 34% at the end of 2003. In addition to
providing for near-term funding commitments, cash, cash equivalents and short-term securities
include amounts which support short-term liabilities. CASH FLOW ($ millions )
    
    2004
    
    
    2003
    
    
    2002Net Cash Provided by Operating Activities*
    
    
    3,230
    
    
    
    3,245
    
    
    
    4,453Net Cash Provided by (Used in) Financing Activities
    
    
    (1,102
    )
    
    
    (1,204
    )
    
    
    292Net Cash Provided by (Used in) Investing Activities
    
    
    (1,460
    )
    
    
    (2,564
    )
    
    
    (3,216
    )Changes Due to Fluctuations in Exchange Rates
    
    
    (90
    )
    
    
    (455
    )
    
    
    44Increase (Decrease) in Cash and Cash Equivalents
    
    
    578
    
    
    
    (978
    )
    
    
    1,573Cash and Cash Equivalents, beginning of period
    
    
    3,178
    
    
    
    4,156
    
    
    
    2,583Cash and Cash Equivalents, end of period
    
    
    3,756
    
    
    
    3,178
    
    
    
    4,156Short-term Securities, end of period
    
    
    2,210
    
    
    
    1,794
    
    
    
    2,996Cash, Cash Equivalents and Short-term Securities, end of period
    
    
    5,966
    
    
    
    4,972
    
    
    
    7,152
  *

Includes net cash provided by discontinued operations. LIQUIDITY The Companys primary liquidity requirement is to meet operating cash obligations such as the
payment of claims and expenses and debt servicing, and to ensure its ability to pay shareholder
dividends. The Company generally maintains a conservative liquidity position that exceeds all the
liabilities payable on demand. To further strengthen its liquidity, the Company actively manages
and monitors its capital levels, its asset/liability matching position, diversification and credit
quality of its investments, and its cash forecasts and actual amounts against established targets.
In addition, the Company maintains standby credit facilities with a variety of banks. The
agreements relating to the Companys debt, letters of credit, and lines of credit contain covenants
of the nature normally found in these types of agreements relating to solvency, credit ratings and
other such matters. The Company is in material compliance with all covenants in these agreements. The Company is subject to various regulations in the jurisdictions in which it operates. The
ability of SLF Inc.s subsidiaries to pay dividends and transfer funds is regulated in
certain jurisdictions and may require local regulatory approvals and the satisfaction of specific
conditions in certain circumstances. Through effective cash management and
capital planning, SLF Inc. ensures that its subsidiaries, as a whole and on a stand-alone
basis, are properly funded and maintain adequate liquidity to meet obligations, both individually
and in aggregate. Based on the Companys historic cash flows and current strong financial performance, management
believes that the cash flow from the Companys operating activities will continue to provide
sufficient liquidity for the Company to satisfy debt service obligations and to pay other expenses. CAPITAL STRUCTURE As at December 31, 2004, the Companys capital consisted of common shares issued by SLF
Inc., preferred shares and subordinated debentures issued by Sun Life Assurance and its
subsidiary, Sun Canada Financial Co., Sun Life ExchangEable Capital Securities (SLEECS)
issued by Sun Life Capital Trust (SLCT), which qualified as Tier 1 capital for regulatory
capital purposes, and cumulative capital securities issued by a subsidiary of Sun Life Assurance. Annual Report 2004 | www.sunlife.com     41




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Managements Discussion and Analysis As at December 31, 2004, shareholders equity was $14.3 billion, up $426 million from the
December 31, 2003 level. The increase was primarily due to shareholders net income of $1.7
billion, partially offset by net share repurchases of $330 million, payment of shareholder
dividends of $515 million, and a $421 million reduction due to the strengthening of the Canadian
dollar against foreign currencies. The number of SLF Inc. common shares outstanding decreased to 592 million as at December 31, 2004,
compared to 600 million as at December 31, 2003. The reduction was primarily due to SLF
Inc.s share repurchase program, through which approximately 10 million common shares were
repurchased in 2004. SLF Inc. granted stock options to certain employees and directors, which may be exercised
at the closing price of the common shares on the trading day preceding the grant date. As at January 31, 2005, there were 592,235,890 SLF Inc. common shares and 12,244,744
stock options outstanding. Sun Life Assurance had 6,000,000 preferred Class E Shares, Series 1 outstanding with a principal
amount of $150 million as at December 31, 2004. These shares carry a dividend yield of 6.5% and
were originally issued by Clarica. As at December 31, 2004,
$950 million of SLEECS  Series A and $200 million of SLEECS  Series B were outstanding. The SLEECS were issued by SLCT, a subsidiary
of Sun Life Assurance. Holders of the SLEECS have the right to surrender each $1,000 face
amount of SLEECS in exchange for 40 non-cumulative preferred Class A Shares of Sun Life
Assurance. These preferred shares may be exchanged for common shares of SLF Inc. Details
on the SLEECS are described in Note 15 to SLF Inc.s 2004 Consolidated
Financial Statements. Effective January 1, 2005, as a result of the change in accounting guidelines
described in Note 2 to SLF Inc.s 2004 Consolidated Financial Statements, SLCT
was deconsolidated from SLF Inc. As a result, SLF Inc. deconsolidated $1,150
million of non-controlling interest in subsidiaries and recorded $1,200 million of senior
debentures payable to SLCT in other liabilities. The senior debentures issued by Sun Life
Assurance comprised a $990 million issue bearing 6.865% interest due December 31, 2031, and a $210
million issue bearing 7.093% interest due June 30, 2052. For regulatory reporting purposes, the
SLEECS remain as a part of the Companys capital structure. The Companys long-term debt decreased with the redemption by Sun Life Assurance of $250 million of
its 5.8% debentures in November 2004. At December 31, 2004, the Companys long-term debt consisted
of (i) cumulative capital securities of $720 million, which were issued in U.S. dollars
with no scheduled maturity date, (ii) $1.2 billion of subordinated debentures issued in Canadian
dollars with maturities between 2015 and 2028, and (iii) subordinated notes of $213 million issued
in U.S. dollars with maturities between 2007 and 2015. Sun Life Financials debt-to-total capital ratio, including the SLEECS and Sun Life
Assurances Class E Preferred Shares Series 1 as part of debt, decreased to 19% as at December 31,
2004, from 21% at December 31, 2003. (DEBT-TO-CAPITAL RATIO BAR GRAPH) SHAREHOLDER DIVIDENDS SLF Inc. increased its quarterly common shareholder dividend to $0.21 per share in the
first quarter of 2004 and to $0.22 per share in the third quarter of 2004. Total common shareholder
dividends paid in 2004 were $0.86 per share, up from $0.68 in 2003. On January 27, 2005, the Board
of Directors approved an additional 9% increase in quarterly dividends on SLF Inc.s
common shares to $0.24 per share. SLF Inc.s dividend policy is reviewed periodically by
the Board of Directors, and is dependent upon the Companys earnings, financial condition and
capital requirements. (DIVIDENDS BAR GRAPHS) CAPITAL ADEQUACY The Company has a policy in place that ensures adequate capital is maintained in the countries in
which it has operations. In Canada, SLF Inc. and Sun Life Assurance are subject to the
Minimum Continuing Capital and Surplus Requirements (MCCSR) established by
OSFI. In September 2003, OSFI advised the life insurance industry that no
minimum or targeted MCCSR would apply to insurance holding companies on a consolidated
basis. In addition, certain foreign life insurance companies will not be subject to the MCCSR
rules but instead will be allowed to rely on the capital adequacy models developed by the
foreign jurisdiction. On February 2, 2005, OSFI issued draft guidelines incorporating
these principles. It is anticipated that after the guidelines are finalized the Companys principal
operating life insurance company in the United States, Sun Life Assurance Company of Canada
(U.S.), will not be subject to the MCCSR requirements. The Company will revise
its capital policy to accommodate the new holding company capital rules when the guidelines are
finalized. 42     Sun Life Financial Inc. | Annual Report 2004




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Managements Discussion and Analysis Sun Life Assurance will continue to be subject to the MCCSR required capital for a
life insurance company in Canada. Under the current MCCSR guidelines, OSFI
generally expects insurance companies to maintain a minimum MCCSR ratio of 150%.
Sun Life Assurances MCCSR ratio was well above the minimum level as at December 31,
2004. Sun Life Assurance Company of Canada (U.S.) is subject to the Risk-Based Capital rules under the National Association of Insurance Commissioners
(NAIC). The NAIC generally expects insurance companies to maintain
200% of minimum Risk-Based Capital. Sun Life Assurance Company of Canada (U.S.)s Risk-Based
Capital was well above the minimum level as at December 31, 2004. In addition, other foreign
operations and foreign subsidiaries of SLF Inc. must comply with local capital
requirements in the jurisdictions in which they operate. These foreign operations and subsidiaries
all maintained capital levels well above the minimum local requirements as at December 31, 2004. (MCCSR RATIO - SUN LIFE INSURANCE GRAPH) OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, the Company is engaged in a variety of financial arrangements.
The principal purposes of these arrangements are: (i)

to earn management fees and additional spread
on a matched book of business;(ii)

to hedge and match the Companys liabilities, and reduce risks
associated with currency, interest rate and stock market fluctuations, and to reproduce permissible
investments; and(iii)

to reduce financing costs. While most of these activities are reflected on the Companys balance sheet with respect to assets
and liabilities, certain of them are either not recorded or are recorded on the Companys balance
sheet in amounts that differ from the full contract or notional amounts. The types of off-balance sheet activities the Company undertakes primarily include: 

asset securitization

securities lending

financial derivatives

financial reinsurance Asset Securitization The Companys asset securitization program primarily comprises mortgage-backed securities and
collateralized bond obligations. The purpose of these structures is to leverage the Companys investment expertise to source and manage
assets for third-party customers for which the Company is paid origination and/or management fees. The Company generally uses special purpose entities (SPEs) to carry out these activities.
SPEs may be organized as trusts, partnerships or corporations. In an asset
securitization, the Company transfers assets to an SPE in exchange for cash. The SPE
obtains the cash needed to pay for the assets it receives by issuing securities to investors.
As part of the SPE arrangement, the Company may subscribe to a subordinated investment in
the securities issued by the SPE. The Company is generally retained to manage the assets
in the SPE on a fee-for-service basis. All of the asset securitization transactions
undertaken by the Company are structured on a non-recourse basis under which the Company has no
exposure to the default risks associated with the assets in the SPE, other than through
any retained interest held by the Company, which is not expected to be material. The Companys asset securitization program, excluding MFSs securitization activities, is
summarized in the following table. ($ millions)
    
    2004
    
    
    2003As at December 31Balance of Securitized Assets
    
    
    3,178
    
    
    
    3,075The Companys Retained Interests
    
    
    138
    
    
    
    165For the year ended December 31Cash Flow
Received on Retained Interests and Servicing Fees
    
    
    57
    
    
    
    26Sales
Proceeds from New Securitizations Including Gains Before Taxes
    
    
    179
    
    
    
    693
 During 2004, the Company sold commercial mortgages with a carrying value of $161 million to a trust
that subsequently issued securities backed by the commercial mortgages. The Company was retained by
the trust to service and administer the mortgages. It also retained a subordinated investment in
these securities. The 2004 transactions resulted in pre-tax gains of approximately $18 million.
These gains are being amortized into income over time. The Company, through MFS, manages collateralized debt obligations. The Companys exposure
in these collateralized debt obligations is limited to its equity investment and the management fee
income earned. The net carrying value of MFSs equity investment at December 31, 2004,
was $6 million and the expected annual management fees are approximately $5 million. Securities Lending The Company maintains a securities lending program through which certain securities from its
investment portfolio are loaned to other institutions for short periods. The purpose of this
program is to generate additional fee income. The Company conducts its program only with
well-established, reputable banking institutions that carry a minimum credit rating of
AA. It is Company practice to obtain a guarantee from the lending agent against
counterparty default, including collateral deficiency, in securities lending transactions. Annual Report 2004 | www.sunlife.com     43




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##### 



Managements Discussion and Analysis The Companys securities lending program is summarized in the following table. ($ millions)
    
    2004
    
    
    2003As at December 31Balance of Securities Loaned
    
    
    2,071
    
    
    
    568Value of Collateral
    
    
    2,240
    
    
    
    642For the Year Ended December 31Fee Income Received
    
    
    3
    
    
    
    3
 The Companys loaned securities, which are included in invested assets, had a carrying value and
market value as at December 31, 2004 of approximately $2,071 million and $2,130 million,
respectively. As at December 31, 2003, the Companys loaned securities had a carrying value and
market value of approximately $568 million and $609 million, respectively. Financial Derivatives and Risk Mitigation The Company uses derivative instruments for hedging and risk management purposes or in replication
strategies to reproduce permissible investments. The Company does not engage in speculative
investment in derivatives. The permissible derivative instruments under the Companys policy
include swaps, options, financial futures, and forward contracts to manage risks or to replicate
the exposures associated with interest rate, currency and equity market fluctuations. The Company generally enters into derivative transactions with counterparties with an
AA credit rating or better. Where a counterpartys rating is downgraded to below this
level, the Company has credit support arrangements in place which require additional collateral. The Company uses financial models and techniques to ensure the appropriateness of its risk
mitigation strategies. Generally, a derivative transaction will be pursued if the asset purchase or
sale is not considered as financially beneficial compared to an alternative transaction using
permissible derivative instruments. The Companys derivative instruments are summarized in the following table. ($ millions)
    
    2004
    
    
    2003As at December 31Total Notional Amount
    
    
    30,217
    
    
    
    26,163Net Fair Value
    
    
    1,080
    
    
    
    715Credit Equivalent Amount
    
    
    2,480
    
    
    
    2,249Risk-Weighted Credit Equivalent Amount
    
    
    59
    
    
    
    53
 Derivative transactions are measured in terms of notional amounts, which serve as the basis for
calculating payments and are generally not actual amounts that are exchanged. The net fair value
represents the unrealized gains, net of unrealized losses, of all derivative financial instruments.
The credit equivalent amount is determined as the replacement cost of the derivative contracts
having a positive fair value plus an amount representing the potential future credit exposure. The
risk-weighted credit equivalent amount is a measure
used to determine the amount of capital necessary to support derivative transactions for certain
Canadian regulatory purposes. It is determined by weighting the credit equivalent amount according
to the nature of the derivative and the creditworthiness of the counterparties. Both credit
equivalent amount and risk-weighted credit equivalent amount are determined in accordance with
guidelines provided by OSFI. As at December 31, 2004, the credit equivalent amounts for interest
rate contracts, foreign exchange contracts, and equity and other contracts were $350 million, $838
million and $1,292 million, respectively. The corresponding risk-weighted credit equivalent amounts
were $8 million, $22 million and $29 million, respectively. Additional details in respect of derivatives are described in Notes 1, 8, 9 and 23 of SLF Inc.s 2004 Consolidated Financial Statements. The Companys use of derivatives for its material risk mitigation activities pertains mainly to
exposures with respect to movements in equity markets, interest rates and currency. Management of Sensitivity to Equity Market Movements The Company sells variable annuities that contain guarantees, the value of which is sensitive to
movement in equity markets. Derivatives are used to lower the sensitivity of income to significant
reductions in equity market levels. The Company has issued a large volume of such variable annuities primarily in the United States
where the guarantees on these annuities are managed using put options against the Standard and
Poors 500 Index over a range of strike prices and maturities. A hedging program has been developed
for variable annuities that involves dynamic trading of equity futures and options to reflect
market conditions and policyholder activity. Through its run-off reinsurance business, the Company also has reinsured the guarantees offered on
variable annuities issued by certain other insurance companies. The reserving requirements of these
guarantees are sensitive to movements in equity markets. During 2004, the Company purchased long
dated put options against the Standard and Poors 500 Index to reduce the income volatility
associated with this business. The Company sells equity-indexed annuity products in the United States that contain guarantees
related to equity market performance. The exposure is managed using equity-indexed futures and
options which are traded on a daily basis to reflect market conditions and policyholder activities. The asset mix of the With Profit Fund in the SLF U.K. business group includes a component
of equities. Derivatives are used to protect the fund from the impact of a significant fall in the
value of equities. A costless equity collar option on the FTSE 100 Index is currently
being used as a stop loss to protect the fund against a potential fall of the U.K. equity
market below a predetermined level while the fund in return would forfeit any potential increase in
the U.K. equity market above a specified threshold. 44 Sun Life Financial Inc. | Annual Report 2004




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##### 



Managements Discussion and Analysis Management of Sensitivity to Interest Rate Movements The Company uses interest rate derivatives as part of its asset/liability management strategy,
which is described in more detail in the Risk Management section beginning on page 36 of this
MD&A. The Company has exposure to decreases in interest rates on universal life contracts issued in the
United States. In Canada, the Company has exposure to decreases in interest rates on certain group
annuity contracts containing minimum interest guarantees. Interest rate floors, swaps and swaptions
are being used to lower the sensitivity of financial loss due to significant reductions in interest
rates. In the U.K., the Company has a portfolio of unit-linked pension products that offer
guaranteed annuity rate options. The value of these guarantees is sensitive to the level of
interest rates at the time of annuitization. The Company has purchased swaption contracts to reduce
financial losses due to interest rate movements. Management of Sensitivity to Currency Fluctuations The Company uses cross currency swaps and forwards to reduce the sensitivity to currency
fluctuations. These derivative instruments are primarily used to match the value and cash flows of
specific assets denominated in one currency with the value and cash flows of the corresponding
liabilities denominated in another currency. Currency swaps are also used to hedge certain
investment and operations financing activities. Financial Reinsurance Although Sun Life Financial is currently not entering into any new financial reinsurance treaties,
the Company has previously engaged in financial reinsurance markets to generate fee income. The Companys in-force financial reinsurance program is summarized in the following table. ($ millions)
    
    2004
    
    
    2003As at
December 31Business In-Force Equivalent
    
    
    148
    
    
    
    395Risk-Weighted Amount*
    
    
    1
    
    
    
    1For the year
ended December 31Fee Income Received
    
    
    4
    
    
    
    5
  *

Represents the risk equivalent amount weighted according to the nature of the risk
profile of each financial reinsurance treaty. COMMITMENTS, GUARANTEES, CONTINGENCIES AND REINSURANCE MATTERS In the normal course of business, the Company enters into leasing agreements, outsourcing
arrangements, and agreements involving indemnities to third parties. The Company is also engaged in
arbitration proceedings in the U.S. and U.K. with certain companies that have
contracts to provide reinsurance to the Company. Details regarding the Companys commitments,
guarantees and contingencies are summarized in Note 21 of SLF Inc.s 2004 Consolidated
Financial Statements. Lease Commitments The Company leases offices and certain equipment. These are operating leases with rents charged to
operations in the year to which they relate. Total future rental payments for the remainder of
these leases were $491 million as at December 31, 2004. Contractual Commitments In the normal course of business, the Company provides credit instruments to its customers to
facilitate their financial needs. These various contractual commitments are not reflected in
SLF Inc.s 2004 Consolidated Financial Statements. At December 31, 2004, there were
outstanding contractual commitments of $1.8 billion. The majority of these commitments are to
extend credit under commercial and residential mortgage loans. Letters of Credit The Company issues letters of credit in the normal course of business. At December 31, 2004,
letters of credit in the amount of $341 million have been issued. Outsourcing Agreements The Company enters into long-term outsourcing contracts from time to time to allow the Company to
focus on its core business and enhance customer services. Its material long-term outsourcing
contracts are described below. In March 2002, the Company entered into a five-year outsourcing contract with Marlborough Stirling
group, a U.K. based software and service provider specializing in the financial services
sector, to outsource the administration of its closed block of U.K. individual life and
pension business, consisting of approximately 723,000 policies as at December 31, 2004. The
contract has subsequently been extended by two years through to 2009. The value of the main
contract is estimated at approximately £138 million over its term. The future payments to
Marlborough Stirling group are estimated to be approximately £14 million in 2005 and £39 million
for the remaining term of this contract after 2005. The outsourcing arrangement has reduced the
Companys operating costs and risks, enhanced its strategic flexibility in the U.K.
market, and represented another step in the implementation of the Companys strategic
initiative to rationalize its U.K. operations. On November 30, 2004, Marlborough Stirling
group announced that it was exploring the possibility of a joint venture or sale of some or all of
its business. Sun Life Financial is monitoring this situation. In August 2002, the Company entered into an outsourcing contract with IBM Canada Limited
(IBM), under which IBM provides a wide range of technology services to the
Company over a seven-year period. The value of this contract is estimated to be approximately $250
million over its life. Beginning in 2004, e-Messaging and mainframe services under the outsourcing
arrangement were broadened in scope. The future payments to IBM, based on currently anticipated
usage levels, are estimated to be approximately $37 million a year for the remaining term of this
contract. Annual Report 2004 | www.sunlife.com     45




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##### 



Managements Discussion and Analysis CONTRACTUAL OBLIGATIONS Payments Due by Period($ millions)
    
    Total
    
    
    Within 1 Year
    
    
    13 Years
    
    
    45 Years
    
    
    Over 5 YearsLong-Term DebtOperating Leases
    
    
    491
    
    
    
    103
    
    
    
    172
    
    
    
    90
    
    
    
    126Credit-Related
Arrangements
    
    
    3,332
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    3,299Contractual Commitments
    
    
    1,754
    
    
    
    1,081
    
    
    
    673
    
    
    
    
    
    
    
    Letters of Credit
    
    
    341
    
    
    
    341
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    
    5,918
    
    
    
    1,525
    
    
    
    845
    
    
    
    123
    
    
    
    3,425
 Legal and Regulatory Proceedings In 2003, industry-wide regulatory investigations were launched in the U.S.
investment industry regarding market timing, late trading and other issues. On February 5,
2004, MFS reached settlements with federal and state regulators with respect to alleged
false and misleading information in certain MFS fund prospectuses regarding market timing
and related issues. In these settlements, MFS agreed to pay US $225 million to
compensate investors in certain funds, of which US $50 million was a penalty, and agreed
to reduce fees on certain MFS funds by approximately US $25 million annually for
five years. Under these settlements, MFS neither admitted nor denied any wrongdoing. The
Company recorded a $211 million after-tax charge to income in the fourth quarter of 2003 in
connection with these settlements. On March 31, 2004, MFS settled an administrative proceeding with the United States
Securities and Exchange Commission regarding disclosure of brokerage allocation practices in
connection with sales of certain MFS funds. Under the terms of that settlement, in which
MFS neither admitted nor denied any wrongdoing, MFS agreed to pay
US $1.00 (US one dollar) in disgorgement and US $50 million in penalty
to compensate certain MFS funds. The Company recorded a $59 million after-tax charge to
net income in the first quarter of 2004 in connection with this settlement. On December 16, 2004, the Ontario Securities Commission approved a settlement agreement with CI
Funds, in which CI Funds agreed to make a payment of $49.3 million plus interest to
investors in its mutual funds that were affected by frequent trading that CI Funds
permitted to occur in certain accounts. This settlement had an immaterial effect on the 2004
earnings of Sun Life Financial. The Company and its subsidiaries have received requests for information from and are co-operating
with insurance and securities regulators and other government and self-regulatory agencies in
Canada and the United States 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, compensation and other arrangements with
distributors and brokers, and recordkeeping requirements. Since December 2003, SLF Inc., MFS and certain of its subsidiaries, MFS
Corporation Retirement Committee, various MFS funds, certain current and/or former
Trustees of those MFS funds, and certain officers of MFS have been named as
defendants in more than 30 lawsuits filed in U.S. federal and state courts seeking
damages of unspecified amounts. The lawsuits variously have been commenced as class actions or
individual actions on behalf of investors who purchased, held or redeemed shares of the MFS
funds during specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds. The suits
generally seek compensatory damages, punitive damages, recovery of fees, rescission of contracts,
an accounting, restitution, declaratory relief, equitable and/or injunctive relief and attorneys
fees and costs. The various lawsuits generally allege that some or
all of the defendants (i) permitted or acquiesced in market timing and/or late trading in some of the MFS funds,
and inadequately disclosed MFSs internal policies concerning market timing and such
matters, (ii) received excessive compensation as fiduciaries to
the MFS funds, or (iii) permitted or acquiesced in the improper use of fund assets by MFS to support the
distribution of MFS fund shares and inadequately disclosed MFSs use of fund
assets in this manner. The actions assert that some or all of the
defendants violated U.S. federal securities laws, the Employee Retirement Income Security Act of 1974, as well as
fiduciary duties and other violations of common law. Additional lawsuits based upon similar
allegations may be filed in the future. These actions are at an early stage and Sun Life Financial
cannot predict their outcome with certainty and is accordingly unable to determine the total
potential impact that they may have on Sun Life Financials results of operations, financial
position and cash flows. Additional information concerning these and related matters is provided in this MD&A
under the headings Non-GAAP Financial Measures and MFS Investment Management, in Note 21
to SLF Inc.s 2004 Consolidated Financial Statements and in SLF Inc.s 2004 AIF
under the heading Risk Factors  Investigations into U.S. Investment and Insurance
Industries. Additional Information Additional information relating to the Company can be found in SLF Inc.s
Consolidated Financial Statements and accompanying notes for the year ended December 31, 2004,
SLF Inc.s 2004 AIF and other
documents filed with applicable securities regulators in Canada, which may be accessed at
www.sedar.com and with the SEC, which may be accessed at www.sec.gov. 46     Sun Life Financial Inc. | Annual Report 2004




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CONSOLIDATED FINANCIAL STATEMENTS 
 Financial Reporting Responsibilities Management is responsible for preparing the consolidated financial statements. This
responsibility includes selecting appropriate accounting policies and making estimates and other
judgments consistent with Canadian generally accepted accounting principles. It also includes
ensuring the use of appropriate accounting policies and estimates in the disclosure of the
information which was prepared following accounting principles generally accepted in the United
States of America. The financial information presented elsewhere in the annual report to
shareholders is consistent with these statements. The Board of Directors (Board) oversees managements responsibilities for financial reporting. An
Audit and Conduct Review Committee of non-management directors is appointed by the Board to review
the consolidated financial statements and report to the directors prior to their approval of the
consolidated financial statements for issuance to shareholders. Management is also responsible for maintaining systems of internal control that provide reasonable
assurance that financial information is reliable, that all financial transactions are properly
authorized, that assets are safeguarded, and that Sun Life Financial Inc. and its subsidiaries,
collectively referred to as the Company, adhere to legislative and regulatory requirements. These
systems include the communication of policies and the Companys Code of Business Conduct throughout
the organization. Internal controls are reviewed and evaluated by the Companys internal auditors. The Audit and Conduct Review Committee also conducts such review and inquiry of management and the
internal and external auditors as it deems necessary towards establishing that the Company is
employing appropriate systems of internal control, is adhering to legislative and regulatory
requirements and is applying the Companys Code of Business Conduct. Both the internal and external
auditors and the Appointed Actuary have full and unrestricted access to the Audit and Conduct
Review Committee, with and without the presence of management. The Office of the Superintendent of Financial Institutions, Canada conducts periodic examinations
of the Company. These examinations are designed to evaluate compliance with provisions of the
Insurance Companies Act of Canada and to ensure that the interests of policyholders, depositors and
the public are safeguarded. The Companys foreign operations and foreign subsidiaries are examined
by regulators in their local jurisdictions. The Appointed Actuary, who is a member of management, is appointed by the Board to discharge the
various actuarial responsibilities required under the Insurance Companies Act of Canada, and
conducts the valuation of the Companys actuarial liabilities. The role of the Appointed Actuary is
described in more detail in Note 12 on page 74. The report of the Appointed Actuary appears on page
99. The Companys external auditors, Deloitte & Touche LLP, Chartered Accountants, conduct an
independent examination of the financial statements and meet separately with both management and
the Audit and Conduct Review Committee to discuss the results of their examination. The auditors
report to the shareholders appears on page 99. -s- Donald A. Stewart Donald A. Stewart
Chief Executive Officer -s- Paul W. Derksen Paul W. Derksen
Executive Vice-President and Chief Financial Officer Toronto, February 14, 2005 Annual Report 2004 | www.sunlife.com     47




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Consolidated Financial Statements Consolidated Statements of Operations Years ended December 31 (in millions of
Canadian dollars, except for per share amounts)
    
    
    
    
    
    2004
    
    
    2003
    
    
    2002RevenuePremium income:Annuities
    
    
    
    
    
    $
    4,588
    
    
    $
    4,805
    
    
    $
    7,402Life insurance
    
    
    
    
    
    
    5,966
    
    
    
    6,325
    
    
    
    5,403Health insurance
    
    
    
    
    
    
    2,367
    
    
    
    2,413
    
    
    
    2,07012,921
    
    
    
    13,543
    
    
    
    14,875Net investment income (Note 8)
    
    
    
    
    
    
    5,924
    
    
    
    5,703
    
    
    
    5,131Fee income
    
    
    
    
    
    
    2,903
    
    
    
    2,810
    
    
    
    3,09521,748
    
    
    
    22,056
    
    
    
    23,101Policy Benefits and ExpensesPayments to policyholders, beneficiaries and depositors:Maturities and surrenders
    
    
    
    
    
    
    5,726
    
    
    
    6,050
    
    
    
    5,476Annuity payments
    
    
    
    
    
    
    1,495
    
    
    
    1,567
    
    
    
    1,486Death and disability benefits
    
    
    
    
    
    
    2,458
    
    
    
    2,488
    
    
    
    2,067Health benefits
    
    
    
    
    
    
    1,737
    
    
    
    1,696
    
    
    
    1,573Policyholder dividends and interest on claims and deposits
    
    
    
    
    
    
    1,116
    
    
    
    1,125
    
    
    
    1,08612,532
    
    
    
    12,926
    
    
    
    11,688Net transfers to segregated funds
    
    
    
    
    
    
    600
    
    
    
    544
    
    
    
    1,329Increase in actuarial liabilities (Note 12)
    
    
    
    
    
    
    1,425
    
    
    
    1,510
    
    
    
    3,822Commissions
    
    
    
    
    
    
    1,916
    
    
    
    1,848
    
    
    
    1,909Operating expenses (Note 17)
    
    
    
    
    
    
    2,831
    
    
    
    3,088
    
    
    
    2,779Premium taxes
    
    
    
    
    
    
    182
    
    
    
    171
    
    
    
    168Interest expense (Notes 13 and 14)
    
    
    
    
    
    
    195
    
    
    
    209
    
    
    
    19219,681
    
    
    
    20,296
    
    
    
    21,887Operating Income before Income Taxes and Non-controlling Interests
    
    
    
    
    
    
    2,067
    
    
    
    1,760
    
    
    
    1,214Income taxes (Note 20)
    
    
    
    
    
    
    293
    
    
    
    387
    
    
    
    98Non-controlling interests in net income of subsidiaries (Note 15)
    
    
    
    
    
    
    80
    
    
    
    65
    
    
    
    83Net Income from Continuing Operations
    
    
    
    
    
    
    1,694
    
    
    
    1,308
    
    
    
    1,033Loss from discontinued operations, net of income taxes (Note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Total Net Income
    
    
    
    
    
    
    1,694
    
    
    
    1,308
    
    
    
    997Less participating policyholders net income (loss)
    
    
    
    
    
    
    13
    
    
    
    (1
    )
    
    
    (1
    )Shareholders Net Income
    
    
    
    
    
    $
    1,681
    
    
    $
    1,309
    
    
    $
    998Average exchange rates:U.S. Dollars
    
    
    1.30
    
    
    
    1.40
    
    
    
    1.57U.K. Pounds
    
    
    2.38
    
    
    
    2.29
    
    
    
    2.36Earnings per share(Note 18)BasicContinuing operations
    
    
    
    
    
    $
    2.81
    
    
    $
    2.15
    
    
    $
    1.91Discontinued operations
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.07
    )Shareholders net income
    
    
    
    
    
    $
    2.81
    
    
    $
    2.15
    
    
    $
    1.84DilutedContinuing operations
    
    
    
    
    
    $
    2.79
    
    
    $
    2.15
    
    
    $
    1.90Discontinued operations
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.07
    )Shareholders net income
    
    
    
    
    
    $
    2.79
    
    
    $
    2.15
    
    
    $
    1.83Weighted average shares outstanding in millions(Note 18)Basic
    
    
    
    
    
    
    599
    
    
    
    608
    
    
    
    543Diluted
    
    
    
    
    
    
    602
    
    
    
    608
    
    
    
    543
 The attached notes form part of these consolidated financial statements. 48     Sun Life Financial Inc. | Annual Report 2004




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##### 



Consolidated Financial Statements Consolidated Balance Sheets As at December 31 (in millions of Canadian dollars)
    
    
    
    
    
    2004
    
    
    2003AssetsBonds (Note 8)
    
    
    
    
    
    $
    64,496
    
    
    $
    66,090Mortgages (Note 8)
    
    
    
    
    
    
    13,862
    
    
    
    13,601Stocks (Note 8)
    
    
    
    
    
    
    3,463
    
    
    
    3,473Real estate (Note 8)
    
    
    
    
    
    
    3,148
    
    
    
    3,067Cash, cash equivalents and short-term securities
    
    
    
    
    
    
    5,966
    
    
    
    4,972Policy loans and other invested assets
    
    
    
    
    
    
    5,982
    
    
    
    5,973Invested assets
    
    
    
    
    
    
    96,917
    
    
    
    97,176Goodwill (Note 10)
    
    
    
    
    
    
    5,471
    
    
    
    5,573Intangible assets (Note 10)
    
    
    
    
    
    
    751
    
    
    
    763Other assets (Note 11)
    
    
    
    
    
    
    4,618
    
    
    
    5,697Total general fund assets
    
    
    
    
    
    $
    107,757
    
    
    $
    109,209Segregated funds net assets
    
    
    
    
    
    $
    56,564
    
    
    $
    54,086Liabilities and EquityActuarial liabilities and other policy liabilities (Note 12)
    
    
    
    
    
    $
    76,056
    
    
    $
    77,354Amounts on deposit
    
    
    
    
    
    
    3,144
    
    
    
    3,120Deferred net realized gains (Note 8)
    
    
    
    
    
    
    3,466
    
    
    
    3,124Other liabilities (Note 13)
    
    
    
    
    
    
    7,159
    
    
    
    7,795Total general fund liabilities
    
    
    
    
    
    
    89,825
    
    
    
    91,393Subordinated debt (Note 14)
    
    
    
    
    
    
    2,182
    
    
    
    2,504Non-controlling interests in subsidiaries (Note 15)
    
    
    
    
    
    
    1,338
    
    
    
    1,336Total equity
    
    
    
    
    
    
    14,412
    
    
    
    13,976Total general fund liabilities and equity
    
    
    
    
    
    $
    107,757
    
    
    $
    109,209Segregated funds contract liabilities
    
    
    
    
    
    $
    56,564
    
    
    $
    54,086December 31 exchange rates:U.S. Dollars
    
    
    1.20
    
    
    
    1.29U.K. Pounds
    
    
    2.32
    
    
    
    2.30
 The attached notes form part of these consolidated financial statements. Approved on behalf of the Board of Directors -s- Donald A. Stewart Donald A. StewartChief Executive Officer -s- Ronald W. Osborne Ronald W. OsborneDirector Annual Report 2004 | www.sunlife.com     49




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##### 



Consolidated Financial Statements Consolidated Statements of Equity ParticipatingYears ended December 31 (in millions of Canadian dollars)
    
    Policyholders
    
    
    Shareholders
    
    
    2004
    
    
    2003
    
    
    2002Share
CapitalBalance, beginning of year
    
    $
    
    
    
    $
    7,289
    
    
    $
    7,289
    
    
    $
    7,420
    
    
    $
    1,100Common shares issued, net of issuance costs, as
consideration for business acquisitions
(Notes 3 and 16)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    6,281Stock options exercised (Note 19)
    
    
    
    
    
    
    75
    
    
    
    75
    
    
    
    28
    
    
    
    39Common shares purchased for cancellation (Note 16)
    
    
    
    
    
    
    (126
    )
    
    
    (126
    )
    
    
    (222
    )
    
