PSE Circular for Brokers No. 763-00

March 23, 2000 PSE CIRCULAR FOR BROKERS NO. 763-00 SUBJECT : Sun Life Financial Services of Canada, Inc. Secondary Listing by Way of Introduction EXECUTIVE SUMMARY A. Brief Background on the Demutualization of Sun Life Assurance Company of Canada, Inc ("Sunlife"). Key Dates on Demutualization Plan January 27, 1998 Board of Directors of SunLife instructed its management to prepare a plan for demutualization Eligibility Date for Policyholders to be entitled to Demutualization Benefits August 4, 1999 The Plan of Demutualization was approved by the Board of Directors September 28, The Board of Directors of Sun Life of Canada 1999 adopted the Conversion Plan December 15, Special Meeting was held whereby Eligible 1999 Policyholders were asked to vote on the Plan for Demutualization. Eligible Policyholders of Sunlife approved the Conversion Plan Structure Before and After Demutualization Before the proposed demutualization, Sun Life is owned by its Participating Policyholders, with no common shareholders. As such, in accordance with the Insurance Companies Act of Canada, the Board of Directors is elected in full by the Participating Policyholders. With the proposed demutualization, a new insurance holding company, Sun Life Financial Services of Canada, Inc. (the "Company" or "SLC") , has been incorporated under the Insurance Companies Act for the purpose of becoming the parent holding company of Sun Life. Under a plan of conversion adopted by the board of directors of Sun Life on September 28, 1999 and approved by Eligible Policyholders on December 15, 1999, Sun Life Assurance will convert from a mutual insurance company to an insurance company with share capital and become a wholly-owned subsidiary of Financial Services. B. Salient Features of Sun Life Financial Services of Canada, Inc.'s Listing No. of shares for listing Approximately 400,148,008 common shares (The same number of shares will be listed in Toronto Stock Exchange, New York Stock Exchange, London Stock Exchange and the Philippine Stock Exchange, Inc.) Listing Date March 24,2000 Number of Cash-election Approximately 12,080,278 common shares from Philippine shares policyholders Number of shares to be Approximately 13,535,862 common retained by Philippine shares policyholders Par Value SLC has no par value. Part 5 Section 63 of the Insurance Companies Act of Canada prohibits insurance companies from stating a par value for its shares. Offer Price The offer price shall be determined today, March 23, 2000 Price Range: Can$12.00 to Can$15.00 Tax Treatment of Issuance of SLC shares to Transactions Eligible Policyholders who opted for shares: The original issuances of SLC common shares to eligible Philippine policyholders is not subject to documentary stamp tax. Selling the SLC shares on the PSE: Should the eligible policyholders wish to sell those shares, the individual shareholder shall be required to pay stock transaction tax of 0.5% of the proceeds and documentary stamp tax at the rate of 0.25% of the original issue price of the shares. Schedule of Block Trade March 29, 2000 Trading of shares in the PSE Eligible policyholders who opted for shares has the option of receiving shares in certificates or holding them in Sun Life of Canada Share Account. Policyholders who elected to receive a share certificate can sell their shares immediately following the demutualization effective date by taking their shares to a broker. Share certificates have been sent by registered mail beginning March 17, 2000 to those Eligible Policyholders who chose to receive certificates. However, SLC cannot guarantee their delivery prior to the scheduled listing on the PSE. Following the listing of common shares of SLC on the PSE and receipt of the share certificate, Eligible Policyholders will be able to sell their common shares on the PSE. For Philippine policyholders who hold their shares in the Share Account, there are 2 options. (1) If they choose to sell their shares as part of the Share Selling Service, they must wait 30 days from the demutualization effective date. Shares sold under this service will be pooled with the shares of other shareholders and sold on the PSE through a stock broker as soon as sufficient number of shares may be sold on a day. At a minimum, shares will be sold within five (5) business days after the sale order has been received. Shares will be sold at market price and selling shareholder will receive the weighted average price for all shares sold in the pool. (2) Another option in Share Account is to uplift shares from share account then sell through a broker. Attached is a reproduction of a portion of the red-herring prospectus which was made available to the Toronto Stock Exchange ("TSE") and New York Stock Exchange ("NYSE") where SLC will be conducting a Public Offering. It may be observed that the cover page states that there are 143,500,000 common shares as the number of shares for offering. This represents the 46,100,000 common shares for initial public offering in TSE and NYSE and the 97,400,000 common shares for the public offering of secondary shares representing cash-election shares. The stock trading symbol of SUN LIFE FINANCIAL SERVICES OF CANADA, INC. is "SLC". For your information and guidance. (SGD.) MARIA ISABEL T. GARCIA OIC, Listings and Disclosure Group SUN LIFE FINANCIAL SERVICES OF CANADA INC. 143,500,000 Common Shares This prospectus (the "Prospectus") qualifies the distribution of an aggregate common shares ("Common shares") of Sun Life Financial Services of Canada Inc. ("Financial Services" and, together with its consolidated subsidiaries, the "Company"), the holding company resulting from the demutualization of Sun Life Assurance Company of Canada (the "Demutualization"). In the Demutualization, Sun Life Assurance Company of Canada will convert from a mutual life insurance company to a company with a share capital and become a wholly-owned subsidiary of Financial Services. Common Shares will be issued in the Demutualization to certain policy holders of Sun Life Assurance Company of Canada who are entitled to receive demutualization benefits ("Eligible Policyholders"). The Demutualization will occur approximately five business days before the closing of this offering. See "Description of Demutualization and Corporate Reorganization." The Common Shares are being offered in Canada, the United States and internationally, where permitted by law, by three syndicates of underwriters (collectively, the "Underwriters"). The offering price for the Common Shares will be the price set forth below, or the equivalent in US dollars or other currencies, in all jurisdictions in which Common Shares are offered under this Prospectus. This offering of Common Shares (the "Offering") consists of an initial public offering of 46,100,000 Common Shares to be issued by Financial Services, the proceeds from which will be used to satisfy obligations incurred by Financial Services in connection with the purchase of Common Shares from certain Eligible Policyholders in Canada