485BPOS 1 charter.htm charter.htm
 
 
 

 As filed with the Securities and Exchange Commission on April 28, 2010.
 
Registration Nos. 333-111642
 
811-07543


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 7
[X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No.  127
[X]

Keyport Variable Account A
(Exact name of Registrant)

Sun Life Assurance Company of Canada (U.S.)
(Name of Depositor)

One Sun Life Executive Park, Wellesley Hills, MA 02481
(Address of Depositor's Principal Executive Offices) (Zip Code)

Depositor's Telephone Number, including Area Code:  781-263-6402

Sandra M. DaDalt, Esq.
Assistant Vice President and Senior Counsel
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481
(Name and Address of Agent for Service)

Copies of Communications to:
Thomas C. Lauerman, Esq.
Jorden Burt LLP
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007

It is proposed that this filing will become effective (check appropriate box)

£ immediately upon filing pursuant to paragraph (b) of Rule 485
R on April 30, 2010 pursuant to paragraph (b) of Rule 485
£ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
£ on (date) pursuant to paragraph (a)(1) of Rule 485.

If appropriate, check the following box:
£ this post-effective amendment designates a new effective date for a previously filed post-effective amendment

Title of Securities Being Registered: Units of Interest in the Separate Account under the Contracts

No filing fee is due because an indefinite amount of securities is deemed to have been registered in reliance on Section 24(f) of the Investment Company Act of 1940.


 
 
 





CONTENTS OF REGISTRATION STATEMENT



The Facing Sheet

The Contents Page

PART A

Prospectus

PART B

Statement of Additional Information

PART C

Items 24 - 32

The Signatures

Exhibits







 
 
 





PART A


 
 
 

PROSPECTUS FOR
KEYPORT CHARTER VARIABLE ANNUITY
GROUP AND INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
KEYPORT VARIABLE ACCOUNT A
OF
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

This prospectus describes the Keyport Charter variable annuity group Contracts and Certificates offered by Sun Life Assurance Company of Canada (U.S.). The prospectus also offers the Certificates in the form of Individual Contracts, where required by certain states. All discussion of Certificates applies to the Contracts and Individual Contracts unless specified otherwise.

Under the Certificate, you may elect to have value accumulate on a variable or fixed basis. You may also elect to receive periodic annuity payments on either a variable or a fixed basis. This prospectus generally describes only the variable features of the Certificate. For a summary of the Fixed Account and its features, see Appendix A.

The Certificates are designed to help you in your retirement planning. You may purchase them on a tax qualified or non-tax qualified basis. Because they are offered on a flexible payment basis, you are permitted to make multiple payments (except in Oregon where they are offered only on a single purchase payment basis). As of the date of this prospectus the Certificate is not available for sale in Oregon. If you live in Oregon, you or your agent should call (800) 367-3653 to see whether the Certificate has been approved for sale in your state.

We will allocate your purchase payments to the investment options and the Fixed Account in the proportions you choose. The Certificate currently offers twenty-nine investment options, each of which is a Sub-account of Keyport Variable Account A. Currently, you may choose among the Sub-accounts investing in the following Eligible Funds:

Large-Cap Equity Funds
International/Global Equity Funds
Invesco V.I. Capital Appreciation Fund, Series 12
Invesco V.I. International Growth Fund, Series 14
Invesco V.I. Core Equity Fund, Series 13
AllianceBernstein International Growth Portfolio,
AllianceBernstein Growth & Income Portfolio,
Class B
Class B
International/Global Small/Mid Cap Equity Funds
Columbia Large Cap Growth Fund, Variable Series,
Wanger International Select1
Class B
Wanger International1
Columbia Large Cap Value Fund, Variable Series,
Specialty Sector Equity Fund
Class B
AllianceBernstein Global Thematic Growth
Columbia S&P 500 Index Fund, Variable Series, Class B
Portfolio, Class B
Fidelity® Variable Insurance Products Fund Dynamic
Asset Allocation Fund
Capital Appreciation Portfolio, Service Class 2
Columbia Asset Allocation Fund, Variable Series,
Fidelity® Variable Insurance Products Fund Equity -
Class B
Income Portfolio, Service Class 2
Money Market Fund
Fidelity® Variable Insurance Products Fund Growth
Columbia Money Market Fund, Variable Series,
Opportunities Portfolio, Service Class 2
Class A
MFS® Growth Series, S Class
Intermediate-Term Bond Fund
MFS® Investors Growth Stock Series, S Class
Columbia Federal Securities Fund, Variable Series,
MFS® Investors Trust Series, S Class
Class B
Rydex NASDAQ-100® Fund1
Multi-Sector Bond Fund
SCSM WMC Large Cap Growth Fund, S Class
Columbia Strategic Income Fund, Variable Series,
Mid-Cap Equity Funds
Class B
Columbia Mid Cap Value Fund, Variable Series, Class B
High Yield Bond Fund
Wanger Select1
Columbia High Yield Fund, Variable Series, Class B
Small Cap Equity Funds
 
Columbia Small Cap Value Fund, Variable Series,
 
Class B
 
MFS® New Discovery Series, S Class
 
Wanger USA1
 

1
These Funds do not have different shares classes.
2
Formerly AIM V.I. Capital Appreciation Fund, Series 1.
3
Formerly AIM V.I. Core Equity Fund, Series 1.
4
Formerly AIM V.I. International Growth Fund, Series 1.

AllianceBernstein L.P. advises the portfolios of the AllianceBernstein Variable Products Series Fund, Inc. Columbia Management Investment Advisers, LLC advises the Columbia Funds (with Nordea Investment Management North America, Inc. serving as the sub-advisor for Columbia Asset Allocation Fund, Variable Series and MacKay Shields LLC serving as sub-advisor to Columbia High Yield Fund, Variable Series). Columbia Wanger Asset Management, LP, advises the Wanger Funds. Fidelity Management & Research Company advises the Fidelity Portfolios. Invesco Advisers, Inc., advises the Invesco V.I. Funds of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds). Massachusetts Financial Services Company advises the funds of the MFS® Variable Insurance Trust. PADCO Advisors II, Inc. advises the Rydex NASDAQ-100® Fund. Sun Capital Advisers LLC advises the SCSM WMC Large Cap Growth Fund (with Wellington Management Company, LLP serving as the sub-advisor).

You may not purchase a Certificate if either you or the Annuitant are over 85 years old before we receive your application. You may not purchase a tax-qualified Certificate if you or the Annuitant are over 75 years old before we receive your application (age 85 applies to Roth IRAs).

The purchase of a Contract or Certificate involves certain risks. Investment performance of the Sub-accounts may vary based on the performance of the related Eligible Funds. We do not guarantee any minimum Certificate Value for amounts allocated to the Sub-accounts. In addition, benefits based on the Fixed Account may be subject to a market value adjustment. As a result, withdrawal benefits, death benefits, settlement values, transfers to Eligible Funds, or periodic income payments may be adjusted upward or downward.

The Variable Account may offer other certificates with different features, fees and charges, and other Sub-accounts which may invest in different or additional mutual funds. Separate prospectuses and statements of additional information will describe other certificates. The agent selling the Certificates has information concerning the eligibility for and the availability of the other certificates.

This prospectus contains important information about the Contracts and Certificates you should know before investing. You should read it before investing and keep it for future reference. We have filed a Statement of Additional Information (“SAI”) with the Securities and Exchange Commission. The current SAI has the same date as this prospectus and is incorporated by reference in this prospectus. You may obtain a free copy by writing us at P.O. Box 9133, Wellesley Hills, MA 02481, by calling (800) 367-3653, or by returning the postcard on the back cover of this prospectus. A table of contents for the SAI appears on page 51 of this prospectus. You can inspect and copy all of our filings at the SEC's public reference facilities at: 100 F Street, N.E., Washington, D.C. 20549-0102, telephone (202) 551-8090. The SEC will also provide copies by mail for a fee. You may also find these materials on the SEC's website (http:// www.sec.gov).
 
The date of this prospectus is April 30, 2010.

The Securities and Exchange Commission has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


 
 
 

TABLE OF CONTENTS

SUMMARY OF CERTIFICATE FEATURES  [INSERT PAGE NUMBER]
CONDENSED FINANCIAL INFORMATION  [INSERT PAGE NUMBER]
SUN LIFE (U.S.) AND THE VARIABLE ACCOUNT  [INSERT PAGE NUMBER]
PURCHASE PAYMENTS AND APPLICATIONS  [INSERT PAGE NUMBER]
INVESTMENTS OF THE VARIABLE ACCOUNT  [INSERT PAGE NUMBER]
Allocations of Purchase Payments  [INSERT PAGE NUMBER]
Eligible Funds  [INSERT PAGE NUMBER]
Transfer of Variable Account Value  [INSERT PAGE NUMBER]
Frequent Transfers  [INSERT PAGE NUMBER]
Substitution of Eligible Funds and Other Variable Account Changes  [INSERT PAGE NUMBER]
Deductions for Certificate Maintenance Charge  [INSERT PAGE NUMBER]
Deductions for Mortality and Expense Risk Charge  [INSERT PAGE NUMBER]
Deductions for Daily Distribution Charge  [INSERT PAGE NUMBER]
Deductions for Surrender Charge  [INSERT PAGE NUMBER]
Deductions for Optional Riders  [INSERT PAGE NUMBER]
Deductions for Transfers of Variable Account Value  [INSERT PAGE NUMBER]
Deductions for Premium Taxes  [INSERT PAGE NUMBER]
Deductions for Income Taxes  [INSERT PAGE NUMBER]
Total Variable Account Expenses  [INSERT PAGE NUMBER]
Certificate Value Deductions  [INSERT PAGE NUMBER]
OTHER SERVICES  [INSERT PAGE NUMBER]
THE CERTIFICATES  [INSERT PAGE NUMBER]
Variable Account Value  [INSERT PAGE NUMBER]
Valuation Periods  [INSERT PAGE NUMBER]
Net Investment Factor  [INSERT PAGE NUMBER]
Modification of the Certificate  [INSERT PAGE NUMBER]
Right to Revoke  [INSERT PAGE NUMBER]
DEATH PROVISIONS  [INSERT PAGE NUMBER]
Death of a Covered Person  [INSERT PAGE NUMBER]
Standard Death Benefit  [INSERT PAGE NUMBER]
Optional Death Benefits  [INSERT PAGE NUMBER]
Optional Leveraged Earnings Death Benefit Rider  [INSERT PAGE NUMBER]
Optional Enhanced Death Benefit Rider  [INSERT PAGE NUMBER]
Death Benefit During the Spousal Continuation Period  [INSERT PAGE NUMBER]
Systematic Withdrawal and Systematic Investment Programs  [INSERT PAGE NUMBER]
Payment of Death Benefit  [INSERT PAGE NUMBER]
CERTIFICATE OWNERSHIP  [INSERT PAGE NUMBER]
PARTIAL WITHDRAWALS AND SURRENDER  [INSERT PAGE NUMBER]
ANNUITY PROVISIONS  [INSERT PAGE NUMBER]
Annuity Benefits  [INSERT PAGE NUMBER]
Annuity Option and Income Date  [INSERT PAGE NUMBER]
Annuity Options  [INSERT PAGE NUMBER]
Variable Annuity Payment Values  [INSERT PAGE NUMBER]
Proof of Age, Sex, and Survival of Annuitant  [INSERT PAGE NUMBER]
Guaranteed Income Benefit Rider  [INSERT PAGE NUMBER]
SUSPENSION OF PAYMENTS  [INSERT PAGE NUMBER]
Introduction  [INSERT PAGE NUMBER]
Taxation of Annuities in General  [INSERT PAGE NUMBER]
Qualified Plans  [INSERT PAGE NUMBER]
Tax-Sheltered Annuities  [INSERT PAGE NUMBER]
Individual Retirement Annuities  [INSERT PAGE NUMBER]
Corporate Pension and Profit-Sharing Plans  [INSERT PAGE NUMBER]
Deferred Compensation Plans with Respect to Service for State and Local Governments  [INSERT PAGE NUMBER]
Required Minimum Distribution Requirements for Tax-Sheltered Annuities and Traditional Individual
     Retirement Annuities  [INSERT PAGE NUMBER]
Annuity Purchases by Nonresident Aliens  [INSERT PAGE NUMBER]
VARIABLE ACCOUNT VOTING PRIVILEGES  [INSERT PAGE NUMBER]
REPORTS TO OWNERS  [INSERT PAGE NUMBER]
SALES OF THE CERTIFICATES  [INSERT PAGE NUMBER]
LEGAL PROCEEDINGS  [INSERT PAGE NUMBER]
INQUIRIES BY CERTIFICATE OWNERS  [INSERT PAGE NUMBER]
Electronic Account Information  [INSERT PAGE NUMBER]
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION  [INSERT PAGE NUMBER]
APPENDIX A - The Fixed Account (Also Known as the Modified Guaranteed Annuity Account)  [INSERT PAGE NUMBER]
APPENDIX B - Telephone Instructions  [INSERT PAGE NUMBER]
APPENDIX C - Systematic Withdrawal Program  [INSERT PAGE NUMBER]


 
 
 

DEFINITIONS

Accumulation Unit: A unit of measurement used to calculate Variable Account Value.
 
 
Annuitant: The natural person on whose life annuity benefits are based and who will receive annuity payments starting on the Income Date.

Attained Age: The age of an individual, in years, as of their last birthday.

Benefit Base Amount: The amount used to calculate the charge you pay for the optional riders. The benefit base amount for the Optional Guaranteed Income Benefit Rider is defined in “Guaranteed Income Benefit Base” beginning on page 45. The benefit base amount for the Optional Leveraged Earnings Death Benefit Rider is defined in “Charge for the Optional Leveraged Earnings Death Benefit Rider”. The benefit base amount for the Optional Enhanced Death Benefit Rider is defined in “Charge for Optional Enhanced Death Benefit Rider”.

Certificate Anniversary: Each anniversary of the Certificate Date.
 
 
Certificate Date: The date when the Certificate becomes effective that is the date when we receive your completed application and initial purchase payment.
 
 
Certificate Owner (“you”): The person(s) having the privileges of ownership defined in the Certificate.

Certificate Value: The sum of the Variable Account Value and the Fixed Account Value under your Certificate at a given time.
 
 
Certificate Withdrawal Value: The Certificate Value increased or decreased by a limited market value adjustment that applies to any Fixed Account Value less any premium taxes, certificate maintenance charge and surrender charge.
 
 
Certificate Year: Each 12-month period beginning on the Certificate Date and each Certificate Anniversary thereafter.

Company (“we”, “us”, “our”, “Sun Life (U.S.)”): Sun Life Assurance Company of Canada (U.S.).
 
 
Covered Person: The person(s) identified in the Certificate whose death may result in an adjustment of Certificate Value, payment of a death benefit, a waiver of any surrender charges and a waiver of any market value adjustment or whose medical stay in a hospital or nursing facility may allow the Certificate Owner to be eligible for either a total or partial waiver of the surrender charge.
 
 
Designated Beneficiary: The person designated to receive any death benefits under the Certificate.
 
 
Eligible Funds: The underlying mutual funds in which the Variable Account invests.
 
 
Fixed Account: Part of our general account into which purchase payments or Certificate Values may be allocated or transferred.
 
 
Fixed Account Value: The value of all Fixed Account amounts accumulated under your Certificate prior to the Income Date.
 
 
Guarantee Period Anniversary: An anniversary of a Guarantee Period’s Start Date.
 
 
Guarantee Period Month: The first Guarantee Period Month is the monthly period which begins on the Start Date. Later Guarantee Period Months begin on the same day in the following months.
 
 
Guarantee Period Year: The 12-month period which begins on the Start Date. Guarantee Period Years thereafter begin on each Guaranteed Period Anniversary.
 
 
In Force: The status of the Certificate before the Income Date so long as:

(1)
it is not totally surrendered,
(2)
the Certificate Value under a Certificate does not go to zero, and
(3)
there has not been a death of the Annuitant or any Certificate Owner that will cause the Certificate to end within at most five years of the date of death.
 
 
Income Date: The date on which annuity payments are to begin.

Net Asset Value: The difference between the value of assets and the amount of liabilities.
 
 
Non-Qualified Certificate: Any Certificate that is not issued under a Qualified Plan.
 
 
Qualified Certificate: Certificates issued under Qualified Plans.
 
 
Qualified Plan: A retirement plan which receives special tax treatment under Sections 401, 403(b), 408(b) or 408A of the Internal Revenue Code (“Code”) or a deferred compensation plan for a state and local government or another tax exempt organization under Section 457 of the Code.
 
 
Start Date: The date money is first allocated to a Guarantee Period of the Fixed Account.
 
 
Variable Account: Keyport Variable Account A which is a separate investment account of the Company into which purchase payments under the Certificates may be allocated. The Variable Account is divided into Sub-accounts, each of which invests in shares of an Eligible Fund.
 
 
Variable Account Value: The value of all Variable Account amounts accumulated under your Certificate prior to the Income Date.
 
 
Written Request: A request written in a form satisfactory to us, signed by you and received by us.

SUMMARY OF CERTIFICATE FEATURES

This summary does not contain all of the information that may be important to you. You should read the entire prospectus and Statement of Additional Information before deciding to invest. Further, individual state requirements that differ from the information in this prospectus, are described in supplements to this prospectus or in endorsements to the Certificate.

Purchase of the Certificate

You may make multiple purchase payments (except in Oregon). The minimum initial payment is $5,000.  The minimum amount for each subsequent payment is $1,000 or a lesser amount as we may permit from time to time which is currently $250. (See “Purchase Payments and Applications”.)

Fees and Charges

Please see “Fee Table”, “Examples” and “Deductions”.

Federal Income Taxes

You will not pay federal income taxes on the increases in the value of your Certificate until you make a withdrawal, such as a lump sum payment or annuity payment, or make a gift or assignment. Some withdrawals may also be subject to a 10% federal penalty tax. (See “Tax Status”.)

Right to Revoke

Generally, you may revoke the Certificate by returning it to us within ten days after you receive it. For most states, we will refund your Certificate Value, plus any distribution charges previously deducted, as of the date we receive the returned Certificate. You will bear the investment risk during the revocation period. In other states, we will return purchase payments. You may ask us for rules that apply to your state. (See “Right to Revoke”.)


 
 
 

FEE TABLE

The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Certificate.


The table below describes the fees and expenses that you will pay at the time that you buy the Certificate, surrender the Certificate, or transfer cash value between investment options. State premium taxes may also be deducted.

Certificate Owner Transaction Expenses
 
 
Sales Load Imposed on Purchases (as a percentage of purchase payments):
0%
   
Maximum Surrender Charge (as a percentage of purchase payments):
7%*
   
Maximum Charge Per Transfer (currently $0):
$25**
   
Premium Taxes (as a percentage of Certificate Value or total purchase payments):
0%-3.5%***

*Completed years from Date of Purchase Payment
Sales Charge
Up to 1
7%
2
6%
3
5%
4
4%
5
3%
6
2%
7
1%
8 or later
0%

Surrender charges are deducted only if you totally or partially surrender the Certificate. You will not incur a surrender charge: (1) in the first Certificate Year where you withdraw an aggregate amount up to the Certificate’s earnings (earnings equal the Certificate Value at time of withdrawal less purchase payments not previously withdrawn); (2) in the second and later Certificate Years where you withdraw (a) earnings, and (b) an amount up to 10% of the Certificate Value as of the preceding Certificate Anniversary, less earnings.

**Applicable to each transfer after the first twelve transfers in each Certificate Year. We are currently waiving this fee. We reserve the right to impose a transfer fee after we notify you. See “Deductions for Transfers of Variable Account Value.”

***The premium tax rate and base vary by your state of residence and the type of Certificate you own. Currently, we deduct premium taxes from Certificate Value upon full surrender (including a surrender for the death benefit) or annuitization. See “Deductions for Premium Taxes.”


The table below describes the fees and expenses that you will pay periodically during the time that you own the Certificate, not including Eligible Fund fees and expenses.

Annual Certificate Maintenance Charge:
$36* 

*This maintenance charge will be waived before the Income Date if: (1) it is the first Certificate Anniversary; (2) the Certificate Value is at least $40,000 on the date the charge is imposed; or (3) in the prior Certificate Year, purchase payments of at least $2,000 have been made and you have not made any partial withdrawals. This waiver will be determined annually.

Variable Account Annual Expenses (as a percentage of average net assets)

Mortality and Expense Risk Charge:
1.25%
Distribution Charge:
0.15%
Total Variable Account Annual Expenses:
1.40%

Charges for Optional Features
  
(deducted from Certificate Value)
  
   
Charge for Optional Guaranteed Income Benefit Rider:
0.35%
  (as a percentage of rider’s benefit base amount)
  

Charge for Optional Enhanced Death Benefit Rider:
 0.10%
  (as a percentage of rider’s benefit base amount; if you elect both riders the charge
  
  is reduced to .05% but it will return to .10% if you later revoke the guaranteed
  
  income benefit rider)
  
   
Charge for Optional Leveraged Earnings Death Benefit Rider:
 0.15%
  (as a percentage of rider’s benefit base amount)
  
   
Maximum Annual Charge for Optional Features
   (as a percentage of the benefit base during the Certificate Year):
 
0.55%

Total Variable Account Annual Expenses with Maximum Charges for Available
   Optional Features (as a percentage of Certificate Value):
 
1.95%


The table below shows the minimum and maximum total operating expenses charged by the Eligible Funds that you may pay periodically during the time that you own the Certificate. More detail concerning each Eligible Fund’s fees and expenses is contained in the prospectus for each Eligible Fund.

Total Annual Eligible Fund Operating Expenses1
  
Minimum
  
Maximum
(as a percentage of average daily net assets)
        
         
Expenses that are deducted from Eligible Fund assets, including management
fees, distribution and/or service (12b-1) fees, and other expenses
  
 
0.60%
 
 
1.72%
 
1 The expenses shown, which include any acquired fund fees and expenses, are those incurred for the year ended December 31, 2009. Current or future expenses may be greater or less than those shown. For more information about Eligible Fund expenses, including a description of any applicable fee waiver or expense reimbursement arrangement, see the prospectuses of the Eligible Funds.

WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE ELIGIBLE FUND EXPENSE INFORMATION.

EXAMPLES

The Examples are intended to help you compare the cost of investing in the Certificate with the cost of investing in other variable annuity contracts. These costs include Certificate Owner transaction expenses, Certificate fees, Variable Account annual expenses, and Eligible Fund fees and expenses, and are based on a sample Certificate with the maximum possible fees.

The Examples assume that you invest $10,000 in the Certificate for the time periods indicated. The Examples also assume that your investment has a 5% return each year and assume the maximum fees and expenses of any of the Eligible Funds. The Examples also assume that you have selected all three optional benefits. If these optional benefits were not elected or fewer options were elected, the expense figures shown below would be lower. In addition, the Examples assume no transfers were made and no premium taxes were deducted. If these arrangements were considered, the expenses shown would be higher. The Examples also do not take into consideration any fee waiver or expense reimbursement arrangements of the Eligible Funds. If these arrangements were taken into consideration, the expenses shown would be lower.

Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

(1) If you surrender your Certificate at the end of the applicable time period:

1 year
3 years
5 years
10 years
$1,070
$1,677
$2,448
$5,051

(2) If you annuitize your Certificate at the end of the applicable time period:

1 year
3 years
5 years
10 years
$312
$1,141
$2,086
$5,051

(3) If you do not surrender your Certificate:

1 year
3 years
5 years
10 years
$312
$1,141
$2,086
$5,051

The Examples do not show the effect of premium taxes. Premium taxes (ranging from 0% to 3.5%) are deducted from Certificate Value upon full surrender, death or annuitization. The Examples also do not include any of the taxes or penalties you may be required to pay if you surrender your Certificate.

We waive the certificate maintenance charge on the first Certificate Anniversary and in certain other instances.
 
 
The Fee Table and Examples should not be considered a representation of past or future expenses and charges of the Sub-accounts. Your actual expenses may be greater or less than those shown. Similarly, the 5% annual rate of return assumed in the Examples is not an estimate or a guarantee of future investment performance. For more information about the expenses of the Eligible Funds, including a description of any applicable fee waiver or expense reimbursement arrangement, see the prospectuses for the Eligible Funds.

CONDENSED FINANCIAL INFORMATION

 
Accumulation Unit Values*
 
Accumulation
Accumulation
Number of
  
 
Unit Value
Unit Value
Accumulation
  
 
Beginning
End
Units End
  
Sub-account
of Year**
of Year
of Year
Year
         
Invesco V.I. Capital Appreciation Fund
$7.426
$8.867
300.966
2009
 
13.094
7.426
345,644
2008
 
11.854
13.094
452,527
2007
 
11.308
11.854
579,636
2006
 
10.535
11.308
626,654
2005
 
10.019
10.535
690,889
2004
 
7.843
10.019
681,914
2003
 
10.514
7.843
716,471
2002
 
13.898
10.514
893,643
2001
 
16.164
13.898
458,646
2000
         
Invesco V.I. International Growth Fund
10.594
14.130
954,594
2009
 
18.019
10.594
1,195,493
2008
 
15.928
18.019
1,482,510
2007
 
12.595
15.928
1,821,301
2006
 
10.829
12.595
2,007,155
2005
 
8.855
10.829
2,203,889
2004
 
6.957
8.855
2,399,390
2003
 
8.366
6.957
2,040,128
2002
 
11.095
8.366
1,789,112
2001
 
13.148
11.095
581,743
2000
         
Invesco V.I. Core Equity Fund
7.943
10.050
348,153
$7.426
 
11.530
7.943
441,825
2008
 
10.815
11.530
549,146
2007
 
7.544
10.815
659,948
2006
 
7.240
7.544
981,791
2005
 
6.941
7.240
1,143,314
2004
 
5.627
6.941
1,273,740
2003
 
7.638
5.627
1,491,634
2002
 
9.488
7.683
1,435,505
2001
 
11.103
9.488
562,144
2000
         
AllianceBernstein Growth and Income Portfolio
8.341
9.901
1,204,876
2009
 
14.264
8.341
1,452,843
2008
 
13.794
14.264
1,930,156
2007
 
11.956
13.794
2,260,016
2006
 
11.590
11.956
2,656,143
2005
 
10.567
11.590
2,818,497
2004
 
8.106
10.567
2,873,754
2003
 
10.574
8.106
2,531,777
2002
 
10.707
10.574
2,126,439
2001
 
10.488
10.707
524,817
2000
         
AllianceBernstein Global Thematic Growth Portfolio
4.781
7.221
395,332
2009
 
9.229
4.781
467,398
2008
 
7.806
9.229
629,357
2007
 
7.303
7.806
701,237
2006
 
7.145
7.303
831,061
2005
 
6.894
7.145
973,454
2004
 
5.240
6.894
1,052,961
2003
 
8.472
5.240
979,282
2002
 
11.525
8.472
997,174
2001
 
16.445
11.525
512,890
2000
         
AllianceBernstein International Growth Portfolio
9.545
13.107
165,986
2009
 
18.966
9.545
215,715
2008
 
16.330
18.966
309,213
2007
 
13.069
16.330
340,256
2006
 
10.992
13.069
400,067
2005
 
8.991
10.992
202,491
2004
 
6.372
8.991
134,013
2003
 
6.749
6.372
103,809
2002
 
8.274
6.749
74,227
2001
 
10.000
8.274
25,489
2000
         
Fidelity® Dynamic Capital Appreciation Portfolio
8.518
11.407
81,853
2009
 
14.727
8.518
125,503
2008
 
13.993
14.727
154,614
2007
 
12.466
13.993
186,308
2006
 
10.474
12.466
127,445
2005
 
10.487
10.474
85,823
2004
 
8.513
10.487
82,531
2003
 
9.338
8.513
31,755
2002
 
11.065
9.338
19,017
2001
         
Fidelity® Equity-Income Portfolio
8.016
10.268
1,383,638
2009
 
14.215
8.016
1,758,194
2008
 
14.234
14.215
2,195,829
2007
 
12.034
14.234
2,557,549
2006
 
11.558
12.034
2,833,652
2005
 
10.537
11.558
2,868,196
2004
 
8.217
10.537
2,719,988
2003
 
10.057
8.217
1,807,665
2002
 
10.761
10.057
1,244,295
2001
 
10.000
10.761
336,161
2000
         
Fidelity® Growth Opportunities Portfolio
4.324
6.203
1,008,877
2009
 
9.774
4.324
1,367,356
2008
 
8.064
9.774
1,434,888
2007
 
7.779
8.064
1,731,504
2006
 
7.258
7.779
1,851,192
2005
 
6.885
7.258
2,018,081
2004
 
5.395
6.885
1,968,290
2003
 
7.015
5.395
1,417,634
2002
 
8.334
7.015
1,092,408
2001
 
10.000
8.334
422,661
2000
         
Columbia Small Cap Value Fund
14.541
17.925
332,387
2009
 
20.524
14.541
407,127
2008
 
21.364
20.524
569,819
2007
 
18.148
21.364
747,044
2006
 
17.448
18.148
859,919
2005
 
14.442
17.448
961,659
2004
 
10.509
14.442
913,974
2003
 
11.354
10.509
785,436
2002
 
10.544
11.354
543,908
2001
 
9.196
10.544
246,843
2000
         
Columbia Strategic Income Fund
19.386
22.941
704,762
2009
 
21.322
19.386
943,407
2008
 
20.447
21.322
1,342,753
2007
 
19.404
20.447
1,469,729
2006
 
19.402
19.404
1,593,342
2005
 
17.910
19.402
1,626,288
2004
 
15.352
17.910
1,549,948
2003
 
14.387
15.352
1,046,559
2002
 
14.075
14.387
835,046
2001
 
14.004
14.075
150,792
2000
         
Columbia High Yield Fund
7.944
11.275
563,663
2009
 
10.707
7.944
572,311
2008
 
10.676
10.707
748,020
2007
 
9.777
10.676
945,692
2006
 
9.680
9.777
1,250,996
2005
 
9.169
9.680
1,485,252
2004
 
8.045
9.169
1,749,516
2003
 
8.477
8.045
1,097,313
2002
 
8.845
8.477
572,392
2001
 
9.393
8.845
82,044
2000
         
Columbia Large Cap Value Fund
21.038
25.659
402,268
2009
 
33.978
21.038
487,280
2008
 
33.620
33.978
656,087
2007
 
28.926
33.620
823,728
2006
 
27.617
28.926
923,577
2005
 
24.683
27.617
1,012,637
2004
 
20.916
24.683
1,107,607
2003
 
27.211
20.916
746,840
2002
 
27.774
27.211
584,979
2001
 
27.420
27.774
103,707
2000
         
Columbia S&P 500 Index Fund
5.995
7.448
1,954,099
2009
 
9.713
5.995
2,379,478
2008
 
9.392
9.713
2,920,473
2007
 
8.279
9.392
3,215,118
2006
 
8.055
8.279
3,825,878
2005
 
7.418
8.055
4,040,725
2004
 
5.891
7.418
3,917,362
2003
 
7.732
5.891
2,932,855
2002
 
8.926
7.732
2,018,057
2001
 
10.000
8.926
548,661
2000
         
Columbia Mid Cap Value Fund
10.197
13.241
895,935
2009
 
18.179
10.197
1,168,202
2008
 
17.138
18.179
1,462,818
2007
 
14.863
17.138
1,716,695
2006
 
13.447
14.863
1,950,802
2005
 
11.824
13.447
2,124,466
2004
 
9.408
11.824
2,191,734
2003
 
10.744
9.408
1,721,318
2002
 
10.530
10.744
975,701
2001
 
10.000
10.530
125,193
2000
         
MFS® Growth Series
10.862
14.711
186,629
2009
 
17.637
10.862
203,569
2008
 
14.797
17.637
231,582
2007
 
13.942
14.797
292,718
2006
 
12.979
13.942
316,650
2005
 
11.676
12.979
385,010
2004
 
9.112
11.676
426,940
2003
 
13.969
9.112
408,207
2002
 
21.340
13.969
497,244
2001
 
25.193
21.340
199,105
2000
         
MFS® Investors Growth Stock Series
4.470
6.131
855,636
2009
 
7.192
4.470
1,050,611
2008
 
6.569
7.192
1,615,119
2007
 
6.208
6.569
1,770,344
2006
 
6.039
6.208
1,971,563
2005
 
5.169
6.039
2,108,345
2004
 
4.647
5.169
2,141,984
2003
 
6.519
4.647
1,471,381
2002
 
8.795
6.519
1,368,254
2001
 
10.000
8.795
521,716
2000
         
MFS® Investors Trust Series
6.868
8.572
758,636
2009
 
10.434
6.868
952,082
2008
 
9.616
10.434
1,175,512
2007
 
8.652
9.616
1,431,565
2006
 
8.197
8.652
1,603,162
2005
 
7.480
8.197
1,649,442
2004
 
6.227
7.480
1,699,256
2003
 
8.007
6.226
1,279,201
2002
 
9.678
8.007
1,001,256
2001
 
10.000
9.678
263,346
2000
         
MFS® New Discovery Series
5.473
8.793
365,309
2009
 
9.176
5.473
343,875
2008
 
9.101
9.176
461,269
2007
 
8.171
9.101
621,345
2006
 
7.888
8.171
691,935
2005
 
7.532
7.888
823,661
2004
 
5.724
7.532
879,652
2003
 
8.510
5.724
733,113
2002
 
9.109
8.510
554,001
2001
 
10.000
9.109
249,294
2000
         
Rydex NASDAQ-100® Fund
2.404
3.604
389,796
2009
 
4.197
2.404
337,722
2008
 
3.612
4.197
409,630
2007
 
3.463
3.612
447,065
2006
 
3.473
3.463
506,565
2005
 
3.220
3.473
591,589
2004
 
2.246
3.220
808,024
2003
 
3.724
2.246
765,971
2002
 
5.826
3.724
839,789
2001
 
10.000
5.826
283,680
2000
         
Columbia Federal Securities Fund
27.563
27.648
994,092
2009
 
25.925
27.563
1,114,851
2008
 
24.808
25.925
1,697,619
2007
 
24.331
24.808
1,920,904
2006
 
24.085
24.331
2,116,054
2005
 
23.502
24.085
2,315,983
2004
 
23.291
23.502
2,511,460
2003
 
21.551
23.291
2,175,875
2002
 
20.470
21.551
1,388,903
2001
 
19.020
20.470
266,979
2000
         
Columbia Asset Allocation Fund
25.704
31.378
443,126
2009
 
36.428
25.704
604,498
2008
 
33.873
36.428
743,741
2007
 
30.775
33.873
883,539
2006
 
29.327
30.775
1,017,220
2005
 
27.084
29.327
1,103,224
2004
 
22.830
27.084
1,185,511
2003
 
26.290
22.830
1,091,390
2002
 
29.424
26.290
1,157,409
2001
 
29.843
29.424
348,981
2000
         
Columbia Large Cap Growth Fund
23.815
31.613
171,322
2009
 
40.613
23.815
199,847
2008
 
35.636
40.613
277,026
2007
 
32.812
35.636
319,723
2006
 
31.840
32.812
355,676
2005
 
32.996
31.840
428,991
2004
 
26.756
32.996
490,935
2003
 
38.908
26.756
492,912
2002
 
52.458
38.908
564,532
2001
 
62.409
52.458
271,038
2000
         
Columbia Money Market Fund
17.068
16.872
1,313,631
2009
 
16.873
17.068
1,885,205
2008
 
16.293
16.873
1,738,053
2007
 
15.776
16.293
1,718,871
2006
 
15.559
15.776
1,841,039
2005
 
15.640
15.559
1,763,912
2004
 
15.750
15.640
1,917,845
2003
 
15.774
15.750
2,182,815
2002
 
15.437
15.774
2,454,182
2001
 
15.017
15.437
747,684
2000
         
Wanger International Select
10.163
13.322
241,164
2009
 
18.518
10.163
296,384
2008
 
15.420
18.518
500,520
2007
 
11.496
15.420
574,648
2006
 
10.012
11.496
566,933
2005
 
8.165
10.012
485,986
2004
 
5.862
8.165
412,683
2003
 
7.017
5.862
301,878
2002
 
9.697
7.017
190,887
2001
 
10.000
9.697
15,678
2000
         
Wanger International
11.101
16.398
684,035
2009
 
20.694
11.101
832,789
2008
 
18.043
20.694
975,107
2007
 
13.338
18.043
1,255,727
2006
 
11.128
13.338
1,449,269
2005
 
8.662
11.128
1,513,635
2004
 
5.900
8.662
1,531,654
2003
 
6.944
5.900
1,356,351
2002
 
8.931
6.944
754,869
2001
 
10.000
8.931
27,214
2000
         
Wanger Select
10.769
17.649
522,930
2009
 
21.439
10.769
668,445
2008
 
19.874
21.439
816,870
2007
 
16.835
19.874
1,053,118
2006
 
15.450
16.835
1,169,283
2005
 
13.131
15.450
1,261,639
2004
 
10.185
13.131
1,201,202
2003
 
11.180
10.185
685,057
2002
 
10.393
11.180
364,884
2001
 
10.000
10.393
30,152
2000
         
Wanger USA
11.297
15.846
1,259,769
2009
 
18.994
11.297
1,579,742
2008
 
18.276
18.994
1,899,651
2007
 
17.179
18.276
2,314,467
2006
 
15.657
17.179
2,636,868
2005
 
13.417
15.657
2,878,701
2004
 
9.499
13.417
2,975,581
2003
 
11.578
9.499
2,185,691
2002
 
10.541
11.578
1,179,999
2001
 
10.000
10.541
40,017
2000
         
SC WMC Large Cap Growth Fund***
5.559
7.516
578,468
2009
 
10.121
5.559
703,323
2008
 
10.000
10.121
921,441
2007
 
 
*    Accumulation Unit Values are rounded to the nearest tenth of a cent and numbers of accumulation units are rounded to the nearest whole number.
**  Each value for 2000 is as of June 1, 2000 which is the date the Eligible Fund Sub-account first became available except for the Wanger Eligible Fund Sub-accounts which became available on October 16, 2000 and Fidelity VIP Dynamic Capital Appreciation Fund Sub-account which became available May 1, 2001.
*** The beginning value for SCSM WMC Large Cap Growth Fund is as of April 27, 2007, which is the date the Eligible Fund Sub-account first became available.
 
The full financial statements for the Variable Account and Sun Life Assurance Company of Canada (U.S.) are in the Statement of Additional Information.

SUN LIFE (U.S.) AND THE VARIABLE ACCOUNT

We are a stock life insurance company incorporated under the laws of Delaware on January 12, 1970. We do business in 49 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, and we have an insurance company subsidiary that does business in New York. The Executive Office mailing address is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

We are ultimately controlled by Sun Life Financial Inc. (“Sun Life Financial”). Sun Life Financial, a corporation organized in Canada, is a reporting company under the Securities Exchange Act of 1934 with common shares listed on the Toronto, New York, and Philippine stock exchanges.

We are a member of the Insurance Marketplace Standards Association (“IMSA”), and as such may use the IMSA logo and membership in IMSA in advertisements. Being a member means that we have chosen to participate in IMSA’s Life Insurance Ethical Market Conduct Program.

The Variable Account was established by Keyport Life Insurance Company (“Keyport”), a predecessor of Sun Life (U.S.), on January 30, 1996, pursuant to the provisions of Rhode Island law, as a segregated investment account. On December 31, 2003, Keyport was merged with and into Sun Life (U.S.). The Variable Account survived the merger intact. The Variable Account meets the definition of “separate account” under the federal securities laws. The Variable Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. Such registration does not mean the Securities and Exchange Commission supervises us or the management of the Variable Account.
 
 
Obligations under the Certificates are our obligations. Although the assets of the Variable Account are our property, these assets are held separately from our other assets and are not chargeable with liabilities arising out of any other business we may conduct. Income, capital gains and/or capital losses, whether or not realized, from assets allocated to the Variable Account are credited to or charged against the Variable Account without regard to the income, capital gains, and/or capital losses arising out of any other business we may conduct.
 
 
PURCHASE PAYMENTS AND APPLICATIONS

The initial purchase payment is due on the Certificate Date. The minimum initial purchase payment is $5,000. You may make additional purchase payments. We reserve the right to limit each purchase payment to at least $1,000. For payments made under the systematic investment program, we reserve the right to limit each payment to $50. We may reject any purchase payment or any application.

If your application for a Certificate is complete and amounts are to be allocated to the Variable Account, we will apply your initial purchase payment to the Variable Account within two business days of receipt. If the application is incomplete, we will notify you and try to complete it within five business days. If it is not complete at the end of this period, we will inform you of the reason for the delay. The purchase payment will be returned immediately unless you specifically consent to our keeping the purchase payment until the application is complete. Once the application is complete, the purchase payment will be applied within two business days of its completion. Additional purchase payments are allocated to a Certificate based on the applicable sub-account accumulation unit value(s) next determined after we receive it.

We will send you a written notification showing the allocation of all purchase payments and the re-allocation of values after any transfer you have requested. You must notify us immediately of any error. You may contact our Client Service Department at (800) 367-3653. If you fail to notify us within 60 days, we will not assume responsibility for correcting the error.
 
 
We will permit others to act on your behalf in certain instances, including:

l
We will accept an application for a Certificate signed by an attorney-in-fact if we receive a copy of the power of attorney with the application.
   
l
We will issue a Certificate to replace an existing life insurance or annuity policy that we or an affiliated company issued even though we did not previously receive a signed application from you.

Certain dealers or other authorized persons such as employers and Qualified Plan fiduciaries may inform us of your responses to application questions by telephone or by order ticket and cause the initial purchase payment to be paid to us. If the information is complete, we will issue the Certificate. We will send you the Certificate and a letter so you may review the information and notify us of any errors. We may request you to confirm that the information is correct by signing a copy of the letter or a Certificate delivery receipt. We will send you a written notice confirming all purchases. Our liability under any Certificate relates only to amounts so confirmed.
 
 
INVESTMENTS OF THE VARIABLE ACCOUNT
 
 
Allocations of Purchase Payments
 
 
We will invest your purchase payments you applied in the Sub-accounts you have chosen. Your selection must specify the percentage of the purchase payment that is allocated to each Sub-account or must specify the asset allocation model you select. (See “Other Services, The Programs”.) The percentage for each Sub-account, if not zero, must be at least 5% and a whole number. You may change the allocation percentages without fee, penalty or other charge. You must notify us in writing of your allocation changes unless you, your attorney-in-fact, or another authorized person have given us written authorization to accept telephone allocation instructions. By allowing us to accept telephone changes, you agree to accept our current conditions and procedures. The current conditions and procedures are in Appendix B. We will notify you of any changes in advance.
 
 
The Variable Account is segmented into Sub-accounts. Each Sub-account contains the shares of one of the Eligible Funds and such shares are purchased at net asset value. We may add or withdraw Eligible Funds and Sub-accounts as permitted by applicable law.

Eligible Funds

The Certificate offers Sub-accounts that invest in a number of Eligible Fund investment options. More comprehensive information about the Eligible Funds, including a discussion of their management, investment objectives, expenses, and potential risks, is found in the current prospectuses for the Eligible Funds (the “Fund Prospectuses”). The Fund Prospectuses should be read in conjunction with this prospectus before you invest. A copy of each Fund Prospectus, as well as a Statement of Additional Information for each Eligible Fund, may be obtained without charge from the Company by calling (800) 367-3653 or by writing to Sun Life Assurance Company of Canada (U.S.), P.O. Box 9133, Wellesley Hills, Massachusetts 02481.

The Eligible Funds may also be available to registered separate accounts offering variable annuity and variable life products of other affiliated and unaffiliated insurance companies, as well as to the Variable Account and other separate accounts of the Company. Although we do not anticipate any disadvantages to this, there is a possibility that a material conflict may arise between the interests of the Variable Account and one or more of the other separate accounts participating in the Eligible Funds. A conflict may occur due to a change in law affecting the operations of variable life and variable annuity separate accounts, differences in your voting instructions and those of other companies, or some other reason. In the event of conflict, we will take any steps necessary to protect you, including withdrawal of the Variable Account from participation in the underlying Eligible Funds which are involved in the conflict or substitution of shares of other Eligible Funds.

Certain of the investment advisers, transfer agents, or underwriters to the Eligible Funds may reimburse us for administrative costs in connection with administering the Eligible Funds as options under the Certificates. These amounts are not charged to you or the Eligible Funds, but are paid from assets of the advisers, transfer agents, or underwriters.

Certain publicly available mutual funds may have similar investment goals and principal investment policies and risks as one or more of the Eligible Funds, and may be managed by an Eligible Fund’s portfolio manager(s). While an Eligible Fund may have many similarities to these other funds, its investment performance will differ from their investment performance. This is due to a number of differences between an Eligible Fund and these similar products, including differences in sales charges, expense ratios and cash flows.

Transfer of Variable Account Value
 
 
You may transfer Variable Account Value from one Sub-account to another Sub-account and/or to the Fixed Account. You must notify us in writing of your transfer requests unless you have given us written authorization to accept telephone transfer requests from you or your attorney-in-fact. By authorizing us to accept telephone transfer instructions, you agree to accept our current conditions and procedures. The current conditions and procedures are in Appendix B.  You will be given prior notification of any changes. A person acting on your behalf as an attorney-in-fact may make written transfer requests.
 
 
If we receive your transfer requests before 4:00 P.M. Eastern Time, we will initiate them at the close of business that day. We will initiate any written requests received after that time at the close of the next business day. We will execute your request to transfer value by both redeeming and acquiring Accumulation Units on the day we initiate the transfer.
 
 
If you transfer 100% of any Sub-account’s value, and the allocation formula for purchase payments on your application includes that Sub-account, the allocation formula for future purchase payments will automatically change unless you tell us otherwise.

Currently, we do not charge a transfer fee. We reserve the right to charge a fee for each transfer in excess of 12 in each Certificate Year. We will notify you prior to charging any transfer fee or changing the limitation on the number of transfers. The fee will not exceed $25.

Frequent Transfers

The Certificates are not designed for frequent transfer activity. If you wish to employ such strategies, do not purchase a Certificate. Transfer limitations and other restrictions described below, are subject to our ability to monitor transfer activity. Some Certificate Owners and their third party intermediaries engaging in frequent transfer activity may employ a variety of strategies to avoid detection. Despite our efforts to prevent frequent transfer activity, there is no assurance that we will be able to identify such Certificate Owners or intermediaries or curtail their transfer activity.

A failure to detect and curtail short-term trading could result in adverse consequences to the Contract Owners.  Short-term trading can increase costs for all Certificate Owners as a result of excessive portfolio transaction fees.  In addition, short-term trading can adversely affect a Fund’s performance.  If large amounts of money are suddenly transferred out of a Fund, the Fund’s investment adviser cannot effectively invest in accordance with the Fund’s investment objectives and policies.

     Limitations on Transfers

We discourage frequent transfers of Certificate Value among the Sub-accounts. Accordingly, we have established the following policies and procedures to limit the number and frequency of transfers:

l
we impose a transfer limit of one transfer every 30 days, or such other period as we may permit with notification of the change to all Certificate Owners prior to its effectiveness, and
   
l
we limit each transfer to a maximum of $2,000,000, or such greater amount as we may permit with notification of the change to all Certificate Owners prior to its effectiveness. We treat all transfer requests for a Certificate made on the same day as a single transfer.  We may treat as a single transfer all transfers you request on the same day for every Certificate you own. The total combined transfer amount is subject to the maximum limitation.  If the total amount of the requested transfers exceeds the maximum, we will not execute any of the transfers.

If we have executed a transfer with respect to your Certificate as part of a multiple transfer request, we will not execute another transfer request for your Certificate for 30 days. Transactions pursuant to optional investment-related programs, such as dollar cost averaging and portfolio rebalancing, are not considered in the application of these limits.

By applying these limitations, we intend to protect the interests of all Certificate Owners invested in the Sub-accounts. We have determined that the actions of individuals engaging in significant transfer activity may adversely affect the performance of the Eligible Fund for the Sub-account involved. The movement of values from one Sub-account to another may prevent the appropriate Eligible Fund from taking advantage of investment opportunities because the Eligible Fund must maintain a liquid position in order to handle redemptions. Such movement may also cause a substantial increase in fund transaction costs which all Certificate Owners must indirectly bear.

Transfer limitations may prevent you from making a transfer on the date you select. This may result in your Certificate Value being lower than it would have been if you had been able to make the transfer.


 
 
 

     Waiver of Transfer Limitations

In certain limited situations, we may accommodate transfers more frequent than one every 30 days. Therefore, we reserve the right to waive transfer limitations, where permitted by law and not adverse to the interests of the relevant Eligible Fund and other shareholders, in the following instances:

l
when a new broker of record is designated for the Certificate;
   
l
when the Certificate Owner changes;
   
l
when control of the Certificate passes to the designated beneficiary upon death of the Owner or Annuitant;
   
l
when necessary in our view to avoid hardship to a Certificate Owner; or
   
l
when Eligible Funds are dissolved or merged or substituted.

We reserve the right to change these limitations and exceptions at any time.  Any change will be applied uniformly. We will notify you of any change prior to its effectiveness.

If significant trading activity trading results as a consequence of waiving the transfer limitations, it could expose Certificate Owners to certain risks.  The significant trading activity could increase costs for all Certificate Owners as a result of excessive portfolio transaction fees.  In addition, the significant trading activity could adversely affect a Fund’s performance.  If large amounts of money are suddenly transferred out of a Fund, the Fund’s investment adviser cannot effectively invest in accordance with the Fund’s investment objectives and policies. Unless the limitations on transfers policy and the permitted waivers of that policy are applied uniformly, some Certificate Owners may experience a different application of the policy and therefore may experience some of these risks.  Too much discretion on our part in allowing the waivers of transfer policy could result in an unequal treatment of Certificate Owners by permitting some Certificate Owners to engage in frequent transfers while prohibiting others from doing the same.
 
 
     Eligible Funds’ Shareholder Trading Policies

In addition to the restrictions that we impose (as described above under “Limitations on Transfers”), most of the Eligible Funds have adopted restrictions or other policies about transfers or other purchases and sales of the Eligible Fund’s shares. These policies (the “Eligible Funds’ Shareholder Trading Policies”) are intended to protect the Eligible Fund from short-term trading or other trading practices that are potentially harmful to the Eligible Fund. The Eligible Funds’ Shareholder Trading Policies may be more restrictive in some respects than the restrictions that we otherwise would impose, and the Eligible Funds may modify their Shareholder Trading Policies from time to time.

We are legally obligated to provide (at the Eligible Funds’ request) information about each amount you cause to be deposited into an Eligible Fund (including by way of Purchase Payments and transfers under your Certificate) or removed from the Eligible Fund (including by way of withdrawals and transfers under your Certificate). If an Eligible Fund identifies you as having violated the Eligible Fund’s Shareholder Trading Policies, we are obligated, if the Eligible Fund requests, to restrict or prohibit any further deposits or exchanges by you (or a third party acting on your behalf) in respect of that Eligible Fund. Any such restriction or prohibition may remain in place indefinitely.

Accordingly, if you do not comply with any Eligible Fund’s Shareholder Trading Policies, you (or a third party acting on your behalf) may be prohibited from directing any additional amounts into that Eligible Fund or directing any transfers or other exchanges involving that Eligible Fund. You should review and comply with each Eligible Fund’s Shareholder Trading Policies, which are disclosed in the Eligible Funds’ current prospectuses.

Eligible Funds may differ significantly as to such matters as: (a) the amount, format, and frequency of information that the Eligible Funds request from us about transactions that our customers make; and (b) the extent and nature of any limits or restrictions that the Eligible Funds request us to impose upon such transactions. As a result of these differences, the costs borne by us and (directly or indirectly) by our customers may be significantly increased. Any such additional costs may outweigh any additional protection that would be provided to our customers, particularly in view of the protections already afforded by the trading restrictions that we impose as described under “Limitations on Transfers.” Also, if an Eligible Fund imposes more strict trading restrictions than are reasonably necessary under the circumstances, you could be deprived of potentially valuable flexibility to make transactions with respect to that Eligible Fund.  For these and other reasons, we may disagree with the timing or substance of a Eligible Fund’s requests for information from us or with any transaction limits or restrictions that the Eligible Fund requests us to impose upon our customers.  If any such disagreement with respect to an Eligible Fund cannot be satisfactorily resolved, the Eligible Fund might be restricted or, subject to obtaining any required regulatory approval, replaced as a variable investment option.

Substitution of Eligible Funds and Other Variable Account Changes
 
 
If shares of any of the Eligible Funds are no longer available for investment by the Variable Account, or further investment in the shares of an Eligible Fund is no longer appropriate under the Certificate, we may add or substitute shares of another Eligible Fund or of another mutual fund for Eligible Fund shares already purchased or to be purchased in the future. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940.
 