    
    Balance, end of year
    
    
    
    
    
    
    7,238
    
    
    
    7,238
    
    
    
    7,289
    
    
    
    7,420Contributed SurplusBalance, beginning of year
    
    
    
    
    
    
    76
    
    
    
    76
    
    
    
    57
    
    
    
    Stock option compensation (Note 19)
    
    
    
    
    
    
    11
    
    
    
    11
    
    
    
    26
    
    
    
    21Stock options exercised (Notes 16 and 19)
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )
    
    
    (7
    )
    
    
    (12
    )Fair value of stock options granted as consideration
for business acquisition (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Balance, end of year
    
    
    
    
    
    
    70
    
    
    
    70
    
    
    
    76
    
    
    
    57Retained EarningsBalance, beginning of year
    
    
    72
    
    
    
    7,212
    
    
    
    7,284
    
    
    
    6,694
    
    
    
    5,994Balance of participating policyholders account of
Clarica Life Insurance Company at date of acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Net income
    
    
    13
    
    
    
    1,681
    
    
    
    1,694
    
    
    
    1,308
    
    
    
    997Dividends on common shares
    
    
    
    
    
    
    (515
    )
    
    
    (515
    )
    
    
    (413
    )
    
    
    (294
    )Common shares purchased for cancellation (Note 16)
    
    
    
    
    
    
    (262
    )
    
    
    (262
    )
    
    
    (305
    )
    
    
    Balance, end of year
    
    
    85
    
    
    
    8,116
    
    
    
    8,201
    
    
    
    7,284
    
    
    
    6,694Currency Translation AccountBalance, beginning of year
    
    
    (5
    )
    
    
    (668
    )
    
    
    (673
    )
    
    
    738
    
    
    
    631Changes for the year
    
    
    (3
    )
    
    
    (421
    )
    
    
    (424
    )
    
    
    (1,411
    )
    
    
    107Balance, end of year
    
    
    (8
    )
    
    
    (1,089
    )
    
    
    (1,097
    )
    
    
    (673
    )
    
    
    738Total equity
    
    $
    77
    
    
    $
    14,335
    
    
    $
    14,412
    
    
    $
    13,976
    
    
    $
    14,909
 The attached notes form part of these consolidated financial statements. 50     Sun Life Financial Inc. | Annual Report 2004




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##### 



Consolidated Financial Statements Consolidated Statements of Cash Flows Years ended December 31 (in millions of Canadian dollars)
    
    2004
    
    
    2003
    
    
    2002Cash Flows Provided by (Used in) Operating ActivitiesNet income from continuing operations
    
    $
    1,694
    
    
    $
    1,308
    
    
    $
    1,033Items not affecting cash:Increase in actuarial and other policy-related liabilities
    
    
    1,205
    
    
    
    1,430
    
    
    
    3,795Amortization of:Net deferred realized and unrealized gains on investments
    
    
    (498
    )
    
    
    (356
    )
    
    
    (242
    )Deferred acquisition costs and intangible assets
    
    
    201
    
    
    
    258
    
    
    
    333Gain on sale of subsidiaries
    
    
    
    
    
    
    
    
    
    
    (177
    )Future income taxes
    
    
    262
    
    
    
    91
    
    
    
    (87
    )Provisions for losses on investments
    
    
    21
    
    
    
    113
    
    
    
    366Stock option compensation (Note 19)
    
    
    11
    
    
    
    26
    
    
    
    21Other changes in other assets and liabilities
    
    
    353
    
    
    
    181
    
    
    
    (613
    )New mutual fund business acquisition costs capitalized
    
    
    (84
    )
    
    
    (152
    )
    
    
    (194
    )Redemption fees of mutual funds
    
    
    65
    
    
    
    73
    
    
    
    115Net cash provided by operating activities
    
    
    3,230
    
    
    
    2,972
    
    
    
    4,350Cash Flows
Provided by (Used in) Financing ActivitiesBorrowed funds
    
    
    10
    
    
    
    (96
    )
    
    
    (103
    )Issuance of subordinated debt (Note 14)
    
    
    
    
    
    
    
    
    
    
    799Redemption of subordinated debt (Note 14)
    
    
    (267
    )
    
    
    (189
    )
    
    
    (337
    )Issuance of common shares on exercise of stock options (Note 16)
    
    
    58
    
    
    
    21
    
    
    
    27Issuance of Sun Life ExchangEable Capital Securities  Series B (Note 15)
    
    
    
    
    
    
    
    
    
    
    200Common shares purchased for cancellation (Note 16)
    
    
    (388
    )
    
    
    (527
    )
    
    
    Dividends paid on common shares
    
    
    (515
    )
    
    
    (413
    )
    
    
    (294
    )Net cash provided by (used in) financing activities
    
    
    (1,102
    )
    
    
    (1,204
    )
    
    
    292Cash Flows Provided by (Used in) Investing ActivitiesSales, maturities and repayments of:Bonds
    
    
    35,484
    
    
    
    39,138
    
    
    
    30,556Mortgages
    
    
    2,529
    
    
    
    3,128
    
    
    
    3,528Stocks
    
    
    1,422
    
    
    
    1,416
    
    
    
    4,285Real estate
    
    
    233
    
    
    
    131
    
    
    
    432Purchases of:Bonds
    
    
    (35,834
    )
    
    
    (43,323
    )
    
    
    (38,300
    )Mortgages
    
    
    (3,111
    )
    
    
    (2,673
    )
    
    
    (2,904
    )Stocks
    
    
    (1,374
    )
    
    
    (1,267
    )
    
    
    (2,818
    )Real estate
    
    
    (274
    )
    
    
    (191
    )
    
    
    (227
    )Policy loans
    
    
    (33
    )
    
    
    (68
    )
    
    
    (151
    )Short-term securities
    
    
    (454
    )
    
    
    1,095
    
    
    
    (317
    )Other investments
    
    
    (48
    )
    
    
    316
    
    
    
    (39
    )Acquisitions, net of cash acquired from continuing operations (Note 3)
    
    
    
    
    
    
    (266
    )
    
    
    2,749Disposals, net of cash disposed of (Note 5)
    
    
    
    
    
    
    
    
    
    
    (10
    )Net cash used in investing activities
    
    
    (1,460
    )
    
    
    (2,564
    )
    
    
    (3,216
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    273
    
    
    
    103Changes due to fluctuations in exchange rates
    
    
    (90
    )
    
    
    (455
    )
    
    
    44Increase (decrease) in cash and cash equivalents
    
    
    578
    
    
    
    (978
    )
    
    
    1,573Cash and cash equivalents, beginning of year
    
    
    3,178
    
    
    
    4,156
    
    
    
    2,583Cash and cash equivalents, end of year
    
    
    3,756
    
    
    
    3,178
    
    
    
    4,156Short-term securities, end of year
    
    
    2,210
    
    
    
    1,794
    
    
    
    2,996Cash, cash equivalents and short-term securities, end of year
    
    $
    5,966
    
    
    $
    4,972
    
    
    $
    7,152Supplementary InformationCash and cash equivalents:Cash
    
    $
    392
    
    
    $
    489
    
    
    $
    328Cash equivalents
    
    
    3,364
    
    
    
    2,689
    
    
    
    3,828$
    3,756
    
    
    $
    3,178
    
    
    $
    4,156Cash disbursements made for:Interest on borrowed funds and subordinated debt
    
    $
    197
    
    
    $
    207
    
    
    $
    201Income taxes, net of refunds
    
    $
    265
    
    
    $
    149
    
    
    $
    229
 The attached notes form part of these consolidated financial statements. Annual Report 2004 | www.sunlife.com     51




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##### 



Consolidated Financial Statements Consolidated Statements of Changes in Segregated Funds Net Assets Years ended December 31 (in millions of Canadian dollars)
    
    2004
    
    
    2003
    
    
    2002Additions to Segregated FundsDeposits:Annuities
    
    $
    5,928
    
    
    $
    5,624
    
    
    $
    5,105Life insurance
    
    
    1,199
    
    
    
    344
    
    
    
    1,5377,127
    
    
    
    5,968
    
    
    
    6,642Net transfers from general funds
    
    
    600
    
    
    
    544
    
    
    
    1,329Net realized and unrealized gains (losses)
    
    
    3,804
    
    
    
    6,456
    
    
    
    (8,658
    )Other investment income
    
    
    1,500
    
    
    
    1,411
    
    
    
    1,34313,031
    
    
    
    14,379
    
    
    
    656Deductions from Segregated FundsPayments to policyholders and their beneficiaries
    
    
    8,050
    
    
    
    6,776
    
    
    
    7,366Management fees
    
    
    622
    
    
    
    556
    
    
    
    564Taxes and other expenses
    
    
    120
    
    
    
    167
    
    
    
    57Effect of changes in currency exchange rates
    
    
    1,761
    
    
    
    5,549
    
    
    
    (349
    )10,553
    
    
    
    13,048
    
    
    
    7,638Net additions (reductions) to segregated funds for the year
    
    
    2,478
    
    
    
    1,331
    
    
    
    (6,982
    )Acquisitions (Note 3)
    
    
    
    
    
    
    
    
    
    
    11,193Segregated funds net assets, beginning of year
    
    
    54,086
    
    
    
    52,755
    
    
    
    48,544Segregated funds net assets, end of year
    
    $
    56,564
    
    
    $
    54,086
    
    
    $
    52,755
 Consolidated Statements of Segregated Funds Net Assets As at December 31 (in millions of Canadian dollars)
    
    2004
    
    
    2003AssetsSegregated and mutual fund units
    
    $
    43,589
    
    
    $
    40,721Stocks
    
    
    7,082
    
    
    
    7,892Bonds
    
    
    5,600
    
    
    
    5,546Cash, cash equivalents and short-term securities
    
    
    961
    
    
    
    686Real estate
    
    
    159
    
    
    
    148Mortgages
    
    
    61
    
    
    
    78Other assets
    
    
    716
    
    
    
    58058,168
    
    
    
    55,651Liabilities
    
    
    1,604
    
    
    
    1,565Net assets attributable to segregated funds policyholders
    
    $
    56,564
    
    
    $
    54,086
  52     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated
Financial Statements Notes to the Consolidated
Financial Statements 
  1. Accounting Policies DESCRIPTION OF BUSINESS Sun Life Financial Inc. is a publicly traded company and is the holding company of Sun Life
Assurance Company of Canada (Sun Life Assurance). Both companies are incorporated under the
Insurance Companies Act of Canada, and are regulated by the Office of the Superintendent of
Financial Institutions, Canada (OSFI). Sun Life Financial Inc., together with all its
subsidiaries, including its wholly-owned consolidated subsidiary Sun Life Assurance, are
collectively referred to as Sun Life Financial or the Company. The Company is an
internationally diversified financial services organization providing savings, retirement and
pension products, and life and health insurance to individuals and groups through its operations in
Canada, the United States, the United Kingdom and Asia. The Company also operates mutual fund and
investment management businesses, primarily in Canada, the United States and Asia. BASIS OF PRESENTATION The Company prepares its consolidated financial statements in accordance with Canadian generally
accepted accounting principles (GAAP). The preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates and assumptions that affect: 

the reported amounts of assets and liabilities at the date of the financial statements,

the disclosure of contingent assets and liabilities at the date of the financial statements, and

the reported amounts of revenues, policy benefits and expenses during the reporting period. Actual results could differ from those estimates. A reconciliation of the impact on assets, liabilities, equity, comprehensive income and net income
arising from differences between Canadian and U.S. GAAP is provided in Note 23.
Disclosures reflected in these consolidated financial statements substantially comply with those
required under U.S. GAAP. The significant accounting policies used in the preparation of these consolidated financial
statements are summarized below. BASIS OF CONSOLIDATION The consolidated financial statements reflect the accounts of the Company, including life insurance
and non-life insurance subsidiaries. Significant intercompany balances and transactions have been
eliminated. The purchase method is used to account for subsidiaries with the difference between the
acquisition cost of a subsidiary and the fair value of the net identifiable assets acquired
recorded as goodwill. Operating results of the subsidiaries are included in the consolidated
statements of operations from the dates of their acquisition. The equity method is used to account
for other entities over which the Company is able to exercise a significant influence. These investments are reported in other invested assets in the consolidated balance sheets with the
Companys share of earnings reported in net investment income in the consolidated statements of
operations. BONDS AND MORTGAGES Bonds and mortgages are carried at amortized cost, net of allowances for losses. A bond or mortgage is classified as impaired where payment is 90 days past due, foreclosure or
power of sale procedures have started or other circumstances warrant. Regular reviews are performed
on portfolios during which management considers various factors to identify invested assets of
potential concern. Consideration is given to general economic and business conditions, industry
trends, specific developments with regard to security issuers and current market valuations. When
an asset is classified as impaired, allowances for losses are established to adjust the carrying
value of the asset to its net recoverable amount. Interest is no longer accrued and previous
interest accruals are reversed. Allowances for losses, and write-offs of specific investments net
of recoveries, are charged against net investment income. Once the conditions causing the
impairment improve and future payments are reasonably assured, allowances are reduced and the
invested asset is no longer classified as impaired. Sectoral allowances are also established for
classes of assets when there is concern about the ultimate collection of principal or interest. The
Companys actuarial liabilities include additional provisions for possible future asset losses. Realized gains and losses on the sales of bonds and mortgages are deferred and amortized into net
investment income on a constant yield basis over the remaining period to maturity. STOCKS Stocks are originally recorded at cost and the carrying value is adjusted towards fair value at 5%
of the difference between fair value and carrying value per quarter. Realized gains and losses on
sales of stocks are deferred and amortized into net investment income at the rate of 5% of the
unamortized balance each quarter. The Company records a write-down for any other than temporary
decline in the aggregate value of the stock portfolio. REAL ESTATE Real estate includes real estate held for investment and real estate held for sale. Real estate held for investment:Real estate held for investment is originally recorded at cost.
The carrying value is adjusted towards fair value at 3% of the difference between fair value and
carrying value per quarter. Realized gains and losses on sales are deferred and amortized into net
investment income at the rate of 3% of the unamortized balance each quarter. Annual Report 2004 | www.sunlife.com     53




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Notes to the Consolidated Financial Statements Market value is determined for each property by qualified appraisers. Appraisals are obtained
annually for high value properties and at least once every three years for other properties. The
Company monitors the values of these properties to determine that, in aggregate, the carrying
values used are not in excess of market values and records a write-down for any other than
temporary decline in the value of the portfolio. Real estate held for sale:Properties held for sale are usually acquired through foreclosure. They
are measured at fair value less the cost to sell. When the amount at which the foreclosed assets
are initially measured is different from the carrying amount of the loan, a gain or loss is
recorded at the time of foreclosure. DERIVATIVE FINANCIAL INSTRUMENTS The Companys derivative instruments include swaps, options, financial futures and forward
contracts and are used to manage risks or to replicate the exposures associated with interest rate,
currency and equity market fluctuations. The Companys monitoring policies are described in Note 9.
The accounting policies for the various types of derivative instruments used by the Company are
described below. Most of the Companys derivatives are used as part of a portfolio of assets to match actuarial
liabilities as to duration and amounts. The most significant of these are interest rate swaps and
options. The accounting for these instruments is at amortized cost, consistent with other fixed
term portfolio investments. The net receivable or payable on the interest rate swaps is accrued to
other assets or other liabilities with the net spread of the swaps recorded to net investment
income. Realized gains or losses associated with these derivatives are deferred and amortized to
net investment income. Premiums paid for interest rate options are deferred in other invested
assets and amortized to net investment income over the term of the options. Many of the foreign currency swaps and forwards are used in combination with other investments to
generate a specific investment return. These are accounted for at amortized cost. The net payable
or receivable on currency swaps is included in other assets or other liabilities with the net
spread of the swaps recorded to net investment income. Any realized gains and losses resulting from
the termination of these derivative instruments are deferred and amortized into income on a basis
consistent with the foreign currency investments with which the swaps and forwards are combined. Certain of the equity futures, options and swaps are held for investment purposes. The accounting
policy for these investments is the same as that for stocks. Several derivative instruments are used for hedging specific risk exposures and are either
accounted for using hedge accounting or are reported at their fair values on the balance sheet with
changes in fair value reported in income. The derivatives that are accounted for using hedge
accounting are documented at inception and effectiveness is assessed on a quarterly basis. Certain
interest rate swaps are used to hedge a floating-rate loan. The net receivable or payable on the
interest rate swaps is accrued to other assets or other liabilities with the net spread of the
swaps recorded to net investment income. The Company uses currency swaps and forwards to reduce foreign exchange fluctuations associated
with certain foreign currency investment financing activities and investments in subsidiaries. The
accounting for these contracts is consistent with the underlying investment. Changes in exchange
gains or losses on these currency swaps and forwards are included in other assets or other
liabilities and the currency translation account in equity, offsetting the respective exchange
gains or losses arising from the conversion of the underlying investment. Equity forwards and swaps
are used to hedge the variability in the cash flows associated with certain stock-based
compensation plans described in Note 19. One equity forward is accounted for using hedge
accounting. A portion of the fair value of this forward is recorded in other assets or other
liabilities with the change in fair value reported in operating expenses, consistent with the
accounting for the stock-based compensation liability. The remaining forwards and swaps are
recorded in other invested assets or other liabilities at their fair values with changes in their
fair values reported in net investment income. Equity index futures, swaps, options and forwards
are used to reduce exposure to the effect of stock market fluctuations in the actuarial liabilities
associated with certain products. These derivative instruments are recorded in other invested
assets or other liabilities at their fair values with changes in fair value reported in net
investment income. POLICY LOANS Policy loans are carried at their unpaid balance and are fully secured by the policy values on
which the loans are made. CASH, CASH EQUIVALENTS AND SHORT-TERM SECURITIES Cash equivalents and short-term securities are highly liquid investments and are carried at
amortized cost. Cash equivalents have a term to maturity of less than three months while short-term
securities have a term to maturity exceeding three months but less than one year. OTHER INVESTED ASSETS Other invested assets include the Companys investment in segregated funds, investments accounted
for by the equity method, derivatives that are reported at fair value and investments in equipment
leases. DEFERRED ACQUISITION COSTS Deferred acquisition costs arising on mutual fund sales are amortized over the periods of the
related sales charges, which range from three to seven years. Deferred acquisition costs arising on
segregated funds are calculated and included in actuarial liabilities. Actuarial liabilities
implicitly include acquisition costs on insurance and annuity product sales. GOODWILL Goodwill represents the excess of the cost of businesses acquired over the fair value of the net
identifiable tangible and intangible assets and is not amortized. Goodwill is assessed for
impairment annually by comparing the carrying values of the appropriate business segments,
including any associated subsidiary segments, as required, to their respective fair values. If any
potential impairment is identified, it is quantified by comparing the carrying value of the
respective goodwill to its fair value. 54     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements INTANGIBLE ASSETS Identifiable intangible assets consist of finite-life and indefinite-life intangible assets.
Finite-life intangible assets include the value of the banking distribution channel, the sales
potential of field force and asset administration contracts. These intangible assets are amortized
on a straight-line basis over varying periods of up to 40 years. The indefinite-life intangible
assets include fund management contracts, brand name and state licenses. Indefinite-life
intangibles are assessed for impairment annually by comparing their carrying values to their fair
values. If the carrying values of the indefinite-life intangibles exceed their fair values, these
assets are considered impaired and a charge for impairment is recognized. CAPITAL ASSETS Furniture, computers, other equipment and leasehold improvements are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are recorded on a
straight-line basis over the estimated useful lives of these assets, which generally range from two
to ten years. LOANS SECURITIZATION The Company periodically securitizes assets, such as mortgages or bonds, by selling them to trusts
that issue securities to investors. These transactions are accounted for as sales when control over
the assets has been surrendered and consideration other than beneficial interests in these
transferred assets has been received in exchange. Gains or losses on these securitization
transactions are included in deferred net realized gains, and will be amortized into net investment
income as described above under Bonds and Mortgages. In determining the gain or loss on sale of the
assets, the carrying value of the assets sold is allocated between the portion sold and the portion
retained based on their relative fair values on the date of sale. These fair values are determined
using either quoted market prices or discounted cash flow models. Interests in the securitized
assets, such as subordinated investments in the issued securities or servicing rights, may be
retained. These subordinated investments and servicing rights are classified as bonds and other
assets, respectively. On a quarterly basis, the Company compares the carrying value of retained
interests arising from securitizations to their fair values, determined based on discounted cash
flows. If the carrying values of retained interests exceed their fair values, these assets are
considered impaired and an impairment charge is recognized. SEGREGATED FUNDS Segregated funds are lines of business in which the Company issues a contract where the benefit
amount is directly linked to the market value of the investments held in the particular segregated
fund. Although the underlying assets are registered in the name of the Company and the segregated
fund contract holder has no direct access to the specific assets, the contractual arrangements are
such that the segregated fund policyholder bears the risk and rewards of the funds investment
performance. In addition, certain individual contracts have guarantees from the Company. The
Company derives fee income from segregated funds, which is included in fee income on the
consolidated statements of operations. Fee income includes fund management fees as well as
mortality, policy administration and
surrender charges on segregated funds. Changes in the Companys interest in the segregated funds,
including undistributed net investment income, are reflected in net investment income. Policyholder
transfers between general funds and segregated funds are included in net transfers to segregated
funds on the consolidated statements of operations. Separate consolidated financial statements are provided for the segregated funds. Segregated fund
assets are carried at fair value. Fair values are determined using quoted market values or, where
quoted market values are not available, estimated fair values as determined by the Company. The
investment results of the segregated funds are reflected directly in segregated fund liabilities.
Deposits to segregated funds are reported as increases in segregated funds liabilities and are not
reported as revenues in the consolidated statements of operations. Segregated fund assets may not
be applied against liabilities that arise from any other business of the Company. AMOUNTS ON DEPOSIT Amounts on deposit represent premiums paid in advance, reinvested policy dividends and customer
deposits in the Companys trust subsidiaries. ACTUARIAL LIABILITIES Actuarial liabilities and other policy liabilities, including policy benefits payable and provision
for policyholder dividends, are computed using generally accepted actuarial practice in accordance
with the standards established by the Canadian Institute of Actuaries including the requirements of
OSFI. INCOME TAXES The Company uses the liability method of tax allocation. Under this method, the income tax expense
consists of both an expense for current income taxes and an expense for future income taxes.
Current income tax expense (benefit) represents the expected payable (receivable) resulting from
the current years operations. Future income tax expense (benefit) represents the movement during
the year in the cumulative temporary differences between the carrying value of the Companys assets
and liabilities on the balance sheet and their values for tax purposes. Future income tax assets
are recognized to the extent that they are more likely than not to be realized. Future income tax
liabilities and assets are calculated based on income tax rates and laws that, at the balance sheet
date, are expected to apply when the liability or asset is realized, which are normally those
enacted or considered substantively enacted at the consolidated balance sheet dates. In determining the impact of taxes, the Company is required to comply with the standards of both
the Canadian Institute of Actuaries and the Canadian Institute of Chartered Accountants (CICA).
Actuarial standards require that the projected timing of all cash flows associated with policy
liabilities, including income taxes, be included in the determination of actuarial liabilities
under the Canadian asset liability method. The actuarial liabilities are first computed including
all related income tax effects on a discounted basis, including the effects of temporary
differences that have already occurred. Future Annual Report 2004 | www.sunlife.com     55




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##### 



Notes to the Consolidated Financial Statements income tax assets and/or liabilities arising from temporary differences that have already
occurred are computed without discounting. The undiscounted future income tax assets and/or
liabilities are reclassified from the actuarial liabilities to future income taxes on the balance
sheets. The net result of this reclassification is to leave the discounting effect of the future
income taxes in the actuarial liabilities. PREMIUM INCOME AND RELATED EXPENSES Gross premiums for all types of insurance contracts, and contracts with limited mortality or
morbidity risk, are generally recognized as revenue when due. When premiums are recognized,
actuarial liabilities are computed, with the result that benefits and expenses are matched with
such revenue. FOREIGN CURRENCY TRANSLATION The Companys exchange gains and losses arising from the conversion of its self-sustaining foreign
operations are included in the currency translation account of the consolidated statements of
equity. Revenues and expenses in foreign currencies, including amortized gains and losses on
foreign investments, are translated into Canadian dollars at an average of the market exchange
rates during the year. Assets and liabilities are translated into Canadian dollars at market
exchange rates at the end of the year. The net translation adjustment is reported as a separate
item in the consolidated statements of equity. A proportionate amount of the exchange gain or loss accumulated in the separate component of
shareholders equity is reflected in net income when there is a reduction in the Companys net
investment in a foreign operation resulting from a capital transaction, dilution, or sale of all or
part of the foreign operation. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS The Company sponsors non-contributory defined benefit pension plans for eligible employees,
primarily in Canada, the United States, the United Kingdom and the Philippines. The defined benefit
pension plans offer benefits based on length of service and final average earnings and certain
plans offer some indexation of benefits. The specific features of these plans vary in accordance
with the employee group and countries in which employees are located. In addition, the Company
maintains supplementary non-contributory pension arrangements for eligible employees, primarily for
benefits which do not qualify for funding under the various registered pension plans. The Company has also established defined contribution pension plans for eligible qualifying
employees. Company contributions to these defined contribution pension plans are subject to certain
vesting requirements. Generally, Company contributions are a set percentage
of employees annual income and matched against employee contributions. In addition to the Companys pension plans, in some countries the Company provides certain
post-retirement medical, dental and life insurance benefits to eligible qualifying employees, and
to their dependents upon meeting certain requirements. Eligible retirees may be required to pay a
portion of the premiums for these benefits and, in general, deductible amounts and co-insurance
percentages apply to benefit payments. A significant portion of the Companys employees may become
eligible for these benefits upon retirement. These post-retirement benefits are not pre-funded. Defined benefit pension costs related to current services are charged to income as services are
rendered. Based on managements best estimate assumptions, actuarial valuations of the pension
obligations are determined using the projected benefit method pro-rated on service. The estimated
present value of post-retirement health care and life insurance benefits is charged to income over
the employees years of service to the date of eligibility. For the purpose of calculating the
expected return on pension plan assets for most of the Canadian pension plans, a market-related
asset value is used which recognizes asset gains and losses in a systematic and rational manner
over a period of five years. For all other pension plans the actual market value of plan assets is
used to calculate the expected return on assets. Any transition adjustments, as well as future
adjustments arising from plan amendments, are amortized to income over the average remaining
service period of active employees expected to receive benefits under the plans. Only future
variations in actuarial estimates in excess of certain minimums are amortized. STOCK-BASED COMPENSATION Stock options granted to employees are accounted for using the fair value method. Under the fair
value method, fair value of the stock options is estimated at the grant date and the total fair
value of the options is amortized over the vesting periods as compensation expense with an offset
to contributed surplus. For options that are forfeited before vesting, the compensation expense
that has previously been recognized in operating expenses and contributed surplus is reversed. When
options are exercised, contributed surplus is reversed and the shares issued are credited to share
capital in the consolidated statements of equity. The liabilities for other stock-based compensation plans are calculated based on the number of
award units outstanding at the end of the reporting period. Each unit is equivalent in value to the
fair market value of a common share of Sun Life Financial Inc. The liabilities are accrued and
expensed on a straight-line basis over the vesting periods. 2. Changes in Accounting
Policies ADOPTED IN 2004 Hedging Relationships:The Company adopted Hedging Relationships, 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 56     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements that hedge the guarantees contained in certain variable annuity products, did not qualify for
hedge accounting under the new requirements in Accounting Guideline 13. As a result, these
derivatives are reported in other invested assets or other liabilities on the 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 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 consolidated statements of operations. This change in accounting policy did not have
a material impact on these consolidated financial statements. Impairment of Long-Lived Assets:The Company adopted Impairment of Long-Lived Assets, CICA
Handbook Section 3063, on January 1, 2004. Under this standard, the impairment test of
long-lived assets is a two-step process with the first step determining when an impairment is
recognized and the second step measuring the amount of the impairment. To test for and measure
impairment, assets are grouped at the lowest level for which identifiable cash flows are largely
independent. An impairment loss is recognized when the carrying amount of an asset to be held and
used exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition.
An impairment loss is measured as the amount by which the assets carrying amount exceeds its fair
value. An asset classified as held for sale is measured at the lower of its carrying amount or fair
value less cost to sell. This change in accounting policy did not have a material impact on these
consolidated financial statements. Employee Future Benefits:The Company adopted the new disclosure requirements in CICA
Handbook Section 3461, Employee Future Benefits (CICA 3461R), effective January 1,
2004. CICA 3461R was amended to require additional disclosures in the annual and interim
financial statements pertaining to defined benefit pension 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 interim periods ending on or after June 30, 2004. The
additional annual disclosures of the Companys pension and other post-retirement benefit plans are
provided in Note 22. Asset Retirement Obligations:The Company adopted Asset Retirement Obligations, CICA
Handbook Section 3110, effective January 1, 2004, on a retroactive basis. This standard
requires companies to record the fair value of an asset retirement obligation in the period in
which it is incurred and increase the carrying amount of the related long-lived asset. Interest
expense on the asset retirement obligation is accrued each period and the capitalized cost is
depreciated over the useful life of the related asset. If the obligation is not settled for its
recorded amount, a gain or loss on settlement will be realized. This change in accounting policy
did not have a material impact on these 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. The adoption of
this standard did not have a material impact on these consolidated financial statements. FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Consolidation of Variable Interest Entities:The Company will adopt Consolidation of Variable
Interest Entities, CICA Handbook Accounting Guideline 15, on January 1, 2005. This
Guideline provides guidance for application of consolidation principles to those entities defined
as variable interest entities (VIEs). VIEs are entities in which equity investors do not
have a controlling financial interest and include entities where the equity invested is considered
insufficient to finance the entitys activities without additional subordinated financial support.
Under this Guideline, the Company will be required to consolidate the VIEs that result in
the Company being exposed to a majority of expected losses, benefit from a majority of expected
residual returns, or both. In September 2004, Accounting Guideline 15 was revised to harmonize the Canadian guidance with
revised Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation
of Variable Interest Entities, the U.S. GAAP equivalent of Accounting Guideline 15. The following is a summary of the impact of this Guideline for the major categories of
VIEs that the Company is involved with. Sun Life ExchangEable Capital Securities (SLEECS): As described in Note 15, Sun Life Capital Trust
(the Trust) has issued SLEECS to third-party investors. The impact of this Guideline on
the deconsolidation of SLEECS is summarized in the Variable Interest Entities section
on SLEECS in Note 23 Section D (i). Other Variable Interest Entities: The Company is involved with a trust structure that invests in
corporate bonds and total return swaps. On evaluation of this trust structure, the Company was
identified as having the controlling financial interest and therefore would be required to
consolidate this structure once this Guideline becomes effective. As a result, the Company will
consolidate additional general fund assets of $95 and general fund liabilities of $91, and increase
retained earnings by $4. Financial Instruments  Disclosure and Presentation:The Company will adopt the amendments to the
accounting requirements in CICA Handbook Section 3860, Financial Instruments  Disclosure
and Presentation, on January 1, 2005. Securities issued by the Company that give the Company an
unrestricted obligation to settle the principal amount in cash or in the equivalent value of its
own shares, must be classified as debt. The Company does not expect these amendments to have a
material impact on the consolidated financial statements. Annual Report 2004 | www.sunlife.com     57




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Notes to the Consolidated Financial Statements 3. Acquisitions Effective July 25, 2002, the Company acquired approximately 71 million common shares of
CI Fund Management Inc. (CI Funds), representing a 31.7% economic interest, in
exchange for all the shares of Spectrum Investment Management Limited (Spectrum) and Clarica
Diversico Ltd. (Diversico). These shares of CI Funds were valued at the weighted average
price of $9.15 per share on July 24, 2002. The Company recorded a gain of $177 before taxes in net
investment income for the sale of the two subsidiaries. Previously unrecognized net capital losses
were used to fully offset the tax on the gain. The acquired intangible asset consists of fund
management contracts of $510 that are not subject to amortization. The investment is accounted for
using the equity method of accounting and is included in other invested assets on the consolidated
balance sheets. Effective March 20, 2003, the Company increased its ownership percentage in CI
Funds to 34% by issuing approximately 2 million common shares of Sun Life Financial Inc. in
exchange for approximately 5 million common shares of CI Funds. The 2 million common
shares of Sun Life Financial Inc. were recorded at a total fair value of $63. The acquired
non-amortizable intangible asset consists of fund management contracts of $43. In the fourth
quarter of 2003, CI Funds acquired the Canadian operations of Assante Corporation
(Assante) and Synergy Asset Management Inc. (Synergy) by issuing shares and a payment of cash to
Assante and Synergy shareholders. The Company supported these acquisitions by purchasing
approximately 21 million common shares of CI Funds for $266 in order to maintain its
ownership percentage of 34%. The intangible assets acquired through these two transactions consist
of non-amortizable fund management contracts of $180 and amortizable asset administration contracts
of $11. Effective May 29, 2002, the Company acquired all the outstanding common shares of Clarica Life
Insurance Company (Clarica) that were not already beneficially owned by the Company as general fund
assets
for an ascribed price of $51.28 per Clarica common share. The acquisition was completed by way of a
capital reorganization of Clarica pursuant to which holders of Clarica common shares received
1.5135 common shares of Sun Life Financial Inc. for each Clarica common share held. Approximately
185 million common shares of Sun Life Financial Inc. were issued at an ascribed price of $33.88 per
share based on a volume-weighted average closing price of the common shares for the period from
December 13 to 19, 2001. The common shares of Clarica that were beneficially owned by the Company
as general fund assets had a carrying value of $540 at the date of acquisition. In addition, all
the unvested Clarica stock options vested immediately prior to the closing date and on May 29,
2002, these Clarica stock options were exercisable to acquire approximately 5 million common shares
of Sun Life Financial Inc. as described in Note 19. The Company recorded $48 as part of the
purchase consideration and share capital, representing the fair value of the outstanding Clarica
stock options based on the average share price of Clarica from December 13 to 19, 2001. The following supplemental unaudited pro forma information has been prepared to give effect to the
acquisition of Clarica, as if the transaction had been completed at the beginning of 2002. This
information is calculated by combining the results of operations of the Company for 2002 with that
of Clarica prior to the acquisition date and adjusting for the amortization of Claricas
identifiable intangible assets ($7, net of taxes), and the elimination of amortization of net
unrealized gains and deferred net realized gains as a result of fair value adjustments to the
assets and liabilities of Clarica ($13, net of taxes). The pro forma information is not intended to
reflect what would have actually resulted had the transaction been completed at the beginning of
2002. Supplemental unaudited pro forma condensed information: 2002Revenue
    
    $
    25,217Shareholders net income
    
    $
    1,186Weighted average number of shares outstanding (in millions)
    
    
    618Basic earnings per share
    
    $
    1.92Shareholders net income on a diluted basis
    
    $
    1,186Weighted average number of shares outstanding on a diluted basis (in millions)
    
    
    618Diluted earnings per share
    
    $
    1.92
 58     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements The transactions are summarized below: 2003
    
    
    2002
    
    
    2002CI Funds(2)
    
    Cl Funds
    
    
    ClaricaPercentage of shares acquired
    
    
    2.3
    %
    
    
    31.7
    %
    
    
    100
    %Invested assets acquired
    
    $
    72
    
    
    $
    23
    
    
    $
    31,637Other assets acquired
    
    
    235
    
    
    
    722
    
    
    
    2,672307
    
    
    
    745
    
    
    
    34,309Actuarial liabilities and other policy liabilities acquired
    
    
    
    
    
    
    
    
    
    
    24,835Amounts on deposit acquired
    
    
    
    
    
    
    
    
    
    
    1,277Other liabilities acquired
    
    
    168
    
    
    
    231
    
    
    
    5,059
    (1)168
    
    
    
    231
    
    
    
    31,171Net balance sheet assets acquired
    
    $
    139
    
    
    $
    514
    
    
    $
    3,138Considerations:Common shares issued or exchanged
    
    $
    63
    
    
    $
    571
    
    
    $
    6,284Carrying value of investments in acquirees shares
    
    
    
    
    
    
    36
    
    
    
    540Fair value of outstanding Clarica stock options
    
    
    
    
    
    
    
    
    
    
    48Transaction and other related costs
    
    
    
    
    
    
    
    
    
    
    57Cash cost of acquisition
    
    
    266
    
    
    
    
    
    
    
    Total consideration
    
    $
    329
    
    
    $
    607
    
    
    $
    6,929Goodwill on acquisition
    
    $
    190
    
    
    $
    93
    
    
    $
    3,791Cash and cash equivalents acquired
    
    
    
    
    
    
    
    
    
    $
    2,816
 (1)

Other liabilities acquired include subordinated debt of $746 and preferred shares
of $160.(2)

Net impact of all 2003 transactions related to CI Funds. Other assets acquired
include $234 of intangible assets. 4. Reorganization,
Restructuring and Other Related Charges In conjunction with the acquisition of Clarica in 2002, the Company recorded an increase in
actuarial liabilities and a charge for restructuring costs. These accruals cover increased renewal
commission expenses, severance, the elimination of duplicate systems, facilities and operations, as
well as other exiting costs. The balance of $84 at the beginning of the year has been substantially
utilized. On January 14, 2002, the Company announced an agreement with the Marlborough Stirling group to
outsource the administration of the Companys individual life and pension business in the United
Kingdom which had already been closed for new business. During 2004, expenses related to closing
branches, contract cancellations, system migrations and other related costs of $10 ($33 and $88 in
2003 and 2002, respectively) were included in the operating expenses in the consolidated statements
of operations. 5. Disposals and Discontinued Operations Effective February 28, 2003, the Company sold its United Kingdom group insurance business to
Unum Limited (UnumProvident). Under the agreements, UnumProvident acquired the Companys United
Kingdom group income protection business together with the renewal rights to the group life
business. The transaction resulted in a gain that is not considered material to these consolidated
financial statements. Effective January 7, 2003, the Company sold all the common shares of Clarica U.S. Inc.
(Clarica U.S.) to Midland National Life Insurance Company for $414 in cash. A loss of $48
on the sale of Clarica U.S. was accrued in 2002. Annual Report 2004 | www.sunlife.com     59




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##### 



Notes to the Consolidated Financial Statements The transactions are summarized below: 2003
    
    
    2002
    
    
    2002Clarica U.S.
    