as well as to invest in Sun Life Assurance Company in Canada to enable Sun Life Assurance Company of Canada to fund Policy Credits and certain cash payments on Demutualization, and a secondary offering of 97,400,000 Common Shares by Eligible Policyholders outside Canada who have elected, or are otherwise required to sell their Common Shares under the terms of the Demutualization ("Selling Policyholders"), in each case for distribution by the Underwriters. No portion of the proceeds of the offering by the Selling Policyholders will be received by the Company. See "Plan of Distribution" and "Use of Proceeds". There is currently no market through which these securities may be sold . Financial Services has made application to list the Common Shares on The Toronto Stock Exchange, the New York Stock Exchange, the London Stock Exchange and the Philippine Stock Exchange. The offering price of the Common Shares offered hereunder will be determined by negotiation between Financial Services on its own behalf and on behalf of the Selling Policyholders, and the Underwriters. See "Plan of Distribution". It is currently anticipated that the offering price will be between $12.00 and $15.00 per Common Share. Price: $ per Common Share Proceeds to Proceeds to the Selling Price to the Public Underwriters' Fee Financial Services (1) Policyholders (2) Per Common Share $ $ $ $ Total (3) $ $ $ $ (1) Before deducting expenses of the Offering, estimated to be $ , which, together with the Underwriters' fee, will be paid from the general funds of Financial Services. (2) The Underwriters' fee in respect of Common Shares sold by Selling Policyholders will be paid from the general funds of Financial Services. (3) Financial Services has granted the Underwriters over-allotment options (the "Over-allotment Options") to acquire up to an additional Common Shares issued by Financial Services at the offering price to cover over-allotments, if any, and for market stabilization purposes. This prospectus qualifies the distribution of the Over-allotment Options to the Underwriters and the Common Shares issuable upon the exercise of the Over-allotment Options. The Over-allotment Options expire 30 days after closing of the Offering. If the Over-allotment Options are exercised in bill, the total Price to the Public will be $ , the Underwriters' fee will be $ and the Proceeds to Financial Services, before deducting other expenses of the Offering will be $ See "Plan of Distribution". Prospective Investors should carefully consider the risk factors described under "Risk Factors" before purchasing Common Shares. The Underwriters, as principals conditionally offer the Common Shares, subject to prior sale, if, as and when issued by Financial Services and sold by the Selling Policyholders and delivered to and accepted by the Underwriters in accordance with the conditions of the Underwriting Agreements referred to under "Plan of Distribution" and subject to the approval of certain legal matters on behalf of Financial Services by Torys and Leboeur, Lamb, Greene & MacRae, L.L.P. and on behalf of the Underwriters by Blake, Cassels & Graydon LLP and Davis Polk & Wardwell. Subscriptions for the Common Shares will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that definitive share certificates for the Common Shares will be available for delivery on the closing of this Offering which is expected to occur , 2000 or on such other date as Financial Services and the Underwriters may agree, but in any event not later than , 2000. EXCHANGE RATE INFORMATION Unless otherwise indicated, references in this Prospectus to "$", "Can.$" or "dollars" are to Canadian dollars. In accordance with Canadian GAAP, the Company uses period end exchange rates to convert balance sheet amounts and average exchange rates in effect during reporting periods to convert statement of operations amounts. Rates shown below are the Canadian dollar price per unit of foreign currency and are based upon closing bid rates published by Reuters. Year Ended December 31, 1999 1998 1997 U.S. Dollar: Period-end rates 1.450 1.550 1.430 Average for the period 1.485 1.483 1.384 High for the period 1.534 1.582 1.439 Low for the period 1.447 1.407 1.337 U.K. Pound: Period-end rates 2.350 2.570 2.370 Average for the period 2.402 2.457 2.269 High for the period 2.539 2.638 2.409 Low for the period 2.277 2.306 2.158 Philippine Peso: Period-end rates 0.036 0.040 0.036 Average for the period 0.038 0.037 0.048 High for the period 0.040 0.040 0.053 Low for the period 0.036 0.032 0.035 Hong Kong Dollar: Period end Rates 0.187 0.200 0.185 Average for the period 0.191 0.192 0.179 High for the period 0.198 0.204 0.186 Low for the period 0.187 0.182 0.173 As at February 18, 2000, the closing bid rates published by Reuters for currency conversion to Canadian dollars were: U.S. $1.00 = Can. $1.450; U.K. 1.00 = Can. $2.323; Philippine Peso 1.00 = Can. $0.036; and Hongkong $1.00 = Can. $0.186. FORWARD-LOOKING STATEMENTS THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY, INCLUDING ITS BUSINESS OPERATIONS AND STRATEGY AND FINANCIAL PERFORMANCE AND CONDITION. THESE STATEMENTS, WHICH APPEAR UNDER THE HEADINGS "SUMMARY", "BUSINESS OF THE COMPANY", "DESCRIPTION OF DEMUTUALIZATION AND CORPORATE REORGANIZATION", MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "RISK MANAGEMENT" AND "RISK FACTORS", AS WELL AS ELSEWHERE IN THIS PROSPECTUS, GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS SUCH AS "MAY", "WILL", "EXPECT", "INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE", OR "CONTINUE" OR THE NEGATIVE THEREOF OR SIMILAR VARIATIONS. ALTHOUGH MANAGEMENT BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS INCLUDE, AMONG OTHER THINGS, GENERAL ECONOMIC AND MARKET FACTORS, INCLUDING INTEREST RATES, BUSINESS COMPETITION, CHANGES IN GOVERNMENT REGULATIONS OR IN TAX LAWS AND OTHER FACTORS DISCUSSED UNDER "RISK FACTORS." SUMMARY The following summary information should be read in conjunction with the full text of this Prospectus and is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus. Investors should read this Prospectus in its entirety and not rely solely on the summary information. In this Prospectus, the term "Sun Life of Canada" refers to Sun Life Assurance Company of Canada together with its consolidated subsidiaries and "Sun Life Assurance" refers only to Sun Life Assurance of Canada. In this Prospectus, the term "Company" refers at all times prior to the Demutualization, to Sun Life Assurance and its consolidated subsidiaries, including Sun Life Financial Services of Canada Inc. and, at all times on or after the Demutualization, to Sun Life Financial Services of Canada Inc. and its consolidated subsidiaries, including Sun Life Assurance, and the term "Financial Services" refers only to Sun Life Financial Services of Canada Inc. Following the Demutualization, Sun Life Assurance and its subsidiaries will be subsidiaries of Financial Services. See "Description of Demutualization and Corporate Reorganization". Certain capitalized terms used in this Summary