 
We also reserve the right to make the following changes in the operation of the Variable Account and Eligible Funds:
 
 
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to operate the Variable Account in any form permitted by law;
   
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to take any action necessary to comply with applicable law or obtain and continue any exemption from applicable law;
   
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to transfer any assets in any Sub-account to another or to one or more separate investment accounts, or to our general account;
   
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to add, combine or remove Sub-accounts in the Variable Account; and
   
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to change how we assess charges, so long as we do not increase them above the current total amount charged to the Variable Account and the Eligible Funds in connection with your Certificate.

DEDUCTIONS
 
 
Deductions for Certificate Maintenance Charge
 
 
We charge an annual certificate maintenance charge of $36 per Certificate Year. This charge reimburses us for our expenses incurred in maintaining your Certificate.

Before the Income Date, we will deduct the certificate maintenance charge from the Variable Account Value on each Certificate Anniversary and on the date of any total surrender not falling on the Certificate Anniversary. We will waive this charge before the Income Date if:
 
 
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it is the first Certificate Anniversary;
   
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the Certificate Value is at least $40,000 on the date we impose this charge, or
   
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in the prior Certificate Year, purchase payments of at least $2,000 have been made and you have not made any partial withdrawals.

On the Income Date, we will subtract from Variable Account Value, a pro-rata portion of the charge due on the next Certificate Anniversary. This pro-rata charge covers the period from the prior Certificate Anniversary to the Income Date.

Before and after the Income Date, we will deduct the certificate maintenance charge proportionally from each Sub-account based upon the value each Sub-account bears to the Variable Account Value.

After the Income Date, once annuity payments begin, we deduct the certificate maintenance charge only from variable annuity payments. We will subtract this charge in equal parts from each annuity payment. For example, if annuity payments are monthly, then we will deduct one-twelfth of the annual charge from each payment.

We will waive the charge on and after the Income Date for the current year if:

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you have selected variable annuity Option A; and
   
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the present value of all of the remaining payments is at least $40,000 at the time of the first payment of the year.

Deductions for Mortality and Expense Risk Charge
 
 
Variable annuity payments fluctuate depending on the investment performance of the Sub-accounts.  The payments will not be affected by the mortality experience (death rate) of persons receiving such payments or of the general population. We guarantee the standard death benefit described in “Death Provisions”. We also assume an expense risk since the certificate maintenance charge after the Income Date remains the same and does not change to reflect variations in expenses.
 
 
We deduct a mortality and expense risk charge from each Sub-account as part of the calculation of Accumulation Unit Values and Annuity Unit Values for each Valuation Period. The mortality and expense risk charge is equal, on an annual basis, to 1.25% of the average daily net asset value of each Sub-account. We deduct the charge both before and after the Income Date.

We may deduct less than the full charge from Sub-account values attributable to Certificates issued to our employees and to other persons specified in “Sales of the Certificates”.

Deductions for Daily Distribution Charge
 
 
We deduct a daily distribution charge from each Sub-account as part of the calculation of Accumulation Unit Values for each Valuation Period. This charge is equal, on an annual basis, to 0.15% of the average daily net asset value of each Sub-account. This charge compensates us for certain sales distribution expenses relating to the Certificates. We do not deduct the distribution charge during the annuity payment period.
 
 
We may decide not to deduct the charge from Sub-account values attributable to a Certificate issued in an internal exchange or transfer of an annuity contract from our general account. We do not deduct this charge from the values of the Certificates issued to our employees and other persons specified in “Sales of the Certificates”.

Deductions for Surrender Charge
 
 
We do not deduct a sales charge from the Certificate when you purchase it. We may deduct such a charge if you make a partial withdrawal from, or surrender, your Certificate.
 
 
To determine whether we will deduct a surrender charge on a withdrawal, we maintain a separate set of records. These records identify the date and amount of each purchase payment you have made and the Certificate Value over time. This allows us to determine if a charge is due with respect to a withdrawal from a particular purchase payment.
 
 
You may make partial withdrawals during the Accumulation Period without incurring a surrender charge. During the first Certificate Year, you may withdraw an amount up to the Certificate’s earnings. Earnings equal the Certificate Value at the time of withdrawal, less purchase payments not previously withdrawn. Beginning with the second Certificate Year, you may withdraw earnings, and up to an amount equal to 10% of the Certificate Value on the prior Certificate Anniversary, less earnings.

In each Certificate Year, we will deduct a surrender charge with respect to any portion of your withdrawals in excess of these “free withdrawal amounts”.
 
 
We will deduct the excess withdrawal amount in any Certificate Year from the purchase payments beginning with the oldest payment until we have deducted the full amount.

The amount of the surrender charge for each purchase payment from which an excess withdrawal is deducted will equal the amount so deducted multiplied by the applicable percentage for the number of years that have elapsed from the date of the purchase payment to the date of surrender. We measure years from the date of each purchase payment you make. The applicable percentages for each year are 7% during the first year, and decreasing by 1% each following year until the percentage is 0%. We will deduct the surrender charges from the Sub-accounts and the Fixed Account in the same manner as we deduct the amount you withdraw.

The surrender charge is used to cover the expenses of selling the Certificate, including the cost of sales literature and compensation paid to selling dealers. Selling dealers may receive up to 8.50% of purchase payments. (See “Sales of the Certificates”.) We pay any expenses not covered by the charge from our general account, which may include monies deducted from the Variable Account for the mortality and expense risk charge.
 
 
We will waive the surrender charge in the event a Covered Person is confined in a medical facility in accordance with the provisions and conditions of an endorsement to the Certificate relating to such confinement.
 
 
The surrender charge is not applicable to Certificates issued to our employees and other persons specified in “Sales of the Certificates”.
 
 
We may reduce or change any surrender charge percentage to 0% under a Certificate issued in an internal exchange or transfer of an annuity contract from our general account.

Under the “Systematic Withdrawal Program” on page 26 and under other permitted circumstances, we may allow the 10% “free withdrawal amount” to be available in the first Certificate Year.

Deductions for Optional Riders

The yearly charge for the optional Guaranteed Income Benefit rider is 0.35% of the benefit base for that rider. The yearly charge for the optional Enhanced Death Benefit rider is 0.05% of the benefit base for that rider if you purchase it along with the Guaranteed Income Benefit rider. If you purchase only the Enhanced Death Benefit rider or purchase both and later revoke the Guaranteed Income Benefit rider, the yearly charge for the Enhanced Death Benefit rider alone will be 0.10% of the benefit base for that rider. As long as a rider remains in effect, the applicable charge percentage is multiplied on each Certificate Anniversary by the greater of two defined benefit base amounts and the resulting dollar amount of the charge is deducted from the Certificate Value. A pro-rata portion of the charge amount is also deducted upon a total surrender unless the charge is waived, for example, because of death. (See “Optional Enhanced Death Benefit Rider” and “Optional Guaranteed Income Benefit Rider”.)

As stated above, the Enhanced Death Benefit rider charge is a percentage of the greater of two benefit base amounts. One of the benefit base amounts is the enhanced death benefit amount and the other (the “greatest Anniversary value”) is part of the standard death benefit.  Since we charge for the standard death benefit as part of the mortality and expense risk charge, the rider potentially charges again for the same benefit whenever the rider’s benefit base amount is the “greatest Anniversary value”.  If, however, the charge base for the rider did not include the “greatest Anniversary value”, we would need to set the rider charge higher than the applicable 0.05% or 0.10%.

If you purchase the optional Leveraged Earnings Death Benefit rider, the yearly charge for that rider will be 0.15% of the benefit base for that rider. As long as the rider remains in effect, the charge percentage for that rider is multiplied on each Certificate Anniversary by the rider’s benefit base amount and the resulting dollar amount of the charge is deducted from the Certificate Value. A pro-rata portion of the charge amount is also deducted upon a total surrender unless the charge is waived, for example, because of death. (See “Optional Leveraged Earnings Death Benefit Rider” below.)

As stated above, the Leveraged Earnings Death Benefit option charge is a percentage of the rider’s benefit base amount. The benefit base amount is at least equal to a portion of the standard death benefit. Since we charge for the standard death benefit as part of the mortality and expense risk charge, the option potentially charges again for the same benefit.  If, however, the charge base for the rider did not include any portion of the standard death benefit, we would need to set the option charge higher than 0.15%.

Deductions for Transfers of Variable Account Value
 
 
Currently, we do not charge a transfer fee. However, the Certificate allows us to charge up to $25 for each transfer in excess of 12 per year that occurs outside of the optional investment related programs. We will notify you prior to the imposition of any fee.
 
 
Deductions for Premium Taxes
 
 
We deduct the amount of any premium taxes required by any state or governmental entity. Currently, we deduct premium taxes from Certificate Value upon full surrender (including a surrender for the Death Benefit) or annuitization. The actual amount of any such premium taxes will depend, among other things, on the type of Certificate you purchase (Qualified or Non-Qualified), on your state of residence, the state of residence of the Annuitant, and the insurance tax laws of such states. Currently such premium taxes range from 0% to 3.5% of either total purchase payments or Certificate Value.
 
 
Deductions for Income Taxes
 
 
We will deduct income taxes from any amount payable under the Certificate that a governmental authority requires us to withhold. See “Income Tax Withholding” and “Tax-Sheltered Annuities”.

Total Variable Account Expenses
 
 
Total Variable Account expenses you will incur will be the certificate maintenance charge, the mortality and expense risk charge, the distribution charge, and, if applicable, a tax charge factor. (See “Net Investment Factor”.)
 
 
The value of the assets in the Variable Account will reflect the value of Eligible Fund shares and the deductions and expenses paid out of the assets of the Eligible Funds. The prospectus for the Eligible Funds describes these deductions and expenses.

Certificate Value Deductions

The certificate maintenance charge, surrender charge, the charge for the optional riders, transfer fee and premium taxes are each calculated independently of the other charges for purposes of determining the applicable charge amount and/or whether a charge waiver applies. Next, each charge amount is then deducted from the appropriate value under the Certificate.

OTHER SERVICES

The Programs. We offer the following optional investment-related programs under your Certificate which are only available prior to the Income Date:

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dollar cost averaging;
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asset allocation;
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systematic investment; and
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systematic withdrawal.

A rebalancing program is available before and after the Income Date.

Under each program that uses transfers, we will never charge for the transfers between and among Sub-accounts and the Fixed Account. Each of the programs has its own requirements, as discussed below. We reserve the right to terminate any program and you may terminate your participation in any program at any time.
 
 
We impose no charge for participating in the asset allocation, dollar cost averaging, systematic investment, or systematic withdrawal programs.

If you have submitted a telephone authorization form, you may make certain changes by telephone. For those programs involving transfers, you may change instructions by telephone with regard to which Sub-account value or Fixed Account Value may be transferred. We describe the current conditions and procedures in Appendix B.
 
 
Dollar Cost Averaging Program. Under the program, we make automatic transfers of Accumulation Units on a periodic basis out of the Columbia Money Market Sub-account or the One-Year Guarantee Period Fixed Account option into one or more of the other available Sub-accounts you select. The program allows you to invest in the Sub-accounts over time rather than all at once. The program is available for purchase payments and amounts transferred into the Columbia Money Market Sub-account or the One-Year Guarantee Period Fixed Account option. We reserve the right to limit the number of Sub-accounts you may choose.
 
 
If you wish to participate in the program you must specify in writing whether you want the transfers to be made from the Columbia Money Market Sub-account or a specific One-Year Guarantee Period Fixed Account option. You must also tell us the monthly amount you want transferred (minimum $100) and the Sub-account(s) to which you want the transfers made. The first transfer will occur at the close of the valuation period designated by us that is within 30 days after we receive your request. Each subsequent periodic transfer will occur at the close of the same valuation period one month later. For example, if you select monthly transfers and the first transfer occurs on April 8, the second transfer will occur at the close of the valuation period that includes May 8. When the remaining value is less than the monthly transfer amount, we will transfer that remaining value and the program will end. Before this final transfer, you may extend the program by allocating additional purchase payments, or by transferring Certificate Value, to the Columbia Money Market Sub-account or to a designated One-Year Guarantee Period Fixed Account option.

You may change the monthly amount you want transferred, the Sub-account(s) to which you want transfers made, or end the program. The program will automatically end on the Income Date. We reserve the right to end the program at any time by sending you a notice one month in advance.
 
 
We must receive your written or telephone instructions by 4:00 PM Eastern Time of the business day before the next scheduled transfer in order for the new instructions to be in effect for that transfer. We establish conditions and procedures for telephone instructions for dollar cost averaging from time to time. The current conditions and procedures appear in Appendix B, and you will be notified prior to any changes.

We may from time to time offer a variation of the program described above that applies only to your initial purchase payment and that makes transfers to the Sub-account(s) you select from a One-Year Guarantee Period Fixed Account option that is only available with dollar cost averaging. This One-Year Guarantee Period Fixed Account option will have a higher interest rate than the regular One-Year Guarantee Period Fixed Account option. We may offer you a choice of the period within which transfers must be completed. We will generally offer a choice of 6 or 12 months.

We calculate the monthly transfer amount by dividing the purchase payment amount allocated to the One-Year Guarantee Period Fixed Account option by the number of months in the transfer time period. The last monthly transfer amount also includes all the interest credited to the One-Year Guarantee Period Fixed Account option over the transfer time period. You may not change the transfer time period and/or the monthly transfer amount.
 
 
Asset Allocation Program. You may create your own asset allocation portfolio model using the variable Sub-accounts and the Guarantee Periods of the Fixed Account. Your allocation percentages must total 100% and each allocation percentage, if not zero, must be at least 5% and a whole number.

Previously, you also could choose one of the following five asset allocation model portfolios for the Certificate that were separately developed by Ibbotson Associates:

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Model A -- Capital Preservation,
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Model B -- Income and Growth,
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Model C -- Moderate Growth,
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Model D -- Growth, and
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Model E -- Aggressive Growth.

We have no discretionary authority or control over your investment decisions. We do not recommend asset allocation models or otherwise provide advice as to what asset allocation model may be appropriate for you.

Sun Life (U.S.) has determined that Ibbotson Associates will no longer be periodically reviewing or changing the models for the asset allocation program and these models are no longer available for investment. If you previously elected one of the models developed by Ibbotson Associates, we will continue to automatically allocate your Purchase Payments and rebalance your Certificate Value on a quarterly basis among the Sub-accounts that are currently available in the model you chose, without further instruction, unless you advise us otherwise.

If you create your own asset allocation model, we will allocate your initial and subsequent purchase payments among the specific Sub-accounts used in your model based on your model’s Sub-account percentages.

Before you request that we apply a model to your Certificate, you should review its Sub-account allocations to determine that they correspond to your risk tolerance and time horizons.

If you elect an asset allocation program we automatically rebalance your Purchase Payments among the Sub-accounts represented in the model you choose.  We allocate your Purchase Payments and rebalance your Certificate Value on a quarterly basis in accordance with the model, without further instruction, unless you advise us otherwise.

While we will not alter the Sub-account allocation percentages used in any asset allocation model, your asset allocation model and allocation weightings could be affected by mergers, liquidations, fund substitutions or closures. You should consult your financial adviser periodically to consider whether the model you have selected is still appropriate for you or whether you wish to change your percentage allocations.

The Fixed Account is not available in Models A through E. You may, however, allocate subsequent purchase payments, or Certificate Value, between Models A through E and the Fixed Account.
 
 
Rebalancing Program. Rebalancing allows you to maintain the percentage of your Certificate Value allocated to each Sub-account at a pre-set level. Over time, the variations in each Sub-account’s investment results will shift the balance of your Certificate Value allocations. Under the rebalancing program, each period, if the allocations change from your desired percentages, we will automatically transfer your Certificate Value, including new purchase payments (unless you tell us otherwise), back to the percentages you specify. Rebalancing maintains your percentage allocations among Sub-accounts, although it is accomplished by reducing your Certificate Value allocated to the better performing Sub-accounts.

You may choose to have rebalancing done on a quarterly basis. We will automatically rebalance the Certificate Value of each Sub-account on the last day of the calendar quarter to match your current percentage allocations. We will not charge a transfer fee for rebalancing.

Generally, you may change your allocation percentages, choice of Sub-accounts, or terminate the program at any time by notifying us in writing. We must receive your changes ten days before the end of the calendar quarter.

Certificate Value allocated to the Fixed Account is not included in the rebalancing program. After the Income Date, the rebalancing program applies only to variable annuity payments, and we will rebalance the number of Annuity Units in each Sub-account. Annuity Units are used to calculate the amount of each annuity payment.

If your total Certificate Value subject to rebalancing falls below any minimum value that we may establish, we may prohibit or limit your use of rebalancing. We may change, terminate, limit or suspend rebalancing at any time.

Systematic Investment Program. You may make purchase payments for Non-Qualified Certificates through monthly deductions from your bank account or payroll. You may elect this program by completing and returning a systematic investment program application and authorization form to us. You may obtain an application and authorization form from us or your sales representative. There is a current minimum of $50 per payment for the program.
 
 
Systematic Withdrawal Program. To the extent permitted by law, if you enroll in the systematic withdrawal program, we will make monthly, quarterly, semi-annual or annual distributions directly to you. We will treat such distributions for federal tax purposes as any other withdrawal or distribution of Certificate Value. We will also treat such distributions as partial withdrawals for all purposes under the Certificate, including the calculation of the amount you would receive if you revoke the Certificate under the “Right to Revoke” provision. You may make systematic withdrawals from any Sub-accounts or any Fixed Account option. However, any withdrawal from a Fixed Account option with a Guarantee Period whose original length is three or more years may be subject to a market value adjustment (see Appendix A).

In each Certificate Year, your systematic withdrawals and any additional partial withdrawals you make outside the program will not incur a surrender charge if the withdrawals do not exceed the “free withdrawal amounts” (see “Deductions for Surrender Charge”). If any portion of those withdrawals exceeds the “free withdrawal amounts”, the excess amount, if any, may be subject to surrender charges. This excess amount is:

(a)
in the first Certificate Year, the amount of each partial withdrawal either under or outside the program which is greater than any earnings of the Certificate at the time of the withdrawal, and
   
(b)
in the second or later Certificate Year, any portion of the current withdrawal amount which is greater than any earnings at the time of the withdrawal and which, when added to any similar excess portion of each prior withdrawal made in the same year either under or outside the program, is greater than the 10% “free withdrawal amount”.

For the first systematic withdrawal payment type (Percentage Method) described in Appendix C, the prior paragraph will be modified in three ways only for withdrawals occurring in the first Certificate Year.

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First, the “free withdrawal amounts” shall include the Certificate’s standard first-year amount of earnings plus a special additional amount equal to 10% of the Certificate Value on the date of the first systematic withdrawal, less earnings.
   
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Second, (b) in the prior paragraph, instead of (a), shall apply in the first Certificate Year.
   
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Third, if you revoke the program in the first Certificate Year, then any subsequent partial withdrawals will immediately become subject to the standard first-year rule in (a) above that the “free withdrawal amount” is only earnings.

Unless you specify the Sub-account(s) or the Fixed Account from which you want withdrawals of Certificate Value made, or if the amount in a specified Sub-account is less than the predetermined amount, we will make withdrawals under the program in the manner specified for partial withdrawals in “Partial Withdrawals and Surrender”. We will process all Sub-account withdrawals under the program by canceling Accumulation Units equal in value to the amount to be distributed to you and to the amount of any applicable surrender charge.
 
 
You may combine the program with all other programs except the systematic investment program.
 
 
It may not be advisable to participate in the systematic withdrawal program when making additional purchase payments under the Certificate, if you would incur a contingent deferred sales charge or receive taxable income as a result of the withdrawal. In either circumstance, it might be financially advantageous for you not to pay the purchase payment and forego the systematic withdrawal, thereby avoiding payment of the surrender charge or potential tax liability. However, if you own a Non-Qualified Certificate and are under age 59½, terminating a systematic withdrawal program or skipping a payment may subject you to penalty tax.

Systematic withdrawals may have adverse federal income tax consequences and you should, therefore, consult with a qualified tax professional before electing this option.

Appendix C describes the systematic withdrawal program in greater detail, including the six payment types currently available.
 
 
THE CERTIFICATES

Variable Account Value
 
 
The Variable Account Value for your Certificate is based on the sum of your proportionate interest in the value of each Sub-account to which you have allocated values. We determine the value of each Sub-account at any time by multiplying the number of Accumulation Units attributable to that Sub-account by its Accumulation Unit value.

Each purchase payment you make results in the credit of additional Accumulation Units to your Certificate and the appropriate Sub-account. Purchase payments are credited to your Certificate using the Accumulation Unit value that is next calculated after we receive your purchase payment. The number of additional units for any Sub-account will equal the amount allocated to that Sub-account divided by the Accumulation Unit value for that Sub-account at the time of investment. We process transactions other than purchase payments using the Accumulation Unit value that is calculated at the end of the Valuation Period during which the transaction occurs.

Valuation Periods
 
 
We determine the value of the Variable Account each Valuation Period using the net asset value of the Eligible Fund shares. A Valuation Period is the period beginning at 4:00 P.M. (ET), or any other time for the close of trading on the New York Stock Exchange, and ending at the close of trading for the next business day. The New York Stock Exchange is currently closed on weekends, New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
 
 
Net Investment Factor
 
 
Your Variable Account Value will fluctuate with the investment results of the underlying Eligible Funds you have selected. In order to determine how these fluctuations affect value, we use an Accumulation Unit value. Each Sub-account has its own Accumulation Units and value per unit. We determine the unit value applicable during any valuation period at the end of that period.
 
 
When Eligible Fund shares were first purchased on behalf of a Sub-account, each Accumulation Unit was valued at a specified dollar amount. The Unit value for each Sub-account in any valuation period thereafter is determined by multiplying the value for the prior period by a net investment factor. This factor may be greater or less than 1.0; therefore, the Accumulation Unit may increase or decrease from valuation period to valuation period. We calculate a net investment factor for each Sub-account according to the following formula (a ÷ b) - c, where:
 
 
(a)
is equal to:
   
 
(i)
the net asset value per share of the Eligible Fund at the end of the valuation period; plus
 
(ii)
the per share amount of any dividend or other distribution the Eligible Fund made if the record date of such distribution occurs during that same valuation period.
     
(b)
is the net asset value per share of the Eligible Fund at the end of the prior valuation period.
   
(c)
is equal to:
     
 
(i)
the valuation period equivalent of the annual rate for the mortality and expense risk charge; plus
 
(ii)
the valuation period equivalent of the annual rate for the distribution charge; plus
 
(iii)
a charge factor established by us for any taxes resulting from the operations of that Sub-account (currently zero).
 
 
For Certificates issued to our employees and other persons specified in “Sales of the Certificates”, the mortality and expense risk charge in (c)(i) above is 0.35% and the daily distribution charge in (c)(ii) above is eliminated. We may eliminate the daily distribution charge in (c)(ii) above for certain Certificates we issue in an internal exchange or transfer.
 
 
Modification of the Certificate
 
 
Only our President or Secretary may agree to alter the Certificate or waive any of its terms. A change may be made to the Certificate if there have been changes in applicable law or interpretation of law. Any changes must be made in writing and with your consent, except as may be required by applicable law.

Right to Revoke
 
 
You may return the Certificate within ten days after you receive it by delivering or mailing it to us.  The postmark on a properly addressed and postage-prepaid envelope determines if a Certificate is returned within the period. We will treat the returned Certificate as if we never issued it and will refund either the Certificate Value or purchase payments, whichever is required by state law. You may ask us which standard applies to your state. In states where we will refund your Certificate Value, you bear the investment risk during the period prior to our receiving your request for cancellation.
 
 
If we deliver your Certificate to you in California and you are age 60 or older, you may return the Certificate to us or to the agent from whom you purchased it. If you return the Certificate within 30 days after you received it, we will refund the Certificate Value.
 
 
DEATH PROVISIONS

Death of a Covered Person

This section describes who under different scenarios owns the Certificate after a death and what rights that Owner has, who will become the new Annuitant, if applicable, and when we calculate the death benefit.  Your and the Designated Beneficiaries’ rights in various scenarios are described below.

As explained in more detail below (except in certain states, see below), in general, upon the death of a Covered Person, the Designated Beneficiary may choose to surrender the Certificate for the death benefit or continue the Certificate for a specified period. In addition (except in certain states, see below), in certain circumstances if your spouse continues the Certificate upon your death, we will (a) if applicable, “top up” the value of the Certificate so that it equals the death benefit at your death, and (b) we will pay a death benefit under the Certificate at the death of your spouse.

Covered Persons are you, or any joint Certificate Owner(s), or the Annuitant.  If there is a non-natural Certificate Owner, such as a trust, the Annuitant is the sole Covered Person. Upon the death of any Covered Person while the Certificate is In Force, the Designated Beneficiary will become the new Certificate Owner. The Designated Beneficiary is determined in the following order: you; the joint Certificate Owner(s); the primary beneficiary(ies); the contingent beneficiary(ies); and your estate. If you and one or more joint Certificate Owners are alive, all such persons will be the Designated Beneficiary.

The death benefit does not affect the Certificate Value prior to the death of a Covered Person, but it may increase it after such a death.  We calculate a death benefit on the date we receive both due proof of death in a form satisfactory to us and a written request from the Designated Beneficiary to surrender or continue the Certificate. The calculated death benefit will include any applicable optional death benefit.  If the Certificate is being continued and the calculated death benefit is greater than the Certificate Value on the date of calculation, we add the difference to the Certificate Value. We allocate this additional amount to the Variable Account and/or the Fixed Account based on the current purchase payment allocation selection then in effect. During any period following a relevant death while the Certificate is continued and in effect, the Designated Beneficiary may exercise all ownership rights, including the right to make purchase payments, to make transfers and partial withdrawals, and to surrender the Certificate for its Certificate Withdrawal Value, as it may be adjusted.

The following paragraphs describe more specifically the consequences of the death of different types of Covered Persons.

The next six paragraphs apply to Certificates issued on or after a date that varies by state between September 4, 2001, and November 1, 2001, in all states except Minnesota, Oregon and Texas (“Standard Certificate States”). If you live in one of those three states, you or your salesperson should call (800) 367 3653 to see whether the new death benefit provisions have been approved for sale in your state. Certificates issued in your state following approval will be included as Certificates issued in Standard Certificate States. For Certificates issued in your state prior to approval and for Certificates issued in all other states prior to a date that varies by state between September 4, 2001, and November 1, 2001, (“Exception Certificate States”), the death benefit provisions described in paragraphs seven through twelve apply.

If the decedent was the Certificate Owner and the decedent’s surviving spouse is the sole Designated Beneficiary, or if the decedent was the Annuitant and the decedent’s surviving spouse is the sole Certificate Owner,

 
the surviving spouse may either surrender the Certificate or continue it until his or her death, or the death of the Annuitant, if a different person. We calculate the death benefit after the death when the surviving spouse elects to surrender or continue the Certificate.  If the surviving spouse elects to continue the Certificate and the death benefit is greater than the Certificate Value, we will increase the Certificate Value to equal the death benefit as described above.
 
If the Certificate is continued and if the decedent was also the Annuitant, the new Annuitant will be any living contingent Annuitant, or if none, the decedent’s surviving spouse.
 
Upon the death of the new Annuitant or the surviving spouse, the Designated Beneficiary may choose either to surrender the Certificate or continue it for a period not to exceed five years from the date of death. If the second decedent is the first decedent’s surviving spouse, we calculate the death benefit after this second death, when the Designated Beneficiary elects to surrender or continue the Certificate. If the Designated Beneficiary elects to continue the Certificate and the death benefit is greater than the Certificate Value, we will increase the Certificate Value to equal the death benefit.  For this second death, the method of calculating the death benefit is modified as described in the section below headed “Death Benefit During the Spousal Continuation Period”. We will not calculate and pay a second death benefit if the first decedent’s surviving spouse changes his or her sole ownership of the Certificate before his or her death.
 
We will not pay a death benefit after any subsequent (e.g., third) death.

If the decedent was the Certificate Owner and the decedent’s surviving spouse is not the sole Designated Beneficiary,

 
the Designated Beneficiary as new Owner may either surrender the Certificate or continue it for a period not to exceed five years from the date of death.  We calculate the death benefit after the death of the Certificate Owner, when the Designated Beneficiary elects to surrender or continue the Certificate.  If the Designated Beneficiary elects to continue the Certificate, we may increase the Certificate Value to equal the death benefit as described above, but we will not pay a second death benefit upon a death during the continuation period.

If the decedent was the Annuitant but not a Certificate Owner, you are not the decedent’s surviving spouse and the sole Certificate Owner, and you and any joint Certificate Owner(s) are all natural persons,

 
all such persons as the Designated Beneficiary may either surrender the Certificate or continue it until the death of a Certificate Owner or the new Annuitant. We calculate the death benefit after the death of the Annuitant when the Designated Beneficiary elects to surrender or continue the Certificate. If the Designated Beneficiary elects to continue the Certificate, we may increase the Certificate Value to equal the death benefit as described above, but we will not pay a second death benefit upon a subsequent death.

If the decedent was the Annuitant but not a Certificate Owner, and you or any joint Certificate Owner(s) is a non-natural person, such as a trust,

 
all such persons as the Designated Beneficiary become the new Certificate Owner and may either surrender the Certificate or continue it for a period not to exceed five years from the date of death. We calculate the death benefit after the death of the Annuitant, when the Designated Beneficiary elects to surrender or continue the Certificate.  If the Designated Beneficiary elects to continue the Certificate, we may increase the Certificate Value to equal the death benefit as described above, but we will not pay a second death benefit upon a death during the continuation period.

If the Certificate is still in effect at the end of a five-year continuation period, we will pay the Certificate Value less any premium taxes to the Designated Beneficiary. If the Designated Beneficiary is not alive, we will pay any person(s) named in writing by the Designated Beneficiary; otherwise we will pay the estate of the Designated Beneficiary.

If the Certificate is issued under a Qualified Plan, it may continue for the time period permitted by the Internal Revenue Code, which may be longer than the five-year continuation period specified above.

As discussed above, this paragraph and the next five paragraphs apply to Certificates issued in Minnesota, Oregon and Texas prior to a specific approval date and to Certificates issued in all other states prior to a date that varies by state between September 4, 2001, and November 1, 2001. If the decedent was the Certificate Owner and the decedent’s surviving spouse is the sole Designated Beneficiary, or if the decedent was the Annuitant and the decedent’s surviving spouse is the sole Certificate Owner,

 
the surviving spouse may either surrender the Certificate or continue it until his or her death, or the death of the Annuitant, if a different person. If the surviving spouse elects to surrender the Certificate, we will calculate and pay the death benefit as described above.
 
If the Certificate is continued and if the decedent was also the Annuitant, the new Annuitant will be any living contingent Annuitant, or if none, the decedent’s surviving spouse.
 
Upon the death of the new Annuitant or the surviving spouse, the Designated Beneficiary may choose either to surrender the Certificate or continue it for a period not to exceed five years from the date of death. We calculate the death benefit when the Designated Beneficiary elects to surrender or continue the Certificate. If the Designated Beneficiary elects to continue the Certificate and the death benefit is greater than the Certificate Value, we will increase the Certificate Value to equal the death benefit. We will not pay a death benefit after any subsequent (e.g., third) death during the five-year continuation period.

If the decedent was the Certificate Owner and the decedent’s surviving spouse is not the sole Designated Beneficiary,

 
the Designated Beneficiary as new Owner may either surrender the Certificate or continue it for a period not to exceed five years from the date of death.  We calculate the death benefit after the death of the Certificate Owner, when the Designated Beneficiary elects to surrender or continue the Certificate.  If the Designated Beneficiary elects to continue the Certificate, we may increase the Certificate Value to equal the death benefit as described above, but we will not pay a second death benefit upon a death during the continuation period.

If the decedent was the Annuitant but not a Certificate Owner, you are not the decedent’s surviving spouse and the sole Certificate Owner, and you and any joint Certificate Owner(s) are all natural persons,

 
all such persons as the Designated Beneficiary may either surrender the Certificate or continue it until the death of a Certificate Owner or the new Annuitant. If the Designated Beneficiary elects to surrender the Certificate, we will calculate and pay the death benefit as described above. If the Designated Beneficiary elects to continue the Certificate, until another death occurs, the Designated Beneficiary may surrender the Certificate for the death benefit after that death.

If the decedent was the Annuitant but not a Certificate Owner, and you or any joint Certificate Owner(s) is a non-natural person, such as a trust,

 
all such persons as the Designated Beneficiary become the new Certificate Owner and may either surrender the Certificate or continue it for a period not to exceed five years from the date of death. We calculate the death benefit after the death of the Annuitant, when the Designated Beneficiary elects to surrender or continue the Certificate.  If the Designated Beneficiary elects to continue the Certificate, we may increase the Certificate Value to equal the death benefit as described above, but we will not pay a second death benefit upon a death during the continuation period.

If the Certificate is still in effect at the end of a five-year continuation period, we will pay the Certificate Value less any premium taxes to the Designated Beneficiary. If the Designated Beneficiary is not alive, we will pay any person(s) named in writing by the Designated Beneficiary; otherwise we will pay the estate of the Designated Beneficiary.

If the Certificate is issued under a Qualified Plan, it may continue for the time period permitted by the Internal Revenue Code, which may be longer than the five-year continuation period specified above.

Standard Death Benefit

The standard death benefit for a Covered Person is the greatest of:

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the current “net purchase payment death benefit”, less any premium taxes,
   
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the current “High Anniversary Value”, less any premium taxes, and
   
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the current Certificate Value, less any premium taxes.

Net Purchase Payment Death Benefit. The net purchase payment death benefit is:

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the initial purchase payment, plus
   
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any additional purchase payments made prior to the death benefit calculation date, less
   
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any partial withdrawals (including any applicable surrender charges) made prior to the death benefit calculation date.

High Anniversary Value.  On the Certificate Date, we will determine if any Covered Person is attained age 80 or older.  If so, the “High Anniversary Value” will not apply upon his or her death.  Thus, in “Standard Death Benefit” above, the “High Anniversary Value” shall be zero. Also, the “High Anniversary Value” shall be zero if a Covered Person, regardless of age, dies within the first Certificate Year. This zero treatment effectively changes the death benefit applicable to the particular Covered Person from the greatest of three defined amounts to the greater of just two of those amounts.

We calculate the High Anniversary Value as follows.  On the first Certificate Anniversary, the High Anniversary Value for each applicable Covered Person equals the Certificate Value. Thereafter, we recalculate the High Anniversary Value on:

(a)
each day there is a purchase payment or withdrawal; and
   
(b)
each Certificate Anniversary, until such Covered Person attains age 81.

When we receive a purchase payment or pay a withdrawal, we adjust the High Anniversary Value by:

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adding any additional purchase payments made that day; and
   
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subtracting the following amount for each withdrawal made that day:
 
(i)
the amount of the withdrawal (including any applicable surrender charge),
 
(ii)
divided by the Certificate Value immediately before the withdrawal, and
 
(iii)
multiplied by the “High Anniversary Value” immediately before the withdrawal.

On the second and each subsequent Certificate Anniversary until the Covered Person has attained age 81, we adjust the High Anniversary Value by comparing the then-current Certificate Value with the then-current High Anniversary Value, adjusted as described above. If the then-current Certificate Value exceeds the adjusted High Anniversary Value, the then-current Certificate Value will become the new High Anniversary Value.

After a Covered Person has attained age 81, we will no longer adjust the High Anniversary Value to reflect changes in the Certificate Value, except as set forth below with respect to adding or changing a Covered Person. Thereafter, however, until the date of death, we will continue to adjust, as described above, the High Anniversary Value to reflect purchase payments and/or withdrawals.

Between the date of death and the calculation of the Death Benefit upon receipt of the Designated Beneficiary’s request to surrender for the death benefit or continue the Certificate, we will further adjust the High Anniversary Value for each applicable Covered Person by adding purchase payments and/or subtracting withdrawals. Withdrawals are subtracted on a dollar-for-dollar basis as described above with respect to the net purchase payment death benefit.  We will not adjust the High Anniversary Value to reflect changes in the Certificate Value between the date of death and the calculation of the death benefit.

You may add or replace any Covered Person. If the new Covered Person had attained age 80 as of the Certificate Date, the High Anniversary Value will not apply at the death of the new Covered Person. Also, if at the time you add or replace a Covered Person all of the existing Covered Persons have survived until the Certificate Anniversary immediately preceding the date they attain age 81, the High Anniversary Value for the new Covered Person will equal the High Anniversary Value of the youngest of the other Covered Persons. We will adjust that High Anniversary Value only as described above to reflect the addition of purchase payments and/or the subtraction of withdrawals.

Optional Death Benefits

Subject to state availability, we offer two different death benefit rider options, which may increase the standard death benefit amount.  You may elect both, either or neither. You may only elect an option at the time you purchase your Certificate. You may not elect the Enhanced Death Benefit option if the Covered Persons are all over attained age 75 on the Certificate Date or the option is not available in your state.  You may not elect the Leverage Earnings Death Benefit option if all Covered Persons are attained age 85 or older on the Certificate Date or the option is not available in your state.

Your election of the Leveraged Earnings Death Benefit rider is irrevocable while your election of the Enhanced Death Benefit rider is revocable only within 30 days after the seventh Certificate Anniversary. We will deduct a rider’s charge while the Certificate and rider remain in effect until the Income Date. You should carefully consider whether electing an optional Death Benefit rider is right for you.

Optional Leveraged Earnings Death Benefit Rider

Under this option, upon the death of any Covered Person who was not attained age 85 or older as of the Certificate Date, the death benefit will be the Leveraged Earnings Death Benefit. If you have also elected the optional Enhanced Death Benefit rider, the death benefit will be the Enhanced Death Benefit plus the amount, if any, by which the Leveraged Earnings Death Benefit exceeds the standard death benefit.

The Leveraged Earnings Death Benefit equals the sum of:

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the standard death benefit; plus
   
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a percentage of the lesser of
 
(i)
purchase payments less withdrawals, and
 
(ii)
Certificate Value less purchase payments. (minimum $0)

The applicable percentage depends on the attained age of the Covered Person as of the Certificate Date, as shown in the following table.

Attained Age as of the Certificate Date
Applicable Percentage
Less than attained age 76
40%
Attained age 76 to attained age 84
25%
Attained age 85 and older
0%

The applicable percentage for each Covered Person is determined when your Certificate is issued.  The applicable percentages do not change thereafter except (a) if you replace a Covered Person, as described below, or (b) if applicable, as provided in “Death Benefit During the Spousal Continuation Period” below.

Thus, for example, if your total purchase payments equal $10,000 and your Certificate Value equals $25,000, the increase in the death benefit would be limited to a percentage of $10,000, even though the Certificate Value exceeds purchase payments by $15,000.  In this example, if on the Certificate Date you were younger than attained age 76, the standard death benefit would be increased by 40% of $10,000 (the amount by which Certificate Value exceeds purchase payments, capped at the amount of purchase payments), for a $4,000 increase.

Under this formula, withdrawals or adverse investment performance can result in there being no increase over the standard death benefit. Thus, you should consider your expected use of withdrawals and your investment expectations before electing the Leveraged Earnings Death Benefit.

You may add or replace any Covered Person. If the new Covered Person was attained age 85 or older as of the Certificate Date, the Leveraged Earnings Death Benefit will not apply at the death of that new Covered Person. If the new Covered Person was younger than attained age 85 as of the Certificate Date, the Leveraged Earnings Death Benefit for that Covered Person will be the sum of the standard death benefit, plus 25% of the lesser of:

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purchase payments less withdrawals, and
   
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Certificate Value less purchase payments. (minimum $0)

Note that the 40% applicable percentage never applies to a new Covered Person.

Charge for the Optional Leveraged Earnings Death Benefit Rider. The yearly charge for the death benefit is 0.15% of the “benefit base”. This charge percentage will not change over the life of the rider.


 
 
 

On each Certificate Anniversary prior to the Income Date, we calculate and deduct the dollar amount of the yearly charge as follows:

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we identify the youngest Covered Person and determine the amount of his or her Leveraged Earnings Death Benefit; this amount is the “benefit base”,
   
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we multiply the benefit base by 0.15% to determine the dollar amount of the charge, and
   
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we then deduct the dollar amount of the charge from your Certificate Value. We will deduct the charge from all Sub-accounts of the Variable Account in the ratio that the value in each Sub-account bears to the total Variable Account Value. If there is no or insufficient value in the Variable Account, we will deduct the charge amount, or the excess portion, from the Fixed Account in the ratio that each Guarantee Period’s value bears to the total Fixed Account Value. If there is insufficient value in the Variable Account and the Fixed Account combined, the Certificate will be canceled.

If you surrender your Certificate during a Certificate Year before the Certificate Anniversary, we will deduct a pro-rata amount of the full yearly charge from your Certificate Value.  We first determine the applicable full yearly charge.  We will use the yearly charge we computed as of the prior Certificate Anniversary unless you have made any purchase payments and/or partial withdrawals since then.  If so, we will use a yearly charge that may be higher or lower since we may adjust the applicable death benefit to reflect each purchase payment and withdrawal you made since the Anniversary.  We will then calculate a pro-rata amount of the applicable yearly charge by multiplying it further by the ratio of the number of days from the Certificate Anniversary until the day of surrender to the total number of days (generally 365) in the Certificate Year of surrender.

No charge amount will be due:

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upon surrender of the Certificate if the death benefit is being calculated at that time because the Designated Beneficiary has elected to surrender the Certificate (see “Death of a Covered Person”);
   
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if a Certificate is continued after a death and there is no surviving spouse eligible for a second death calculation under the rider because of his or her attained age on the date the death benefit was calculated for the first death; or
   
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on or after the Income Date.

Also, no charge amount will be due on any Certificate Anniversary during the period

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starting when we receive due proof of death or similar information we reasonably believe to be true and
   
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ending when we receive the Designated Beneficiary’s request to surrender or continue the Certificate.

If the Designated Beneficiary who is the decedent’s surviving spouse continues the Certificate, charges will start again and apply on each subsequent Certificate Anniversary. If any other Designated Beneficiary continues the Certificate, charges will not start again.

The charge for the rider will continue when you replace a Covered Person with one who is attained age 85 and no Covered Person under your Certificate will be younger than attained age 85 on the Certificate Date.

Revocability and Other Ending of Optional Leveraged Earnings Death Benefit Rider Coverage. You may not revoke the optional Leveraged Earnings Death Benefit rider at any time.

Coverage under this rider ends upon the earliest of:

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the total surrender of your Certificate;
   
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the calculation of the death benefit on the date your Certificate is continued if a surviving spouse is not eligible for a second death calculation under the rider because of his or her attained age on such date; or
   
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the start of annuity payments on the Income Date.

After the rider ends, there will be no further charges for the rider and no past charges will be refunded. The rider’s death benefit amount will no longer apply as an additional component of the Certificate’s death benefit. Instead, the death benefit will be as described in the applicable section above.

Optional Enhanced Death Benefit Rider

The Standard Death Benefit section above provides that, for a total surrender or a continuation of the Certificate where the death benefit is to be calculated, the death benefit will generally be the greatest of three defined amounts.  If you have elected the Optional Enhanced Death Benefit rider, the applicable death benefit will be the greatest of those three defined amounts and the fourth amount defined in this section, which is referred to as “Purchase Payments with Interest” (PPI), less any premium taxes. You may not elect the rider if you, any Joint Certificate Owner(s), and the Annuitant are all attained age 75 or older on the Certificate Date or the rider is not available in your state.

The Enhanced Death Benefit rider does not change your Certificate Value at any time prior to the death of a Covered Person and does so after such a death only if the PPI amount is the applicable death benefit.

Purchase Payments with Interest (PPI). On the Certificate Date, we will determine if any Covered Person is attained age 80 or older. If so, PPI will not apply upon his or her death.  Thus, for purposes of the above calculation of the death benefit, the PPI amount shall be zero. Also, the PPI shall be zero if a Covered Person, regardless of age, dies within the first Certificate Year. This zero treatment, in conjunction with the same zero treatment applicable to the “High Anniversary Value”, effectively changes the death benefit applicable to the particular Covered Person from the greatest of four defined amounts to the greater of only two of those amounts.

If any Covered Person is under attained age 80 on the Certificate Date, we calculate the PPI amount on Certificate Anniversaries with an adjustment between Certificate Anniversaries if you make a purchase payment or withdrawal. We do this calculation for each Covered Person under attained age 80 on the Certificate Date so that the PPI amount will be available if the death benefit calculation under the rider is applicable to that person’s death. The PPI amount for each applicable Covered Person equals, on each Certificate Anniversary, the initial purchase payment increased from the Certificate Date to the date of the Certificate Anniversary based on an annual compound interest rate of 6%. When we receive a purchase payment or pay a withdrawal, we adjust the PPI amount accumulating at 6% by:

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adding any additional purchase payments made that day; and
   
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subtracting the following amount for each withdrawal made that day:
   
 
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the amount of the withdrawal (including any applicable surrender charge),
     
 
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divided by the Certificate Value immediately before the withdrawal, and
     
 
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multiplied by the PPI amount immediately before the withdrawal.

Except as set forth below with respect to adding or changing a Covered Person, our last Certificate Anniversary calculation of the PPI amount for each applicable Covered Person will occur:

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if the Covered Person dies prior to his or her 81st birthday, on the Certificate Anniversary before that person’s death, or
   
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if the Covered Person dies on or after his or her 81st birthday, on the Certificate Anniversary before his or her 81st birthday.

Between our last Certificate Anniversary calculation and the date of death, the PPI amount for each applicable Covered Person will not change unless you make purchase payments and/or withdrawals, in which case we will increase or decrease, respectively, the person’s PPI amount in the manner described above.

Between the date of death and the calculation of the death benefit upon receipt of the Designated Beneficiary’s request to surrender or continue the Certificate for the death benefit, the PPI amount last determined before death under the prior sentence will not change unless you make purchase payments and/or withdrawals, in which case we will increase or decrease, respectively, the PPI amount in the manner described above except for the division and multiplication steps.

You may add or replace any Covered Person. If (a) at least one current Covered Person has not yet reached the Certificate Anniversary before his or her 81st birthday and (b) you either add or replace any Covered Person with a person who is age 80 or older as of the Certificate Date, the PPI amount will not apply upon the new Covered Person’s death. Thus, for purposes of the calculation of the death benefit, the PPI amount shall be treated as equaling zero. This zero treatment, in conjunction with the same zero treatment applicable to the “High Anniversary Value”, effectively changes the death benefit applicable to the new Covered Person from the greatest of four defined amounts to the greater of only two of those amounts.

If each Covered Person lives until the Certificate Anniversary before his or her 81st birthday and then you add or replace a Covered Person, the current PPI amount for the youngest of the other Covered Persons will become the PPI amount for the new Covered Person.  If this value is zero, it will never change from zero; this zero treatment effectively changes the death benefit applicable to the new Covered Person from the greatest of four defined amounts to the greater of only two of those amounts.  If the PPI amount for the new Covered Person is greater than zero, it will change only if you make purchase payments and/or withdrawals, in which case we will increase or decrease, respectively, the PPI amount in the manner described above except for the division and multiplication steps.

Charge for the Optional Enhanced Death Benefit Rider. The yearly charge for the optional Enhanced Death Benefit rider is 0.05% of the “benefit base” if you purchase the rider along with the Optional Guaranteed Income Benefit rider and you do not revoke the income rider. The yearly charge for the death benefit rider is 0.10% if you purchase it separately or you purchase both riders together but then revoke the income rider. If the income rider is revoked, the 0.10% charge for the death benefit rider will begin after the seventh Certificate Anniversary since revocation can only occur on that Anniversary. These charge percentages will not change over the life of the riders. We will continue to impose this charge even after we cease to adjust the PPI because of the attained age of the Covered Persons. Thus, you should consider the age of all Covered Persons to decide whether this death benefit option is right for you.

On each Certificate Anniversary on or before the end of the rider’s coverage (see “Revocability and Other Ending of Optional Enhanced Death Benefit Rider Coverage” below), we calculate and deduct the dollar amount of the rider’s yearly charge as follows:

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we identify the youngest Covered Person and determine on each Certificate Anniversary the greater of his or her PPI amount and the “High Anniversary Value”, both defined above; the greater of these two amounts is the “benefit base”,
   
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we multiply the benefit base by the applicable charge percentage in order to determine the dollar amount of the charge, and
   
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we then deduct the dollar amount of the charge from your Certificate Value. We will deduct the charge from all Sub-accounts of the Variable Account in the ratio that the value in each Sub-account bears to the total Variable Account Value. If there is no or insufficient value in the Variable Account, we will deduct the charge amount, or the excess portion, from the Fixed Account in the ratio that each Guarantee Period’s value bears to the total Fixed Account Value. If there is insufficient value in the Variable Account and the Fixed Account combined, the Certificate will be canceled.

If you surrender your Certificate during a Certificate Year before the Certificate Anniversary, we will deduct a pro-rata amount of the full yearly charge from your Certificate Value.  We first determine the applicable full yearly charge.  We will use the yearly charge we computed as of the prior Certificate Anniversary unless you have made any purchase payments and/or partial withdrawals since then.  If so, we will use a yearly charge that may be higher or lower since we will substitute the following for both the PPI amount and the “High Anniversary Value” we used in the Anniversary calculations: those two amounts after both are adjusted for each purchase payment and withdrawal you made since the Anniversary.  We will then calculate a pro-rata amount of the applicable yearly charge by multiplying it further by the ratio of the number of days from the Certificate Anniversary until the day of surrender to the total number of days (generally 365) in the Certificate Year of surrender.

No charge amount will be due:

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upon surrender of the Certificate if the death benefit is being calculated at that time because the Designated Beneficiary has elected to surrender the Certificate (see “Death of a Covered Person”);
   
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for Standard Certificate States, if a Certificate is continued after a death and there is no surviving spouse eligible for a second death calculation under the rider because of his or her attained age on the date the death benefit was calculated for the first death; or
   
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on or after the Income Date.

Also, no charge amount will be due on any Certificate Anniversary during the period:

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starting when we receive due proof of death or similar information we reasonably believe to be true and
   
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ending when we receive the Designated Beneficiary’s request to surrender or continue the Certificate.

If the Designated Beneficiary who is the decedent’s surviving spouse continues the Certificate, charges will start again and apply on each subsequent Certificate Anniversary. If any other Designated Beneficiary continues the Certificate, charges will not start again.

Revocability and Other Ending of Optional Enhanced Death Benefit Rider Coverage. You may revoke the optional Enhanced Death Benefit rider in writing only on, or within 30 days after, the seventh Certificate Anniversary. There is no charge to do this since the final (seventh) year’s charge for the rider will already have been calculated and deducted on the seventh Certificate Anniversary.

Coverage under the rider ends upon the earliest of:

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the seventh Certificate Anniversary if you revoke the rider within 30 days after that Anniversary;
   
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the total surrender of your Certificate;
   
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for Standard Certificate States, the calculation of the death benefit on the date your Certificate is continued if a surviving spouse is not eligible for a second death calculation under the rider because of his or her attained age on such date;
   
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for Exception Certificate States, the calculation of the death benefit either at the time of total surrender or a continuation of your Certificate; or
   
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the start of annuity payments on the Income Date.

After the rider ends, there will be no further charges for the rider and no past charges will be refunded. The rider’s death benefit amount will no longer apply as an additional component of the Certificate’s death benefit. Instead, the death benefit will be as described in the applicable section above.

Death Benefit During the Spousal Continuation Period

This section applies to Certificates issued in Standard Certificate States.

As explained above, if the Certificate Owner dies and the decedent’s spouse is the sole Designated Beneficiary or if the Annuitant dies and the decedent’s spouse is the sole Certificate Owner, the spouse may choose to continue the Certificate.  The date upon which we receive due proof of death in a form satisfactory to us and the spouse’s written request to continue the Certificate is called the “Continuation Date”, and the period after the Continuation Date while the Certificate remains in force is called the “Continuation Period”.

Upon the death of the surviving spouse during the Continuation Period while he or she is still the sole Certificate Owner, the method of calculating the death benefit is modified as described below.

The “Net Purchase Payment Death Benefit” will equal:

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the death benefit calculated as of the Continuation Date; plus
   
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any additional purchase payment occurring after the Continuation Date; less
   
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any partial withdrawals (including any applicable surrender charge) occurring after the Continuation Date.

For purposes of calculating the “High Anniversary Value”:

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the High Anniversary Value will be zero if the surviving spouse is attained age 80 or older upon the Continuation Date; and
   
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as to a younger surviving spouse, only Certificate Anniversaries occurring after the Continuation Date will be taken into consideration.  The High Anniversary Value shall be zero if the surviving spouse dies before the first Certificate Anniversary in the Continuation Period.  On the first Certificate Anniversary after the Continuation Date, the High Anniversary Value for the surviving spouse will equal the Certificate Value.  Thereafter we will adjust and recalculate the High Anniversary Value as described in the section entitled “High Anniversary Value” above.