    
    Spectrum(1)
    
    Diversico(1)Percentage of shares disposed of
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Invested assets disposed of
    
    $
    5,047
    
    
    $
    9
    
    
    $
    2Other assets disposed of
    
    
    225
    
    
    
    96
    
    
    
    3155,272
    
    
    
    105
    
    
    
    317Actuarial liabilities and other policy liabilities disposed of
    
    
    4,265
    
    
    
    
    
    
    
    Amounts on deposit disposed of
    
    
    
    
    
    
    
    
    
    
    Other liabilities disposed of
    
    
    553
    
    
    
    36
    
    
    
    44,818
    
    
    
    36
    
    
    
    4Net balance sheet assets disposed of
    
    $
    454
    
    
    $
    69
    
    
    $
    313Considerations:Common shares exchanged
    
    $
    
    
    
    $
    249
    
    
    $
    322Transaction and other related costs
    
    
    (8
    )
    
    
    (7
    )
    
    
    (5
    )Net proceeds of disposal
    
    
    414
    
    
    
    
    
    
    
    Total consideration
    
    $
    406
    
    
    $
    242
    
    
    $
    317Pre-tax gain (loss) on sale
    
    $
    (48
    )(2)
    
    $
    173
    
    
    $
    4Cash and cash equivalents disposed of
    
    $
    133
    
    
    $
    8
    
    
    $
    2
 (1)

For summary information see Note 3.(2)

Loss accrued in 2002 and reported as part of the income (loss) from discontinued
operations. As a result of the plan of disposal for Clarica U.S., it was accounted for as a
discontinued operation in 2002. The components of the $36 loss
from discontinued operations for 2002 shown in the consolidated statements of operations are as
follows: 2002Revenue
    
    $
    945Expenses
    
    
    923Net operating income before income taxes
    
    
    22Income taxes expense
    
    
    10Net operating income
    
    
    12Gain (loss) on sale of Clarica U.S.
    
    
    (48
    )Income (loss) from discontinued operations, net of income taxes
    
    $
    (36
    )
 6. 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 mutual funds, investment management and annuities, life and health insurance, life
retrocession and financial reinsurance. Revenues not attributed to the strategic business units are
derived primarily from investments of a corporate nature and earnings on capital. Corporate Capital includes the run-off reinsurance operations and those other operations for which
management responsibility resides in head office. Net income (loss) from continuing operations in
this category is shown net of certain expenses borne centrally. As Clarica U.S. has been discontinued and the sale was completed on January 7, 2003, revenue,
expenses and net income (loss) from continuing operations for 2002 do not include these results. Inter-segment transactions consist primarily of internal financing agreements. They are measured at
market values prevailing when the arrangements were negotiated. Inter-segment revenue consists of
interest of $333 in 2004 ($352 in 2003 and $306 in 2002) and fee income of $44 in 2004 ($45 in 2003
and $68 in 2002). The results of the segments operations are discussed in the Managements Discussion and Analysis.
The results for MFS for 2004 include the $59 ($211 in 2003) net provision for regulatory issues and
other actions as described in Note 21. 60     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements Results by segment for the years ended December 31United States
    
    
    
    
    
    
    United
    
    
    Corporate
    
    
    ConsolidationCanada
    
    
    Sun Life
    
    
    MFS
    
    
    Asia
    
    
    Kingdom
    
    
    Capital
    
    
    Adjustments
    
    
    Total2004Revenue
    
    $
    8,614
    
    
    $
    9,429
    
    
    $
    1,700
    
    
    $
    697
    
    
    $
    1,258
    
    
    $
    427
    
    
    $
    (377
    )
    
    $
    21,748Change in actuarial liabilities
    
    $
    (232
    )
    
    $
    1,332
    
    
    $
    
    
    
    $
    290
    
    
    $
    (81
    )
    
    $
    116
    
    
    $
    
    
    
    $
    1,425Interest on claims and deposits
    
    $
    87
    
    
    $
    17
    
    
    $
    
    
    
    $
    29
    
    
    $
    3
    
    
    $
    1
    
    
    $
    
    
    
    $
    137Interest expenses
    
    $
    132
    
    
    $
    135
    
    
    $
    15
    
    
    $
    
    
    
    $
    25
    
    
    $
    222
    
    
    $
    (334
    )
    
    $
    195Income taxes (benefit)
    
    $
    289
    
    
    $
    55
    
    
    $
    108
    
    
    $
    14
    
    
    $
    (4
    )
    
    $
    (169
    )
    
    $
    
    
    
    $
    293Net income (loss) from
continuing operations
    
    $
    979
    
    
    $
    392
    
    
    $
    114
    
    
    $
    45
    
    
    $
    173
    
    
    $
    (9
    )
    
    $
    
    
    
    $
    1,6942003Revenue
    
    $
    8,636
    
    
    $
    9,663
    
    
    $
    1,684
    
    
    $
    587
    
    
    $
    1,443
    
    
    $
    440
    
    
    $
    (397
    )
    
    $
    22,056Change in actuarial liabilities
    
    $
    456
    
    
    $
    1,046
    
    
    $
    
    
    
    $
    224
    
    
    $
    (60
    )
    
    $
    (156
    )
    
    $
    
    
    
    $
    1,510Interest on claims and deposits
    
    $
    84
    
    
    $
    18
    
    
    $
    
    
    
    $
    29
    
    
    $
    3
    
    
    $
    1
    
    
    $
    
    
    
    $
    135Interest expenses
    
    $
    117
    
    
    $
    152
    
    
    $
    23
    
    
    $
    
    
    
    $
    25
    
    
    $
    246
    
    
    $
    (354
    )
    
    $
    209Income taxes (benefit)
    
    $
    342
    
    
    $
    97
    
    
    $
    5
    
    
    $
    12
    
    
    $
    8
    
    
    $
    (77
    )
    
    $
    
    
    
    $
    387Net income (loss) from
continuing operations
    
    $
    826
    
    
    $
    305
    
    
    $
    (43
    )
    
    $
    37
    
    
    $
    203
    
    
    $
    (20
    )
    
    $
    
    
    
    $
    1,3082002Revenue
    
    $
    6,563
    
    
    $
    11,877
    
    
    $
    1,979
    
    
    $
    661
    
    
    $
    1,828
    
    
    $
    567
    
    
    $
    (374
    )
    
    $
    23,101Change in actuarial liabilities
    
    $
    535
    
    
    $
    2,500
    
    
    $
    
    
    
    $
    293
    
    
    $
    168
    
    
    $
    326
    
    
    $
    
    
    
    $
    3,822Interest on claims and deposits
    
    $
    74
    
    
    $
    29
    
    
    $
    
    
    
    $
    30
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    135Interest expenses
    
    $
    77
    
    
    $
    154
    
    
    $
    29
    
    
    $
    
    
    
    $
    28
    
    
    $
    211
    
    
    $
    (307
    )
    
    $
    192Income taxes (benefit)
    
    $
    191
    
    
    $
    38
    
    
    $
    109
    
    
    $
    11
    
    
    $
    (18
    )
    
    $
    (233
    )
    
    $
    
    
    
    $
    98Net income (loss) from
continuing operations
    
    $
    514
    
    
    $
    360
    
    
    $
    174
    
    
    $
    24
    
    
    $
    190
    
    
    $
    (229
    )
    
    $
    
    
    
    $
    1,033
 Assets by segment as at December 31United States
    
    
    
    
    
    
    United
    
    
    Corporate
    
    
    ConsolidationCanada
    
    
    Sun Life
    
    
    MFS
    
    
    Asia
    
    
    Kingdom
    
    
    Capital
    
    
    Adjustments
    
    
    Total2004General fund assets
    
    $
    51,752
    
    
    $
    39,641
    
    
    $
    824
    
    
    $
    2,292
    
    
    $
    10,214
    
    
    $
    3,878
    
    
    $
    (844
    )
    
    $
    107,757Segregated funds
net assets
    
    $
    24,170
    
    
    $
    25,146
    
    
    $
    
    
    
    $
    32
    
    
    $
    7,216
    
    
    $
    
    
    
    $
    
    
    
    $
    56,5642003General fund assets
    
    $
    51,522
    
    
    $
    40,763
    
    
    $
    1,084
    
    
    $
    2,021
    
    
    $
    10,532
    
    
    $
    4,057
    
    
    $
    (770
    )
    
    $
    109,209Segregated funds
net assets
    
    $
    22,535
    
    
    $
    24,519
    
    
    $
    
    
    
    $
    11
    
    
    $
    7,021
    
    
    $
    
    
    
    $
    
    
    
    $
    54,086
 Annual Report 2004 | www.sunlife.com     61




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##### 



Notes to the Consolidated Financial Statements The following table shows revenue, net income (loss) from continuing operations and assets by
territory for Corporate Capital: 2004
    
    
    2003
    
    
    2002RevenueUnited States
    
    $
    285
    
    
    $
    134
    
    
    $
    181Other Countries
    
    
    142
    
    
    
    306
    
    
    
    386Total revenue
    
    $
    427
    
    
    $
    440
    
    
    $
    567Net income (loss) from continuing operations:United States
    
    $
    44
    
    
    $
    (63
    )
    
    $
    (241
    )Other Countries
    
    
    (53
    )
    
    
    43
    
    
    
    12Total net income (loss) from continuing operations
    
    $
    (9
    )
    
    $
    (20
    )
    
    $
    (229
    )Assets:General funds:United States
    
    $
    3,177
    
    
    $
    1,838
    
    
    $
    1,160Other countries
    
    
    701
    
    
    
    2,219
    
    
    
    2,788Total assets
    
    $
    3,878
    
    
    $
    4,057
    
    
    $
    3,948
 7. Fair Value of Financial Instruments Financial instruments are contractual rights or obligations to either receive or deliver an
asset. In an exchange of financial instruments, fair value refers to the amount that would be
agreed upon between willing knowledgeable parties. Estimated fair values do not necessarily
represent the values for which these financial instruments could have been sold at the dates of the
consolidated balance sheets. A significant portion of any difference between fair values and carrying values relates to invested
assets that are matched to liabilities as to duration, within specified limits. If these assets are
sold before maturity, the Company will reinvest the proceeds to ensure there are sufficient assets
to match liabilities. Consequently, changes in the fair values of assets backing liabilities will
tend to be offset by changes in the fair values of those liabilities. The fair values and the methods and assumptions used to estimate fair values for invested assets
are discussed in Note 8. Derivative financial instruments are discussed in Note 9. Fair values of
actuarial liabilities, future income taxes related to life insurance companies and deferred net
realized gains are disclosed in Note 12. The fair values and discussion of the method for
estimating these values for subordinated debt are included in Note 14. The carrying value and fair
value of amounts on deposit are $3,144 and $3,150, respectively, as at December 31, 2004 ($3,120
and $3,139, respectively, as at December 31, 2003). Fair values of fixed rate deposits are
determined by discounting the expected future cash flows using current market interest rates for
similar deposits. For amounts on deposit with no stated maturity, fair value is equal to carrying
value. 8. Invested Assets and Income The Company invests primarily in bonds, mortgages, stocks and real estate. The accounting
policy for each type of invested asset is described in Note 1. A) FAIR VALUE OF INVESTED ASSETS The carrying values and fair values of the Companys invested assets are shown in the following
table. 2004
    
    
    
    
    
    
    2003Carrying
    
    
    Fair
    
    
    
    
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Yield %
    
    
    Value
    
    
    Value
    
    
    Yield %AssetsBonds
    
    $
    64,496
    
    
    $
    68,556
    
    
    
    6.22
    
    
    $
    66,090
    
    
    $
    70,092
    
    
    
    5.98Mortgages
    
    
    13,862
    
    
    
    14,576
    
    
    
    6.80
    
    
    
    13,601
    
    
    
    14,381
    
    
    
    7.00Stocks
    
    
    3,463
    
    
    
    3,376
    
    
    
    10.33
    
    
    
    3,473
    
    
    
    3,102
    
    
    
    7.48Real estate
    
    
    3,148
    
    
    
    3,421
    
    
    
    9.12
    
    
    
    3,067
    
    
    
    3,287
    
    
    
    8.89Policy loans
    
    
    2,936
    
    
    
    2,936
    
    
    
    6.50
    
    
    
    3,003
    
    
    
    3,003
    
    
    
    6.99Cash, cash equivalents and short-term securities
    
    
    5,966
    
    
    
    5,966
    
    
    
    n/a
    
    
    
    4,972
    
    
    
    4,973
    
    
    
    n/aOther invested assets
    
    
    3,046
    
    
    
    3,967
    
    
    
    n/a
    
    
    
    2,970
    
    
    
    3,414
    
    
    
    n/aTotal invested assets
    
    $
    96,917
    
    
    $
    102,798
    
    
    
    6.12
    
    
    $
    97,176
    
    
    $
    102,252
    
    
    
    5.79
 62     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements The fair value of publicly traded bonds is determined using quoted market prices. For
non-publicly traded bonds, fair value is determined using a discounted cash flow approach that
includes provisions for credit risk and assumes that the securities will be held to maturity. Fair
value of mortgages is determined by discounting the expected future cash flows using current market
interest rates for mortgages with similar credit risks and terms to maturity. Fair value of stocks
is based on quoted market prices, usually the last trade values. Fair value of real estate is
determined by reference to sales of comparable properties in the marketplace and the net present
value of the expected future cash flows, discounted using current interest rates. Due to their
nature, the fair values of policy loans and cash and cash equivalents are assumed to be equal to
their carrying values. The fair values of short-term securities are based on market yields. The
fair values of other invested assets are determined by reference to market prices for similar
investments. Other invested assets in the table above includes the Companys investment in CI
Funds with a carrying value of $1,014 and a fair value of $1,805 ($987 and $1,407,
respectively, in 2003). Yield is calculated based on total net investment income divided by the
total of the average carrying value of invested assets, which includes accrued investment income
net of deferred net realized gains. B) INVESTMENT POLICIES It is the Companys policy to diversify all investment portfolios. The Companys mortgage loans,
stocks and real estate investments are diversified by type and location and, for mortgage loans, by
borrower. Interest rate risk, which is the potential for loss due to interest rate fluctuations, is
discussed in Note 12. Credit risk is the risk of financial loss resulting from the failure of debtors to make payments of
interest or principal when due. The Company controls this risk through detailed credit and
underwriting policies, as well as through setting counterparty exposure limits. The Company
maintains policies which set limits, based on consolidated equity, to the credit exposure for
investments in any single issuer and in any associated group of issuers. Exceptions exist for
investments in securities which are issued or guaranteed by either the Government of Canada, United
States or United Kingdom and issuers for which the Board has granted specific approval. Mortgage
loans are collateralized by the related property and generally do not exceed 75% of the value of
the property at the time the original loan is made. C) INVESTED ASSETS BY TYPE i) Bonds The carrying value and fair value of bonds by rating are shown in the table below. 2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueBonds by credit rating:AAA
    
    $
    16,895
    
    
    $
    17,549
    
    
    $
    18,714
    
    
    $
    19,499AA
    
    
    8,714
    
    
    
    9,492
    
    
    
    7,915
    
    
    
    8,438A
    
    
    19,187
    
    
    
    20,701
    
    
    
    18,952
    
    
    
    20,393BBB
    
    
    17,695
    
    
    
    18,662
    
    
    
    17,980
    
    
    
    19,080BB & lower
    
    
    2,005
    
    
    
    2,152
    
    
    
    2,529
    
    
    
    2,682Total bonds
    
    $
    64,496
    
    
    $
    68,556
    
    
    $
    66,090
    
    
    $
    70,092
 Investment grade bonds are those rated BBB and above. The Companys bond portfolio has
96.9% (96.2% in 2003) invested in investment grade bonds based on carrying value. Gross unrealized gains (losses) on bonds are shown in the tables below. Gross unrealized gains and
losses are not brought into income or included in the carrying value
on the consolidated balance sheets. 2004Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueIssued or guaranteed by:Canadian federal government
    
    $
    5,601
    
    
    $
    218
    
    
    $
    
    
    
    $
    5,819Canadian provincial and municipal governments
    
    
    5,716
    
    
    
    742
    
    
    
    
    
    
    
    6,458U.S. Treasury and other U.S. agencies
    
    
    1,224
    
    
    
    52
    
    
    
    (4
    )
    
    
    1,272Other foreign governments
    
    
    2,805
    
    
    
    179
    
    
    
    (21
    )
    
    
    2,963Corporate
    
    
    40,351
    
    
    
    2,845
    
    
    
    (85
    )
    
    
    43,111Asset-backed securities
    
    
    8,799
    
    
    
    221
    
    
    
    (87
    )
    
    
    8,933Total bonds
    
    $
    64,496
    
    
    $
    4,257
    
    
    $
    (197
    )
    
    $
    68,556
 Annual Report 2004 | www.sunlife.com     63




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##### 



Notes to the Consolidated Financial Statements 2003Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueIssued or guaranteed by:Canadian federal government
    
    $
    6,209
    
    
    $
    161
    
    
    $
    (1
    )
    
    $
    6,369Canadian provincial and municipal governments
    
    
    5,106
    
    
    
    588
    
    
    
    (3
    )
    
    
    5,691U.S. Treasury and other U.S. agencies
    
    
    1,143
    
    
    
    44
    
    
    
    (13
    )
    
    
    1,174Other foreign governments
    
    
    3,437
    
    
    
    196
    
    
    
    (32
    )
    
    
    3,601Corporate
    
    
    40,604
    
    
    
    3,118
    
    
    
    (151
    )
    
    
    43,571Asset-backed securities
    
    
    9,591
    
    
    
    208
    
    
    
    (113
    )
    
    
    9,686Total bonds
    
    $
    66,090
    
    
    $
    4,315
    
    
    $
    (313
    )
    
    $
    70,092
 The carrying value of bonds by issuer country is as follows: 2004
    
    
    2003Canada
    
    $
    25,556
    
    
    $
    25,708United States
    
    
    27,857
    
    
    
    29,036United Kingdom
    
    
    6,989
    
    
    
    7,465Other
    
    
    4,094
    
    
    
    3,881Total bonds
    
    $
    64,496
    
    
    $
    66,090
 The contractual maturities of bonds as at December 31 are shown in the table below. Bonds that are
not due at a single maturity date are included in the table in the year of final maturity.
Asset-backed securities that are not due at a single maturity date are shown
separately. Actual maturities could differ from contractual maturities because of the borrowers
right to call or right to prepay obligations, with or without prepayment penalties. 2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueDue in one year or less
    
    $
    3,770
    
    
    $
    3,801
    
    
    $
    3,449
    
    
    $
    3,487Due in years two through five
    
    
    12,789
    
    
    
    13,206
    
    
    
    15,366
    
    
    
    16,011Due in years six through ten
    
    
    14,671
    
    
    
    15,566
    
    
    
    14,318
    
    
    
    15,269Due after ten years
    
    
    24,467
    
    
    
    27,050
    
    
    
    23,366
    
    
    
    25,639Asset-backed securities
    
    
    8,799
    
    
    
    8,933
    
    
    
    9,591
    
    
    
    9,686Total bonds
    
    $
    64,496
    
    
    $
    68,556
    
    
    $
    66,090
    
    
    $
    70,092
 ii) Mortgages The carrying value of non-residential and residential mortgages by geographic location is shown in
the table below. Residential mortgages include mortgages for single and multiple family dwellings. 2004
    
    
    2003Non-residential
    
    
    Residential
    
    
    Total
    
    
    Non-residential
    
    
    Residential
    
    
    TotalCanada
    
    $
    5,684
    
    
    $
    3,676
    
    
    $
    9,360
    
    
    $
    5,799
    
    
    $
    3,952
    
    
    $
    9,751United States
    
    
    4,098
    
    
    
    172
    
    
    
    4,270
    
    
    
    3,465
    
    
    
    92
    
    
    
    3,557United Kingdom
    
    
    231
    
    
    
    1
    
    
    
    232
    
    
    
    292
    
    
    
    1
    
    
    
    293Total mortgages
    
    $
    10,013
    
    
    $
    3,849
    
    
    $
    13,862
    
    
    $
    9,556
    
    
    $
    4,045
    
    
    $
    13,601
 At December 31, 2004, scheduled mortgage loan maturities, before allowances for losses, are as
follows: Year
    
    Amount2005
    
    $
    1,1172006
    
    
    1,3152007
    
    
    1,2572008
    
    
    1,3022009
    
    
    1,165Thereafter
    
    
    7,743Total mortgages
    
    $
    13,899
 64     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements Actual payments could differ from the scheduled mortgage loan maturities because borrowers
may have the right to prepay obligations, with or without prepayment penalties. iii) Stocks The carrying value of stocks by issuer country is as follows: 2004
    
    
    2003Canada
    
    $
    791
    
    
    $
    802United States
    
    
    1,105
    
    
    
    1,014United Kingdom
    
    
    1,417
    
    
    
    1,505Other
    
    
    150
    
    
    
    152Total stocks
    
    $
    3,463
    
    
    $
    3,473
 Gross unrealized gains (losses) on stocks are shown in the following table. Gross
    
    
    Gross
    
    
    EstimatedCarrying
    
    
    Original
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairValue
    
    
    Cost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueTotal 2004
    
    $
    3,463
    
    
    $
    2,695
    
    
    $
    744
    
    
    $
    (63
    )
    
    $
    3,376Total 2003
    
    $
    3,473
    
    
    $
    2,660
    
    
    $
    549
    
    
    $
    (107
    )
    
    $
    3,102
 iv) Real Estate The carrying value of real estate by geographic location is as follows: 2004
    
    
    2003Canada
    
    $
    1,869
    
    
    $
    1,874United States
    
    
    917
    
    
    
    837United Kingdom
    
    
    360
    
    
    
    354Other
    
    
    2
    
    
    
    2Total real estate
    
    $
    3,148
    
    
    $
    3,067
 Real estate includes real estate held for investment and real estate held for sale, as described in
Note 1. The carrying value and fair value of real estate in each of these categories is shown in
the table below. 2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueReal estate held for investment
    
    $
    3,139
    
    
    $
    3,408
    
    
    $
    3,057
    
    
    $
    3,273Real estate held for sale
    
    
    9
    
    
    
    13
    
    
    
    10
    
    
    
    14Total real estate
    
    $
    3,148
    
    
    $
    3,421
    
    
    $
    3,067
    
    
    $
    3,287
 D) IMPAIRED INVESTED ASSETS The Company has impaired invested assets with specific allowances and other sectoral allowances, at
December 31, as follows: 2004
    
    
    2003Impaired
    
    
    
    
    
    
    ImpairedCarrying
    
    
    Allowance
    
    
    Carrying
    
    
    AllowanceValue(1)
    
    
    for Losses(2)
    
    
    Value(1)
    
    
    for Losses(2)Bonds
    
    $
    333
    
    
    $
    213
    
    
    $
    574
    
    
    $
    302Mortgages
    
    
    74
    
    
    
    37
    
    
    
    79
    
    
    
    42Other
    
    
    34
    
    
    
    13
    
    
    
    46
    
    
    
    22Total
    
    $
    441
    
    
    $
    263
    
    
    $
    699
    
    
    $
    366
 (1)

Impaired carrying value shown above is shown gross, before allowance for losses. Includes $12 in 2004
($25 in 2003) of impaired mortgages that have no allowance for losses. Impaired mortgage loans with
no allowance for losses are loans for which, at a minimum, either the fair value of the collateral or
the expected future cash flows exceed the carrying value.(2)

Includes sectoral allowances of $74 and $24 for bonds and mortgages, respectively, in 2004 ($92 and $32,
respectively, in 2003). The remaining allowances are specific allowances. Annual Report 2004 | www.sunlife.com     65




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##### 



Notes to the Consolidated Financial Statements Additional information related to impaired invested assets is shown in the following table. 2004
    
    
    2003Mortgages with scheduled payments 90 days or more in arrears:Carrying value
    
    $
    22
    
    
    $
    20Percentage of total mortgages before allowances
    
    
    0.2
    %
    
    
    0.2
    %Weighted average recorded investment in impaired mortgage loans, before allowances
    
    $
    66
    
    
    $
    85Interest received on impaired mortgage loans (recorded as received)
    
    $
    4
    
    
    $
    5Carrying value of bonds, mortgages and real estate (including specific allowances)
that were non-income producing for the preceding 12 months
    
    $
    100
    
    
    $
    129
 The changes in the allowances for losses are as follows: Bonds
    
    
    Mortgages
    
    
    Other
    
    
    TotalBalance, January 1, 2003
    
    $
    417
    
    
    $
    63
    
    
    $
    15
    
    
    $
    495Provision for losses
    
    
    108
    
    
    
    (6
    )
    
    
    11
    
    
    
    113Write-offs, net of recoveries
    
    
    (159
    )
    
    
    (7
    )
    
    
    (2
    )
    
    
    (168
    )Effect of changes in currency exchange rates
    
    
    (64
    )
    
    
    (8
    )
    
    
    (2
    )
    
    
    (74
    )Balance, December 31, 2003
    
    $
    302
    
    
    $
    42
    
    
    $
    22
    
    
    $
    366Provision for losses
    
    
    22
    
    
    
    
    
    
    
    (1
    )
    
    
    21Write-offs, net of recoveries
    
    
    (92
    )
    
    
    (2
    )
    
    
    (7
    )
    
    
    (101
    )Effect of changes in currency exchange rates
    
    
    (19
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    (23
    )Balance, December 31, 2004
    
    $
    213
    
    
    $
    37
    
    
    $
    13
    
    
    $
    263
 E) DEFERRED NET REALIZED GAINS Deferred net realized gains are realized gains and losses which have not yet been recognized in
income. The changes in deferred net realized gains are shown in the table below. Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Derivatives
    
    
    TotalBalance, January 1, 2003
    
    $
    1,832
    
    
    $
    83
    
    
    $
    1,450
    
    
    $
    191
    
    
    $
    (100
    )
    
    $
    3,456Net realized gains (losses)
for the period
    
    
    509
    
    
    
    87
    
    
    
    (4
    )
    
    
    7
    
    
    
    (59
    )
    
    
    540Amortization of deferred net
realized gains
    
    
    (221
    )
    
    
    (28
    )
    
    
    (240
    )
    
    
    (21
    )
    
    
    14
    
    
    
    (496
    )Effect of changes in currency
exchange rates
    
    
    (208
    )
    
    
    (7
    )
    
    
    (150
    )
    
    
    (13
    )
    
    
    2
    
    
    
    (376
    )Balance, December 31, 2003
    
    $
    1,912
    
    
    $
    135
    
    
    $
    1,056
    
    
    $
    164
    
    
    $
    (143
    )
    
    $
    3,124Net realized gains (losses)
for the period
    
    
    526
    
    
    
    60
    
    
    
    148
    
    
    
    56
    
    
    
    114
    
    
    
    904Amortization of deferred net
realized gains
    
    
    (277
    )
    
    
    (32
    )
    
    
    (222
    )
    
    
    (23
    )
    
    
    12
    
    
    
    (542
    )Effect of changes in currency
exchange rates
    
    
    (14
    )
    
    
    (5
    )
    
    
    (8
    )
    
    
    (1
    )
    
    
    8
    
    
    
    (20
    )Balance, December 31, 2004
    
    $
    2,147
    
    
    $
    158
    
    
    $
    974
    
    
    $
    196
    
    
    $
    (9
    )
    
    $
    3,466
 66     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Notes to the Consolidated Financial Statements F) NET INVESTMENT INCOME Net investment income has the following components: 2004
    
    
    2003
    
    
    2002Interest from:Bonds
    
    $
    3,807
    
    
    $
    3,831
    
    
    $
    3,810Mortgages
    
    
    899
    
    
    
    951
    
    
    
    899Policy loans
    
    
    202
    
    
    
    224
    
    
    
    195Cash, cash equivalents and short-term securities
    
    
    113
    
    
    
    134
    
    
    
    122Interest income
    
    
    5,021
    
    
    
    5,140
    
    
    
    5,026Dividends from stocks
    
    
    116
    
    
    
    103
    
    
    
    135Real estate income (net)
    
    
    229
    
    
    
    222
    
    
    
    223Amortization of deferred net realized gains
    
    
    542
    
    
    
    496
    
    
    
    433Amortization of unrealized gains and losses
    
    
    (44
    )
    
    
    (140
    )
    
    
    (186
    )Derivative realized and unrealized gains and losses(1)
    
    
    39
    
    
    
    (85
    )
    
    
    (89
    )Other items (net)(2)
    
    
    145
    
    
    
    184
    
    
    
    2036,048
    
    
    
    5,920
    
    
    
    5,745Provisions for losses on investments
    
    
    (21
    )
    
    
    (113
    )
    
    
    (365
    )Investment expenses and taxes
    
    
    (103
    )
    
    
    (104
    )
    
    
    (99
    )Impact of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (150
    )Total net investment income
    
    $
    5,924
    
    
    $
    5,703
    
    
    $
    5,131
  (1)

Consists of realized and unrealized gains on derivatives
that are reported at fair value. Additional derivative income
(loss) of $(72) ($(47) in 2003, $(122) in 2002) is included in
net
investment income.(2)

Includes gains and losses on sales of subsidiaries (Note 5). G) SECURITIES LENDING The Company engages in securities lending to generate additional income. Certain securities from
its portfolio are loaned to other institutions for short periods. Collateral, which exceeds the
fair value of the loaned securities, is deposited by the borrower with a lending agent, usually a
securities custodian, and maintained by the lending agent until the underlying security has been
returned to the Company. The fair value of the loaned securities is monitored on a daily basis with
additional collateral obtained or refunded as the fair values fluctuate. It is the Companys
practice to obtain a guarantee from the lending agent against counterparty default, including
collateral deficiency. At December 31, 2004, the Company had loaned securities
(which are included in invested assets) with a carrying value and fair value of approximately
$2,071 and $2,130, respectively ($568 and $609, respectively, in 2003). H) LOAN SECURITIZATIONS During the year, the Company sold commercial mortgages to a trust which subsequently issued
securities backed by the commercial mortgages. The Company was retained to service and administer
the mortgages and also retained a subordinated investment interest in the issued securities.
Similar transactions occurred in 2003 and 2002. Details of these transactions are shown in the
following table. 2004
    
    
    2003
    
    
    2002Carrying value of mortgages sold
    
    $
    161
    
    
    $
    623
    
    
    $
    497Gain on sale
    
    $
    18
    
    
    $
    70
    
    
    $
    28
 As at December 31, 2004, the key assumptions used in the discounted cash flow models to determine
the fair value of retained interest
amounts and the sensitivity of these fair values to an immediate 10% and 20% adverse change in key
assumptions are as follows: 2004
    
    
    2003Mortgages
    
    
    Bonds
    
    
    Mortgages
    
    
    BondsCarrying value of retained interests
    
    $
    134
    
    
    $
    4
    
    
    $
    161
    
    
    $
    4Fair value of retained interests
    
    $
    146
    
    
    $
    4
    
    
    $
    174
    
    
    $
    5Weighted average remaining life (in years)
    
    
    3.620.4
    
    
    
    7.7
    
    
    
    5.521.24
    
    
    
    8.7Discount rate
    
    
    2.57.0
    %
    
    
    11.1
    %
    
    
    2.57.0
    %
    
    
    11.1
    %Impact on fair value of 10% adverse change
    
    $
    2
    
    
    $
    
    
    
    $
    6
    
    
    $
    1Impact on fair value of 20% adverse change
    
    $
    5
    
    
    $
    
    
    
    $
    10
    
    
    $
    1Anticipated credit losses
    
    
    
    
    
    
    0.6
    %
    
    
    
    
    
    
    0.6
    %Impact on fair value of 10% adverse change
    
    
    
    
    
    $
    1
    
    
    
    
    
    
    $
    1Impact on fair value of 20% adverse change
    
    
    
    
    
    $
    1
    
    
    
    
    
    
    $
    2
 Annual Report 2004 | www.sunlife.com     67




---



##### 



Notes to the Consolidated Financial Statements The sensitivity analysis in the preceding table is hypothetical and should be used with
caution. As the figures indicate, changes in fair value based on variations in assumptions
generally cannot be extrapolated because the relationship of the change in the assumption to the
change in fair value may not be linear. Also, in this table, the effect of a variation in a
particular assumption on the fair value of the retained interest is calculated without changing any
other assumption. In reality, changes in one factor may result in changes in another, which might
magnify or counteract the sensitivities. The credit losses, net of recoveries, of the securitized bond portfolio for 2004 were nil ($4 in
2003). As at December 31, 2004, the securitized bond portfolio included bonds of $2 that were 90
days or more past due ($17 in 2003). The following table summarizes certain cash flows received from securitization trusts in 2004, 2003
and 2002: 2004
    
    
    2003
    
    
    2002Mortgages
    
    
    Bonds
    
    
    Mortgages
    
    
    Bonds
    
    
    Mortgages
    
    
    BondsProceeds from new securitizations
    
    $
    179
    
    
    $
    
    
    
    $
    693
    
    
    $
    
    
    
    $
    525
    
    
    $
    Cash flows received on retained
interests and servicing fees
    
    $
    57
    
    
    $
    
    
    
    $
    26
    
    
    $
    
    
    
    $
    17
    
    
    $
    2
 9. Derivative Financial Instruments The Company uses derivative instruments for hedging and risk management purposes or in
replication strategies to reproduce permissible investments. The accounting policies for the
derivative financial instruments are described in Note 1. The Company monitors the gap in market
sensitivities between liabilities and supporting assets for its hedging strategies. That gap is
managed within defined tolerance limits by, where appropriate, the use of derivative instruments.
Models and techniques are used by the Company to ensure the continuing effectiveness of its hedging
and risk management strategies. Derivative instruments are either exchange-traded or over-the-counter contracts negotiated between
two counterparties. The notional amount is the basis for calculating payments and is generally not
the actual amount exchanged. Since counterparty failure in an over-the-counter derivative
transaction could render it ineffective for hedging purposes, the Company transacts its derivative
contracts with counterparties rated AA or better. In limited circumstances, the Company will enter
into transactions with lower rated counterparties if credit enhancement features are included. As
at December 31, 2004, the Company had assets of $63 ($94 in 2003) pledged as collateral for
derivative contracts. The Company has the following amounts outstanding at December 31: 2004Notional AmountsFair Value
    