are defined elsewhere in this Prospectus. See "Glossary" for definition of certain capitalized terms and explanation of certain insurance and investment terms. Unless otherwise indicated, information in this Prospectus assumes no exercise of the Over-allotment Options. The Company Financial Services was incorporated under the Insurance Companies Act (Canada) for the purpose of becoming the parent holding company of Sun Life of Canada. Under a plan conversion adopted by the board of directors of Sun Life Assurance on September 28, 1999 (the "Conversion Plan") and approved by Eligible Policyholders on December 15, 1999, Sun Life Assurance will convert from a mutual insurance company to an insurance company with share capital (the conversion, together with other matters included in the Conversion Plan, is referred to as the "Demutualization"), and become a wholly-owned subsidiary of Financial Services. See "Description of Demutualization and Corporate Reorganization." Business of the Company The Company is a leading international financial services company, providing a wide range of savings, retirement, pension and life and health insurance products and services to individual and corporate customers. The Company operates primarily in Canada, the United States and the United Kingdom and also has operations in Asia and South America. At December 31, 1999, Sun Life of Canada was the largest life insurance company in Canada, based on total assets under management of approximately $301.3 billion. For the year ended December 31, 1999, Sun Life of Canada had consolidated revenues of $14.7 billion. Sun Life Assurance is one of the highest rated Canadian-based insurance companies, with AA+ rating from Standard & Poor's (for financial strength) and AAA rating, with a negative outlook, from Duff & Phelps (for claims paying ability). At December 31, 1999, the Company had approximately 11,200 employees worldwide and an extensive global distribution network of more than 100,000 distributors, including career-sales forces in certain countries, independent insurance agents, investment dealers and financial planners. The Company operates in two principal businesses. The Wealth Management Business comprises all of the Company's asset management, mutual fund, pension, annuity and trust and banking operations. These operations are conducted principally in Canada, the United States and the United Kingdom. The Protection Bureau comprises the Company's insurance, or protection, operations around the world, including its group life and health insurance business in the United States, Canada and the United Kingdom and its individual assurance businesses in the United States, Canada, the United Kingdom and its individual insurance business in the United States, Canada, the United Kingdom, the Philippines, Hong Kong Bermuda and Indonesia. The Company has a third reporting area, Corporate and Other Business, which comprises revenue and expenses not directly attributable to the Wealth Management and Protection Business, including income on corporate capital and unallocated corporate office costs. Wealth Management Business Through its Wealth Management Business, the Company provides mutual funds and unit trusts, pensions and pooled institutional funds, fixed and variable annuity products, asset management services and trust, banking and brokerage services. The Wealth Management Business comprised $7.7 billion, or 52% of the Company's consolidated revenues in 1999 and accounted for $268.9 billion, or 89% of the Company's total assets under management at December 31, 1999. The Wealth Management Business' clients included approximately 2.9 million individual investors and approximately 7,000 institutional investors worldwide at that date. In 1999, approximately 97% of the company's wealth management products, measured by dollars of sales, were sold by independent third parties, with the balance being sold by career agents. The Company operates its Wealth Management Business in the United States primarily through its subsidiaries, Massachusetts Financial Services Company ("MFS") and Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"). At December 31, 1999, MFS managed $198.9 billion in assets for individual and institutional mutual fund and annuity investors worldwide, including $24.9 billion of assets managed on behalf of other business units of the Company. At December 31, 1999, Morningstar Inc. awarded four or five stars to 20 of 57 MFS funds ranked by Morningstar, representing 67% of total U.S. mutual fund assets under management by MFS which were ranked by Morningstar at that date. MFS has also been ranked among the top four large mutual fund organizations in terms of overall service provided for each of the past five years in the DALBAR, Inc. industry survey of broker/dealers in the U.S. In 1999, MFS funds accounted for 7.1% of new sales in the United States of non-proprietary retail mutual funds distributed by third parties. According to Strategic Insight Simfund, in 1999 MFS ranked second among mutual fund companies in the U.S. distributing primarily through non-proprietary channels and sixth in the overall industry in long term net new flows into mutual funds. The Company also conducts substantial wealth management operations in the United States through the sale by Sun Life of Canada (U.S.) or variable and fixed annuity products. At December 31, 1999, the Company had $27.4 billion of assets under management relating to its U.S. individual annuity products with more than 287,000 individual annuity contracts. In Canada, the Company administers and manages group retirement products, including pension plans. According to Benefits Canada, the Company was ranked first in Canada among providers of defined contribution pensions and first among life insurance companies which provide group retirement products (including defined contribution pension plans, group registered retirement savings plans and deferred profit sharing plans), based on assets under management as December 31, 1998. In addition, the Company offers mutual funds, institutional investment funds and investment management services to individual and institutional clients through its subsidiaries, Spectrum United Mutual Funds Inc. ("Spectrum United") and McLean Budden Limited ("McLean Budden"). At December 31, 1999, assets under management in the Canadian Wealth Management Business were $39.7 billion including $2.5 billion sub-managed by MFS. The Company offers unit trust, unit-linked pension products, pension fund management services and banking operations in the United Kingdom. At December 31, 1999, the Company's U.K. Wealth Management Business had approximately $22.0 billion of assets under management. The Company believes that the strength of its Wealth Management Business results from the variety and quality of its products and services, its investment management performance, the effectiveness of its multiple channels of distribution and the quality of its customer service. Protection Business Through its Protection Business, the