 
 
 

For purposes of calculating the “Purchase Payments with Interest” (“PPI”) amount for the optional Enhanced Death Benefit rider:

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the PPI will not apply upon the death of any surviving spouse who is attained age 80 or older on the Continuation Date;
   
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the initial purchase payment will be the death benefit calculated as of the Continuation Date; and
   
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only purchase payments and withdrawals occurring after the Continuation Date will be included in the calculation.

We will not charge for the optional Enhanced Death Benefit rider during the Continuation Period if the surviving spouse is attained age 80 or older on the Continuation Date.

If the optional Leveraged Earnings Death Benefit rider is applicable, the calculation method described under “Optional Leveraged Earnings Death Benefit Rider” is modified for a death during the Continuation Period as follows:

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the Leveraged Earnings Death Benefit will not apply upon the death of any surviving spouse who is attained age 85 or older on the Continuation Date;
   
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the applicable percentage will be based on the attained age of the surviving spouse on the Continuation Date; and
   
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“purchase payments” will be the sum of the death benefit amount calculated as of the Continuation Date plus any purchase payments made after the Continuation Date.

As a result of these modifications to the method of calculating the Leveraged Earnings Death Benefit, we will not take into consideration earnings accrued on or prior to the Continuation Date. In addition, the maximum earnings on which we calculate the Leveraged Earnings Death Benefit will be based upon the sum of the death benefit amount calculated as of the Continuation Date plus any purchase payments paid after the Continuation Date (adjusted for withdrawals).

We will not charge for the optional Leveraged Earnings Death Benefit rider during the Continuation Period if your spouse is attained age 85 or older on the Continuation Date.

Systematic Withdrawal and Systematic Investment Programs

After we receive due proof of death or receive information about a death that we reasonably believe to be true, we will end any systematic withdrawal program and/or systematic investment program except as follows:

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for systematic withdrawals, the Designated Beneficiary is a Certificate Owner who requested us to begin the program and/or has been the sole or joint recipient of the payments.
   
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for systematic investments, the decedent is a non-owner Annuitant.

If we end your systematic withdrawal program based on the above but have paid any systematic withdrawal(s) after death to a person other than the Designated Beneficiary, we will use reasonable efforts to have the recipient return the systematic withdrawal amount(s) so that it may be paid to the Designated Beneficiary or added to the Certificate Value if the Designated Beneficiary elects to continue the Certificate. If the recipient does not return the payment(s), we are not responsible to pay the Designated Beneficiary for those payments.
 
 
Payment of Death Benefit

Instead of receiving a lump sum, you or any Designated Beneficiary may direct us in writing to pay any surrender death benefit of $2,000 or more under an annuity payment option that meets the following:
 
 
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the first payment to the Designated Beneficiary must be made no later than one year after the date of death;
   
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payments must be made over the life of the Designated Beneficiary or over a period not extending beyond that person’s life expectancy.

For example, Annuity Options A, B, and D can meet these criteria, provided that any guaranteed payments are not scheduled to continue past the Designated Beneficiary’s life expectancy.  If the Designated Beneficiary dies before all guaranteed payments have been made, the successor payee may not extend the period of time during which the remaining payments are to be made.

CERTIFICATE OWNERSHIP

The Certificate Owner shall be the person designated in the application and you may exercise all the rights of the Certificate. Joint Certificate Owners are permitted.  Contingent Certificate Owners are not permitted.
 
 
You may direct us in writing to change the Certificate Owner, primary beneficiary, contingent beneficiary or contingent annuitant. If the selection of a beneficiary or annuitant was designated “irrevocable”, that selection may be changed only with that person’s written consent.
 
 
Because a change of Certificate Owner by means of a gift may be a taxable event, you should consult a qualified tax professional as to the tax consequences resulting from such a transfer.
 
 
Any Qualified Certificate may have limitations on transfer of ownership. You should consult the plan administrator and a qualified tax professional as to the tax consequences resulting from such a transfer.
 
 
ASSIGNMENT

You may assign the Certificate at any time. You must file a copy of any assignment with us. Your rights and those of any revocably-named person will be subject to the assignment. A Qualified Certificate may have limitations on your ability to assign the Certificate.
 
 
Because an assignment may be a taxable event, you should consult a qualified tax professional as to the tax consequences resulting from any such assignment.

PARTIAL WITHDRAWALS AND SURRENDER

You may make partial withdrawals from the Certificate by notifying us in writing. We reserve the right to limit the minimum withdrawal amount to $300.  We may permit a lesser amount with the systematic withdrawal program. If the Certificate Value after a partial withdrawal would be below $2,500, we will treat the request as a withdrawal of only the amount over $2,500. If the value of your policy drops below $2500, the systematic withdrawal program stops.  The amount withdrawn will include any applicable surrender charge and may be greater than the amount of the surrender check requested. Unless you specify otherwise, we will deduct the total amount withdrawn from all Sub-accounts of the Variable Account in the ratio that the value in each Sub-account bears to the total Variable Account Value. If there is no or insufficient value in the Variable Account, the amount surrendered, or the insufficient portion, will be deducted from the Fixed Account in the ratio that each Guarantee Period’s value bears to the total Fixed Account Value.
 
 
You may totally surrender the Certificate by notifying us in writing. Surrendering the Certificate will end it. Upon surrender, you will receive the Certificate Withdrawal Value.
 
 
We will pay the amount of any surrender within seven days of receipt of your request. Alternatively, you may apply any surrender benefit of at least $2,000 to an annuity payment option for yourself. If the Certificate Owner is not a natural person, we must consent to the selection of an annuity payment option.
 
 
You may not make partial withdrawals or surrender under annuity options based on life contingencies after annuity payments have begun. You may make partial withdrawals or surrender under Annuity Option A, described in “Annuity Options” below, which is not based on life contingencies, if you have selected a variable payout. Any partial withdrawal will reduce your future annuity payments. A partial withdrawal or total surrender of variable payout Option A may be subject to surrender charges, as described in “Deductions for Surrender Charge”. The “free withdrawal amounts” described in that section are not applicable. Thus, the surrender charge equals the applicable surrender charge percentage(s) multiplied by:

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for a partial withdrawal, the withdrawal amount; and
   
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for a total surrender, the Certificate’s remaining purchase payment(s).

Because of the potential tax consequences of a partial withdrawal or surrender, you should consult a qualified tax professional.
 
 
Participants under Qualified Plans as well as Certificate Owners, Annuitants, and Designated Beneficiaries are cautioned that you may not be able to take a partial withdrawal or surrender the Certificate under a Qualified Plan. You should seek competent advice concerning the terms and conditions of the particular Qualified Plan and use of the Certificate with that Plan.

ANNUITY PROVISIONS

Annuity Benefits
 
 
If the Annuitant is alive on the Income Date and the Certificate is In Force, we will begin payments to the Annuitant under the Annuity Option or Options you have chosen. We determine the amount of the initial payment(s) on the Income Date by applying to the Option you choose for your payments:

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your Certificate Value,
   
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plus any positive or negative market value adjustment applicable to any Fixed Account Value (see Appendix A),
   
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less any premium taxes not previously deducted, and
   
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less any applicable certificate maintenance charge on the Income Date.

Annuity Option and Income Date
 
 
You may select an Annuity Option and Income Date at the time of application or later. Any Income Date must be:

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for variable annuity options, not earlier than the first day after the Certificate Date,
   
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for fixed annuity options, not earlier than the first Certificate Anniversary, and
   
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not later than the earlier of
 
(i)
the later of the Annuitant’s 90th birthday and the 10th Certificate Anniversary or
     
 
(ii)
any maximum date permitted under state law.

You may continue to make purchase payments until you reach your Income Date.

If you do not select an Annuity Option, we automatically choose Option B. If you do not select an Income Date for the Annuitant, the Income Date will automatically be the latest date specified above.
 
 
You may choose or change an Annuity Option or the Income Date by writing to us at least 30 days before the Income Date.
 
 
Annuity Options

The Annuity Options are:

Option A: Income for a Fixed Number of Years;
 
 
Option B: Life Income with 10 Years of Payments Guaranteed;
 
 
Option C: Joint and Last Survivor Income; and

Option D: Life Income.

You may arrange other options if we agree. Each option is available in two forms - as a variable annuity for use with the Variable Account and as a fixed annuity for use with our general account Fixed Account. Variable annuity payments will fluctuate.  Fixed annuity payments will not fluctuate. We determine the dollar amount of each fixed annuity payment by:

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deducting from the Fixed Account Value, increased or decreased by a market value adjustment described in Appendix A, any premium taxes not previously deducted and any applicable certificate maintenance charge;
   
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dividing the remainder by $1,000; and
   
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multiplying the result by the greater of:
 
(i)
the applicable factor shown in the appropriate table in the Certificate; and
 
(ii)
the factor we currently offer at the time annuity payments begin. We may base this current factor on the sex of the payee unless we are prohibited by law from doing so.
 
 
If you do not select an Annuity Option, we will automatically apply Option B. Unless you choose otherwise, we will apply:

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Variable Account Value, less any premium taxes not previously deducted and less any applicable certificate maintenance charge, in its entirety to a variable annuity option, and
   
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Fixed Account Value, increased or decreased by a market value adjustment described in Appendix A less any premium taxes not previously deducted, to a fixed annuity option.

The same amount applied to a variable option and a fixed option will produce a different initial annuity payment and different subsequent payments.
 
 
The payee is the person who will receive the sum payable under a payment option. Any payment option that provides for payments to continue after the death of the payee will not allow the successor payee to extend the period of time over which the remaining payments are to be made.
 
 
If the amount available under any variable or fixed option is less than $5,000, we reserve the right to pay such amount in one sum to the payee in lieu of the payment otherwise provided for.
 
 
We will make annuity payments monthly unless you have requested in writing quarterly, semi-annual or annual payments. However, if any payment would be less than $100, we have the right to reduce the frequency of payments to such a period that will result in each payment being at least $100.
 
 
Option A: Income For a Fixed Number of Years. We will pay periodic payments for a chosen number of years, not less than 5 nor over 50.  You may choose a period of years over 30 only if it does not exceed the difference between age 100 and the Annuitant’s age on the date of the first payment. We refer to Option A as Preferred Income Plan (“PIP”) when we are making variable annuity payments. At any time while we are making variable annuity payments, the payee may elect to receive the following amount:

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the present value of the remaining variable annuity payments, computed in the manner described below; less
   
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any surrender charge due by treating the present value as a total surrender.

Instead of receiving a lump sum, the payee may elect another payment option and we will not reduce the amount applied to the new option by the surrender charge above.

If, at the death of the payee, Option A payments, whether variable or fixed, have been made for fewer than the chosen number of years:

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we will continue payments during the remainder of the period to the successor payee; or
   
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the successor payee may elect to receive in a lump sum the present value of the remaining payments, computed in the manner described below.
 
 
The mortality and expense risk charge is deducted during the Option A payment period if a variable payout has been selected, but we have no mortality risk during this period.
 
 
You may choose a “level monthly” payment option for variable payments under Option A. Under this option, we convert your annual payment into 12 equal monthly payments. Thus the monthly payment amount changes annually instead of monthly. We will determine each annual payment as described below in “Variable Annuity Payment Values”, place each annual payment in our general account, and distribute it in 12 equal monthly payments. The sum of the 12 monthly payments will exceed the annual payment amount because of an interest rate factor we use, which may vary from year to year but will not be less than 2.0% per year. If the payments are commuted, we will use the commutation method described below for calculating the present value of remaining annual payments and use the interest rate that determined the current 12 monthly payments to commute any unpaid monthly payments.

Currently, we permit the original payee to make a number of changes to variable payments under Option A. Changes can only be made on the anniversary of the date of your first payment.

For regular PIPs, the permissible changes include:

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shortening or lengthening the period certain provided the payments already made and those to be made meet the 5 - 50 year and age 100 limits described above;
   
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changing to a life option - note that this option does not allow the payee to end the payments for a commuted value;
   
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changing to the “level monthly” option;
   
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changing the annual investment rate (“AIR”) or benchmark rate (except under Florida Certificates where only 3% is available);
   
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changing the payment frequency; and
   
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changing the day of the month on which payment occurs.

For “level monthly” PIPs, the permissible changes include:

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shortening or lengthening the period certain provided the payments already made and those to be made meet the 5 - 50 year and age 100 limits described above;
   
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changing to a life option - note that this option does not allow the payee to end the payments for a commuted value;
   
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changing to the regular PIP option;
   
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changing the AIR or benchmark rate (except under Florida Certificates where only 3% is available); and
   
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changing the day of the month on which payment occurs.

See “Annuity Payments” for the manner in which Option A may be taxed.

Option B: Life Income with 10 Years of Payments Guaranteed. We will pay periodic payments during the lifetime of the payee. If, at the death of the payee, payments have been made for fewer than 10 years:
 
 
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we will continue payments during the remainder of the period to the successor payee; or
   
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the successor payee may elect to receive in a lump sum the present value of the remaining payments, computed in the manner described below.
 
 
The amount of the annuity payments will depend on the age of the payee on the Income Date and it may also depend on the payee’s sex.

In the case of Options A and B, the present value of remaining payments referred to above will be based, for variable payments, on interest compounded annually at the current AIR or benchmark rate and on the assumption that each future payment is equal in amount to a payment determined using the applicable Sub-account annuity unit values for the Valuation Period which ends on the date of determination. For fixed annuity payments, the present value of the remaining fixed dollar payments will be based on interest compounded annually at the interest rate we used to create the annuity factor that was used in calculating the fixed payment amount.
 
 
Option C: Joint and Last Survivor Income. We will pay periodic payments for as long as either the payee or a designated second natural person is alive. The amount of the annuity payments will depend on the age of both persons on the Income Date and it may also depend on each person’s sex. It is possible under this option to receive only one annuity payment if both payees die after the receipt of the first payment, or to receive only two annuity payments if both payees die after receipt of the second payment, and so on.

Option D: Life Income. We will pay periodic payments for as long as the payee is alive. The amount of the annuity payments will depend on the age of the payee on the Income Date and it may also depend on the payee’s sex. It is possible under this option to receive only one annuity payment if the payee dies after the receipt of the first payment, or to receive only two annuity payments if the payee dies after receipt of the second payment, and so on.

Variable Annuity Payment Values
 
 
We determine the amount of the first variable annuity payment by multiplying the Certificate Value you are applying to variable annuity payments by the annuity purchase rate for the Annuity Option you have selected. The annuity purchase rates are based on an assumed AIR or benchmark rate of 6% per year (3% per year for Florida Certificates and 5% per year for Oregon and Texas Certificates), unless you choose 3% in writing. (See below and “Variable Annuity Payment Values” in the Statement of Additional Information for more information on AIRs and how your initial variable payment is calculated.)

Subsequent variable annuity payments will fluctuate in amount and reflect whether the actual investment return of the selected Sub-account(s) (after deducting the mortality and expense risk charge) is better or worse than the assumed investment rate. The total dollar amount of each variable annuity payment will be equal to:
 
 
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the sum of all Sub-account payments, less
   
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the pro-rata amount of the annual certificate maintenance charge. (See “Deductions for Certificate Maintenance Charge” for the circumstances under which this charge will be waived under variable payments Option A.)

Currently, there is no limit on the number of times or the frequency with which a payee may instruct us to change the Sub-account(s) used to determine the amount of the variable annuity payments. Currently, there is also no charge for such transfers.

If you apply the same amount to a particular payment option, a 5% or 6% AIR will result in a larger initial payment than will a 3% AIR. You should note, however, that, assuming the same investment performance, your subsequent payments using a 5% or 6% AIR will increase by a smaller percentage (when they increase) and decrease by a larger percentage (when they decrease) than will subsequent payments using a 3% AIR. Indeed, it is possible that after a sufficient period of time, payments determined using a 5% or 6% AIR may be lower than payments commencing at the same time using the same Sub-accounts but a 3% AIR. Note that if you select Option A (Income for a Fixed Number of Years) and payments continue for the entire period, the 5% or 6% AIR payment amount will start out being larger than the 3% AIR payment amount but eventually the 5% or 6% AIR payment amount will become less than the 3% AIR payment amount. Whether you would be better off choosing a higher or lower AIR depends on the annuity payment option you choose, the investment performance of the Sub-accounts you choose, and the period for which payments are received.
 
 
Proof of Age, Sex, and Survival of Annuitant
 
 
We may require proof of age, sex or survival of any payee upon whose age, sex or survival payments depend. If the age or sex has been misstated, we will compute the amount payable based on the correct age and sex. If income payments have begun, we will pay in full any underpayments with the next annuity payment and deduct any overpayments, unless repaid in one sum, from future annuity payments until we are repaid in full.

Guaranteed Income Benefit Rider

This rider is optional and you may elect in writing at the time you purchase the Certificate to add it to your Certificate. You may not elect the rider if the Annuitant is over age 75 on the Certificate Date or the rider is not available in your state.

You may direct us under the rider to make fixed annuity income payments to the Annuitant as follows:

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your selected payment option must be either Option B (Life Income with 10 Years of Payments Guaranteed) or Option D (Life Income)
   
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the periodic fixed payment amount under the selected option will be the greater of:
     
 
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the rider’s guaranteed income benefit base amount less any premium taxes and any surrender charge, then divided by $1,000, and then multiplied by the guaranteed payout factor shown in the applicable payment table in the Certificate for the Annuitant’s age on the Income Date adjusted by the Certificate’s age setback provision; or
     
 
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your Certificate Value less any premium taxes and any certificate maintenance charge, and reduced or increased by the amount of any market value adjustment applicable to any Fixed Account Value.  Next, the resulting Value is divided by $1,000, and then multiplied by our current payout factor on the Income Date for the Annuitant’s then-current age adjusted by the Certificate’s age setback provision

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your selected Income Date must be
     
 
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on or within 30 days after the seventh or later Certificate Anniversary, and
     
 
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no later than the maximum Income Date specified in “Change In Annuity Option and Income Date”.

The guaranteed income benefit rider never changes your Certificate Value nor does it guarantee that your Certificate Value will increase over time at any minimum rate.  Instead, the rider provides for guaranteed fixed lifetime income payments based generally on the “Purchase Payments with Interest” value on the Income Date and payout factors based on conservative actuarial assumptions.  Thus, in deciding whether to elect the rider and incur its .35% yearly charge, you should compare:

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the rider’s potential fixed annuity payment amount that is based on
     
 
(i)
a guaranteed income benefit base amount equal on the Income Date to no less than the purchase payment(s) compounded at 6% interest yearly (adjusted downward for any prior partial withdrawals) and
     
 
(ii)
our guaranteed annuity payout tables that are calculated using an interest rate of 3% per year, to
     
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the Certificate’s potential standard fixed annuity payment amount that is based on
     
 
(i)
the Certificate Withdrawal Value (without any surrender charge deduction) on the Income Date and
     
 
(ii)
our current annuity payout tables that are calculated using an interest rate of at least 3% per year.

The amount guaranteed by the income rider (the first amount above) may often be less than the standard amount available under the Certificate (the second amount above).  The rider should therefore be regarded as a hedge against potentially poor Sub-account performance prior to the Income Date.

You may also wish to consider how important the rider’s guaranteed fixed income payment amounts for life are to you if one of your reasons for purchasing the Certificate is to have variable annuity payments begin on the Income Date.

Guaranteed Income Benefit Base. The rider’s guaranteed income benefit base amount on the Income Date is the greater of the current “Purchase Payments with Interest” (PPI) and the current “greatest Anniversary value”.

Purchase Payments with Interest. We calculate the PPI amount on Certificate Anniversaries with adjustments between Certificate Anniversaries if you make a purchase payment or partial withdrawal. We do this calculation so that the PPI amount will be available on the Income Date if the rider’s guaranteed income benefit base amount is applicable to the Annuitant. The PPI amount equals, on each Certificate Anniversary, the initial purchase payment increased from the Certificate Date to the date of the Anniversary based on an annual compound interest rate of 6%. On any day that you made a purchase payment or partial withdrawal, we adjust the PPI amount accumulating at 6% by adding the additional purchase payment amount or subtracting the following amount for the partial withdrawal:

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the amount of the partial withdrawal (including any applicable surrender charge),
   
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divided by the Certificate Value immediately before the withdrawal, and
   
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multiplied by the PPI amount immediately before the withdrawal.

Except for the three Annuitant death instances described in the last three paragraphs of this section,

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If the Income Date is prior to the Annuitant’s 81st birthday, we will determine the PPI portion of the benefit base amount using the amount on the Certificate Anniversary before the Income Date.
   
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If the Income Date is on or after the Annuitant’s 81st birthday, we will determine the PPI portion of the benefit base amount using the amount on the Certificate Anniversary before the Annuitant’s 81st birthday; plus
   
 
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any additional purchase payments made prior to the Income Date; minus
     
 
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for any partial withdrawal made prior to the Income Date, the adjusted partial withdrawal amount described above.

If the Annuitant dies on or after the Certificate Anniversary before his or her 81st birthday and the Certificate continues to remain In Force with a new Annuitant, the PPI amount for the new Annuitant will initially equal the current value for the deceased Annuitant. This PPI amount for the new Annuitant will not change unless you make purchase payments and/or partial withdrawals, in which case the PPI amount will be adjusted as described above.

If the Annuitant dies before the Certificate Anniversary before his or her 81st birthday and the Certificate continues to remain In Force with a new Annuitant who is age 81 or older as of the Certificate Anniversary before the Annuitant’s date of death, the PPI amount for the new Annuitant will initially equal the current value for the deceased Annuitant.  This PPI amount for the new Annuitant will not change unless you make purchase payments and/or partial withdrawals, in which case the PPI amount will be adjusted as described above.

If the Annuitant dies before the first Certificate Anniversary and the Certificate continues to remain In Force with a new Annuitant who was older than the rider’s maximum issue age of 75 on the Certificate Date, coverage under the guaranteed income benefit rider will immediately end and we will not deduct any charge for the rider on the first Certificate Anniversary.

Greatest Anniversary Value. We calculate the “greatest Anniversary value” on Certificate Anniversaries with adjustments between Certificate Anniversaries, as described below, if you make a purchase payment or partial withdrawal. We do this calculation so that the “greatest Anniversary value” will be available on the Income Date if the rider’s guaranteed income benefit base amount is applicable to the Annuitant. The “greatest Anniversary value” initially equals the Certificate Value on the first Certificate Anniversary. Then, each following day in the second Certificate Year, we will adjust the “greatest Anniversary value” by adding any additional purchase payments made that day, and subtracting the following amount for each partial withdrawal made that day:

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the amount of the partial withdrawal (including any applicable surrender charge),
   
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divided by the Certificate Value immediately before the withdrawal, and
   
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multiplied by the “greatest Anniversary value” immediately before the withdrawal.

On the second and each subsequent Certificate Anniversary, we compare the current Certificate Value to the “greatest Anniversary value”, adjusted as described above if you made any purchase payments and/or partial withdrawals during the Certificate Year ending on that Certificate Anniversary.  If the current Certificate Value exceeds the adjusted “greatest Anniversary value”, the current Certificate Value will become the new “greatest Anniversary value”. Except for the three Annuitant death instances described in the last three paragraphs of this section, our last Anniversary calculation will occur:

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If the Income Date is prior to the Annuitant’s 81st birthday, on the Certificate Anniversary before the Income Date, or
   
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If the Income Date is on or after the Annuitant’s 81st birthday, on the Certificate Anniversary before his or her 81st birthday.

On the last Certificate Anniversary specified in the prior two sentences, the greater of the current Certificate Value and the adjusted “greatest Anniversary value” will become the last “greatest Anniversary value”.

Before the Income Date, this last “greatest Anniversary value” will not change unless you make purchase payments and/or partial withdrawals, in which case the last “greatest Anniversary value” will be adjusted as described above.

If the Annuitant dies on or after the Certificate Anniversary before his or her 81st birthday and the Certificate continues to remain In Force with a new Annuitant, the “greatest Anniversary value” for the new Annuitant will initially equal the current value for the deceased Annuitant. This “greatest Anniversary value” for the new Annuitant will not change unless you make purchase payments and/or partial withdrawals, in which case the value will be adjusted as described above.

If the Annuitant dies before the Certificate Anniversary before his or her 81st birthday and the Certificate continues to remain In Force with a new Annuitant who is age 81 or older as of the Certificate Anniversary before the Annuitant’s date of death, the “greatest Anniversary value” for the new Annuitant will initially equal the current value for the deceased Annuitant.  This “greatest Anniversary value” for the new Annuitant will not change unless you make purchase payments and/or partial withdrawals, in which case the value will be adjusted as described above.

If the Annuitant dies before the first Certificate Anniversary and the Certificate continues to remain In Force with a new Annuitant who was older than the rider’s maximum issue age of 75 on the Certificate Date, coverage under the guaranteed income benefit rider will immediately end and we will not deduct any charge for the rider on the first Certificate Anniversary.

Charge for the Rider. The yearly charge for the guaranteed income benefit rider option is .35%. This charge will not change over the life of the rider. On each Certificate Anniversary on or before the end of the rider’s coverage (see “Revocability and Other Ending of Rider Coverage” below), we multiply the .35% charge by the guaranteed income benefit base amount on that Certificate Anniversary (which is the greater of “Purchase Payments with Interest” and the “greatest Anniversary value”), and we deduct that amount from the Certificate Value. We will deduct the charge from all Sub-accounts of the Variable Account in the ratio that the value in each Sub-account bears to the total Variable Account Value. If there is no or insufficient value in the Variable Account, we will deduct the charge amount, or insufficient portion, from the Fixed Account in the ratio that each Guarantee Period’s value bears to the total Fixed Account Value.

If you surrender your Certificate during a Certificate Year before the Certificate Anniversary, we will deduct a pro-rata amount of the full yearly charge from your Certificate Value.  We first determine the applicable full yearly charge.  We will use the yearly charge we computed as of the prior Certificate Anniversary unless you have made any purchase payments and/or partial withdrawals since then.  If so, we will use a yearly charge that may be higher or lower since we will substitute the following for both the PPI amount and the “greatest Anniversary value” we used in the Anniversary calculations: those two amounts after both are adjusted for each purchase payment and/or withdrawal you made since the prior Certificate Anniversary.  We will then calculate a pro-rata amount of the applicable yearly charge by multiplying it further by the ratio of the number of days from the Certificate Anniversary until the day of surrender to the total number of days (generally 365) in the Certificate Year of surrender.

No charge amount is due:

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upon surrender of the Certificate if the Death Benefit is being calculated at that time because the Designated Beneficiary has elected to surrender the Certificate (see “Standard Death Benefit”), or
   
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on the Income Date.

Revocability and Other Ending of Rider Coverage. You may revoke the guaranteed income benefit rider in writing only on, or within 30 days after, the seventh Certificate Anniversary. There is no charge to do this since the final (seventh) year’s charge for the rider will already have been calculated and deducted on the seventh Certificate Anniversary.

Coverage under the guaranteed income benefit rider ends upon the earliest of:

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the seventh Contract Anniversary if you revoke the rider within 30 days after that Anniversary;
   
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the total surrender of your Certificate;
   
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the calculation of the Death Benefit either at the time of total surrender or a continuation of your Certificate;
   
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the death of the Annuitant before the first Certificate Anniversary if the new Annuitant was older than age 75 as of the Certificate Date; and
   
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the start of annuity payments on the Income Date.

After the rider ends, there will be no further charges for the rider and no past charges will be refunded. The rider’s guaranteed income benefit will no longer apply.

SUSPENSION OF PAYMENTS

We reserve the right to postpone surrender payments from the Fixed Account for up to six months. We also reserve the right to suspend or postpone any type of payment from the Variable Account for any period when:
 
 
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the New York Stock Exchange is closed other than customary weekend or holiday closings;
   
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trading on the Exchange is restricted;
   
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an emergency exists as a result of which it is not reasonably practicable to dispose of securities held in the Variable Account or determine their value; or
   
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the Securities and Exchange Commission permits delay for the protection of security holders.

The applicable rules and regulations of the Securities and Exchange Commission shall govern as to whether the latter two conditions described above exist.

TAX STATUS
 
 
Introduction
 
 
This section provides general information on the federal income tax consequences of ownership of a Certificate based upon our understanding of current federal tax laws and is not intended as tax advice. Actual federal tax consequences will vary depending on, among other things, whether the Certificate is issued under a Qualified Plan and the type of retirement plan under which your Certificate is issued. Also, legislation altering the current tax treatment of annuity contracts could be enacted in the future and could apply retroactively to Certificates that were purchased before the date of enactment. We make no attempt to consider any applicable federal estate, federal gift, state, or other tax laws. We also make no guarantee regarding the federal, state, or local tax status of any Certificate or any transaction involving any Certificate. You should consult a qualified tax professional for advice before purchasing a Certificate or executing any other transaction (such as a rollover, transfer, distribution, withdrawal or payment) involving a Certificate.

You may purchase a Certificate that is not issued under a Qualified Plan (“Non-Qualified Certificate”) or a Certificate that is used under a Plan that is Qualified under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) (a “Qualified Certificate”). The ultimate effect of federal income taxes on the Certificate Value, on annuity payments, and on the economic benefit to the Certificate Owner, Annuitant or Designated Beneficiary depends on the type of retirement plan for which you purchase the Certificate and upon the tax and employment status of the individual concerned.
 
 
Taxation of Annuities in General
 
 
For federal income tax purposes, purchase payments made under Non-Qualified Certificates are not deductible.  Under certain circumstances, purchase payments made under Qualified Certificates may be excludible or deductible from taxable income.  Any such amounts will also be excluded from the cost basis for purposes of determining the taxable portion of any distributions from a Qualified Certificate.

You should note that a qualified retirement plan generally provides tax deferral regardless of whether the plan invests in an annuity contract.  For that reason, no decision to purchase a Qualified Certificate should be based on the assumption that the purchase of a Qualified Certificate is necessary to obtain tax deferral under a qualified plan.

Section 72 of the Code governs taxation of annuities in general. There are no income taxes on increases in the value of a Certificate until a distribution occurs, in the form of a full surrender, a partial withdrawal, an assignment or gift of the Certificate, or annuity payments. A  non-natural person owning a Non-Qualified Certificate, other than as an agent for an individual, is taxed differently; increases in the value of a Certificate are taxed yearly whether or not a distribution occurs.
 
 
Surrenders, Partial Withdrawals, Death Benefit Payments, Assignments and Gifts. If you fully surrender your Certificate, the portion of the surrender payment that exceeds your cost basis in the Certificate is subject to tax as ordinary income. For Non-Qualified Certificates, the cost basis is generally the amount of the purchase payments made for the Certificate. For Qualified Certificates, the cost basis is generally zero and the entire surrender payment is generally taxed as ordinary income. A Designated Beneficiary receiving a lump sum death benefit payment after your death or the death of the Annuitant is similarly taxed on the portion of the amount that exceeds your cost basis in the Certificate. If the Designated Beneficiary elects that the lump sum not be paid in order to receive annuity payments that begin within one year of the decedent’s death, different tax rules apply. See “Annuity Payments” below. For Non-Qualified Certificates, the tax treatment applicable to Designated Beneficiaries may be contrasted with the income tax treatment applicable to persons inheriting and then selling mutual fund shares who receive a “stepped-up” basis equal to the date-of-death value of their shares and therefore will pay no tax on the sale of their shares unless the sale price exceeds the date-of-death value.
 
 
Partial withdrawals received under Non-Qualified Certificates prior to annuitization are first included in gross income to the extent the cash value (determined without regard to surrender charges) exceeds purchase payments. Then, to the extent the cash value does not exceed purchase payments, such withdrawals are treated as a non-taxable return of principal to you. There is no definition of “cash value” in the Code and, for tax reporting purposes, we are currently treating it as the Certificate Value.  However, there can be no assurance that the IRS will agree that this is the correct cash value.  The IRS could, for example, determine that the cash value is the Certificate Value plus an additional amount representing the value of a death benefit and/or living benefit in your Certificate.  If this were to occur, any withdrawal could have a higher proportion of the withdrawal derived from taxable investment earnings.

For partial withdrawals under a Qualified Certificate, a portion of each payment is treated as a non-taxable return of principal and the remaining amount is treated as taxable income. Since the cost basis of Qualified Certificates is generally zero, partial withdrawal amounts will generally be fully taxed as ordinary income.
 
 
If you assign or pledge a Non-Qualified Certificate, you will be subject to taxation under the rules applicable to partial withdrawals or surrenders. If you give away your Certificate to anyone other than your spouse, you are treated for income tax purposes as if you had fully surrendered the Certificate. If the transfer is to a charity, you may be allowed a deduction for some or all of the value of the Certificate transferred.
 
 
Internal Revenue Code 72(e)(12) applies if we issue to you, during any calendar year, two or more Certificates, or one or more Certificates and one or more of our other annuity contracts. Under this provision, all of the contracts will be treated as one contract. We believe this means that the amount of any distribution under any one Certificate will be includable in gross income to the extent that at the time of distribution the sum of the values for all the Certificates or contracts exceeds the sum of each contract’s cost basis.
 
 
Annuity Payments. We determine the non-taxable portion of each variable annuity payment by dividing the cost basis of your values allocated to Variable Account Value by the total number of expected payments. We determine the non-taxable portion of each fixed annuity payment with an “exclusion ratio” formula which establishes the ratio that the cost basis of your values allocated to Fixed Account Value bears to the total expected value of annuity payments for the term of the annuity. The remaining portion of each payment is taxable. Such taxable portion is taxed at ordinary income rates. For Qualified Certificates, the cost basis is generally zero.

With annuity payments based on life contingencies, the payments will become fully taxable once the payee lives longer than the life expectancy used to calculate the non-taxable portion of the prior payments, if any. Because variable annuity payments can increase over time and because certain payment options provide for a lump sum right of commutation, it is possible that the IRS could determine that variable annuity payments should not be taxed as described above but instead should be taxed as if they were received under an agreement to pay interest. This determination would result in a higher amount (up to 100%) of certain payments being taxable.
 
 
With respect to the “level monthly” payment option available under Annuity Option A, pursuant to which each annual payment is placed in our general account and paid out with interest in 12 equal monthly payments, it is possible the IRS could determine that receipt of the first monthly payout of each annual payment is constructive receipt of the entire annual payment. Thus, the total taxable amount for each annual payment would be accelerated to the time of the first monthly payout and reported in the tax year in which the first monthly payout is received. This acceleration would affect you if your first monthly payment for each year is received in a month other than January since those of your 12 monthly payments that are actually received in the next tax year would be treated as being constructively received (and taxable) in the current tax year.

Following any change by the payee to variable annuity payments under Annuity Option A, other than a change of the payment day of the month or a change from regular PIP to “level monthly” PIP (or vice versa) where the remaining payment length stays the same, the non-taxable portion of each payment will be recalculated in accordance with IRS standards.

The Code does not specifically address partial withdrawals after annuity payments have begun. Based on a private letter ruling issued by the IRS in 2000, it is our intention to report as taxable income the portion of any partial withdrawal from variable Annuity Option A that does not exceed immediately before the partial withdrawal the present value of remaining payments less the Certificate’s remaining cost basis. Under this approach, a partial withdrawal of $10,000 when the present value is $150,000 and the remaining cost basis is $145,000 would result in taxable income of $5,000 being reported. Since private letter rulings do not bind the IRS, the IRS could take the position that the Code requires the full amount of the partial withdrawal ($10,000 in the example) to be treated as taxable income. Under either approach to determining the taxable income associated with a partial withdrawal, some taxpayers, such as those under age 59½, could be subject to additional tax penalties. Because of the potential for adverse tax results as described above, you should carefully consider, prior to making a partial withdrawal, your need for funds from the Certificate and the tax implications. You should also consult a qualified tax professional prior to making a partial withdrawal.
 
 
Penalty Tax. Payments received by you, Annuitants, and Designated Beneficiaries under Certificates may be subject to both ordinary income taxes and a penalty tax equal to 10% of the amount received that is includable in income. The penalty tax is not imposed on the following amounts received for Non-Qualified Certificates:

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after the taxpayer attains age 59½;
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in a series of substantially equal periodic payments made for life or life expectancy;
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after the death of the Certificate Owner (or, where the Certificate Owner is not a human being, after the death of the primary Annuitant, as defined in the Code);
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if the taxpayer becomes totally and permanently disabled; or
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under a Non-Qualified immediate annuity contract that provides for a series of substantially equal periodic payments provided that only one purchase payment is made to the Certificate, that the Certificate is not issued as a result of a Section 1035 exchange, and that the first annuity payment begins in the first Certificate Year.
 
 
Similar exceptions to the 10% penalty tax apply to distributions from Qualified Certificates.

Federal Income Tax Withholding. We are required to withhold federal income taxes on taxable amounts paid under Certificates unless the recipient elects not to have withholding apply. We will notify recipients of their right to elect not to have withholding apply. See “Tax-Sheltered Annuities” (TSAs) for an alternative type of withholding that may apply to distributions from TSAs that are eligible for rollover to another TSA, an individual retirement annuity or account (IRA), a qualified trust or an eligible deferred compensation plan of a state or local government.
 
 
Section 1035 Exchanges. You may purchase a Non-Qualified Certificate with proceeds from the surrender of an existing annuity contract. Such a transaction may qualify as a tax-free exchange pursuant to Section 1035 of the Code. It is our understanding that in such an event:

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the new Certificate will be subject to the distribution-at-death rules described in “Death Provisions”;
   
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purchase payments made between August 14, 1982 and January 18, 1985 and the income allocable to them will, following an exchange, no longer be covered by a “grandfathered” exception to the penalty tax for a distribution of income that is allocable to an investment made over ten years prior to the distribution; and
   
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purchase payments made before August 14, 1982 and the income allocable to them will, following an exchange, continue to receive the following “grandfathered” tax treatment under prior law:
 
(i)
the penalty tax does not apply to any distribution;
 
(ii)
partial withdrawals are treated first as a non-taxable return of principal and then a taxable return of income; and
 
(iii)
assignments are not treated as surrenders subject to taxation.

Diversification Standards. The U.S. Secretary of the Treasury has issued regulations that set standards for diversification of the investments underlying variable annuity contracts (other than pension plan contracts). The Eligible Funds intend to meet the diversification requirements for the Certificate, as those requirements may change from time to time. If the diversification requirements are not satisfied, the Certificate will not be treated as an annuity contract. As a consequence, income earned on a Certificate would be taxable to you as ordinary income in the year in which diversification requirements were not satisfied, including previously non-taxable income earned in prior years.
 
 
The IRS has stated that satisfaction of the diversification requirements described above by itself does not prevent a contract owner from being treated as the owner of separate account assets under an “owner control” test.  If a contract owner is treated as the owner of separate account assets for tax purposes, the contract owner would be subject to taxation on the income and gains from the separate account assets. In published revenue rulings through 1982 and then again in 2003, the IRS has stated that a variable contract owner will be considered the owner of separate account assets if the owner possesses incidents of ownership such as the ability to exercise control over the investment of the assets.  In Revenue Ruling 2003-91, the IRS considered certain variable annuity and variable life insurance contracts and concluded that the owners of the variable contracts would not be considered the owners of the contracts’ underlying assets for federal income tax purposes.

Revenue Ruling 2003-91 states that the determination of whether the owner of a variable contract possesses sufficient incidents of ownership over the assets underlying the variable contract so as to be deemed the owner of those assets for federal income tax purposes will depend on all the facts and circumstances. We do not believe that the differences between the Certificate and the contracts described in Revenue Ruling 2003-91 should prevent the holding in Revenue Ruling 2003-91 from applying.  Nevertheless, you should consult with a qualified tax professional on the potential impact of the investor control rules of the IRS as they relate to the investment decisions and activities you may undertake with respect to the Certificate.  In addition, the IRS and/or the Treasury Department may issue new rulings, interpretations or regulations on this subject in the future.  Accordingly, we have reserved certain rights to alter the Certificates and investment alternatives to attempt to prevent you from being considered the owner, for tax purposes, of the underlying assets. However, you bear the risk that you may be treated as the owner of Separate Account assets and taxed accordingly.

Qualified Plans
 
 
The Certificate is for use with several types of Qualified Plans. Under the Code, Qualified Plans generally enjoy tax-deferred accumulation of amounts invested in the plan. Therefore, in considering whether or not to purchase a Certificate in Qualified Plan, you should only consider the Certificate’s other features, including the availability of lifetime annuity payments and death benefit protection.

The tax rules applicable to participants in such Qualified Plans vary according to the type of plan and the terms and conditions of the plan itself. Therefore, we do not attempt to provide more than general information about the use of the Certificate with the various types of Qualified Plans. Participants under such Qualified Plans as well as Certificate Owners, Annuitants, and Designated Beneficiaries are cautioned that the rights of any person to any benefits under such Qualified Plans may be subject to the terms and conditions of the plans themselves regardless of the terms and conditions of the Certificate issued in connection therewith. Following are brief descriptions of the various types of Qualified Plans and of the use of the Certificate in connection with them, and, for Tax-Sheltered Annuities and traditional Individual Retirement Annuities, required minimum distribution requirements. Purchasers of the Certificate should seek competent advice concerning the terms and conditions of the particular Qualified Plan and use of the Certificate with that Plan.
 
 
Tax-Sheltered Annuities

Section 403(b) of the Code permits public school employees and employees of certain types of charitable, educational and scientific organizations specified in Section 501(c)(3) of the Code to purchase annuity contracts and, subject to certain contribution limitations, exclude the amount of purchase payments from gross income for tax purposes. However, such purchase payments may be subject to Social Security (FICA) taxes. This type of annuity contract is commonly referred to as a “Tax-Sheltered Annuity” (TSA).
 
 
Effective October 1, 2008, we no longer issue any new annuities under Section 403(b) of the Internal Revenue Code (so-called Section 403(b) annuities or tax-sheltered annuities, including Texas Optional Retirement Program annuities).  After December 31, 2008, we no longer accepted any additional Purchase Payments to any previously issued TSAs.

The Internal Revenue Service’s (“IRS”) comprehensive TSA regulations became effective January 1, 2009, and these regulations, subsequent IRS guidance, and/or the terms of an employer’s TSA plan impose new restrictions on TSAs, including restrictions on (1) the availability of hardship distributions and loans, (2) TSA exchanges within the same employer’s TSA plan, and (3) TSA transfers to another employer’s TSA plan.  You should consult with a qualified tax professional about how the regulations affect you and your TSA.

If TSAs are to receive tax-deferred treatment, cash withdrawals of amounts attributable to salary reduction contributions (other than withdrawals of accumulation account value as of December 31, 1988) may be made only when you attain age 59½, have a severance from employment with the employer, die or become disabled (within the meaning of Section 72(m)(7) of the Code). These distribution restrictions apply only to withdrawals attributable to contributions made after 1988, to earnings on those contributions, and to earnings on amounts held as of December 31, 1988. These distribution restrictions are not applicable when TSA funds are being transferred tax-free directly to another TSA issuer, provided the transferred funds continue to be subject to the same distribution restrictions.  Also, it is permissible to withdraw post-1988 salary reduction contributions (but not the earnings attributable to such contributions) in cases of financial hardship.  Financial hardship withdrawals (as well as certain other premature withdrawals) are fully taxable and will be subject to a 10% federal income tax penalty, in addition to any applicable Certificate withdrawal charge. Under certain circumstances the 10% federal income tax penalty will not apply if the withdrawal is for medical expenses.  A financial hardship withdrawal may not be repaid once it is taken.

The TSA regulations provide that TSA hardship withdrawals will be subject to the IRS rules applicable to hardship distributions from 401(k) plans.  Specifically, if you have not terminated your employment or reached age 59½, you may be able to withdraw a limited amount of monies if you have an immediate and heavy financial need and the withdrawal amount is necessary to satisfy such financial need.  An immediate and heavy financial need may arise only from:

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deductible medical expenses incurred by you, your spouse, or your dependents;
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payments of tuition and related educational fees for the next 12 months of post-secondary education for you, your spouse, or your dependents;
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costs related to the purchase of your principal residence (not including mortgage payments);
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payment necessary to prevent eviction from your principal residence or foreclosure of the mortgage on your principal residence;
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payments for burial or funeral expenses for your parent, spouse, children, or dependents; or
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expenses for the repair of damage to your principal residence that would qualify for the federal income tax casualty deduction.

You will be required to represent in writing to us (1) that your specified immediate and heavy financial need cannot reasonably be relieved through insurance or otherwise, by liquidation of your assets, by ending any contributions you are making under your TSA plan, by other distributions and nontaxable loans under any of your qualified plans, or by borrowing from commercial sources and (2) that your requested withdrawal amount complies with applicable law, including the federal tax law limit.  And, unless your TSA was issued prior to September 25, 2007 and the only payments you made to such TSA were TSA funds you transferred directly to us from another TSA carrier (a “90-24 Transfer TSA”), your TSA employer also may need to agree in writing to your hardship request.  Hardship withdrawals are fully taxable, plus you may be required to pay a 10% federal income tax penalty.  A hardship withdrawal may not be repaid once taken.

If your TSA contains a provision that permits loans, you may request a loan but you will be required to represent in writing to us that your requested loan amount complies with applicable law, including the federal tax law limit.  And, unless your TSA is a 90-24 Transfer TSA, your TSA employer also may need to agree in writing to your loan request.

Under the terms of a particular TSA plan, the participant may be entitled to transfer all or a portion of the Certificate Value to one or more alternative funding options. Participants should contact the person who administers the TSA plan for information as to such investment alternatives. If you wish to transfer or exchange your TSA for another TSA within the same or different TSA plan, you will be able to do so only if the issuer of the new TSA certifies to us that the transfer or exchange is permissible under the TSA regulations and the applicable TSA plan.  Your TSA employer also may need to agree in writing to your transfer/exchange request.

If you have requested a distribution from a Certificate, we will notify you if all or part of such distribution is eligible for rollover to another Eligible Retirement Plan. Any amount eligible for rollover treatment will be subject to mandatory federal income tax withholding at a 20% rate unless you direct us in writing to transfer the amount as a direct rollover to another Eligible Retirement Plan. The term “Eligible Retirement Plan” means an individual retirement account under Section 408(a), an individual retirement annuity under Section 408(b), a pension or profit sharing plan under Section 401(a), an annuity plan under Section 403(a), a tax-sheltered annuity under Section 403(b), or an eligible deferred compensation plan of a state or local government under Section 457(b).

Individual Retirement Annuities
 
 
Sections 408(b) and 408A of the Code permit eligible individuals to contribute to an individual retirement program known as a traditional “Individual Retirement Annuity” and “Roth IRA”, respectively. These traditional individual retirement annuities and Roth IRAs are subject to limitations on the amount which may be contributed, the persons who may be eligible to contribute, and on the time when distributions may commence. In addition, distributions from certain types of Qualified Plans may be placed on a tax-deferred basis into a Section 408(b) Individual Retirement Annuity. If you convert a traditional individual retirement annuity into a Roth IRA, the fair market value of the Certificate is included in taxable income.  Under IRS Regulations and Revenue Procedure 2006-13, fair market value may exceed Certificate Value.  Thus, you should consult with a qualified tax professional prior to any conversion.

Corporate Pension and Profit-Sharing Plans
 
 
Sections 401(a) and 403(a) of the Code permit corporate employers to establish various types of retirement plans for employees. Such retirement plans may permit the purchase of the Certificate to provide benefits under the plans.

Deferred Compensation Plans with Respect to Service for State and Local Governments
 
 
Section 457 of the Code, while not actually providing for a Qualified Plan as that term is normally used, provides for certain deferred compensation plans that enjoy special income tax treatment with respect to service for tax-exempt organizations, state governments, local governments, and agencies and instrumentalities of such governments. The Certificate can be used with such plans. Under such plans, a participant may specify the form of investment in which his or her participation will be made. However, with respect to plans established by tax-exempt organizations, all such investments are owned by and subject to the claims of general creditors of the sponsoring employer.

Required Minimum Distribution Requirements for Tax-Sheltered Annuities and Traditional Individual Retirement Annuities

If your Certificate is a traditional Individual Retirement Annuity or a 403(b) TSA annuity, it is subject to certain required minimum distribution (RMD) requirements imposed by the Internal Revenue Code and IRS regulations. Under the RMD rules, distributions must begin no later than April 1 of the calendar year following the year in which you attain age 70½ or, for non-IRAs, the date of retirement instead of age 70½ if it is later. The RMD amount for a distribution calendar year is generally calculated by dividing the Certificate’s value as of 12/31 of the prior calendar year by the applicable distribution factor set forth in a Uniform Lifetime Table in the IRS regulations. For Certificates issued in connection with traditional Individual Retirement Accounts, you should contact the Account’s trustee or custodian about RMD requirements since we only provide the trustee or custodian with the Certificate’s value (including any actuarial present value of additional benefits discussed below) so that it can be used in the Account’s RMD calculations.

Effective with the 2006 distribution calendar year, the actuarial present value as of 12/31 of any additional benefits that are provided under your Certificate (such as death and living benefits) will be added to the Certificate Value as of 12/31 in order to calculate the RMD amount. There are two exceptions to the requirement that the actuarial present value of an additional benefit must be added to the Certificate Value for RMD calculation purposes. First, if the only additional benefit provided under a Certificate is a return of premium death benefit (i.e., a benefit under which the final payment does not exceed the amount of purchase payments made less prior distributions), then the additional benefit is disregarded and the RMD calculation uses only the 12/31 Certificate Value. Second, if (1) the Certificate provides only for additional benefits that are each reduced on a proportional basis in the event of distributions, with or without a return of premium death benefit that is not reduced in amount proportionately in the event of distributions and (2) the actuarial present value of all the Certificate’s additional benefits is no more than 20% of the 12/31 Certificate Value, then the additional benefits are disregarded and the RMD calculation uses only the 12/31 account balance. When we notify you of the RMD amount for a distribution calendar year, we will inform you if the calculation included the actuarial present value of additional benefits. Because of the above requirements, a death benefit and/or living benefit in your Certificate could cause your RMD amount to be higher than it would be without such a benefit.

Annuity Purchases by Nonresident Aliens

The discussion above provides general information regarding federal income tax consequences to annuity purchasers who are U.S. citizens or resident aliens. Purchasers who are not U.S. citizens or are resident aliens will generally be subject to U.S. federal income tax and withholding on the income portion of annuity distributions at a 30% rate, unless a lower rate applies in a U.S. treaty with the purchaser’s country. In addition, purchasers may be subject to state premium tax, other state and/or municipal taxes, and taxes that may be imposed by the purchaser’s country of citizenship or residence. Prospective purchasers are advised to consult with a qualified tax professional regarding U.S., state, and foreign taxation with respect to an annuity purchase.

VARIABLE ACCOUNT VOTING PRIVILEGES

In accordance with our view of present applicable law, we will vote the shares of the Eligible Funds held in the Variable Account at regular and special meetings of the shareholders of the Eligible Funds in accordance with instructions received from persons having the voting interest in the Variable Account. We will vote shares for which we have not received instructions in the same proportion as we vote shares for which we have received instructions.
 
 
However, if the Investment Company Act of 1940 or any regulation thereunder should be amended or if the present interpretation should change, and as a result we determine that we are permitted to vote the shares of the Eligible Funds in our own right, we may elect to do so.
 
 
You have the voting interest under a Certificate prior to the Income Date. The number of shares held in each Sub-account that are attributable to you is determined by dividing your Variable Account Value in each Sub-account by the net asset value of the applicable share of the Eligible Fund. The payee has the voting interest after the Income Date under an annuity payment option. The number of shares held in the Variable Account which are attributable to each payee is determined by dividing the reserve for the annuity payments by the net asset value of one share. During the annuity payment period, the votes attributable to a payee decrease as the reserves underlying the payments decrease.
 
 
We will determine the number of shares in which a person has a voting interest as of the date established by the respective Eligible Fund for determining shareholders eligible to vote at the meeting of the Eligible Fund. We will solicit voting instructions in writing prior to such meeting in accordance with the procedures established by the Eligible Fund.
 
 
Each person having a voting interest in the Variable Account will receive periodic reports relating to the Eligible Fund(s) in which he or she has an interest, proxy material and a form with which to give such voting instructions.

REPORTS TO OWNERS

We will send you, by regular U.S. mail, confirmation of all purchase payments (including any interest credited), withdrawals, (including any withdrawal charges and federal taxes on withdrawals), minimum distributions, death benefit payments, and transfers (excluding dollar-cost averaging transfers).  Such confirmations will be sent within two business days after the transaction occurs.

In addition, within 5 business days after each calendar quarter, we will send you a statement showing your current Certificate Value, death benefit value, and investment allocation by asset class.  Each quarterly statement will detail transactions that occurred during the last quarter including purchase payments, annuity payments, transfers (including dollar-cost averaging transfers), partial withdrawals, systematic withdrawals, minimum distributions, portfolio rebalancing, asset reallocations, interest credited on fixed accounts, and annual contract fees assessed.

We will also send you annual and semi-annual reports of the funds in which you are invested, including a list of investments held by each portfolio as of the current date of the report.

It is your obligation to review each such statement carefully and to report to us, at the address or telephone number provided on the statement, any errors or discrepancies in the information presented therein within 60 days of the date of such statement. Unless we receive notice of any such error or discrepancy from you within such period, we may not be responsible for correcting the error or discrepancy.