    
    Term to Maturity
    
    
    TotalUnder
    
    
    1 to
    
    
    Over
    
    
    NotionalPositive(1)
    
    
    Net
    
    
    1 year
    
    
    5 years
    
    
    5 years
    
    
    AmountInterest rate contracts
    
    $
    215
    
    
    $
    (148
    )
    
    $
    1,776
    
    
    $
    4,040
    
    
    $
    8,567
    
    
    $
    14,383Foreign exchange contracts
    
    
    793
    
    
    
    720
    
    
    
    2,395
    
    
    
    881
    
    
    
    1,858
    
    
    
    5,134Equity and other contracts(2)
    
    
    561
    
    
    
    508
    
    
    
    2,510
    
    
    
    6,404
    
    
    
    1,786
    
    
    
    10,700Total
    
    $
    1,569
    
    
    $
    1,080
    
    
    $
    6,681
    
    
    $
    11,325
    
    
    $
    12,211
    
    
    $
    30,217Over-the-counter contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29,247Exchange-traded contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    970
 2003Notional AmountsFair Value
    
    
    Term to Maturity
    
    
    TotalUnder
    
    
    1 to
    
    
    Over
    
    
    NotionalPositive(1)
    
    
    Net
    
    
    1 year
    
    
    5 years
    
    
    5 years
    
    
    AmountInterest rate contracts
    
    $
    249
    
    
    $
    (173
    )
    
    $
    2,271
    
    
    $
    5,781
    
    
    $
    6,325
    
    
    $
    14,377Foreign exchange contracts
    
    
    599
    
    
    
    570
    
    
    
    892
    
    
    
    1,119
    
    
    
    1,657
    
    
    
    3,668Equity and other contracts
    
    
    385
    
    
    
    318
    
    
    
    3,836
    
    
    
    1,770
    
    
    
    2,512
    
    
    
    8,118Total
    
    $
    1,233
    
    
    $
    715
    
    
    $
    6,999
    
    
    $
    8,670
    
    
    $
    10,494
    
    
    $
    26,163Over-the-counter contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,924Exchange-traded contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    239
  (1)

Used to determine the credit risk exposure if the counterparties were to default. The
credit risk exposure is the cost of replacing, at current market rates, all contracts with
a positive fair value.(2)

Equity and other contracts in 2004 includes an equity forward with a fair value of $4
hedging the variation in the cash flows associated with the anticipated payments under
certain stock-based compensation plans expected to occur in 2007. The fair value that has
not been recognized ($3) will be recognized in net income as the liability is accrued for
the stock-based compensation plan over the vesting period. 68     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Notes to the Consolidated Financial Statements Fair values of interest rate swap contracts and foreign exchange swap and forward contracts
are determined by discounting expected future cash flows using current market interest and exchange
rates for similar instruments. Fair values of options, financial futures and common stock index swaps are based on
the quoted market prices or the value of underlying securities or indices. 10. Goodwill and Intangible Assets GOODWILL In addition to the goodwill of $5,471 ($5,573 in 2003) shown on the consolidated balance sheets,
goodwill of $395 ($396 in 2003) for investments accounted for by the equity method is included in
other
invested assets. There were no write-downs of goodwill due to impairment during the years ended
December 31, 2004, 2003 and 2002. Changes in goodwill of subsidiaries and investments accounted for by the equity method are as
follows: United
    
    
    
    
    
    
    CorporateCanada
    
    
    States
    
    
    Asia
    
    
    Capital
    
    
    TotalBalance, January 1, 2003
    
    $
    3,861
    
    
    $
    2,010
    
    
    $
    30
    
    
    $
    277
    
    
    $
    6,178Acquisitions
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    238Dispositions
    
    
    (3
    )
    
    
    (41
    )
    
    
    (1
    )
    
    
    
    
    
    
    (45
    )Effect of changes in currency exchange rates
    
    
    
    
    
    
    (360
    )
    
    
    
    
    
    
    (42
    )
    
    
    (402
    )Balance, December 31, 2003
    
    $
    4,048
    
    
    $
    1,609
    
    
    $
    29
    
    
    $
    283
    
    
    $
    5,969Acquisitions
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    43Dispositions
    
    
    (17
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (18
    )Effect of changes in currency exchange rates
    
    
    
    
    
    
    (112
    )
    
    
    
    
    
    
    (16
    )
    
    
    (128
    )Balance, December 31, 2004
    
    $
    4,041
    
    
    $
    1,497
    
    
    $
    28
    
    
    $
    300
    
    
    $
    5,866
 INTANGIBLE ASSETS In addition to the intangible assets of $751 ($763 in 2003) shown on the consolidated balance
sheets, intangible assets of $744 ($744 in 2003) for investments accounted for by the equity method
are included in other invested assets. Amortization of intangible assets recorded in operating
expenses during the year was $22 ($24 in 2003
and $17 in 2002). There were no write-downs of intangibles due to impairment during the years ended
December 31, 2004, 2003 and 2002. As at December 31, 2004, the components of the intangible assets
are as follows: 2004
    
    
    2003Gross carrying
    
    
    Accumulated
    
    
    Net
    
    
    Gross carrying
    
    
    Accumulated
    
    
    Netamount
    
    
    amortization
    
    
    amount
    
    
    amount
    
    
    amortization
    
    
    amountAmortizable intangible assets:Sales potential of field force
    
    $
    400
    
    
    $
    25
    
    
    $
    375
    
    
    $
    400
    
    
    $
    16
    
    
    $
    384Asset administration contracts
    
    
    201
    
    
    
    21
    
    
    
    180
    
    
    
    201
    
    
    
    14
    
    
    
    187Banking distribution channel
    
    
    33
    
    
    
    10
    
    
    
    23
    
    
    
    36
    
    
    
    8
    
    
    
    28Other
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    2636
    
    
    
    57
    
    
    
    579
    
    
    
    640
    
    
    
    39
    
    
    
    601Non-amortizable intangible assets:Fund management contracts
    
    
    850
    
    
    
    
    
    
    
    850
    
    
    
    839
    
    
    
    
    
    
    
    839Brand name
    
    
    54
    
    
    
    
    
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    54State licenses
    
    
    12
    
    
    
    
    
    
    
    12
    
    
    
    13
    
    
    
    
    
    
    
    13916
    
    
    
    
    
    
    
    916
    
    
    
    906
    
    
    
    
    
    
    
    906Total intangible assets
    
    $
    1,552
    
    
    $
    57
    
    
    $
    1,495
    
    
    $
    1,546
    
    
    $
    39
    
    
    $
    1,507
 Annual Report 2004 | www.sunlife.com     69




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##### 



Notes to the Consolidated Financial Statements 11. Other Assets Other assets consist of the following: 2004
    
    
    2003Accounts receivable
    
    $
    1,244
    
    
    $
    1,772Investment income due and accrued
    
    
    1,121
    
    
    
    1,153Future income taxes (Note 20)
    
    
    722
    
    
    
    977Deferred acquisition costs
    
    
    362
    
    
    
    548Prepaid expenses
    
    
    219
    
    
    
    188Outstanding premiums
    
    
    294
    
    
    
    389Accrued benefit asset (Note 22)
    
    
    438
    
    
    
    435Capital assets
    
    
    168
    
    
    
    196Other
    
    
    50
    
    
    
    39Total other assets
    
    $
    4,618
    
    
    $
    5,697
 Amortization of deferred acquisition costs charged to income amounted to $179 in 2004 ($234 and
$316 in 2003 and 2002, respectively). Capital assets are carried at a cost of $591 ($601 in 2003), less accumulated depreciation and
amortization of $423 ($405 in 2003). Depreciation and amortization charged to income totalled $62
($67 and $75 in 2003 and 2002, respectively). 12. Actuarial Liabilities and Other Policy Liabilities A) ACTUARIAL POLICIES Actuarial liabilities and other policy liabilities represent the estimated amounts which, together
with estimated future premiums and net investment income, will provide for outstanding claims,
estimated future benefits, policyholders dividends, taxes (other than income taxes) and expenses
on in-force policies. In calculating actuarial liabilities and other policy liabilities, assumptions must be made about
the timing and amount of many events, including death, accident or sickness, investment, inflation,
policy termination, expenses, taxes, premiums, commissions and policyholder dividends. The general
approaches to the setting of assumptions used by the Company are described later in this note. The Company uses best estimate assumptions for expected future experience. Uncertainty is inherent
in the process, as no one can accurately predict the future. Some assumptions relate to events that
are anticipated to occur many years in the future and are likely to require subsequent revision.
Additional provisions are included in the actuarial liabilities to provide for possible adverse
deviations from the best estimates. If the assumption is more susceptible to change or if the
actuary is less certain about the underlying best estimate assumption, a correspondingly larger
provision is included in the actuarial liabilities. In determining these provisions, the Company ensures:  

When taken one at a time, each provision is reasonable with respect to the underlying best
estimate assumption, and the extent of uncertainty present in making that assumption.

In total, the cumulative effect of all provisions is reasonable with respect to the total
actuarial liabilities. With the passage of time and resulting reduction in estimation risk, the provisions are released
into income. In recognition of the long-term nature of policy liabilities, the margin for possible
deviations generally increases for contingencies further in the future. The best estimate
assumptions and margins for adverse deviations are reviewed annually and revisions are made where
deemed necessary and prudent. Provision for Policyholder Dividends An amount equal to the earned and accrued portion of policyholder dividends including earned and
accrued terminal dividends is shown as a provision for policyholder dividends. Actuarial
liabilities provide for the payment of policyholder dividends that are forecasted to be paid over
the next 12 months and beyond, in excess of dividends earned and accrued. Both liabilities are
determined taking into account the scale of dividends approved by the Board and the expectation
that future dividends will be adjusted to reflect future experience.
Policyholder dividends of $809 are included in policyholder dividends and interest on claims and
deposits in the consolidated statements of operations ($867 in 2003 and $899 in 2002, on a restated
basis). 70     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Notes to the Consolidated Financial Statements B) COMPOSITION OF ACTUARIAL LIABILITIES AND OTHER POLICY LIABILITIES The actuarial liabilities and other policy liabilities consist of the following: 2004United
    
    
    
    
    
    
    United
    
    
    OtherCanada
    
    
    States
    
    
    Asia
    
    
    Kingdom
    
    
    Operations(1)
    
    
    TotalIndividual participating life
    
    $
    11,133
    
    
    $
    5,137
    
    
    $
    1,042
    
    
    $
    3,648
    
    
    $
    92
    
    
    $
    21,052Individual non-participating life
    
    
    1,797
    
    
    
    4,129
    
    
    
    199
    
    
    
    (20
    )
    
    
    330
    
    
    
    6,435Group life
    
    
    1,227
    
    
    
    121
    
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    1,353Individual annuities
    
    
    10,040
    
    
    
    19,038
    
    
    
    
    
    
    
    3,553
    
    
    
    
    
    
    
    32,631Group annuities
    
    
    5,999
    
    
    
    3,057
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,056Health insurance
    
    
    3,228
    
    
    
    447
    
    
    
    (1
    )
    
    
    
    
    
    
    57
    
    
    
    3,731Total actuarial liabilities
    
    
    33,424
    
    
    
    31,929
    
    
    
    1,241
    
    
    
    7,185
    
    
    
    479
    
    
    
    74,258Add: Other policy liabilities(2)
    
    
    793
    
    
    
    420
    
    
    
    36
    
    
    
    100
    
    
    
    449
    
    
    
    1,798Actuarial liabilities and other policy
liabilities
    
    $
    34,217
    
    
    $
    32,349
    
    
    $
    1,277
    
    
    $
    7,285
    
    
    $
    928
    
    
    $
    76,056
 2003United
    
    
    
    
    
    
    United
    
    
    OtherCanada
    
    
    States
    
    
    Asia
    
    
    Kingdom
    
    
    Operations(1)
    
    
    TotalIndividual participating life
    
    $
    10,746
    
    
    $
    5,338
    
    
    $
    874
    
    
    $
    3,743
    
    
    $
    85
    
    
    $
    20,786Individual non-participating life
    
    
    1,605
    
    
    
    3,359
    
    
    
    171
    
    
    
    (27
    )
    
    
    313
    
    
    
    5,421Group life
    
    
    1,333
    
    
    
    116
    
    
    
    1
    
    
    
    25
    
    
    
    
    
    
    
    1,475Individual annuities
    
    
    10,680
    
    
    
    19,315
    
    
    
    
    
    
    
    3,433
    
    
    
    
    
    
    
    33,428Group annuities
    
    
    6,181
    
    
    
    4,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,578Health insurance
    
    
    3,131
    
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    3,636Total actuarial liabilities
    
    
    33,676
    
    
    
    32,976
    
    
    
    1,046
    
    
    
    7,174
    
    
    
    452
    
    
    
    75,324Add: Other policy liabilities(2)
    
    
    773
    
    
    
    420
    
    
    
    41
    
    
    
    124
    
    
    
    672
    
    
    
    2,030Actuarial liabilities and other policy
liabilities
    
    $
    34,449
    
    
    $
    33,396
    
    
    $
    1,087
    
    
    $
    7,298
    
    
    $
    1,124
    
    
    $
    77,354
  (1)

Primarily business from the run-off reinsurance operations.(2)

Consists of policy benefits payable, provisions for unreported claims, provisions for
policyholder dividends and provisions for experience rating refunds. C) TOTAL ASSETS SUPPORTING ACTUARIAL LIABILITIES, EQUITY AND OTHER The following tables show the total assets supporting actuarial liabilities, equity and other: 2004Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Other
    
    
    TotalIndividual participating life
    
    $
    13,116
    
    
    $
    3,400
    
    
    $
    2,653
    
    
    $
    2,153
    
    
    $
    4,727
    
    
    $
    26,049Individual non-participating life
    
    
    5,182
    
    
    
    1,175
    
    
    
    288
    
    
    
    7
    
    
    
    1,309
    
    
    
    7,961Group life
    
    
    1,684
    
    
    
    562
    
    
    
    8
    
    
    
    26
    
    
    
    222
    
    
    
    2,502Individual annuities
    
    
    28,322
    
    
    
    4,810
    
    
    
    51
    
    
    
    62
    
    
    
    2,512
    
    
    
    35,757Group annuities
    
    
    7,070
    
    
    
    2,281
    
    
    
    32
    
    
    
    121
    
    
    
    791
    
    
    
    10,295Health insurance
    
    
    4,685
    
    
    
    1,358
    
    
    
    11
    
    
    
    40
    
    
    
    440
    
    
    
    6,534Equity and other
    
    
    4,437
    
    
    
    276
    
    
    
    420
    
    
    
    739
    
    
    
    12,787
    
    
    
    18,659Total assets
    
    $
    64,496
    
    
    $
    13,862
    
    
    $
    3,463
    
    
    $
    3,148
    
    
    $
    22,788
    
    
    $
    107,757
 2003Bonds
    
    
    Mortgages
    
    
    Stocks
    
    
    Real Estate
    
    
    Other
    
    
    TotalIndividual participating life
    
    $
    12,544
    
    
    $
    3,626
    
    
    $
    2,691
    
    
    $
    2,094
    
    
    $
    4,617
    
    
    $
    25,572Individual non-participating life
    
    
    4,293
    
    
    
    885
    
    
    
    259
    
    
    
    5
    
    
    
    1,213
    
    
    
    6,655Group life
    
    
    1,672
    
    
    
    573
    
    
    
    17
    
    
    
    21
    
    
    
    346
    
    
    
    2,629Individual annuities
    
    
    28,163
    
    
    
    4,535
    
    
    
    58
    
    
    
    26
    
    
    
    4,808
    
    
    
    37,590Group annuities
    
    
    8,524
    
    
    
    2,436
    
    
    
    26
    
    
    
    118
    
    
    
    781
    
    
    
    11,885Health insurance
    
    
    4,431
    
    
    
    1,298
    
    
    
    15
    
    
    
    16
    
    
    
    874
    
    
    
    6,634Equity and other
    
    
    6,463
    
    
    
    248
    
    
    
    407
    
    
    
    787
    
    
    
    10,339
    
    
    
    18,244Total assets
    
    $
    66,090
    
    
    $
    13,601
    
    
    $
    3,473
    
    
    $
    3,067
    
    
    $
    22,978
    
    
    $
    109,209
 Annual Report 2004 | www.sunlife.com     71




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##### 



Notes to the Consolidated Financial Statements D) CHANGES IN ACTUARIAL LIABILITIES
Changes in actuarial liabilities during the year are as follows: 2004
    
    
    2003Actuarial liabilities, January 1
    
    $
    75,324
    
    
    $
    87,521Change in liabilities on in-force business
    
    
    (2,374
    )
    
    
    (1,891
    )Liabilities arising from new policies
    
    
    3,799
    
    
    
    3,225Significant changes in assumptions or methodology:(1)Gross increases
    
    
    
    
    
    
    313Gross decreases
    
    
    
    
    
    
    (137
    )Increase in actuarial liabilities
    
    
    1,425
    
    
    
    1,510Changes in intrinsic value of options that hedge certain variable annuity products(2)
    
    
    
    
    
    
    (199
    )Dispositions
    
    
    
    
    
    
    (4,683
    )Other
    
    
    (29
    )
    
    
    80Change due to ceding reinsurance agreements
    
    
    (30
    )
    
    
    (465
    )Effect of changes in currency exchange rates
    
    
    (2,432
    )
    
    
    (8,440
    )Actuarial liabilities, December 31
    
    
    74,258
    
    
    
    75,324Add: Other policy liabilities
    
    
    1,798
    
    
    
    2,030Actuarial liabilities and other policy liabilities, December 31
    
    $
    76,056
    
    
    $
    77,354
 (1)
    
    During the second quarter of 2003, the Company implemented a number of changes to its
U.S. actuarial liability calculations. These changes reflect improved modelling
capabilities now permitted under the updated Canadian Institute of Actuaries Consolidated
Standards of Practice and the impact of lower interest rates on the cost of certain
guarantees. The net impact of these changes resulted in an increase to actuarial
liabilities of $6 (gross increases of $143 net of gross decreases of $137). The actuarial
liability for segregated fund guarantees was increased by approximately $170 in the fourth
quarter of 2003 to protect against increased downside risk following the rise in the
equity markets.(2)
    
    The changes in intrinsic value of the options that hedge certain variable annuity
products were included in the increase in actuarial liabilities in the consolidated
statements of operations and in other invested assets in the consolidated balance sheets
in 2003. In 2004, these options no longer qualify for hedge accounting as per CICA
Handbook Accounting Guideline 13, as described in Note 2. E) FAIR VALUE OF ACTUARIAL LIABILITIES, FUTURE INCOME TAXES AND DEFERRED NET REALIZED GAINS The fair value of total actuarial liabilities shown in the tables above is $81,641 in 2004 and
$81,713 in 2003 as restated. Fair value of actuarial liabilities is determined by reference to the
fair value of the assets supporting those liabilities. The fair value of the net deferred income
tax asset related to life insurance companies is $(494) in 2004 (carrying value of $294) and $(25)
in 2003 (carrying value of $426). Fair value of income taxes represents the amount that would be
recognized on the balance sheet if the financial instruments were measured at fair value. Deferred
net realized gains, which are taken into account in establishing the actuarial liabilities, no
longer exist when financial assets and liabilities are measured at fair value. F) ASSUMPTIONS AND MEASUREMENT UNCERTAINTY Mortality Mortality refers to the rate at which death occurs for a defined group of people. Insurance
mortality assumptions are generally based on the Companys average five-year experience. For
annuities, Company experience is combined with industry experience, since the Companys own
experience is insufficient to be statistically reliable. Assumed future mortality rates on
annuities are adjusted to reflect expected improvements in mortality. Assumed mortality rates for
life insurance contracts do not reflect any future improvement which might occur. For products where higher mortality would be financially adverse to the Company, a 1% increase in
the best estimate assumption would decrease net income by $106. For products where lower mortality
would be financially adverse to the Company, a 1% reduction in the mortality assumption would
decrease net income by $32. Morbidity Morbidity refers to the rate of accident or sickness, and recovery therefrom, for a defined group
of people. Most of the Companys disability insurance is marketed on a group basis. In Canada, the
Company offers critical illness policies and long-term care on an individual basis. Medical stop-loss insurance is offered on a group basis in the
United States. In Canada, group morbidity assumptions are based on the Companys five-year average
experience, modified to reflect the trend in recovery rates. For long-term care and critical
illness insurance, assumptions are developed in collaboration with our reinsurers and are largely
based on their experience. In the United States, Company experience is used for both medical
stop-loss and disability assumptions, with some consideration for industry experience. Larger
provisions for adverse deviation are used for those benefits where Company or industry experience
is limited. For products where the morbidity is a significant assumption, a 1% change in that
assumption would reduce net income by $13. Investment Return The Company generally maintains distinct asset portfolios for each line of business. To ensure the
adequacy of assets backing the liabilities, the Company does cash flow testing using a set of
plausible future interest rates and economic environments as well as a set of prescribed scenarios.
In each test, asset and liability cash flows are projected. Net cash flows are invested in new
assets, if positive, or assets are sold to meet cash needs, in accordance with the assumptions in
the test and the standards of the Canadian Institute of Actuaries. Whenever needed, specific
assumptions are made for cyclical credit risks that exceed the long-term expectation. Deferred net
realized gains are taken into account in establishing the actuarial liabilities. 72     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Notes to the Consolidated Financial Statements Asset Default In addition to the allowances for losses on invested assets outlined in Note 8, the actuarial
liabilities include an amount of $2,160 determined on a pre-tax basis ($2,005 in 2003) to provide
for possible future asset defaults and loss of asset value. This provision results from a reduction
in the expected future investment yield or a reduction in the value of equity assets recognized in
the computation of actuarial liabilities. The reduction varies depending on the creditworthiness of
the class of asset. Segregated Fund Guarantees The Company has a large volume of variable annuities primarily in the United States subject to
equity market movements. The Company also reinsures the guarantees offered on variable annuities
issued by other insurance companies in the United States, although the Company no longer accepts
new business on these reinsurance treaties. The Company monitors its experience for these
guarantees on a monthly basis, and has hedged a large percentage of its exposure with long-dated
put options against the S&P 500. The Company has a block of unit-linked products in the United Kingdom which offer guaranteed
annuity purchase price options. While not segregated fund guarantees, the exposure to the annuity
options is dependent on the equity market movements. The Company used stochastic modelling techniques which test a large number of different scenarios
of future market returns to estimate the actuarial liability for the various guarantees offered
under variable annuities and under the United Kingdom annuity options. The sensitivity of the
actuarial liability to changes in expected equity market returns is significant for those blocks of
business. For example, a 1% reduction in the expected long-term equity market return assumption
would decrease net income by $65 in respect of these guarantees. Interest Rate Interest rate risk is the potential for financial loss arising from changes in interest rates. For
example, the Company is exposed to this risk when the cash flows from assets and the policy
obligations they support are significantly mismatched, as this may result in the need to either
sell assets to meet policy payments and expenses, or reinvest excess asset cash flows under
unfavourable interest environments. To manage this risk, an investment policy statement is established for each portfolio of assets and
related liabilities. Asset/liability management programs are in place to implement these policy
statements. The primary approach used is duration gap analysis, which measures the sensitivity of
assets and liabilities to interest rate changes across the entire yield curve. Key rate duration
analysis is used to examine the duration gap of assets and liabilities at discrete intervals on the
yield curve. These gaps are managed within specified tolerance limits. Interest rate sensitivity is provided for in the actuarial liabilities for all policies, with
adequate provisions to absorb moderate changes in interest rates. For certain product types, including participating insurance and certain forms of universal life
policies and annuities, policyholders share investment performance through changes in the amount of
dividends declared or to the rate of interest credited. These changes occur routinely as interest
rates change, and reflect the normal operation of these policies according to their contractual
terms. These products generally have minimum interest rate guarantees. For the Companys actuarial liabilities, an immediate 1% parallel increase in interest rates at
December 31, 2004 across the entire yield curve, assuming the Company was unable to take any
investment action to mitigate the impact of this change, would result in an estimated increase in
net income of $36. Conversely, an immediate 1% parallel decrease in interest rates, again assuming
no other investment action, would result in an estimated decrease in net income of $134. Among the different lines of insurance business, annuities are one of the most sensitive to changes
in interest rates. Asset and liability cash flows by year for this business are set out in the
table below. The negative cumulative gap for Canada and the United Kingdom is due to liability cash
flows extending out farther in the future than asset cash flows. In the United States, the overall
shorter nature of the liability cash flows leads to a positive cash flow gap. On a duration basis,
the Companys various annuity portfolios of assets and liabilities are considered well matched. 2004Under
    
    
    1 to
    
    
    Over 5 years
    
    
    Over1 year
    
    
    5 years
    
    
    to 10 years
    
    
    10 years
    
    
    TotalCanadaAssets
    
    $
    3,642
    
    
    $
    8,351
    
    
    $
    3,723
    
    
    $
    8,176
    
    
    $
    23,892Liabilities
    
    
    3,347
    
    
    
    8,633
    
    
    
    3,879
    
    
    
    8,965
    
    
    
    24,824Cash flow gap
    
    $
    295
    
    
    $
    (282
    )
    
    $
    (156
    )
    
    $
    (789
    )
    
    $
    (932
    )United StatesAssets
    
    $
    2,695
    
    
    $
    10,116
    
    
    $
    9,401
    
    
    $
    4,524
    
    
    $
    26,736Liabilities
    
    
    3,310
    
    
    
    11,116
    
    
    
    6,916
    
    
    
    3,337
    
    
    
    24,679Cash flow gap
    
    $
    (615
    )
    
    $
    (1,000
    )
    
    $
    2,485
    
    
    $
    1,187
    
    
    $
    2,057United KingdomAssets
    
    $
    334
    
    
    $
    940
    
    
    $
    1,293
    
    
    $
    4,857
    
    
    $
    7,424Liabilities
    
    
    238
    
    
    
    1,084
    
    
    
    1,329
    
    
    
    5,101
    
    
    
    7,752Cash flow gap
    
    $
    96
    
    
    $
    (144
    )
    
    $
    (36
    )
    
    $
    (244
    )
    
    $
    (328
    )
 Annual Report 2004 | www.sunlife.com     73




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##### 



Notes to the Consolidated Financial Statements Policy Termination Rates Policyholders may allow their policies to terminate prior to the end of the contractual coverage
period by choosing not to continue to pay premiums or by exercising one of the non-forfeiture
options in the contract. Assumptions for termination experience on life insurance are generally
based on the Companys average five-year experience. Termination rates vary by plan, age at issue,
method of premium payment and policy duration. For universal life contracts, it is also necessary
to set assumptions about premium cessation occurring prior to termination of the policy. Studies
prepared by industry or actuarial bodies are used for certain products where the Companys
experience is too limited to be statistically valid. For individual life insurance products where fewer terminations would be financially adverse to the
Company, net income would be decreased by $62 if the termination rate assumption were reduced by
10% starting in policy year six (5% for participating policies and policies with adjustable
premiums). For products where more terminations would be financially adverse to the Company, net
income would be decreased by $62 if an extra 1% of the in-force policies were assumed to terminate
each year beginning in policy year six (0.5% for participating policies and policies with
adjustable premiums). Operating Expenses and Inflation Actuarial liabilities provide for future policy-related expenses. These include the costs of
premium collection, claims adjudication and processing, actuarial calculations, preparation and
mailing of policy statements and related indirect expenses and overheads. Expense assumptions are
mainly based on recent Company experience using an internal expense allocation methodology. The
increases assumed in future expenses are consistent with the inflation rate used in the scenario
testing under the standards established by the Canadian Institute of Actuaries. The sensitivity of
actuarial liabilities to a 10% increase in unit expenses Company-wide would result in a decrease in
net income of $248. G) REINSURANCE AGREEMENTS Reinsurance is used primarily to limit exposure to large losses. The Board approves the Companys
individual life insurance retention policy and limits which require that such arrangements be
placed with well-established, highly rated reinsurers. Coverage is well diversified and controls
are in place to manage exposure to reinsurance counterparties. While reinsurance arrangements
provide for the recovery of claims arising from the liabilities ceded, the Company retains primary
responsibility to the policyholders. The effect of reinsurance on premiums and payments to
policyholders, beneficiaries and depositors is summarized as follows: 2004
    
    
    2003
    
    
    2002Premiums:Direct premiums
    
    $
    13,253
    
    
    $
    13,688
    
    
    $
    15,061Reinsurance assumed
    
    
    655
    
    
    
    723
    
    
    
    577Reinsurance ceded
    
    
    (987
    )
    
    
    (868
    )
    
    
    (763
    )$
    12,921
    
    
    $
    13,543
    
    
    $
    14,875Payments to
policyholders, beneficiaries and depositors:Direct payments
    
    $
    12,671
    
    
    $
    13,036
    
    
    $
    11,585Reinsurance assumed
    
    
    602
    
    
    
    809
    
    
    
    511Reinsurance ceded
    
    
    (741
    )
    
    
    (919
    )
    
    
    (408
    )$
    12,532
    
    
    $
    12,926
    
    
    $
    11,688
 Actuarial liabilities are shown net of ceded reinsurance of $2,931 in 2004 ($2,528 in 2003). H) ROLE OF THE APPOINTED ACTUARY The Appointed Actuary is appointed by the Board and is responsible for ensuring that the
assumptions and methods used in the valuation of policy liabilities are in accordance with accepted
actuarial practice, applicable legislation and associated regulations or directives. The Appointed Actuary is required to provide an opinion regarding the appropriateness of the policy
liabilities at the balance sheet dates to meet all obligations to policyholders of the Company.
Examination of supporting data for accuracy and completeness and analysis of Company assets for
their ability to support the amount of policy liabilities are important elements of the work
required to form this opinion. The Appointed Actuary is required each year to analyze the financial condition of the Company and
prepare a report for the Board. The 2004 analysis tested the capital adequacy of the Company until
December 31, 2008, under various adverse economic and business conditions. The Appointed Actuary
reviews the calculation of the Companys Canadian Minimum Continuing Capital and Surplus
Requirements ( MCCSR ) ratio, which is calculated on its worldwide insurance operations.
The MCCSR ratio at December 31, 2004, was well in excess of the minimum requirement. In
addition, foreign operations and foreign subsidiaries of the Company must comply with local capital
requirements in each of the jurisdictions in which they operate. Furthermore, the Company is
required to appropriate retained earnings of $2,328 ($2,406 in 2003). All of these regulatory
requirements constrain the Companys ability to distribute its retained earnings. 74     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements 13. Other Liabilities Other liabilities consist of the following: 2004
    
    
    2003Accounts payable
    
    $
    3,151
    
    
    $
    3,368Bond repurchase agreements
    
    
    1,645
    
    
    
    1,458Accrued expenses and taxes
    
    
    919
    
    
    
    1,425Borrowed funds
    
    
    153
    
    
    
    123Future income taxes (Note 20)
    
    
    505
    
    
    
    515Accrued benefit liability (Note 22)
    
    
    456
    
    
    
    447Provisions for future policyholder costs
    
    
    82
    
    
    
    173Other
    
    
    248
    
    
    
    286Total other liabilities
    
    $
    7,159
    
    
    $
    7,795
 The Company enters into bond repurchase agreements for operational funding and liquidity purposes.
Bond repurchase agreements have maturities ranging from 4 to 96 days, averaging 21 days, and
bearing interest rates averaging 2.5% as at December 31, 2004 (2.7% in 2003). As at December 31,
2004, the Company had assets with a total market value of $1,654 ($1,457 in 2003) pledged as collateral for the bond repurchase agreements. The following obligations are included in borrowed funds in the table above: Currency of Borrowing
    
    
    Maturity
    
    
    2004
    
    
    2003Bank credit facilities(1)
    
    U.S. dollars
    
    
    
    2005
    
    
    $
    36
    
    
    $
    39Encumbrances on real estate
    
    Canadian dollars
    
    
    20052012
    
    
    
    52
    
    
    
    34U.S. dollars
    
    
    20062014
    
    
    
    65
    
    
    
    50Total borrowed funds
    
    
    
    
    
    
    
    
    
    $
    153
    
    
    $
    123
 (1)
    
    At a floating rate, linked to London Inter Bank Offered Rate. At December 31, 2004, aggregate maturities of encumbrances on real estate are as follows: Year
    
    Amount2005
    
    $
    72006
    
    
    62007
    
    
    152008
    
    
    182009
    
    
    2Thereafter
    
    
    69Total
    
    $
    117
 At December 31, 2004, bank credit facilities are $36 ($39 in 2003) and the weighted average
interest rates related to those borrowings is 1.6% (1.5% in 2003). The U.S. dollar bank credit
facility is secured by the future distribution fee stream of the mutual funds under the management
of MFS. At December 31, 2004, the Company had $180 in a line of credit from a financial institution of
which $144 was unused. This line of credit has a term of one year. Interest expense for the borrowed funds was $11, $15 and $26 for 2004, 2003 and 2002, respectively. Annual Report 2004 | www.sunlife.com     75




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##### 



Notes to the Consolidated Financial Statements 14. Subordinated Debt The following obligations are included in subordinated debt: Currency
    
    Interest Rate
    
    
    Maturity
    
    
    2004
    
    
    2003Subordinated debentures(1)
    
    Canadian dollars
    
    
    5.80
    %
    
    
    2013
    
    
    $
    
    
    
    $
    253Subordinated debentures(2)
    
    Canadian dollars
    
    
    6.65
    %
    
    
    2015
    
    
    
    300
    
    
    
    300Subordinated debentures(3)
    
    Canadian dollars
    
    
    6.15
    %
    
    
    2022
    
    
    
    799
    
    
    
    799Subordinated debentures(4)
    
    Canadian dollars
    
    
    6.30
    %
    
    
    2028
    
    
    
    150
    
    
    
    150Subordinated notes(5)
    
    U.S. dollars
    
    
    6.63
    %
    
    
    2007
    
    
    
    33
    
    
    
    35Subordinated notes
    
    U.S. dollars
    
    
    7.25
    %
    
    
    2015
    
    
    
    180
    
    
    
    193Cumulative capital securities(6)
    
    U.S. dollars
    
    
    8.53
    %
    
    
    
    
    
    
    720
    
    
    
    774Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,182
    
    
    $
    2,504Fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,416
    
    
    $
    2,771
  (1)

Redeemed on November 15, 2004. Redemption premiums of $17 ($12 net of taxes) were
recorded in net investment income in 2004.(2)

After October 12, 2010, interest is payable at 1% over the 90-day Bankers Acceptance
Rate. Redeemable in whole or in part at any time prior to October 12, 2010. On or after
October 12, 2010, redeemable in whole on interest payment date.(3)

Issued June 25, 2002. After June 30, 2012, interest is payable at 1.54% over the
90-day Bankers Acceptance Rate. Redeemable in whole or in part at any time.(4)

Redeemable in whole or in part at any time.(5)

In the third quarter of 2003, $165 (81.6% of the originally issued notes) was
redeemed. Redemption premiums of $24 ($14 net of taxes) were recorded in net investment
income in 2003.(6)

On May 6, 1997, Sun Life of Canada (U.S.) Capital Trust I, a Delaware statutory
business trust of the Company, issued U.S.$600 of 8.53% cumulative capital securities
(Securities). These Securities have no scheduled maturity date. Distributions are payable
semi-annually in arrears and are indirectly guaranteed by Sun Life Assurance on a
subordinated basis. Fair value is based on market prices for the same or similar instruments as appropriate.
Interest expense on subordinated debt was $174, $194 and $166 for 2004, 2003 and 2002,
respectively. All of the subordinated debt and cumulative capital securities qualify as capital for Canadian
regulatory purposes. 15. Non-controlling Interests in Subsidiaries Non-controlling interests in the consolidated balance sheets consist of the following: 2004
    
    
    2003SLEECS issued by the Trust
    
    $
    1,150
    
    
    $
    1,150Preferred shares of Sun Life Assurance(1)
    
    
    152
    
    
    
    155Non-controlling interests in MFS and McLean Budden Limited
    
    
    36
    
    
    
    31Total non-controlling interests in subsidiaries
    
    $
    1,338
    
    
    $
    1,336
  (1)

These preferred shares were issued by Clarica before amalgamating with Sun Life
Assurance. Non-controlling interests in net income of subsidiaries include the preferred shares dividend
payments of $7 ($7 in 2003 and $5 in 2002), non-controlling interests in the Trust of $52 ($51 in
2003 and $45 in 2002) and non-controlling interests in MFS and McLean Budden Limited of $21 ($7 in
2003 and $33 in 2002). On June 25, 2002, the Trust, a controlled trust of Sun Life Assurance, issued $200 of non-voting
Sun Life ExchangEable Capital Securities  Series B (SLEECS Series B). Holders of the
SLEECS Series B are entitled to receive a semi-annual non-cumulative fixed cash distribution of $35.465 per SLEECS Series B, representing an annual yield of 7.093% of
the one thousand dollar initial issue price, payable out of the Trusts net distributable funds.
The SLEECS Series B are subject to terms that are similar to those of the prior Sun Life
ExchangEable Capital Securities  Series A (SLEECS Series A) offering as described below.
The proceeds of this offering were used for general corporate purposes, including investments in
subsidiaries. On October 19, 2001, the Trust issued $950 of non-voting SLEECS Series A. Holders of the
SLEECS Series A are entitled to receive a semi-annual non-cumulative fixed cash
distribution of $34.325 per SLEECS Series A, representing an annual yield of 6.865% of the one thousand dollars initial issue
price, payable out of the Trusts net distributable funds. If Sun Life Assurance has not declared
dividends on its non-cumulative preferred Class B Shares, Series A or on any of its preferred
shares listed on a stock exchange, cash distributions will not be made on the SLEECS
Series A. Subject to regulatory approval, the Trust may redeem the SLEECS Series A
at any time after the fifth anniversary of the date of issuance and, in certain limited
circumstances, may also redeem the SLEECS Series A during the first five years. The
holders of the SLEECS Series A have the right at any time to surrender each one thousand
dollars face amount of SLEECS Series A and to receive from the Trust in exchange 40
non-cumulative preferred Class A Shares, Series Z of Sun Life Assurance, subject to compliance with
the Declaration of Trust. Both SLEECS Series A and SLEECS Series B qualify as
capital for Canadian regulatory purposes. Pursuant to the Share Exchange Agreement, Sun Life Financial Inc. and Sun Life Assurance agreed
that if the Trust fails to pay on any regular distribution date the required cash distributions on
the SLEECS in full, Sun Life Assurance will not pay dividends on its public preferred
shares. 76     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements SUBSEQUENT EVENT On February 8, 2005, Sun Life Assurance announced that, subject to regulatory approval, its Board
of Directors approved the redemption of its Non-Cumulative Redeemable Class E Preferred Shares,
Series 1 (Preferred shares of Sun Life Assurance in the preceding table) on June 30, 2005. These preferred
shares will be redeemed at a price equal to $25 per share, together with declared but unpaid
dividends. 16. Share Capital and Normal Course Issuer Bid The authorized share capital of Sun Life Financial Inc. consists of the following:  

An unlimited number of common shares without nominal or par value. Each common share is
entitled to one vote at meetings of the shareholders of Sun Life Financial Inc. There are no
preemptive, redemption, purchase or conversion rights attached to the common shares.