Company offers protection products and services primarily in Canada, the United States, the United Kingdom and Asia. The Company 's protection products and services include whole life, term life, universal life, variable universal life, unit-linked life and corporate-owned life insurance for individuals and life, health and disability insurance for groups. Measured by premium income for the year ended December 31, 1998, the Company was ranked second in Canada among insurance providers of group life and health insurance in Canada by Benefits Canada and was ranked third in group life and health insurance in the United Kingdom in terms of premium revenue by ERC Frankona The Protection Business comprised $6.8 billion, or 46%, of the Company's consolidated revenues for the year ended December 31, 1999 and accounted for $27.5 billion, or 9%, of the Company's total assets under management at December 31; 1999. In 1999, approximately 71% of the sales of the Company's protection products, measured by dollars of sales, were made by career agents and approximately 29% were made by independent third parties. ESCacI The Company believes that its success in the Protection Business results from the variety and quality of the Company's protection products, the Company's financial strength, as measured by its claims paying ability, the effectiveness of the Company's underwriting and the quality of its customer service. Strategy The Company's strategic objective is to be a leading financial services provider with a significant presence in each of its chosen markets, with increasing emphasis on its Wealth Management Business. To achieve this objective, the Company intends to pursue the following strategies: (i) aggressively expand the Wealth Management Business; (ii) strategically grow higher return Protection Business lines; (iii) achieve superior shareholder returns while maintaining financial discipline (iv) leverage strong brands across multiple product offerings; (v) capitalize on distribution strengths; and (vi) pursue expansion in key strategic markets. Aggressively Expand the Wealth Management Business The Company seeks to continue the growth of its Wealth Management Business, which generates fee income and requires relatively low levels of capital. The Company has been successful in increasing assets under management in its Wealth Management Business, having generated a compound annual growth rate for the five-year period ended December 31, 1999 of approximately 25% The Company is committed to increasing its share in the expanding global market for savings and retirement products by offering its customers a wide range of innovative wealth management products designed to address customers' changing needs in various stages of life and in different financial market cycles. The Company also seeks to grow its Wealth Management Business by increasing marketing initiatives which target individual participants in group plans, as well as by expanding third party distribution channels. Strategically Grow Higher Return Protection Business Lines The Company believes that its ability to design and distribute innovative protection products will allow for profitable growth in the individual Protection Business. Over the past few years, the Company has repositioned its individual life product offerings in Canada and the United States from traditional products to higher value-added products designed to respond to customers' needs for estate planning and intergenerational wealth transfer. As a result, the Company has gained an attractive niche position in the high net worth segment of the U.S. life insurance market. Through its demonstrated expertise in servicing large group customers, the Company has developed a diverse portfolio of products with customized services. The Company has also been able to enhance and expand its array of services through partnerships and other initiatives. The Company expects to provide a platform for continued growth of the Protection Business through the use of the Internet and other direct marketing initiatives to reach the individual plan members of its group clients and by providing a broad range of value-added services to its group clients. Achieve Superior Shareholder Returns While Maintaining Financial Discipline The Company will be focused on effectively deploying its capital to maximize its return to shareholders. The Company will manage its capital while maintaining its financial discipline in each of its strategic business units, targeting a minimum return on capital allocated to each unit. The Company intends to divest businesses that do not achieve an adequate level of shareholder return within a prescribed timeframe, that do not fit with the Company's overall strategic objectives, or that are unlikely to achieve a significant market presence. In addition, the Company intends to redeploy capital into high growth markets, such as India, Japan and China, and into high return businesses. The Company also intends to aggressively implement cost reduction measures designed to improve profitability and to contribute to shareholder returns. The Company intends to maintain appropriate financial strength to protect the interests of its stakeholders while maximizing shareholder returns. TCIDSa Leverage Strong Brands Across Multiple Product Offerings The Company has been selling its products under the Sun Life name since 1871. Additionally, the MFS organization, which started the first mutual fund in the United States, has been operating since 1924, McLean Budden since 1947 and Spectrum United since 1987. Due to their long operating histories and broad distribution of high quality products, these entities have established strong brand recognition in the markets in which they operate. The Company seeks to capitalize on cross-selling opportunities by leveraging its position in established distribution channels and by exploiting the strength of its respected brand names. Capitalize on Distribution Strengths The Company has a leading market position in group distribution of life and health products in Canada and the U.K. With the trend for group plan sponsors to outsource many elements of benefits administration to financial service providers, the Company increasingly has the opportunity to establish direct contact with individual plan members through the Internet and telephone, thereby providing significant new marketing opportunities. The Company intends to capitalize on these and other emerging distribution channels to expand its customer base and increase the profitability of products and services offered to those customers. The Company believes that, as financial services and products are increasingly distributed through the channel of the customer's choice, its expertise in managing multi-channel distribution networks provides a competitive advantage. Pursue Expansion in Key Strategic Markets The Company intends to pursue strategic acquisitions and alliances that will enhance its performance and deliver attractive returns on invested capital. The