SALES OF THE CERTIFICATES

Certificates are sold by licensed insurance agents (“the Selling Agents”) in those states where the Certificates may be lawfully sold. Such Selling Agents will be registered representatives of affiliated and unaffiliated broker-dealer firms (“the Selling Broker-Dealers”) registered under the Securities Exchange Act of 1934 who are members of the Financial Industry Regulatory Authority (“FINRA”) and who have entered into selling agreements with Sun Life (U.S.) and the principal underwriter, Clarendon Insurance Agency, Inc. (“Clarendon”), One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. Clarendon, our wholly-owned subsidiary, is registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is a member of FINRA.

Sun Life (U.S.) (or its affiliate) pays the Selling Broker-Dealers compensation for the promotion and sale of the Certificate. The Selling Agents who solicit sales of the Certificate typically receive a portion of the compensation paid by us to the Selling Broker-Dealers in the form of commissions or other compensation, depending on the agreement between the Selling Broker-Dealer and their Selling Agent. This compensation is not paid directly by the Certificate Owner or the separate account. We intend to recoup this compensation through fees and charges imposed under the Certificate, and from profits on payments we receive for providing administrative, marketing, and other support and services to the Funds.

The amount and timing of commissions we may pay to Selling Broker-Dealers may vary depending on the selling agreement but it not expected to be more than 8.00% of purchase payments, and 1.00% annually, based on the Certificate Value of those payments. The percentage may increase to 8.50% if a variable payout under Option A is elected in the first Certificate Year. We may pay or allow other promotional incentives or payments in the form of cash or other compensation to the extent permitted by FINRA rules and other applicable laws and regulations, and this compensation may be significant in amount.

The Company also pays compensation to wholesaling broker-dealers or other firms or intermediaries, including payments to affiliates of the Company, in return for wholesaling services such as providing marketing and sales support, product training and administrative services to the Selling Agents of the Selling Broker-Dealers.  This compensation may be significant and may be based on a percentage of purchase payments and/or a percentage of Certificate Value and/or may be a fixed dollar amount. The prospect of receiving, or the receipt of additional compensation as described above may provide Selling Broker-Dealers with an incentive to favor sales of the Contracts over other variable annuity contracts (or other investments) with respect to which the Selling Broker-Dealer does not receive additional compensation, or lower levels of additional compensation. You should take such payment arrangements into account when considering and evaluating any recommendation relating to the Contracts.

In addition to selling our variable contracts (including the Contract), some Selling Broker-Dealers or their affiliates may have other business relationships with the Company. Those other business relationships may include, for example, reinsurance agreements pursuant to which an affiliate of the Selling Broker-Dealer provides reinsurance to the Company relative to some or all of the Policies or other variable policies issued by the Company or its affiliates. The potential profits for a Selling Broker-Dealer or its affiliates (including its registered representatives) associated with such reinsurance arrangements could be significant in amount and could indirectly provide incentives to the Selling Broker-Dealer and its Selling Agents to recommend products for which they provide reinsurance over similar products which do not result in potential reinsurance profits to the Selling Broker-Dealer or its affiliate. The operation of an individual contract is not impacted by whether the policy is subject to a reinsurance arrangement between the Company and an affiliate of the Selling Broker-Dealer.

As discussed in the preceding paragraphs, the Company makes numerous forms of payments and engages in a variety of other activities that, directly or indirectly, provide incentives to, and otherwise facilitate and encourage the offer and sale of the Contracts by Selling Broker-Dealers and their registered representatives. Such payments and other activities may be significantly greater or less in connection with the Contracts than in connection with other products offered and sold by the Company or by others. Accordingly, our payments and other activities described above may create a potential conflict of interest, as they may influence your Selling Broker-Dealer or registered representative to present a Contract to you instead of (or more favorably than) another product or products that might be preferable to you.

You should ask your Selling Agent for further information about what commissions or other compensation he or she, or the Selling-Broker-Dealer for which he or she works, may receive in connection with your purchase of a Certificate.

We may sell Certificates with lower or no dealer compensation to a person who is an officer, director, or employee of ours or an affiliate of ours or to any Qualified Plan established for such a person. Such Certificates may be different from the Certificates sold to others in that they are not subject to the deduction for the certificate maintenance charge, the asset-based distribution charge or the surrender charge and they have a mortality and expense risk charge of 0.35% per year.

We may sell Certificates with lower or no dealer compensation as part of an exchange program for other fixed (“Old FA”) and variable (“Old VA”) annuity contracts we previously issued. A Certificate issued in exchange for an Old VA that has a contingent deferred sales charge provision will be issued with an exchange endorsement. One effect of the endorsement is that we will not assess a surrender charge under the Old VA at the time of the exchange. The exchange endorsement provides that we will calculate any surrender charge assessed under the Certificate in relation to the initial purchase payment (i.e., the amount exchanged) based on the actual time of each purchase payment under the Old VA. The endorsement also provides that we will not refund the amount described in “Right to Revoke” if the Certificate is returned. Instead, we will return the Old VA to the owner and treat it as if no exchange had occurred.

Under any exchange program of ours, we treat the exchange as being income-tax free. Before making any exchange, you should consult a qualified tax professional and, for Old VA to Certificate exchanges, you also should consider the differences between the two variable annuities, including the Sub-account selections.

You may make an exchange to a Certificate if we are making variable annuity payments for a fixed number of years under an Old VA. Under your Certificate, the Income Date will be the date of the next scheduled payment under the Old VA and the payment period will be the payment period remaining under the Old VA. On the Certificate Date of your new Certificate, the present value of the remaining annuity payments under the Old VA will be allocated to the Sub-account(s) you select under the Certificate and the amount of future variable annuity payments under your Certificate will be based upon the investment return of those Sub-accounts(s). From the Certificate Date to the Income Date, we will treat your Certificate as one under which periodic annuity payments have begun, and not one that has values based on Accumulation Units. Other than the change in Sub-account allocation described above, we do not permit you to make any changes as you exchange from the Old VA to your Certificate.

Commissions may be waived or reduced in connection with certain transactions described in this prospectus. During 2007, 2008, and 2009, approximately $704,515, $507,007, and $276,836, respectively, in commissions were paid to but not retained by Clarendon in connection with the distribution of the Certificates.

LEGAL PROCEEDINGS

There are no legal proceedings to which the Variable Account or the Principal Underwriter are a party. We are engaged in routine litigation of various kinds that, in our judgment, is not of material importance in relation to our total capital and surplus.

INQUIRIES BY CERTIFICATE OWNERS

You may write us with questions about your Certificate to Sun Life Assurance Company of Canada (U.S.), Client Service Department, P.O. Box 9133, Wellesley Hills, MA 02481, or call (800) 367-3653.

Electronic Account Information

You may elect to receive prospectuses, transaction confirmations, reports and other communications in electronic format, instead of receiving paper copies of these documents.  You may enroll in this optional electronic delivery service by visiting www.sunlife.com and selecting "Individuals" from the "Access your account" dropdown.  This service is subject to various terms and conditions, including a requirement that you promptly notify us of any change in your e-mail address, in order to avoid any disruption of deliveries to you. You may obtain more information and assistance at the above-mentioned internet location or by writing us at our Annuity Mailing Address or by telephone at (800) 752-7215.

TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION

   
Sun Life Insurance Company of Canada (U.S.)
 
Variable Annuity Benefits
 
  Variable Annuity Payment Values
 
  Re-Allocating Sub-account Payments
 
Safekeeping of Assets
 
Principal Underwriter
 
Independent Registered Public Accounting Firm
 
Investment Performance
 
Financial Statements
 


 
 
 

APPENDIX A -
The Fixed Account (Also Known as the Modified Guaranteed Annuity Account)
 
 
Introduction

This appendix describes the Fixed Account option available under the Certificate.

Fixed Account Values are subject to a limited market value adjustment. The adjustment may result in an increase or decrease in amounts transferred and amounts paid to you or other payees (including withdrawals, surrenders, death benefits, and amounts applied to purchase annuity payments). However, a market value adjustment will not reduce the interest rate applied to amounts you allocate to a Guarantee Period to less than 3% per year. Payments made from Fixed Account Values at the end of a Guarantee Period are not subject to the limited market value adjustment.
 
 
Any purchase payments you allocate to the Fixed Account option become part of our general account. Because of provisions in the securities laws, our general account including the Fixed Account, are not subject to regulation under the Securities Act of 1933 or the Investment Company Act of 1940. The Securities and Exchange Commission has not reviewed the disclosure in the prospectus relating to the general account and the Fixed Account option.
 
 
Allocations to the Fixed Account
 
 
We will allocate purchase payments to the Fixed Account according to your selection in the application. Your selection must specify the percentage of the purchase payment you want to allocate to each Guarantee Period. The percentage, if not zero, must be at least 5%. You may change the allocation percentages without any charges. You must make allocation changes in writing unless you have, in writing, authorized us to accept telephone allocation instructions. By authorizing us to accept telephone changes, you agree to the conditions and procedures we establish from time to time. The current conditions and procedures are in Appendix B. We will notify you in advance of any changes.
 
 
Each Guarantee Period currently offered is available for initial and subsequent purchase payments and for transfers of Certificate Value. We currently offer Guarantee Periods of up to 7 years. We also currently offer a Guarantee Period of one year which is for use only with the Dollar Cost Averaging Program. We may change at any time the number and/or length of Guarantee Periods we offer. You or your salesperson should call (800) 367 3653 for information on the Guarantee Periods that are currently offered. If we no longer offer a particular Guarantee Period, the existing Fixed Account Value in that Guarantee Period will remain until the end of the period. At that time, you must select a different Guarantee Period Fixed Account option.

Capital Protection Plus
 
 
We offer a capital protection plus program. Under this program, we allocate part of your purchase payment to the Guarantee Period Fixed Account option you select. Currently, you may only select the 7-year Guarantee Period Fixed Account option.

Based on the length of the period and the period’s interest rate, we determine how much of your purchase payment must be allocated to the Guarantee Period so that, at the end of the Guarantee Period, the allocated amount plus interest will be equal to your total purchase payment. We will allocate the rest of your purchase payment to the Sub-account(s) of the Variable Account based on your allocation instructions.
 
 
For example, assume you choose the 7-year Guarantee Period and we receive your purchase payment of $10,000 when the interest rate for the Guarantee Period is 6.75% per year. We will allocate $6,331 to that Guarantee Period, because $6,331 will increase, at the interest rate of 6.75%, to $10,000 after seven years. The remaining $3,669 of the payment will be allocated to the Sub-account(s) you select.

If you surrender or transfer any part of the Fixed Account Value before the end of the Guarantee Period, the value at the end of that period will not equal your original purchase payment amount.


 
 
 

 
 
Fixed Account Value
 
 
Fixed Account Value is equal to:
 
 
l
all purchase payments allocated or amounts transferred to the Fixed Account plus the interest credited on those payments or amounts transferred; less
   
l
any prior partial withdrawals or transfers from the Fixed Account, including any applicable charges.
 
 
Interest Credits
 
 
We credit interest daily. The interest we credit is based on an annual compound interest rate. It is credited to purchase payments allocated to the Fixed Account at rates we declare for Guarantee Periods of one or more years from the month and day of allocation. Any rate we set will be at least 3% per year.
 
 
Our interest crediting method may result in each of your Guarantee Periods being subject to different rates. For purposes of this section, we treat Variable Account Value transferred to the Fixed Account and Fixed Account Value that is renewed or transferred to another Guarantee Period as a purchase payment allocation.

Application of Market Value Adjustment
 
 
No market value adjustment applies to Guarantee Periods of less than three years.
 
 
A market value adjustment applies to any Fixed Account Value surrendered, withdrawn, transferred, or applied to an Annuity Option from a Guarantee Period of three years or more, unless:

l
the transaction occurs at the end of the Guarantee Period, or
   
l
the Certificate is surrendered for the Death Benefit after the death of a Covered Person.
 
 
We apply the market value adjustment before we deduct any applicable surrender charges or taxes.
 
 
If a market value adjustment applies to a surrender or the application to an Annuity Option, we will add or deduct any positive or negative market value adjustment amount, respectively, to your Certificate Value.

If a market value adjustment applies to either a partial withdrawal or a transfer, we will add or deduct any positive or negative market value adjustment, respectively, to the partial withdrawal or transfer amount after we have deducted the requested withdrawal or transfer amount from the Fixed Account Value. This means that the net amount may be more or less than the amount requested.
 
 
Effect of Market Value Adjustment
 
 
A market value adjustment reflects the change in prevailing current interest rates since the beginning of a Guarantee Period. The market value adjustment may be positive or negative. Any negative adjustment may be limited in amount (see “Market Value Adjustment Factor” below).
 
 
Generally, if the treasury rate (see “Treasury Rates” below) for your Guarantee Period is lower than the treasury rate for a new Guarantee Period with a length equal to the time remaining in your Guarantee Period, the market value adjustment will be negative and it will result in a reduction of the amount surrendered, withdrawn, transferred, or applied to an Annuity Option.
 
 
On the other hand, if the treasury rate for your Guarantee Period is higher than the treasury rate for a new Guarantee Period with a length equal to the time remaining in your Guarantee Period, then the market value adjustment will be positive and it will result in an increase in the amount surrendered, withdrawn, transferred, or applied to an Annuity Option.
 
 

 
 
 

Market Value Adjustment Factor
 
 
We compute the market value adjustment for each of your Guarantee Periods by multiplying the applicable amount surrendered, withdrawn, transferred, or applied to an Annuity Option, by the market value adjustment factor. The market value adjustment factor is calculated as the larger of formulas (a) and (b):
 
 
(a)
[
(1 + a)
]
n/12
-  1
(1 + b)
  

where:
 
 
“a” is the treasury rate for the initial number of years in your Guarantee Period;
 
 
“b” is the treasury rate for a period equal to the time remaining (rounded up to the next whole number of 12-month periods) to the expiration of your Guarantee Period; and
 
 
“n” is the number of complete Guarantee Period Months remaining before the expiration of your Guarantee Period.
 
 
(b)
[
(1.03)
]
(y+d/#)
-  1
(1 + i)
  

where:
 
 
“i” is the guaranteed interest rate for your Guarantee Period;
 
 
“y” is the number of complete 12-month periods that have elapsed in your Guarantee Period;
 
 
“d” is the number of calendar days since the end of the last complete 12-month period in your Guarantee Period or, if “y” is zero, the number of calendar days since the start of your Guarantee Period; and
 
 
“#” is the number of calendar days in the current 12-month period of your Guarantee Period, which is generally 365 days.
 
 
As stated above, the formula (b) amount will apply only if it is greater than the formula (a) amount. This will occur only when the formula (a) amount is negative and the formula (b) amount is a smaller negative number. Under these conditions, formula a’s full (normal) negative market value adjustment will be limited to the extent that adjustment would decrease your Guarantee Period’s Fixed Account Value below the following amount:
 
 
(i)
the amount allocated to your Guarantee Period; less
(ii)
any prior systematic or partial withdrawal amounts and amounts transferred; less
(iii)
interest on the above items (i) and (ii) credited annually at a rate of 3% per year.

Treasury Rates
 
 
The treasury rate for a Guarantee Period is the interest rate in the Treasury Constant Maturity Series, as published by the Federal Reserve Board, for a maturity equal to the number of years specified in “a” and “b” in formula (a) above. Weekly series are published at the beginning of the following week. The Determination Dates are the last business day before the 1st and 15th of each calendar month.

To determine the “a” treasury rate, we use the weekly series first published on or after the most recent Determination Date that occurs on or before the Start Date for the Guarantee Period. If the Start Date is the same as the Determination Date or the date of publication, or any date in between, we instead use the weekly series first published after the prior Determination Date. To determine the “b” treasury rate, we use the weekly series first published on or after the most recent Determination Date which occurs on or before the date on which the market value adjustment factor is calculated. If the calculation date is the same as the Determination Date or the date of publication, or any date in between, we will instead use the weekly series first published after the prior Determination Date.
 
 
If the number of years and or 12-month periods specified in “a” or “b” is not equal to a maturity in the Treasury Constant Maturity Series, we determine the treasury rate by straight line interpolation between the interest rates of the next highest and next lowest maturities.
 
 
If the Treasury Constant Maturity Series becomes unavailable, we will adopt a comparable constant maturity index. If such a comparable index is not available, we will replicate calculation of the Treasury Constant Maturity Series Index based on U.S. Treasury Security coupon rates.
 
 
End of a Guarantee Period
 
 
We will notify you in writing at least 30 days prior to the end of each of your Guarantee Periods. At the end of your Guarantee Period, we will automatically transfer your Guarantee Period’s Fixed Account Value to the Columbia Money Market Sub-account unless we have received:

l
your election of a new Guarantee Period from among those we offer at that time; or
   
l
your instructions to transfer the ending Fixed Account Value to one or more Sub-accounts of the Variable Account.

You may not elect a new Guarantee Period that is longer than the number of years remaining until the Income Date.

Transfers of Fixed Account Value

You may transfer Fixed Account Value from one of your Guarantee Periods to another or to one or more Sub-accounts of the Variable Account subject to any applicable market value adjustment. If the Fixed Account Value represents multiple Guarantee Periods, your transfer request must specify from which values you want the transfer made.
 
 
The Certificate allows us to limit the number of transfers you may make in a specified time period. Currently, we generally limit Variable Account and Fixed Account transfers to one transfer every 30 days with a $2,000,000 per transfer dollar limit. See “Transfer of Variable Account Value” and “Limits on Transfers”. These limitations will not apply to any transfer made at the end of a Guarantee Period. We will notify you prior to changing the current limitations.
 
 
You must request transfers in writing unless you have authorized us in writing to accept telephone transfer instructions from you or from a person acting on your behalf as an attorney-in-fact under a power of attorney. By authorizing us to accept telephone transfer instructions, you agree to the conditions and procedures we establish from time to time. The current conditions and procedures are in Appendix B. If you have authorized telephone transfers, you will be notified in advance of any changes. A person acting on your behalf as an attorney-in-fact under a power of attorney may request transfers in writing.
 
 
If we receive your transfer requests before 4:00 PM Eastern Time, or any other time for the close of trading on the New York Stock Exchange, we will execute them at the close of business that day. Any written requests we receive later, we will execute at the close of the next business day.
 
 
If you transfer 100% of a Guarantee Period’s value and your current allocation for purchase payments includes that Guarantee Period, we will automatically change the allocation formula for future purchase payments unless you instruct otherwise. For example, if the allocation formula is 50% to the One-Year Guarantee Period and 50% to Sub-account A and you transfer all Fixed Account Value to Sub-account A, we will change the allocation formula to 100% to Sub-account A.


 
 
 


APPENDIX B -
Telephone Instructions

Telephone Transfers of Certificate Values
 
 
1. If there are joint Certificate Owners, both must authorize us to accept telephone instructions but either Certificate Owner may give us telephone instructions.
 
 
2. All callers must identify themselves. We reserve the right to refuse to act upon any telephone instructions in cases where the caller has not sufficiently identified himself/herself to our satisfaction.
 
 
3. Neither we nor any person acting on our behalf shall be subject to any claim, loss, liability, cost or expense if we or such person acted in good faith upon a telephone instruction, including one that is unauthorized or fraudulent. However, we will employ reasonable procedures to confirm that a telephone instruction is genuine and, if we do not, we may be liable for losses due to an unauthorized or fraudulent instruction. You thus bear the risk that an unauthorized or fraudulent instruction we execute may cause your Certificate Value to be lower than it would be had we not executed the instruction.
 
 
4. We record all conversations with disclosure at the time of the call.
 
 
5. The application for the Certificate may allow you to create a power of attorney by authorizing another person to give telephone instructions. Unless prohibited by state law, we will treat such power as durable in nature and it shall not be affected by your subsequent incapacity, disability or incompetency. Either we or the authorized person may cease to honor the power by sending written notice to you at your last known address. Neither we nor any person acting on our behalf shall be subject to liability for any act executed in good faith reliance upon a power of attorney.
 
 
6. Telephone authorization shall continue in force until:

l
we receive your written revocation,
   
l
we discontinue the privilege, or
   
l
we receive written evidence that you have entered into a market timing or asset allocation agreement with an investment adviser or with a broker/dealer.
 
 
7. If we receive telephone transfer instructions at 800-367-3653 before 4:00 P.M. Eastern Time or other close of trading on the New York Stock Exchange, they will be initiated that day based on the unit value prices calculated at the close of that day.
 
 
8. You must make all transfers in accordance with the terms of the Certificate and current prospectus. If your transfer instructions do not conform to these terms, we will not execute the transfer and will notify the caller within 48 hours.
 
 
9. If you transfer 100% of any Sub-account’s value and the allocation formula for purchase payments includes that Sub-account, then we will change the allocation formula for future purchase payments accordingly unless we receive telephone instructions to the contrary. For example, if the allocation formula is 50% to Sub-account A and 50% to Sub-account B and you transfer all of Sub-account A’s value to Sub-account B, we will change the allocation formula to 100% to Sub-account B unless you instruct us otherwise.
 
 
Telephone Changes to Purchase Payment Allocation Percentages
 
 
Numbers 1-6 above are applicable.


 
 
 

APPENDIX C -
Systematic Withdrawal Program

Payment Type

There are three payment types available under all Certificates (#1-3) and three that are available only if the owner is under age 59½ at time of the first payment (#4-6). We will not set up any payment type you select if we determine that the first payment amount will be less than $100.

1.
Percentage Method.  Each Certificate Year we pay you equal periodic payments based on the annual withdrawal of a specified percentage of your Certificate Value. The percentage you select may not exceed 10%. We annually redetermine the amount of your equal periodic payments.
 
To determine your equal periodic payment amount, we first multiply the selected percentage times your Certificate Value on the date of your first payment in each Certificate Year. We then divide that amount by the number of periods in a year. We recalculate the amount of your equal periodic payments at the beginning of each Certificate Year based on your Certificate Value at that time.
 
In the first Certificate Year of your participation in our Systematic Withdrawal Program, we calculate your equal periodic payments as described above, but we will only make as many payments as there are periods left in the Certificate Year. For example, if at the beginning of a Certificate Year your Certificate Value was $120,000 and you wanted to withdraw 10% in equal monthly payments, we would pay you $12,000 in 12 monthly payments of $1,000 each. However, if you started your Systematic Withdrawal Program three months into that Certificate Year, we would pay you $9,000 in 9 monthly payments of $1,000 each, and then we would recalculate your monthly payment amount. Accordingly, you would receive less than 10% of your Certificate Value in the first Certificate Year of your participation in this program.
   
2.
Earnings Method.  The payment amount is calculated at the time of each withdrawal by subtracting from the current Certificate Value (a) for the first withdrawal, the Certificate Value from one payment period prior (e.g., if the frequency is quarterly, the Certificate Value would be from three months prior) and (b) for each subsequent withdrawal, the Certificate Value at the time of the prior withdrawal. No payment will be made if the calculation amount is zero or less and payments will resume only when the calculation amount is greater than zero.
   
3.
Net Amount Method.  You specify a set dollar amount for each withdrawal of at least $100. In the event a surrender charge is applicable to all or part of a withdrawal because your specified amount exceeds the “free withdrawal amounts”, we will increase the withdrawal amount in order to create a net withdrawal amount equal to your specified amount.
   
4.
IRS Fixed Amortization Method.  The systematic withdrawal amount will remain the same during the entire life expectancy period.  We will calculate the payment amount based on the fixed amortization method described in Revenue Ruling 2002-62, using your Certificate Value on the date of the first payment, your life expectancy or the joint life and last survivor expectancy of you and your designated beneficiary based on your attained age(s) on the date of the first payment, and an interest rate equal to  the IRS’s 120% Mid-Term Applicable Federal Rate (AFR) for the month prior to the month in which distributions start unless you direct us to use the AFR for another month permitted by Revenue Ruling 2002-62.
   
5.
IRS Fixed Annuitization Method. The systematic withdrawal amount will remain the same during the entire life expectancy period. We will calculate the payment amount based on the annuity factor method described in Revenue Ruling 2002-62, using your Certificate Value on the date of the first payment and an annuity factor, which is the present value of an annuity of $1 per year beginning at your attained age and continuing for your life. We derive the annuity factor using the  mortality table specified in the Revenue Ruling and an interest rate equal to the IRS’s 120% Mid-Term Applicable Federal Rate (AFR) for the month prior to the monthin which distributions start unless you direct us to use the AFR for another month permitted by Revenue Ruling 2002-62.
   
6.
IRS Required Minimum Distribution Method. The systematic withdrawal amount will change each year during the life expectancy period.  We will calculate the annual payment amount based on the minimum distribution method described in Revenue Ruling 2002-62, by dividing your current Certificate Value at the time of each year’s calculation by your then current life expectancy factor or the then current joint life and last survivor expectancy of you and your designated beneficiary.  The initial calculation of the annual payment amount will occur on the date of the first payment and each succeeding year’s calculation will occur one year later. The annual payment calculated each year will be paid out in equal payments according to the frequency option chosen.

Payment Frequency and First Payment Date

You may request that withdrawals be made monthly, quarterly, semi-annually or annually. If, however, your selected payment frequency will create a withdrawal amount of less than $100, we reserve the right to reduce the frequency of payments to an interval that will result in the withdrawal being at least $100.

Unless you select a later date by written request, the date of the first withdrawal will be (a) one payment period after the Certificate Date if you request systematic withdrawals at the time of your initial purchase payment or (b) one payment period after we receive your written request to begin systematic withdrawals. If, however, your written request is for an IRS Method (#4-6) and you made a partial withdrawal in the same Certificate Year, then the first withdrawal shall instead be on the next Certificate Anniversary.

Federal Income Tax Withholding

The taxable portion of withdrawals you receive from your Certificate is subject to 10% federal income tax withholding unless you elect not to have withholding apply. Any withholding will be deducted from the payment amount calculated under the payment type in effect.

You may elect not to have withholding apply to withdrawal payments by signing and dating an election of no withholding.  You are liable for payment of federal income tax on the taxable portion of your withdrawal. You also may be subject to tax penalties if your withholding and estimated tax payments are not sufficient.

If you want federal income tax withholding to apply, please sign and date an election of withholding.  Your election to withhold or to not withhold will remain in effect until you revoke it.  You may revoke it at any time.

Direct Deposit of Payments

If you request direct deposit of systematic withdrawals to your checking or savings account, we will use our best effort to ensure that the correct amount is credited to your account within three business days of the payment date.  If we transfer less than the correct amount, any shortfall will be corrected in full with the next transfer.  If we transfer more than the correct amount or duplicate a transfer in error, any excess or duplicate amount, unless repaid to us in one sum, will be deducted from future transfers until we are repaid in full.

Important Income Tax Information

Payment Types 1-3. Systematic withdrawals will be taxed under the regular rules applicable to surrenders and not under the special exclusion ratio/amount rules applicable to annuity payments. All or part of each withdrawal may thus be taxable. In addition, anyone under the age of 59½ at the time of a withdrawal may also be subject to a 10% federal income tax penalty on the taxable portion of the withdrawal. Our reporting to the Internal Revenue Service will be based on our opinion of the taxable amount and whether the penalty tax applies.

Payment Types 4-6. Based on Internal Revenue Service  requirements, we will report to the IRS that systematic withdrawals under IRA Certificates are 100% taxable. Under other Certificates, our reporting will be based on our opinion of the taxable amount. Under all Certificates, it is our opinion under current federal income tax laws that the withdrawals will not be subject to an additional 10% federal income penalty tax because they will be part of a series of substantially equal periodic payments made for your life expectancy or joint life expectancy of you and your designated beneficiary. We will thus report to the Internal Revenue Service that no penalty tax applies. If, however, before the later of your attaining age 59½ or five years after the first payment, you either direct that a systematic withdrawal payment be made to another issuer as a non-taxable transfer or you end systematic withdrawals, you will then be subject to both retroactive 10% federal penalty taxes on all systematic withdrawals made before 59½ and federal interest penalties on those taxes. Unlike you, we may not end your systematic withdrawals before your retroactive penalty tax period has expired.


 
 
 

Other Systematic Withdrawal Conditions

Under payment types #1-3, if any withdrawal would cause your Certificate Balance to be reduced below the minimum value specified in your Certificate, that withdrawal will not be made and we will contact you about modifying the withdrawal amount and/or the payment frequency so that withdrawals may resume. Your systematic withdrawals will continue until we receive your written revocation, we discontinue the program, or the annuitant or an owner dies. Once authorization terminates, systematic withdrawals may not, under certain circumstances, be available to you again until after the next Certificate Anniversary.  In this case, a new systematic withdrawal request form will be required.  All additional withdrawals after termination will be treated as regular withdrawals and surrender charges may apply.

Under payment types #4-6, if you  make a withdrawal outside the program or surrender the Certificate during the period of systematic withdrawals, this may be considered a modification to your payment stream resulting in a penalty. You should consult a qualified tax professional for more information. Also, you may not make any additional purchase payments to the Certificate.  Your systematic withdrawals will continue in force until we receive your written revocation, you die, or we discontinue the program after the later of your attaining age 59½ or five years after your first payment.  Once your authorization terminates, systematic withdrawals may not be resumed.  All additional withdrawals after termination will be treated as regular withdrawals and surrender charges may apply.

For other information of a general nature, including circumstances under which the surrender charge and/or the Fixed Account market value adjustment may apply to any withdrawals, see “Systematic Withdrawal Program” under “OTHER SERVICES”.


 
 
 

The Statement of Additional Information is available upon request and without charge from Sun Life Assurance Company of Canada (U.S.). To receive a copy, return this request form to the address shown below or telephone (800) 752-7215.


To:
Sun Life Assurance Company of Canada (U.S.)
 
P.O. Box 9133
 
Wellesley, Massachusetts 02481


£  Yes. I would like to receive the Keyport Charter Variable Annuity Statement of Additional Information.
 
£  Yes. I would like to receive the Statement of Additional Information for the Eligible Funds of:

£  AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
£  AllianceBernstein Variable Products Series Fund, Inc.
£  Columbia Funds Variable Insurance Trust
£  Columbia Funds Variable Insurance Trust I
£  Fidelity® Variable Insurance Products
£  MFS® Variable Insurance Trust
£  Rydex Variable Trust
£  Sun Capital Advisers Trust®
£  Wanger Advisors Trust



Name:
 
   
Address:
 
   
   
   
City:
 
State:
 
Zip Code:
 
           
Telephone:
 






 
 
 



PART B


 
 
 

STATEMENT OF ADDITIONAL INFORMATION

GROUP AND INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
KEYPORT VARIABLE ACCOUNT A
OF
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) ("Sun Life (U.S.)")


This Statement of Additional Information (SAI) is not a prospectus but it relates to, and should be read in conjunction with, the Keyport Charter variable annuity prospectus dated April 30, 2010. The SAI is incorporated by reference into the prospectus. The prospectus is available, at no charge, by writing Sun Life (U.S.) at P.O. Box 9133, Wellesley Hills, MA 02481 or by calling (800) 367-3653.


TABLE OF CONTENTS

Sun Life Assurance Company of Canada (U.S.)
 
Variable Annuity Benefits
 
  Variable Annuity Payment Values
 
  Re-Allocating Sub-account Payments
 
Safekeeping of Assets
 
Principal Underwriter
 
Independent Registered Public Accounting Firm
 
Investment Performance
 
Financial Statements
 




The date of this statement of additional information is April 30, 2010.


KC.SAI
5/2010


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

Sun Life Financial Inc. ("Sun Life Financial"), a reporting company under the Securities Exchange Act of 1934 with common shares listed on the Toronto, New York and Philippine stock exchanges, is the ultimate corporate parent of Sun Life (U.S.). Sun Life Financial ultimately controls Sun Life (U.S.) through the following intervening companies: Sun Life of Canada (U.S.) Holdings, Inc., Sun Life Financial (U.S.) Investments LLC, Sun Life Financial (U.S.) Holdings, Inc., Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc., and Sun Life Global Investments, Inc.

VARIABLE ANNUITY BENEFITS

Variable Annuity Payment Values

For each variable payment option, we calculate separately each Sub-account's contribution to your periodic payments. Your total periodic payment equals: (a) the sum of the payment amounts determined for all the Sub-accounts you have selected: less (b) the pro-rata amount of the annual Certificate Maintenance Charge.

The portion of your first payment on your interest in a Sub-account will be determined by deducting any applicable Certificate Maintenance Charge and any applicable state premium taxes and then dividing the remaining value of your interest in that Sub-account by $1,000 and multiplying the result by the greater of: (a) the applicable factor from the Certificate's annuity table for the particular payment option and the assumed annual investment rate ("AIR") you have selected; or (b) the factor currently offered by Sun Life (U.S.) at the time annuity payments begin. This current factor may be based on the sex of the payee unless to do so would be prohibited by law. The effect of your choice of AIR on the initial and subsequent annuity payments is explained in "Variable Annuity Payment Values" in the prospectus and in the last paragraph of this section.

The number of Annuity Units for each Sub-account will be determined by dividing such first payment by the Sub-account Annuity Unit value for the Valuation Period that includes the date of the first payment. The number of Annuity Units remains fixed for the annuity payment period. Each Sub-account payment after the first one will be determined by multiplying (a) by (b), where: (a) is the number of Sub-account Annuity Units; and (b) is the Sub-account Annuity Unit value for the Valuation Period that includes the date of the particular payment.

Variable annuity payments will fluctuate in accordance with the investment results of the underlying Eligible Funds. In order to determine how these fluctuations affect annuity payments, Sun Life (U.S.) uses an Annuity Unit value. Each Sub-account has its own Annuity Units and value per Unit. The Annuity Unit value applicable during any Valuation Period is determined at the end of such period.

When Eligible Fund shares were first purchased on behalf of the Variable Account, each Annuity Unit for each Sub-account was valued at a specified dollar amount. The Unit value for each Sub-account in any Valuation Period thereafter is determined by multiplying the value for the prior period by a net investment factor. (See "Net Investment Factor" in the prospectus.) This factor may be greater or less than 1.0; therefore, the Annuity Unit may increase or decrease from Valuation Period to Valuation Period. For each AIR, Sun Life (U.S.) calculates a net investment factor for each Sub-account by dividing (a) by (b), where:

(a)
is equal to the net investment factor as defined in the prospectus without any deduction for the Distribution Charge defined in (c)(ii) of the net investment factor formula; and
   
(b)
is the assumed investment factor for the current Valuation Period. The assumed investment factor adjusts for the interest assumed in determining the first variable annuity payment. Such factor for any Valuation Period shall be the accumulated value, at the end of such period, of $1.00 deposited at the beginning of such period at the AIR. The AIR for Annuity Units based on the Certificate's annuity tables is 6% per year (3% per year for Florida Certificates and 5% per year for Oregon and Texas Certificates). An AIR of 3% per year is also currently available upon Written Request.

With a particular AIR, payments after the first one will increase or decrease from month to month based on whether the actual annualized investment return of the selected Sub-account(s) (after deducting the Mortality and Expense Risk Charge) is better or worse than the assumed AIR percentage. If a given amount of Sub-account value is applied to a particular payment option, the initial payment will be smaller if a 3% AIR is selected instead of a 6% AIR but, all other things being equal, the subsequent 3% AIR payments have the potential for increasing in amount by a larger percentage and for decreasing in amount by a smaller percentage. For example, consider what would happen if the actual annualized investment return (see the first sentence of this paragraph) is 9%, 6%, 3%, or 0% between the time of the first and second payments. With an actual 9% return, the 3% AIR and 6% AIR payments would both increase in amount but the 3% AIR payment would increase by a larger percentage. With an actual 6% return, the 3% AIR payment would increase in amount while the 6% AIR payment would stay the same.  With an actual return of 3%, the 3% AIR payment would stay the same while the 6% AIR payment would decrease in amount. Finally, with an actual return of 0%, the 3% AIR and 6% AIR payments would both decrease in amount but the 3% AIR payment would decrease by a smaller percentage. Note that the changes in payment amounts described above are on a percentage basis and thus do not illustrate when, if ever, the 3% AIR payment amount might become larger than the 6% AIR payment amount. Note though that if Option A (Income for a Fixed Number of Years) is selected and payments continue for the entire period, the 3% AIR payment amount will start out being smaller than the 6% AIR payment amount but eventually the 3% AIR payment amount will become larger than the 6% AIR payment amount.

Re-Allocating Sub-account Payments

The number of Annuity Units for each Sub-account under any variable annuity option will remain fixed during the entire annuity payment period unless the payee makes a written request for a change. Currently, a payee can instruct Sun Life (U.S.) to change the Sub-account(s) used to determine the amount of the variable annuity payments unlimited times every 12 months. The payee's request must specify the percentage of the annuity payment that is to be based on the investment performance of each Sub-account. The percentage for each Sub-account, if not zero, must be at least 5% and must be a whole number. At the end of the Valuation Period during which Sun Life (U.S.) receives the request, Sun Life (U.S.) will: (a) value the Annuity Units for each Sub-account to create a total annuity value; (b) apply the new percentages the payee has selected to this total value; and (c) recompute the number of Annuity Units for each Sub-account. This new number of units will remain fixed for the remainder of the payment period unless the payee requests another change.

SAFEKEEPING OF ASSETS

Sun Life (U.S.) acts as custodian for, and is responsible for the safekeeping of, the assets of the Variable Account. Sun Life (U.S.) has responsibility for providing all administration of the Certificates and the Variable Account. This administration includes, but is not limited to, preparation of the Contracts and Certificates, maintenance of Certificate Owners' records, and all accounting, valuation, regulatory and reporting requirements.

PRINCIPAL UNDERWRITER

The Contract and Certificates, which are offered continuously, are distributed by Clarendon Insurance Agency, Inc. ("Clarendon"), a subsidiary of Sun Life (U.S.).

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The consolidated financial statements of Sun Life Assurance Company of Canada (U.S.) included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report, dated March 26, 2010, accompanying such financial statements expresses an unqualified opinion and includes an explanatory paragraph, referring to the Company changing its method of accounting and reporting for other-than-temporary impairments in 2009, and changing its method of accounting and reporting for fair value measurement of certain assets and liabilities in 2008), and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.  Their office is located at 200 Berkeley Street, Boston, Massachusetts.

The financial statements of Keyport Variable Account A that are included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report, dated April 23, 2010, accompanying the financial statements expresses an unqualified opinion) and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

INVESTMENT PERFORMANCE

The Variable Account may from time to time quote performance information concerning its various Sub-accounts. A Sub-account's performance may also be compared to the performance of Sub-accounts used with variable annuities offered by other insurance companies. This comparative information may be expressed as a ranking prepared by Financial Planning Resources, Inc. of Miami, FL (The VARDS Report), Lipper Analytical Services, Inc., or by Morningstar, Inc. of Chicago, IL (Morningstar's Variable Annuity Performance Report), which are independent services that compare the performance of variable annuity Sub-accounts. The rankings are done on the basis of changes in accumulation unit values over time and do not take into account any charges (such as distribution charges or administrative charges) that are deducted directly from Certificate values.

Ibbotson Associates of Chicago, IL provides historical returns from 1926 on capital markets in the United States. The Variable Account may quote the performance of its Sub-accounts in conjunction with the long-term performance of capital markets in order to illustrate general long-term risk versus reward investment scenarios. Capital markets tracked by Ibbotson Associates include common stocks, small company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury Bills, and the U.S. inflation rate. Historical total returns are determined by Ibbotson Associates for: Common Stocks, represented by the Standard and Poor's Composite Stock Price Index (an unmanaged weighted index of 90 stocks prior to March 1957 and 500 stocks thereafter of industrial, transportation, utility and financial companies widely regarded by investors as representative of the stock market); Small Company Stocks, represented by the fifth capitalization quintile (i.e., the ninth and tenth deciles) of stocks on the New York Stock Exchange for 1926-1981 and by the performance of the Dimensional Fund Advisors Small Company 9/10 (for ninth and tenth deciles) Fund thereafter; Long Term Corporate Bonds, represented beginning in 1969 by the Salomon Brothers Long-Term High-Grade Corporate Bond Index, which is an unmanaged index of nearly all Aaa and Aa rated bonds, represented for 1946-1968 by backdating the Salomon Brothers Index using Salomon Brothers' monthly yield data with a methodology similar to that used by Salomon Brothers in computing its Index, and represented for 1925-1945 through the use of the Standard and Poor's monthly High-Grade Corporate Composite yield data, assuming a 4% coupon and a 20-year maturity; Long-Term Government Bonds, measured each year using a portfolio containing one U.S. government bond with a term of approximately twenty years and a reasonably current coupon; U.S. Treasury Bills, measured by rolling over each month a one-bill portfolio containing, at the beginning of each month, the shortest-term bill having not less than one month to maturity; Inflation, measured by the Consumer Price Index for all Urban Consumers, not seasonably adjusted, since January, 1978 and by the Consumer Price Index before then. The stock capital markets may be contrasted with the corporate bond and U.S. government securities capital markets. Unlike an investment in stock, an investment in a bond that is held to maturity provides a fixed rate of return. Bonds have a senior priority to common stocks in the event the issuer is liquidated and interest on bonds is generally paid by the issuer before it makes any distributions to common stock owners. Bonds rated in the two highest rating categories are considered high quality and present minimal risk of default. An additional advantage of investing in U.S. government bonds and Treasury bills is that they are backed by the full faith and credit of the U.S. government and thus have virtually no risk of default. Although government securities fluctuate in price, they are highly liquid.
.

FINANCIAL STATEMENTS

The financial statements of the Variable Account and Sun Life Assurance Company of Canada (U.S.) are included herein. The consolidated financial statements of Sun Life Assurance Company of Canada (U.S.) are provided as relevant to its ability to meet its financial obligations under the Certificates and should not be considered as bearing on the investment performance of the assets held in the Variable Account.


 
 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of
Sun Life Assurance Company of Canada (U.S.)
Wellesley Hills, Massachusetts

We have audited the accompanying consolidated balance sheets of Sun Life Assurance Company of Canada (U.S.) and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2009.  Our audits also included the financial statement schedules listed in the Index at Item 15.  These financial statements and financial statement schedules are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sun Life Assurance Company of Canada (U.S.) and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting and reporting for other-than-temporary impairments in 2009.  As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting and reporting for the fair value measurement of certain assets and liabilities in 2008.



DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 26, 2010



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
For the Years Ended December 31,

     
2009
    
2008
    
2007
                   
Revenues:
                  
Premiums and annuity considerations
  
$
134,246 
  
$
122,733 
  
$
110,616 
Net investment income (loss) (1)  (Note 7)
    
2,582,307 
    
(1,970,368)
    
1,060,485 
Net derivative loss(2)  (Note 4)
    
(39,902)
    
(605,458)
    
(189,650)
Net realized investment (losses) gains, excluding impairment
losses on available-for-sale securities (Note 6)
    
(36,675)
    
3,801 
    
7,044 
Other-than-temporary impairment losses (3)  (Note 4)
    
(4,834)
    
(41,864)
    
(68,092)
Fee and other income
    
385,836 
    
449,991 
    
474,554 
Subordinated notes early redemption premium
    
- 
    
- 
    
25,578 
                   
Total revenues
    
3,020,978 
    
(2,041,165)
    
1,420,535 
                   
Benefits and expenses:
                  
Interest credited
    
385,768 
    
531,276 
    
625,328 
Interest expense
    
39,780 
    
60,285 
    
92,890 
Policyowner benefits
    
110,439 
    
391,093 
    
227,040 
Amortization of deferred policy acquisition costs and value
of business and customer renewals acquired (4)
    
1,024,661 
    
(1,045,640)
    
185,587 
Goodwill impairment
    
- 
    
701,450 
    
- 
Other operating expenses
    
248,156 
    
261,819 
    
276,769 
Partnership capital securities early redemption payment
    
- 
    
- 
    
25,578 
                   
Total benefits and expenses
    
1,808,804 
    
900,283 
    
1,433,192 
                   
Income (loss) from continuing operations before income tax
expense (benefit)
    
1,212,174 
    
(2,941,448)
    
(12,657)
                   
Income tax expense (benefit):
                  
Federal
    
335,455 
    
(815,949)
    
(29,126)
State
    
194 
    
6 
    
431 
Income tax expense (benefit) (Note 11)
    
335,649 
    
(815,943)
    
(28,695)
                   
Net income (loss) from continuing operations
    
876,525 
    
(2,125,505)
    
16,038 
                   
Income (loss) from discontinued operations, net of tax
(Note 2)
    
104,971 
    
(109,336)
    
8,984 
                   
Net income (loss)
  
$
981,496 
  
$
(2,234,841)
  
$
25,022 

(1)
Net investment income (loss) includes an increase (decrease) in market value of trading fixed maturity securities of $2,086.7 million, $(2,603.7) million and $(89.2) million for the years ended December 31, 2009, 2008 and 2007, respectively.
(2)
Net derivative loss for the year ended December 31, 2008 includes $166.1 million of income related to the Company’s adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” which is further discussed in Note 5.
(3)
The $4.8 million other-than-temporary impairment (“OTTI”) losses for year ended December 31, 2009 represent solely credit losses.  The Company incurred no non-credit OTTI losses during the year ended December 31, 2009 and as such, no non-credit OTTI losses were recognized in other comprehensive income (loss) for the period.
(4)
Amortization of deferred policy acquisition costs and value of business and customer renewals acquired for the year ended December 31, 2008 includes $3.2 million of expenses related to the Company’s adoption of FASB ASC Topic 820, which is further discussed in Note 5.

The accompanying notes are an integral part of the consolidated financial statements

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)

ASSETS
December 31, 2009
  
December 31, 2008
Investments
          
Available-for-sale fixed maturity securities, at fair value (amortized cost of
$1,121,424 and $782,861 in 2009 and 2008, respectively) (Note 4)
$
1,175,516 
  
$
674,020 
Trading fixed maturity securities, at fair value (amortized cost of
$12,042,961 and $14,909,429 in 2009 and 2008, respectively) (Note 4)
  
11,130,522 
    
11,762,146 
Short-term investments (Note 1)
  
1,267,311 
    
599,481 
Mortgage loans (Note 4)
  
1,911,961 
    
2,083,003 
Derivative instruments – receivable (Note 4)
  
259,227 
    
727,103 
Limited partnerships
  
51,656 
    
78,289 
Real estate (Note 4)
  
202,277 
    
201,470 
Policy loans
  
722,590 
    
729,407 
Other invested assets
  
47,421 
    
211,431
Cash and cash equivalents (Note 1)
  
1,804,208 
    
1,024,668 
Total investments and cash
  
18,572,689 
    
18,091,018 
           
Accrued investment income
  
230,591 
    
282,564 
Deferred policy acquisition costs (Note 14)
  
2,173,642 
    
2,862,401 
Value of business and customer renewals acquired (Note 15)
  
168,845 
    
179,825 
Net deferred tax asset (Note 11)
  
549,764 
    
856,845 
Goodwill (Note 1)
  
7,299 
    
7,299 
Receivable for investments sold
  
12,611 
    
7,548 
Reinsurance receivable
  
2,350,207 
    
3,076,615 
Other assets (Note 1)
  
183,963 
    
222,840 
Separate account assets (Note 1)
  
23,326,323 
    
20,531,724 
           
Total assets
$
47,575,934 
  
$
46,118,679 
           
LIABILITIES
          
           
Contractholder deposit funds and other policy liabilities
$
16,709,589 
  
$
17,545,721 
Future contract and policy benefits
  
815,638 
    
1,014,688 
Payable for investments purchased
  
88,131 
    
363,513 
Accrued expenses and taxes
  
61,903 
    
118,671 
Debt payable to affiliates (Note 3)
  
883,000 
    
1,998,000 
Reinsurance payable
  
2,231,764 
    
1,650,821 
Derivative instruments – payable (Note 4)
  
572,910 
    
1,494,341 
Other liabilities
  
280,224 
    
605,945 
Separate account liabilities
  
23,326,323 
    
20,531,724 
           
Total liabilities
  
44,969,482 
    
45,323,424
           
Commitments and contingencies (Note 21)
          
           
STOCKHOLDER’S EQUITY
          
           
Common stock, $1,000 par value – 10,000 shares authorized; 6,437 shares
issued and outstanding in 2009 and 2008
  
6,437 
    
6,437 
Additional paid-in capital
  
3,527,677 
    
2,872,242 
Accumulated other comprehensive income (loss) (Note 20)
  
35,244 
    
(129,884)
Accumulated deficit
  
(962,906)
    
(1,953,540)
           
Total stockholder’s equity
  
2,606,452 
    
795,255 
           
Total liabilities and stockholder’s equity
$
47,575,934 
  
$
46,118,679 

The accompanying notes are an integral part of the consolidated financial statements.


 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
For the Years Ended December 31,

   
 
2009
    
 
2008
    
 
2007
                 
Net income (loss)
$
981,496 
  
$
(2,234,841)
  
$
25,022 
                 
Other comprehensive income (loss):
                
Change in unrealized holding gains (losses) on available for-
sale securities, net of tax and policyholder amounts (1)
  
113,278 
    
(84,234)
    
(119,775)
Reclassification adjustment for OTTI losses, net of tax (2)
  
202 
    
- 
    
- 
Change in pension and other postretirement plan
adjustments, net of tax (3)
  
10,231 
    
(66,998)
    
11,197 
Reclassification adjustments of net realized investment
losses into net income (loss)(4)
  
3,117 
    
25,718 
    
2,145 
Other comprehensive income (loss)
  
126,828 
    
(125,514)
    
(106,433)
                 
Comprehensive income (loss)
$
1,108,324 
  
$
(2,360,355)
  
$
(81,411)

(1)
Net of tax (expense) benefit of $(60.1) million, $45.4 million and $64.7 million for the years ended December 31, 2009, 2008 and 2007, respectively.
(2)
Represents an adjustment to OTTI losses due to the sale of other-than-temporarily impaired available-for-sale fixed maturity securities.
(3)
Net of tax (expense) benefit of $(5.5) million, $36.1 million and $(6.0) million for the years ended December 31, 2009, 2008 and 2007, respectively.
(4)
Net of tax expense of $1.7 million, $13.8 million and $1.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.





























The accompanying notes are an integral part of the consolidated financial statements


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
(in thousands)
For the Years Ended December 31,

 
Common
Stock
  
Additional
Paid-In
Capital
  
Accumulated
Other
Comprehensive
Income (Loss) (1)
  
Retained
Earnings
(Accumulated
Deficit)
  
Total
Stockholder’s
Equity
                             
Balance at December 31, 2006
$
6,437 
  
$
2,143,408 
  
$
14,030 
  
$
339,479 
  
$
2,503,354
                             
Cumulative effect of accounting
changes related to the adoption of
FASB ASC Topic 740, net of
tax (2)
  
- 
    
- 
    
- 
    
5,176 
    
5,176 
Net income
  
- 
    
- 
    
- 
    
25,022 
    
25,022 
Tax benefit from stock options
  
- 
    
3,028 
    
- 
    
- 
    
3,028 
Other comprehensive loss
  
- 
    
- 
    
(106,433)
    
- 
    
(106,433)
                             
Balance at December 31, 2007
  
6,437 
    
2,146,436 
    
(92,403)
    
369,677 
    
2,430,147 
                             
Cumulative effect of accounting
changes related to the adoption of
FASB ASC Topics 715 and 825,
net of tax (3)
  
- 
    
- 
    
88,033 
    
(88,376)
    
(343)
Net loss
  
- 
    
- 
    
- 
    
(2,234,841)
    
(2,234,841)
Tax benefit from stock options
  
- 
    
806 
    
- 
    
- 
    
806 
Capital contribution from Parent
  
- 
    
725,000 
    
- 
    
- 
    
725,000 
Other comprehensive loss
  
- 
    
- 
    
(125,514)
    
- 
    
(125,514)
                             
Balance at December 31, 2008
  
6,437 
    
2,872,242 
    
(129,884)
    
(1,953,540)
    
795,255
                             
Cumulative effect of accounting
changes related to the adoption of
FASB ASC Topic 320, net of tax(4)
  
- 
    
- 
    
(9,138)
    
9,138 
    
- 
Net income
  
- 
    
- 
    
- 
    
981,496 
    
981,496 
Tax benefit from stock options
  
- 
    
185 
    
- 
    
- 
    
185 
Capital contribution from Parent
  
- 
    
748,652 
    
- 
    
- 
    
748,652 
Net liabilities transferred to affiliate (Note 3)
  
- 
    
1,467 
    
47,438 
    
- 
    
48,905 
Dividend to Parent (Notes  1 and 2)
  
- 
    
(94,869)
    
- 
    
- 
    
(94,869)
Other comprehensive income
  
- 
    
- 
    
126,828 
    
- 
    
126,828 
                             
Balance at December 31, 2009
$
6,437 
  
$
3,527,677 
  
$
35,244 
  
$
(962,906)
  
$
2,606,452 

(1)
As of December 31, 2009, the total amount of after tax non-credit OTTI losses recorded in the Company’s accumulated other comprehensive income (loss) was $8.9 million.
(2)
FASB ASC Topic 740, “Income Taxes.”
(3)
FASB ASC Topics 715, “Compensation-Retirement Benefits” and 825 “Financial Instruments.”
(4)
FASB ASC Topic 320, “Investments-Debt and Equity Securities.”