An unlimited number of Class A and Class B non-voting preferred shares, issuable in
series. The Board is authorized to fix before issuing the shares, the number, the
consideration per share, the designation of and the rights and restrictions of the Class A
and Class B shares of each series, subject to the special rights and restrictions attached
to all the Class A and Class B shares. The changes and the number of shares issued and outstanding are as follows: 2004
    
    
    
    2003
    
    
    
    2002Number
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    Numberof shares
    
    
    Amount
    
    
    of shares
    
    
    Amount
    
    
    of shares
    
    
    AmountCommon shares (in millions of shares)Balance, January 1
    
    
    600
    
    
    $
    7,289
    
    
    
    618
    
    
    $
    7,420
    
    
    
    432
    
    
    $
    1,100Common shares issued, net of issuance costs
and fair
value of stock options granted as
consideration for
business acquisition (Note 3)
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    63
    
    
    
    185
    
    
    
    6,281Stock options exercised (Note 19)
    
    
    2
    
    
    
    75
    
    
    
    1
    
    
    
    28
    
    
    
    1
    
    
    
    39Common shares purchased for cancellation
    
    
    (10
    )
    
    
    (126
    )
    
    
    (18
    )
    
    
    (222
    )
    
    
    
    
    
    
    Common shares cancelled for lost policyholders
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Balance, December 31
    
    
    592
    
    
    $
    7,238
    
    
    
    600
    
    
    $
    7,289
    
    
    
    618
    
    
    $
    7,420
 On January 8, 2004, Sun Life Financial Inc. announced that it was authorized to purchase up to 30
million common shares, representing approximately 5% of its issued and outstanding common shares,
under a normal course issuer bid pursuant to the rules of the Toronto Stock Exchange (the TSX)
during the period from January 12, 2004, to January 11, 2005. Shares purchased in this normal
course issuer bid were cancelled following purchases. In 2004, approximately 10 million common
shares were purchased at an average price of $37.93 per share for a total amount of $388. On February 12, 2003, Sun Life Financial Inc. announced a similar normal course issuer bid program
during the period from February 14, 2003, to January 5, 2004, for the purchase of up to 31 million
common shares, representing approximately 5% of its issued and outstanding common shares. As at
December 31, 2003, Sun Life Financial Inc. had purchased approximately 18 million of its common
shares at an average price of $28.88 per share for a total amount of $527. On January 6, 2005, Sun Life Financial Inc. announced that it was authorized to purchase up to 30
million shares, representing approximately 5% of its issued and outstanding common shares, under a
renewed normal course issuer bid program that will cover the period from January 12, 2005, to
January 11, 2006. In accordance with the provisions of the Demutualization Plan of Sun Life Assurance Company of
Canada and the share capital by-law of Sun Life Financial Inc., unclaimed demutualization benefits
issued to eligible policyholders whose addresses were not known to the Company (lost policyholders)
were cancelled on February 22, 2003. The unclaimed demutualization benefits that were cancelled on
February 22, 2003, include approximately three million common shares of Sun Life Financial Inc.
with a nominal share capital, accumulated dividends of approximately $3 and demutualization
benefits payable in cash of approximately $10. Under the Demutualization Plan, lost policyholders
may claim their cancelled demutualization benefits (including all unpaid dividends on shares) at
any time without interest. Annual Report 2004 | www.sunlife.com     77




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##### 



Notes to the Consolidated Financial Statements 17. Operating Expenses Operating expenses consist of the following: 2004
    
    
    2003
    
    
    2002Compensation costs
    
    $
    1,557
    
    
    $
    1,510
    
    
    $
    1,684Premises and equipment costs
    
    
    290
    
    
    
    287
    
    
    
    299Restructuring and other related charges
    
    
    27
    
    
    
    128
    
    
    
    158Capital asset depreciation and amortization (Note 11)
    
    
    62
    
    
    
    67
    
    
    
    76Other(1)
    
    
    895
    
    
    
    1,096
    
    
    
    605Impact of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (43
    )Total operating expenses
    
    $
    2,831
    
    
    $
    3,088
    
    
    $
    2,779
  (1)

Other for 2004 includes a $66 pre-tax provision for MFS regulatory issues and other
actions ($338 in 2003). 18. Earnings Per Share Details of the calculation of the net income and the weighted average number of shares used
in the earnings per share computations are as follows: 2004
    
    
    2003
    
    
    2002Shareholders net income from continuing operations
    
    $
    1,681
    
    
    $
    1,309
    
    
    $
    1,034Less: Effect of stock options of subsidiaries(1)
    
    
    2
    
    
    
    
    
    
    
    3Shareholders net income from continuing operations on a diluted basis
    
    $
    1,679
    
    
    $
    1,309
    
    
    $
    1,031Income (loss) from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (36
    )Shareholders net income on a diluted basis
    
    $
    1,679
    
    
    $
    1,309
    
    
    $
    995Weighted average number of shares outstanding for basic earnings per share (in millions)
    
    
    599
    
    
    
    608
    
    
    
    543Add:
Adjustments relating to the dilutive impact of stock
options(1) ,
(2)
    
    
    3
    
    
    
    
    
    
    
    Weighted average number of shares outstanding on a diluted basis (in millions)
    
    
    602
    
    
    
    608
    
    
    
    543
  (1)

The effect of stock options is calculated based on the treasury stock method
requirements which assume that unrecognized compensation as well as any proceeds from the
exercise of the options would be used to purchase common shares at the average market
prices during the period.(2)

Options to purchase approximately 4 million shares of Sun Life Financial Inc. at the
average exercise price of $33.22 per share were outstanding as at December 31, 2003.
However, they were not included in the diluted earnings per share calculations, because
their exercise prices were greater than the average market price of the common shares. 19. Stock-Based Compensation STOCK OPTION PLANS Sun Life Financial Inc. granted stock options to certain employees and directors under the
Executive Stock Option Plan and the Director Stock Option Plan and to all eligible employees under
the Special 2001 Stock Option Award Plan. These options may be exercised at the closing price of
the common shares on the TSX on the trading day preceding the grant date. The options
granted under the stock option plans will vest at various times: over a four-year period under the
Executive Stock Option Plan with the exception of two special grants with a five-year period, two
years after the grant date under the Special 2001 Stock Option Award Plan and over a two-year
period or immediately upon death or attainment of the mandatory age for retirement under the
Director Stock Option Plan. All options have a maximum exercise period of 10 years. The maximum
number of common shares that may be issued under the Executive Stock Option Plan, the Special 2001 Stock
Option Award Plan and the Director Stock Option Plan are 29,525,000 shares, 1,150,000 shares and
150,000 shares, respectively. Effective April 2, 2003, further grants under the Sun Life Financial
Inc. Director Stock Option Plan were discontinued. As described in Note 3, all of the Clarica stock options vested immediately prior to the closing
date of the acquisition and each unexercised Clarica stock option outstanding on May 29, 2002
became exercisable to acquire common shares of Sun Life Financial Inc. These Clarica stock options
are included with those of Sun Life Financial Inc. in the following tables. 78     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements The activities in the stock option plans for the years ended December 31 are as follows: 2004
    
    
    2003
    
    
    2002Number of
    
    
    Weighted
    
    
    Number of
    
    
    Weighted
    
    
    Number of
    
    
    Weightedstock options
    
    
    average
    
    
    stock options
    
    
    average
    
    
    stock options
    
    
    average(thousands)
    
    
    exercise price
    
    
    (thousands)
    
    
    exercise price
    
    
    (thousands)
    
    
    exercise priceBalance, January 1
    
    
    15,239
    
    
    $
    27.17
    
    
    
    12,421
    
    
    $
    29.82
    
    
    
    5,545
    
    
    $
    29.87Granted
    
    
    173
    
    
    
    36.67
    
    
    
    4,778
    
    
    
    27.70
    
    
    
    4,467
    
    
    
    33.16Granted as
consideration for
business acquisition (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,503
    
    
    
    24.78Exercised
    
    
    2,267
    
    
    
    25.69
    
    
    
    863
    
    
    
    22.51
    
    
    
    1,196
    
    
    
    22.58Forfeited
    
    
    688
    
    
    
    26.97
    
    
    
    1,097
    
    
    
    28.76
    
    
    
    898
    
    
    
    30.82Balance, December 31
    
    
    12,457
    
    
    $
    26.90
    
    
    
    15,239
    
    
    $
    27.17
    
    
    
    12,421
    
    
    $
    29.82Exercisable, December 31
    
    
    6,318
    
    
    $
    27.36
    
    
    
    5,291
    
    
    $
    27.30
    
    
    
    4,065
    
    
    $
    26.37
 The stock options outstanding and exercisable as at December 31, 2004, by exercise price, are as
follows: Options Outstanding
    
    
    Options ExercisableWeightedaverageNumber of
    
    
    remaining
    
    
    Weighted
    
    
    Number of
    
    
    Weightedstock options
    
    
    contractual
    
    
    average
    
    
    stock options
    
    
    averageRange of exercise prices
    
    (thousands)
    
    
    life (years)
    
    
    exercise price
    
    
    (thousands)
    
    
    exercise price$19.05 to $24.95
    
    
    3,750
    
    
    
    7.33
    
    
    $
    22.04
    
    
    
    1,567
    
    
    $
    22.00$25.01 to $30.91
    
    
    6,239
    
    
    
    7.05
    
    
    
    27.48
    
    
    
    3,235
    
    
    
    27.63$31.00 to $33.20
    
    
    2,227
    
    
    
    7.04
    
    
    
    32.52
    
    
    
    1,465
    
    
    
    32.19$33.25 to $38.54
    
    
    241
    
    
    
    8.60
    
    
    
    35.48
    
    
    
    51
    
    
    
    36.7312,457
    
    
    
    7.16
    
    
    $
    26.90
    
    
    
    6,318
    
    
    $
    27.36
 The weighted average fair values of the stock options, calculated using the Black-Scholes
option-pricing model, granted during the year ended December 31, 2004, was $9.81 ($7.61 and $10.62
for 2003 and
2002, respectively). The assumptions for the Black-Scholes option-pricing model to determine the
fair value as at December 31 are as follows: Weighted average assumptions
    
    2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    4.5
    %
    
    
    5.0
    %
    
    
    5.4
    %Expected volatility
    
    
    24.8
    %
    
    
    25.0
    %
    
    
    25.0
    %Dividend yield
    
    
    2.3
    %
    
    
    2.5
    %
    
    
    1.7
    %Expected life of the option (in years)
    
    
    7
    
    
    
    7
    
    
    
    7
 For the options issued prior to January 1, 2002, and valued using the intrinsic value method, no
compensation expense was recognized as the options exercise price was not less than the market
price of the underlying stock on the day of grant. When the options are exercised, the proceeds
received are credited to common shares. EMPLOYEE SHARE OWNERSHIP PLAN The Company matches employees contributions to the Sun Life Financial Employee Stock Plan (Plan)
for eligible employees in Canada who may contribute from 1% to 20% of their base earnings to the
Plan. The Company matches 50% of the lower of the employee contributions and 5% of the employees
base earnings to an annual maximum of one thousand five hundred dollars. The Companys
contributions vest immediately and are expensed. OTHER STOCK-BASED COMPENSATION PLANS All other stock-based compensation plans use notional units that are valued based on Sun Life
Financial Inc.s common share price on the TSX. Any fluctuation in Sun Life Financial
Inc.s common share price changes the value of the units, which affects the Companys stock-based
compensation expense. Upon exercise of these units, payments
are made to the employees with a corresponding reduction in the accrued liability. In 2004, an
aggregate expense of $18 ($9 and $2 for 2003 and 2002, respectively), was recognized in operating
expenses in the consolidated statements of operations for changes in the amount of the Companys
liability for these units. Details of these plans are as follows: Senior Executives Deferred Share Unit (DSU) Plan:Under the DSU plan, designated
executives may elect to receive all or a portion of their annual incentive award (which is expensed
for the year awarded in operating expenses in the consolidated statements of operations) in the
form of DSUs. Each DSU is equivalent to one common share and earns dividend
equivalents in the form of additional DSUs at the same rate as the dividends on common
shares. The designated executives must elect to participate in the plan prior to the beginning of
the plan year and this election is irrevocable. Awards generally vest immediately, however,
participants are not permitted to redeem the DSUs until termination, death or retirement.
The value at the time of redemption will be based on the fair market value of the common shares
immediately before their conversion. As at December 31, 2004, there were 541,907 units outstanding
(582,031 and 344,989 Annual Report 2004 | www.sunlife.com     79




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##### 



Notes to the Consolidated Financial Statements for 2003 and 2002, respectively). The Company uses equity swaps to hedge its exposure to
variations in cash flows associated with the outstanding DSUs. Restricted Share Unit (RSU) Plan:Under the RSU plan, participants are granted units that
are equivalent to one common share and have a fair market value of a common share on the date of
grant. Plan participants must hold RSUs for 36 months from the date of grant.
RSUs earn dividend equivalents in the form of additional RSUs at the same rate
as the dividends on common shares. The redemption value is the fair market value of an equal number
of common shares. As at December 31, 2004, there were 1,643,513 RSUs outstanding (663,753 and
176,379 for 2003 and 2002, respectively). The Company uses equity forwards to hedge its exposure to
variations in cash flows associated with the outstanding RSUs. Performance Share Unit (PSU) Plan:Under the PSU plan, participants are granted units
that are the equivalent to one common share and have a fair market value of a common share on the
date of grant. Plan participants must hold PSUs for 36 months from the date of grant.
PSUs earn dividend equivalents in the form of additional PSUs at the same rate
as the dividends on common shares. No PSUs will vest or become payable unless the Company
meets its threshold targets with respect to specified performance targets. The plan provides for an
enhanced payout if the Company achieves superior levels of performance to motivate participants to
achieve a higher return for shareholders. Payments to participants are based on the number of
PSUs earned multiplied by the market value of the common shares at the end of the
three-year performance period. As at December 31, 2004 there were 273,035 PSUs
outstanding (nil in 2003 and 2002). The Company uses equity swaps to hedge its exposure to
variations in cash flows associated with the outstanding PSUs. 20. Income Taxes In the consolidated statements of operations, the income tax expense for the Companys
worldwide operations has the following components: 2004
    
    
    2003
    
    
    2002Continuing OperationsCanadian income tax expense (benefit):Current
    
    $
    98
    
    
    $
    61
    
    
    $
    116Future
    
    
    125
    
    
    
    222
    
    
    
    (72
    )Total
    
    
    223
    
    
    
    283
    
    
    
    44Foreign income tax expense (benefit):Current
    
    
    (67
    )
    
    
    235
    
    
    
    69Future
    
    
    137
    
    
    
    (131
    )
    
    
    (15
    )Total
    
    
    70
    
    
    
    104
    
    
    
    54Income tax expense related to continuing operations
    
    
    293
    
    
    
    387
    
    
    
    98Discontinued OperationsForeign income tax expense (benefit):Current
    
    
    
    
    
    
    
    
    
    
    (1
    )Future
    
    
    
    
    
    
    
    
    
    
    11Total
    
    
    
    
    
    
    
    
    
    
    10Income tax expense related to discontinued operations
    
    
    
    
    
    
    
    
    
    
    10Total income taxes
    
    $
    293
    
    
    $
    387
    
    
    $
    108
 The after-tax undistributed earnings of most non-Canadian subsidiaries would be taxed only upon
their repatriation to Canada. The Company recognizes a future tax liability, if any, on these
undistributed earnings to the extent that management expects they will be repatriated in the
foreseeable future. To the extent repatriation of such earnings is not
currently planned, the Company has not recognized the future tax liability. If the undistributed
earnings of all non-Canadian subsidiaries not currently planned were repatriated, additional taxes
that would be payable are estimated to be $63 as at December 31, 2004 ($67 and $56 in 2003 and
2002, respectively). 80     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Notes to the Consolidated Financial Statements The Companys effective worldwide income tax rate differs from the combined Canadian federal
and provincial statutory income tax rate, as follows: 2004
    
    
    2003
    
    
    2002%
    
    
    
    
    
    %
    
    
    
    
    
    %Net income from continuing operations
    
    $
    1,694
    
    
    
    
    
    
    $
    1,308
    
    
    
    
    
    
    $
    1,033Add: Income taxes
    
    
    293
    
    
    
    
    
    
    
    387
    
    
    
    
    
    
    
    98Non-controlling interests in net income of subsidiaries
    
    
    80
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    83Net income from continuing operations before income
taxes
and non-controlling interests in net income
of subsidiaries
    
    $
    2,067
    
    
    
    
    
    
    $
    1,760
    
    
    
    
    
    
    $
    1,214Taxes at the combined Canadian federal and
provincial statutory income tax rate
    
    $
    683
    
    
    
    33.0
    
    
    $
    607
    
    
    
    34.5
    
    
    $
    456
    
    
    
    37.6Increase (decrease) in rate resulting from:Higher (lower) effective rates on income
subject to taxation in foreign jurisdictions
    
    
    (259
    )
    
    
    (12.4
    )
    
    
    (134
    )
    
    
    (7.6
    )
    
    
    (183
    )
    
    
    (15.1
    )Tax (benefit) cost of unrecognized losses
    
    
    (19
    )
    
    
    (0.9
    )
    
    
    (37
    )
    
    
    (2.1
    )
    
    
    (103
    )
    
    
    (8.5
    )Tax exempt investment income
    
    
    (94
    )
    
    
    (4.6
    )
    
    
    (91
    )
    
    
    (5.1
    )
    
    
    (107
    )
    
    
    (8.8
    )Capital taxes
    
    
    7
    
    
    
    0.3
    
    
    
    11
    
    
    
    0.6
    
    
    
    8
    
    
    
    0.7Changes to statutory income tax rates
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    1.6
    
    
    
    (2
    )
    
    
    (0.2
    )Other
    
    
    (25
    )
    
    
    (1.2
    )
    
    
    2
    
    
    
    0.1
    
    
    
    29
    
    
    
    2.4Companys effective worldwide income taxes
    
    $
    293
    
    
    
    14.2
    
    
    $
    387
    
    
    
    22.0
    
    
    $
    98
    
    
    
    8.1
 The Company has accumulated tax losses, primarily in the United Kingdom, totalling $1,317 ($2,530
in 2003). The benefit of these tax losses has been recognized to the extent that they are more
likely than not to be realized in the amount of $93 ($320 in 2003) in future income taxes. The
Company will realize this benefit in future years
through a reduction in current income taxes as and when the losses are utilized. These tax losses
are subject to examination by various tax authorities and could be reduced as a result of the
adjustments to tax returns. Furthermore, legislative, business or other changes may limit the
Companys ability to utilize these losses. The following are the future tax assets and liabilities in the consolidated balance sheets by
source of temporary differences: 2004
    
    
    2003Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesInvestments
    
    $
    196
    
    
    $
    484
    
    
    $
    182
    
    
    $
    613Actuarial liabilities
    
    
    134
    
    
    
    35
    
    
    
    54
    
    
    
    (78
    )Deferred acquisition costs
    
    
    300
    
    
    
    (2
    )
    
    
    324
    
    
    
    (9
    )Losses available for carry forward
    
    
    250
    
    
    
    (40
    )
    
    
    506
    
    
    
    (117
    )Other
    
    
    39
    
    
    
    28
    
    
    
    214
    
    
    
    106919
    
    
    
    505
    
    
    
    1,280
    
    
    
    515Valuation allowance
    
    
    (197
    )
    
    
    
    
    
    
    (303
    )
    
    
    Total
    
    $
    722
    
    
    $
    505
    
    
    $
    977
    
    
    $
    515
 Future income taxes are the result of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
sources
of these temporary differences and the recognized tax effects for continuing operations in the
consolidated statements of operations are as follows: 2004
    
    
    2003
    
    
    2002Investments
    
    $
    (193
    )
    
    $
    (65
    )
    
    $
    (128
    )Actuarial liabilities
    
    
    126
    
    
    
    113
    
    
    
    454Deferred acquisition costs
    
    
    97
    
    
    
    (144
    )
    
    
    (128
    )Losses (incurred) utilized
    
    
    248
    
    
    
    148
    
    
    
    (268
    )Other
    
    
    (16
    )
    
    
    39
    
    
    
    (17
    )Future income tax expense (benefit) related to continuing operations
    
    $
    262
    
    
    $
    91
    
    
    $
    (87
    )
 Annual Report 2004 | www.sunlife.com     81




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##### 



Notes to the Consolidated Financial Statements 21. Commitments, Guarantees and Contingencies LEASE COMMITMENTS The Company leases offices and certain equipment. These are operating leases with rents charged to
operations in the year to which
they relate. Total future rental payments for the remainder of these leases are as follows: 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterFuture rental payments
    
    $
    103
    
    
    $
    92
    
    
    $
    80
    
    
    $
    49
    
    
    $
    41
    
    
    $
    126
 CONTRACTUAL COMMITMENTS In the normal course of business, various contractual commitments are outstanding which are not
reflected in the consolidated financial
statements. At December 31, 2004, there were outstanding contractual commitments as follows: Expires in
    
    
    Expires in
    
    
    Expires in30 days
    
    
    31 to 365 days
    
    
    2006 or later
    
    
    TotalContractual commitments
    
    $
    119
    
    
    $
    962
    
    
    $
    673
    
    
    $
    1,754
 The majority of these commitments are to extend credit under commercial and residential mortgage
loans and private placements. LETTERS OF CREDIT The Company issues commercial letters of credit in the normal course of business. At December 31,
2004, letters of credit in the amount of $341 have been issued. INDEMNITIES In the normal course of its business, the Company has entered into agreements that include
indemnities in favour of third parties, such as purchase and sale agreements, confidentiality
agreements, engagement letters with advisors and consultants, outsourcing agreements, leasing
contracts, trade-mark licensing agreements, underwriting and agency agreements, information
technology agreements, distribution agreements, financing agreements and service agreements. These
indemnification agreements may require the Company to compensate the counterparties for damages,
losses, or costs incurred by the counterparties as a result of breaches in representation, changes
in regulations (including tax matters) or as a result of litigation claims or statutory sanctions
that may be suffered by the counterparty as a consequence of the transaction. The Company has also
agreed to indemnify its directors and certain of its officers and employees in accordance with the
Companys by-laws. These indemnification provisions will vary based upon the nature and terms of
the agreements. In many cases, these indemnification provisions do not contain limits on the
Companys liability and the occurrence of contingent events that will trigger payment under these
indemnities is difficult to predict. As a result, the Company cannot estimate its potential
liability under these indemnities. The Company believes that the likelihood of conditions arising
that would trigger these indemnities is remote and, historically, the Company has not made any
significant payment under such indemnification provisions. In certain cases, the Company has recourse against third parties with respect to the aforesaid
indemnities and the Company also maintains insurance policies that may provide coverage against
certain of these claims. LEGAL AND REGULATORY PROCEEDINGS In 2003, industry-wide regulatory investigations were launched in the U.S. investment
industry regarding market timing, late trading and related issues. On February 5, 2004, MFS
reached a settlement with federal and state regulators related to administrative proceedings
alleging that certain MFS fund prospectuses contained false and misleading information
regarding market timing and related issues. In these settlements, MFS agreed to pay
U.S. $225 to compensate investors in certain funds, of which U.S. $50 was a
penalty, agreed to pay an administrative fine of U.S. $1 and agreed to reduce fees on
certain MFS funds by approximately U.S. $25 annually for five years. The Company
recorded a $211 after-tax charge to income in the fourth quarter of 2003 in connection with these
settlements. Under these settlements, MFS neither admitted nor denied any wrongdoing. On March 31, 2004, MFS settled an administrative proceeding with the Securities and
Exchange Commission regarding disclosure of brokerage allocation practices in connection with sales
of certain MFS funds. Under the terms of that settlement, in which MFS neither
admitted nor denied any wrongdoing, MFS agreed to pay U.S. one dollar in
disgorgement and U.S. $50 in penalty to 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. The Company and its subsidiaries are co-operating with insurance and securities regulators and
other government and self-regulatory agencies in Canada and the United States 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,
compensation and other arrangements with distributors and brokers, and recordkeeping requirements. 82     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements Since December 2003, Sun Life Financial Inc., MFS and certain of its subsidiaries,
MFS Corporation Retirement Committee, various MFS funds, certain current and/or
former Trustees of those MFS funds, and certain officers of MFS have been named
as defendants in more than 30 lawsuits filed in the U.S. federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions on behalf of
investors who purchased, held or redeemed shares of the MFS funds during specified
periods, as class actions on behalf of participants in certain retirement plan accounts, or as
derivative actions on behalf of MFS funds. The lawsuits relating to market timing and
related matters have been transferred to, and consolidated before, the United States District Court
for the District of Maryland, as part of a multi-district litigation of market timing and related
claims involving several other fund complexes (In re Mutual Funds Investment Litigation (Alger,
Columbia, Janus, MFS, One Group, Putnam, Allianz Dresdner), No.1:04-md-15863 (transfer began March
19, 2004)). The plaintiffs in these consolidated lawsuits generally seek injunctive relief
including removal of the named Trustees, adviser and distributor, rescission of contracts and 12b-1
Plans, disgorgement of fees and profits, monetary damages, punitive damages, attorneys fees and
costs and other equitable and declaratory relief. The market timing cases related to the MFS
funds are Riggs v. MFS et al., Case No. 04-cv-01162-JFM(direct), Hammerslough v.
MFS et al., Case No. 04-md-01620(derivative) and Anita Walker v. MFS et al.,
Case No. 1:04-CV-01758(ERISA). Four lawsuits alleging improper brokerage allocation practices and
excessive compensation are pending in the United States District Court for the District of
Massachusetts (Forsythe v. Sun Life Financial Inc., et al., No. 04cv10584 (GAO) (March 25, 2004);
Eddings v. Sun Life Financial Inc., et al., No. 04cv10764 (GAO) (April 15, 2004); Marcus Dumond, et
al. v. Massachusetts Financial Servs. Co., et al., No. 04cv11458 (GAO) (May 4, 2004); and Koslow v.
Sun Life Financial Inc., et al., No. 04cv11019 (GAO) (May 20, 2004)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of fees, rescission of
contracts, an accounting, restitution, declaratory relief, equitable and/or injunctive relief and
attorneys fees and costs. The various lawsuits generally allege
that some or all of the defendants (i) permitted or acquiesced in market timing and/or late trading in some of the MFS
funds and, inadequately disclosed MFSs internal policies concerning market timing
and such matters, and (ii) received excessive compensation as fiduciaries to the MFS
funds, or (iii) permitted or acquiesced in the improper use of fund assets by MFS
to support the distribution of MFS fund shares and inadequately disclosed
MFSs use of fund assets in this manner. The actions assert that some or all of the
defendants violated U.S. federal securities laws, including the Securities Act of 1933
and the Securities Exchange Act of 1934, the Investment Company Act of 1940and the Investment
Advisers Act of 1940, the Employee Retirement Income Security Act of 1974, as well as fiduciary
duties and other violations of common law. Additional lawsuits based upon similar allegations may
be filed in the future. These actions are at an early stage and Sun Life Financial cannot predict
their outcome with certainty and is accordingly unable to determine the potential impact that they
may have on Sun Life Financials results of operations, financial position and cash flows. Additional information concerning these and related matters is provided in the Non-GAAP
Financial Measures, MFS Investment Management and Legal and Regulatory
Proceedings sections of Sun Life Financial Inc.s 2004 Managements Discussion and Analysis and in
the Risk Factors section in its 2004 Annual Information Form. PROVISIONS IN THE UNITED KINGDOM The Companys United Kingdom operations continue to be subject to regulatory overview in the United
Kingdom, including the handling of complaints about mortgage endowments. Endowment policies were
sometimes sold to provide customers with a method of repaying mortgage debt at the end of a
mortgage term. The Company has regularly engaged in discussions with United Kingdom regulators with
respect to these and other matters. The Company has provisions for future costs and expenses relating to all reviews of past business
sold both in actuarial liabilities and in other liabilities. At December 31, 2004, the combined
provision was $121 ($130 in 2003). Annual Report 2004 | www.sunlife.com     83




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##### 



Notes to the Consolidated Financial Statements 22. Pension Plans and Other Post-Retirement Benefits The following tables set forth the status of the defined benefit pension and other
post-retirement benefit plans. Pension
    
    
    Post-Retirement2004
    
    
    2003
    
    
    2004
    
    
    2003Change in projected benefit obligation:Projected benefit obligation, January 1
    
    $
    2,053
    
    
    $
    1,981
    
    
    $
    291
    
    
    $
    269Change in January 1 balance due to:Acquisitions and disposals
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (8
    )Change in measurement date(1)
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    Service cost
    
    
    56
    
    
    
    52
    
    
    
    7
    
    
    
    8Interest cost
    
    
    121
    
    
    
    112
    
    
    
    17
    
    
    
    17Actuarial losses (gains)
    
    
    85
    
    
    
    150
    
    
    
    9
    
    
    
    26Benefits paid
    
    
    (103
    )
    
    
    (95
    )
    
    
    (10
    )
    
    
    (10
    )Curtailments, settlements and plan amendments
    
    
    1
    
    
    
    2
    
    
    
    (17
    )
    
    
    Effect of changes in currency exchange rates
    
    
    (23
    )
    
    
    (125
    )
    
    
    (4
    )
    
    
    (11
    )Projected benefit obligation, December 31(1),(2)
    
    $
    2,190
    
    
    $
    2,053
    
    
    $
    293
    
    
    $
    291Accumulated benefit obligation, December 31(3)
    
    $
    2,019
    
    
    $
    1,886Change in plan assets:Fair value of plan assets, January 1
    
    $
    2,077
    
    
    $
    2,044
    
    
    $
    
    
    
    $
    Change in January 1 balance due to:Acquisitions and disposals
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    Change in measurement date(1)
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    Net actual return on plan assets
    
    
    200
    
    
    
    253
    
    
    
    
    
    
    
    Employer contributions
    
    
    25
    
    
    
    27
    
    
    
    10
    
    
    
    10Benefits paid
    
    
    (103
    )
    
    
    (95
    )
    
    
    (10
    )
    
    
    (10
    )Effect of changes in currency exchange rates
    
    
    (22
    )
    
    
    (114
    )
    
    
    
    
    
    
    Fair value of plan assets, December 31(1)
    
    $
    2,177
    
    
    $
    2,077
    
    
    $
    
    
    
    $
    Net funded status, December 31
    
    $
    (13
    )
    
    $
    24
    
    
    $
    (293
    )
    
    $
    (291
    )Unamortized net actuarial loss
    
    
    394
    
    
    
    371
    
    
    
    45
    
    
    
    39Unamortized past service cost
    
    
    11
    
    
    
    13
    
    
    
    (20
    )
    
    
    (4
    )Unamortized transition asset
    
    
    (132
    )
    
    
    (152
    )
    
    
    (10
    )
    
    
    (12
    )Contributions (transfers), October 1 to December 31(1)
    
    
    (1
    )
    
    
    (1
    )
    
    
    1
    
    
    
    1Accrued benefit asset (liability), December 31(1)
    
    $
    259
    
    
    $
    255
    
    
    $
    (277
    )
    
    $
    (267
    )Balance sheet classification of accrued benefit asset (liability), December 31:Other assets
    
    $
    438
    
    
    $
    435
    
    
    $
    
    
    
    $
    Other liabilities
    
    $
    179
    
    
    $
    180
    
    
    $
    277
    
    
    $
    267Pension plans with projected benefit obligations in excess of plan assets:Projected benefit obligations
    
    $
    1,496
    
    
    $
    1,408Plan assets
    
    $
    1,239
    
    
    $
    1,173
 Weighted average assumptions: Pensions
    
    
    Post-retirementTo measure benefit
    
    
    To measure the net
    
    
    To measure benefit
    
    
    To measure the netobligation as of the plans
    
    
    benefit costs or income
    
    
    obligation as of the plans
    
    
    benefit costs or incomemeasurement date(1)
    
    
    for the period
    
    
    measurement date(1)
    
    
    for the periodDiscount rate(5)
    
    
    5.8
    %
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.2
    %Expected long-term rate of return on plan
assets(4),(5)
    
    
    7.2
    %
    
    
    7.2
    %
    
    
    
    
    
    
    Rate of compensation increase(5)
    
    
    3.9
    %
    
    
    3.9
    %
    
    
    