Company will seek acquisition opportunities for its Wealth Management Business principally in North America. The Company will focus on acquisition opportunities in the Protection Business involving higher return businesses or businesses which are intended to permit the Company to achieve economies of scale or reduce costs or which are of strategic importance. When expanding into new markets, the Company primarily intends to pursue joint ventures with local partners. The Company believes that this approach allows it to leverage its competitive strengths in product development, distribution, investment management and technology with its partners' knowledge of local markets. The Company believes that, following Demutualization, it will be better positioned to pursue strategic alliances and acquisitions by having greater access to capital markets and the ability to issue shares as consideration for acquisitions. The Offering Issue: 143,500,000 Common Shares, of which 46,100,000 Common Shares will be issued by Financial Services and 97,400,000 Common Shares are offered by the Selling Policyholders up to an additional Common Shares may be issued by Financial Services upon exercise of the over- allotment options (the "Over-allotment Options") granted by Financial Services to the Underwriters. After giving effect to the Offering, and not including the exercise of the Over-allotment Options, it is anticipated the there will be Common Shares outstanding. Price: $ per Common Share. Amount: Primary Offering: $ Secondary Offering: $ Total: $ =========== Use of Proceeds: The estimated proceeds to Financial Services from this Offering, assuming the Over-allotment Options are not exercised and after deducting fees payable to the Underwriters for the sale of Common Shares by Financial Services and Selling Policyholders and the estimated expenses of the Offering, will be $ Neither Financial Services nor Sun Life of Canada will receive any proceeds from the sale of Common Shares by Selling Policyholders. The proceeds received by Financial Services from the sale of 46,100,000 Common Shares will be used to satisfy obligations incurred by Financial Services in connection with the purchase of Common Shares from certain Eligible Policyholders in Canada as well as to invest in Sun Life Assurance to enable Sun Life Assurance to fund Policy Credits and certain cash payments on Demutualization. All costs and expenses of the Offering, including fees payable to the Underwriters, will be paid from the general funds of Financial Services. If the Over-allotment Options are exercised the proceeds are expected to be used by Financial Services for general corporate purposes, which may include investments in certain subsidiaries. The Company will not receive any proceeds from the issuance of Common Shares to Eligible Policyholders under the Conversion Plan. See "Description of Demutualization and Corporate Reorganization". Dividend Policy: Financial Services intends to pay dividends to shareholders in a range that is comparable to that of shareholder dividends paid by other publicly traded North American financial services companies. Financial Services currently expects to pay dividends on a quarterly basis, commencing the fourth quarter of 2000. The dividend policy will be reviewed periodically by the board of directors of Financial Services. See "Dividend Policy of Financial Services". Risk Factors There are certain risk factors inherent in an investment in Common Shares, including risks relating to: obligations of the Company in respect of compensation for prior pension sales practices in the United Kingdom; obligations of the Company in respect of liabilities relating to certain guaranteed annuity products in the United Kingdom; potential reinsurance liabilities of the Company relating to Unicover; needed strengthening of the Company's risk management system; the fact that Financial Services is a holding company and that there are certain restrictions on the payment of dividends to Financial Services by its subsidiaries; the continuing obligations of the Company to its participating policyholders; certain restrictions on the ownership of Common Shares which have the effect of preventing an acquisition of, or certain other transactions by, the Company; certain factors affecting the wealth management industry, such as the effect of changes in market conditions on fee income, investment performance, decisions taken by independent directors of certain funds for which the Company acts as adviser or sub-adviser and the retention of qualified personnel; fluctuations in interest rates; obligations of the Company in respect of "premium offset" class action litigation; potential U.S. tax liabilities; dependence on certain third-party relationships; the fact that the insurance and wealth management industries are significantly regulated in each of the jurisdictions in which the Company carries on business; Intense competition in both the insurance and wealth management industries; variations in the claims experience of the Company's Protection Business; changes in ratings assigned to Sun Life Assurance or its subsidiaries which carry on the Protection Business; the effect of market changes on the Company's investment portfolio; fluctuations in currency exchange rates. increases in surrenders of annuity products offered by the Company; guaranteed minimum benefits with respect to certain of the Company's annuity products; potential changes in tax laws which could reduce the attractiveness of certain of the Company's products; the immediate eligibility of Common Shares issued on the Demutualization for resale in the public market without restriction; the absence of a prior public market for the Common Shares; dilution in the net tangible book value of the Common Shares following closing of the Offering; potential environmental liabilities in connection with investments of the Company; and the effect of the Year 2000 issue on the Company's information systems. See "Risk Factors" SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following summary consolidated financial data at and for the years ended December 31, 1999, 1998 and 1997, except for "Other Data" and "Certain Pro Forma Information", have been extracted without adjustment from the audited consolidated financial statements of Sun Life of Canada. Except as indicated under "Certain Pro Forma Information", the following data show the historical results of Sun Life of Canada do not give effect to the Demutualization. For a description of the effect of, among other things, the Demutualization and the Offering on the consolidated financial results of Sun Life of Canada, see "Pro Forma Condensed Consolidated Financial Statements ". Following the Demutualization, Sun Life Assurance and its subsidiaries will be subsidiaries of Financial Services. The consolidated financial statements of Sun Life of Canada have been prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP"). Canadian GAAP differs in certain significant respects from accounting principles generally accepted in the United States ("U.S. GAAP"). For a discussion of the differences between Canadian GAAP and U.S. GAAP and a reconciliation of Sun Life of Canada's Consolidated Financial Statements at and for the years ended December 31, 1999, 1998 and 1997 to U.S. GAAP, see Note 32 to the Consolidated Financial Statements. 