The accompanying notes are an integral part of the consolidated financial statements


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,

   
2009
    
2008
    
2007
                 
Cash Flows From Operating Activities:
                
Net income (loss) from operations
$
981,496 
  
$
(2,234,841)
  
$
25,022 
                 
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
                
Net amortization of premiums on investments
  
(689)
    
29,871 
    
40,854 
Amortization of deferred policy acquisition costs, and
value of business and customer renewals acquired
  
1,024,661 
    
(1,045,640)
    
185,587 
Depreciation and amortization
  
5,535 
    
6,711 
    
7,460 
Net (gain) loss on derivatives
  
(96,041)
    
554,898 
    
128,260 
Net realized losses and OTTI credit losses on available-
for-sale investments
  
41,509 
    
38,063 
    
61,048 
Net (increase) decrease in fair value of trading investments
  
(2,086,740)
    
2,603,748 
    
89,159 
Net realized losses (gains) on trading investments
  
367,337 
    
354,991 
    
(3,438)
Undistributed loss (income) on private equity limited
partnerships
  
9,207 
    
(9,796)
    
(23,027)
Interest credited to contractholder deposits
  
385,768 
    
531,276 
    
625,328 
Goodwill impairment
  
- 
    
701,450 
    
- 
Deferred federal income taxes
  
295,608 
    
(698,437)
    
(113,692)
Changes in assets and liabilities:
                
Additions to deferred policy acquisition costs, and
value of business and customer renewals acquired
  
(346,900)
    
(282,409)
    
(361,114)
Accrued investment income
  
36,736 
    
18,079 
    
5,813 
Net change in reinsurance receivable/payable
  
209,637 
    
216,282 
    
681,427 
Future contract and policy benefits
  
(125,992)
    
141,658 
    
42,858 
Other, net
  
(243,369)
    
149,390 
    
(114,640)
Adjustments related to discontinued operations
  
(288,018)
    
4,315 
    
(501,909)
Net cash provided by operating activities
  
169,745 
    
1,079,609 
    
774,996 
                 
Cash Flows From Investing Activities:
                
Sales, maturities and repayments of:
                
Available-for-sale fixed maturity securities
  
113,478 
    
101,757 
    
4,252,780 
Trading fixed maturity securities
  
2,097,054 
    
1,808,498 
    
728,633 
Mortgage loans
  
143,493 
    
294,610 
    
355,146 
Real estate
  
- 
    
1,141 
    
- 
Other invested assets
  
(207,548)
    
692,157 
    
667,683 
Redemption of subordinated note from affiliates
  
- 
    
- 
    
600,000 
Purchases of:
                
Available-for-sale fixed maturity securities
  
(347,139)
    
(129,474)
    
(2,557,841)
Trading fixed maturity securities
  
(867,310)
    
(2,175,143)
    
(829,469)
Mortgage loans
  
(17,518)
    
(58,935)
    
(399,566)
Real estate
  
(4,702)
    
(5,414)
    
(19,439)
Other invested assets
  
(106,277)
    
(122,447)
    
(57,864)
Early redemption premium
  
- 
    
- 
    
25,578 
Net change in other investments
  
(183,512)
    
(349,964)
    
(361,781)
Net change in policy loans
  
6,817 
    
(16,774)
    
(3,007)
Net change in short-term investments
  
(722,821)
    
(599,481)
    
- 
                 
Net cash (used in) provided by investing activities
$
(95,985)
  
$
(559,469)
  
$
2,400,853 
Continued on next page
The accompanying notes are an integral part of the consolidated financial statements

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,

   
 
2009
    
 
2008
    
 
2007
                 
Cash Flows From Financing Activities:
                
Additions to contractholder deposit funds
$
2,795,939 
  
$
2,190,099 
  
$
1,924,784 
Withdrawals from contractholder deposit funds
  
(3,011,499)
    
(3,616,458)
    
(4,533,405)
Repayments of debt
  
- 
    
(122,000)
    
(980,000)
Debt proceeds
  
200,000 
    
175,000 
    
1,000,000 
Capital contribution from Parent
  
748,652 
    
725,000 
    
- 
Early redemption payment
  
- 
    
- 
    
(25,578)
Other, net
  
(27,312)
    
(16,814)
    
29,971 
Net cash provided by (used in) financing activities
  
705,780 
    
(665,173)
    
(2,584,228)
                 
Net change in cash and cash equivalents
  
779,540 
    
(145,033)
    
591,621 
                 
Cash and cash equivalents, beginning of year
  
1,024,668 
    
1,169,701 
    
578,080 
                 
Cash and cash equivalents, end of year
$
1,804,208 
  
$
1,024,668 
  
$
1,169,701 
                 
Supplemental Cash Flow Information
                
Interest paid
$
47,151 
  
$
109,532 
  
$
73,116 
Income taxes paid (refunded)
$
21,144 
  
$
(113,194)
  
$
(16,281)

Supplemental schedule of non-cash investing and financing activities

On December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of the Company’s wholly-owned subsidiary, Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”), to the Company’s sole shareholder, Sun Life of Canada (U.S.) Holdings, Inc. (the “Parent”).  This dividend is described more fully in Note 2.  As a result of the dividend, the Company’s total assets decreased by $2,658.1 million and total liabilities decreased by $2,563.2 million in a non-cash transaction.  The Company did not pay any cash dividends to the Parent in 2009.

On November 8, 2007, Sun Life Vermont entered into a reinsurance agreement with Sun Life Assurance Company of Canada (“SLOC”), the Company’s affiliate, under which Sun Life Vermont assumed the risks of certain individual universal life insurance contracts issued and to be issued by SLOC.  This agreement is described more fully in Note 9.  As part of the transaction, the Sun Life Vermont assumed $553.7 million of contractholder deposit funds, future contract and policy benefits of $20.4 million, funds withheld assets of $551.8 million, and a deferred loss of $22.3 million, all of which are considered non-cash items for purposes of the Company’s consolidated statement of cash flows.

The Company did not pay any cash dividends to the Parent in 2008 and 2007.












The accompanying notes are an integral part of the consolidated financial statements


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Sun Life Assurance Company of Canada (U.S.) (the “Company”) and its subsidiaries are engaged in the sale of individual and group variable life insurance, individual universal life insurance, individual and group fixed and variable annuities, funding agreements, group life, group disability, group dental and group stop loss insurance.  These products are distributed through individual insurance agents, financial planners, insurance brokers and broker-dealers to both the tax qualified and non-tax-qualified markets.  The Company is authorized to transact business in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.  In addition, the Company’s wholly-owned subsidiary, Sun Life Insurance and Annuity Company of New York (“SLNY”), is authorized to transact business in the State of New York.

The Company is a stock life insurance company incorporated under the laws of Delaware.  The Company is a direct wholly-owned subsidiary of the Parent, which in turn is wholly-owned by Sun Life Financial Inc. (“SLF”), a reporting company under the Securities Exchange Act of 1934.  Accordingly, the Company is an indirect wholly-owned subsidiary of SLF.  SLF and its subsidiaries are collectively referred to herein as “Sun Life Financial.”

BASIS OF PRESENTATION

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for stock life insurance companies.

The consolidated financial statements include the accounts of the Company and its subsidiaries.  As of December 31, 2009, the Company directly or indirectly owned all of the outstanding shares of SLNY, which issues individual fixed and variable annuity contracts, group life, group disability, group dental and stop loss insurance, and individual life insurance in New York; Independence Life and Annuity Company (“INDY”), a Rhode Island life insurance company that sold variable and whole life insurance products; Clarendon Insurance Agency, Inc., a registered broker-dealer; SLF Private Placement Investment Company I, LLC; Sun Parkaire Landing LLC; 7101 France Avenue Manager, LLC; Sun MetroNorth, LLC; SLNY Private Placement Investment Company I, LLC; and SL Investment DELRE Holdings 2009-1, LLC (“DELRE Holdings.”)

On December 30, 2009, Sun Life Vermont, which was a subsidiary of the Company at the time, paid a $100 million cash dividend to the Company.  On December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of Sun Life Vermont to the Parent.  As a result of this transaction, Sun Life Vermont is no longer the Company’s wholly-owned subsidiary and was not included in the Company’s consolidated balance sheet at December 31, 2009.  As of December 31, 2009, Sun Life Vermont’s total assets and liabilities were $2,658.1 million and $2,563.2 million, respectively.  Sun Life Vermont’s net income (loss) for the years ended December 31, 2009, 2008 and 2007, was $105.0 million, $(109.3) million and $9.0 million, respectively.  As a result of this dividend transaction, the net income (loss) and changes in cash flows from the operating activities of Sun Life Vermont are presented as discontinued operations in these consolidated financial statements.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIS OF PRESENTATION (CONTINUED)

On September 6, 2006 the Company entered into an agreement with Credit and Repackaged Securities Limited Series 2006-10 Trust (the “CARS Trust”).  Pursuant to this agreement, the Company purchased a funded note, which is referenced through a credit default swap to the credit performance of a portfolio of corporate reference entities.  The Company entered into this credit structure for yield enhancement.  As the sole beneficiary of the CARS Trust, the Company is required to consolidate this trust under the requirements of FASB ASC Topic 810, “Consolidation.”  As a result of the consolidation, the Company has recorded in its consolidated balance sheets a credit default swap held by the CARS Trust.  At issue, the swap had a seven year term, maturing in 2013.  Under the terms of the swap, the CARS Trust will be required to make payments to the swap counterparty upon the occurrence of a credit event, with respect to any reference entity, that is in excess of the threshold amount specified in the swap agreement.  During the year ended, December 31, 2009 the sum of all credit events exceeded the threshold amount and the CARS Trust made payments of $17.6 million to the swap counterparty.  The CARS Trust made no payment during the year ended December 31, 2008.  At December 31, 2009 and 2008, the fair value of the credit default swap was $34.3 million and $42.1 million, respectively.  As of December 31, 2009, the maximum future payments the CARS Trust could be required to make is $37.4 million.  In the event the trust was required to make any payments under the swap, the underlying assets held by the trust would be liquidated to fund the payment.  If the disposition of these assets is insufficient to fund the payment calculated, then under the terms of the agreement, the cash settlement amount would be capped at the amount of the proceeds from the sale of the underlying assets.  As of December 31, 2009 and 2008, the fair value of the assets held as collateral by the CARS Trust was $35.3 million and $42.3 million, respectively.

The Company had a greater than or equal to 20%, but less than 50%, interest in four variable interest entities (“VIEs”) at December 31, 2009.  The Company is a creditor in three trusts and one special purpose corporation.  The Company’s maximum exposure to loss related to all of these VIEs is the investments’ carrying value, which was $8.3 million at December 31, 2009.  The investments in these VIEs mature at various dates through January 2028.  As the Company will not absorb a majority of the VIEs’ expected losses or receive a majority of the expected returns, the Company is not required to consolidate these VIEs, in accordance with FASB ASC Topic 810.  See Note 4 for information with respect to leveraged leases.

In order to determine whether the Company is, or is not, the primary beneficiary of a VIE, the Company performs an assessment of the level of each party’s participation in controlling the entity by means other than a voting interest, which includes assumptions about the sufficiency of an equity investment at risk, the essential characteristics of a controlling financial interest, and the significance of voting rights in relation to economic interests.  If the Company is exposed to the majority of the expected losses, the majority of the expected residual returns, or both, associated with a VIE then the Company is the VIE’s primary beneficiary and must consolidate the entity.

The VIEs are generally financed with equity through the establishment of a trust by a trustee.  The carrying amount of the VIEs for which the Company has significant influence have been included in trading fixed maturity securities on the consolidated balance sheets.

All material intercompany transactions and balances between the Company and its subsidiaries have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The most significant estimates are those used in determining the fair value of financial instruments, goodwill, deferred policy acquisition costs (“DAC”), value of business acquired (“VOBA”), value of customer renewals acquired (“VOCRA”), liabilities for future contract and policyholder benefits, other-than-temporary impairments of investments, allowance for loan loss and valuation allowance on deferred tax assets.  Actual results could differ from those estimates.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including cash equivalents, short-term investment, fixed maturity securities, mortgage loans, equity securities, derivative financial instruments, debt, loan commitments and financial guarantees.  These instruments involve credit risk and also may be subject to risk of loss due to interest rate fluctuation.  The Company evaluates and monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash, cash equivalents and short-term investments are highly liquid securities.  The Company’s cash equivalents primarily include cash, commercial paper and money market investments which have an original term to maturity of less than three months.  Short-term investments include debt instruments with a term to maturity exceeding three months, but less than one year on the date of acquisition.  Cash equivalent and short-term investments are held at amortized cost, which approximates fair value.

Immaterial Restatement

Subsequent to the issuance of the Company’s 2008 financial statements, the Company’s management determined certain investments with maturities at the date of purchase of greater than three months but less than one year were improperly classified as cash and cash equivalents.  As a result, the consolidated balance sheet as of December 31, 2008 has been restated to reclassify $599,481 from cash and cash equivalents to short term investments.  In addition, the consolidated statement of cash flows for the year ended December 31, 2008 has been restated as follows:

 
As Previously
    
 
Reported
Adjustment
As Restated
Net change in short-term investments
$                   - 
$  (599,481)
$   (599,481)
Net cash provided by (used in ) investing activities
$           40,012
$  (599,481)
$   (559,469)
       
Net change in cash and cash equivalents
$         454,448
$  (599,481)
$   (145,033)
Cash and cash equivalents, end of year
$      1,624,149
$  (599,481)
$   1,024,668

The effects of these corrections have also been reflected in the accompanying notes, where applicable.  The Company determined that these errors were not material to its previously issued consolidated financial statements.  The Company will correct its 2009 interim condensed consolidated financial statements for similar errors when it files its 2010 interim condensed consolidated financial statements.


 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENTS

Fixed Maturity Securities

The Company accounts for its investments in accordance with FASB ASC Topic 320.  At the time of purchase, fixed maturity securities are classified as either trading or available-for-sale.  Securities, for which the Company has elected to measure at fair value under FASB ASC Topic 825, are classified as trading securities.  Although classified as trading securities, the Company’s intent is to not sell these securities in the near term.  Trading securities are carried at aggregate fair value with changes in market value reported as a component of net investment income.  Securities that do not meet the trading criterion are classified as available-for-sale.  Included with available-for-sale fixed maturity securities are forward purchase commitments on mortgage backed securities, better known as To Be Announced (“TBA”) securities.  The Company records TBA purchases on the trade date and the corresponding payable is recorded as an outstanding liability in payable for investments purchased until the settlement date of the transaction.  Available-for-sale securities that are not considered other-than-temporarily impaired are carried at fair value with the unrealized gains or losses reported in other comprehensive income.

The Company determines the fair value of its publicly traded fixed maturity securities using three primary pricing methods: third-party pricing services, independent non-binding broker quotes, and pricing models.  Prices are first sought from third party pricing services; the remaining unpriced securities are priced using one of the remaining two methods.  Third-party pricing services derive the security prices through recently reported trades for identical or similar securities with adjustments for trading volumes and market observable information through the reporting date.  In the event that there are no recent market trades, pricing services and brokers may use pricing models to develop a security price based on future expected cash flows discounted at an estimated market rate using collateral performance and vintages.  The Company generally does not adjust quotes or prices obtained from brokers or pricing services.

Structured securities, such as collateralized mortgage obligations (“CMO”), commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”), and asset-backed securities (“ABS”), are priced using a fair value model or independent broker quotations.  CMBS securities are priced using the last sale price of the day or a broker quote, if no sales were transacted that day.  CMOs and ABS are priced using fair value models and independent broker quotations.  Typical inputs used by these three pricing methods include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids and/or estimated cash flows and prepayment speeds.  In addition, estimates of expected future prepayments are factors in determining the price of ABS, CMBS, and CMOs.  These estimates are based on the underlying collateral and structure of the security, as well as prepayment speeds previously experienced in the market at interest rate levels projected for the underlying collateral.  Actual prepayment experience may vary from these estimates.

For privately placed fixed maturity securities, fair values are estimated using models, which take into account credit spreads for publicly traded securities of similar credit risk, maturity, prepayment and liquidity characteristics.  A portion of privately placed fixed maturity securities are also priced using market prices or broker quotes.  The fair values of mortgages are estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

The Company’s ability to liquidate positions in privately placed fixed securities and mortgages could be impacted to a significant degree by the lack of an actively traded market.  Although the Company believes that its estimates reasonably reflect the fair value of those instruments, its key assumptions about risk-free interest rates, risk premiums, performance of underlying collateral (if any) and other factors may not reflect those of an active market.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENTS (continued)

Fixed Maturity Securities (continued)

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between knowledgeable, unrelated willing parties using inputs, including estimates and assumptions, a market participant would utilize.  The Company performs a monthly analysis on the prices received from third parties to assess if the prices represent a reasonable estimate of the fair value.  The process is both quantitative and qualitative and includes back testing of recent trades, review of key assumptions such as spreads, duration, credit rating, and on-going review of third-party pricing services methodologies.  The Company performs further testing on those securities whose prices do not fall within a pre-established tolerance range.  This testing includes looking at specific market events that may affect pricing or obtaining additional information or new prices from the third-party pricing service.  Additionally, the Company makes a selection of securities from its portfolio and compares the price received from its third-party pricing services to an independent source, creates option adjusted spreads or obtains additional broker quotes to corroborate the current market price.  Historically, the Company has found no material variances between the prices received from third-party pricing sources and the results of its testing.

With the adoption of the provisions of FASB ASC Topic 320, the Company recognizes an OTTI loss and records a charge to earnings for the full amount of the impairment (the difference between the current carrying amount and fair value of the security), if the Company intends to sell, or if it is more likely than not that it will be required to sell, the impaired security prior to recovery of its cost basis.  Otherwise, losses on securities which are other-than-temporarily impaired are separated into two categories: credit loss and non-credit loss.  The credit loss portion is charged to net realized investment (losses) gains in the consolidated statements of operations, while the non-credit loss is charged to other comprehensive income (loss).  When an unrealized loss on a fixed maturity is considered temporary, the Company continues to record the unrealized loss in other comprehensive income (loss) and not in earnings.

Prior to the adoption of the provisions of FASB ASC Topic 320 on April 1, 2009, the Company's accounting policy for impairment on available-for-sale securities required recognition of an OTTI loss through earnings when the Company anticipated that it would be unable to recover all amounts due under the contractual obligations of the security.  Additionally, in the event that securities were expected to be sold before the fair value of the security recovered to amortized cost, an OTTI loss would also be recorded through earnings.

Structured securities, typically those rated single A or below, are subject to certain provisions in FASB ASC Topic 325, “Investments–Other.”  These provisions require the Company to periodically update its best estimate of cash flows over the life of the security.  In the event that fair value is less than carrying amount and there has been an adverse change in the expected cash flows (as measured by comparing the original expected cash flows to the current expectation of cash flows, both discounted at the current effective rate), then an impairment charge is recorded to income.

Refer to Note 4 of the Company’s consolidated financial statements for further detail about the Company’s recognition and disclosure of OTTI loss.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENTS (CONTINUED)

Fixed Maturity Securities (continued)

The Company discontinues the accrual of income on its holdings for issuers that are in default.  Investment income would have increased by $4.3 million and $4.6 million for the year ended December 31, 2009 and 2008, respectively, if these holdings were performing.  As of December 31, 2009 and 2008, the fair market value of holdings for issuers in default was $26.0 million and $17.9 million, respectively.

Mortgage Loans and Real Estate

Mortgage loans are stated at unpaid principal balances, net of provisions for estimated losses.  Mortgage loans acquired at a premium or discount are carried at amortized cost, net of provisions for estimated losses.  Mortgage loans, which primarily include commercial first mortgages, are diversified by property type and geographic area throughout the United States.  Mortgage loans are collateralized by the related properties and generally are no more than 75% of the property’s value at the time that the original loan is made.  The Company regularly assesses the value of the collateral.

A loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan and impairment is measured based on the fair value of the collateral less costs to sell.  A specific allowance for loan loss is established for an impaired loan if the fair value of the loan collateral less cost to sell is less than the recorded amount of the loan.  A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions.  While management believes that it uses the best information available to establish the loan loss allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them.

Real estate investments are held for the production of income or are held for sale.  Real estate investments held for the production of income are carried at the lower of depreciated cost or market.  Depreciation of buildings and improvements is calculated using the straight line method over the estimated useful life of the property, generally 40 to 50 years.  Real estate investments held for sale are primarily acquired through foreclosure of mortgage loans.  The cost of real estate that has been acquired through foreclosure is the estimated fair value, less estimated costs to dispose at the time of foreclosure.  Real estate investments are diversified by property type and geographic area throughout the United States.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENTS (CONTINUED)

Policy loans and other

Policy loans are carried at the amount of outstanding principal balance.  Policy loans are collateralized by the related insurance policy and do not exceed the net cash surrender value of such policy.

The Company uses derivative financial instruments including swaps, options, and futures as a means of hedging exposure to interest rate, currency and equity price risk.  Derivatives are carried at fair value and changes in fair value are recorded as a component of derivative income or loss.

Investments in private equity limited partnerships are accounted for by the equity method of accounting.

Realized gains and losses

Realized gains and losses on the sales of investments are recognized in operations at the date of sale and are determined using the average cost method.  Certain other-than-temporary losses on available-for-sale securities and changes in the provision for estimated losses on mortgage loans and real estate are included in net realized investment gains and losses.

Investment income

Interest income is recorded on the accrual basis. Investments are placed in a non-accrual status when management believes that the borrower's financial position, after giving consideration to economic and business conditions and collection efforts, is such that collection of principal and interest is doubtful.  When an investment is placed in non-accrual status, all interest accrued is reversed against current period interest income.  Interest accruals are resumed on such investments only when the investments have performed on a sustained basis for a reasonable period of time and when, in the judgment of management, the investments are estimated to be fully collectible as to both principal and interest.

The Company manages assets related to certain funds withheld reinsurance agreements.  These assets are primarily comprised of fixed maturity securities and mortgages and are accounted for consistent with the policies described above.  Investment income on assets within funds withheld reinsurance portfolios is included as a component of net investment income (loss) in the Company’s consolidated statements of operations.  See Note 7.

DEFERRED POLICY ACQUISITION COSTS

Acquisition costs consist of commissions, underwriting and other costs that vary with and are primarily related to the production of new business.  Acquisition costs related to investment-type contracts, primarily deferred annuity, universal life and guaranteed investment contracts (“GICs”) are deferred and amortized with interest based on the proportion of actual gross profits to the present value of all estimated gross profits to be realized over the estimated lives of the contracts.  Estimated gross profits are composed of net investment income, net realized and unrealized investment gains and losses, life and variable annuity fees, surrender charges, interest credited, policyholder benefits and direct variable administrative expenses.

Estimating future gross profit is a complex process requiring considerable judgment and the forecasting of events into the future based on historical information and actuarial assumptions.  These assumptions are subject to an annual review process.  Changes in any of the assumptions that serve to increase or decrease the estimated future gross profits will cause the amortization of DAC to decrease or increase, respectively, in the current period.  Assumptions affecting the computation of estimated future gross profits include, but are not limited to, recent investment and policyholder experience, expectations of future performance and policyholder behavior, changes in interest rates, capital market growth rates, and account maintenance expense.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DEFERRED POLICY ACQUISITION COSTS (CONTINUED)

DAC amortization is reviewed regularly and adjusted retrospectively when the Company calculates the actual profits or losses and revises its estimate of future gross profits to be realized from investment-type contracts, including realized and unrealized gains and losses from investments.  The Company also tests its DAC asset for loss recognition on a quarterly basis.  The test is performed by comparing the GAAP liability, net of DAC, to the present value of future expected gross profits; an adjustment is required if the current GAAP liability, net of DAC, is higher than the present value of future expected gross profits.  During the year ended December 31, 2009, the Company wrote down DAC by $326.9 million as a result of loss recognition related to certain annuity products.  See Note 14 for the DAC asset roll-forward.

The DAC asset under GAAP cannot exceed accumulated deferrals, plus interest.  At December 31, 2009 and 2008, the Company reached the cap for its DAC asset related to certain fixed and fixed index annuity products and reported the DAC asset for these products at historical accumulated deferrals with interest.

Although recovery of DAC is not assured, the Company believes it is more likely than not that all of these costs will be recovered from future profits.  The amount of DAC considered recoverable, however, could be reduced in the near term if the future estimates of gross profits are reduced.

Prior to the Company’s adoption of  FASB ASC Topic 825 on January 1, 2008, DAC was adjusted for amounts relating to the change in unrealized investment gains and losses on available-for-sale fixed maturity securities that supported policyholder liabilities.  This adjustment, net of tax, was included with the change in net unrealized investment gains or losses that were recorded in accumulated other comprehensive loss.  Due to the adoption of FASB ASC Topic 825, the net change in the market value of the securities supporting policyholder liabilities is recorded in the Company’s consolidated statement of operations in 2008, versus accumulated other comprehensive income in prior years. Accordingly, the effect of such market value changes on DAC is recorded in the Company’s consolidated statement of operations effective January 1, 2008.

VALUE OF BUSINESS AND CUSTOMER RENEWALS ACQUIRED

VOBA represents the actuarially determined present value of projected future gross profits from the Keyport Life Insurance Company (“Keyport”) in-force policies on November 1, 2001, the date of the Company’s acquisition of Keyport, and from the in-force policies that were transferred to SLNY, based on a series of agreements between SLNY and Sun Life and Health Insurance Company (U.S.) (“SLHIC”), an affiliate, effective May 31, 2007 (the “SLHIC to SLNY asset transfer”).  VOBA related to Keyport is amortized in proportion to the projected emergence of profits over the estimated life of the purchased block of business; VOBA related to the SLHIC to SLNY asset transfer was amortized in proportion to the projected premium income over the period to the first renewal of the transferred business.  As of December 31, 2009, VOBA related to the SLHIC to SLNY asset transfer was fully amortized.

VOCRA represents a portion of the assets that were transferred to SLNY under the SLHIC to SLNY asset transfer.  VOCRA is the actuarially determined present value of projected future profits arising from the existing in-force business at May 31, 2007 to the next policy renewal date.  This amount is amortized in proportion to the projected premium income over the period from the first renewal date to the end of the projected life of the policies.  The Company tests its VOCRA asset for impairment on an annual basis.  During the year ended December 31, 2009, the Company determined that its VOCRA asset was impaired and recorded an impairment charge of $2.6 million.  See Note 15 for the combined VOBA and VOCRA asset roll-forward.

Although recovery of VOBA is not assured, the Company believes it is more likely than not that all of these costs will be recovered from future profits.  The amount of VOBA considered recoverable, however, could be reduced in the near term if the future estimates of gross profits are reduced.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GOODWILL

The Company’s goodwill represents the intangible asset related to the transfer of goodwill to SLNY under the SLHIC to SLNY asset transfer, effective May 31, 2007.  Goodwill is allocated to the Group Segment in the Company’s subsidiary, SLNY. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill, and Other,” goodwill is tested for impairment on an annual basis.  The Company completed the required impairment tests of goodwill during the second quarter of 2009 and concluded that this asset was not impaired.

During 2008, the Company, after it performed its required impairment assessment of goodwill, concluded that the goodwill obtained in connection with the purchase of Keyport was impaired.  As a result, the Company recorded an impairment charge of $701.5 million in the fourth quarter of 2008, which represented the entire balance of goodwill obtained in connection with the purchase of Keyport.  The impairment charge was allocated to the Wealth Management Segment.

OTHER ASSETS

The Company’s other assets are comprised primarily of property, equipment, leasehold improvements, capitalized software costs and intangible assets.  Property, equipment, leasehold improvements and capitalized software costs that are included in other assets in the Company’s consolidated balance sheet are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are calculated using the straight-line or accelerated method over the estimated useful lives of the related assets, which generally range from 3 to 10 years.  Depreciation and amortization expenses were $1.3 million, $1.3 million and $2.5 million for years ended December 31, 2009, 2008 and 2007, respectively.  Amortization of leasehold improvements is calculated using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements.

Intangible assets consist of state insurance licenses that are not subject to amortization and the value of distribution.  The value of distribution represents the present value of projected future profits arising from sales of new business by brokers with whom SLHIC had an existing distribution relationship contract.  This amount is amortized on a straight-line basis over 25 years, representing the period over which the Company expects to earn premiums from new sales stemming from the added distribution capacity.

POLICY LIABILITIES AND ACCRUALS

Future contract and policy benefit liabilities include amounts reserved for future policy benefits payable upon contingent events as well as liabilities for unpaid claims due as of the statement date.  Such liabilities are established in amounts adequate to meet the estimated future obligations of in-force policies.








 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

POLICY LIABILITIES AND ACCRUALS (continued)

Policy reserves for annuity contracts include liabilities held for group pension and payout annuity payments and liabilities held for product guarantees on variable annuity products, such as guaranteed minimum death benefits (“GMDB.”)  Reserves for pension and payout annuity contracts are calculated using the best-estimate interest and decrement assumptions.  The Company periodically reviews its policies for loss recognition based upon management’s best estimates.  The Company did not record any adjustment to reserves related to loss recognition for the years ended December 31, 2009 and 2008.

Reserves for guaranteed minimum death benefits and guaranteed minimum income benefits are calculated according to the methodology prescribed by the American Institute of Certified Public Accountants (“AICPA”) which is included in FASB ASC
Topic 944 “Financial Services- Insurance,” whereby the expected benefits provided by the guarantees are spread over the duration of the contract in proportion to the benefit assessments.

Policy reserves for universal life contracts are held for benefit coverages that are not fully provided for in the policy account value.  These include rider coverages, conversions from group policies, and benefits provided under market conduct settlements.

Policy reserves for group life and health contracts are calculated using standard actuarial methods recognized by the American Academy of Actuaries. For the tabular reserves, discount rates are based on the Company’s earned investment yield and the morbidity and mortality tables used are standard industry tables modified to reflect the Company’s actual experience when appropriate.  In particular, for the Company’s group reported claim reserves and the mortality and morbidity tables for the early durations of claims are based exclusively on the Company’s experience, incorporating factors such as age at disability, sex and elimination period.  These reserves are computed at amounts that, with interest compounded annually at assumed rates, are expected to meet the Company’s future obligations.

Liabilities for unpaid claims consist of the estimated amount payable for claims reported but not yet settled and an estimate of claims incurred but not reported.  The amount reported is based upon historical experience, adjusted for trends and current circumstances.  Management believes that the recorded liability is sufficient to provide for the associated claims adjustment expenses.  Revisions of these estimates are included in operations in the year such refinements are made.

Contractholder deposit funds consist of policy values that accrue to the holders of universal life-type contracts and investment-related products such as deferred annuities, single premium whole life (“SPWL”) policies, GICs and funding agreements.  The liabilities consist of deposits received plus interest credited, less accumulated policyholder charges, assessments, partial withdrawals and surrenders.  The liabilities are not reduced by surrender charges.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE AND EXPENSES

Premiums for traditional individual life products are considered earned revenue when due.  Premiums related to group life, group stop loss, group dental and group disability insurance are recognized as earned revenue pro-rata over the contract period. The unexpired portion of these premiums is recorded as unearned premiums.  Revenue from universal life-type products and investment-related products includes charges for the cost of insurance (mortality), initiation and administration of the policy and surrender charges. Revenue is recognized when the charges are assessed except that any portion of an assessment that relates to services to be provided in future years is deferred and recognized over the period during which the services are provided.

Benefits and expenses related to traditional life, annuity and disability contracts, including group policies, are recognized when incurred in a manner designed to match them with related premium revenue and to spread income recognition over the expected life of the policy.  For universal life-type and investment-type contracts, expenses include interest credited to policyholders’ accounts and death benefits in excess of account values, which are recognized as incurred.

Fees from investment advisory services are recognized as revenues when the services are provided.

INCOME TAXES

The Company accounts for current and deferred income taxes and recognizes reserves for income tax contingencies in accordance with FASB ASC Topic 740 “Income Taxes.”

Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances on deferred tax assets are estimated based on the Company’s assessment of the realizability of such amounts.  See Note 11.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SEPARATE ACCOUNTS

The Company has established separate accounts applicable to various classes of contracts providing variable benefits.  Contracts for which funds are invested in separate accounts include variable life insurance and individual and group qualified and non-qualified variable annuity contracts.  Investment income and changes in mutual fund asset values are allocated to policyholders and therefore do not affect the operating results of the Company.  Assets held in the separate accounts are carried at fair value and the investment risk of such securities is retained by the contractholder.  The Company earns separate account fees for providing administrative services and bearing the mortality risks related to these contracts.  The activity of the separate accounts is not reflected in the consolidated financial statements except for the following:

Ø
The fees the Company receives, which are assessed periodically and recognized as revenue when assessed; and
   
Ø
The activity related to the GMDB, guaranteed minimum income benefit (“GMIB”), guaranteed minimum accumulation benefit (“GMAB”) and guaranteed minimum withdrawal benefit (“GMWB”) which is reflected in the Company’s consolidated financial statements.

ACCOUNTING PRONOUNCEMENTS

New and Adopted Accounting Pronouncements

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value.”  This update amends FASB ASC Topic 820 and provides clarification regarding the valuation techniques required to be used to measure the fair value of liabilities where quoted prices in active markets for identical liabilities are not available.  In addition, this update clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  The guidance provided in ASU No. 2009-05 is effective for the first reporting period, including interim periods, beginning after issuance.  The Company adopted this guidance on October 1, 2009.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued FASB ASC Topic 105, “Generally Accepted Accounting Principles.”  This guidance establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP.  FASB ASC Topic 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Company adopted FASB ASC Topic 105 on September 30, 2009.

The Company adopted the provisions of FASB ASC Topic 855, “Subsequent Events,” which were issued in May 2009.  This topic requires evaluation of subsequent events through the date that the financial statements are issued or are available to be issued.  FASB ASC Topic 855 sets forth the period under which the reporting entity should evaluate the subsequent events to be recognized or disclosed, the circumstances under which the reporting entity should recognize the events or transactions that occur after the balance sheet date, and the disclosures that the reporting entity should make about the subsequent events.

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (Topic 855)-Amendments to Certain Recognition and Disclosure Requirements” which removes the requirement for U.S. Securities and Exchange Commission (the “SEC”) filers to disclose the date through which subsequent events have been evaluated.  The ASU No. 2010-09 is effective upon issuance.  Events that have occurred subsequent to December 31, 2009 have been evaluated by the Company’s management in accordance with ASU No. 2010-09.


 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

New and Adopted Accounting Pronouncements (continued)

The Company adopted the provisions of FASB ASC Topic 820, which were issued in April 2009.  This issuance provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased in relation to normal market activity for the asset or liability, as well as guidance on identifying circumstances that indicate a transaction is not orderly.  FASB ASC Topic 820 also requires annual and interim disclosure of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any during the period, and definitions of each major category for equity and debt securities, as described in FASB ASC Topic 320.  The Company adopted the above-noted aspects of FASB ASC Topic 820 on April 1, 2009; such adoption did not have a material impact on the Company’s consolidated financial statements.

The Company adopted the provisions of FASB ASC Topic 320, which were issued in April 2009.  This guidance amends the guidance for OTTI of debt securities and changes the presentation of OTTI in the financial statements.   If the Company intends to sell, or if it is more likely than not that it will be required to sell, an impaired security prior to recovery of its cost basis, the security is to be considered other-than-temporarily impaired and the full amount of impairment must be charged to earnings.  Otherwise, losses on securities which are other-than-temporarily impaired are separated into two categories, the portion of loss which is considered credit loss (“credit loss”) and the portion of loss which is due to other factors (“non-credit loss”).  The credit loss portion is charged to earnings, while the non-credit loss is charged to other comprehensive income (loss).  When an unrealized loss on a fixed maturity is considered temporary, the Company continues to record the unrealized loss in other comprehensive income (loss) and not in earnings.  This guidance also expands and increases the frequency of existing disclosures about OTTI of debt and equity securities.  The Company adopted the above-noted aspects of FASB ASC Topic 320 on April 1, 2009.  Upon adoption, a cumulative effect adjustment, net of taxes, of $9.1 million was recorded to decrease accumulated other comprehensive income (loss) with a corresponding increase to retained earnings (accumulated deficit) for the non-credit component of previously impaired securities that the Company neither intends to sell, nor is it more likely than not that the Company will be required to sell, before recovery of amortized cost.  The enhanced disclosures required by FASB ASC Topic 320 are included in Note 4.

The Company adopted the provisions of FASB ASC Topic 825 which were originally issued in April 2009.  The guidance requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements, effective for interim reporting periods ending after June 15, 2009.  The adoption of the above-noted aspects of FASB ASC Topic 825 in the quarter ended June 30, 2009 did not have an impact on the Company’s consolidated financial position or results of operations.  The required disclosures are included in Note 8.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

New and Adopted Accounting Pronouncements (continued)

The Company adopted the provisions of FASB ASC Topic 944, which were issued in May 2008.  The scope of this interpretation is limited to financial guarantee insurance (and reinsurance) contracts issued by insurance enterprises.  This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for certain disclosures about the insurance enterprise’s risk management activities.  Except for certain disclosures, earlier application is not permitted.  The Company does not have any contracts with guarantees within the scope of this guidance.  The adoption of this portion of FASB ASC Topic 944 on January 1, 2009, did not have an impact on the Company’s consolidated financial statements.

The Company adopted the provisions of FASB ASC Topic 815, “Derivatives and Hedging,” which were issued in March 2008.  This guidance amends and expands disclosures about an entity’s derivative and hedging activities with the intent to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  These aspects of FASB ASC Topic 815 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged.  The Company adopted this guidance on January 1, 2009.  The new disclosures are included in Note 4.

The Company adopted the provisions of FASB ASC Topic 810, which were issued in December 2007.  Noncontrolling interest refers to the minority interest portion of the equity of a subsidiary that is not attributable directly or indirectly to a parent.  This guidance establishes accounting and reporting standards that require for-profit entities that prepare consolidated financial statements to (a) present noncontrolling interests as a component of equity, separate from the parent’s equity, (b) separately present the amount of consolidated net income attributable to noncontrolling interests in the statement of operations, (c) consistently account for changes in a parent’s ownership interests in a subsidiary in which the parent entity has a controlling financial interest as equity transactions, (d) require an entity to measure at fair value its remaining interest in a subsidiary that is deconsolidated, and (e) require an entity to provide sufficient disclosures that identify and clearly distinguish between interests of the parent and interests of noncontrolling owners.  This portion of FASB ASC Topic 810 applies to all for-profit entities that prepare consolidated financial statements, and affects those for-profit entities that have outstanding noncontrolling interests in one or more subsidiaries or that deconsolidate a subsidiary.  This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited.  The Company does not have any noncontrolling interests within the scope of this guidance.  Accordingly, the adoption of these aspects of FASB ASC Topic 810 on January 1, 2009 did not have an impact on the Company’s consolidated financial statements.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

New and Adopted Accounting Pronouncements (continued)

The Company adopted the provisions of FASB ASC Topic 805, “Business Combinations,” which were issued in December 2007.  This guidance establishes the principles and requirements for how the acquirer in a business combination (a) measures and recognizes the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquired entity, (b) measures and recognizes positive goodwill acquired or a gain from bargain purchase (negative goodwill), and (c) determines the disclosure information that is useful to users of financial statements in evaluating the nature and financial effects of the business combination.  Some of the significant requirements in the accounting guidance on business combinations made by FASB ASC Topic 805 include the following:

Ø
Most of the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquired entity shall be measured at their acquisition-date fair values;
   
Ø
Acquisition-related costs incurred by the acquirer shall be expensed in the periods in which the costs are incurred;
   
Ø
Goodwill shall be measured as the excess of the consideration transferred, including the fair value of any contingent consideration, plus the fair value of any noncontrolling interest in the acquired entity, over the fair values of the acquired identifiable net assets;
   
Ø
Contractual pre-acquisition contingencies are to be recognized at their acquisition date fair values and noncontractual pre-acquisition contingencies are to be recognized at their acquisition date fair values only if it is more likely than not that the contingency gives rise to an asset or liability; and
   
Ø
Contingent consideration shall be recognized at the acquisition date.

FASB ASC Topic 805 is effective for, and shall be applied prospectively to, business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with earlier adoption prohibited.  Assets and liabilities that arose from business combinations with acquisition dates prior to the effective date of this guidance shall not be adjusted upon adoption of these elements of FASB ASC Topic 805, with certain exceptions for acquired deferred tax assets and acquired income tax positions.  The Company adopted the above-noted aspects of FASB ASC Topic 805 on January 1, 2009 and will apply this guidance to future business combinations.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

Accounting Standards Not Yet Adopted

In January 2010, the FASB issued ASU 2010-06 “Fair Value Measurement and Disclosures (Topic 820)-Improving Disclosure about Fair Value Measurements,” which provides amendments to FASB ASC Topic 820 that will provide more robust disclosures about the following:

Ø
The different classes of assets and liabilities measured at fair value;
Ø
The valuation techniques and inputs used;
Ø
The transfers between Levels 1, 2, and 3; and
Ø
The activity in Level 3 fair value measurements.

Certain new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 31, 2009.  Disclosures about purchases, sales, issuances and settlements in the roll-forward of activities in Level 3 are effective for fiscal years beginning after December 15, 2010.  The Company will include the new disclosures prospectively, as required.

In June 2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial Assets.”  This statement amends FASB ASC Topic 860, “Transfers and Servicing,” portions of which were previously issued as SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”  SFAS No. 166 amends and expands disclosures about the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets.  SFAS No. 166 amends the derecognition accounting and disclosure guidance relating to SFAS No. 140 and eliminates the exemption from consolidation for qualifying special purpose entities (“QSPEs”); it also requires a transferor to evaluate all existing QSPEs to determine whether it must be consolidated in accordance with SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).”  SFAS No. 166 is effective for financial asset transfers occurring in fiscal years and interim periods beginning after November 15, 2009, and will become part of the FASB ASC at that time.  The Company adopted SFAS No. 166 on January 1, 2010; the Company does not expect that adoption will have a significant impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, which amends the consolidation guidance of FIN 46(R) and will become part of FASB ASC TOPIC 810.  The amendments to the consolidation guidance affect all entities currently within the scope of FIN 46(R), as well as QSPEs, as the concept of these entities was eliminated in SFAS No. 166.  SFAS No. 167 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009, and will become part of the FASB ASC at that time.  The Company adopted SFAS No. 167 on January 1, 2010; the Company does not expect that adoption will have a significant impact on the Company’s consolidated financial statements.






 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

2. MERGERS, ACQUISITIONS AND DISPOSITIONS

On December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of Sun Life Vermont, to the Parent.  As a result of this transaction, Sun Life Vermont is no longer the Company’s wholly-owned subsidiary and was not included in the Company’s consolidated balance sheet at December 31, 2009.  Sun Life Vermont’s assets and liabilities were as follows at December 31:

 
2009
    
2008
Assets:
          
Total investments and cash
$
1,602,733
  
$
1,170,565
Deferred policy acquisition costs
  
139,702
    
73,958
Reinsurance receivable
  
902,957
    
1,125,408
Other assets
  
12,698
    
15,173
Total assets
$
2,658,090
  
$
2,385,104
           
Liabilities:
          
Contractholder deposit funds and
other policy liabilities
$
787,610
  
$
813,387
Future contract and policy benefits
  
87,830
    
73,058
Debt payable to affiliates
  
1,315,000
    
1,115,000
Net deferred tax liability
  
171,413
    
82,363
Derivative instruments - payable
  
19,617
    
167,215
Other liabilities
  
181,750
    
84,184
           
Total liabilities
$
2,563,220
  
$
2,335,207

The following table represents a summary of the results of operations for Sun Life Vermont which are included in discontinued operations for the years ended December 31:

 
2009
  
2008
  
2007
                 
Total revenues
$
191,965 
  
$
29,031 
  
$
39,983 
Total benefits and expenses
  
46,304 
    
181,407 
    
26,162 
Income (loss) before income taxes
  
145,661 
    
(152,376)
    
13,821 
Income tax expense (benefit)
  
40,690 
    
(43,040)
    
4,837 
                 
Net income (loss)
$
104,971 
  
$
(109,336)
  
$
8,984 

The Company transferred all of Sun Life Vermont’s assets and liabilities at their carrying value to the Parent and therefore no gain or loss resulted from this dividend.  Sun Life Vermont was previously reported as component of the Individual Protection Segment.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

2. MERGERS, ACQUISITIONS AND DISPOSITIONS (CONTINUED)

Effective September 27, 2007, the Company dissolved Sun life of Canada (U.S.) Holdings General Partner, LLC (the “General Partner”).  The General Partner was the sole general partner in Sun Life of Canada (U.S.) Limited Partnership (the “Partnership”) and, as a result, the Partnership had been consolidated with the results of the Company.  The Partnership was organized to purchase subordinated debentures issued by the Parent and to issue partnership capital securities to an affiliated business trust, Sun Life of Canada (U.S.) Capital Trust I (the “Capital Trust”).  Effective May 6, 2007, the Parent redeemed $600 million of 8.526% subordinated debentures issued to the Partnership and paid the Partnership an early redemption premium of $25.6 million.  Also effective May 6, 2007, the Partnership redeemed $600 million of the 8.526% partnership capital securities issued to the Capital Trust and paid a premium of $25.6 million to the Capital Trust.  The redemption had no impact on the Company’s net income.  The Partnership was dissolved effective September 27, 2007.

Effective May 31, 2007, Sun Life Financial completed its acquisition of Genworth Financial, Inc.'s (“Genworth’s”) Employee Benefits Group business (“EBG”).  Also effective May 31, 2007, SLNY entered into a series of agreements with SLHIC, one of the acquired companies (formerly named Genworth Life and Health Insurance Company), through which the New York issued business of SLHIC was transferred to SLNY.  These agreements include a 100% coinsurance agreement for all existing and future new business issued in New York, a renewal rights agreement under which SLNY has exclusive rights to renew in-force business assumed under the reinsurance agreement and an administrative service agreement under the SLHIC to SLNY asset transfer.  These agreements, in accordance with FASB ASC Topic 805 were treated as a transfer of net assets between entities under common control.  SLNY paid $40 million of total consideration to SLHIC.  SLHIC transferred assets at carrying value of approximately $72 million, including $39 million of goodwill and other intangibles, as well as policyholder and other liabilities of approximately $32 million to SLNY.  The Group Protection Segment of the Company reflects a significant increase in business as a result of these agreements. These agreements have allowed the Company to expand its product offerings to include group dental insurance.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES

The Company has significant transactions with affiliates.  Management believes inter-company revenues and expenses are calculated on a reasonable basis; however, these amounts may not necessarily be indicative of the costs that would be incurred if the Company operated on a stand-alone basis and these transactions were with unrelated parties.  Below is a summary of transactions with affiliates not included in these consolidated financial statements.

Reinsurance Related Transactions

As more fully described in Note 9, the Company is party to several reinsurance transactions with SLOC and other affiliates.  Reinsurance premiums with related parties are based on market rates.

On February 11, 2009, the Company received regulatory approval and entered into a reinsurance agreement with Sun Life Reinsurance (Barbados) No. 3 Corp (“BarbCo 3”), an affiliate, to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life, and private placement variable universal life policies on a combination coinsurance, coinsurance with funds withheld and a modified coinsurance basis.  Future new business will also be ceded under this agreement.

BarbCo 3 paid an initial ceding commission to the Company of $41.5 million and the Company recorded a reinsurance payable and related reinsurance receivable at the inception of the transaction of $370.7 million and $329.2 million, respectively.  At December 31, 2009, the reinsurance payable and reinsurance receivable related to this agreement were $422.5 million and $430.5 million, respectively.  See Note 9 for further information regarding the impact of this agreement on the Company’s financial statements.

Effective December 31, 2007, SLNY entered into a funds withheld reinsurance agreement with SLOC under which SLOC will fund a portion of the statutory reserves required by New York Regulation 147, which is substantially similar to Actuarial Guideline 38 (“AXXX reserves”), as adopted by the National Association of Insurance Commissioners (the “NAIC”), attributable to certain individual universal life (“UL”) policies sold by SLNY.  Under this agreement, SLNY ceded, and SLOC assumed, on a funds withheld 90% coinsurance basis, certain in-force policies at December 31, 2007.  Future new business also will be reinsured under this agreement.

Sun Life Vermont, a subsidiary of the Company prior to December 31, 2009, entered into a reinsurance agreement with SLOC, effective November 8, 2007, under which Sun Life Vermont assumed the risks of certain UL policies issued by SLOC through December 31, 2008.  This agreement is described more fully in Note 9.

Capital Transactions

During the years ended December 31, 2009 and 2008, the Company received capital contributions totaling $748.7 million and $725.0 million, respectively, from the Parent.  The cash contributions were recorded as additional paid-in capital and were made to ensure that the Company continues to exceed certain capital requirements prescribed by the NAIC.  The NAIC has established regulations that provide minimum capitalization requirements based on risk-based capital formulas for life insurance companies.  The risk-based capital formulas for life insurance companies establishes capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities that contain death benefits or certain living benefits.

Effective December 31, 2009 the Company distributed all of the issued and outstanding common stock of Sun Life Vermont in the form of a dividend to the Parent.  The Company did not declare or pay cash dividends to the Parent in 2009, 2008, or 2007.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Debt Transactions

On November 8, 2007, a long-term financing arrangement was established with a financial institution (the “Lender”) that enables Sun Life Vermont, a subsidiary of the Company prior to December 31, 2009, to fund a portion of its obligations under the reinsurance agreement with SLOC.  Under this arrangement, at inception of the agreement, Sun Life Vermont issued an initial floating rate surplus note of $1 billion (the “Surplus Note”) to a special-purpose entity, Structured Asset Repackage Company, 2007- SUNAXXX LLC (“SUNAXXX”), affiliated with the Lender.  Pursuant to this arrangement, Sun Life Vermont exercised its option to issue additional Surplus Notes of $200 million and $115 million in 2009 and 2008, respectively, to SUNAXXX.  At December 31, 2009 and 2008, the value of the Surplus Note was $1.3 billion and $1.1 billion, respectively.  As a result of the dividend of Sun Life Vermont, the $1.3 billion affiliated debt was not included in the Company’s consolidated balance sheets as of December 31, 2009.  Pursuant to an agreement between the Lender and the Company’s indirect parent, Sun Life Assurance Company of Canada – U.S. Operations Holding, Inc. (“U.S. Ops Holdings”), U.S. Ops Holdings bears the ultimate obligation to repay the Lender and, as such, consolidates SUNAXXX in accordance with FASB ASC Topic 810.  Sun Life Vermont has agreed to reimburse U.S. Ops Holdings for certain costs incurred in connection with the issuance of the Surplus Note.  Sun Life Vermont incurred interest expense of $21.7 million and $46.5 million for the years ended December 31, 2009 and 2008, respectively, which is included in the Company’s consolidated statements of operations as a component of income (loss) from discontinued operations, net of tax.

In 2002, the Company issued two promissory notes with a combined total of $460 million to Sun Life (Hungary) Group Financing Limited Company (“Sun Life (Hungary) LLC”).  The proceeds of the notes were used to purchase fixed rate government and corporate bonds.  On May 24, 2007, the Company redeemed one of the notes with a principal balance of $380 million and paid $388.7 million to Sun Life (Hungary) LLC, including $8.7 million in accrued interest.  On December 29, 2008, the Company redeemed $62.0 million of the $80 million remaining note and paid $64.3 million, including $2.3 million in accrued interest, to Sun Life (Hungary) LLC.  At December 31, 2009 and 2008, the Company had $18 million in promissory notes issued to Sun Life (Hungary) LLC.  The Company pays interest semi-annually to Sun Life (Hungary) LLC.  Related to these promissory notes, the Company incurred interest expense of $1.0 million, $4.5 million and $13.3 million for the years ended December 31, 2009, 2008 and 2007, respectively.

On July 17, 2008, the Company issued a $60 million promissory note to Sun Life (Hungary) LLC which would mature on September 27, 2011.  The Company pays interest quarterly to Sun Life (Hungary) LLC. Total interest incurred was $1.3 million for the year ended December 31, 2008. The Company used the proceeds of the note for general corporate purposes. On December 29, 2008, the Company redeemed the note and paid $60.8 million to Sun Life (Hungary) LLC, including $0.8 million in accrued interest.

At December 31, 2009 and 2008, the Company had $565 million of surplus notes payable to Sun Life Financial (U.S.) Finance, Inc.  The Company expensed $42.6 million for interest on these surplus notes for each of the years ended December 31, 2009, 2008 and 2007.