    
    
    
    
  (1)

The measurement date for most of the plans in the United States is September 30. For
all other defined benefit plans, the measurement date is December 31. For plans with a
September 30 measurement date, contributions from October 1 to December 31 are reflected
in the balance sheet for the current year but excluded from the September 30 plan asset
balance.(2)

The date of the most recent actuarial valuation for funding purposes was January 1,
2004. The date of the next required actuarial valuation for funding purposes is January 1,
2005.(3)

The Accumulated Benefit Obligation is smaller than the Projected Benefit Obligation
since it does not recognize projected future compensation increases.(4)

Based on managements best estimate of the weighted average returns for the target
allocation at plan assets. The assumption for the expected long-term rate of return on
plan assets is based on a review of the historical asset return performance of the plan
assets, the historical returns of the market indices on which the plan assets performance
is based, and managements best estimate of the weighted average long-term expected rate
of returns for the target allocation of plan assets.(5)

The assumed discount rates, the expected long-term rates of return on plan assets and
the rates of increase in future compensation used in determining the actuarial present
value of the projected benefit obligations vary according to the economic conditions of
the countries in which the pension plans are situated. 84     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements Pension
    
    
    Post-Retirement(1)2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Components of defined benefit cost recognized:Service cost, curtailments and settlements
    
    $
    57
    
    
    $
    54
    
    
    $
    64
    
    
    $
    7
    
    
    $
    8
    
    
    $
    1Plan amendments
    
    
    1
    
    
    
    3
    
    
    
    4
    
    
    
    (17
    )
    
    
    
    
    
    
    (5
    )Interest cost
    
    
    121
    
    
    
    112
    
    
    
    106
    
    
    
    17
    
    
    
    17
    
    
    
    15Actual return on plan assets
    
    
    (201
    )
    
    
    (252
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial losses (gains)
    
    
    84
    
    
    
    185
    
    
    
    (63
    )
    
    
    9
    
    
    
    26
    
    
    
    (10
    )Benefit cost before adjustments to recognize the
long-term nature of defined benefit plans
    
    $
    62
    
    
    $
    102
    
    
    $
    110
    
    
    $
    16
    
    
    $
    51
    
    
    $
    1Adjustments to recognize the long-term nature of
defined benefit plans:Difference between expected and actual
return on plan assets for year
    
    
    41
    
    
    
    99
    
    
    
    (151
    )
    
    
    
    
    
    
    
    
    
    
    Difference between actuarial losses (gains) recognized and actual
actuarial losses (gains) on accrued benefit
obligation for year
    
    
    (74
    )
    
    
    (170
    )
    
    
    94
    
    
    
    (7
    )
    
    
    (25
    )
    
    
    11Difference between amortization of past service costs
for year and actual plan amendments for year
    
    
    1
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    16
    
    
    
    
    
    
    
    5Amortization of transition obligation (asset)
    
    
    (20
    )
    
    
    (20
    )
    
    
    (21
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )Total adjustments to defer costs to future periods
    
    $
    (52
    )
    
    $
    (92
    )
    
    $
    (83
    )
    
    $
    7
    
    
    $
    (27
    )
    
    $
    14Total benefit cost recognized
    
    $
    10
    
    
    $
    10
    
    
    $
    27
    
    
    $
    23
    
    
    $
    24
    
    
    $
    15
  (1)

The assumed medical cost trend rate used in measuring the accumulated post-retirement
benefits obligation in Canada in 2004 was 10%, decreasing by 0.75% each year until 2010,
after which it remains at 5.5%. In the United States in 2004, the assumed rate was 10%,
decreasing evenly to 5% by 2010, and remaining at that level thereafter. The assumed
dental cost trend rate is 4% in Canada. In the United States in 2004, the assumed rate was
5.1%, decreasing to 5% in 2005 and remaining at that level thereafter. Health care cost calculations are based on trend rate assumptions which may differ from
actual results. Changes in trend rate assumptions by 1% in either direction will change the health
care cost as follows: 1%Increase
    
    
    DecreaseEffect on post-retirement benefit obligations
    
    $
    42
    
    
    $
    (36
    )Effect on aggregated service and interest costs
    
    $
    4
    
    
    $
    (3
    )
 Composition of fair value of plan assets, December 31: 2004
    
    
    2003Equity investments
    
    
    48.0
    %
    
    
    50.1
    %Fixed income investments
    
    
    44.7
    %
    
    
    41.6
    %Real estate investments
    
    
    2.7
    %
    
    
    2.6
    %Other
    
    
    4.6
    %
    
    
    5.7
    %Total composition of fair value of plan assets
    
    
    100
    %
    
    
    100
    %
 Target allocation of plan assets, December 31: 2004
    
    
    2003Equity investments
    
    
    45.2
    %
    
    
    47.2
    %Fixed income investments
    
    
    45.0
    %
    
    
    46.7
    %Real estate investments
    
    
    5.1
    %
    
    
    1.1
    %Other
    
    
    4.7
    %
    
    
    5.0
    %Total
    
    
    100
    %
    
    
    100
    %
 The assets of the defined benefit pension plans are primarily held in trust for plan members and
are managed within the provisions of the plans investment policies and procedures. Diversification
of the investments is used to minimize credit, market and foreign currency risks. Due to the
long-term nature of the pension obligations and related cash flows, asset mix decisions are based
on long-term market outlooks within the specified tolerance ranges. The long-term
investment objectives of the defined benefit pension plans are to exceed the real rate of
investment return assumed in the actuarial valuation of plan liabilities. Over shorter periods, the
objective of the defined benefit pension plans is to exceed the average market returns of a
well-diversified portfolio. Liquidity is managed with consideration to the cash flow requirements
of the liabilities. Annual Report 2004 | www.sunlife.com     85




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Notes to the Consolidated Financial Statements Permitted investments of the defined benefit pension plans include guaranteed funds,
annuities, as well as pooled and non-pooled variable accumulation funds in addition to any other
investment vehicle approved by the plan sponsors which is eligible under pension regulations. The
policy statement for each fund or manager mandate either prohibits, or permits, within specified
constraints, the use of derivative instruments such as options and futures. The use of derivative
instruments is limited to unleveraged substitution and hedging strategies. The defined benefit
pension plans may not invest
in securities of a related party or lend to any related party unless such securities are publicly
traded and selected by the manager acting independently on behalf of all that managers
discretionary accounts or pooled funds which have mandates similar to that of the Companys defined
benefit pension plans. The following tables set forth the expected contributions and expected future benefit payments of
the defined benefit pension and other post-retirement benefit plans. Post-Pension
    
    
    Retirement
    
    
    TotalExpected contributions for the next 12 months
    
    $
    25
    
    
    $
    11
    
    
    $
    36
 Expected future benefit payments 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    20102014Pension
    
    $
    80
    
    
    $
    84
    
    
    $
    88
    
    
    $
    92
    
    
    $
    97
    
    
    $
    563Post-retirement
    
    
    9
    
    
    
    10
    
    
    
    10
    
    
    
    11
    
    
    
    11
    
    
    
    62Total
    
    $
    89
    
    
    $
    94
    
    
    $
    98
    
    
    $
    103
    
    
    $
    108
    
    
    $
    625
 The total contribution made by the Company to defined contribution plans was $35 in 2004, $35 in
2003 and $42 in 2002.  23.

Summary of Material Differences Between Accounting Principles Generally Accepted in Canada
and in the United States The Companys consolidated financial statements are prepared in accordance with accounting
principles generally accepted in Canada (Cdn. GAAP). These accounting principles differ
in certain material respects from accounting principles generally accepted in the United States
(U.S. GAAP). The differing basis of accounting changes
the incidence of profit recognition over the life of an insurance contract. Regardless of the
accounting basis chosen, the total profit of an insurance contract will not change. The financial
statement impact and a description of the material differences follow. 86     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements A) RECONCILIATION OF SELECTED CDN. GAAP FINANCIAL STATEMENT INFORMATION TO U.S. GAAP: i) Consolidated statements of operations: 2004
    
    
    2003
    
    
    2002Cdn. GAAP
    
    
    U.S. GAAP
    
    
    Cdn. GAAP
    
    
    U.S. GAAP*
    
    
    Cdn. GAAP
    
    
    U.S. GAAPRevenuePremiums
    
    $
    12,921
    
    
    $
    6,901
    
    
    $
    13,543
    
    
    $
    7,229
    
    
    $
    14,875
    
    
    $
    6,531Net investment income
    
    
    5,924
    
    
    
    5,693
    
    
    
    5,703
    
    
    
    5,758
    
    
    
    5,131
    
    
    
    4,448Net realized gains (losses)
    
    
    
    
    
    
    793
    
    
    
    
    
    
    
    373
    
    
    
    
    
    
    
    (44
    )Fee income
    
    
    2,903
    
    
    
    3,098
    
    
    
    2,810
    
    
    
    3,053
    
    
    
    3,095
    
    
    
    3,25821,748
    
    
    
    16,485
    
    
    
    22,056
    
    
    
    16,413
    
    
    
    23,101
    
    
    
    14,193Policy Benefits and ExpensesPayments to policyholders, beneficiaries and depositors
    
    
    13,132
    
    
    
    9,236
    
    
    
    13,470
    
    
    
    9,159
    
    
    
    13,017
    
    
    
    7,966Increase in actuarial liabilities
    
    
    1,425
    
    
    
    835
    
    
    
    1,510
    
    
    
    1,109
    
    
    
    3,822
    
    
    
    1,377Acquisition expense amortization
    
    
    179
    
    
    
    473
    
    
    
    234
    
    
    
    613
    
    
    
    316
    
    
    
    950Other expenses
    
    
    4,945
    
    
    
    3,838
    
    
    
    5,082
    
    
    
    4,096
    
    
    
    4,732
    
    
    
    3,65419,681
    
    
    
    14,382
    
    
    
    20,296
    
    
    
    14,977
    
    
    
    21,887
    
    
    
    13,947Operating Income Before Income Taxes andNon-controlling Interests
    
    
    2,067
    
    
    
    2,103
    
    
    
    1,760
    
    
    
    1,436
    
    
    
    1,214
    
    
    
    246Income taxes expense (benefit)
    
    
    293
    
    
    
    403
    
    
    
    387
    
    
    
    277
    
    
    
    98
    
    
    
    (250
    )Non-controlling interests in net income of subsidiaries
    
    
    80
    
    
    
    35
    
    
    
    65
    
    
    
    14
    
    
    
    83
    
    
    
    83Net Operating Income from Continuing Operations
Before Cumulative Effect of Accounting Changes
    
    
    1,694
    
    
    
    1,665
    
    
    
    1,308
    
    
    
    1,145
    
    
    
    1,033
    
    
    
    413Discontinued operations:Gain (loss) on sale of Clarica U.S.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (58
    )Net operating income of Clarica U.S.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    22Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Cumulative effect of accounting changes, net of
taxes(1)
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Net Income
    
    
    1,694
    
    
    
    1,486
    
    
    
    1,308
    
    
    
    1,145
    
    
    
    997
    
    
    
    377Less participating policyholders net income (loss)
    
    
    13
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    Shareholders Net Income
    
    $
    1,681
    
    
    $
    1,486
    
    
    $
    1,309
    
    
    $
    1,145
    
    
    $
    998
    
    
    $
    377Earnings per shareBasicContinuing operations
    
    $
    2.81
    
    
    $
    2.78
    
    
    $
    2.15
    
    
    $
    1.88
    
    
    $
    1.91
    
    
    $
    0.76Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.07
    )
    
    
    (0.07
    )Cumulative effect of accounting changes
    
    
    
    
    (0.30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders net income
    
    $
    2.81
    
    
    $
    2.48
    
    
    $
    2.15
    
    
    $
    1.88
    
    
    $
    1.84
    
    
    $
    0.69DilutedContinuing operations
    
    $
    2.79
    
    
    $
    2.77
    
    
    $
    2.15
    
    
    $
    1.88
    
    
    $
    1.90
    
    
    $
    0.76Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.07
    )
    
    
    (0.07
    )Cumulative effect of accounting changes
    
    
    
    
    (0.30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders net income
    
    $
    2.79
    
    
    $
    2.47
    
    
    $
    2.15
    
    
    $
    1.88
    
    
    $
    1.83
    
    
    $
    0.69Weighted average shares outstanding in millionsBasic
    
    
    599
    
    
    
    599
    
    
    
    608
    
    
    
    608
    
    
    
    543
    
    
    
    543Diluted
    
    
    602
    
    
    
    602
    
    
    
    608
    
    
    
    608
    
    
    
    543
    
    
    
    543
  (1)

See Section D (iv) of this note for details.*

As restated. ii) Comprehensive income: U.S. GAAP includes the concept of comprehensive income.
Comprehensive income is a measure of changes in the equity of the Company during the year. It
includes both net income and other comprehensive income. Other comprehensive income includes the
movement in the foreign currency translation account, unrealized gains and losses on available for
sale securities as well as the income tax impact arising therefrom, changes to deferred acquisition
costs, and other liabilities. Annual Report 2004 | www.sunlife.com     87




---



##### 



Notes to the Consolidated Financial Statements 2004
    
    
    2003
    
    
    2002Total net income based on U.S. GAAP
    
    $
    1,486
    
    
    $
    1,145
    
    
    $
    377Other comprehensive income:Change in unrealized foreign currency translation gains and losses*
    
    
    (437
    )
    
    
    (1,688
    )
    
    
    127Unrealized gains (losses) on available for sale securities
    
    
    637
    
    
    
    1,071
    
    
    
    2,308Reclassification adjustment for (gains) losses included in net income
    
    
    (354
    )
    
    
    (711
    )
    
    
    (54
    )Changes to deferred acquisition costs and other liabilities
    
    
    (544
    )
    
    
    (230
    )
    
    
    (685
    )Changes in gains (losses) on derivatives designated as cash flow
hedges
    
    
    4
    
    
    
    8
    
    
    
    2Other
    
    
    
    
    
    
    (100
    )
    
    
    3Additional minimum pension liability
    
    
    (30
    )
    
    
    (18
    )
    
    
    (50
    )Income taxes
    
    
    97
    
    
    
    (83
    )
    
    
    (493
    )Shareholders comprehensive income (loss)
    
    $
    859
    
    
    $
    (606
    )
    
    $
    1,535
  *

Shown as part of consolidated statements of equity under Cdn. GAAP. iii) Consolidated balance sheets: 2004
    
    
    2003Cdn. GAAP
    
    
    U.S. GAAP
    
    
    Cdn. GAAP
    
    
    U.S. GAAP*AssetsBonds
    
    $
    64,496
    
    
    
    
    
    
    $
    66,090Bonds  available for sale (amortized cost: 2004  $57,120; 2003  $58,987)
    
    
    
    
    
    $
    60,758
    
    
    
    
    
    
    $
    62,465Bonds  trading
    
    
    
    
    
    
    4,129
    
    
    
    
    
    
    
    4,341Mortgages and corporate loans
    
    
    13,862
    
    
    
    17,389
    
    
    
    13,601
    
    
    
    16,656Stocks
    
    
    3,463
    
    
    
    
    
    
    
    3,473Stocks  available for sale (amortized cost: 2004  $1,692; 2003  $1,681)
    
    
    
    
    
    
    2,059
    
    
    
    
    
    
    
    1,884Stocks  trading
    
    
    
    
    
    
    1,317
    
    
    
    
    
    
    
    1,218Real estate, net of accumulated depreciation (accumulated
depreciation: 2004  $333; 2003  $329)
    
    
    3,148
    
    
    
    2,208
    
    
    
    3,067
    
    
    
    2,188Policy loans
    
    
    2,936
    
    
    
    2,936
    
    
    
    3,003
    
    
    
    3,003Cash and cash equivalents
    
    
    3,756
    
    
    
    3,759
    
    
    
    3,178
    
    
    
    3,177Short-term securities(1)
    
    
    2,210
    
    
    
    2,379
    
    
    
    1,794
    
    
    
    1,794Other invested assets
    
    
    3,046
    
    
    
    3,579
    
    
    
    2,970
    
    
    
    2,958Total invested assets
    
    
    96,917
    
    
    
    100,513
    
    
    
    97,176
    
    
    
    99,684Deferred acquisition costs
    
    
    362
    
    
    
    5,704
    
    
    
    548
    
    
    
    5,580Future income taxes(2)
    
    
    722
    
    
    
    4
    
    
    
    977
    
    
    
    257Goodwill
    
    
    5,471
    
    
    
    4,527
    
    
    
    5,573
    
    
    
    4,626Other assets
    
    
    4,285
    
    
    
    9,323
    
    
    
    4,935
    
    
    
    9,771Segregated funds assets(3)
    
    
    
    
    
    
    56,555
    
    
    
    
    
    
    
    54,488Total consolidated assets
    
    $
    107,757
    
    
    $
    176,626
    
    
    $
    109,209
    
    
    $
    174,406Segregated funds net assets(3)
    
    $
    56,564
    
    
    
    
    
    
    $
    54,086Liabilities and EquityActuarial liabilities
    
    $
    74,258
    
    
    $
    47,856
    
    
    $
    75,324
    
    
    $
    47,148Contract holder deposits
    
    
    
    
    
    
    37,085
    
    
    
    
    
    
    
    37,784Other policy liabilities
    
    
    1,798
    
    
    
    3,022
    
    
    
    2,030
    
    
    
    2,652Amounts on deposit
    
    
    3,144
    
    
    
    3,136
    
    
    
    3,120
    
    
    
    3,110Future income taxes(2)
    
    
    505
    
    
    
    1,032
    
    
    
    515
    
    
    
    1,100Deferred net realized gains
    
    
    3,466
    
    
    
    
    
    
    
    3,124Other liabilities
    
    
    6,654
    
    
    
    9,543
    
    
    
    7,280
    
    
    
    9,858Total consolidated liabilities
    
    
    89,825
    
    
    
    101,674
    
    
    
    91,393
    
    
    
    101,652Subordinated debt
    
    
    2,182
    
    
    
    2,210
    
    
    
    2,504
    
    
    
    2,535Non-controlling interests in subsidiaries
    
    
    1,338
    
    
    
    195
    
    
    
    1,336
    
    
    
    186Segregated funds liabilities(3)
    
    
    
    
    
    
    56,555
    
    
    
    
    
    
    
    54,077Equity
    
    
    14,412
    
    
    
    15,992
    
    
    
    13,976
    
    
    
    15,956Total consolidated liabilities and equity
    
    $
    107,757
    
    
    $
    176,626
    
    
    $
    109,209
    
    
    $
    174,406Segregated funds contract liabilities(3)
    
    $
    56,564
    
    
    
    
    
    
    $
    54,086
  (1)

U.S. GAAP terminology is short-term investments.(2)

U.S. GAAP
terminology is deferred income tax.(3)

U.S. GAAP terminology is separate accounts.*

As restated. 88     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Notes to the Consolidated Financial Statements iv) Consolidated statements of equity: 2004
    
    
    2003Cdn. GAAP
    
    
    U.S. GAAP
    
    
    Cdn. GAAP
    
    
    U.S. GAAP*Participating
Policyholders Capital Account:Balance, January 1
    
    $
    72
    
    
    $
    
    
    
    $
    73
    
    
    $Net income (loss) attributed to participating policyholders
    
    
    13
    
    
    
    
    
    
    
    (1
    )Balance, December 31
    
    
    85
    
    
    
    
    
    
    
    72Shareholders Equity:Paid in
CapitalBalance, January 1
    
    
    7,365
    
    
    
    13,495
    
    
    
    7,477
    
    
    
    13,749Common shares issued, net of issuance costs, as
consideration for business acquisition(1)
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Stock options exercised(3)
    
    
    58
    
    
    
    58
    
    
    
    21
    
    
    
    21Common shares purchased for cancellation(1)
    
    
    (126
    )
    
    
    (230
    )
    
    
    (222
    )
    
    
    (403
    )Stock option compensation(2)
    
    
    11
    
    
    
    12
    
    
    
    26
    
    
    
    27Subsidiary equity transaction
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    38Balance, December 31
    
    
    7,308
    
    
    
    13,345
    
    
    
    7,365
    
    
    
    13,495Retained EarningsBalance, January 1
    
    
    7,212
    
    
    
    2,094
    
    
    
    6,621
    
    
    
    1,486Net income for the period attributed to shareholders
    
    
    1,681
    
    
    
    1,486
    
    
    
    1,309
    
    
    
    1,145Dividends on common shares
    
    
    (515
    )
    
    
    (515
    )
    
    
    (413
    )
    
    
    (413
    )Common shares purchased for cancellation
    
    
    (262
    )
    
    
    (158
    )
    
    
    (305
    )
    
    
    (124
    )Balance, December 31
    
    
    8,116
    
    
    
    2,907
    
    
    
    7,212
    
    
    
    2,094Currency Translation AccountBalance, January 1
    
    
    (673
    )
    
    
    (833
    )
    
    
    738
    
    
    
    855Changes for the period
    
    
    (424
    )
    
    
    (437
    )
    
    
    (1,411
    )
    
    
    (1,688
    )Balance, December 31
    
    
    (1,097
    )
    
    
    (1,270
    )
    
    
    (673
    )
    
    
    (833
    )Accumulated
Unrealized Gains and LossesUnrealized gains on available for sale securities
    
    
    
    
    
    
    2,694
    
    
    
    
    
    
    
    2,501Gains (losses) on derivatives designated as cash flow hedges
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )Deferred acquisition costs and other liabilities
    
    
    
    
    
    
    (1,615
    )
    
    
    
    
    
    
    (1,247
    )Additional minimum pension liability
    
    
    
    
    
    
    (70
    )
    
    
    
    
    
    
    (53
    )Balance, December 31
    
    
    
    
    
    
    1,010
    
    
    
    
    
    
    
    1,200Total Equity
    
    $
    14,412
    
    
    $
    15,992
    
    
    $
    13,976
    
    
    $
    15,956
 (1)
    
    Shown as share capital under Cdn. GAAP.(2)
    
    Shown as contributed surplus under Cdn. GAAP.(3)
    
    Shown as share capital and contributed surplus under Cdn. GAAP.*
    
    As restated. Annual Report 2004 | www.sunlife.com     89




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##### 



Notes to the Consolidated Financial Statements v) Effect of material differences between Cdn. GAAP and U.S. GAAP net income: For the material differences between Cdn. GAAP and U.S. GAAP net income listed
below, please refer to the following section for a description of the differences in accounting
policies. 2004
    
    
    2003
    
    
    2002Total net income in accordance with Cdn. GAAP
    
    $
    1,694
    
    
    $
    1,308
    
    
    $
    997Adjustments related to:InvestmentsBonds
    
    
    266
    
    
    
    274
    
    
    
    224Stocks and segregated fund units
    
    
    229
    
    
    
    (14
    )
    
    
    (691
    )Derivative instruments
    
    
    117
    
    
    
    453
    
    
    
    (22
    )Real estate
    
    
    5
    
    
    
    (83
    )
    
    
    (24
    )Total investments
    
    
    617
    
    
    
    630
    
    
    
    (513
    )Deferred acquisition costsDeferred acquisition costs  deferred
    
    
    909
    
    
    
    860
    
    
    
    881Deferred acquisition costs  amortization and interest
    
    
    (290
    )
    
    
    (440
    )
    
    
    (634
    )Total deferred acquisition costs
    
    
    619
    
    
    
    420
    
    
    
    247Actuarial
liabilities and other policyholder revenues and
expensesPremium and fees revenue
    
    
    (5,528
    )
    
    
    (5,786
    )
    
    
    (7,863
    )Payments to policyholders, beneficiaries and depositors
    
    
    3,896
    
    
    
    4,311
    
    
    
    5,051Actuarial liabilities
    
    
    590
    
    
    
    401
    
    
    
    2,445Total actuarial liabilities and other policyholder revenues and expenses
    
    
    (1,042
    )
    
    
    (1,074
    )
    
    
    (367
    )Other
    
    
    (113
    )
    
    
    (249
    )
    
    
    (305
    )Income tax effect of above adjustments
    
    
    (110
    )
    
    
    110
    
    
    
    348Change in accounting policy
    
    
    (179
    )
    
    
    
    
    
    
    Redemption premiums
    
    
    
    
    
    
    
    
    
    
    (30
    )Total net income in accordance with U.S. GAAP
    
    $
    1,486
    
    
    $
    1,145
    
    
    $
    377
 B) THE FOLLOWING DESCRIBES THE MATERIAL ACCOUNTING POLICY DIFFERENCES BETWEEN CDN. GAAP AND U.S. GAAP APPLICABLE TO THE COMPANY: For a complete description of Cdn. GAAP accounting and actuarial policies, please refer to Notes 1
and 12, respectively. Cdn. GAAP
    
    U.S. GAAPBonds
    
    Bonds are carried at amortized cost. Realized gains
and losses are deferred and amortized to income using
the constant yield method over the remaining period
to maturity.
    
    Bonds are carried at market value. The bonds are classified as
available
for sale or trading. Unrealized gains and losses are included in
other
comprehensive income if classified as available for sale, and
included
in net income if classified as trading. Realized gains and losses are
included in net income immediately. Certain bonds are included in
mortgages and corporate loans, as they do not meet the definition
of a security.Stocks
    
    Stocks are originally recorded at cost. The carrying
value is adjusted towards the fair value at 5% of the
difference between fair value and carrying value
per quarter. Realized gains and losses are deferred
and amortized into net investment income at the rate
of 5% of the unamortized balance each quarter.
The Company records a write-down for any other
than temporary decline in the value of the entire
stock portfolio.
    
    Stocks are carried at market value. The stocks are classified as
available for sale or trading. Unrealized gains and losses are
included
in other comprehensive income if classified as available for sale,
and
included in net income if classified as trading. Other than temporary
declines in the value of stock results in a write-down charged
to income.
 90     Sun Life Financial Inc. | Annual Report 2004




---



##### 



Notes to the Consolidated Financial Statements Cdn. GAAP
    
    U.S. GAAPReal estate
    
    Real estate held for investment is originally recorded
at cost. The carrying value is adjusted towards the
fair value at 3% of the difference between fair value
and carrying value per quarter. Realized gains and
losses on sales are deferred and amortized into net
investment income at the rate of 3% of the
unamortized balance each quarter. The Company
records a write-down for any other than temporary
decline in the value of the entire real estate portfolio.
    
    Real estate held for investment is carried at depreciated cost.
Realized gains and losses on sales are reflected in income immediately.
Other than temporary declines in value of specific properties results
in a write-down charged to income.Derivatives
    
    Most of the Companys derivatives are accounted
for as either fixed term portfolio investments or
equity portfolio investments. Fixed term portfolio
investment accounting reports investments at
amortized cost. Equity portfolio investments are
carried at a value calculated using a moving average
market method. Realized gains and losses on the
derivatives are deferred and amortized into net
investment income.
Certain derivative instruments are classified as hedges
and either accounted for using hedge accounting or
fair value accounting. Under hedge accounting, the
accounting for the derivative follows the underlying
asset or liability that is being hedged. Under fair value
accounting, the derivative instrument is recorded
at fair value on the balance sheet with increases or
decreases recorded to net investment income.
    
    Derivative instruments are carried at their fair values. Changes in fair
values of derivatives that are not hedges are recorded in income as
they arise. For fair value hedges, the gain and loss on the derivative as
well as the related gain and loss on the hedged item is recognized in
income. For the cash flow hedges, the effective portion of the changes
in the fair value of the derivatives is recorded in other comprehensive
income and the ineffective portion is recognized in income.
If an option within an insurance contract has economic characteristics
that are different from that of the insurance contract and the option
meets the definition of a derivative instrument, the option is known as
an embedded derivative. The embedded derivatives are separately
accounted for as stand-alone derivatives and carried at fair values with
the changes in fair value recorded in income.Deferred
acquisition
costs
    
    Costs of acquiring new insurance and annuity business,
primarily commissions, underwriting, issue expenses
and agency expenses, are implicitly recognized in
actuarial liabilities for most of the policies.
    
    Acquisition costs are deferred and recorded as an asset. Amortization
of such costs is dependent on the product to which the costs relate.
For participating life insurance contracts, except for participating
policies in the United Kingdom, amortization is based on a constant
percentage of gross margin. For universal life and investment-type
contracts, amortization is based on a constant percentage of gross
profit. For other non-participating products, including term, group and
disability insurance, as well as participating policies in the United
Kingdom, amortization is based on a constant percentage of premium.
In cases where amortization is based on gross profit or margin, and
available for sale bonds or stocks are used to support the underlying
contract liability or actuarial reserve, a portion of the unrealized gains
and losses balance is removed from equity and netted against the
deferred acquisition cost balance.Actuarial
liabilities
and contract
holder
deposits
    
    Actuarial liabilities are calculated in accordance
with Canadian generally accepted actuarial practice.
This method uses best estimate assumptions for
future experience factors adjusted to provide
modest margins for adverse deviation in each
experience factor.
    
    The actuarial liabilities for participating life policies, except those in
the United Kingdom, are computed using a net level premium reserve
method with interest and mortality assumptions based primarily upon
those assumptions used for establishing the cash surrender values in the
contract. For universal life-type and investment contracts, contract
holder deposits represent account balances and U.S. GAAP liabilities
primarily equal account value balances. The account values represent
an accumulation of gross deposits received plus credited interest less
withdrawals, expenses and mortality charges. Other non-participating
products include term, group and disability insurance. For these
products, as well as participating contracts in the United Kingdom, a
net level premium method is used with assumptions locked in at time
of issue, unless the business is in a loss recognition position, in which
case a best estimate gross premium valuation is used.
 Annual Report 2004 | www.sunlife.com     91




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##### 



Notes to the Consolidated Financial Statements Cdn. GAAP
    
    U.S. GAAPDeferred net
realized gains
    
    Realized gains and losses on sales of invested assets
are deferred and amortized.
    
    Realized gains and losses are recognized in income immediately.Premium
revenue,
fee income,
maturities and
surrenders,
and interest
on claims
and deposits
    
    Premiums for universal life and other investment-type
contracts are recorded as revenue, and a liability for
future policy benefits is established as a charge to
income. Interest accrued on contracts is shown as an
increase in actuarial liabilities. Payments to contract
holders upon maturity are reflected as an expense
with an offsetting reduction to the increase in
actuarial liabilities.
    
    Amounts received for universal life and investment-type contracts are
not included in the income statement but are reported as deposits to
contract holder account balances. Revenues from these contracts are
limited to amounts assessed against policyholders account balances
for mortality, policy administration and surrender charges, and are
included in fee income when earned. Interest accrued on contracts is
included in interest on claims and deposits. Payments upon maturity
or surrender are reflected as reductions to the contract holder
deposits on the balance sheet. Other payments in excess of the
account value, such as death claims, are reflected as an expense.Minimum
pension
liability
    
    There is no requirement to record the additional
minimum pension liability.
    
    For a defined benefit pension plan, an additional minimum pension
liability is required to be recognized if an unfunded Accumulated
Benefit Obligation (ABO) exists and (i) an accrued benefit asset is
recorded, or (ii) an accrued benefit liability is recorded for an
amount less than the unfunded ABO. The additional minimum liability is
calculated by reference to the excess of the ABO, which is smaller than
the Projected Benefit Obligation (PBO) since it does not recognize
projected future compensation increases, over the fair value of plan
assets. If an additional minimum liability is required to be recognized
for a defined benefit pension plan, an intangible asset is recorded
up to the amount of any unamortized past service cost, and/or
unamortized transitional obligation with any remaining excess
recorded as part of other comprehensive income. The additional
minimum liability is recorded as an accrued benefit liability.Redemption of
subordinated
debts
    
    Redemption premiums are recorded once an
obligation to redeem the principal amount of
capital debentures is incurred.
    
    Redemption premiums are recorded when the principal amount of the
capital debentures is redeemed.Cumulative
translation
adjustment
    
    A proportionate amount of the exchange gain or loss
accumulated in the separate component of
shareholders equity is reflected in net income when
there is a reduction in the Companys net investment in
a foreign operation resulting from a capital
transaction, dilution, or sale of all or part of the
foreign operation.
    
    A proportionate amount of exchange gains or losses accumulated in
the separate component of shareholders equity is reflected in net
income only when there is a reduction in the Companys net
investment in the foreign operation resulting from the sale of all or
part of the foreign operation.Guarantees
    
    Disclosure is required for all significant guarantees
provided by the Company.
    
    In addition to the disclosure requirements, for all guarantees issued
or modified after December 31, 2002, recognition of a liability is
required at the fair value of the obligation assumed.Future income
tax asset and
liability(1)
    
    Future income tax liabilities and assets are recognized
based on the differences between the accounting
values of assets and liabilities and their related tax
bases using income tax rates of enacted or
substantially enacted tax law.
    
    Future income tax liabilities and assets are recorded based on income
tax rates of currently enacted tax law. Differences in the provisions
for income taxes arise from differing accounting policies for assets
and liabilities and differences in the recognition of tax rate changes are
disclosed in part C (vii) of this note.Segregated
funds(2)
    
    Assets and liabilities of segregated funds are shown
separately from general assets and liabilities of the
Company. The Companys investment in segregated
funds is included in other invested assets.
    