1999 1998 1997 (in millions) Statement of Operations Data: Canadian GAAP Revenue Premiums: Life insurance $3,332 $3,313 $2,955 Health insurance 1,196 1,110 1,062 Annuities 3,494 2,409 2,488 8,022 6,832 6,505 Net investment income 4,121 4,041 3,788 Fee income 2,606 2,014 1,427 Total Revenue 14,749 12,887 11,720 Policy benefits and expenses Payments to policy holders, beneficiaries and depositors 6,978 6,999 6,626 Net transfers to segregated funds 2,327 1,493 994 Increase in actuarial liabilities 1,004 480 697 Commissions 1,146 936 762 Operating Expenses 2,277 2,012 1,670 Premium and investment income taxes 87 82 76 Interest on borrowings 85 106 99 Cumulative capital securities dividends 76 76 46 13,980 12,184 10,970 Operating income before income taxes 769 703 750 Income taxes 418 274 201 Net operating income 351 429 549 Goodwill charges 17 287 28 Net income from continuing operations 334 142 521 Loss for discontinued operations, net of income taxes 170 88 10 Net income $164 $54 $511 U.S. GAAP Premiums $4,615 $4,548 $4,207 Total revenue 11,129 11,727 10,408 Net operating income (loss) before discontinued operations and extraordinary item (8) 567 785 Net income (loss) (252) 448 790 At December 31, 1999 1998 (in millions) Balance Sheet Data: Canadian GAAP Assets Total general fund assets $54,751 $54,319 ====== ====== Segregated funds net assets $46,014 $39,213 ====== ====== Liabilities and surplus Total general fund liabilities $47,269 $46,544 Subordinated debt 734 764 Cumulative capital securities of a subsidiary 870 930 Surplus 5,878 6,081 Total general fund liabilities and surplus $54,751 $54,319 ====== ====== Segregated funds contract liabilities $46,014 $39,213 ====== ====== At December 31, 1999 1998 (in millions) U.S. GAAP Total consolidated assets $106,924 $101,932 Total consolidated liabilities and segregated funds liabilities 97,940 91,551 Equity 7,380 8,687 Data for the Wealth Management and Protection Businesses Data for the Wealth Management and Protection Businesses The following table summarizes certain historical financial data for the Wealth Management Business and the Protection Business at and for the years ended December 31, 1999, 1998 and 1997. At and for the Year Ended December 31 1999 1998 1997 (in millions) % of Total (in millions) % of Total (in millions) % of Total Revenues: Wealth Management $7,734 52% $6,092 47% $5,565 47% Protection 6,771 46% 6,501 51% 5,941 51% Corporate and Other 244 2% 294 2% 214 2% Total $14,749 100% $12,887 100% $11,720 100% ======= ====== ======= ====== ======= ====== Net Operating Income (Loss): Wealth Management $(16) N/A ($257) N/A $130 24% Protection 319 N/A 552 N/A 328 60% Corporate and Other 48 N/A 134 N/A 91 16% Total $351 N/A $429 N/A $549 100% ====== === ====== === ====== ====== Total Assets Under Management: Wealth Management $268,949 89% $220,646 88% $158,839 85% Protection 27,471 9% 26,918 11% 23,074 13% Corporate and Other 4,883 2% 3,042 1% 4,341 2% Total $301,303 100% $250,606 100% $186,254 100% ======= ===== ======== ====== ======== ====== Other Data The following table summarizes the growth experienced by the Company in net mutual fund sales and gross additional segregated fund deposits, as well as the growth in assets under management by the Company, other than its general funds and segregated funds. At and for the Year Ended December 31, 1999 1998 1997 (in millions) Mutual fund sales, net of redemptions $14,306 $19,815 $9,400 Segregated fund deposits 4,137 4,345 3,430 Other assets under management 200,538 157,074 106,035 Certain Items Affecting Net Income from Continuing Operations Sun Life of Canada recorded significant charges in 1999 and 1998 with respect to its business in the United Kingdom in 1998, these charges related principally to compensation for prior pension sales practices, minimum rate guarantees on annuities which may be purchased in connection with certain pension policies and, in connection with both of these matters, the write-off of goodwill recorded on the acquisition in 1994 of a U.K. subsidiary of Confederation Life Insurance Company. In 1999, the Company recorded additional charges with respect to prior pension sales practices. The following table sets forth these and certain other significant items which are reflected in the Company's net income from continuing operations in the years ended December 31, 1999 and December 31, 1998 and, for comparative purposes, the amount of the same items in 1997. For an explanation of these items, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Certain Items Affecting Net Income from Continuing Operations." Year Ended December 31, 1999 1998 1997 (in millions) Net income from continuing operations $334 $142 $521 Adjustments United Kingdom Adjustments Pension Sales Provisions $438 $347 $196 Annuity Rate Provisions (28) 313 31 Write-off of goodwill recorded on the 1194 acquisition of Confederation U.K. Holdings - 260 - Change in actuarial liabilities on participating business in the United Kingdom - (178) - Tax impact of U.K. Adjustments - (56) (64) Total United Kingdom Adjustments 410 686 163 ==== ==== === MFS Adjustments Gain on issue of MFS shares to certain MFS employees (41) (66) (11) Tax impact of MFS Adjustments 14 22 4 Total MFS Adjustments (27) (44) (7) Total Adjustments $383 $642 $156 ==== ==== ==== Certain Pro Forma Information The following table sets forth pro forma financial data extracted without adjustment from the pro forma condensed consolidated financial information of the Company for the year ended December 31, 1999 contained in this Prospectus. This pro forma financial data gives effect to (i) the Demutualization, including the restructuring of the Participating Policyholders' Account of Sun Life Assurance as described under "Description of Demutualization and Corporate Reorganization Establishment and Operation of Participating Policyholders' and Shareholders' Accounts on Demutualization". (ii) the Offering and (iii) the application of any proceeds of the Offering to Financial Service as described under "Use of Proceeds". see "Pro Forma Condensed Consolidated Financial Statement". Year Ended December 31, 1999 (in millions, except per share data) Canadian GAAP Pro forma revenue $14,749 Pro forma net income from continuing operations attributable to shareholders (1) 266 Pro forma basic earnings per Common Share: Net income from continuing operations (2) 0.67 Pro forma shareholders' equity 5.627 Pro forma shareholders' equity per Common Share (2) 14.07 Year Ended December 31, 1999 (in millions, except per share data) U.S. GAAP Pro forma revenue $11, 129 Pro forma net operating income (loss) attributable to shareholders, before discontinued operations and extraordinary item (1) (53) Pro forma