Effective May 6, 2007, the Parent redeemed $600 million of 8.526% subordinated debentures issued to the Partnership and paid the Partnership an early redemption premium of $25.6 million.  Also effective May 6, 2007, the Partnership redeemed $600 million of the 8.526% partnership capital securities issued to the Capital Trust and paid a premium of $25.6 million to the Capital Trust.  The redemption had no impact on the Company’s net income.  Related to these partnership capital securities, the Company incurred interest expense of $17.8 million for the year ended December 31, 2007.  The Company also earned interest income, through the Partnership, of $17.8 million for the year ended December 31, 2007.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Institutional Investments Contracts

On September 12, 2006, the Company issued two floating rate funding agreements totaling $900 million to Sun Life Financial Global Funding III, L.L.C. (“LLC III”) due 2013.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $5.8 million to LLC III.  Total interest credited for these funding agreements was $11.2 million, $36.5 million, and $51.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.  On September 19, 2006, the Company also issued a $100 million floating rate demand note payable to LLC III.  For interest on this demand note, the Company expensed $1.3 million, $4.0 million, and $5.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company has entered into an interest rate swap agreement with LLC III with an aggregate notional amount of $900 million that effectively converts the floating rate payment obligations under the funding agreements to fixed rate obligations.

On May 17, 2006, the Company issued a floating rate funding agreement of $900 million to Sun Life Financial Global Funding II, L.L.C. (“LLC II”) due 2011.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $7.5 million to LLC II.  Total interest credited for these funding agreements was $10.5 million, $35.7 million, and $50.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.  On May 24, 2006, the Company also issued a $100 million floating rate demand note payable to LLC II.  For interest on this demand note, the Company expensed $1.2 million, $4.0 million, and $5.7 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company has entered into an interest rate swap agreement with LLC II with an aggregate notional amount of $900 million that effectively converts the floating rate payment obligations under the funding agreements to fixed rate obligations.

On June 3, 2005 and June 29, 2005, the Company issued two floating rate funding agreements totaling $900 million to Sun Life Financial Global Funding, L.L.C. (“LLC”) due 2010.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $10 million to LLC.  Total interest credited for these funding agreements was $11.3 million, $36.6 million and $51.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.  On June 10, 2005, the Company also issued a $100.0 million floating rate demand note payable to LLC.  For interest on this demand note, the Company expensed $1.3 million, $4.0 million and $5.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company has entered into an interest rate swap agreement with LLC with an aggregate notional amount of $900 million that effectively converts the floating rate payment obligations under the funding agreements to fixed rate obligations.

The account values related to these funding agreements issued to LLC III, LLCII and LLC are reported in the Company’s balance sheets as a component of contractholder deposits funds and other policy liabilities.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

The following table lists the details of notes due to affiliates at December 31, 2009:

Payees
Type
Rate
Maturity
Principal
Interest
Expense
           
Sun Life Financial (U.S.) Finance, Inc.
Surplus
8.625%
11/06/2027
$     250,000
21,563
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
150,000
9,225
Sun Life Financial (U.S.) Finance, Inc.
Surplus
7.250%
12/15/2015
150,000
10,875
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.125%
12/15/2015
7,500
459
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
7,500
461
Sun Life (Hungary) Group Financing Limited
Company
Promissory
5.710%
06/30/2012
18,000
1,028
Sun Life Financial Global Funding, L.L.C.
Demand
LIBOR + 0.35%
07/6/2010
100,000
1,257
Sun Life Financial Global Funding II, L.L.C.
Demand
LIBOR + 0.26%
07/6/2011
100,000
1,166
Sun Life Financial Global Funding III, L.L.C.
Demand
LIBOR + 0.35%
10/6/2013
100,000
1,257
       
$     883,000
47,921

The following table lists the details of notes due to affiliates at December 31, 2008:

Payees
Type
Rate
Maturity
Principal
Interest
Expense
           
Sun Life Financial (U.S.) Finance, Inc.
Surplus
8.625%
11/06/2027
$     250,000
$      21,563
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
150,000
9,225
Sun Life Financial (U.S.) Finance, Inc.
Surplus
7.250%
12/15/2015
150,000
10,875
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.125%
12/15/2015
7,500
459
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
7,500
461
Structured Asset Repackage Company, 2007-
SUNAXXX LLC
Surplus
LIBOR + 0.89%
11/8/2037
1,115,000
46,492
Sun Life (Hungary) Group Financing Limited
Company
Promissory
5.710%
06/30/2012
18,000
6
Sun Life Financial Global Funding, L.L.C.
Demand
LIBOR + 0.35%
07/6/2010
100,000
4,055
Sun Life Financial Global Funding II, L.L.C.
Demand
LIBOR + 0.26%
07/6/2011
100,000
3,963
Sun Life Financial Global Funding III, L.L.C.
Demand
LIBOR + 0.35%
10/6/2013
100,000
4,055
       
$  1,998,000
$     101,154



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative Service Agreements, Rent and Other

Effective December 31, 2009, the Company transferred all of its employees to an affiliate, Sun Life Financial (U.S.) Services Company, Inc. (“Sun Life Services”), with the exception of 28 employees who were transferred to Sun Life Financial Distributors, Inc. (“SLFD”), another affiliate.  Neither Sun Life Services nor SLFD are included in the accompanying consolidated financial statements.  Concurrent with this transaction, Sun Life Services assumed the sponsorship of the Company’s retirement plans, as described in Note 10.  As a result of this transaction, the Company transferred to Sun Life Services the assets and liabilities, and associated deferred tax asset, summarized in the following table:

Assets:
    
Cash
$
32,298 
Property & equipment
  
9,545 
Software and other
  
58,877 
Deferred tax asset
  
25,543 
Total assets
$
126,263 
     
     
Liabilities:
    
Pension liabilities
$
109,512 
Long term incentives
  
16,923 
Other liabilities
  
48,733 
Total liabilities
$
175,168 

In accordance with FASB ASC Topic 845, “Nonmonetary Transactions,” all assets and liabilities were transferred at book value and no gain or loss was recognized in the Company’s consolidated statement of operations.  The difference between the book value of the transferred assets and liabilities of $48.9 million, net of tax, was recorded by the Company as other comprehensive income and paid-in-capital.  Prior to the transfer, this difference between the book value of the transferred assets and liabilities was recorded in the Company’s consolidated balance sheet as a component of accumulated other comprehensive loss.

Pending regulatory approval, the Company and Sun Life Services entered into an administrative services agreement, effective December 31, 2009, under which Sun Life Services would provide human resources services (e.g., recruiting and maintaining appropriately trained and qualified personnel and equipment necessary for the performance of actuarial, financial, legal, administrative, and other operational support functions) to the Company.  Pursuant to this agreement, the Company would reimburse Sun Life Services for the cost of such services, plus an arms-length based profit margin to be agreed upon by the parties.

Effective December 31, 2009, Sun Life Services and SLOC entered into an administrative services agreement under which Sun Life Services provides to SLOC, as requested, personnel and certain services.  Prior to December 31, 2009, the Company had an administrative services agreement with SLOC under which the Company provided personnel and certain services to SLOC, as requested.  Pursuant to the agreement with SLOC, the Company recorded reimbursements of $336.0 million, $316.7 million and $301.0 million for the years ended December 31, 2009, 2008 and 2007, respectively, as a reduction to other operating expenses.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative Service Agreements, Rent and Other (continued)

The Company’s affiliates and Sun Life Services are in the process of establishing administrative services agreements under which Sun Life Services will provide personnel and certain services to the Company’s affiliates, as requested.  Until such agreements receive regulatory approval, the Company will continue to provide personnel and certain services to affiliates, as described below.

The Company and certain of its subsidiaries have administrative services agreements with SLOC which provided that SLOC would furnish, as requested, certain services and facilities on a cost-reimbursement basis.  Pursuant to the agreements with SLOC, the Company recorded expenses of $8.9 million, $9.9 million and $14.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company has an administrative services agreement with Sun Life Information Services Canada, Inc. (“SLISC”), under which SLISC provides administrative and support services to the Company in connection with the Company’s insurance and annuity business.  Expenses under this agreement amounted to approximately $15.5 million, $17.6 million and $16.9 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company has a service agreement with Sun Life Information Services Ireland Limited (“SLISIL”), under which SLISIL provides various insurance related and information systems services to the Company.  Expenses under this agreement amounted to approximately $24.2 million, $24.3 million and $26.0 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company has an administrative services agreement with SLC - U.S. Ops Holdings, under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which an affiliate, Massachusetts Financial Services Company (“MFS”), serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable annuity contracts issued by the Company.  Amounts received under this agreement were approximately $8.9 million, $17.2 million and $22.3 million for the years ended December 31, 2009, 2008 and 2007, respectively.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative service agreements, rent and other (continued)

The Company has an administrative services agreement with Sun Capital Advisers LLC (“SCA”), a registered investment adviser, under which the Company provides administrative services with respect to certain open-end management investment companies for which SCA serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable contracts issued by the Company.  Amounts received under this agreement amounted to approximately $4.3 million, $2.1 million and $1.9 million for the years ended December 31, 2009, 2008 and 2007, respectively. The Company paid $18.2 million, $18.6 million and $15.9 million for the years ended December 31, 2009, 2008 and 2007, respectively, in investment management services fees to SCA.

Effective November 7, 2007, Independent Financial Marketing Group, Inc. (“IFMG”) was sold by the Parent and is no longer an affiliate of the Company.  For that period of time in 2007 during which it was still an affiliate, the Company paid $22.6 million in commission fees to IFMG.

During the years ended December 31, 2009, 2008 and 2007, the Company paid $45.4 million, $23.7 million and $31.3 million, respectively, in distribution fees to SLFD.  The Company also had an agreement with SLFD and the Parent whereby the Parent provided expense reimbursements to the Company for administrative services provided by the Company to SLFD.  Related to this agreement, the Company received reimbursement of $0.6 million year ended December 31, 2007.  This agreement was terminated on March 2, 2007.

The Company leases office space to SLOC under lease agreements with terms expiring on December 31, 2014 and options to extend the terms for each of twelve successive five-year terms at fair market rental value, not to exceed 125% of the fixed rent for the term which is then ending.  Rent received by the Company under the leases amounted to approximately $10.1 million, $10.6 million, and $10.6 million for each of the years ended December 31, 2009, 2008 and 2007, respectively.  Rental income is reported as a component of net investment income.

During the year ended December 31, 2009, the Company sold certain limited partnership investments to SLOC with a book value of $16.9 million and a market value of $22.4 million.  The Company recorded a pretax gain on the sales of $5.5 million for the year ended December 31, 2009.  During the year ended December 31, 2008, the Company sold certain limited partnership investments to SLOC with a book value and market value of $87.2 million.

During the year ended December 31, 2008, the Company sold mortgages to SLOC with a book value of $150.2 million and a market value of $150.2 million.

During the year ended December 31, 2009, the Company purchased $395.7 million of available-for-sale fixed-rate bonds from Sun Life Investments LLC at fair value.  The Company paid cash for the bonds.

The Company records a tax benefit through paid-in-capital for SLF stock options issued to employees of the Company. Related to these stock options, the Company recorded tax benefits of approximately $0.2 million, $0.8 and $3.0 million for the years ended December 31, 2009, 2008 and 2007, respectively.

In 2004, the employees of the Company became participants in a restricted share unit (“RSU”) plan with its indirect parent, SLF.  Under the RSU plan, participants are granted units that are equivalent to one common share of SLF stock and have a fair market value of a common share of SLF stock on the date of grant.  RSUs earn dividend equivalents in the form of additional RSUs at the same rate as the dividends on common shares of SLF stock.  The redemption value, upon vesting, is the fair market value of an equal number of common shares of SLF stock.  The Company incurred expenses of $7.9 million, $5.9 million and $4.4 million relating to RSUs for the years ended December 31, 2009, 2008 and 2007, respectively.

 
 

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative service agreements, rent and other (continued)

In 2007, SLNY entered into a series of agreements with SLHIC, through which the New York issued business of SLHIC was transferred to SLNY.  As part of these agreements, SLNY received certain intangible assets totaling $31.3 million.  These assets included the value of distribution acquired, VOBA, and VOCRA.  The value of distribution acquired of $7.5 million is being amortized on a straight-line basis over its projected economic life of 25 years.  The amortization expense for the value of distribution acquired was $0.3 million, $0.3 million and $0.1 million for the years ended December 31, 2009, 2008 and 2007, respectively.

VOBA of $7.6 million is subject to amortization based upon expected premium income over the period from acquisition to the first customer renewal, generally not more than two years.  VOBA is fully amortized as of December 31, 2009.  VOCRA of $16.2 million is subject to amortization based upon expected premium income over the projected life of the in-force business acquired, which is 20 years.  The Company recorded amortization for VOBA and VOCRA for the years ended December 31 as follows:

 
2009
  
2008
  
2007
                 
VOBA
$
913 
  
$
782  
  
$
5,928  
VOCRA
$
4,063 
  
$
4,627  
  
$
1,854  

At December 31, 2009, the Company determined that the VOCRA asset was impaired and recorded an impairment charge of $2.6 million included in VOCRA amortization expense.  The impairment charge was allocated to the Group Protection Segment.






 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS

FIXED MATURITY SECURITIES

The amortized cost and fair value of fixed maturity securities held at December 31, 2009, were as follows:

Available-for-sale fixed maturity securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Temporary
Losses
OTTI
Losses(1)
Fair
Value
Non-corporate securities:
          
Asset-backed securities
$     966 
$             42 
$            (19)
$            - 
$            989 
Residential mortgage-backed securities
45,531 
2,170 
- 
- 
47,701 
Commercial mortgage-backed securities
18,566 
114 
(2,600)
- 
16,080 
Foreign government & agency securities
728 
39 
(7)
- 
760 
U.S. treasury and agency securities
38,063 
1,156 
(88)
- 
39,131 
Total non-corporate securities
103,854 
3,521 
(2,714)
- 
104,661 
           
Corporate securities
1,017,570 
86,026 
(18,993)
(13,748)
1,070,855 
           
Total available-for-sale fixed maturity securities
$ 1,121,424 
$     89,547 
$   (21,707)
$  (13,748)
$   1,175,516 
           
           
Trading fixed maturity securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
  
Non-corporate securities:
          
Asset-backed securities
$      658,864 
$     6,766 
$(198,367)
$     467,263
  
Collateralized mortgage obligations
- 
- 
- 
-
  
Residential mortgage-backed securities
1,437,147 
13,051 
(409,307)
1,040,891
  
Commercial mortgage-backed securities
972,971 
23,199 
(357,241)
638,929
  
Foreign government & agency securities
76,971 
6,277 
- 
83,248
  
U.S. treasury and agency securities
525,758 
14,122 
(2,350)
537,530
  
Total non-corporate securities
3,671,711 
63,415 
(967,265)
2,767,861
  
           
Corporate securities
8,371,250 
300,777 
(309,366)
8,362,661
  
           
Total trading fixed maturity securities
$ 12,042,961 
$    364,192 
$(1,276,631)
$11,130,522
  

(1)
Represents the pre-tax non-credit OTTI loss recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) for assets still held at the reporting date.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

FIXED MATURITY SECURITIES (CONTINUED)

The amortized cost and fair value of fixed maturity securities held at December 31, 2008, were as follows:

     
Gross
  
   
Gross
Unrealized
  
 
Amortized
Unrealized
Temporary
Fair
Available-for-sale fixed maturity securities
Cost
Gains
Losses
Value
         
Non-corporate securities:
        
Collateralized mortgage obligations
$                 22,504
$             94
$           (4,489)
$            18,109
Mortgage-backed securities
40,107
1,060
(17)
41,150
Foreign government & agency securities
509
-
(37)
472
U.S. treasury and agency securities
61,824
13,262
(105)
74,981
Total non-corporate securities
124,944
14,416
(4,648)
134,712
         
Corporate securities
657,917
4,475
(123,084)
539,308
         
Total available-for-sale fixed maturity securities
$               782,861
$       18,891
$        (127,732)
$           674,020
         
     
Gross
  
   
Gross
Unrealized
  
 
Amortized
Unrealized
Temporary
Fair
Trading fixed maturity securities
Cost
Gains
Losses
Value
         
Non-corporate securities:
        
Asset-backed securities
$               796,032
$        4,357
$         (294,557)
$          505,832
Collateralized mortgage obligations
2,627,715
8,543
(1,141,245)
1,495,013
Mortgage-backed securities
213,175
4,579
(325)
217,429
Foreign government & agency securities
110,991
1,972
(3,788)
109,175
U.S. treasury and agency securities
484,910
36,528
(18,332)
503,106
Total non-corporate securities
4,232,823
55,979
(1,458,247)
2,830,555
         
Corporate securities
10,676,606
38,976
(1,783,991)
8,931,591
         
Total trading fixed maturity securities
$         14,909,429
$      94,955
$     (3,242,238)
$     11,762,146



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

FIXED MATURITY SECURITIES (CONTINUED)

The amortized cost and estimated fair value by maturity periods for fixed maturity investments are shown below.  Actual maturities may differ from contractual maturities on structured securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
December 31, 2009
 
Amortized Cost
Fair Value
Maturities of available-for-sale fixed securities:
    
 
Due in one year or less
$       39,373 
$        41,743 
 
Due after one year through five years
333,268 
385,510 
 
Due after five years through ten years
139,390 
154,281 
 
Due after ten years
544,330 
529,212 
          Subtotal – Maturities of available-for-sale fixed securities
1,056,361 
1,110,746 
ABS, RMBS and CMBS securities (1)
65,063 
64,770 
          Total available-for-sale fixed securities
$1,121,424 
$1,175,516
     
Maturities of trading fixed securities:
    
 
Due in one year or less
$      507,350 
$       515,137 
 
Due after one year through five years
4,356,611 
4,452,004 
 
Due after five years through ten years
2,647,391 
2,653,454 
 
Due after ten years
1,462,627 
1,362,844 
 
Subtotal – Maturities of trading fixed securities
8,973,979 
8,983,439 
ABS, RMBS and CMBS securities(1)
3,068,982 
2,147,083 
 
Total trading fixed securities
$      12,042,961 
$11,130,522 

(1)  
ABS, RMBS and CMBS securities are shown separately in the table as they are not due at a single maturity.

Gross gains of $50.0 million, $14.0 million and $51.6 million and gross losses of $57.5 million, $161.2 million and $52.3 million were realized on the sale of fixed maturity securities for the years ended December 31, 2009, 2008 and 2007, respectively.

Fixed maturity securities with an amortized cost of approximately $12.4 million at December 31, 2009 and 2008, were on deposit with federal and state governmental authorities, as required by law.

As of December 31, 2009 and 2008, 91.1% and 94.6%, respectively, of the Company's fixed maturity securities were investment grade.  Investment grade securities are those that are rated "BBB" or better by nationally recognized statistical rating organizations.  During 2009, 2008 and 2007, the Company incurred realized losses totaling $4.8 million, $41.9 million and $68.1 million, respectively, for other-than-temporary impairment of value on its available-for-sale fixed maturity securities.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

FIXED MATURITY SECURITIES (CONTINUED)

Unrealized Losses

The following table shows the fair value and gross unrealized losses, which includes temporary unrealized losses and the portion of non-credit OTTI losses recognized in AOCI, of the Company’s available-for-sale fixed maturity investments, aggregated by investment category and length of time that the individual securities had been in an unrealized loss position at December 31, 2009.

 
Less Than Twelve Months
Twelve Months Or More
Total
             
 
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
             
Asset-backed securities
$              - 
$              - 
$            37
$          (19)
$       37
$       (19)
Commercial mortgage-backed securities
499 
(1)
6,597 
(2,599)
7,096
(2,600)
Foreign government & agency securities
- 
- 
212 
(7)
212
(7)
U.S. treasury and agency securities
16,942 
(88)
- 
- 
16,942
(88)
Corporate securities
83,967 
(6,208)
183,430 
(26,533)
267,397
(32,741)
             
Total
$   101,408 
$     (6,297)
$   190,276 
$    (29,158)
$ 291,684
$   (35,455)

The following table shows the fair value and gross unrealized losses of the Company’s available-for-sale fixed maturity investments, which were deemed to be temporarily impaired, aggregated by investment category and length of time that the individual securities had been in an unrealized loss position at December 31, 2008.

 
Less Than Twelve Months
Twelve Months Or More
Total
             
 
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
             
Collateralized mortgage obligations
$        2,967
$      (1,162)
$      12,739
$        (3,327)
$   15,706
$         (4,489)
Mortgage-backed securities
1,054
(7)
3,137
(10)
4,191
(17)
U.S. treasury and agency securities
1,855
(105)
- 
- 
1,855
(105)
Foreign government & agency securities
473
(37)
- 
- 
473
(37)
Corporate securities
213,657
 (37,430)
226,295
 (85,654)
439,952
 (123,084)
             
Total
$    220,006
$   (38,741)
$     242,171
$       (88,991)
$ 462,177
$     (127,732)




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

UNREALIZED LOSSES (CONTINUED)

The following table provides the number of securities of the Company’s available-for-sale fixed maturity securities with gross unrealized losses and a portion of non-credit OTTI losses recognized in AOCI, at December 31, 2009 (not in thousands):

 
Number of
Securities Less
Than Twelve
Months
Number of
Securities Twelve
Months Or More
Total Number of
Securities
       
Asset-backed securities
-
1
1
Commercial mortgage-backed securities
1
8
9
Foreign government & agency securities
-
1
1
U.S. treasury and agency securities
2
-
2
Corporate securities
41
86
127
       
Total
44
96
140


The following table provides the number of securities of the Company’s available-for-sale fixed maturity securities with gross unrealized losses, which were deemed to be temporarily impaired, at December 31, 2008 (not in thousands):

 
Number of
Securities Less
Than Twelve
Months
Number of
Securities Twelve
Months Or More
Total Number of
Securities
       
Corporate securities
143
133
276
Collateralized mortgage obligations
8
10
18
Mortgage-backed securities
2
6
8
U.S. treasury and agency securities
2
-
2
Foreign government & agency securities
1
-
1
       
Total
156
149
305






 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

OTHER-THAN-TEMPORARY IMPAIRMENT

As described in Note 1, the Company presents and discloses OTTI on available-for-sale securities in accordance with FASB ASC Topic 320, beginning on April 1, 2009.  Available-for-sale securities whose fair value is less than their carrying amount are considered to be impaired and are evaluated for potential other-than-temporary impairment.  If the Company intends to sell, or if it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, the security is considered other-than-temporarily impaired and the Company records a charge to earnings for the full amount of impairment based on the difference between the current carrying amount and fair value of the security.  Otherwise, losses on securities which are other-than-temporarily impaired are separated into two categories, credit loss and non-credit loss.  The credit loss portion is charged to net realized investment losses in the consolidated statements of operations, while the non-credit loss is charged to other comprehensive income (loss).  When an unrealized loss on an available-for-sale fixed maturity is considered temporary, the Company continues to record the unrealized loss in other comprehensive income (loss) and not in earnings.

To compute the credit loss component of OTTI for corporate bonds on the date of transition (April 1, 2009), both historical default (by rating) data, used as a proxy for the probability of default, and loss given default (by issuer) projections were applied to the par amount of the bond.  For corporate bonds post-transition, the present value of future cash flows using the book yield is used to determine the credit component of OTTI.  If the present value of the cash flow is less than the security’s amortized cost, the difference is recorded as a credit loss.  The difference between the estimates of the credit related loss and the overall OTTI is the non-credit-related component.

As a result of the adoption of FASB ASC Topic 320, a cumulative effect adjustment, net of tax, of $9.1 million was recorded to decrease accumulated other comprehensive income (loss) with a corresponding increase to retained earnings (accumulated deficit) for the non-credit loss component of previously impaired securities that the Company neither intends to sell, nor is it more likely than not that the Company will be required to sell, before recovery of amortized cost.

For those securities where the Company does not have the intent to sell and it is not more likely than not that the Company will be required to sell, the Company employs a portfolio monitoring process to identify securities that are other-than-temporarily impaired.  The Company has a Credit Committee comprised of professionals from its investment and finance functions which meets at least quarterly to review individual issues or issuers that are of concern.  In determining whether a security is other-than-temporarily-impaired, the Credit Committee considers the factors described below.  The process involves a quarterly screening of all impaired securities.

Discrete credit events, such as a ratings downgrade, are also used to identify securities that may be other-than-temporarily impaired.  The securities identified are then evaluated based on issuer-specific facts and circumstances, such as the issuer’s ability to meet current and future interest and principal payments, an evaluation of the issuer’s financial position  and its near term recovery prospects, difficulties being experienced by an issuer’s parent or affiliate, and management’s assessment of the outlook for the issuer’s sector.  In making these evaluations, the Credit Committee exercises considerable judgment.  Based on this evaluation, issues or issuers are considered for inclusion on one of the Company’s following credit lists:

“Monitor List”- Management has concluded that the Company’s amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require monitoring on a quarterly basis.  No OTTI charge is recorded in the Company’s consolidated statements of operations for unrealized loss on securities related to these issuers.

“Watch List”- Management has concluded that the Company’s amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require continued monitoring during the quarter.  A security is moved from the Monitor List to the Watch List when changes in issuer-specific facts and circumstances increase the possibility that a security may become impaired within the next 24 months.  No OTTI charge is recorded in the Company’s consolidated statements of operations for unrealized loss on securities related to these issuers.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

OTHER-THAN-TEMPORARY IMPAIRMENT (CONTINUED)

“Impaired List”- This list includes securities that the Company has the intent to sell or more likely than not will be required to sell.  In addition, it includes those securities that management has concluded that the Company’s amortized cost will not be recovered due to expected delays or shortfalls in contractually specified cash flows. For these investments, an OTTI charge is recorded or the security is sold and a realized loss is recorded as a charge to income.  Credit OTTI losses are recorded in the Company’s consolidated statement of operations and non-credit OTTI losses are recorded in other comprehensive income (loss).

Structured securities, those rated single A or below in particular, are subject to certain provisions in FASB ASC Topic 325.  These provisions require the Company to periodically update its best estimate of cash flows over the life of the security.  In the event that fair value is less than carrying amount and there has been an adverse change in the expected cash flows (as measured by comparing the original expected cash flows to the current expectation of cash flows, both discounted at the current effective rate), then an impairment charge is recorded to income.  Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral.  Losses incurred on the respective portfolios are based on expected loss models, not incurred loss models.  Expected cash flows include assumptions about key systematic risks and loan-specific information.

There are inherent risks and uncertainties in management’s evaluation of securities for OTTI.  These risks and uncertainties include factors both external and internal to the Company, such as general economic conditions, an issuer’s financial condition or near-term recovery prospects, market interest rates, unforeseen events which affect one or more issuers or industry sectors, and portfolio management parameters, including asset mix, interest rate risk, portfolio diversification, duration matching, and greater than expected liquidity needs.  All of these factors could impact management’s evaluation of securities for OTTI.


 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

OTHER-THAN-TEMPORARY IMPAIRMENT (CONTINUED)

For securities that are determined to have incurred a credit loss, the amount of credit loss is calculated based upon the cash flows that the Company expects to collect given an assessment of the relevant facts and circumstances for the issuer and specific bond issue.  Such factors include the financial condition, credit quality, the near-term prospects of the issuer, and the issuer's relative liquidity, among other factors.

The Company recorded credit OTTI losses in its consolidated statement of operations totaling $4.8 million for the year ended December 31, 2009 on its available-for-sale fixed maturity securities.  The $4.8 million credit loss OTTI recorded during the year ended December 31, 2009 was concentrated in corporate debt of financial institutions.  These impairments were driven primarily by adverse financial conditions of the issuers.

The following table rolls forward the amount of credit losses recognized in earnings on available-for-sale debt securities held on the date of transition, April 1, 2009, for which a portion of the OTTI was also recognized in other comprehensive income (loss).

   
Nine-month Period Ended
December 31, 2009
     
Beginning balance, at April 1, 2009, prior to the adoption of FASB ASC Topic 320
  
$                             - 
Add: Credit losses remaining in accumulated deficit related to the adoption of
   FASB ASC Topic 320
  
27,805 
Add: Credit losses on OTTI not previously recognized
  
4,834 
Less: Credit losses on securities sold
  
(22,377)
Less: Credit losses on securities impaired due to intent to sell
  
- 
Add: Credit losses on previously impaired securities
  
- 
Less: Increases in cash flows expected on previously impaired securities
  
(1,114)
Ending balance, at December 31, 2009
  
$                     9,148 




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE

The Company invests in commercial first mortgage loans and real estate throughout the United States.  Investments are diversified by property type and geographic area.  Mortgage loans are collateralized by the related properties and generally are no more than 75% of the property’s value at the time that the original loan is made.

The carrying value of mortgage loans and real estate investments, net of applicable allowances and accumulated depreciation, was as follows:

 
December 31,
 
2009
2008
     
Total mortgage loans
$         1,911,961
$         2,083,003
     
Real estate:
    
 
Held for production of income
202,277
201,470
Total real estate
$            202,277
$            201,470
     
Total mortgage loans and real estate
$         2,114,238
$         2,284,473

Accumulated depreciation on real estate was $40.6 million and $36.7 million at December 31, 2009 and 2008, respectively.






 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

A loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan and impairment is measured based on the fair value of the collateral less costs to sell.  A specific allowance for loan loss is established for an impaired loan if the fair value of the loan collateral less cost to sell is less than the recorded amount of the loan.  The specific allowance for loan loss was $17.3 million and $3.0 million at December 31, 2009 and 2008, respectively.  A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions.  The general allowance for loan loss was $25.5 million and $0.0 million at December 31, 2009 and 2008, respectively.  While management believes that it uses the best information available to establish the allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them.

The following tables set forth the distribution of the Company’s mortgage loans by credit quality and the allowance for loan loss at December 31:

 
Gross Carrying Value
    
 
2009
2008
      
           
Current loans
$       1,711,865
$      2,039,687
      
Past due loans:
          
Less than 90 days
26,953
22,391
      
Between 90 and 179 days
- 
- 
      
180 days or more
- 
- 
      
Impaired
215,925
23,925
      
Balance, at December 31
$       1,954,743
$      2,086,003
      

 
Allowance for Loan Loss
    
 
2009
2008
      
           
General allowance
$          25,500
$              - 
      
Specific allowance
17,282
3,000
      
Total
$         42,782
$        3,000
      

Included in the $215.9 million and $23.9 million of impaired mortgage loans at December 31, 2009 and 2008, are $134.9 million and $0.0 million, respectively, of impaired loans that did not have an allowance for loan loss because the fair value of the collateral or the expected future cash flows exceed the carrying value of the loans.

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

The average investment in impaired mortgage loans before an allowance for loan loss, the related interest income and cash receipts for interest on impaired mortgage loans were as follows, for the years ended December 31:

 
2009
  
2008
  
2007
                 
Average investment
$
121,500 
  
$
11,963 
  
$
3,791 
Interest income
$
897 
  
$
- 
  
$
- 
Cash receipts on interest
$
897 
  
$
- 
  
$
- 

The activity in the allowance for loan loss was as follows:

 
2009
  
2008
  
2007
                 
Balance at January 1
$
3,000 
  
$
3,288 
  
$
3,928 
Provisions for allowance
  
40,050 
    
3,000 
    
- 
Recoveries
  
(268)
    
(3,288)
    
(640)
Balance at December 31
$
42,782 
  
$
3,000 
  
$
3,288 

Mortgage loans and real estate investments comprise the following property types and geographic regions at December 31:

 
2009
  
2008
Property Type:
      
Office building
$         638,603 
  
$       763,405 
Residential
- 
  
198 
Retail
808,125 
  
923,592 
Industrial/warehouse
241,627 
  
262,436 
Apartment
100,435 
  
106,362 
Other
368,230 
  
231,480 
Allowance for loan losses
(42,782)
  
(3,000)
Total
$      2,114,238 
  
$     2,284,473 

 
2009
  
2008
Geographic region:
      
Arizona
$       53,470 
  
$          55,987 
California
114,196 
  
124,004 
Florida
217,614 
  
229,681 
Georgia
57,861 
  
62,418 
Maryland
46,412 
  
52,202 
Massachusetts
116,025 
  
120,059 
Missouri
58,523 
  
61,293 
New York
305,810 
  
328,439 
Ohio
135,088 
  
145,192 
Pennsylvania
110,758 
  
118,744 
Texas
325,234 
  
340,082 
Washington
52,353 
  
56,547 
Other (1)
563,676 
  
592,825 
Allowance for loan losses
(42,782)
  
(3,000)
Total
$      2,114,238 
  
$     2,284,473 

(1)
Includes the states in which the value of the Company’s mortgage loans and real estate investments was below $50 million at December 31, 2009 and 2008, respectively.

 
 
 

 SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

At December 31, 2009, scheduled mortgage loan maturities were as follows:

2010
$             38,043 
2011
110,980 
2012
69,075 
2013
114,869 
2014
195,280 
Thereafter
1,409,214 
General allowance
(25,500)
Total
$        1,911,961 

Actual maturities could differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties and loans may be refinanced.

The Company has made funding commitments of mortgage loans on real estate and other loans into the future. The outstanding funding commitments for these mortgages amount to $51.0 million and $2.0 million at December 31, 2009 and 2008, respectively.







 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

SECURITIES LENDING

The Company participated in a securities lending program to generate additional income, whereby certain fixed maturity securities were loaned for a specified period of time from the Company’s portfolio to qualifying third parties, via a lending agent.  Borrowers of these securities provided collateral of 102% of the market value of the loaned securities.  The Company generally accepted cash as the only form of collateral.  Under the terms of the securities lending program, the lending agent indemnified the Company against borrower defaults.  As of December 31, 2009, the Company no longer participates in the securities lending program.

As of December 31, 2008, the fair value of the loaned securities was approximately $175.0 million, and was included in available-for-sale fixed maturity securities, and cash and cash equivalents in the Company’s consolidated balance sheet.  The Company recorded cash collateral relating to the securities lending program in the amount of $183.5 million as of December 31, 2008, all of which was re-invested in certain cash instruments and other available-for-sale securities.  The Company recorded the collateral investments at fair value in the consolidated balance sheet as part other invested assets.  The fair value of the collateral investments at December 31, 2008 was $179.9 million.

The Company earned income from the reinvestment of the cash collateral.  The Company recorded pre-tax income from securities lending transactions, net of lending fees, of $0.7 million, $2.6 million and $2.2 million for the years ended December 31, 2009, 2008 and 2007, respectively, which was included in net investment income (loss) in the consolidated statements of operations.

LEVERAGED LEASES AND LIMITED PARTNERSHIPS

The Company is an owner participant in a trust that is a lessor in a leveraged lease agreement entered into on October 21, 1994, under which equipment having an estimated economic life of 25-40 years was originally leased through a VIE for a term of 9.78 years.  During 2001, the lease term was extended until 2010.  The Company's equity investment in this VIE represented 8.33% of the partnership that provided 22.9% of the purchase price of the equipment.  The balance of the purchase price was furnished by third-party long-term debt financing, collateralized by the equipment, and is non-recourse to the Company.  At the end of the lease term, the master lessee has elected to exercise a fixed price purchase option to purchase the equipment.  The leveraged lease is included as a part of other invested assets in the Company’s consolidated balance sheets.

The Company's net investment in the leveraged lease is composed of the following elements:

 
Year ended December 31,
 
2009
  
2008
Lease contract receivable
$      1,247 
  
$           7,042 
Less: non-recourse debt
- 
  
- 
Net receivable
1,247 
  
7,042 
Estimated value of leased assets
20,795 
  
20,795 
Less: Unearned and deferred income
(731)
  
(2,373)
Investment in leveraged leases
21,311 
  
25,464 
Less: Fees
(12)
  
(37)
Net investment in leveraged leases
$     21,299 
  
$         25,427 

The Company had outstanding commitments with respect to funding of limited partnerships of approximately $12.8 million, and $18.2 million at December 31, 2009 and 2008, respectively.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses derivative financial instruments for risk management purposes to hedge against specific interest rate risk, foreign currency exchange rates, equity market conditions, and to alter exposure arising from mismatches between assets and liabilities.  Derivative instruments are recorded in the consolidated balance sheets at fair value and are presented as assets or liabilities.

The Company does not employ hedge accounting.  The Company believes that its derivatives provide economic hedges and the cost of formally documenting hedge effectiveness in accordance with the provisions of FASB ASC Topic 815, is not justified.  As a result, all changes in the fair value of derivatives are recorded in the current period operations as a component of net derivative income or loss.

Credit enhancements such as mutual put features and collateral are used to improve the credit risk of longer term derivative contracts.

The primary types of derivatives held by the Company include swap agreements, swaptions, futures, call/put options and embedded derivatives, as described below.

Swap Agreements

As a component of its investment strategy, the Company utilizes swap agreements.  Swap agreements are agreements to exchange with a counterparty a series of cash flow payments at pre-determined intervals and are based upon or calculated by reference to changes in specified interest rates (fixed or floating), foreign currency exchange rates, or prices on an underlying principal balance (notional).  Typically, no cash is exchanged at the outset of the contract and no principal payments are made by either party, except on certain foreign currency exchange swaps.  A single net payment is usually made by one counterparty at pre-determined dates. The net payment is recorded as a component of net derivative loss in the consolidated statement of operations.

Interest rate swaps are generally used to change the character of cash flows (e.g. fixed payments to floating rate payments) for duration matching purposes and to manage exposures to changes in the risk-free interest rate.

Foreign currency swaps are utilized as an economic hedge against changes in foreign currencies associated with certain non-U.S. dollar denominated cash flows.  From 2000 through 2002, and again in 2005, the Company marketed GICs to unrelated third parties.  Each transaction is highly-individualized, but typically involves the issuance of foreign currency denominated contracts backed by cross currency swaps or equity-linked cross currency swaps.  The combination of the currency swaps with interest rate swaps allows the Company to lock in U.S. dollar fixed rate payments for the life of the contract.

On September 6, 2006, the Company entered into an agreement with the CARS Trust.  Through this agreement, the Company purchased a funded note, which is referenced through a credit default swap, as the seller of credit protection, to the credit performance of a portfolio of corporate reference entities.  See Note 1 for additional information on the CARS Trust.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Swaptions

The Company utilizes payer swaptions to hedge exposure to interest rate risk.  Swaptions give the buyer the option to enter into an interest rate swap per the terms of the original swaption agreement.  A premium is paid on settlement date and no further cash transactions occur until the positions settle or expire.  At expiration, the swaption either cash settles for value, settles into an interest rate swap, or expires worthless per the terms of the original swaption agreement.

Futures

Futures contracts, both long and short, are entered into for purposes of hedging liabilities on fixed index and domestic variable annuity products with GMDB and living benefit features, with cash flows based on changes in equity indices.  Certain futures are also utilized to hedge interest rate risk associated with these products.  On the trade date, an initial cash margin is exchanged.  Daily cash is exchanged to settle the daily variation margin.

Call/Put Options

In addition to short futures, the Company also utilizes over-the-counter (“OTC”) put options on major indices to hedge against stock market exposure inherent in the GMDB and living benefit features of the Company's variable annuities.  Unlike futures, however, these options require initial cash outlays. The Company also purchases OTC call options on major indices to economically hedge its obligations under certain fixed annuity contracts, as well as enhance income on the underlying assets.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Embedded Derivatives

The Company performs a quarterly analysis of its new contracts, agreements and financial instruments for embedded derivatives.  No embedded derivatives require bifurcation from financial assets.  However, the Company issues certain annuity contracts and enters into reinsurance agreements that contain a derivative instrument that is embedded in the contract.  Upon issuing the contract, the embedded derivative is separated from the host contract (annuity contract or reinsurance agreement) and is carried at fair value.  See Note 9 for further information regarding derivatives embedded in reinsurance contracts; see Note 13 for further information regarding derivatives embedded in annuity contracts.

The following is a summary of the Company’s derivative positions:

 
As of
December 31, 2009
As of
December 31, 2008
 
Number of
Contracts
Principal
Notional
Number of
Contracts
Principal
Notional
         
Interest rate swaps
102 
$     8,883,000 
218
$     14,036,100
Currency swaps
10 
351,740 
14
408,773
Credit default swaps
1 
55,000 
1
55,000
Equity swaps
2 
4,908 
2
4,908
Swaptions
5 
1,150,000
5
1,150,000
Futures (1)
(13,811)
2,378,216 
927
1,991,840
Index call options
7,345 
1,313,381 
8,081
1,166,148
Index put options
7,100 
682,499 
5,500
591,385
Total
754 
$     14,818,744 
14,748
$     19,404,154

(1)  The negative amount represents the Company’s short position

Since December 31, 2008, short future and index put option positions have been added to hedge against potential adverse movements in the stock market as the U.S. economy continues to recover. Correspondingly, index call options have been reduced.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

The following is a summary of the Company’s derivative asset and liability positions by primary risk exposure at December 31, 2009.  With the exception of embedded derivatives, all derivatives are carried at fair value in derivative instruments – receivable or derivative instruments – payable in the Company’s consolidated balance sheets.  Embedded derivatives related to reinsurance agreements and annuity contracts are carried at fair value in contractholder deposit funds and other policy liabilities in the Company’s consolidated balance sheets.

 
At December 31, 2009
 
Asset Derivatives
Liability Derivatives
   
Fair Value (a)
  
Fair Value (a)
         
Interest rate contracts
  
$   130,178 
  
$   532,401 
Foreign currency contracts
  
56,032 
  
905 
Equity contracts
  
58,692 
  
- 
Credit contracts
  
- 
  
34,349 
Futures (b)
  
14,325 
  
5,255 
Derivative instruments
  
259,227 
  
572,910 
Embedded derivatives (c)
  
11,308 
  
417,764 
Total
  
$   270,535 
  
$   990,674 

(a)  
Amounts are presented without consideration of cross-transaction netting and collateral.
(b)  
Futures include both interest rate and equity price risks.
(c)  
Embedded derivatives expose the Company to a combination of credit, interest rate and equity price risks.

All realized and unrealized derivative gains and losses are recorded in net derivative loss in the Company’s consolidated statements of operations.  The following is a summary of the Company’s realized and unrealized gains and losses by derivative type for the years ended December 31:

   
2009
  
2008
  
2007
             
Interest rate contracts
  
$ 143,402 
  
$ (501,413)
  
$ (259,230)
Foreign currency contracts
  
(12,116)
  
28,078 
  
9,714 
Equity contracts
  
(71,865)
  
(53,397)
  
41,328 
Credit contracts
  
(9,855)
  
(35,149)
  
(6,432)
Futures
  
(328,595)
  
35,447 
  
41,915 
Embedded derivatives
  
239,127 
  
(79,024)
  
(16,945)
Net derivative loss from continuing
operations
  
$ (39,902)
  
$ (605,458)
  
$ (189,650)
Net derivative income (loss) from
discontinued operations
  
$ 216,956 
  
$ (266,086)
  
$     (3,474)




 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Concentration of Credit Risk

Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract.  With derivative instruments, the Company is primarily exposed to credit risk through its counterparty relationships.  The Company primarily manages credit risk through policies which address the quality of counterparties, contractual requirements for transacting with counterparties and collateral support agreements, and limitations on counterparty concentrations.  Exposures by counterparty are monitored closely, as well as counterparty credit ratings.  All contracts are held with counterparties rated A- or higher.  As of December 31, 2009, the Company’s liability positions were linked to a total of 14 counterparties, of which the largest single unaffiliated counterparty payable had credit exposure of $74.0 million to the company.  As of December 31, 2009, the Company’s asset positions were linked to a total of 18 counterparties, of which the largest single unaffiliated counterparty receivable had credit exposure of $125.4 million.

Credit-related Contingent Features

All derivative transactions are covered under standardized contractual agreements with counterparties all of which include credit-related contingent features.  Certain counterparty relationships may also include supplementary agreements with such tailored terms as additional triggers for early terminations, acceptable practices related to cross transaction netting, or minimum thresholds for determining collateral.

Credit-related triggers include failure to pay or deliver on an obligation past certain grace periods, bankruptcy or the downgrade of credit ratings to below a stipulated level.  These triggers apply to both the Company and its counterparty.  The aggregate value of all derivative instruments with credit risk-related contingent features that were in a liability position at December 31, 2009 was approximately $572.9 million.

In the event of an early termination, the Company might be required to accelerate payments to counterparties, up to the current value of its liability positions, offset by the value of previously pledged collateral and cross-transaction netting.  If payments cannot be exchanged simultaneously at early termination, funds will also be held in escrow to facilitate settlement.  If an early termination was triggered on December 31, 2009, the Company would be expected to settle a net obligation of approximately $174.8 million.

If counterparties are unable to meet accelerated payment obligations, the Company may also be exposed to uncollectible asset positions, offset by the value of collateral that has been posted with the Company.

At December 31, 2009, the Company had collateral of $236.6 million pledged to counterparties, including a combination of cash and U.S. treasury securities and other collateral. The Company was holding cash collateral posted by counterparties of $97.8 million.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT

On January 1, 2008, the Company adopted FASB ASC Topic 820, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.  FASB ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various methods including market, income and cost approaches.  The Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs.

As a result of the adoption of FASB ASC Topic 820, the value of the Company’s embedded derivative liabilities decreased by $166.1 million during the year ended December 31, 2008.  This change was primarily the result of changes to the valuation assumptions regarding policyholder behavior, primarily lapses, as well as the incorporation of risk margins and the Company’s own credit standing in the valuation of embedded derivatives.

In compliance with FASB ASC Topic 820, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

On April 1, 2009, the FASB issued additional guidance on estimating fair value, when the volume and level of activity for the asset or liability have significantly decreased, as well as guidance on identifying circumstances that indicate a transaction is not orderly.  The Company reviewed its pricing sources and methodologies and has concluded that its various pricing sources and methodologies are in compliance with this guidance, which is now a part of FASB ASC Topic 820.

Please refer to Note 8 regarding the valuation techniques utilized by the Company to measure the fair values included herein.  During the year ended December 31, 2009, there were no changes to these valuation techniques and the related inputs.







 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

Financial assets and liabilities recorded at fair value in the Company’s consolidated balance sheets are categorized as follows:

Level 1

·  
Unadjusted quoted prices for identical assets or liabilities in an active market.

The types of assets and liabilities utilizing Level 1 valuations include U.S. Treasury and agency securities, investments in publicly-traded mutual funds with quoted market prices and listed derivatives.

Level 2

·  
Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly.

Level 2 inputs include the following:

a)  
Quoted prices for similar assets or liabilities in active markets,

b)  
Quoted prices for identical or similar assets or liabilities in non-active markets,

c)  
Inputs other than quoted market prices that are observable, and

d)  
Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government securities not backed by the full faith and credit of the Government, municipal bonds, structured notes and certain MBS, ABS, CMO, RMBS, and CMBS, certain corporate debt, certain private equity investments and certain derivatives.

Level 3

·  
Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Generally, the types of assets and liabilities utilizing Level 3 valuations are certain MBS, ABS, CMO, RMBS and CMBS, certain corporate debt, certain private equity investments, certain mutual fund holdings and certain derivatives, including derivatives embedded in annuity contracts and certain funding agreements.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy

The following table presents the Company’s categories for its assets measured at fair value on a recurring basis as of December 31, 2009:

   
Level 1
  
Level 2
  
Level 3
  
Total
Assets
                        
Available-for-sale fixed maturity securities
                        
Asset-backed securities
  
$
-
  
$
952
  
$
37
  
$
989
Residential mortgage-backed securities
    
-
    
47,701
    
-
    
47,701
Commercial mortgage-backed securities
    
-
    
14,150
    
1,930
    
16,080
Foreign government & agency securities
    
-
    
760
    
-
    
760
U.S. treasury and agency securities
    
39,131
    
-
    
-
    
39,131
Corporate securities
    
-
    
1,062,919
    
7,936
    
1,070,855
Total available-for-sale fixed maturity securities
    
39,131
    
1,126,482
    
9,903
    
1,175,516
                         
Trading fixed maturity securities
                        
Asset-backed securities
    
-
    
355,613
    
111,650
    
467,263
Residential mortgage-backed securities
    
-
    
886,340
    
154,551
    
1,040,891
Commercial mortgage-backed securities
    
-
    
624,845
    
14,084
    
638,929
Foreign government & agency securities
    
-
    
67,925
    
15,323
    
83,248
U.S. treasury and agency securities
    
503,123
    
34,407
    
-
    
537,530
Corporate securities
    
-
    
8,254,775
    
107,886
    
8,362,661
Total trading fixed maturity securities
    
503,123
    
10,223,905
    
403,494
    
11,130,522
                         
Short-term investments (Note 1)
    
1,267,311
    
-
    
-
    
1,267,311
Derivative instruments - receivable
    
14,922
    
235,484
    
8,821
    
259,227
Other invested assets
    
20,242
    
206
    
-
    
20,448
Cash and cash equivalents
    
1,804,208
    
-
    
-
    
1,804,208
Total investments and cash
    
3,648,937
    
11,586,077
    
422,218
    
15,657,232
                         
Other assets
                        
Separate account assets (1) (2) (3)
    
18,045,908
    
5,233,602
    
547,841
    
23,827,351
                         
Total assets measured at fair value on a recurring basis
  
$
21,694,845
  
$
16,819,679
  
$
970,059
  
$
39,484,583

(1)
Pursuant to the conditions set forth in FASB ASC Topic 944, the value of separate account liabilities is set to equal the fair value of the separate account assets.
   
(2)
Excludes $501.0 million, primarily related to investment sales receivable, net of investment purchases payable, that are not subject to FASB ASC Topic 820.
   
(3)
During the first quarter of 2009, the Company transferred certain mutual funds held in the separate accounts from Level 2 to Level 1, as the funds are priced based on the net asset value (“NAV”) for identical products sold in the market.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table presents the Company’s categories for its liabilities measured at fair value on a recurring basis as of December 31, 2009:

   
Level 1
  
Level 2
  
Level 3
  
Total
Liabilities
                        
Other policy liabilities
                        
Guaranteed minimum withdrawal benefit liability
  
$
-
  
$
- 
  
$
168,786
  
$
168,786
Guaranteed minimum accumulation benefit liability
    
-
    
- 
    
81,669
    
81,669
Derivatives embedded in reinsurance contracts
    
-
    
15,035 
    
- 
    
15,035 
Fixed index annuities
    
-
    
- 
    
140,966
    
140,966
Total other policy liabilities
    
-
    
15,035 
    
391,421
    
406,456
                         
Derivative instruments – payable
    
5,256
    
533,305 
    
34,349
    
572,910
                         
Other liabilities
                        
Bank overdrafts
    
60,037
    
- 
    
-
    
60,037
                         
Total liabilities measured at fair value on a recurring basis
  
$
65,293
  
$
548,340 
  
$
425,770
  
$
1,039,403




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)
The following table presents the Company’s categories for its assets measured at fair value on a recurring basis as of December 31, 2008:

   
Level 1
  
Level 2
  
Level 3
  
Total
Assets
                        
Available-for-sale fixed maturity securities
                        
Asset-backed and mortgage-backed securities
  
$
-
  
$
54,793
  
$
4,466
  
$
59,259
Foreign government & agency securities
    
-
    
472
    
-
    
472
U.S. treasury and agency securities
    
56,478
    
18,503
    
-
    
74,981
Corporate securities
    
-
    
531,420
    
7,888
    
539,308
Total available-for-sale fixed maturity securities
    
56,478
    
605,188
    
12,354
    
674,020
                         
Trading fixed maturity securities
                        
Asset-backed and mortgage-backed securities
    
-
    
1,771,382
    
462,253
    
2,233,635
Foreign government & agency securities
    
-
    
84,615
    
9,200
    
93,815
U.S. states and political subdivisions securities
    
-
    
528
    
-
    
528
U.S. treasury and agency securities
    
445,732
    
57,373
    
-
    
503,105
Corporate securities
    
-
    
8,796,558
    
134,505
    
8,931,063
Total trading fixed maturity securities
    
445,732
    
10,710,456
    
605,958
    
11,762,146
                         
Short-term investments (Note 1)
    
599,481
    
-
    
- 
    
599,481
Derivative instruments – receivable
    
-
    
724,435
    
2,668
    
727,103
Other invested assets
    
36,300
    
143,645
    
-
    
179,945
Cash and cash equivalents
    
1,024,668
    
-
    
-
    
1,024,668
Total investments and cash
    
2,162,659 
    
12,183,724
    
620,980
    
14,967,363
                         
Other assets
                        
Separate account assets (1) (2)
    
376,709
    
18,957,344
    
801,873
    
20,135,926
                         
Total assets measured at fair value on a recurring basis
  
$
2,539,368
  
$
31,141,068
  
$
1,422,853
  
$
35,103,289

(1)
Pursuant to the conditions set forth in FASB ASC Topic 944, the value of separate account liabilities is set to equal the fair value for separate account assets.
   