    Assets and liabilities are called separate accounts and are required to
be included within the financial statements of the Company. Any
excess of the separate account assets over separate account liabilities
primarily represents the Companys investment in segregated funds.
With the implementation of Statement of Position 03-1 (see section D
(ii) of this note), the Companys investment in separate accounts was
reclassified to other invested assets, consistent with Cdn. GAAP.
 (1)
    
    U.S. GAAP terminology is deferred income tax.(2)
    
    U.S. GAAP terminology is separate accounts. 92     Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements  C)

ADDITIONAL INFORMATION REQUIRED TO BE REPORTED UNDER U.S. GAAP: i)   Realized gains (losses) from sales and redemptions of available for sale securities included in net realized gains (losses): 2004
    
    
    2003
    
    
    2002Bonds:Gross realized gains
    
    $
    698
    
    
    $
    618
    
    
    $
    475Gross realized losses
    
    $
    (216
    )
    
    $
    (266
    )
    
    $
    (530
    )Stocks:Gross realized gains
    
    $
    233
    
    
    $
    27
    
    
    $
    268Gross realized losses
    
    $
    (51
    )
    
    $
    (91
    )
    
    $
    (416
    )
 ii)   Change in net unrealized gains (losses) included in net investment income for securities classified as trading: 2004
    
    
    2003
    
    
    2002Bonds
    
    $
    41
    
    
    $
    54
    
    
    $
    82Stocks
    
    $
    201
    
    
    $
    113
    
    
    $
    (525
    )
 iii)   Real estate:The depreciation expense included in the U.S. GAAP other expenses is as follows: 2004
    
    
    2003
    
    
    2002Depreciation expense
    
    $
    59
    
    
    $
    37
    
    
    $
    61
 iv)   Derivatives:When the Company enters into a derivative contract, management decides if the
derivative should be designated as a hedge of an identified risk exposure and documented in order
to obtain hedge accounting following the requirements of Statement of Financial Accounting
Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities. With the exceptions noted below, hedge accounting is not pursued under SFAS 133
for most derivative instruments and the derivatives are recorded on the balance sheet at
their fair values with changes in their fair values reported in net investment income. As at
December 31, 2004, the Company had certain interest rate swaps that were designated as cash
flow hedges of the interest rate risk relating to a floating-rate loan and an equity forward
designated as a cash flow hedge of the anticipated payments of awards under certain stock-based
compensation plans expected to occur in 2007. The difference between the forward price and the spot
price of this forward is excluded from the assessment of hedge effectiveness and was recorded in
net investment income in 2004. A portion of the amount included in other comprehensive income
(OCI) related to this forward is reclassified to income as the liability is accrued for
the stock-based compensation awards over the vesting period. Additional information pertaining to these cash flow hedges is as follows: 2004
    
    
    2003Change in fair value
    
    $
    3
    
    
    $
    3Amount reclassified from OCI to income during the reporting period
    
    $
    1
    
    
    $
    Amount expected to be reclassified to income during the next 12 months
    
    $
    1
    
    
    $
    Component of loss excluded from hedge effectiveness assessment
    
    $
    2
    
    
    $
    
 The above numbers are all net of income taxes. There was no ineffectiveness from these hedges
reported to net income in 2004 and 2003. In 2004, the Company designated certain cross currency
swaps and forwards as hedges of the currency exposure of net investments in foreign operations. The
gain on these derivatives of $85 is included in the foreign currency translation account movement
for 2004 in the statement of comprehensive income. v)   Emerging Issues Task Force (EITF) 03-01  The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments: The EITF has reached consensus on EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain
Investments, as it applies to investments accounted for under Statement of Financial Accounting
Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity
Securities, and cost method investments accounted for under Accounting Principles Board Opinions
No. 18, The Equity Method of Accounting for Investments in Common Stock (APB 18). The
FASB ratified this consensus and subsequently issued a Staff Position, FSP EITF
03-1-1, to defer indefinitely the effective date for recognition and impairment guidance
under the EITF, but not the qualitative disclosure requirements on unrealized loss
positions for all marketable equity securities, debt securities and cost method investments for
which an other than temporary impairment has not been recognized. Annual Report 2004 | www.sunlife.com  93




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##### 



Notes to the Consolidated Financial Statements The following table shows the Companys investments gross unrealized losses and fair value,
aggregated by investment category
and length of time that individual available for sale securities have been in a continuous
unrealized loss position, at December 31, 2004. Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of securities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesDebt securities
    
    $
    6,386
    
    
    $
    (87
    )
    
    $
    2,049
    
    
    $
    (157
    )
    
    $
    8,435
    
    
    $
    (244
    )Common stock
    
    
    140
    
    
    
    (27
    )
    
    
    308
    
    
    
    (13
    )
    
    
    448
    
    
    
    (40
    )Total temporarily impaired securities
    
    $
    6,526
    
    
    $
    (114
    )
    
    $
    2,357
    
    
    $
    (170
    )
    
    $
    8,883
    
    
    $
    (284
    )
 Available for sale debt securities have generally been identified as temporarily impaired if their
amortized cost as at December 31, 2004, was greater than their fair value, resulting in an
unrealized loss. Unrealized gains and losses in respect of investments designated as trading have
been included in net income and have been excluded from the above table. Unrealized losses are largely due to interest rate fluctuations and/or depressed fair values in
sectors which have experienced unusually strong negative market reactions. In connection with the
Companys asset/liability management practices, and based on a review of these investment holdings,
it is believed that the contractual terms of these debt securities will be met and/or the Company
can hold these investments until recovery in value. A total of 889 debt securities were in an unrealized loss position at December 31, 2004, of which
642 were in a continuous loss position for less than 12 months and 247 positions for 12 months or
more. Of the 889 debt securities, unrealized losses less than 12 months included 529 positions with
an aggregate fair value of $3,644 (128 positions with an aggregate fair value of $428 for 12 months
or more) having unrealized losses of less than one hundred thousand dollars per individual holding.
A total of 86 common stock positions were in a loss position at December 31, 2004, of which 48 were
in a continuous loss position for less than 12 months and 38 positions for 12 months or more. Of the 86 common stock
positions, unrealized losses less than 12 months included 27 positions with an aggregate fair value
of $44 (21 positions with an aggregate fair value of $4 for 12 months or more) having unrealized
losses of less than one hundred thousand dollars per individual holding. vi)   Stock-based compensation:The intrinsic value method of accounting was used to account for
stock options that were granted in 2001 under Cdn. and U.S. GAAP. In 2002, the Company
changed its accounting policy for stock options granted to employees from the intrinsic value
method to the fair value method effective January 1, 2002, on a prospective basis. Had the fair
value method been used for the options granted in 2001, the net income for the year ended December
31, 2004, would have been reduced by $2 ($6 in 2003, $15 in 2002), and there would have been no
impact on basic and diluted earnings per share for 2004 ($0.01 and $0.03 reduction in both basic
and diluted earnings per share in 2003 and 2002, respectively). vii)   Future income tax asset and liability(1): Differences between Cdn. GAAP
and U.S. GAAP that arise from differing accounting policies for assets and
liabilities and differences in the recognition of tax rate changes are as follows: 2004Future income tax asset(1)
    
    
    Future income tax liability(1)Cdn. GAAP
    
    
    U.S. GAAP
    
    
    Cdn. GAAP
    
    
    U.S. GAAPInvestments
    
    $
    196
    
    
    $
    (262
    )
    
    $
    484
    
    
    $
    1,804Actuarial liabilities
    
    
    134
    
    
    
    688
    
    
    
    35
    
    
    
    (2,424
    )Deferred acquisition costs
    
    
    300
    
    
    
    (446
    )
    
    
    (2
    )
    
    
    682Losses available for carry forward
    
    
    250
    
    
    
    16
    
    
    
    (40
    )
    
    
    (277
    )Other
    
    
    39
    
    
    
    8
    
    
    
    28
    
    
    
    880Future tax asset/liability before valuation allowance
    
    
    919
    
    
    
    4
    
    
    
    505
    
    
    
    665Valuation allowance
    
    
    (197
    )
    
    
    
    
    
    
    
    
    
    
    367Total
    
    $
    722
    
    
    $
    4
    
    
    $
    505
    
    
    $
    1,032
 2003Future income tax asset(1)
    
    
    Future income tax liability(1)Cdn. GAAP
    
    
    U.S. GAAP
    
    
    Cdn. GAAP
    
    
    U.S. GAAPInvestments
    
    $
    182
    
    
    $
    (205
    )
    
    $
    613
    
    
    $
    1,860Actuarial liabilities
    
    
    54
    
    
    
    773
    
    
    
    (78
    )
    
    
    (1,954
    )Deferred acquisition costs
    
    
    324
    
    
    
    (524
    )
    
    
    (9
    )
    
    
    675Losses available for carry forward
    
    
    506
    
    
    
    40
    
    
    
    (117
    )
    
    
    (601
    )Other
    
    
    214
    
    
    
    173
    
    
    
    106
    
    
    
    753Future tax asset/liability before valuation allowance
    
    
    1,280
    
    
    
    257
    
    
    
    515
    
    
    
    733Valuation allowance
    
    
    (303
    )
    
    
    
    
    
    
    
    
    
    
    367Total
    
    $
    977
    
    
    $
    257
    
    
    $
    515
    
    
    $
    1,100
 (1)
    
    U.S. GAAP terminology is deferred income tax. 94  Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements viii)   Acquisition of Clarica:The Company acquired all of the outstanding common shares of
Clarica that were not beneficially owned by the Company effective May 29, 2002, as described in
Note 3. The following amounts of the assets, liabilities and goodwill at the dates of acquisition under
Cdn. and U.S. GAAP are different due to the different accounting policies used for the
two standards. ClaricaCdn. GAAP
    
    
    U.S. GAAPInvested assets acquired
    
    $
    31,637
    
    
    $
    31,641Other assets acquired(1)
    
    
    2,672
    
    
    
    5,374Segregated funds assets acquired
    
    
    
    
    
    
    11,20434,309
    
    
    
    48,219Actuarial liabilities and other policy liabilities acquired
    
    
    24,835
    
    
    
    16,849Amounts on deposit acquired
    
    
    1,277
    
    
    
    1,235Contract holder deposits acquired
    
    
    
    
    
    
    10,235Other liabilities acquired
    
    
    5,059
    
    
    
    5,353Segregated funds liabilities acquired
    
    
    
    
    
    
    11,19331,171
    
    
    
    44,865Net balance sheet assets acquired
    
    $
    3,138
    
    
    $
    3,354Considerations given:Common shares issued or exchanged
    
    $
    6,284
    
    
    $
    6,284Carrying value of investments in acquirees shares
    
    
    540
    
    
    
    540Fair value of outstanding Clarica stock options
    
    
    48
    
    
    
    48Transaction and other related costs
    
    
    57
    
    
    
    57$
    6,929
    
    
    $
    6,929Goodwill on acquisition
    
    $
    3,791
    
    
    $
    3,575
 (1)
    
    Other assets acquired included value of business acquired of $2,368 under U.S. GAAP. ix)   Earnings per share:Details of the calculation of the net income and the weighted average
number of shares used in the earnings per share computations are as follows: 2004
    
    
    2003
    
    
    2002Cdn. GAAP
    
    
    U.S. GAAP
    
    
    Cdn. GAAP
    
    
    U.S. GAAP
    
    
    Cdn. GAAP
    
    
    U.S. GAAPShareholders net income from continuing operations
before cumulative effect of accounting changes
    
    $
    1,681
    
    
    $
    1,665
    
    
    $
    1,309
    
    
    $
    1,145
    
    
    $
    1,034
    
    
    $
    413Income (loss) from discontinued operations, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Cumulative effect of accounting changes, net of income
taxes
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    1,681
    
    
    $
    1,486
    
    
    $
    1,309
    
    
    $
    1,145
    
    
    $
    998
    
    
    $
    377Less: Effect of stock options of subsidiaries
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Shareholders net income on a diluted basis
    
    $
    1,679
    
    
    $
    1,484
    
    
    $
    1,309
    
    
    $
    1,145
    
    
    $
    995
    
    
    $
    374Weighted average number of shares outstanding (in
millions)
    
    
    599
    
    
    
    599
    
    
    
    608
    
    
    
    608
    
    
    
    543
    
    
    
    543Add: Adjustments relating to the dilutive impact of stock
options
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average number of shares outstanding
on a diluted basis (in millions)
    
    
    602
    
    
    
    602
    
    
    
    608
    
    
    
    608
    
    
    
    543
    
    
    
    543
 x)   Statements of cash flows:Under Cdn. GAAP, deposits, maturities and withdrawals
related to investment-type contracts and universal life contracts are included in operating
activities. Under U.S. GAAP, deposits, maturities and withdrawals are reflected as financing activities; these cash flow items
are as follows: 2004
    
    
    2003
    
    
    2002Deposits and withdrawals reclassified to financing activities:Deposits to policyholders accounts
    
    $
    5,656
    
    
    $
    6,102
    
    
    $
    13,327Withdrawals from policyholders accounts
    
    $
    5,986
    
    
    $
    6,363
    
    
    $
    6,680
 xi)   Guarantees:No material guarantees were identified that required recognition in these
consolidated financial statements. Annual Report 2004 | www.sunlife.com  95




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##### 



Notes to the Consolidated Financial Statements  D)

U.S. GENERALLY ACCEPTED ACCOUNTING STANDARDS ADOPTED BY THE COMPANY IN 2004: i)   Variable Interest Entities:On January 1, 2004, the Company adopted FASB Financial Interpretation
No. 46R, Consolidation of Variable Interest Entities (FIN 46R). FIN 46R
clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, for those entities defined as VIEs. VIEs are entities in which
equity investors do not have a controlling financial interest and include entities where the equity
invested is considered insufficient to finance the entitys activities without additional
subordinated financial support. Under FIN 46R, the Company will be required to
consolidate the VIE if the investments that the Company holds in these entities and/or
the relationships the Company has with these entities result in the Company being exposed to a
majority of their expected losses, being able to benefit from a majority of their expected residual
returns, or both. The following is a summary of the impact of VIEs that the Company has consolidated or in which the
Company has a significant variable interest: SLEECS: As described in Note 15, the Trust has issued SLEECS of $1,150 to third-party investors.
The Company has issued a debenture of $1,200 to the Trust and holds an investment of $2 in Special
Trust Securities in the Trust. The Company did not consolidate the Trust as it was determined to be
a VIE in which the Company did not have a controlling financial interest. As a result,
the Company deconsolidated $1,150 of non-controlling interest in subsidiaries and recorded the
$1,200 debenture payable in other liabilities and increased equity by $7 and other assets by $57 on
the consolidated balance sheets as at January 1, 2004. Other Variable Interest Entities: The Company was involved with two trust structures that invest in corporate bonds and total return
swaps. On evaluation of these trust structures, the Company was identified as having the
controlling financial interest and therefore consolidated these trusts on the adoption of FIN
46R. As a result, the Company consolidated additional general fund assets of $71, general
fund liabilities of $81, and recorded an after-tax loss of $10 (net of taxes of $5). On June 30, 2004, the Company sold its interest in one of its consolidated VIEs and
recognized a gain of $13. The Company received net cash proceeds of $54 and reduced consolidated
assets and liabilities by $70 and $29, respectively. The Company has a greater than 20% involvement in 23 VIEs. The Company is a creditor in
14 trusts, four limited partnerships, two limited liability companies and three special purpose
entities that were used to finance commercial mortgages, franchise receivables, auto receivables,
retail stores and equipment used in utility generation. The Companys maximum exposure to loss
related to all of these investments is $222, which is the carrying
amount of these assets. The notes in these VIEs mature between March 2005 and December 2035. ii)   Statement of Position 03-1  Accounting and Reporting by Insurance Enterprises for certain
Nontraditional Long-duration Contracts and for Separate Accounts (SOP 03-1):On January 1, 2004,
the Company adopted American Institute of Certified Public Accountants (AICPA) SOP
03-1. The major provisions of the SOP that affect the Company require:  

establishment of reserves primarily related to death benefit and income benefit guarantees provided
under variable annuity and unit-linked pension contracts,

deferral of sales inducements that meet
certain criteria, and amortization using the same method used for deferred acquisition costs
(DAC), and

reporting and measuring the Companys interest in its separate accounts as
investments. Effects of Adoption: The cumulative effect, reported after tax and net of related effects on DAC, upon
adoption of SOP 03-1 at January 1, 2004, decreased net income and shareholders equity by
$161 and reduced accumulated other comprehensive income by $5. The decrease in net income was
comprised of an increase in benefit reserves (primarily for variable annuity contracts) of $247,
pre-tax, an increase in DAC of $36, pre-tax, and the recognition of the unrealized gain
on investments in separate accounts of $4, pre-tax. Liabilities for Contract Guarantees: The Company offers various guarantees to certain policyholders including a return of no less than
(a) total deposits made on the contract less any customer withdrawals, (b) total deposits made on
the contract less any customer withdrawals plus a minimum return, or (c) the highest contract value
on a specified anniversary date minus any customer withdrawals following the contract anniversary.
These guarantees include benefits that are payable in the event of death, upon annuitization, or at
specified dates during the accumulation period of an annuity. For policies with a guaranteed minimum death benefit, the net amount at risk represents the excess
of the value of the guaranteed minimum death benefit over the account value. This is a hypothetical
amount that would only have been payable on December 31, 2004, had all of the policyholders died on
that date. For policies with a guaranteed minimum income benefit, the net amount at risk represents
the excess of the cost of an annuity to meet the minimum income guarantee over the account value.
For the most part, these guarantees may not yet be exercised and there are limitations on when
these guarantees may be exercised. The table below represents information regarding the Companys variable annuity and unit-linked
pension contracts with guarantees at December 31, 2004: 96  Sun Life Financial Inc. | Annual Report 2004




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##### 



Notes to the Consolidated Financial Statements Weightedaverageattained ageAccount
    
    
    Net amount
    
    
    of contractBenefit type
    
    balance
    
    
    at risk
    
    
    holdersMinimum death
    
    $
    33,091
    
    
    $
    4,107
    
    
    
    60Minimum income
    
    $
    3,135
    
    
    $
    611
    
    
    
    51Minimum accumulation or withdrawal
    
    $
    1,220
    
    
    $
    
    
    
    
    60
 The following summarizes the additional reserve for the minimum guaranteed death benefit and income
benefit at December 31, 2004: Minimum
    
    
    GuaranteedGuaranteed
    
    
    MinimumDeath
    
    
    IncomeBenefit
    
    
    Benefit
    
    
    TotalBalance at January 1, 2004
    
    $
    64
    
    
    $
    183
    
    
    $
    247Incurred guaranteed benefits
    
    
    30
    
    
    
    1
    
    
    
    31Paid guaranteed benefits
    
    
    (57
    )
    
    
    (13
    )
    
    
    (70
    )Interest
    
    
    1
    
    
    
    21
    
    
    
    22Effect of changes in currency exchange rates
    
    
    (1
    )
    
    
    1
    
    
    
    Balance at December 31, 2004
    
    $
    37
    
    
    $
    193
    
    
    $
    230
 The liability for death and income benefit guarantees is established equal to a benefit ratio
multiplied by the cumulative contract charges earned, plus accrued interest less contract benefit
payments. The benefit ratio is calculated as the estimated present value of all expected contract
benefits divided by the present value of all expected contract charges. The benefit ratio may be in
excess of 100%. For guarantees in the event of death, benefits represent the current guaranteed
minimum death payments in excess of the current account balance. For guarantees at annuitization,
benefits represent the present value of the minimum guaranteed annuity benefits in excess of the
current account balance. Projected benefits and assessments used in determining the liability for guarantees are developed
using models and stochastic scenarios that are also used in the development of estimated expected
future gross profits. Underlying assumptions for the liability related to income benefits include
assumed future annuitization elections based upon factors such as eligibility conditions and the
annuitants attained age. The liability for guarantees will be re-evaluated periodically, and
adjustments will be made to the liability balance through a charge or credit to policyowner
benefits. Guaranteed minimum accumulation benefits or withdrawal benefits are considered to be derivatives
under SFAS No. 133, and are recognized at fair value through earnings. The guaranteed
minimum accumulation or withdrawal benefit was a liability of $180 and $194 as at January 1, 2004
and December 31, 2004, respectively. Interest in Separate Accounts: At December 31, 2003, the Company had $411 representing unconsolidated interests in its own
separate accounts. These interests were recorded as separate account assets, with changes in fair
value recorded through other comprehensive income. On January 1, 2004, the Company reclassified
these interests to investments as a component of other invested assets. Sales Inducements: The Company currently offers enhanced or bonus crediting rates to policyholders on certain of its
annuity products. Through December 31, 2003, the expenses associated with certain of these bonuses
were deferred and amortized. Others were expensed as incurred. Effective January 1, 2004, upon
adoption of SOP 03-1, the expenses associated with offering a bonus are deferred and
amortized over the life of the related contract in a pattern consistent with the amortization of
DAC. iii)   FASB Derivative Implementation Group SFAS No. 133 Implementation Issue No. 36  Embedded Derivatives: Bifurcation of a Debt Instrument that
Incorporates Both Interest Rate Risk and Credit Rate Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Issuer of that Instrument (DIG B36):On January 1,
2004, the Company adopted FASBs DIG B36,
which addresses whether SFAS 133 requires bifurcation of a debt instrument into a debt
host contract and an embedded derivative if the debt instrument incorporates both interest rate
risk and credit risk exposures that are unrelated or only partially related to the creditworthiness
of the issuer of that instrument. Under DIG B36, embedded derivatives contained in
certain reinsurance agreements, such as modified co-insurance and co-insurance with funds withheld
reinsurance agreements, as well as other types of receivables and payables where interest is
determined with reference to a pool of fixed maturity assets, or a total return debt index, are
required to be bifurcated from the host contract. The Company identified certain reinsurance agreements and experience rating refund payables that
contained embedded derivatives that required bifurcation in 2004. The cumulative effect of this
accounting change recorded as of the effective date of January 1, 2004, resulted in a decrease in
net income of $8 (net of taxes of $4). Changes in the fair value of these embedded derivatives
subsequent to January 1, 2004, resulted in an after-tax reduction in net income of $4 (net of taxes
of $2). Annual Report 2004 | www.sunlife.com  97




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##### 



Notes to the Consolidated Financial Statements iv)   Cumulative Effect of Accounting Changes:The cumulative effect of the accounting changes
described above, and included in the consolidated statements of operations for 2004, is summarized
as follows: i)
    
    Variable Interest Entities
    
    $
    (10
    )ii)
    
    SOP03-1
    
    
    (161
    )iii)
    
    DIG B36
    
    
    (8
    )Total cumulative effect of accounting changes, net of taxes
    
    $
    (179
    )
  E)

U.S. GENERALLY ACCEPTED ACCOUNTING STANDARDS NOT YET ADOPTED
BY THE COMPANY: FASB Statement No. 123R
 Share-Based Payment (SFAS 123R): On December 16, 2004,
the FASB issued SFAS 123R which replaces FASB
Statement No.123, Accounting for Stock-Based Compensation, and eliminates the ability to
account for share-based payment transactions using APB Opinion No.25, Accounting for
Stock Issued to Employees. SFAS 123R covers the accounting requirements for a wide range
of share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase plans. The Company
will be required to apply SFAS 123R as of the first interim or annual reporting period
that begins after June 15, 2005. The Company is assessing the impact that SFAS 123R will
have on its 2006 consolidated financial statements. EITF 03-6  Participating Securities and the Two-Class Method Under FASB Statement No. 128,
Earnings Per Share:On March 21, 2004, the FASB ratified the consensus reached by the
EITF on EITF 03-6. This EITF requires the calculation of earnings per
share to be changed to measure the impact of certain securities or other instruments or contracts
that entitle their holders to participate in undistributed earnings of the reporting entity,
provided such entitlement is nondiscretionary and objectively determinable. EITF 03-6 is
effective for the first interim or annual reporting period that begins after March 31, 2004, and
requires retroactive adjustment to earnings per share presented for prior periods. The Company is
assessing the impact that EITF 03-6 will have on its 2005 consolidated financial statements.  24.

Subsequent Event On February 8, 2005, the Board of Sun Life Financial Inc. announced a domestic public
offering of $300 of Class A Non-Cumulative Preferred Shares, Series 1 (the Preferred Shares), with
an option to issue up to an additional $100 of Preferred Shares. The Preferred Shares will be
priced at $25 dollars per share and will pay non-cumulative quarterly
dividends of $0.297 per share, yielding 4.75% annually. Subject to regulatory approval, on or after
March 2010, Sun Life Financial Inc. may redeem the Preferred Shares in whole or in part at a
declining premium.  25.

Comparative Figures Certain comparative figures have been restated to conform with the presentation adopted in
2004. 98  Sun Life Financial Inc. | Annual Report 2004




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##### 



Appointed Actuarys Report/Auditors Report Appointed Actuarys Report THE SHAREHOLDERS AND DIRECTORS OF SUN LIFE FINANCIAL INC. I have valued the policy liabilities of Sun Life Financial Inc. for its consolidated balance sheets
at December 31, 2004 and 2003 and their change in the consolidated statements of operations for the
years then ended in accordance with accepted actuarial practice, including selection of appropriate
assumptions and methods. In my opinion, the amount of policy liabilities makes appropriate provision for all policyholder
obligations and the consolidated financial statements fairly present the results of the valuation. -s- Robert W. Wilson
Robert W. Wilson
Fellow, Canadian Institute of Actuaries 
Toronto,
Canada
February 14, 2005  Auditors Report THE SHAREHOLDERS OF SUN LIFE FINANCIAL INC. We have audited the consolidated balance sheets of Sun Life Financial Inc. and the separate
consolidated statements of segregated funds net assets as at December 31, 2004 and 2003, and the
consolidated statements of operations, equity, cash flows and changes in segregated funds net
assets for each of the years in the three-year period ended December 31, 2004. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of the Company and its segregated funds as at December 31, 2004 and 2003 and
the results of the Companys operations, its cash flows and the changes in its segregated funds net
assets for each of the years in the three-year period ended December 31, 2004 in accordance with
Canadian generally accepted accounting principles. (DELOITTE & TOUCHE LLP)
Deloitte & Touche LLP
Chartered Accountants 
Toronto,
Canada
February 14, 2005 Annual Report 2004 | www.sunlife.com  99




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##### 



SOURCES OF EARNINGS   The following is provided in accordance with the OSFI guideline requiring Sources
of Earnings (SOE) disclosure. SOE is not a Canadian generally accepted
accounting principles (GAAP) measure. There is no standard SOE methodology. The
calculation of SOE is dependent on and sensitive to the methodology, estimates and
assumptions used. SOE identifies various sources of Canadian GAAP net income. It provides an
analysis of the difference between actual net income and expected net income based on assumptions
made at the beginning of the reporting period. The terminology used in the discussion of sources of
earnings is as follows: Expected Profit on In-Force Business
The portion of the consolidated net income on business in force at the start of the reporting
period that was expected to be realized based on the achievement of the best-estimate assumptions
made at the beginning of the reporting period. Impact of New Business
The point-of-sale impact on net income of writing new business during the reporting period. Experience Gains and Losses
Gains and losses that are due to differences between the actual experience during the reporting
period and the best-estimate assumptions at the start of the reporting period. Management Actions and Change in Assumptions
Impact on net income resulting from changes in actuarial methods and assumptions or other
management actions. Earnings on Surplus
Net investment income earned on the Companys surplus assets less debt service costs.  ANALYSIS OF RESULTS For the year ended December 31, 2004, the expected profit on in-force business of $1,490 million
was comparable to the 2003 level. Expected profit for SLF U.S. would have been $45
million greater in 2004, if the Canadian dollar had not strengthened. Issuing new business generates earnings losses to the extent that valuation assumptions are more
prudent than pricing assumptions. The new business issued in 2004 led to earnings losses of $117
million compared to $86 million a year ago. The 2004 and 2003 experience gains were primarily attributable to lower expenses, higher investment
income, and favourable mortality and morbidity experience in Canada, favourable stock experience in SLF U.S. and Corporate Capital, partially offset by unfavourable interest rate experience
in SLF U.S. There were favourable expense assumption changes of $85 million in SLF Canada and
unfavourable expense assumption changes of $89 million in Corporate Capital. There were favourable
morbidity and mortality assumption changes in SLF Canada of $94 million and $52 million,
respectively, and unfavourable lapse assumption changes of $161 million in SLF U.S. There
was a favourable assumption change of $78 million in SLF U.S. to reflect favourable
industry tax rulings. There was an unfavourable assumption change of $58 million in corporate
run-off reinsurance to allow for greater stock risk and an unfavourable assumption change of $30
million in SLF U.S. for interest rate spread compression. SOURCES OF EARNINGS Years ended December 31
    
    2004
    
    
    2003Corporate(in millions of Canadian dollars)
    
    SLF Canada
    
    
    SLF U.S.
    
    
    MFS
    
    
    SLF Asia
    
    
    SLF U.K.
    
    
    Capital
    
    
    Total
    
    
    TotalExpected Profit on In-Force
Business
    
    
    694
    
    
    
    425
    
    
    
    291
    
    
    
    34
    
    
    
    196
    
    
    
    (150
    )
    
    
    1,490
    
    
    
    1,488Impact of New Business
    
    
    (23
    )
    
    
    (68
    )
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    (86
    )Experience Gains (Losses)
    
    
    178
    
    
    
    102
    
    
    
    
    
    
    
    7
    
    
    
    (93
    )
    
    
    52
    
    
    
    246
    
    
    
    231Management Actions and Changes
in Assumptions
    
    
    248
    
    
    
    (120
    )
    
    
    
    
    
    
    16
    
    
    
    (3
    )
    
    
    (165
    )
    
    
    (24
    )
    
    
    (17
    )Regulatory Settlement Provisions
Related to MFS
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    (320
    )Earnings on Operations (pre-tax)
    
    
    1,097
    
    
    
    339
    
    
    
    229
    
    
    
    31
    
    
    
    100
    
    
    
    (263
    )
    
    
    1,533
    
    
    
    1,296Earnings on Surplus
    
    
    185
    
    
    
    108
    
    
    
    
    
    
    
    28
    
    
    
    69
    
    
    
    144
    
    
    
    534
    
    
    
    464Earnings before Income Taxes
    
    
    1,282
    
    
    
    447
    
    
    
    229
    
    
    
    59
    
    
    
    169
    
    
    
    (119
    )
    
    
    2,067
    
    
    
    1,760Income Taxes
    
    
    (289
    )
    
    
    (55
    )
    
    
    (108
    )
    
    
    (14
    )
    
    
    4
    
    
    
    169
    
    
    
    (293
    )
    
    
    (387
    )Earnings before Non-controlling Interests
and Par Income
    
    
    993
    
    
    
    392
    
    
    
    121
    
    
    
    45
    
    
    
    173
    
    
    
    50
    
    
    
    1,774
    
    
    
    1,373Less:Non-controlling Interests
    
    
    14
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    80
    
    
    
    65Par Policyholders Income (Loss)
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    (1
    )Shareholders Net Income
    
    
    967
    
    
    
    391
    
    
    
    114
    
    
    
    45
    
    
    
    173
    
    
    
    (9
    )
    
    
    1,681
    
    
    
    1,309
 100  Sun Life Financial Inc. | Annual Report 2004




---



##### 



SIX-YEAR SUMMARY BY SEGMENT   (in millions of Canadian dollars)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Total Assets Under Management (As at December 31)SLF Canada
    
    
    106,302
    
    
    
    100,176
    
    
    
    89,163
    
    
    
    52,505
    
    
    
    50,532
    
    
    
    49,352SLF United States
    
    
    67,235
    
    
    
    68,013
    
    
    
    83,301
    
    
    
    78,517
    
    
    
    47,300
    
    
    
    40,930MFS
    
    
    176,221
    
    
    
    181,982
    
    
    
    179,384
    
    
    
    220,163
    
    
    
    222,832
    
    
    
    200,394SLF Asia
    
    
    2,426
    
    
    
    2,132
    
    
    
    2,229
    
    
    
    1,852
    
    
    
    1,472
    
    
    
    1,348SLF United Kingdom
    
    
    17,430
    
    
    
    17,553
    
    
    
    19,814
    
    
    
    20,329
    
    
    
    29,661
    
    
    
    31,276Corporate Capital
    
    
    3,878
    
    
    
    4,057
    
    
    
    3,948
    
    
    
    2,396
    
    
    
    3,470
    
    
    
    2,978Consolidation Adjustments
    
    
    (13,888
    )
    
    
    (14,889
    )
    
    
    (17,225
    )
    
    
    (24,015
    )
    
    
    (26,734
    )
    
    
    (24,975
    )Total Company
    
    
    359,604
    
    
    
    359,024
    
    
    
    360,614
    
    
    
    351,747
    
    
    
    328,533
    
    
    
    301,303Total Revenue (For the year ended December 31)SLF Canada
    
    
    8,614
    
    
    
    8,636
    
    
    
    6,563
    
    
    
    3,855
    
    
    
    3,946
    
    
    
    3,961SLF United States
    
    
    9,429
    
    
    
    9,663
    
    
    
    11,877
    
    
    
    7,811
    
    
    
    7,159
    
    
    
    5,835MFS
    
    
    1,700
    
    
    
    1,684
    
    
    
    1,979
    
    
    
    2,273
    
    
    
    2,382
    
    
    
    1,822SLF Asia
    
    
    697
    
    
    
    587
    
    
    
    661
    
    
    
    464
    
    
    
    413
    
    
    
    401SLF United Kingdom
    
    
    1,258
    
    
    
    1,443
    
    
    
    1,828
    
    
    
    2,067
    
    
    
    2,260
    
    
    
    2,653Corporate Capital
    
    
    427
    
    
    
    440
    
    
    
    567
    
    
    
    533
    
    
    
    560
    
    
    
    1,124Consolidation Adjustments
    
    
    (377
    )
    
    
    (397
    )
    
    
    (374
    )
    
    
    (188
    )
    
    
    (174
    )
    
    
    (107
    )Total Company
    
    
    21,748
    
    
    
    22,056
    
    
    
    23,101
    
    
    
    16,815
    
    
    
    16,546
    
    
    
    15,689Net Income from Continuing Operations (For the year
ended December 31)SLF Canada
    
    
    979
    
    
    
    826
    
    
    
    514
    
    
    
    207
    
    
    
    195
    
    
    
    220SLF United States
    
    
    392
    
    
    
    305
    
    
    
    360
    
    
    
    226
    
    
    
    228
    
    
    
    236MFS
    
    
    114
    
    
    
    (43
    )
    
    
    174
    
    
    
    231
    
    
    
    256
    
    
    
    187SLF Asia
    
    
    45
    
    
    
    37
    
    
    
    24
    
    
    
    20
    
    
    
    27
    
    
    
    38SLF United Kingdom
    
    
    173
    
    
    
    203
    
    
    
    190
    
    
    
    180
    
    
    
    119
    
    
    
    (297
    )Corporate Capital
    
    
    (9
    )
    
    
    (20
    )
    
    
    (229
    )
    
    
    17
    
    
    
    (23
    )
    
    
    (220
    )Total Company
    
    
    1,694
    
    
    
    1,308
    
    
    
    1,033
    
    
    
    881
    
    
    
    802
    
    
    
    164
 Annual Report 2004 | www.sunlife.com  101




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##### 



ELEVEN-YEAR SUMMARY  10-Year Average
    
    
    5-Year AverageCompound
    
    
    Compound(in millions of Canadian dollars)
    
    Growth Rate %
    
    
    Growth Rate %
    
    
    2004Assets (As at December 31)General Fund Assets
    
    
    10.3
    
    
    
    14.7
    
    
    
    107,757Segregated Fund Net Assets
    
    
    10.8
    
    
    
    4.0
    
    
    
    56,564Mutual Funds and Other Assets Under Management
    
    
    15.4
    
    
    
    (0.5
    )
    
    
    195,283Total Assets Under Management
    
    
    12.9
    
    
    
    3.6
    
    
    
    359,604Total Equity
    
    
    12.2
    
    
    
    20.4
    
    
    
    14,412Operating Results(1)(For the year ended December 31)RevenuePremiumsAnnuities
    
    
    6.7
    
    
    
    5.6
    
    
    
    4,588Life Insurance
    
    
    8.9
    
    
    
    10.6
    
    
    
    5,966Health Insurance
    
    
    8.8
    
    
    
    6.6
    
    
    
    2,367Total Premiums
    
    
    8.0
    
    
    
    7.9
    
    
    
    12,921Net Investment Income
    
    
    7.8
    
    
    
    6.8
    
    
    
    5,924Fee Income
    
    
    15.6
    
    
    
    2.2
    
    
    
    2,903Total Revenue
    
    
    8.7
    
    
    
    6.7
    
    
    
    21,748Payments to Policyholders, Beneficiaries and Depositors(2)
    
    
    10.4
    
    
    
    5.1
    
    
    
    13,110Increase in Actuarial Liabilities
    
    
    (3.7
    )
    
    
    9.2
    
    
    
    1,447Commissions & Expenses
    
    
    10.1
    
    
    
    4.8
    
    
    
    4,929Interest Expenses
    
    
    21.0
    
    
    
    3.9
    
    
    
    195Income Taxes
    
    
    4.0
    
    
    
    0.7
    
    
    
    293Non-controlling Interests in Net Income of Subsidiaries
    
    
    n/a
    
    
    
    11.7
    
    
    
    80Net Income from Continuing Operations
    
    
    18.7
    
    
    
    59.5
    
    
    
    1,694Write-off of Confederation Life Goodwill
    
    
    n/a
    
    
    
    n/a
    
    
    
    Loss from Discontinued Operations, Net of Income Taxes
    
    
    n/a
    
    
    
    n/a
    
    
    
    Total Net Income
    
    
    18.7
    
    
    
    59.5
    
    
    
    1,694Business StatisticsLife Insurance in Force(3)
    
    
    
    
    
    
    
    
    
    
    950,695Mutual Fund Sales
    
    
    
    
    
    
    
    
    
    
    19,061Managed Fund Sales(4)
    
    
    
    
    
    
    
    
    
    
    23,981Segregated Fund Deposits
    
    
    
    
    
    
    
    
    
    
    7,127Employees
    
    
    
    
    
    
    
    
    
    
    13,802
 (1)
    
    Certain amounts for prior years were restated in 2002 to reflect the reclassification of certain reinsurance business lines to continuing operations.(2)
    
    Includes net transfers to segregated funds.(3)
    
    Includes reinsurance assumed.(4)
    
    Includes intercompany sales. 102  Sun Life Financial Inc. | Annual Report 2004




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##### 






(in millions of Canadian dollars)
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996
    
    
    1995
    
    
    1994Assets (As at December 31)General Fund Assets
    
    
    109,209
    
    
    
    123,452
    
    
    
    80,328
    
    
    
    55,010
    
    
    
    54,241
    
    
    
    54,319
    
    
    
    49,700
    
    
    