basic earnings (loss) before discontinued operations and extraordinary item per Common Share (2) (0.13) Pro forma shareholders' equity (3) 7,311 Per forma shareholder' equity per Common Share (2) 18.28 (1) During the year ended December 31, 1999, the Company recorded the significant charges described above under "Certain Items Affecting Net Income from Continuing Operations". certain of these charges (aggregating $383 million for the year ended December 31, 1999, and on a U.S. GAAP basis, $438 million for the year ended December 31, 1999) are reflected in the Company's pro forma net income (loss) attributable to shareholders for that period See "Management's Discussion and Analysis of Results of Operations Certain Items Affecting Net Income from Continuing Operations Pro Forma Condensed Consolidated Statement of Operations" (2) Pro forma basic earnings (loss) per Common Share and pro forma shareholders' equity per Common Share are calculated assuming 400 million shares are outstanding after the Demutualization and the Offering (3) Pro forma shareholders' equity on a U.S. GAAP basis includes accumulated other comprehensive income (loss), which primarily represents movement in the foreign currency translation account and unrealized gains and losses, net of tax, on available for sale securities. See Note 32 to the Consolidated Financial Statements. SUN LIFE FINANCIAL SERVICES OF CANADA, INC. In contemplation of the Demutualization, Sun Life Financial Services of Canada Inc. was incorporated under the Insurance Companies Act (Canada) (the "Act") on August 5, 1999, and is currently a wholly-owned subsidiary of Sun Life Assurance. Following the completion of the Demutualization and the corporate reorganization described below, Financial Services will be a holding company which will hold directly all of the outstanding shares of Sun Life Assurance. Financial Services may carry on such other activities as the board of directors of Financial Services (the "Board of Directors") may approve. Financial Services does not have any present intention to issue any insurance policies or otherwise insure risks. Sun Life Assurance was incorporated as a stock life company by a Special Act of Parliament of Canada in 1865 and became a mutual life insurance company in 1962. Sun Life of Canada has had operations in Canada since 1871, in the United States since 1895, in the United Kingdom since 1893 and in Asia Pacific region since 1892. As a mutual life insurance company, Sun Life Assurance has no common shareholders. Its existing board of directors was elected by its participating policyholders in accordance with the Act. Financial Services head office is located at Sun Life Centre, 150 King Street West, Toronto, Ontario, Canada, M5H IJ9. DESCRIPTION OF DEMUTUALIZATION AND CORPORATE REORGANIZATION Overview On September 28, 1999, the board of directors of Sun Life Assurance adopted the Conversion Plan pursuant to which, among other things, Sun Life Assurance will become a life insurance company with share capital, wholly-owned by Financial Services. On December 15, 1999, the Eligible Policyholders of Sun Life Assurance approved the Conversion Plan. On Demutualization, approximately 1,050,000 Eligible Policyholders of Sun Life Assurance will be issued approximately 400 million Common shares. In addition, Eligible Policyholders who are entitled to receive only Policy Credits or cash or who elect cash will receive those benefits. Demutualization is not expected to have a material impact on the scope or nature of the Company's day-to-day business activities. Sun Life of Canada carries on the Wealth Management and Protection Businesses through branch operations in the United States, the United Kingdom, Hong Kong and the Philippines and through direct and indirect subsidiaries in Canada, the U.S. and the U.K. The corporate structure of Sun Life of Canada currently includes the principal direct and indirect subsidiaries shown below. Unless otherwise indicated, all subsidiaries are 100% owned. Illegible portion in PSE file (1) As of December 31, 1999, Subject to reduction. See "Business of the Company Wealth Management Business Canada McLean Budden" and "Business of the Company Wealth Management Business United States" Corporate Reorganization Subject to the receipt of satisfactory regulatory approvals, Sun Life Assurance will transfer its business conducted in the Philippines, on an indemnity reinsurance basis, to Sun Life of Canada (Philippines), Inc. ("Sun Life of Canada (Philippines)"), prior to or, as soon as reasonably practicable, after Demutualization. Under the terms of the indemnity reinsurance arrangement, Sun Life of Canada (Philippines) will assume all risk of Sun Life of Canada with respect to policies sold by the Philippines branch. Subject to the receipt of satisfactory regulatory and court approvals, the business of Sun Life of Canada currently conducted through its United Kingdom branch and related business (including its operations in the Republic of Ireland and the Channel Islands) and its Hongkong branch will be transferred to subsidiaries. The business conducted through the United Kingdom branch and related business (including the business of Confederation Life Insurance (U.K.) Limited ("Confederation Life (U.K.)") will be transferred to Sun Life Assurance Company of Canada (U.K.) Limited ("Sun Life of Canada (U.K.)") on Demutualization pursuant to a statutory scheme under applicable insurance legislation. In addition, the assets of Confederation U.K. Holdings plc. will be transferred to Sun Life of Canada UK Holdings plc. It is expected that the business conducted through the Hongkong branch will be transferred to Sun Life of Canada (International) Limited ("Sun Life of Canada (International)") simultaneously or, as soon as reasonably practicable, after Demutualization, which transfer is proposed to be made through a statutory scheme under applicable insurance legislation. SADECI After completion of the Demutualization and the corporate reorganization described above, the corporate structure of the Company will include the principal direct and indirect subsidiaries shown below. Unless otherwise indicated, all subsidiaries are 100% owned. Illegible portion in PSE file (1) As of December 31, 1999, Subject to reduction. See "Business of the Company Wealth Management Business Canada McLean Budden" and "Business of the Company Wealth Management Business United States" Establishment and Operation of Participating Policyholders' and Shareholders' Account on Demutualization Overview As a mutual life insurance company, Sun Life Assurance sells participating insurance policies, which entitle their owners to participate in the profits of Sun Life Assurance, and non-participating policies. As required by the Act, Sun Life Assurance maintains a Participating Policyholders' Account to which assets, liabilities and surplus relating to participating policies are allocated and which is separate from the accounts which Sun Life Assurance maintains for its non-participating policies and