(2)
Excludes $395.8 million, primarily related to investment sales receivable, net of investment purchases payable, that are not subject to FASB ASC Topic 820.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table presents the Company’s categories for its liabilities measured at fair value on a recurring basis as of December 31, 2008:

   
Level 1
  
Level 2
  
Level 3
  
Total
Liabilities
                        
Other policy liabilities
                        
Guaranteed minimum withdrawal benefit liability
  
$
-
  
$
-
  
$
335,612
  
$
335,612
Guaranteed minimum accumulation benefit liability
    
-
    
-
    
358,604
    
358,604
Derivatives embedded in reinsurance contracts
    
-
    
(50,792)
    
-
    
(50,792)
Fixed index annuities
    
-
    
-
    
106,619
    
106,619
Total other policy liabilities
    
-
    
(50,792)
    
800,835
    
750,043
                         
Derivative instruments – payable
    
22,818
    
1,429,457
    
42,066
    
1,494,341
                         
Other liabilities
                        
Bank overdrafts
    
87,534
    
-
    
-
    
87,534
                         
Total liabilities measured at fair value on a recurring basis
  
$
110,352
  
$
1,378,665
  
$
842,901
  
$
2,331,918




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for assets which are categorized as Level 3 for the year ended December 31, 2009:

Assets
Beginning
balance
Total realized and unrealized
gains (losses)
Purchases,
issuances,
and
settlements
(net)
Transfers in
and/or (out)
 of level 3 (2)
Ending
balance
Change in
unrealized gains
(losses) included in
earnings relating
to instruments still
held at the
reporting date
Included in
earnings
Included in
other
comprehensive
income
Available-for-sale fixed maturity
securities
              
Asset-backed securities
$              - 
$       (54)
$      15 
$      - 
$      76 
$      37 
$              - 
Collateralized mortgage obligations
3,046 
- 
- 
- 
(3,046)
- 
- 
Residential mortgage-backed securities
- 
- 
- 
- 
- 
- 
- 
Commercial mortgage-backed
securities
1,420 
(197)
(920)
- 
1,627 
1,930 
- 
Foreign government & agency securities
- 
- 
- 
- 
- 
- 
- 
U.S. treasury and agency securities
- 
- 
- 
- 
- 
- 
- 
Corporate securities
7,888 
300 
1,786 
(761)
(1,277)
7,936 
- 
Total available-for-sale fixed maturity
securities
12,354 
49  
881 
(761)
(2,620)
9,903 
- 
               
Trading fixed maturity securities
              
Asset-backed securities
145,267 
21,788 
-
(6,261)
(49,144)
111,650 
72,403 
Collateralized mortgage obligations
116,572 
- 
- 
- 
(116,572)
- 
- 
Residential mortgage-backed
securities
- 
7,921 
- 
(17,036)
163,666 
154,551 
60,617 
Commercial mortgage-backed
securities
200,414 
(10,157)
- 
(119)
(176,054)
14,084 
1,897 
Foreign governments & agency
securities
9,200 
(37)
- 
- 
6,160 
15,323 
1,474 
U.S. treasury and agency securities
- 
- 
- 
- 
- 
- 
- 
Corporate securities
134,505 
15,520 
- 
(3,884)
(38,255)
107,886 
27,850 
Total trading fixed maturity securities
605,958 
35,035 
- 
(27,300)
(210,199)
403,494 
164,241 
               
Short-term investments
- 
- 
- 
- 
- 
- 
- 
Derivative instruments – receivable
2,668 
281 
- 
5,872 
- 
8,821 
281 
Other invested assets
- 
- 
- 
- 
- 
- 
- 
Cash and cash equivalents
- 
- 
- 
- 
- 
- 
- 
Total investments and cash
620,980 
35,365 
881 
(22,189)
(212,819)
422,218 
164,522 
               
Other assets
              
Separate account assets (1)
801,873 
39,974 
- 
(249,503)
(44,503)
547,841 
139,634 
               
Total assets measured at fair value on
a recurring basis
$1,422,853 
$     75,339 
$       881 
$      (271,692)
$    (257,322)
$  970,059 
$         304,156

(1)
The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities which results in a net zero impact on net income for the Company.
(2)
Transfers in and/or (out) of level 3 during the year ended December 31, 2009 are primarily attributable to changes in the observability of inputs used to price the securities.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for liabilities which are categorized as Level 3 for the year ended December 31, 2009:

Liabilities
Beginning
balance
Total realized and unrealized
(gains) losses
Purchases,
issuances, and
settlements
(net)
Transfers in
and/or (out)
of level 3
Ending
balance
Change in
unrealized
(gains) losses
included in
earnings relating
to instruments
still held at the
reporting date
Included in
earnings
Included in
other
comprehensive
income
               
Other policy liabilities
              
Guaranteed minimum withdrawal
benefit liability
$   335,612
$ (242,898)
$       - 
$      76,072 
$      - 
$  168,786 
$     (231,274)
Guaranteed minimum accumulation
benefit liability
358,604
(298,788)
- 
21,853 
- 
81,669 
(290,795)
Derivatives embedded in reinsurance
contracts
-
- 
- 
- 
- 
- 
- 
Fixed index annuities
106,619
11,703 
- 
22,644 
- 
140,966 
16,622 
Total other policy liabilities
800,835
(529,983)
- 
120,569 
- 
391,421 
(505,447)
               
Derivative instruments – payable
42,066
(7,717)
- 
- 
- 
34,349 
(7,717)
               
Other liabilities
              
Bank overdrafts
- 
- 
- 
- 
- 
- 
- 
Total liabilities measured at fair value
on a recurring basis
$   842,901
$ (537,700)
$      - 
$    120,569 
$     - 
$  425,770 
$     (513,164)


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for assets which are categorized as Level 3 for the year ended December 31, 2008:

Assets
Beginning
balance
Total realized and unrealized
gains (losses)
Purchases,
issuances,
and
settlements
(net)
Transfers in
and/or (out)
of level 3 (2)
Ending
balance
Change in
unrealized gains
(losses) included in
earnings relating
to instruments still
held at the
reporting date
Included in
earnings
Included in
other
comprehensive
income
Available-for-sale fixed maturity
   securities
              
Asset-backed and mortgage-backed
securities
$        4,330
$        (591)
$            (1,990)
$                  -
$   2,717
$    4,466
$                          -
Foreign government & agency
securities
-
-
-
-
-
-
-
U.S. treasury and agency securities
-
-
-
-
-
-
-
Corporate securities
9,039
583
(4,808)
(1,403)
4,477
7,888
-
Total available-for-sale fixed maturity
   securities
13,369
(8)
(6,798)
(1,403)
7,194
12,354
-
             
-
Trading fixed maturity securities
              
Asset-backed and mortgage-backed
securities
1,085,287
(728,122)
-
38,480
66,608
462,253
(627,739)
Foreign government & agency
securities
63,331
(1,250)
-
-
(52,881)
9,200
-
U.S. states and political subdivisions
securities
-
-
-
-
-
-
-
U.S. treasury and agency securities
-
-
-
-
-
-
-
Corporate securities
134,446
(37,157)
-
(2,305)
39,521
134,505
(18,872)
Total trading fixed maturity securities
1,283,064
(766,529)
-
36,175
53,248
605,958
(646,611)
               
Short-term investments
-
-
-
-
-
-
-
Derivative instruments – receivable
24,073
2,487
-
(24,255)
363
2,668
2,668
Other invested assets
-
-
-
-
-
-
-
Cash and cash equivalents
-
-
-
-
-
-
-
Total investments and cash
1,320,506
(764,050)
(6,798)
10,517
60,805
620,980
(643,943)
               
Other assets
              
Separate account assets (1)
1,752,495
   (322,652)
-
192,166
    (820,136)
801,873
(238,261)
               
Total assets measured at fair value on
a recurring basis
$ 3,073,001
$(1,086,702)
$           (6,798)
$      202,683
$   (759,331)
$1,422,853
$         (882,204)

(1)
The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities which results in a net zero impact on net income for the Company.
(2)
Transfers in and/or (out) of level 3 during the year ended December 31, 2008 are primarily attributable to changes in the observability of inputs used to price the securities.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for liabilities which are categorized as Level 3 for the year ended December 31, 2008:
Liabilities
Beginning
balance
Total realized and unrealized
(gains) losses
Purchases,
issuances, and
settlements
(net)
Transfers in
and/or (out)
of level 3
Ending
balance
Change in
unrealized
(gains) losses
included in
earnings relating
to instruments
still held at the
reporting date
Included in
earnings
Included in
other
comprehensive
income
               
Other policy liabilities
              
Guaranteed minimum withdrawal
benefit liability
$    10,151
$   296,048
$                   -
$      29,413
$               -
$   335,612
$        297,426
Guaranteed minimum accumulation
benefit liability
22,649
313,928
-
22,027
-
358,604
315,548
Derivatives embedded in reinsurance
contracts
-
-
-
-
-
-
-
Fixed index annuities
392,017
     (263,765)
-
(21,633)
-
106,619
(206,413)
Total other policy liabilities
424,817
346,211
-
29,807
-
800,835
406,561
               
Derivative instruments – payable
11,627
30,439
-
-
-
42,066
30,440
               
Other liabilities
              
Bank overdrafts
-
-
-
-
-
-
-
Total liabilities measured at fair value
on a recurring basis
$   436,444
$   376,650
$                    -
$      29,807
$             -
$   842,901
$       437,001


Assets Measured at Fair Value on a Nonrecurring Basis

The following table presents the Company’s categories for its assets measured at fair value on a nonrecurring basis as of December 31, 2009:

   
Level 1
  
Level 2
  
Level 3
  
Total
Fair Value
  
Total Gains
(Losses)
Asset
                              
VOCRA
  
$
- 
  
$
- 
  
$
5,766  
  
$
5,766 
  
$
(2,600) 

At December 31, 2009, the Company determined that the VOCRA asset was impaired and recorded an impairment charge of $2.6 million.  The impairment charge was allocated to the Group Protection Segment.  The fair value of VOCRA was calculated as the sum of the undiscounted cash flows the Company expects to realize, based on the segment’s anticipated long-term profit margins.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

5. FAIR VALUE MEASUREMENT (CONTINUED)

The FV Option

FASB ASC Topic 825 provides entities the option to measure certain financial assets and financial liabilities at fair value (the “FV Option”) with changes in fair value recognized in earnings each period.  FASB ASC Topic 825 also permits the FV Option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument.  As of January 1, 2008, the Company elected to apply the provisions of FASB ASC Topic 825 for fixed maturity securities attributable to certain life, health and annuity products, which had previously been designated as available-for-sale.  At December 31, 2007, such available-for-sale securities had a market value of $10.7 billion and an amortized cost of $11.1 billion, and were reclassified as trading fixed maturity securities, on January 1, 2008.

The Company adopted the FV Option to more closely align the changes in the fair values of its derivative instruments, which are reported as a component of net derivative loss in the consolidated statements of operations, with the changes in the fair value of its fixed maturity investments, a significant portion of which are now reported as a component of net investment income in the consolidated statements of operations, due to the election of the FV Option.  The Company does not employ hedge accounting for any of its derivative instruments.  The Company primarily uses interest rate swaps as part of its asset-liability management strategy, which generally experiences changes in fair value due to interest rate changes.  As such, the Company is attempting to mitigate earnings volatility by electing the FV Option for a significant portion of its fixed maturity investment portfolio, which is expected to experience inverse movements in fair value related to interest rate changes.  Additionally, this election provides greater accounting consistency with the Parent and SLF, and will make it possible for the Company to employ different investment strategies in the future, whereby portfolio trading will not influence the Company’s accounting.

Effective January 1, 2008, in accordance with FASB ASC Topic 825 and FASB ASC Topic 230 “Statement of Cash Flows,” the Company changed the presentation of purchases and sales of its fixed maturity securities designated as trading in the statement of cash flows to be in line with the nature and purpose for which those securities were acquired, which was to not sell them in the near-term.  Purchases and sales of these securities are reported gross in the investing activities section of the consolidated statements of cash flows.

Investment income for both trading and available-for-sale fixed maturity securities is recognized when earned, including amortization of any premium or accretion of any discount, and the effect of estimated principal repayments, if applicable.  Investment income is reported as a component of net investment income (loss) in the consolidated statements of operations.

As a result of the adoption of FASB ASC Topic 825, the Company recorded an increase to opening accumulated other comprehensive loss and a decrease to opening retained earnings of $88.4 million, related to the unrealized loss on investments, net of DAC, VOBA, policyholder liabilities, and tax effects at January 1, 2008.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

6. NET REALIZED INVESTMENT (LOSSES) GAINS

Net realized investment (losses) gains on available-for-sale fixed maturity securities and other investments, excluding OTTI losses on fixed maturity securities, consisted of the following for the years ended December 31:

 
 
2009
 
2008
 
2007
       
Fixed maturity securities
$      2,912
$            2,162 
$          (4,107)
Equity securities
- 
- 
395 
Mortgage and other loans
(43,148)
538 
780 
Real estate
- 
431 
- 
Other invested assets
1,289 
175 
(32) 
Sales of previously impaired assets
2,272 
495 
10,008 
       
 
Net realized investment (losses) gains from
continuing operations
$   (36,675)
$        3,801 
$          7,044 
 
Net realized investment gains from discontinued
operations
$             - 
 $           178 
$                   - 

7. NET INVESTMENT INCOME (LOSS)

Net investment income (loss) by asset class consisted of the following for the years ended December 31:

 
 
2009
 
2008
 
2007
       
Fixed maturity securities – Interest and other income
$   822,599 
$      859,252 
$          989,619 
Fixed maturity securities – Change in fair value and net
realized gains (losses) on trading securities
1,736,975 
(2,958,739)
(85,721)
Mortgages and other loans
121,531
134,279 
153,224 
Real estate
7,735 
8,575 
9,347 
Policy loans
44,862 
44,601 
43,708 
Income ceded under funds withheld reinsurance
agreements
(139,168)
(63,513)
(78,246)
Other
3,948 
23,841 
44,450 
 
Gross investment income (loss)
2,598,482 
(1,951,704)
1,076,381 
Less: Investment expenses
16,175 
18,664 
15,896 
 
Net investment income (loss) from continuing
operations
2,582,307 
$       (1,970,368)
$      1,060,485 
 
Net investment loss from discontinued operations
$              (24,956)
$          (180,533)
$           (38,107)


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

7. NET INVESTMENT (LOSS) INCOME (CONTINUED)

Ceded investment income on funds withheld reinsurance portfolios is included as a component of net investment income and is accounted for consistent with the policies outlined in Note 1.  The ceded investment income relates to the funds withheld reinsurance agreement between the Company and certain affiliates and is further described in Note 9, in the section pertaining to the Individual Protection Segment.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 825 excludes certain insurance liabilities and other non-financial instruments from its disclosure requirements.  The fair value amounts presented herein do not include the expected interest margin (interest earnings over interest credited) to be earned in the future on investment-type products or other intangible items.  Accordingly, the aggregate fair value amounts presented herein do not necessarily represent the underlying value to the Company.  Likewise, care should be exercised in deriving conclusions about the Company’s business or financial condition based on the fair value information presented herein.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at December 31:

     
2009
  
2008
     
Carrying
Estimated
  
Carrying
Estimated
     
Amount
Fair Value
  
Amount
Fair Value
Financial assets:
          
 
Cash and cash equivalents
$        1,804,208 
$        1,804,208 
  
$      1,024,668 
$       1,024,668 
 
Fixed maturity securities
12,306,038 
12,306,038 
  
 12,436,166 
12,436,166 
 
Short-term investments (Note 1)
1,267,311 
1,267,311 
  
599,481 
599,481 
 
Mortgage loans
1,911,961 
1,937,199 
  
2,083,003 
2,083,089 
 
Derivative instruments –receivables
259,227 
259,277 
  
727,103 
727,103 
 
Policy loans
722,590 
837,029 
  
729,407 
768,658 
 
Other invested assets
20,448 
20,448 
  
179,945 
179,945 
 
Separate accounts
23,326,323 
23,326,323 
  
20,531,724 
20,531,724 
             
Financial liabilities:
          
 
Contractholder deposit funds and
other policy liabilities
14,104,892 
13,745,774 
  
14,292,665 
13,256,964 
 
Derivative instruments – payables
572,910 
572,910 
  
1,494,341 
1,494,341 
 
Long-term debt to affiliates
883,000 
883,000 
  
1,998,000 
1,998,000 
 
Other liabilities
60,037 
60,037 
  
87,534 
87,534 
 
Separate accounts
23,326,323 
23,326,323 
  
20,531,724 
20,531,724 

The following methods and assumptions were used by the Company in determining the estimated fair value of its financial instruments:

Interest receivable on the above financial instruments is stated at carrying value which approximates fair value.

Cash, cash equivalents and short-term investments: The carrying value for cash, cash equivalents and short-term investments approximates fair values due to the short-term nature and liquidity of the balances.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Fixed maturity securities: The Company determines the fair value of its publicly traded fixed maturity securities using three primary pricing methods: third-party pricing services, non-binding broker quotes and pricing models.  Prices are first sought from third-party pricing services; the remaining unpriced securities are priced using one of the remaining two methods.  Third-party pricing services derive the security prices through recently reported trades for identical or similar securities with adjustments for trading volumes and market observable information through the reporting date.  In the event that there are no recent market trades, pricing services and brokers may use pricing models to develop a security price based on future expected cash flows discounted at an estimated market rate using collateral performance and vintages.  The Company generally does not adjust quotes or prices obtained from brokers or pricing services.

Structured securities, such as CMO, RMBS, CMBS and ABS, are priced using a fair value model or independent broker quotations.  CMBS securities, which are a subset of the Company’s CMO holdings, are priced using the last sale price of the day or a broker quote, if no sales were transacted that day.  Other CMO and ABS are priced using models and independent broker quotations.  Typical inputs used by these three pricing methods include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids and/or estimated cash flows and prepayment speeds.  In addition, estimates of expected future prepayments are factors in determining the price of ABS, RMBS, CMBS and CMO.  These estimates are based on the underlying collateral and structure of the security, as well as prepayment speeds previously experienced in the market at interest rate levels projected for the underlying collateral.  Actual prepayment experience may vary from these estimates.

For privately-placed fixed maturity securities, fair values are estimated using models which take into account credit spreads for publicly traded securities of similar credit risk, maturity, prepayment and liquidity characteristics.  A portion of privately-placed fixed maturity securities are also priced using market prices or broker quotes.

Mortgages: The fair values of mortgage and other loans are estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Derivative instruments, receivables and payables: The fair values of swaps are based on current settlement values, dealer quotes and market prices.  Fair values for options and futures are also based on dealer quotes and market prices.  The Company also uses credit valuation adjustments (“CVAs”) to properly reflect the component of fair value of derivative instruments that arises from default risk.  CVAs are based on a methodology that uses credit default swap spreads as a key input in determining an implied level of expected loss over the total life of the derivative contact. The counterparty or the Company’s credit spreads from bond yields are used where no observable credit default swap spreads are available.  CVAs are intended to achieve a fair value of the underlying contracts and are normally based on publicly available information. The CVAs also takes into account contractual factors designed to reduce the Company’s credit exposure to each counterparty, such as collateral and legal rights of offset.

Policy loans:  The fair value of policy loans is determined by estimating future policy loan cash flows and discounting the cash flows at a current market interest rate.

Other invested assets:  This financial instrument primarily consists of equity securities for which the fair value is based on quoted market prices. Other invested assets primarily included certain cash instruments and fixed maturity securities, which were purchased using cash collateral related to a securities lending program in which the Company participated prior to December 31, 2009.  The fair value of the cash instrument is consistent with the method used in calculating the fair value of the cash and cash equivalents, as described above.  The pricing methods used for the fixed maturity securities component of the securities lending program is as explained in the fair value of fixed maturity securities above.  At December 31, 2008, the Company recorded the collateral investment at fair value in the consolidated balance sheets in other invested assets.

Separate accounts, assets and liabilities: The estimated fair value of assets held in separate accounts is based on quoted market prices.  The fair value of liabilities related to separate accounts is the amount payable on demand, which excludes surrender charges.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Contractholder deposit funds and other policy liabilities: The fair values of the Company’s general account insurance reserves and contractholder deposits under investment-type contracts (insurance, annuity and pension contracts that do not involve mortality or morbidity risks) are estimated using discounted cash flow analyses or surrender values based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for all contracts being valued. Those contracts that are deemed to have short-term guarantees have a carrying amount equal to the estimated market value.  The fair values of other deposits with future maturity dates are estimated using discounted cash flows.  The fair values of S&P 500 Index and other equity-linked embedded derivatives are produced using standard derivative valuation techniques.  GMABs or GMWBs are considered to be derivatives under FASB ASC Topic 815 and are included in contractholder deposit funds and other policy liabilities in the Company’s consolidated balance sheets.  Consistent with the provisions of FASB ASC Topic 820, the Company incorporates risk margins and the Company’s own credit standing, as well as changes in assumptions regarding policyholder behavior, in the calculation of the fair value of embedded derivatives.

Long term debt: The fair value of notes payable and other borrowings is based on future cash flow discounted at the stated interest rate, considering all appropriate terms of the related agreements. Due to certain provisions included in such agreements, whereby the issuer of the notes has the ability to call each note at par with appropriate approvals, the fair value is equal to par value.

Other liabilities:  This financial instrument consists of issued checks and transmitted wires that have not been cashed and processed in the Company’s bank accounts as of the end of the reporting period.  The fair value of other liabilities is consistent with the method used in calculating the fair value of cash and cash equivalents, as described above.







 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

9. REINSURANCE

Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders.  The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreement.  To minimize its exposure to significant losses from reinsurer insolvencies, the Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.  Management believes that any liability from this contingency is unlikely.

The effects of the Company’s reinsurance agreements in the consolidated statements of operations were as follows:

 
For the Years Ended December 31,
 
2009
  
2008
  
2007
                 
Premiums and annuity considerations:
                
 
Direct
$
86,671 
  
$
67,938 
  
$
62,645 
 
Assumed
  
52,856 
    
58,961 
    
50,986 
 
Ceded
  
(5,281)
    
(4,166)
    
(3,015)
Net premiums and annuity considerations from continuing operations
$
134,246 
  
$
122,733 
  
$
110,616 
Net premiums and annuity considerations related to discontinued operations
$
- 
  
$
- 
  
$
- 
                 
Fee and other income:
            
 
Direct
$
581,868 
  
$
608,066 
  
$
598,277 
 
Assumed
  
- 
    
- 
    
- 
 
Ceded
  
(196,032)
    
(158,075)
    
(123,723)
Net fee and other income from continuing operations
$
385,836 
  
$
449,991 
  
$
474,554 
Net fee and other income related to discontinued operations
$
(49,947)
  
$
114,762 
  
$
5,350 
                 
Interest credited:
            
 
Direct
$
472,275 
  
$
601,435 
  
$
693,665 
 
Assumed
  
7,801 
    
8,484 
    
9,580 
 
Ceded
  
(94,308)
    
(78,643)
    
(77,917)
Net interest credited from continuing operations
$
385,768 
  
$
531,276 
  
$
625,328 
Net interest credited related to discontinued operations
$
34,216 
  
$
30,350 
  
$
4,495 
                 
Policyowner benefits:
            
 
Direct
$
265,021 
  
$
482,737 
  
$
260,008 
 
Assumed
  
38,313 
    
42,662 
    
27,985 
 
Ceded
  
(192,895)
    
(134,306)
    
(60,953)
Net policyowner benefits from  continuing operations
$
110,439 
  
$
391,093 
  
$
227,040 
Net policyowner benefits related to discontinued operations
$
13,267 
  
$
52,424 
  
$
2,445 
                 
Other operating expenses:
            
 
Direct
$
282,502 
  
$
268,253 
  
$
274,669 
 
Assumed
  
6,129 
    
5,386 
    
4,583 
 
Ceded
  
(40,475)
    
(11,820)
    
(2,483)
Net other operating expenses from  continuing operations
$
248,156 
  
$
261,819 
  
$
276,769 
Net other operating expenses related to discontinued operations
$
10,436 
  
$
27,527 
  
$
7,046 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

9. REINSURANCE (CONTINUED)

A brief discussion of the Company’s significant reinsurance agreements by business segment follows.  (See Note 17 for additional information on the Company’s business segments).

Wealth Management Segment

The Wealth Management Segment manages a closed block of SPWL insurance policies, a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of the SPWL product in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of $1.5 billion and $1.6 billion at December 31, 2009 and 2008, respectively.  This entire block of business is reinsured on a funds withheld coinsurance basis with SLOC, an affiliate.  Pursuant to this agreement, the Company held the following assets and liabilities at December 31:

 
2009
  
2008
Assets
Reinsurance receivables
$
1,540,697
  
$
1,560,946
Other assets
  
-
    
38,998
           
Liabilities
Contractholder deposit funds and other policy
liabilities
  
1,493,145
    
1,428,331
Future contract and policy benefits
  
2,104
    
-
Reinsurance payable
  
1,603,711
    
1,509,989

The funds withheld assets of $1.5 billion and $1.6 billion at December 31, 2009 and 2008, respectively, are comprised of bonds, mortgage loans, policy loans, derivative instruments, and cash and cash equivalents that are managed by the Company.  The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $10.6 million and $130.6 million at December 31, 2009 and 2008, respectively.  The significant decline in the fair value of the funds withheld assets during the year ended December 31, 2008 increased the fair value of an embedded derivative which has been separated from the host reinsurance contract and recorded at fair value in the Company’s consolidated balance sheets.  The recovery in the fair value of funds withheld assets during the year ended December 31, 2009 decreased the fair value of the embedded derivative.  The change in the fair value of this embedded derivative (decreased) increased derivative income by $(120.0) million and $130.6 million for the years ended December 31, 2009 and 2008, respectively.

By reinsuring the SPWL product, the Company reduced net investment income by $126.6 million, $60.3 million and $78.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.  The Company also reduced interest credited by $73.9 million, $74.8 million and $74.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.  In addition, the Company increased net investment income, relating to an experience rate refund under the reinsurance agreement with SLOC, by $5.2 million, $5.3 million and $8.9 million for the years ended December 31, 2009, 2008 and 2007, respectively.



 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

9. REINSURANCE (CONTINUED)

Individual Protection Segment

The following are the Company’s significant reinsurance agreements that impact the Individual Protection Segment.

On February 11, 2009, the Company received regulatory approval and entered into a reinsurance agreement with BarbCo 3, an affiliate, to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life and private placement variable universal life policies on a combination coinsurance, coinsurance with funds withheld and a modified coinsurance basis.  Future new business will also be ceded under this agreement.

At the inception of the transaction, BarbCo 3 paid an initial ceding commission to the Company of $41.5 million and the Company recorded a reinsurance payable and related reinsurance receivable of $370.7 million and $329.2 million, respectively.  The reinsurance payable included a funds withheld liability of $247.9 million and a deferred gain of $122.8 million.  Pursuant to this agreement, the Company held the following assets and liabilities at:

 
December 31,
 
2009
Assets
Reinsurance receivable
$
422,486
     
Liabilities
Contractholder deposit funds and other policy liabilities
  
466,899
Reinsurance payable
  
430,528

At December 31, 2009, reinsurance payable includes a funds withheld liability and a deferred gain of $307.8 million and $118.9 million, respectively.  The funds withheld assets are comprised of bonds, policy loans, and cash and cash equivalents that are managed by the Company.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $26.3 million at December 31, 2009 and resulted in a decrease of derivative income by $26.3 million for the year ended December 31, 2009.  The reinsurance agreement decreased revenues by approximately $43.8 million and decreased expenses by $38.4 million for the year ended December 31, 2009.


 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

9. REINSURANCE (CONTINUED)

Individual Protection Segment (continued)

As a result of the Company’s disposition of Sun Life Vermont at December 31, 2009, as described in Notes 1 and 2, Sun Life Vermont’s balance sheet is no longer included in the Company’s consolidated balance sheet as of December 31, 2009.  At its inception in November 2007, Sun Life Vermont entered into a reinsurance agreement with SLOC.  Pursuant to this reinsurance agreement, Sun Life Vermont has funded AXXX reserves, attributable to certain UL policies sold by SLOC through its United States branch (the “Branch”).  Sun Life Vermont reinsures, on a coinsurance basis, a 100% quota share of SLOC’s risk on the UL policies covered under the reinsurance agreement.  Sun Life Vermont’s obligations are secured in part through a reinsurance trust and in part on a funds-withheld basis.  Pursuant to this agreement, Sun Life Vermont held the following assets and liabilities which were consolidated by the Company at December 31, 2008.

 
2008
Assets
Deferred policy acquisition costs
$
73,958 
Reinsurance receivable
  
1,125,408 
     
Liabilities
Contractholder deposit funds and other policy
liabilities
  
813,387 
Future contract and policy benefits
  
73,058 
Other liabilities
  
21,529 

The funds withheld assets are comprised of bonds, mortgage loans, derivatives, and cash and cash equivalents that are held in a separate trust account for the protection of policyholders and claimants of the Branch.  The assets of the trust are managed by SLOC with all of the investment returns, net of expenses, inuring to Sun Life Vermont.  Prior to December 31, 2009, the funds withheld assets were reported as reinsurance receivable in the Company’s consolidated balance sheets.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $91.8 million at December 31, 2008.

The reinsurance agreement (decreased) increased revenues by $(142.8) million, $321.2 million and $29.7 million for the years ended December 31, 2009, 2008 and 2007, respectively, and increased expenses by $23.9 million, $134.0 million and $14.1 million for the years ended December 31, 2009, 2008 and 2007, respectively.  Revenues and expenses related to this reinsurance agreement are included in the Company’s consolidated statements of operations as a component of income (loss) from discontinued operations, net of tax.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

9. REINSURANCE (CONTINUED)

Individual Protection Segment (continued)

Effective December 31, 2007, the Company’s subsidiary, SLNY, entered into a funds withheld reinsurance agreement with SLOC under which SLOC will fund AXXX reserves, attributable to certain UL policies sold by SLNY.  Under this agreement SLNY ceded, and SLOC assumed, on a funds withheld 90% coinsurance basis certain in-force policies at December 31, 2007.  Future new business will also be reinsured under this agreement.  Pursuant to this agreement, SLNY held the following assets and liabilities at December 31:

 
2009
  
2008
Assets
Reinsurance receivables
$
103,802 
  
$
77,628 
Other assets
  
- 
    
2,676 
           
Liabilities
Contractholder deposit funds and other policy
liabilities
  
84,606 
    
63,210 
Future contract and policy benefits
  
10,518 
    
3,162 
Reinsurance payable
  
182,000 
    
140,832 
Other liabilities
  
- 
    
1,057 

Reinsurance payable includes a funds withheld liability of $128.4 million and $89.4 million at December 31, 2009 and 2008, respectively; and a deferred gain of $50.3 million and $51.4 million at December 31, 2009 and 2008, respectively.  The funds withheld assets comprised of trading fixed maturity securities and mortgage loans are being managed by the Company.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $0.7 million and $12.0 million at December 31, 2009 and 2008, respectively, and (decreased) increased derivative income by $(11.3) million and $12.0 million for the years ended December 31, 2009 and 2008, respectively.

In addition, the activities related to the reinsurance agreement have decreased revenues by $29.0 million and $9.7 million, and decreased expenses by $20.9 million and $11.5 million for the years ended December 31, 2009 and 2008, respectively.

The Company has other reinsurance agreements with SLOC and several unrelated companies, which provide reinsurance for portions of the net-amount-at-risk under certain individual variable universal life, individual private placement variable universal life, bank owned life insurance (“BOLI”) and corporate owned life insurance (“COLI”) policies.  These amounts are reinsured on a monthly renewable term, a yearly renewable term or a modified coinsurance basis.  These other agreements decreased revenues by approximately $173.9 million and $145.4 million and, also reduced expenses by approximately $168.5 million and $128.3 million for the years ended December 31, 2009 and 2008, respectively.

Group Protection Segment

SLNY has several agreements with unrelated companies whereby the unrelated companies reinsure the mortality and morbidity risks of certain of SLNY’s group contracts.

SLNY also has a reinsurance agreement, effective May 31, 2007, to assume the net risks of SLHIC’s New York issued contracts.  At December 31, 2009 and 2008, SLNY held policyholder liabilities of $30.3 million and $32.8 million, respectively, related to this agreement.  In addition, the reinsurance agreement increased revenues by $52.9 million, $59.0 million and $51.0 million for the years ended December 31, 2009, 2008 and 2007, respectively, and increased expenses by $44.3 million, $48.6 million and $34.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

10.  RETIREMENT PLANS

Effective December 31, 2009, the Company transferred all of its employees to an affiliate, Sun Life Services with the exception of 28 employees who were transferred to SLFD, another affiliate.  As a result of this transaction, the Company transferred pension and other employee benefit liabilities, accumulated other comprehensive loss related to pension and other postretirement plans, and cash to Sun Life Services.  Concurrent with this transaction, Sun Life Services became the sponsor of the retirement plans described below.  The employee transfer did not change the provisions of the related retirement plans and under the administrative services agreement with Sun Life Services the annual cost of these benefits will be charged to the Company in a manner consistent with the allocation of employee compensation expenses.

Prior to the December 31, 2009 employee transfer and the December 31, 2008 plans merger described below, the Company sponsored three non-contributory defined benefit pension plans for its employees and certain affiliated employees.  These plans were the staff qualified pension plan (“staff pension plan”), the agents’ qualified pension plan (“agents’ pension plan”) and the staff nonqualified pension plan (“UBF plan”) (collectively, the “Pension Plans”).  Expenses were allocated to participating companies based in a manner consistent with the allocation of employee compensation expenses.  The Company's funding policies for the staff pension plan was to contribute amounts which at least satisfy the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”).  Most pension plan assets consist of separate accounts of SLOC or other insurance company contracts.

Effective December 31, 2008, the agents’ pension plan was merged into the staff pension plan. The plan merger resulted in a transfer from the agents’ pension plan to the staff pension plan of a projected benefit obligation of $8.8 million and plan assets of $28.3 million. The plan merger did not change the provisions of the agents’ pension plan.

Effective November 7, 2007, IFMG ceased to be an affiliated employer under the staff pension plan, when IFMG was sold by the Parent. As of that date, the staff pension plan was amended to allow IFMG to continue as a participating employer. Effective December 9, 2008 the staff pension plan was amended to eliminate IFMG as a participating employer.

Effective January 1, 2007, the agents’ pension plan was amended for a cost of living adjustment for eligible participants.

Prior to the December 31, 2009 employee transfer, the Company sponsored a postretirement benefit plan for its employees and certain affiliated employees providing certain health, dental and life insurance benefits for retired employees and dependents (the “Other Post Retirement Benefit Plan”).  Expenses were allocated to participating companies based on the number of participants.  Substantially all employees of the participating companies may become eligible for these benefits if they reach normal retirement age while working for the Company, or retire early upon satisfying an alternate age plus service condition.  Life insurance benefits are generally set at a fixed amount.

On May 31, 2007, as part of Sun Life Financial’s acquisition of EBG, the Company provided prior service credit under its retiree medical plan to the transferred EBG employees not currently eligible for those benefits under the corresponding Genworth plan.  Additionally, as part of the acquisition, the fair value of the liabilities assumed by the Company included the unfunded accumulated postretirement benefit obligation (“APBO”) attributable to the prior service cost associated with the transferred EBG employees.  The final purchase price was adjusted at May 31, 2007, to settle the unfunded APBO undertaken by the Company.

On September 29, 2006, the FASB issued ASC Topic 715, which requires recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet.  The measurement date – the date at which the benefit obligation and plan assets are measured – is required to be the Company's fiscal year end.  The Company adopted the balance sheet recognition provisions of FASB ASC Topic 715 at December 31, 2006 and adopted the year end measurement date provisions effective January 1, 2008.  The adoption of the year-end measurement date provisions resulted in a net of tax cumulative-effect decrease of $0.3 million to the Company’s January 1, 2008, other comprehensive income (“OCI”).



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

10. RETIREMENT PLANS (CONTINUED)

The following tables set forth the change in the Pension Plans’ and Other Post Retirement Benefit Plan’s projected benefit obligations and assets, as well as information on the plans’ funded status at December 31:

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2009
2008
  
2009
2008
Change in projected benefit obligation:
          
Projected benefit obligation at beginning of year
$       270,902 
$         262,757 
  
$         49,112 
$         52,229 
Effect of eliminating early measurement date
- 
1,982 
  
- 
705 
Service cost
2,597 
3,520 
  
1,754 
1,616 
Interest cost
17,434 
16,617 
  
3,218 
3,332 
Actuarial loss (gain)
17,861 
(3,424)
  
2,344 
(6,729)
Benefits paid
(11,066)
(10,550)
  
(2,095)
(2,266)
Plan amendments
- 
- 
  
(803)
- 
Federal subsidy
- 
- 
  
121 
225 
Transfer to Sun Life Services
(297,728)
- 
  
(53,651)
- 
Projected benefit obligation at end of year
$                  - 
$         270,902 
  
$                 - 
$         49,112 

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2009
2008
  
2009
2008
Change in fair value of plan assets:
          
Fair value of plan assets at beginning of year
$        195,511 
$         291,824 
  
$               - 
$              - 
Effect of eliminating early measurement date
- 
1,981 
  
- 
- 
Employer contributions
6,500 
- 
 
2,095
2,266 
Other
1,547 
350 
 
- 
- 
Actual return on plan assets
49,375 
(88,094)
  
- 
- 
Benefits paid
(11,066)
(10,550)
  
(2,095)
(2,266)
Transfer to Sun Life Services
(241,867)
- 
  
- 
- 
Fair value of plan assets at end of year
$                    - 
$         195,511 
  
$              - 
$              - 

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2009
2008
  
2009
2008
Information on the funded status of the plan:
          
Funded status
$                     - 
$          (75,391)
  
$                  - 
$       (49,112)
Accrued benefit cost
$                     - 
$          (75,391)
  
$                  - 
$       (49,112)

The Company’s accumulated benefit obligation for the Pension Plans at December 31, 2008 was $263.1 million.




 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

10.  RETIREMENT PLANS (CONTINUED)

The Pension Plans were underfunded at December 31, 2008.  The following table provides information on the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31:

 
Pension Plans
 
2008
Projected benefit obligations
$        270,902
Accumulated benefit obligation
263,142
Plan assets
195,511

Amounts recognized in the Company’s consolidated balance sheets for the Pension Plans and Other Post Retirement Benefit Plan consist of the following, as of December 31:

 
Pension Plans
  
Other Post
Retirement
Benefit Plan
 
2008
  
2008
Other assets
$                     - 
  
$                    - 
Other liabilities
(75,391)
  
(49,112)
 
$          (75,391)
  
$        (49,112)

Amounts recognized in the Company’s AOCI consist of the following:

 
Pension Plans
2008
  
Other Post Retirement
Benefit Plan
2008
       
Net actuarial loss
$          86,528 
  
$           5,563 
Prior service cost (benefit)
4,109 
  
(3,890)
Transition asset
(3,589)
  
- 
 
$           87,048 
  
$           1,673 

The following table sets forth the effect on retained earnings and AOCI of eliminating the early measurement date:

 
Pension Plans
2008
  
Other Post Retirement
Benefit Plan
2008
Retained earnings
$                       (1,346)
  
$                   1,334 
       
       
Amounts amortized from AOCI:
      
Amortization of actuarial loss (gain)
198 
  
(229)
Amortization of prior service (cost) credit
(83)
  
132 
Amortization of transition asset
524 
  
- 
Total amortization from AOCI
$                           639 
  
$                       (97)


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

10. RETIREMENT PLANS (CONTINUED)

The following table sets forth the components of the net periodic benefit cost and the Company’s share of net periodic benefit costs related to the Pension Plans and Other Post Retirement Benefit Plan for the years ended December 31:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2009
2008
2007
  
2009
2008
2007
Components of net periodic cost (benefit):
              
Service cost
$      2,597 
$      3,520 
$       4,108 
  
$      1,754 
$      1,616 
$      1,234
Interest cost
17,434 
16,617 
15,754 
  
3,218 
3,332 
2,915 
Expected return on plan assets
(15,111)
(22,972)
(21,874)
  
- 
- 
- 
Amortization of transition obligation asset
(2,093)
(2,093)
(2,093)
  
- 
- 
- 
Amortization of prior service cost
337 
337 
337 
  
(529)
(529)
(529)
Recognized net actuarial loss (gain)
2,782 
(792)
(107)
  
382 
916 
912 
Net periodic cost (benefit)
$       5,946 
$     (5,383)
$     (3,875)
  
$      4,825 
$      5,335 
$      4,532 
               
The Company’s share of net periodic cost (benefit)
$       5,946 
$     (5,383)
$     (3,875)
  
$      3,926 
$      4,638 
$      3,910 

The following table shows changes in the Company’s AOCI related to the Pension Plans and Other Post Retirement Benefit Plan for the following years:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2009
2008
2007
  
2009
2008
2007
Net actuarial (gain) loss arising during the year
$  (16,402)
$   107,641 
$   (20,287)
  
$      2,344 
$     (6,729)
$        279 
Net actuarial (loss) gain recognized during the year
(2,782)
792 
107 
  
(382)
(916)
(912)
Prior service cost arising during the year
- 
- 
1,302 
  
(803)
- 
- 
Prior service cost recognized during the year
(337)
(337)
(337)
  
529 
529 
529 
Transition asset recognized during the year
2,093 
2,093 
2,093 
  
- 
- 
- 
Transition asset arising during the year
- 
- 
- 
  
- 
- 
- 
Total recognized in AOCI
(17,428)
   110,189 
  (17,122)
  
1,688 
    (7,116)
    (104)
Tax effect
6,100 
(38,566)
5,993 
  
(591)
2,491 
36 
Total recognized in AOCI, net of tax
$  (11,328)
$   71,623 
$   (11,129)
  
$      1,097 
$     (4,625)
$        (68)
               
Total recognized in net periodic (benefit) cost and
other comprehensive (loss) income, net of tax
$  (7,463)
$   68,124 
$   (13,648)
  
$      3,648 
$   (1,610)
$     2,474 

Effective December 31, 2009, the Company transferred to Sun Life Services the following AOCI related to the Pension Plans and Other Post Retirement Benefit Plan:

 
Pension Plans
Other Post
Retirement
Benefit Plan
Total
Transfer of actuarial loss to affiliate
$     (67,343)
$     (7,525)
$     (74,868)
Transfer of prior service (cost)/credit to affiliate
(3,772)
4,164 
392 
Transfer of transition asset to affiliate
1,495 
- 
1,495 
Total AOCI transferred to affiliate
(69,620)
(3,361)
(72,981)
Tax effect
24,367 
1,176 
25,543 
Total AOCI, net of tax, transferred to affiliate
$     (45,253)
$     (2,185)
$     (47,438)


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

10. RETIREMENT PLANS (CONTINUED)

Assumptions

Weighted average assumptions used to determine benefit obligations for the Pension Plans and Other Post Retirement Benefit Plan were as follows:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2009
2008
2007
  
2009
2008
2007
Discount rate
6.10%
6.5%
6.35%
  
6.10%
6.5%
6.35%
Rate of compensation increase
3.75%
3.75%
4.0%
  
n/a
n/a
n/a

Weighted average assumptions used to determine net (benefit) cost for the Pension Plans and Other Post Retirement Benefit Plan were as follows:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2009
2008
2007
  
2009
2008
2007
Discount rate
6.5%
6.35%
6.0%
  
6.5%
6.35%
6.0%
Expected long term return on plan assets
7.75%
8.0%
8.25%
  
n/a
n/a
n/a
Rate of compensation increase
3.75%
4.0%
4.0%
  
n/a
n/a
n/a

The expected long-term rate of return on plan assets is calculated by taking the weighted average return expectations based on the long-term return expectations and investment strategy, adjusted for the impact of rebalancing. The difference between actual and expected returns is recognized as a component of unrecognized gains/losses, which is recognized over the average remaining lifetime of inactive participants or the average remaining service lifetime of active participants in the plan, as provided by accounting standards.

In order to measure the Other Post Retirement Benefit Plan’s obligation for 2008, the Company assumed a 8.5% annual rate of increase in the per capita cost of covered healthcare benefits.




 
 
 



SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

10. RETIREMENT PLANS (CONTINUED)

Plan Assets

The asset allocation for the Company’s pension plans assets for 2008 measurement, by asset category, was as follows:

Asset Category
Percentage of
Plan Assets
Equity Securities
54%
Debt Securities
30%
Commercial Mortgages
16%
Total
100%

Cash Flow

The Company contributed $6.5 million and $1.5 million to the staff pension plan and UBF plan in 2009, respectively.

Savings and Investment Plan

Effective December 31, 2009, Sun Life Services sponsors a savings plan that qualifies under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) and in which substantially all employees of at least age 21 are eligible to participate at date of hire. Prior to December 31, 2009, the Company sponsored the 401(k) Plan.  Employee contributions, up to specified amounts, are matched by Sun Life Services under the 401(k) Plan.

The 401(k) Plan also includes a retirement investment account that qualifies under Section 401(a) of the Internal Revenue Code (the “RIA”).  Sun Life Services contributes a percentage of the participant’s eligible compensation determined under the following chart based on the sum of the participant’s age and service on January 1 of the applicable plan year.

Age Plus Service
Company Contribution
Less than 40
3%
At least 40 but less than 55
5%
At least 55
7%

For RIA participants who are at least age 40 on January 1, 2006 and whose age plus service on January 1, 2006 equals or exceeds 45, Sun Life Services also contributes to the RIA from January 1, 2006 through December 31, 2015, a percentage of the participant’s eligible compensation determined under the following chart based on the participant’s age and service on January 1, 2006.

 
Service
Age
Less than 5 years
5 or more years
At least 40 but less than 43
3.0%
5.0%
At least 43 but less than 45
3.5%
5.5%
At least 45
4.5%
6.5%

The amount of the 2009 employer contributions under the 401(k) Plan for the Company and its affiliates was $25.2 million.  Amounts are allocated to affiliates based on their respective employees’ contributions.  The Company’s portion of the expense was $14.2 million, $18.1 million and $16.1 million for the years ended December 31, 2009, 2008 and 2007, respectively.


 
 
 


SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

11. FEDERAL INCOME TAXES

The Company accounts for current and deferred income taxes in the manner prescribed by FASB ASC Topic 740.  A summary of the components of income tax expense (benefit) in the consolidated statements of operations for the years ended December 31 is as follows:

   
2009
  
2008
  
2007
Income tax expense (benefit):
            
Current
$
40,092
$
(117,496)
$
43,695 
Deferred
  
295,557
  
(698,447)
  
(72,390)
             
Total income tax expense (benefit) related to
continuing operations
$
335,649
$
(815,943)
$
(28,695)
Total income tax expense (benefit) related to
discontinued operations
$
40,690
$
(43,040)
$
4,837 

Federal income taxes attributable to the Company’s consolidated operations are different from the amounts determined by multiplying income before federal income taxes by the expected federal income tax rate of 35%.  The following is a summary of the differences between the expected income tax expense (benefit) at the prescribed U.S. federal statutory income tax rate and the total amount of income tax expense (benefit) that the Company has recorded.

   
2009
  
2008
  
2007
             
Expected federal income tax expense (benefit)
$ 
424,261 
$ 
(1,029,506)
$ 
(4,430)
Low income housing tax credits
  
(3,880)
  
(4,016)
  
(5,490)
Separate account dividends received deduction
  
(16,232)
  
(18,144)
  
(11,988)
Prior year adjustments/settlements
  
1,320 
  
(7,279)
  
932 
Valuation allowance-capital losses
  
(69,670)
  
69,670 
  
- 
Goodwill impairment
  
- 
  
176,886 
  
- 
Adjustments to tax contingency reserves
  
1,605 
  
(932)
  
(6,375)
Other items
  
(1,949)
  
(2,628)
  
(1,775)
             
Federal income tax expense (benefit)
  
335,455 
  
(815,949)
  
(29,126)
State income tax expense
  
194 
  
6 
  
431 
             
Total income tax expense (benefit) related to
continuing operations
$ 
335,649 
$ 
(815,943)
$ 
(28,695)
Total income tax expense (benefit) related to
discontinued operations
$ 
40,690 
$ 
(43,040)
$ 
4,837 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

11. FEDERAL INCOME TAXES (CONTINUED)

The net deferred tax asset represents the tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The components of the Company’s net deferred tax asset as of December 31 were as follows:

   
2009
    
2008
Deferred tax assets:
          
    Actuarial liabilities
  
$     369,555 
    
$       194,253 
    Tax loss carryforwards
  
240,035 
    
98,958 
    Investments, net
  
354,208 
    
1,331,665 
    Other
  
131,501 
    
80,233 
Gross deferred tax assets
  
1,095,299 
    
1,705,109 
    Valuation allowance
  
- 
    
(79,963)
Total deferred tax assets
  
1,095,299 
    
1,625,146 
           
Deferred tax liabilities:
          
    Deferred policy acquisition costs
  
(545,535)
    
(768,301)
Total deferred tax liabilities
  
(545,535)
    
(768,301)
           
Net deferred tax asset
  
$     549,764 
    
$      856,845 

Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company performs the required recoverability (realizability) test in terms of its ability to realize its recorded net deferred tax assets.  In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.  In projecting future taxable income and sources of capital gains, the Company utilizes historical and current operating results and incorporates assumptions including the amount of future federal and state pre-tax operating income, the reversal of temporary differences, and the implementation of prudent and feasible tax planning strategies.

The Company’s net deferred tax asset of $549.8 million at December 31, 2009 is comprised of gross deferred tax assets and gross deferred tax liabilities.  The gross deferred tax assets are primarily related to unrealized investment security losses, actuarial liabilities, and net operating loss (“NOL”) carryforwards, as well as a capital loss carryforward generated in 2009.  At December 31, 2009, the Company had $492.8 million of NOL carryforwards and $193.0 million of capital loss carryforwards.  If unutilized, the NOL and capital loss carryforwards will begin to expire in 2023 and 2014, respectively.




 
 
 

 SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

11. FEDERAL INCOME TAXES (CONTINUED)

In the year ended December 31, 2008, the Company established a $79.9 million valuation allowance for deferred tax assets that do not meet the more likely than not realization criteria.  The valuation allowance related to certain deferred tax assets that arose from investment impairment losses. The Company released the cumulative recorded valuation allowance of $79.9 million during the year ended December 31, 2009, because the Company believes that it is more likely than not that the deferred tax assets related to the impairment losses will be realized due to tax planning strategies executed during the year related to certain mortgage-backed securities, the Company’s intent and ability to hold the related investment securities to maturity, and other tax planning strategies.  For the remaining unrealized investment losses, the Company believes that it is more likely than not that the related deferred tax assets will be realized due to the Company’s intent and ability to hold the related investment securities to recovery of amortized cost.

ASC Topic 740 establishes a comprehensive reporting model which addresses how a business entity should recognize, measure, present and disclose uncertain tax positions that the entity has taken or plans to take on a tax return.  Upon adoption of ASC Topic 740, the Company recognized a decrease of $5.2 million in the liability for unrecognized tax benefits (“UTB’s”) and related net interest, which was accounted for as an increase to its January 1, 2007 balance of retained earnings.

The liability for UTBs related to permanent and temporary tax adjustments, exclusive of interest, was $42.0 million, $50.7 million and $63.0 million at December 31, 2009, 2008 and 2007, respectively.  Of the $42.0 million, $7.7 million represents the amount of UTBs that, if recognized, would favorably affect the Company’s effective income tax rate in future periods, exclusive of any related interest.  In addition, the Company reclassified $67.8 million of income taxes from deferred tax liabilities to accrued expenses and taxes at December 31, 2009.

The net (decrease) increase in the tax liability for UTBs of $(8.7) million, $(12.4) million and $8.9 million in the years ended December 31, 2009, 2008 and 2007, respectively, resulted from the following:

   
2009
  
2008
  
2007
Balance at January 1
$
50,679 
  
$       63,043 
  
$    54,086 
Gross increases related to tax positions in prior years
  
7,950 
  
111,473 
  
20,717 
Gross decreases related to tax positions in prior years
  
(16,640)
  
(90,772)
  
(11,760)
Gross increases related to tax positions in current year
  
- 
  
- 
  
- 
Settlements
  
- 
  
(33,065)
  
- 
Close of tax examinations/statutes of limitations
  
- 
  
- 
  
- 
             
Balance at December 31
$
41,989 
  
$       50,679 
  
$    63,043 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

11. FEDERAL INCOME TAXES (CONTINUED)

The Company has elected to recognize interest and penalties accrued related to UTBs in interest (income) expense.  During the years ended December 31, 2009, 2008 and 2007, the Company recognized ($9.0) million, $3.4 million and $2.0 million, respectively, in gross interest (income) expense related to UTBs.  The Company had approximately $4.8 million and $13.8 million of interest accrued at December 31, 2009 and 2008, respectively.  The Company did not accrue any penalties.

While the Company expects the amount of unrecognized tax liabilities to change in the next twelve months, it does not expect the change to have a significant impact on its results of operations or financial position.