    45,709
    
    
    
    42,382
    
    
    
    40,297Segregated Fund Net Assets
    
    
    54,086
    
    
    
    52,755
    
    
    
    48,544
    
    
    
    49,533
    
    
    
    46,524
    
    
    
    39,213
    
    
    
    30,519
    
    
    
    26,250
    
    
    
    23,709
    
    
    
    20,313Mutual Funds and Other Assets Under Management
    
    
    195,729
    
    
    
    184,407
    
    
    
    222,875
    
    
    
    223,990
    
    
    
    200,538
    
    
    
    157,074
    
    
    
    106,035
    
    
    
    69,820
    
    
    
    57,196
    
    
    
    46,465Total Assets Under Management
    
    
    359,024
    
    
    
    360,614
    
    
    
    351,747
    
    
    
    328,533
    
    
    
    301,303
    
    
    
    250,606
    
    
    
    186,254
    
    
    
    141,779
    
    
    
    123,287
    
    
    
    107,075Total Equity
    
    
    13,976
    
    
    
    14,909
    
    
    
    7,725
    
    
    
    6,517
    
    
    
    5,690
    
    
    
    5,875
    
    
    
    5,715
    
    
    
    5,152
    
    
    
    4,868
    
    
    
    4,576Operating Results(1)(For the year ended December 31)RevenuePremiumsAnnuities
    
    
    4,805
    
    
    
    7,402
    
    
    
    4,196
    
    
    
    4,371
    
    
    
    3,494
    
    
    
    2,408
    
    
    
    2,488
    
    
    
    1,917
    
    
    
    2,242
    
    
    
    2,409Life Insurance
    
    
    6,325
    
    
    
    5,403
    
    
    
    3,759
    
    
    
    3,523
    
    
    
    3,602
    
    
    
    3,541
    
    
    
    3,126
    
    
    
    2,968
    
    
    
    2,809
    
    
    
    2,540Health Insurance
    
    
    2,413
    
    
    
    2,070
    
    
    
    1,482
    
    
    
    1,495
    
    
    
    1,723
    
    
    
    1,633
    
    
    
    1,325
    
    
    
    1,208
    
    
    
    1,157
    
    
    
    1,016Total Premiums
    
    
    13,543
    
    
    
    14,875
    
    
    
    9,437
    
    
    
    9,389
    
    
    
    8,819
    
    
    
    7,582
    
    
    
    6,939
    
    
    
    6,093
    
    
    
    6,208
    
    
    
    5,965Net Investment Income
    
    
    5,703
    
    
    
    5,131
    
    
    
    4,162
    
    
    
    3,839
    
    
    
    4,261
    
    
    
    4,097
    
    
    
    3,836
    
    
    
    3,526
    
    
    
    3,443
    
    
    
    2,786Fee Income
    
    
    2,810
    
    
    
    3,095
    
    
    
    3,216
    
    
    
    3,318
    
    
    
    2,609
    
    
    
    2,017
    
    
    
    1,430
    
    
    
    1,113
    
    
    
    832
    
    
    
    679Total Revenue
    
    
    22,056
    
    
    
    23,101
    
    
    
    16,815
    
    
    
    16,546
    
    
    
    15,689
    
    
    
    13,696
    
    
    
    12,205
    
    
    
    10,732
    
    
    
    10,483
    
    
    
    9,430Payments to Policyholders, Beneficiaries and Depositors(2)
    
    
    13,470
    
    
    
    13,017
    
    
    
    9,486
    
    
    
    9,291
    
    
    
    10,200
    
    
    
    9,155
    
    
    
    7,945
    
    
    
    6,719
    
    
    
    6,483
    
    
    
    4,895Increase in Actuarial Liabilities
    
    
    1,510
    
    
    
    3,822
    
    
    
    1,697
    
    
    
    1,611
    
    
    
    934
    
    
    
    473
    
    
    
    710
    
    
    
    931
    
    
    
    1,279
    
    
    
    2,114Commissions & Expenses
    
    
    5,107
    
    
    
    4,856
    
    
    
    4,209
    
    
    
    4,230
    
    
    
    3,901
    
    
    
    3,238
    
    
    
    2,617
    
    
    
    2,193
    
    
    
    1,977
    
    
    
    1,891Interest Expenses
    
    
    209
    
    
    
    192
    
    
    
    168
    
    
    
    159
    
    
    
    161
    
    
    
    182
    
    
    
    145
    
    
    
    95
    
    
    
    68
    
    
    
    29Income Taxes
    
    
    387
    
    
    
    98
    
    
    
    306
    
    
    
    386
    
    
    
    283
    
    
    
    310
    
    
    
    269
    
    
    
    304
    
    
    
    269
    
    
    
    197Non-controlling Interests in Net Income of Subsidiaries
    
    
    65
    
    
    
    83
    
    
    
    68
    
    
    
    67
    
    
    
    46
    
    
    
    24
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Net Income from Continuing Operations
    
    
    1,308
    
    
    
    1,033
    
    
    
    881
    
    
    
    802
    
    
    
    164
    
    
    
    314
    
    
    
    511
    
    
    
    490
    
    
    
    407
    
    
    
    304Write-off of Confederation Life Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from Discontinued Operations, Net of Income Taxes
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Net Income
    
    
    1,308
    
    
    
    997
    
    
    
    881
    
    
    
    802
    
    
    
    164
    
    
    
    54
    
    
    
    511
    
    
    
    490
    
    
    
    407
    
    
    
    304Business StatisticsLife Insurance in Force(3)
    
    
    970,397
    
    
    
    1,139,308
    
    
    
    628,206
    
    
    
    561,389
    
    
    
    673,322
    
    
    
    670,094
    
    
    
    588,773
    
    
    
    514,337
    
    
    
    476,657
    
    
    
    421,082Mutual Fund Sales
    
    
    26,970
    
    
    
    31,668
    
    
    
    39,466
    
    
    
    45,614
    
    
    
    38,123
    
    
    
    33,849
    
    
    
    18,791
    
    
    
    13,150
    
    
    
    7,453
    
    
    
    6,628Managed Fund Sales(4)
    
    
    25,202
    
    
    
    29,683
    
    
    
    31,953
    
    
    
    25,869
    
    
    
    13,939
    
    
    
    12,255
    
    
    
    10,304
    
    
    
    3,860
    
    
    
    3,448
    
    
    
    3,324Segregated Fund Deposits
    
    
    5,968
    
    
    
    6,642
    
    
    
    5,851
    
    
    
    8,318
    
    
    
    4,137
    
    
    
    4,345
    
    
    
    3,430
    
    
    
    3,719
    
    
    
    3,619
    
    
    
    2,174Employees
    
    
    13,560
    
    
    
    14,905
    
    
    
    11,702
    
    
    
    11,328
    
    
    
    11,046
    
    
    
    10,717
    
    
    
    10,200
    
    
    
    9,750
    
    
    
    9,150
    
    
    
    9,150
 Annual Report 2004 | www.sunlife.com  103




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##### 



BOARD GOVERNANCE    Sun Life Financials corporate governance structure and practices are designed to strengthen
the ability of the Board of Directors to oversee the management of the organization and foster the
creation of long-term shareholder value. As a Canadian financial institution with common shares listed on the Toronto, New York and
Philippine stock exchanges the organizations governance system is consistent with the Toronto
Stock Exchange (TSX) Guidelines for Effective Corporate Governance and Corporate
Governance Rules of the New York Stock Exchange (NYSE). Sun Life Financials governance
model is also consistent with Guidelines issued in January 2003 by the Office of the Superintendent
of Financial Institutions for Effective Corporate Governance in Federally Regulated Financial
Institutions. As new guidelines and rules are adopted in Canada and the United States, the Board reviews and
amends its corporate governance practices to respond to these standards. The Canadian Securities
Administrators (CSA) have issued Corporate Governance Guidelines and related disclosure
rules, which will replace the current disclosure requirements of the TSX . The Management
Information Circular (2005 Circular) issued in connection with the 2005 Annual Meeting describes
Sun Life Financials governance practices, which comply with CSA guidelines and provide a
point-by-point comparison to the TSX s Guidelines and NYSE Rules. The 2005
Circular was filed with the Canadian securities regulators and can be found on the SEDAR
website (www.sedar.com) and with the Securities and Exchange Commission (website
www.sec.gov). The 2005 Circular, the Sun Life Financial Code of Business Conduct and Charters of
the Board of Directors and Board Committees are posted on the Sun Life Financial website
(www.sunlife.com) and are available from the Corporate Secretary upon request. The Board of Directors met 12 times in 2004. Ten of the meetings were regular meetings and two
update or special purpose meetings were held as teleconferences. The Board believes it is able to
act with a high level of independence from management. At every regularly scheduled Board meeting,
the independent directors meet privately. All aspects of the Boards stewardship responsibilities
are discussed at these sessions.
 BOARD OF DIRECTORS All directors of Sun Life Financial Inc. are also directors of Sun Life Assurance Company of
Canada. The Board
has determined that all directors other than Donald A. Stewart and C. James Prieur are independent
directors. William W. Stinson
Chairman of the Board James
C. Baillie
of Counsel, Torys LLP George
W. Carmany, III
Corporate Director William
R. Fatt
Chief Executive Officer, Fairmont Hotels & Resorts Inc. David
A. Ganong
President, Ganong Bros. Limited Germaine
Gibara, CFA
President, Avvio Management Inc. Krystyna
T. Hoeg, CA
President & Chief Executive Officer, Corby Distilleries Limited David
W. Kerr, CA
Chairman, Noranda Inc. Idalene
F. Kesner
Chairperson, MBA Program,
Frank P. Popoff Chair of Strategic Management,
Kelley School of Business, Indiana University Bertin
F. Nadeau
Chairman & Chief Executive Officer, GescoLynx Inc. Ronald
W. Osborne, FCA
Corporate Director Madeleine
M. Paquin
President & Chief Executive Officer, Logistec Corporation C.
James Prieur, CFA
President & Chief Operating Officer Donald
A. Stewart, FIA, FCIA
Chief Executive Officer W.
Vickery Stoughton
Corporate Director
   104  Sun Life Financial Inc. | Annual Report 2004




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##### 



BOARD COMMITTEES
The Board delegates certain responsibilities to standing Board Committees to allow an
in-depth review of issues. The following is a brief summary of some of the key responsibilities of
the four Board Committees. Reports from each Committee are included in the 2005 Circular. All members of Board Committees are independent directors.
 
    The Audit and Conduct Review Committeeoversees the
integrity of financial statements and information provided
to shareholders, compliance with financial regulatory
requirements, the adequacy and effectiveness of the internal
control environment, and the qualifications, independence
and performance of the External Auditors.
 Ronald W. Osborne, Chairman
James C. Baillie
Germaine Gibara
Krystyna T. Hoeg
David W. Kerr
    The Governance Committeeis responsible for developing
effective corporate governance guidelines and processes
within Sun Life Financial, assessing the effectiveness of the
Board of Directors and its Committees, including the
contribution of individual directors and the Chairman of the
Board and recommending nominees for election as directors.
 Bertin F. Nadeau, Chairman
David A. Ganong
Germaine Gibara
Idalene F. Kesner
William W. Stinson
W. Vickery Stoughton
    The Management Resources Committeeis responsible for
succession planning for the position of Chief Executive Officer
and other senior management positions, overseeing the review
of senior management performance and approving their
remuneration, assessing compensation policies and overseeing
employee pension plans.
 William R. Fatt, Chairman
David A. Ganong
Bertin F. Nadeau
Ronald W. Osborne
Madeleine M. Paquin
W. Vickery Stoughton
    The Risk Review Committeeis responsible for ensuring the
identification of major areas of risk facing the organization
and developing strategies to manage those risks, reviewing
compliance with risk management policies and reports related
to compliance with legal and regulatory matters.
 James C. Baillie, Chairman
George W. Carmany, III
William R. Fatt
Krystyna T. Hoeg
Idalene F. Kesner
Madeleine M. Paquin
   Annual Report 2004 | www.sunlife.com  105




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##### 



INTERNATIONAL LEADERSHIP  Donald A. Stewart*
Chief Executive Officer C. James Prieur*
President and Chief Operating Officer  CORPORATE OFFICEThomas A. Bogart*
Executive Vice-President and
Chief Legal Officer
 Paul W. Derksen*
Executive Vice-President and
Chief Financial Officer
 Michael P. Stramaglia
Executive Vice-President, Investments
 Robert J. Sharkey
Senior Vice-President
 Dr. Judith M. Beamish
Vice-President and Chief Medical Director Douglas W. Brooks
Vice-President and Chief Risk Officer
 Thomas J. Clulow
Vice-President, Corporate Development
    
    Greta Cusworth
Vice-President, International Initiatives C. Joseph Dahl
Vice-President, Underwriting
 Wayne A. Daniel
Vice-President, Reinsurance Colm
J. Freyne
Vice-President and Chief Auditor Ronald
H. Friesen
Vice-President, Corporate Capital Nigel
I. Hodges
Vice-President and Controller Michel
R. Leduc
Vice-President,
Industry and Government Affairs
    
    Christine I. Mackiw
Vice-President and Chief Compliance Officer K.
Louise McLaren
Vice-President, Human Resources Thomas
G. Reid
Vice-President, Public and Investor Relations Candace
Shaw
Vice-President, Corporate Investments Peter
Q.M. van Dijk
Vice-President, Tax Joan
M. Wilson
Vice-President and Corporate Secretary Robert
W. Wilson
Vice-President and Chief Actuary
  SUN LIFE FINANCIAL CANADAKevin P. Dougherty*
President, Sun Life Financial Canada Mary
De Paoli
Vice-President, Group Retirement Services Mark
W. DeTora
Senior Vice-President,
Individual Insurance and Investments Jack
F. Garramone
President, Clarica Financial Services Inc.
    
    Vicken Kazazian
Vice-President,
Business and Human Resources Dominique
Mailloux
Vice-President, IT Services and Total Benefits William
R. Minucci
Vice-President and General Counsel
    
    Dikran Ohannessian
Vice-President and Chief Financial Officer Brigitte
Parent
Vice-President, Group Benefits M.
Dale Pounder
Vice-President and Chief Actuary
   106  Sun Life Financial Inc. | Annual Report 2004




---



##### 



SUN LIFE FINANCIAL U.S.Robert C. Salipante*
President, Sun Life Financial U.S. Claude
A. Accum
Vice-President, Individual Insurance James
M.A. Anderson
Vice-President, Investments Gary
Corsi
Vice-President and Chief Financial Officer Scott M. Davis
Vice-President and General Counsel
    
    Mary M. Fay
Vice-President, Annuities Keith
Gubbay
Vice-President and Chief Actuary Kevin
J. Hart
President, Sun Life Financial Distributors, Inc. Michael
E. Shunney
Vice-President, Group Insurance
    
    Robert L. Spadafora
President, 
Independent Financial Marketing Group, Inc.
 Janet V. Whitehouse
Vice-President, 
Human Resources and Public Relations
 John R. Wright
Executive Vice-President, Operations
  SUN LIFE FINANCIAL U.K.David W. Davies*
Chairman, Sun Life Financial U.K.
    
    Janet Fuller
Managing Director
  SUN LIFE FINANCIAL ASIADouglas C. Henck*
President, Sun Life Financial Asia Gary
M. Comerford
Vice-President, International and
General Manager, India Janet
M. De Silva
President, Sun Life Financial China Michael
Ma
Vice-President and Chief Information Officer
    
    Patricia McEachern
Vice-President, Investments Geoffrey
R. Saggers
Chief Executive Officer,
Sun Life Financial (Hong Kong) Limited Esther
C. Tan
President and Chief Executive Officer,
Sun Life of Canada (Philippines), Inc.
    
    Keith Tucker
Vice-President, Human Resources James
H. Van Harmelen
Vice-President and Chief Financial Officer Peter
D. Walker
Vice-President and Actuary Candy
Yuen
Vice-President, Business Development
  MASSACHUSETTS FINANCIAL SERVICES COMPANYRobert C. Pozen
Chairman
    
    Robert J. Manning
Chief Executive Officer,
President and Chief Investment Officer
  MCLEAN BUDDENDouglas W. Mahaffy
Chairman, Chief Executive Officer
and President
   Annual Report 2004 | www.sunlife.com  107




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##### 



SUBSIDIARY COMPANIES   SUN LIFE FINANCIAL INC.
As at January 4, 2005, to give affect to the corporate reorganization undertaken on that date. Address of
    
    Book Value of
    
    
    Per cent of VotingHead or
    
    Shares Owned
    
    
    Shares OwnedSubsidiary
    
    Principal Office
    
    by Company*
    
    by Company*6183271 Canada Inc.
    
    Toronto, Canada
    
    
    (11,797
    )
    
    
    100
    %Sun Life Financial (Chile) S.A.
    
    Santiago, Chile
    
    
    
    
    
    
    100
    %Sun Life Inversiones Limitada
    
    Santiago, Chile
    
    
    
    
    
    
    100
    %6183298 Canada Inc.
    
    Toronto, Canada
    
    
    (110
    )
    
    
    100
    %6324983 CANADA INC.
    
    Toronto, Canada
    
    
    
    
    
    
    100
    %Sun Life (Poland) Group Financing sp. z.o.o.
    
    Warsaw, Poland
    
    
    20
    
    
    
    100
    %Sun Life Assurance Company of Canada
    
    Toronto, Canada
    
    
    10,866,944
    
    
    
    100
    %1245792 Ontario Inc.
    
    Toronto, Canada
    
    
    
    
    
    
    100
    %2053812 Ontario Inc.
    
    Toronto, Canada
    
    
    10
    
    
    
    100
    %Amaulico Ltd.
    
    Calgary, Canada
    
    
    
    
    
    
    100
    %Amaulico Fund Ltd.
    
    Calgary, Canada
    
    
    
    
    
    
    100
    %Clarica Investco Inc.
    
    Waterloo, Canada
    
    
    10,394
    
    
    
    100
    %Clarica MEEL Holdings Limited
    
    Waterloo, Canada
    
    
    2,571
    
    
    
    100
    %Clarica Trustco Inc.
    
    Waterloo, Canada
    
    
    118,172
    
    
    
    100
    %Clarica Financial Services Inc.
    
    Waterloo, Canada
    
    
    
    
    
    
    100
    %Sun Life Financial Trust Inc.
    
    Waterloo, Canada
    
    
    
    
    
    
    100
    %Crosspointe Shops II LLC
    
    Wellesley Hills, USA
    
    
    3,003
    
    
    
    100
    %Crosspointe Shops I LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Plaza West LLC
    
    Wellesley Hills, USA
    
    
    3,386
    
    
    
    100
    %PT Sun Life Financial Indonesia
    
    Jakarta, Indonesia
    
    
    18,745
    
    
    
    86.95
    %Sun Life Assurance Company of Canada (Barbados) Limited
    
    Bridgetown, Barbados
    
    
    20,339
    
    
    
    100
    %Sun Life Capital Trust
    
    Toronto, Canada
    
    
    (1,484
    )
    
    
    100
    %Sun Life Financial Advisory Inc.
    
    Montreal, Canada
    
    
    1
    
    
    
    100
    %Sun Life Financial (Bermuda) Holdings, Inc.
    
    Wellesley Hills, USA
    
    
    4,647
    
    
    
    100
    %Sun Life Financial Insurance and Annuity Company (Bermuda) Ltd.
    
    Hamilton, Bermuda
    
    
    
    
    
    
    100
    %Sun Life Financial Global Funding, L.P.
    
    Wellesley Hills, USA
    
    
    2,294
    
    
    
    99
    %Sun Life Financial Global Funding, U.L.C.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life Financial Global Funding, L.L.C.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life Financial (Hong Kong) Limited
    
    Hong Kong
    
    
    138,052
    
    
    
    100
    %Sun Life Financial (Hungary) Investments Inc.
    
    Toronto, Canada
    
    
    1,441,866
    
    
    
    100
    %Sun Life (Hungary) Group Financing Limited Liability Company
    
    Hrsz, Hungary
    
    
    
    
    
    
    100
    %Sun Life Financial (India) Insurance Investments Inc.
    
    Toronto, Canada
    
    
    9,880
    
    
    
    100
    %Sun Life Financial Investments (Bermuda) Ltd.
    
    Hamilton, Bermuda
    
    
    5,195
    
    
    
    100
    %Sun Life Financial of Canada UK Limited
    
    Basingstoke, U.K.
    
    
    1,544,318
    
    
    
    100
    %Sun Life of Canada UK Holdings plc
    
    Basingstoke, U.K.
    
    
    
    
    
    
    100
    %SLC Financial Services (U.K.) Limited
    
    Basingstoke, U.K.
    
    
    
    
    
    
    100
    %Sun Life Assurance Company of Canada (U.K.) Limited
    
    Basingstoke, U.K.
    
    
    
    
    
    
    100
    %BHO Lease Company Limited
    
    Jersey, Channel Islands
    
    
    
    
    
    
    100
    %Sun Life of Canada Nominees Limited
    
    Basingstoke, U.K.
    
    
    
    
    
    
    100
    %Sun Life Financial of Canada Trustee Limited
    
    Basingstoke, U.K.
    
    
    
    
    
    
    100
    %Sun Life Financial Realty Advisors Inc.
    
    Toronto, Canada
    
    
    13
    
    
    
    100
    %Sun Life (India) AMC Investments Inc.
    
    Toronto, Canada
    
    
    31,844
    
    
    
    100
    %Sun Life (India) Distribution Investments Inc.
    
    Toronto, Canada
    
    
    10,946
    
    
    
    100
    %Birla Sun Life Distribution Company Limited
    
    Mumbai, India
    
    
    
    
    
    
    50.001
    %BSDL Insurance Advisory Services Ltd.
    
    Maharashtra, India
    
    
    
    
    
    
    50.001
    %Sun Life (India) Securities Investments Inc.
    
    Toronto, Canada
    
    
    1,324
    
    
    
    100
    %Sun Life Information Services Canada, Inc.
    
    Toronto, Canada
    
    
    17,115
    
    
    
    100
    %Sun Life Information Services Ireland Limited
    
    Waterford, Ireland
    
    
    3,302
    
    
    
    100
    %Sun Life of Canada International Assurance Limited
    
    Bridgetown, Barbados
    
    
    1,954
    
    
    
    100
    %Sun Life of Canada (U.K.) Overseas Investment Limited
    
    Basingstoke, U.K.
    
    
    205,926
    
    
    
    100
    %Sun Life of Canada (Netherlands) B.V.
    
    Rotterdam, Netherlands
    
    
    
    
    
    
    100
    %Sun Life of Canada (Philippines), Inc.
    
    Manila, Philippines
    
    
    
    
    
    
    99.99
    %Sun Life Asset Management Company, Inc.
    
    Manila, Philippines
    
    
    
    
    
    
    99.99
    %
 *
    
    The book value (in thousands of Canadian dollars) of shares held directly by Sun Life
Financial Inc. or Sun Life Assurance Company of Canada and the percentage held are stated
at the equity in such investments. 108  Sun Life Financial Inc. | Annual Report 2004




---



##### 



Address of
    
    Book Value of
    
    
    Per cent of VotingHead or
    
    Shares Owned
    
    
    Shares OwnedSubsidiary
    
    Principal Office
    
    by Company*
    
    by Company*Sun Life Financial Plans, Inc.
    
    Manila, Philippines
    
    
    
    
    
    
    100
    %Sun Life Prosperity Dollar Abundance Fund, Inc.
    
    Manila, Philippines
    
    
    
    
    
    
    99.99
    %Sun Life Prosperity GS Fund, Inc.
    
    Manila, Philippines
    
    
    
    
    
    
    99.99
    %Sun Life Prosperity Money Market Fund, Inc.
    
    Manila, Philippines
    
    
    
    
    
    
    66.54
    %Sun Life Reinsurance Holdings Limited
    
    Brookfield, USA
    
    
    38,984
    
    
    
    100
    %Sun Life Reinsurance Company Limited
    
    Bridgetown, Barbados
    
    
    
    
    
    
    100
    %Sun Life Reinsurance (Ireland) Limited
    
    Dublin, Ireland
    
    
    166,769
    
    
    
    100
    %Sun Life Financial Corp.
    
    Toronto, Canada
    
    
    3,282,785
    
    
    
    100
    %3060097 Nova Scotia Company
    
    Halifax, Canada
    
    
    600,042
    
    
    
    100
    %McLean Budden Limited
    
    Toronto, Canada
    
    
    60,882
    
    
    
    55.8
    %McLean Budden Funds Inc.
    
    Toronto, Canada
    
    
    
    
    
    
    55.8
    %Sun Life Assurance Company of Canada  U.S. Operations Holdings, Inc.
    
    Wellesley Hills, USA
    
    
    2,621,861
    
    
    
    100
    %Sun Capital Advisers LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life Financial (Japan), Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life Financial (U.S.) Holdings, Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %IFMG Securities, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %Independent Financial Marketing Group, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %IFS Agencies of Alabama, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %IFMG of Oklahoma, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %IFS Agencies, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %IFS Agencies of New Mexico, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %IFS Insurance Agencies of Ohio, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %IFS Insurance Agencies of Texas, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %LSC Insurance Agency of Arizona, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %LSC Insurance Agency of Nevada, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %LSC Insurance Agency of New Mexico, Inc.
    
    Purchase, USA
    
    
    
    
    
    
    100
    %Sun Life Financial Distributors, Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    97.6
    %Sun Life Financial (U.S.) Investments LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life of Canada (U.S.) Holdings, Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Canada Financial Co.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life Assurance Company of Canada (U.S.)
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %7101 France Avenue Manager, LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %7101 France Avenue, LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Clarendon Insurance Agency, Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Independence Life and Annuity Company
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %SLF Private Placement Investment Company I, LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Benefit Services Company, Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life Insurance and Annuity Company of New York
    
    New York, USA
    
    
    
    
    
    
    100
    %Sun Life of Canada (U.S.) Holdings General Partner LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life of Canada (U.S.) SPE 97-1, Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Parkaire Landing LLC
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life of Canada (U.S.) Capital Trust 1
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life of Canada (U.S.) Limited Partnership I
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life Financial (U.S.) Finance, Inc.
    
    Wellesley Hills, USA
    
    
    
    
    
    
    100
    %Sun Life of Canada (U.S.) Financial Services Holdings, Inc.
    
    Boston, USA
    
    
    
    
    
    
    99.8
    %Massachusetts Financial Services Company
    
    Boston, USA
    
    
    
    
    
    
    95.2
    %MFS Fund Distributors, Inc.
    
    Boston, USA
    
    
    
    
    
    
    100
    %MFS Heritage Trust Company
    
    Manchester, USA
    
    
    
    
    
    
    100
    %MFS Institutional Advisors, Inc.
    
    Boston, USA
    
    
    
    
    
    
    100
    %MFS Institutional Advisors (Australia) Ltd.
    
    Sydney, Australia
    
    
    
    
    
    
    100
    %MFS International Ltd.
    
    Hamilton, Bermuda
    
    
    
    
    
    
    100
    %MFS International S.C. Ltda.
    
    Sao Paulo, Brazil
    
    
    
    
    
    
    100
    %MFS International (U.K.) Ltd.
    
    London, U.K.
    
    
    
    
    
    
    100
    %MFS Japan Holdings LLC
    
    Boston, USA
    
    
    
    
    
    
    100
    %MFS Investment Management K.K.
    
    Tokyo, Japan
    
    
    
    
    
    
    92.6
    %MFS Investment Management (LUX) S.A.
    
    Boston, USA
    
    
    
    
    
    
    100
    %MFS Original Research Advisors, LLC
    
    Boston, USA
    
    
    
    
    
    
    100
    %MFS Original Research Partners, LLC
    
    Boston, USA
    
    
    
    
    
    
    100
    %MFS Retirement Services, Inc.
    
    Boston, USA
    
    
    
    
    
    
    100
    %MFS Service Center, Inc.
    
    Boston, USA
    
    
    
    
    
    
    100
    %Vertex Investment Management, Inc.
    
    Boston, USA
    
    
    
    
    
    
    100
    %
 *
    
    The book value (in thousands of Canadian dollars) of shares held directly by Sun Life
Financial Inc. or Sun Life Assurance Company of Canada and the percentage held are stated
at the equity in such investments. Annual Report 2004 | www.sunlife.com  109




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MAJOR OFFICES   The following is contact information for Sun Life Financials major offices and joint venture
companies around the world. For inquiries and customer service, please contact the appropriate
office in your area. Sun Life Financial Canada
Sun Life Assurance Company of Canada 
Canadian
Headquarters
227 King Street South
P.O. Box 1601, STN Waterloo
Waterloo, Ontario
Canada N2J 4C5
Tel: (519) 888-3900
Call Centre: 1 800 SUN-LIFE/1 800 786-5433
Mon. to Fri. 8:00 a.m.  8:00 p.m. Eastern Time
Website: www.sunlife.ca 
Toronto
Office
225 King Street West
Toronto, Ontario
Canada M5V 3C5
Tel: (416) 408-7500
Call Centre: 1 800 SUN-LIFE/1 800 786-5433
Mon. to Fri. 8:00 a.m.  8:00 p.m. Eastern Time
Website: www.sunlife.ca 
Montreal
Office
1155 Metcalfe Street
Montreal, Quebec
Canada H3B 2V9
Tel: (514) 866-6411
Call Centre: 1 800 SUN-LIFE/1 800 786-5433
Mon. to Fri. 8:00 a.m.  8:00 p.m. Eastern Time
Website: www.sunlife.ca Sun
Life Financial U.S.
Sun Life Assurance Company of Canada and
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, Massachusetts
USA 02481
Tel: (781) 237-6030 Call
Centre: 1 800 SUN-LIFE/1 800 786-5433
Mon. to Fri. 8:00 a.m.  5:00 p.m. Eastern Time
Website: www.sunlife-usa.com
    
    Sun Life Financial U.K.
Sun Life Assurance Company of Canada
(U.K.) Limited
Matrix House
Basing View, Basingstoke
Hampshire
United Kingdom RG21 4DZ
Tel: (0870) 160-5040
Call Centre: (0870) 161-1111
Mon. to Fri. 8:00 a.m.  6:00 p.m.
Website: www.sunlifeofcanada.co.uk Sun
Life Financial Asia
Regional Headquarters
2001 Two Pacific Place
88 Queensway
Hong Kong
Tel: (852) 2918-3888
Fax: (852) 2918-3800
Website: www.sunlife.com 
China
Sun
Life Everbright Life Insurance
Company Limited
37/F Tianjin International Building
75 Nanjing Road
Tianjin, China 300050
Tel: (8622) 2339-1188
Fax: (8622) 2339-9929
Website: www.sunlife-everbright.com 
Beijing
Representative Office
Bright China Chang An Building
Suite 1010, Tower A
No. 7 Jianguomennei Dajie
Beijing, China 100005
Tel: (8610) 6510-2783
Fax: (8610) 6510-2784 
Hong
Kong
Sun Life Financial (Hong Kong) Limited
20thFloor, One Exchange Square
Central, Hong Kong
Tel: (852) 2103-8888
Fax: (852) 2103-8181
Call Centre: (852) 2103-8928
Mon. to Fri. 8:30 a.m.  5:00 p.m.
Website: www.sunlife.com.hk
    
    India
Birla Sun Life Insurance Company Limited
Vaman Centre, 5th& 6thFloors
Makhwana Road, Andheri (East)
Mumbai, India 400 059
Tel: 91-22-5678-3333
Fax: 91-22-5678-3232
Mon. to Fri. 9:30 a.m.  6:30 p.m.
Website: www.birlasunlife.com 
Birla
Sun Life Asset Management
Company Limited
Ahura Centre, 2nd Floor, Tower A
Mahakali Caves Road, Andheri (East)
Mumbai, India 400 093
Tel: 91-22-5692-8000
Fax: 91-22-5692-8110/8111
Mon. to Fri. 9:30 a.m.  6:00 p.m.
Website: www.birlasunlife.com 
Birla
Sun Life Distribution Company Limited
Ahura Centre, 2nd Floor, Tower A 96 A/D
Mahakali Caves Road, Andheri (East)
Mumbai, India 400 093
Tel: 91-22-5692-8200
Fax: 91-22-5692-8201
Website: www.birlasunlife.com 
Indonesia
PT
Sun Life Financial Indonesia
World Trade Centre, 8th& 9thFloors
JL Jend. Sudirman Kav 29-31
Jakarta, Indonesia 12920
Tel: (6221) 5289-0000
Fax: (6221) 521-1432
Mon. to Fri. 8:30 a.m.  5:30 p.m.
Website: www.sunlife.co.id 
Philippines
Sun
Life of Canada (Philippines), Inc.
12thFloor, The Enterprise Centre Tower 2
6766 Ayala Avenue cor.
Paseo de Roxas
Makati City, Philippines 1229
Tel: (632) 886-6188
Fax: (632) 849-9988
Call Centre: (632) 849-9888
Mon. to Fri. 8:00 a.m.  6:00 p.m.
Website: www.sunlife.com.ph
 110 Sun Life Financial Inc. | Annual Report 2004




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##### 



CORPORATE AND SHAREHOLDER INFORMATION    For information about the Sun Life Financial group of companies, corporate news and financial results, please visit www.sunlife.com. CORPORATE
OFFICE
Sun Life Financial Inc.
150 King Street West
Toronto, Ontario
Canada M5H 1J9
Tel: (416) 979-9966
Website: www.sunlife.com INVESTOR
RELATIONS
For financial analysts, portfolio managers and institutional investors requiring information, please contact:
Thomas
G. Reid
Vice-President, Public and Investor Relations
Tel: (416) 204-8163
Fax: (416) 585-7892
E-mail: investor.relations@sunlife.com
Please note that financial information can also be obtained from www.sedar.com. SHAREHOLDER
SERVICES
For shareholder account inquiries, please contact the Transfer Agent in the country where you reside. For shareholder-related matters, please contact:
Jo-Anne Archibald
Director, Shareholder Services
Fax: (416) 598-3121
English E-mail:
shareholderservices@sunlife.com
French E-mail:
servicesauxactionnaires@sunlife.com
 
 TRANSFER AGENT
For information about your shareholdings, dividends, change in share registration or address,
estate transfers, lost certificates, or to advise of duplicate mailings, please contact the
Transfer Agent in the country where you reside. If you do not live in any of the countries listed,
please contact the Canadian Transfer Agent. Canada
and the United States
CIBC Mellon Trust Company
P.O. Box 7010
Adelaide Street Postal Station
Toronto, Ontario
Canada M5C 2W9
Within North America:
Tel: 1 877 224-1760 (English)
       1 888 290-0048 (French)
Outside of North America:
Tel: (416) 348-9412
Fax: (416) 643-5501
E-mail: inquiries@cibcmellon.com
Website: www.cibcmellon.com
Shareholders can view their account details using CIBC Mellon Trust Companys Internet service, Answerline®. Register at www.cibcmellon.com/answerlineregistration. United
Kingdom
Capita IRG Plc
34 Beckenham Road
Beckenham, Kent
United Kingdom BR3 4TU
Within the U.K.:
Tel: (0845) 602 1587
Outside the U.K.:
Tel: +44 20 8639 2064
E-mail: ssd@capitaregistrars.com Philippines
The
Hongkong and Shanghai Banking
Corporation Limited
30/F The Discovery Suites
#25 ADB Avenue
Ortigas Centre, Pasig
Metro Manila, Philippines
From Metro Manila:
Tel: (632) 683-2601 Hong
Kong
Computershare Hong Kong Investor
Services Limited
Hopewell Centre, 46th Floor
183 Queens Road East
Wanchai, Hong Kong
Tel: (852) 2862-8628
E-mail: hkinfo@computershare.com.hk
 
 DIVIDENDS
2005 Dividend Dates 
Common
Shares Record Dates
    
    Payment DatesFebruary 23
    
    March 31May 25*
    
    June 30August 24*
    
    September 30November 23*
    
    December 30
   Direct
Deposit Dividend Service
(Canada and the United States)        STOCK
EXCHANGE LISTINGS       2005
ANNUAL MEETING




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