other businesses. All of Sun Life Assurance's assets are, nevertheless, available for the purpose of meeting its obligations to its policy holders. The Company intends to continue to sell participating policies after Demutualization. The Company will complete the corporate reorganization described above and restructure its accounts on Demutualization so that future earnings which are not required to support participating policies sold before Demutualization will be available to Financial Services and its shareholders. Under the Conversion Plan, Sun Life Assurance will be required to maintain its Participating Policyholders' Account and, within that account, will maintain and operate sub-accounts for participating policies sold by it before Demutualization which have not been transferred to Sun Life of Canada (U.K.) or Sun Life of Canada (International) ("SLC Pre-Demutualization Participating Policies"). Sun Life Assurance will maintain a sub-account with respect to each of the major territories in which it conducts business: Canada (including Bermuda and certain foreign countries), the United States and the Philippines. Sun Life Assurance will set aside sufficient assets in each of these territorial sub-accounts to protect policyholders' reasonable expectations in respect of future policy dividends and other non-guaranteed policy benefits and meet contractual obligations under these SLC Pre-Demutualization participating Policies. Sun Life Assurance will also maintain and operate territorial sub-accounts for participating policies sold by it after Demutualization in Canada (including Bermuda) and the United States ("SLC Post-Demutualization * * missing pages from 14-17 Participating Policyholders' Funds in Sun Life of Canada (International) (Hong Kong) Following Demutualization, and provided all necessary regulatory and court approvals have been obtained, the Company's subsidiary, Sun Life of Canada (International), will maintain separate funds for the benefit of its policyholders and shareholder. The long-term business fund for the benefit of policyholders will comprise one part for Hong Kong Transferred Participating Policies and another part for new participating and any non-participating policies of Sun Life Canada (International). The assets allocated to support the part for Hong Kong Transferred Participating Policies, together with any earnings, will be held for the benefit of those policyholders only, in order to support contractual obligations and reasonable expectations with respect to policy dividends and non-guaranteed policy benefits. These assets and earnings, accordingly, will not be available to support non-participating policies transferred to Sun Life of Canada (International), insurance policies sold by Sun Life of Canada (International) following Demutualization or for transfer to the shareholders' account. If, at any time following Demutualization, the liabilities in the part of the long-term business fund for Hongkong Transferred Participating Policies are greater than the assets in that part, Sun Life of Canada (International) will be required to transfer sufficient assets to that account from the shareholders' account to eliminate any deficit. All of the assets of Sun Life Canada (International) will be available at any time to support the payment of contractual obligations on the Hong Kong Transferred Participating Policies and any other policies of Sun Life of Canada (International). The assets allocated to the part of the long-term business fund to support policies of Sun Life of Canada (International) issued following Demutualization will be used to support those policies. To the extent, however, that a margin of solvency prescribed by Hong Kong insurance legislation is maintained, any assets in excess of this amount may be transferred to the shareholders' account maintained for the benefit of Sun Life Assurance. Cash flows and allocations related to the Hong Kong Transferred Participating Policies, including, but not limited to, related premiums, death benefits, policy dividends, surrenders, expenses, taxes and reinsurance cash flows will be credited or charged, as applicable, to the part of the long-term business fund for Hong Kong Transferred Participating Policies. In addition, the actual mortality, lapse and dividend experience of these policies will be charged to part of the long-term business fund account. Pursuant to the proposed statutory Hong Kong scheme, however, the amount of expenses that may be charged to the part of the long-term business fund for Hong Kong Transferred Participating Policies is limited to the current level of expenses charged, with permitted increments for inflation, for a five-year period. Accordingly, Sun Life of Canada (International) may be required to contribute amounts for excess expenses, if any, from its shareholders' account. The Company's Hong Kong business is expected to be transferred to Sun Life of Canada (International) on or shortly after Demutualization. In the event that the transfer of the insurance business of Sun Life Assurance in Hong Kong has not been completed on Demutualization, the affected policies will remain in the Participating Policyholders Account, and Sun Life Assurance will put arrangements in place, including the establishment of such accounts and allocation of assets and liabilities, as the Appointed Actuary of Sun Life Assurance deems necessary and appropriate pending the completion of the transfer. These arrangements will be designed to meet contractual obligations, and to protect reasonable expectations in respect of future dividends and other non-guaranteed policy benefits, under the affected policies. USE OF PROCEEDS The estimated proceeds to Financial Services from the Offering, assuming the Over-allotment Options are not exercised and after deducting fees payable to the Underwriters for the sale of Common Shares by Financial Services and the Selling Policyholders and the estimated expenses of the Offering, will be $ . Neither Financial Services nor Sun Life of Canada will receive any proceeds from the sale of Common Shares by Selling Policyholders. The proceeds received by Financial Services from the sale of 46,100,000 Common Shares will be used to satisfy the obligations incurred by Financial Services in connection with the purchase of Common Shares from certain Eligible Policyholders in Canada as well as to invest in Sun Life Assurance in order to enable Sun Life Assurance to fund Policy Credits and certain cash payments on Demutualization. All costs and expenses of the Offering, including fees payable to the Underwriters, will be paid from the general funds of Financial Services. If the Over-allotment Options are exercised, the proceeds are expected to be used by Financial Services for general corporate purposes, which may include investments in certain subsidiaries. The Company will not receive any proceeds from the issuance of Common shares to Eligible Policyholders under the Conversion Plan. See "Description of Demutualization and Corporate Reorganization."