The Company files federal income tax returns and income tax returns in various state and local jurisdictions.  With few exceptions, the Company is no longer subject to examinations by the tax authorities in these jurisdictions for tax years before 2001.  In August 2006, the IRS issued a Revenue Agent’s Report for the Company’s 2001 and 2002 tax years.  The Company disagreed with some of the proposed adjustments, and the case was assigned to The Appeals Division of the IRS (“Appeals”).  A settlement was reached and formally approved by the Company on January 11, 2010.   The effects of the settlement are in line with previous expectations and have no material impact on the financial statements.

In October 2008, the IRS issued a Revenue Agent’s Report for the Company’s tax years 2003 and 2004. The Company filed a protest, which was assigned to Appeals in 2009.  Appeals has not yet taken any action on the case. The Company is currently under audit for the 2005 and 2006 tax years. While the final outcome of the appeal and ongoing tax examinations is not determinable, the Company has adequate liabilities accrued and does not believe that any adjustments would be material to its financial position.

The Company will file a consolidated federal income tax return with SLC – U.S. Ops Holdings for the year ended December 31, 2009 as the Company did for the years ended December 31, 2008 and 2007. The Company’s subsidiaries were included as part of the consolidation for the year ended December 31, 2008.  For the year ended December 31, 2007, SLNY filed a stand-alone federal income tax return.

Effective December 31, 2009 the Company paid a dividend of all of the issued and outstanding common stock of Sun Life Vermont, to the Parent.  Sun Life Vermont will continue to be included in the consolidated federal income tax return of the Parent after 2009.

The Company makes or receives payments under certain tax sharing agreements with SLC – U.S. Ops Holdings.  Under these agreements, such payments are determined based on the Company’s stand-alone taxable income (as if it were filing as a separate company) and based upon the SLC – U.S. Ops Holdings’ consolidated group’s overall taxable position.  The Company made income tax payments of $21.1 million in 2009 and received income tax refunds of $113.2 million and $16.3 million in 2008 and 2007, respectively.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

12. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES

Activity in the liability for unpaid claims and claims adjustment expenses, which is related to the Company’s group life, group disability insurance, group dental and group stop loss products is summarized below:

 
2009
  
2008
  
2007
                 
Balance at January 1
$
71,316 
  
$
74,878 
  
$
36,689 
Less: reinsurance recoverable
  
(5,347)
    
(5,921)
    
(5,906)
Net balance at January 1
  
65,969 
    
68,957 
    
30,783 
Incurred related to:
                
 
Current year
  
86,905 
    
79,725 
    
96,377 
 
Prior years
  
(5,817)
    
(6,557)
    
(1,805)
Total incurred
  
81,088 
    
73,168 
    
94,572 
Paid losses related to:
                
 
Current year
  
(58,598)
    
(53,615)
    
(47,531)
 
Prior years
  
(21,216)
    
(22,541)
    
(8,867)
Total paid
  
(79,814)
    
(76,156)
    
(56,398)
                   
Balance at December 31
  
72,953 
    
71,316 
    
74,878 
Less: reinsurance recoverable
  
(5,710)
    
(5,347)
    
(5,921)
Net balance at December 31
$
67,243 
  
$
65,969 
  
$
68,957 

The Company regularly updates its estimates of liabilities for unpaid claims and claims adjustment expenses as new information becomes available and events occur which may impact the resolution of unsettled claims.  Changes in prior estimates are recorded in results of operations in the year such changes are made.

As a result of changes in estimates of insured events in prior years, the liability for unpaid claims and claims adjustment expense decreased by $5.8 million, $6.6 million and $1.8 million in 2009, 2008 and 2007, respectively.  The decreases in liabilities during 2009 and 2008 were driven by better than expected loss experience in both group life and group disability.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

13. 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, adjusted for any customer withdrawals, (b) total deposits made on the contract, adjusted for 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.

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2009:

Benefit Type
Account Balance
Net Amount
at Risk 1
Average
Attained Age
Minimum Death
$           16,947,362
$           2,459,360
66.2
Minimum Income
$                194,780
$                84,591
61.5
Minimum Accumulation or
Withdrawal
$             8,866,525
$              212,371
63.0

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2008:

Benefit Type
Account Balance
Net Amount
at Risk 1
Average
Attained Age
Minimum Death
$          12,627,787
$           4,398,559
66.7
Minimum Income
$               189,863
$              130,177
60.8
Minimum Accumulation or
Withdrawal
$            4,961,237
$              857,764
63.0

1 Net amount at risk represents the difference between guaranteed benefits and account balance.







 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

13. LIABILITIES FOR CONTRACT GUARANTEES (CONTINUED)

The following roll-forward summarizes the change in reserve for the GMDBs and GMIBs for the year ended December 31, 2009:

 
Guaranteed
Minimum
Death Benefit
  
Guaranteed
Minimum
Income Benefit
  
Total
Balance at January 1, 2009
$
201,648 
  
$
18,773 
  
$
220,421 
                 
Benefit Ratio Change /
  Assumption Changes
  
(67,157)
    
(6,615)
    
(73,772)
Incurred guaranteed benefits
  
37,406 
    
2,505 
    
39,911 
Paid guaranteed benefits
  
(91,185)
    
(5,892)
    
(97,077)
Interest
  
15,555 
    
1,287 
    
16,842 
                 
Balance at December 31, 2009
$
96,267 
  
$
10,058 
  
$
106,325 

The following roll-forward summarizes the change in reserve for the GMDBs and GMIBs for the year ended December 31, 2008:

 
Guaranteed
Minimum
Death Benefit
  
Guaranteed
Minimum
Income Benefit
  
Total
Balance at January 1, 2008
$
39,673 
  
$
4,817 
  
$
44,490 
                 
Benefit Ratio Change /
  Assumption Changes
  
193,678 
    
15,867 
    
209,545 
Incurred guaranteed benefits
  
19,072 
    
906 
    
19,978 
Paid guaranteed benefits
  
(58,226)
    
(3,244)
    
(61,470)
Interest
  
7,451 
    
427 
    
7,878 
                 
Balance at December 31, 2008
$
201,648 
  
$
18,773 
  
$
220,421 


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 contract 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 is re-evaluated regularly, and adjustments are made to the liability balance through a charge or credit to policyholder benefits.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

13. LIABILITIES FOR CONTRACT GUARANTEES (CONTINUED)

GMABs and GMWBs are considered to be derivatives under FASB ASC Topic 815 and are recorded at fair value through earnings.  The Company records GMAB and GMWB liabilities in its consolidated balance sheets as part of contractholder deposit funds and other policy liabilities.  The Company includes the following unobservable inputs in its calculation of the embedded derivative:

Actively-Managed Volatility Adjustments – This component incorporates the basis differential between the observable implied volatilities for each index and the actively-managed funds underlying the variable annuity product.  The adjustment is based on historical actively-managed fund volatilities and historical weighted-average index volatilities.

Credit Standing Adjustment – This component makes an adjustment that market participants would make to reflect the non-performance risk associated with the embedded derivatives.  The adjustment is based on the published credit spread for insurance companies with a rating equal to the rating of the Company.

Behavior Risk Margin – This component adds a margin that market participants would require for the risk that the Company’s best estimate policyholder behavior assumptions could differ from actual experience.  This risk margin is determined by taking the difference between the fair value based on adverse policyholder behavior assumptions and the fair value based on best estimate policyholder behavior assumptions, using assumptions the Company believes market participants would use in developing risk margins.

The net balance of GMABs and GMWBs constituted a liability in the amount of $250.5 million and $694.2 million at December 31, 2009 and 2008, respectively.

14. DEFERRED POLICY ACQUISITION COSTS

The following roll-forward summarizes the change in DAC for the years ended December 31:

 
2009
  
2008
Balance at January 1
$
2,862,401 
  
$
1,603,397
Acquisition costs deferred related to continuing operations
  
398,880 
    
282,409
Amortized to expense of continuing operations during the year
  
(1,013,681)
    
917,621
Adjustments related to discontinued operations
  
(73,958)
    
58,974
Balance at December 31
$
2,173,642 
  
$
2,862,401

See Note 1 for information regarding the deferral and amortization methodologies related to DAC.

The DAC asset under GAAP cannot exceed accumulated deferrals, plus interest.  At December 31, 2009 and 2008, the Company reached the cap for its DAC asset related to certain fixed and fixed index annuity products and reported the DAC asset for these products at historical accumulated deferrals with interest.  In addition, the Company tests its DAC asset for future recoverability, and has determined that the asset is not impaired at December 31, 2009.  The Company wrote down DAC by $326.9 million as a result of loss recognition related to certain annuity products for the year ended December 31, 2009.  The charge for loss recognition is included in DAC amortization expense and allocated to the Wealth Management Segment.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

15. VALUE OF BUSINESS AND CUSTOMER RENEWALS ACQUIRED

The following roll-forward summarizes the change in VOBA and VOCRA for the years ended December 31:

 
2009
  
2008
Balance at January 1
$
179,825 
  
$
51,806 
Amortized to expense during the year
  
(10,980)
    
128,019 
Balance at December 31
$
168,845 
  
$
179,825 

The Company tested the VOCRA asset for impairment in the fourth quarter of 2009 and determined that the fair value of VOCRA was lower than its carrying value.  Accordingly, the Company has decreased the carrying value of VOCRA and recorded an impairment charge of $2.6 million for the year ended December 31, 2009. The impairment change is included in amortization expense and allocated in the Group Protection Segment.

See Note 1 for information regarding the amortization methodologies related to VOBA and VOCRA.

16. CONSOLIDATING FINANCIAL INFORMATION

The following consolidating financial statements are provided in compliance with Regulation S-X of the SEC and in accordance with SEC Rule 12h-5.

The Company’s wholly-owned subsidiary, SLNY, sells, among other products, combination fixed and variable annuity contracts (the “Contracts”) in the state of New York.  These Contracts contain a fixed investment option, where interest is paid at a guaranteed rate for a specified period of time, and withdrawals made before the end of the specified period may be subject to a market value adjustment that can increase or decrease the amount of the withdrawal proceeds (the “fixed investment option period”).  Effective September 27, 2007, the Company provided a full and unconditional guarantee (the “guarantee”) of SLNY’s obligation related to the Contracts’ fixed investment option period related to policies currently in-force or sold on or after September 30, 2007.  The guarantee relieves SLNY of its obligation to file annual, quarterly, and current reports with the SEC on Form 10-K, Form 10-Q and Form 8-K.

In the following presentation of consolidating financial statements, the term "SLUS as Parent" is used to denote the Company as a stand-alone entity, isolated from its subsidiaries and the term “Other Subs” is used to denote the Company's other subsidiaries, with the exception of SLNY.  All consolidating financial statements are presented in thousands.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations
For the Year Ended December 31, 2009

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Revenues
                            
                             
Premiums and annuity considerations
$
14,374 
  
$
119,872 
  
$
- 
  
$
-
  
$
134,246 
Net investment income (1)
  
2,345,022 
    
233,216 
    
4,069 
    
- 
    
2,582,307 
Net derivative (loss) income
  
(62,600)
    
22,698 
    
- 
    
- 
    
(39,902)
Net realized investment losses, excluding
impairment losses on available-for-sale
securities
  
(30,129)
    
(2,815)
    
(3,731)
    
- 
    
(36,675)
Other-than-temporary impairment losses  (2)
  
(4,450)
    
(181)
    
(203)
    
- 
    
(4,834)
Fee and other income
  
375,570
    
5,103 
    
5,163 
    
- 
    
385,836 
                             
Total revenues
  
2,637,787 
    
377,893 
    
5,298 
    
- 
    
3,020,978 
                             
Benefits and expenses
                            
                     
- 
      
Interest credited
  
336,754 
    
47,855 
    
1,159 
    
- 
    
385,768 
Interest expense
  
39,035 
    
745 
    
- 
    
- 
    
39,780 
Policyowner benefits
  
36,409 
    
78,231 
    
(4,201)
    
- 
    
110,439 
Amortization of DAC, VOBA and VOCRA
  
917,129 
    
107,532 
    
- 
    
- 
    
1,024,661 
Other operating expenses
  
201,205 
    
42,368 
    
4,583 
    
- 
    
248,156 
                             
Total benefits and expenses
  
1,530,532 
    
276,731 
    
1,541 
    
- 
    
1,808,804 
                             
Income before income tax expense
  
1,107,255 
    
101,162 
    
3,757 
    
- 
    
1,212,174 
                             
Income tax expense
  
305,150 
    
29,650 
    
849 
    
- 
    
335,649 
Equity in the net income of subsidiaries
  
179,391 
    
- 
    
- 
    
(179,391)
    
- 
Net income from continuing operations
  
981,496 
    
71,512 
    
2,908 
    
(179,391)
    
876,525 
Income from discontinued operations, net of tax
  
- 
    
- 
    
104,971 
    
- 
    
104,971 
                             
Net income
$
981,496 
  
$
71,512 
  
$
107,879 
  
$
(179,391)
  
$
981,496 

(1)
SLUS’, SLNY’s and Other Subs’ net investment (loss) income includes a decrease in market value of $1,913.3 million, $173.4 million and $0.0 million, respectively, for the year ended December 31, 2009, related to the Company’s trading securities.
(2)
SLUS’, SLNY’s and Other Subs’ OTTI losses for the year ended December 31, 2009 represent impairments related to credit loss.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations
For the Year Ended December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Revenues
                            
                             
Premiums and annuity considerations
$
16,066 
  
$
106,667 
  
$
- 
  
$
-
  
$
122,733 
Net investment (loss) income (1)
  
(1,862,501)
    
(112,508)
    
4,641 
    
- 
    
(1,970,368)
Net derivative loss  (2)
  
(573,399)
    
(32,059)
    
- 
    
- 
    
(605,458)
Net realized investment gains (losses), excluding
impairment losses on available-for-sale
securities
  
3,439 
    
340 
    
22 
    
- 
    
3,801 
Other-than-temporary impairment losses
  
(25,291)
    
(11,326)
    
(5,247)
    
- 
    
(41,864)
Fee and other income
  
436,075 
    
9,681 
    
4,235 
    
- 
    
449,991 
                             
Total revenues
  
(2,005,611)
    
(39,205)
    
3,651 
    
- 
    
(2,041,165)
                             
Benefits and expenses
                            
                             
Interest credited
  
483,769 
    
45,129 
    
2,378 
    
- 
    
531,276 
Interest expense
  
60,887 
    
(602)
    
- 
    
- 
    
60,285 
Policyowner benefits
  
306,404 
    
80,789 
    
3,900 
    
- 
    
391,093 
Amortization of DAC, VOBA and VOCRA(3)
  
(963,422)
    
(82,218)
    
- 
    
- 
    
(1,045,640)
Goodwill impairment
  
658,051 
    
37,788 
    
5,611 
    
- 
    
701,450 
Other operating expenses
  
214,654 
    
44,725 
    
2,440 
    
- 
    
261,819 
                             
Total benefits and expenses
  
760,343 
    
125,611 
    
14,329 
    
- 
    
900,283 
                             
Loss before income tax benefit
  
(2,765,954)
    
(164,816)
    
(10,678)
    
- 
    
(2,941,448)
                             
Income tax benefit
  
(772,699)
    
(41,418)
    
(1,826)
    
- 
    
(815,943)
Equity in the net loss of subsidiaries
  
(241,586)
    
- 
    
- 
    
241,586 
    
- 
                             
Net loss from continuing operations
  
(2,234,841)
    
(123,398)
    
(8,852)
    
241,586 
    
(2,125,505)
                             
Loss from discontinued operations, net of tax
  
- 
    
- 
    
(109,336)
    
-
    
(109,336)
                             
Net loss
$
(2,234,841)
  
$
(123,398)
  
$
(118,188)
  
$
241,586 
  
$
(2,234,841)

(1)
SLUS’ and SLNY’s net investment (loss) income includes a decrease in market value of $2,448.8 million and $154.9 million, respectively, for the year ended December 31, 2008, related to the Company’s trading securities.
(2)
SLUS’ and SLNY’s net derivative loss for the year ended December 31, 2008 includes $165.8 million and $0.3 million, respectively, of income related to the Company’s adoption of FASB ASC Topic 820, which is further discussed in Note 5.
(3)
SLUS’ and SLNY’s amortization of DAC, VOBA, and VOCRA for year ended December 31, 2008 includes $3.0 million and $0.2 million, respectively, of expenses related to the Company’s adoption of FASB ASC Topic 820, which is further discussed in Note 5.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations
For the Year Ended December 31, 2007

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Revenues
                            
                             
Premiums and annuity considerations
$
15,330 
  
$
95,286 
  
$
- 
  
$
- 
  
$
110,616 
Net investment income (1)
  
941,185 
    
94,309 
    
24,991 
    
- 
    
1,060,485
Net derivative loss
  
(185,682)
    
(3,967)
    
(1)
    
- 
    
(189,650)
Net realized investment gains (losses), excluding
impairment losses on available-for-sale
securities
  
5,722 
    
1,336 
    
(14)
    
- 
    
7,044 
Other-than-temporary impairment losses
  
(63,269)
    
(4,823)
    
- 
    
- 
    
(68,092)
Fee and other income
  
445,248 
    
26,648 
    
2,658 
    
- 
    
474,554 
Subordinated notes early redemption premium
  
- 
    
- 
    
25,578 
    
- 
    
25,578 
                             
Total revenues
  
1,158,534 
    
208,789 
    
53,212 
    
- 
    
1,420,535 
                             
Benefits and Expenses
                            
                             
Interest credited
  
571,309 
    
51,390 
    
2,629 
    
- 
    
625,328 
Interest expense
  
75,052 
    
74 
    
17,764 
    
- 
    
92,890 
Policyowner benefits
  
155,903 
    
69,309 
    
1,828 
    
- 
    
227,040 
Amortization DAC, VOBA and VOCRA
  
165,666 
    
19,921 
    
- 
    
- 
    
185,587 
Other operating expenses
  
238,810 
    
37,061 
    
898 
    
- 
    
276,769 
Partnership capital securities early redemption
payment
  
- 
    
- 
    
25,578 
    
- 
    
25,578 
                             
Total benefits and expenses
  
1,206,740 
    
177,755 
    
48,697 
    
- 
    
1,433,192 
                             
(Loss) income before income tax (benefit) expense
  
(48,206)
    
31,034 
    
4,515 
    
- 
    
(12,657)
                             
Income tax (benefit) expense
  
(40,222)
    
10,231 
    
1,296 
    
- 
    
(28,695)
Equity in the net income of subsidiaries
  
33,006 
    
- 
    
1,811 
    
(34,817)
    
- 
                             
Net income from continuing operations
  
25,022 
    
20,803 
    
5,030 
    
(34,817)
    
16,038 
                             
Income from discontinued operations, net of tax
  
- 
    
- 
    
8,984 
    
- 
    
8,984 
                             
Net income
$
25,022 
  
$
20,803 
  
$
14,014
  
$
(34,817)
  
$
25,022 

(1)
SLUS’ net investment income includes a decrease in market value of $89.2 million for the year ended December 31, 2007 related to the Company’s trading securities.




 
 
 

 SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share data)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Balance Sheets at December 31, 2009

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
ASSETS
                            
                             
Investments
                            
Available-for-sale fixed maturity securities, at fair value
$
959,156 
  
$
164,158 
  
$
52,202 
  
$
- 
  
$
1,175,516 
Trading fixed maturity securities, at fair value
  
9,724,195 
    
1,406,327 
    
- 
    
- 
    
11,130,522 
Short-term investments
  
1,208,320 
    
58,991 
    
- 
    
- 
    
1,267,311 
Investment in subsidiaries
  
518,560 
    
- 
    
- 
    
(518,560)
    
- 
Mortgage loans
  
1,736,358 
    
161,498 
    
14,105 
    
- 
    
1,911,961 
Derivative instruments – receivable
  
259,227 
    
- 
    
- 
    
- 
    
259,227 
Limited partnerships
  
51,656 
    
- 
    
- 
    
- 
    
51,656 
Real estate
  
158,170 
    
- 
    
44,107 
    
- 
    
202,277 
Policy loans
  
700,974 
    
270 
    
21,346 
    
- 
    
722,590 
Other invested assets
  
46,410 
    
542 
    
469 
    
- 
    
47,421 
Cash and cash equivalents
  
1,616,991 
    
175,322 
    
11,895 
    
- 
    
1,804,208 
Total investments and cash
  
16,980,017 
    
1,967,108 
    
144,124 
    
(518,560)
    
18,572,689 
                             
Accrued investment income
  
211,725 
    
17,051 
    
1,815 
    
- 
    
230,591 
Deferred policy acquisition costs
  
1,989,676 
    
183,966 
    
- 
    
- 
    
2,173,642 
Value of business and customer renewals acquired
  
163,079 
    
5,766 
    
- 
    
- 
    
168,845 
Net deferred tax asset
  
539,323 
    
5,830 
    
4,611 
    
- 
    
549,764 
Goodwill
  
- 
    
7,299 
    
- 
    
- 
    
7,299 
Receivable for investments sold
  
11,969 
    
642 
    
- 
    
- 
    
12,611 
Reinsurance receivable
  
2,232,651 
    
117,460 
    
96 
    
- 
    
2,350,207 
Other assets
  
114,177 
    
69,161 
    
1,975 
    
(1,350)
    
183,963 
Separate account assets
  
22,293,989 
    
989,939 
    
42,395 
    
- 
    
23,326,323 
                             
Total assets
$
44,536,606 
  
$
3,364,222 
  
$
195,016 
  
$
(519,910)
  
$
47,575,934 
                             
LIABILITIES
                            
                             
Contractholder deposit funds and other policy liabilities
$
15,078,201 
  
$
1,605,038 
  
$
26,350 
  
$
- 
  
$
16,709,589 
Future contract and policy benefits
  
716,176 
    
99,255 
    
207 
    
- 
    
815,638 
Payable for investments purchased
  
87,554 
    
577 
    
- 
    
- 
    
88,131 
Accrued expenses and taxes
  
51,605 
    
10,202 
    
1,446 
    
(1,350)
    
61,903 
Debt payable to affiliates
  
883,000 
    
- 
    
- 
    
- 
    
883,000 
Reinsurance payable
  
2,040,864 
    
190,863 
    
37 
    
- 
    
2,231,764 
Derivative instruments – payable
  
572,910 
    
- 
    
- 
    
- 
    
572,910 
Other liabilities
  
205,855 
    
48,608 
    
25,761 
    
- 
    
280,224 
Separate account liabilities
  
22,293,989 
    
989,939 
    
42,395 
    
- 
    
23,326,323 
                             
Total liabilities
  
41,930,154 
    
2,944,482 
    
96,196 
    
(1,350)
    
44,969,482 
                             
STOCKHOLDER’S EQUITY
                            
                             
Common stock
$
6,437 
  
$
2,100 
  
$
2,542 
  
$
(4,642)
  
$
6,437 
Additional paid-in capital
  
3,527,677 
    
389,963 
    
78,409 
    
(468,372)
    
3,527,677 
Accumulated other comprehensive income (loss)
  
35,244 
    
(3,039)
    
701 
    
2,338 
    
35,244 
(Accumulated deficit) retained earnings
  
(962,906)
    
30,716 
    
17,168 
    
(47,884)
    
(962,906)
                             
Total stockholder’s equity
  
2,606,452 
    
419,740 
    
98,820 
    
(518,560)
    
2,606,452 
                             
Total liabilities and stockholder’s equity
$
44,536,606 
  
$
3,364,222 
  
$
195,016
  
$
(519,910)
  
$
47,575,934 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except in share data)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Balance Sheets at December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
ASSETS
                            
                             
Investments
                            
Available-for-sale fixed maturity securities, at fair value
$
476,180 
  
$
148,124 
  
$
49,716 
  
$
- 
  
$
674,020 
Trading fixed maturity securities, at fair value
  
9,639,477 
    
988,809 
    
1,133,860 
    
- 
    
11,762,146 
Short-term investments
  
468,818 
    
115,969
    
14,694
    
-
    
599,481
Investment in subsidiaries
  
450,444 
    
- 
    
- 
    
(450,444)
    
- 
Mortgage loans
  
1,911,114 
    
171,889 
    
- 
    
- 
    
2,083,003 
Derivative instruments – receivable
  
727,103 
    
- 
    
- 
    
- 
    
727,103 
Limited partnerships
  
78,289 
    
- 
    
- 
    
- 
    
78,289 
Real estate
  
157,403 
    
- 
    
44,067 
    
- 
    
201,470 
Policy loans
  
704,548 
    
156 
    
24,703 
    
- 
    
729,407 
Other invested assets
  
206,902 
    
4,529 
    
- 
    
- 
    
211,431 
Cash and cash equivalents
  
733,518 
    
261,989 
    
29,161 
    
- 
    
1,024,668 
Total investments and cash
  
15,553,796 
    
1,691,465 
    
1,296,201 
    
(450,444)
    
18,091,018 
                             
Accrued investment income
  
250,170 
    
15,226 
    
17,168 
    
- 
    
282,564 
Deferred policy acquisition costs
  
2,555,042 
    
233,401 
    
73,958 
    
- 
    
2,862,401 
Value of business and customer renewals acquired
  
169,083 
    
10,742 
    
- 
    
- 
    
179,825 
Net deferred tax asset
  
910,344 
    
22,627 
    
- 
    
(76,126)
    
856,845 
Goodwill
  
- 
    
7,299 
    
-  
    
- 
    
7,299 
Receivable for investments sold
  
6,743 
    
430 
    
375 
    
- 
    
7,548 
Reinsurance receivable
  
1,872,687 
    
82,976 
    
1,120,952 
    
- 
    
3,076,615 
Other assets
  
200,218 
    
20,835 
    
1,787 
    
- 
    
222,840 
Separate account assets
  
19,797,280 
    
690,524 
    
43,920 
    
- 
    
20,531,724 
                             
Total assets
$
41,315,363 
  
$
2,775,525 
  
$
2,554,361 
  
$
(526,570)
  
$
46,118,679 
                             
LIABILITIES
                            
                             
Contractholder deposit funds and other policy liabilities
$
15,351,097 
  
$
1,348,109 
  
$
846,515 
  
$
- 
  
$
17,545,721 
Future contract and policy benefits
  
847,228 
    
93,975 
    
73,485 
    
- 
    
1,014,688 
Payable for investments purchased
  
212,788 
    
150,160 
    
565 
    
- 
    
363,513 
Accrued expenses and taxes
  
81,362 
    
(21,325)
    
58,634 
    
- 
    
118,671 
Deferred tax liability
  
- 
    
- 
    
76,126 
    
(76,126)
    
- 
Debt payable to affiliates
  
883,000 
    
- 
    
1,115,000 
    
- 
    
1,998,000 
Reinsurance payable
  
1,509,989 
    
140,832 
    
- 
    
- 
    
1,650,821 
Derivative instruments – payable
  
1,327,126 
    
- 
    
167,215 
    
- 
    
1,494,341 
Other liabilities
  
510,238 
    
44,597 
    
51,110 
    
- 
    
605,945 
Separate account liabilities
  
19,797,280 
    
690,524 
    
43,920 
    
- 
    
20,531,724 
                             
Total liabilities
  
40,520,108 
    
2,446,872 
    
2,432,570 
    
(76,126)
    
45,323,424 
                             
STOCKHOLDER’S EQUITY
                            
                             
Common stock
$
6,437 
  
$
2,100 
  
$
2,542 
  
$
(4,642)
  
$
6,437 
Additional paid-in capital
  
2,872,242 
    
389,963 
    
209,749 
    
(599,712)
    
2,872,242 
Accumulated other comprehensive loss
  
(129,884)
    
(20,008)
    
(3,626)
    
23,634 
    
(129,884)
Accumulated deficit
  
(1,953,540)
    
(43,402)
    
(86,874)
    
130,276 
    
(1,953,540)
                             
Total stockholder’s equity
  
795,255 
    
328,653 
    
121,791 
    
(450,444)
    
795,255  
                             
Total liabilities and stockholder’s equity
$
41,315,363 
  
$
2,775,525 
  
$
2,554,361 
  
$
(526,570) 
  
$
46,118,679


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow
For the Year Ended December 31, 2009

 
SLUS
As Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Operating Activities:
                            
Net income from operations
$
981,496 
  
$
71,512 
  
$
107,879 
  
$
(179,391)
  
$
981,496 
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
                            
Net amortization of premiums on investments
  
(203)
    
(605)
    
119 
    
- 
    
(689)
Amortization of DAC, VOBA and VOCRA
  
917,129 
    
107,532 
    
- 
    
- 
    
1,024,661 
Depreciation and amortization
  
4,355 
    
337 
    
843 
    
- 
    
5,535 
Net gain on derivatives
  
(73,343)
    
(22,698)
    
- 
    
- 
    
(96,041)
Net realized losses and OTTI credit losses on
available-for-sale investments
  
34,579 
    
2,996 
    
3,934 
    
- 
    
41,509 
Net increase in fair value of trading investments
  
(1,913,351)
    
(173,389)
    
- 
    
- 
    
(2,086,740)
Net realized losses on trading investments
  
357,470 
    
9,867 
    
- 
    
- 
    
367,337 
Undistributed loss on private equity limited
partnerships
  
9,207 
    
- 
    
- 
    
- 
    
9,207 
Interest credited to contractholder deposits
  
336,754 
    
47,855 
    
1,159 
    
- 
    
385,768 
Goodwill impairment
  
- 
    
- 
    
- 
    
- 
    
- 
Investment in subsidiaries
  
(179,391)
    
- 
    
- 
    
179,391 
    
- 
Deferred federal income taxes
  
290,478 
    
6,256 
    
(1,126)
    
- 
    
295,608 
Changes in assets and liabilities:
                            
Additions to DAC,  VOBA and VOCRA
  
(301,255)
    
(45,645)
    
- 
    
- 
    
(346,900)
Accrued investment income
  
38,445
    
(1,825)
    
116 
    
- 
    
36,736 
Net change in reinsurance receivable/payable
  
195,092 
    
19,060 
    
(4,515)
    
- 
    
209,637 
Future contract and policy benefits
  
(131,052)
    
5,280 
    
(220)
    
- 
    
(125,992)
Dividends received from subsidiaries
  
100,000 
    
- 
    
- 
    
(100,000)
    
- 
Other, net
  
(90,229)
    
(153,878)
    
738 
    
- 
    
(243,369)
Adjustment related to discontinued operations
  
- 
    
- 
    
(288,018)
    
- 
    
(288,018)
                             
Net cash provided by (used in) operating activities
  
576,181 
    
(127,345)
    
(179,091)
    
(100,000)
    
169,745
                             
Cash Flows From Investing Activities:
                            
Sales, maturities and repayments of:
                            
Available-for-sale fixed maturity securities
  
86,619 
    
21,303 
    
5,556 
    
- 
    
113,478 
Trading fixed maturity securities
  
1,673,886 
    
333,236 
    
98,233 
    
(8,301)
    
2,097,054 
Mortgage loans
  
149,414 
    
12,456 
    
15 
    
(18,392)
    
143,493 
Real estate
  
- 
    
- 
    
- 
    
- 
    
- 
Other invested assets
  
(209,135)
    
1,587 
    
- 
    
- 
    
(207,548)
Purchases of:
                            
Available-for-sale fixed maturity securities
  
(342,313)
    
(4,515)
    
(311)
    
- 
    
(347,139)
Trading fixed maturity securities
  
(226,389)
    
(587,134)
    
(62,088)
  
8,301 
    
(867,310)
Mortgage loans
  
(12,602)
    
(4,875)
    
(18,433)
    
18,392 
    
(17,518)
Real estate
  
(3,819)
    
- 
    
(883)
    
- 
    
(4,702)
Other invested assets
  
(106,277)
    
- 
    
- 
    
- 
    
(106,277)
Net change in other investments
  
(178,590)
    
(4,922)
    
- 
    
- 
    
(183,512)
Net change in policy loans
  
3,574 
    
(114)
    
3,357 
    
- 
    
6,817 
Net change in short-term investments
  
(739,502)
    
56,978 
    
(40,297)
    
- 
    
(722,821)
                             
Net cash provided by (used in) investing activities
$
94,866 
  
$
(176,000)
  
$
(14,851)
  
$
- 
  
$
(95,985)


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow (continued)
For the Year Ended December 31, 2009

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Financing Activities:
                            
Additions to contractholder deposit funds
$
2,298,455 
  
$
473,137 
  
$
24,347 
  
$
- 
  
$
2,795,939 
Withdrawals from contractholder deposit funds
  
(2,752,493)
    
(252,351)
    
(6,655)
    
- 
    
(3,011,499)
Capital contribution to subsidiaries
  
(58,910)
    
- 
    
- 
    
58,910 
    
- 
Debt proceeds
  
- 
    
- 
    
200,000 
    
- 
    
200,000 
Capital contribution from parent
  
748,652 
    
- 
    
58,910 
    
(58,910)
    
748,652 
Dividends paid to parent
  
- 
    
- 
    
(100,000)
    
100,000 
    
- 
Other, net
  
(23,278)
    
(4,108)
    
74 
    
- 
    
(27,312)
                             
Net cash provided by financing activities
  
212,426 
    
216,678 
    
176,676 
    
100,000 
    
705,780 
                             
Net change in cash and cash equivalents
  
883,473 
    
(86,667)
    
(17,266)
    
- 
    
779,540 
                             
Cash and cash equivalents, beginning of period
  
733,518 
    
261,989 
    
29,161 
    
- 
    
1,024,668
                             
Cash and cash equivalents, end of period
$
1,616,991 
  
$
175,322 
  
$
11,895 
  
$
- 
  
$
1,804,208 





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow
For the Year Ended December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Operating Activities:
                            
Net loss from operations
$
(2,234,841)
  
$
(123,398)
  
$
(118,188)
  
$
241,586 
  
$
(2,234,841)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
                            
Net amortization of premiums on investments
  
27,009 
    
2,663 
    
199
    
- 
    
29,871 
Amortization of DAC, VOBA and VOCRA
  
(963,422)
    
(82,218)
    
- 
    
- 
    
(1,045,640)
Depreciation and amortization
  
5,478 
    
311 
    
922 
    
- 
    
6,711 
Net loss on derivatives
  
522,838 
    
32,059 
    
1 
    
- 
    
554,898 
Net realized losses on available-for-sale
investments
  
21,852 
    
10,986 
    
5,225 
    
- 
    
38,063 
Net decrease in fair value of trading investments
  
2,448,822 
    
154,926 
    
- 
    
- 
    
2,603,748 
Net realized losses on trading investments
  
324,369 
    
30,622 
    
- 
    
- 
    
354,991 
Undistributed income on private equity limited
partnerships
  
(9,796)
    
- 
    
- 
    
- 
    
(9,796)
Interest credited to contractholder deposits
  
483,769 
    
45,129 
    
2,378 
    
- 
    
531,276 
Goodwill impairment
  
658,051 
    
37,788 
    
5,611 
    
- 
    
701,450 
Investment in subsidiaries
  
241,586 
    
- 
    
- 
    
(241,586)
    
- 
Deferred federal income taxes
  
(680,276)
    
(15,318)
    
(2,843)
    
-
    
(698,437)
Changes in assets and liabilities:
                            
Additions to DAC, VOBA and VOCRA
  
(254,761)
    
(27,648)
    
- 
    
- 
    
(282,409)
Accrued investment income
  
18,562 
    
19 
    
(502)
    
- 
    
18,079 
Net reinsurance receivable/payable
  
145,172 
    
66,699 
    
4,411 
    
- 
    
216,282 
Future contract and policy benefits
  
140,571 
    
898 
    
189 
    
- 
    
141,658 
Other, net
  
29,356 
    
122,486 
    
(2,452)
    
- 
    
149,390 
Adjustment related to discontinued operations
  
- 
    
- 
    
4,315 
    
- 
    
4,315 
                             
Net cash provided by (used in) operating activities
  
924,339 
    
256,004 
    
(100,734)
    
- 
    
1,079,609 
                             
Cash Flows From Investing Activities:
                            
Sales, maturities and repayments of:
                            
Available-for-sale fixed maturity securities
  
89,468 
    
6,440 
    
5,849 
    
- 
    
101,757 
Trading fixed maturity securities
  
1,469,669 
    
194,980 
    
143,849 
    
- 
    
1,808,498 
Mortgage loans
  
258,736 
    
15,202 
    
20,672 
    
- 
    
294,610 
Real estate
  
1,141 
    
- 
    
- 
    
- 
    
1,141 
Other invested assets
  
629,692 
    
64,482 
    
(2,017)
    
- 
    
692,157 
Purchases of:
                            
Available-for-sale fixed maturity securities
  
(107,709)
    
(14,027)
    
(7,738)
    
- 
    
(129,474)
Trading fixed maturity securities
  
(1,005,670)
    
(258,714)
    
(910,759)
  
- 
    
(2,175,143)
Mortgage loans
  
(23,285)
    
(16,650)
    
(19,000)
    
- 
    
(58,935)
Real estate
  
(5,055)
    
- 
    
(359)
    
- 
    
(5,414)
Other invested assets
  
(122,447)
    
- 
    
- 
    
- 
    
(122,447)
Net change in other investments
  
(285,810)
    
(64,154)
    
- 
    
- 
    
(349,964)
Net change in policy loans
  
(18,449)
    
(38)
    
1,713 
    
- 
    
(16,774)
Net change in short-term investments
  
(468,818)
    
(115,969)
    
(14,694)
    
- 
    
(599,481)
                             
Net cash provided by (used in) investing activities
$
411,463 
  
$
(188,448)
  
$
(782,484)
  
$
- 
  
$
(559,469)
Continued on next page


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow (continued)
For the Year Ended December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Financing Activities:
                            
Additions to contractholder deposit funds
$
1,744,752 
  
$
330,909 
  
$
114,438 
  
$
- 
  
$
2,190,099 
Withdrawals from contractholder deposit funds
  
(3,262,864)
    
(348,243)
    
(5,351)
    
- 
    
(3,616,458)
Additional capital contribution to subsidiaries
  
(150,000)
    
- 
    
- 
    
150,000 
    
- 
Debt proceeds
  
60,000 
    
- 
    
115,000 
    
- 
    
175,000 
Repayments of debt
  
(122,000)
    
- 
    
- 
    
- 
    
(122,000)
Capital contribution from parent
  
725,000 
    
150,000 
    
- 
    
(150,000)
    
725,000 
Other, net
  
(12,666)
    
(4,134)
    
(14)
    
- 
    
(16,814)
                             
Net cash (used in) provided by financing activities
  
(1,017,778)
    
128,532 
    
224,073 
    
- 
    
(665,173)
                             
Net change in cash and cash equivalents
  
318,024 
    
196,088 
    
(659,145)
    
- 
    
(145,033)
                             
Cash and cash equivalents, beginning of period
  
415,494 
    
65,901 
    
688,306 
    
- 
    
1,169,701 
                             
Cash and cash equivalents, end of period
$
733,518 
  
$
261,989 
  
$
29,161 
  
$
- 
  
$
1,024,668 








 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow
For the Year Ended December 31, 2007

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Operating Activities:
                            
Net income from operations
$
25,022 
  
$
20,803 
  
$
14,014 
  
$
(34,817)
  
$
25,022 
Adjustments to reconcile net income to net cash
provided by operating activities:
                            
Net amortization of premiums on investments
  
38,661 
    
1,782 
    
411 
    
- 
    
40,854 
Amortization of DAC, VOBA and VOCRA
  
165,666 
    
19,921 
    
- 
    
- 
    
185,587 
Depreciation and amortization
  
6,467 
    
164 
    
829 
    
- 
    
7,460 
Net loss on derivatives
  
124,290 
    
3,970 
    
- 
    
- 
    
128,260 
Net realized losses on available-for-sale
investments
  
57,547 
    
3,487 
    
14 
    
- 
    
61,048 
Net decrease in fair value of trading investments
  
89,159 
    
- 
    
- 
    
- 
    
89,159 
Net realized gains on trading investments
  
(3,438)
    
- 
    
- 
    
- 
    
(3,438)
Undistributed gains in private equity limited
partnerships
  
(23,027)
    
- 
    
- 
    
- 
    
(23,027)
Interest credited to contractholder deposits
  
571,309 
    
51,390 
    
2,629 
    
- 
    
625,328 
Deferred federal income taxes
  
(114,110)
    
290 
    
128 
    
- 
    
(113,692)
Equity in net income of subsidiaries
  
(33,006)
    
- 
    
(1,811)
    
34,817 
    
- 
Changes in assets and liabilities:
                            
DAC, VOBA and VOCRA additions
  
(304,466)
    
(56,650)
    
2 
    
- 
    
(361,114)
Accrued investment income
  
(2,591)
    
(120)
    
8,524 
    
- 
    
5,813 
Net reinsurance receivable/payable
  
127,619 
    
59 
    
553,749 
    
- 
    
681,427 
Future contract and policy benefits
  
3,184 
    
39,436 
    
238 
    
- 
    
42,858 
Dividends received from subsidiaries
  
63,995 
    
- 
    
- 
    
(63,995)
    
- 
Other, net
  
(122,356)
    
4,931 
    
2,785 
    
- 
    
(114,640)
Adjustment related to discontinued operations
  
- 
    
- 
    
(501,909)
    
- 
    
(501,909)
   
 
                        
Net cash provided by operating activities
  
669,925 
    
89,463 
    
79,603
    
(63,995)
    
774,996 
                             
Cash Flows From Investing Activities:
                            
Sales, maturities and repayments of:
                            
Available-for-sale fixed maturity securities
  
3,847,569
    
337,825
    
67,386
    
- 
    
4,252,780
Trading fixed maturity securities
  
608,231
    
-
    
120,402
    
-
    
728,633
Mortgage loans
  
314,620
    
40,526
    
- 
    
- 
    
355,146
Other invested assets
  
669,930
    
24
    
960
    
(3,231)
    
667,683
Redemption of subordinated note from affiliate
  
- 
    
- 
    
600,000
    
- 
    
600,000
Purchases of:
                            
Available-for-sale fixed maturity securities
  
(2,366,255)
    
(205,932)
    
14,346
    
- 
    
(2,557,841)
Trading fixed maturity securities
  
(132,891)
    
-
    
(696,578)
    
-
    
(829,469)
Mortgage loans
  
(348,256)
    
(49,460)
    
(1,850)
    
- 
    
(399,566)
Real estate
  
(3,590)
    
- 
    
(15,849)
    
- 
    
(19,439)
Other invested assets
  
(57,864)
    
(3,231)
    
- 
    
3,231 
    
(57,864)
Early redemption premium
  
- 
    
- 
    
25,578
    
- 
    
25,578
Net change in other investing activities
  
(365,012)
    
3,231 
    
- 
    
- 
    
(361,781)
Net change in policy loans
  
(13,546)
    
21 
    
10,518
    
- 
    
(3,007)
                             
Net cash provided by investing activities
$
2,152,936 
  
$
123,004 
  
$
124,913
  
$
- 
  
$
2,400,853 
Continued on next page


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow (continued)
For the Year Ended December 31, 2007

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Financing Activities:
                            
Additions to contractholder deposit funds
$
1,725,614 
  
$
180,702 
  
$
18,468 
  
$
- 
  
$
1,924,784 
Withdrawals from contractholder deposit funds
  
(4,132,822)
    
(388,199)
    
(12,384)
    
- 
    
(4,533,405)
Repayments of debt
  
(380,000)
    
- 
    
(600,000)
    
- 
    
(980,000)
Debt proceeds
  
- 
    
- 
    
1,000,000 
    
- 
    
1,000,000 
Dividends paid to parent
  
- 
    
- 
    
(63,995)
    
63,995 
    
- 
Early redemption payment
  
- 
    
- 
    
(25,578)
    
- 
    
(25,578)
Additional capital contributed to subsidiaries
  
(156,620)
    
- 
    
156,620 
    
- 
    
- 
Other, net
  
23,271 
    
6,700 
    
- 
    
- 
    
29,971 
                             
Net cash used in financing activities
  
(2,920,557)
    
(200,797)
    
473,131 
    
63,995 
    
(2,584,228)
                             
Net change in cash and cash equivalents
  
(97,696)
    
11,670 
    
677,647 
    
- 
    
591,621 
                             
Cash and cash equivalents, beginning of period
  
513,190 
    
54,231 
    
10,659 
    
- 
    
578,080 
                             
Cash and cash equivalents, end of period
$
415,494 
  
$
65,901 
  
$
688,306 
  
$
- 
  
$
1,169,701 






 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

17. SEGMENT INFORMATION

As described below, the Company conducts business primarily in three operating segments and maintains a Corporate Segment to provide for the capital needs of the three operating segments and to engage in other financing related activities.  Each segment is defined consistently with the way results are evaluated by the chief operating decision-maker.

Net investment income is allocated based on segmented assets, including allocated capital, by line of business.  Allocations of operating expenses among segments are made using both standard rates and actual expenses incurred.  Management evaluates the results of the operating segments on an after-tax basis.  The Company does not depend on one or a few customers, brokers or agents for a significant portion of its operations.

Wealth Management

The Wealth Management Segment markets, sells and administers funding agreements, individual and group variable annuity products, individual and group fixed annuity products and other retirement benefit products.  These contracts may contain any of a number of features including variable or fixed interest rates and equity index options and may be denominated in foreign currencies.  The Company uses derivative instruments to manage the risks inherent in the contract options.  Additionally, the Company consolidates the CARS Trust as a component of the Wealth Management Segment.

Individual Protection

The Individual Protection Segment markets, sells and administers a variety of life insurance products sold to individuals and corporate owners of life insurance. The products include whole life, universal life and variable life products.

Group Protection

The Group Protection Segment markets, sells and administers group life, group long-term disability, group short-term disability, group dental and group stop loss insurance products to small and mid-size employers in the State of New York through the Company’s subsidiary, SLNY.

Corporate

The Corporate Segment includes the unallocated capital of the Company, its debt financing, its consolidated investments in VIEs, and items not otherwise attributable to the other segments.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

17. SEGMENT INFORMATION (CONTINUED)

The following amounts pertain to the various business segments:


Year ended December 31, 2009
 
 
Wealth
  
Individual
  
Group
        
 
Management
  
Protection
  
Protection
  
Corporate
  
Totals
                             
Total revenues
$
2,823,029 
  
$
71,718 
  
$
135,242 
  
$
(9,011)
  
$
3,020,978 
Total expenditures
  
1,623,582 
    
40,477 
    
119,134 
    
25,611 
    
1,808,804 
Income (loss) from continuing
operations before income taxes
  
1,199,447 
    
31,241 
    
16,108 
    
(34,622)
    
1,212,174 
                             
Income from continuing operations
  
798,360 
    
10,155 
    
10,470 
    
57,540 
    
876,525 
                             
Income from discontinued
operations, net of tax
  
- 
    
104,971 
    
- 
    
- 
    
104,971 
                             
Net income
$
798,360 
  
$
115,126 
  
$
10,470 
  
$
57,540 
  
$
981,496 
                             
Separate account assets
  
16,396,394 
    
6,929,928 
    
- 
    
- 
    
23,326,323 
General account assets
  
21,323,702 
    
1,997,532 
    
172,648 
    
755,730 
    
24,249,612 
Total assets
$
37,720,096 
  
$
8,927,460 
  
$
172,648 
  
$
755,730 
  
$
47,575,935 
 
Year ended December 31, 2008
 
 
Wealth
  
Individual
  
Group
        
 
Management
  
Protection
  
Protection
  
Corporate
  
Totals
                             
Total revenues
$
(2,207,978)
  
$
84,326 
  
$
102,827 
  
$
(20,340)
  
$
(2,041,165)
Total expenditures
  
645,665 
    
120,197 
    
111,097 
    
23,324 
    
900,283 
Loss from continuing operations
before income tax benefit
  
(2,853,643)
    
(35,871)
    
(8,270)
    
(43,664)
    
(2,941,448)
                             
Loss from continuing operations
  
(2,017,095)
    
(12,884)
    
(5,335)
    
(90,191)
    
(2,125,505)
                             
Loss from discontinued operations,
net of tax
  
- 
    
(109,336)
    
- 
    
- 
    
(109,336)
                             
Net loss
$
(2,017,095)
  
$
(122,220)
  
$
(5,335)
  
$
(90,191)
  
$
(2,234,841)
                             
Separate account asset
  
12,149,690 
    
8,382,034 
    
- 
    
- 
    
20,531,724 
General account assets
  
21,207,742 
    
3,772,934 
    
164,123 
    
442,156 
    
25,586,955 
Total assets
$
33,357,432 
  
$
12,154,968 
  
$
164,123 
  
$
442,156 
  
$
46,118,679 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

17. SEGMENT INFORMATION (CONTINUED)

 
Year ended December 31, 2007
 
 
Wealth
  
Individual
  
Group
        
 
Management
  
Protection
  
Protection
  
Corporate
  
Totals
                             
Total revenues
$
1,087,817 
  
$
144,332 
  
$
97,657 
  
$
90,729 
  
$
1,420,535 
Total expenditures
  
1,139,538 
    
121,960 
    
93,950 
    
77,744 
    
1,433,192 
(Loss) income from continuing
operations before income tax
(benefit) expense
  
(51,721)
    
22,372 
    
3,707 
    
12,985 
    
(12,657)
                             
(Loss) income from continuing
operations
  
(19,734)
    
14,681 
    
2,409 
    
18,682 
    
16,038 
                             
Income from discontinued
operations, net of tax
  
- 
    
8,984 
    
- 
    
- 
    
8,984 
                             
Net (loss) income
$
(19,734)
  
$
23,665 
  
$
2,409 
  
$
18,682 
  
$
25,022 
                             
Separate account asset
  
17,529,855 
    
7,466,748 
    
- 
    
- 
    
24,996,603 
General account assets
  
22,325,922 
    
3,300,369 
    
121,096 
    
1,062,777 
    
26,810,164
Total assets
$
39,855,777 
  
$
10,767,117 
  
$
121,096 
  
$
1,062,777 
  
$
51,806,767 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

18.  REGULATORY FINANCIAL INFORMATION

The Company and its insurance subsidiaries are required to file annual statements with state regulatory authorities prepared on a statutory accounting basis prescribed or permitted by such authorities.  For the year ended December 31, 2008, the Company followed one permitted practice relating to the treatment of its deferred tax assets.  For the years ended December 31, 2009 and 2007, there were no permitted practices followed.  Statutory surplus differs from stockholder's equity reported in accordance with GAAP primarily because policy acquisition costs are expensed when incurred, policy liabilities are based on different assumptions, investments are valued differently, post-retirement benefit costs are based on different assumptions, and deferred income taxes are calculated differently.  The Company’s statutory financials are not prepared on a consolidated basis.

At December 31, the Company and its insurance subsidiaries’ combined statutory capital and surplus and net loss were as follows:

 
Unaudited for the Years Ended December 31,
 
 
2009
 
2008
 
2007
       
Statutory capital and surplus
$    2,037,661 
$      1,949,215 
$       1,790,457 
Statutory net loss
$        (23,879)
$     (1,431,516)
$         (913,114)







 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

19. DIVIDEND RESTRICTIONS

The Company’s and its insurance company subsidiaries’ ability to pay dividends is subject to certain statutory restrictions.  The states in which the Company and its insurance company subsidiaries are domiciled have enacted laws governing the payment of dividends to stockholders by domestic insurers.

Pursuant to Delaware's statute, the maximum amount of dividends and other distributions that a domestic insurer may pay in any twelve-month period without prior approval of the Delaware Commissioner of Insurance is limited to the greater of (i) ten percent of its statutory surplus as of the preceding December 31, or (ii) the individual company's statutory net gain from operations for the preceding calendar year.  Any dividends to be paid by an insurer from a source other than statutory surplus, whether or not in excess of the aforementioned threshold, would also require the prior approval of the Delaware Commissioner of Insurance.  The Company is permitted to pay dividends up to a maximum of $357.2 million in 2010 without prior approval from the Delaware Commissioner of Insurance.

In 2009 and 2008, the Company did not pay any cash dividends to the Parent.  However, the Company distributed its subsidiary, Sun Life Vermont, in the form of a dividend to the Parent, with regulatory approval.

New York law permits a domestic stock life insurance company to distribute a dividend to its shareholders without prior notice to the New York Superintendent of Insurance, where the aggregate amount of such dividends in any calendar year does not exceed the lesser of: (i) ten percent of its surplus to policyholders as of the immediately preceding calendar year; or (ii) its net gain from operations for the immediately preceding calendar year, not including realized capital gains.  SLNY is permitted to pay dividends up to a maximum of $23.0 million in 2010 without prior approval from the New York Commissioner of Insurance.  No dividends were paid by SLNY during 2009, 2008 or 2007.

Rhode Island law requires prior regulatory approval for any dividend where the amount of such dividend paid during the preceding twelve-month period would exceed the lesser of (i) ten percent of the insurance company’s surplus as of the December 31 next preceding, or (ii) its net gain from operations, not including realized capital gains, for the immediately preceding calendar year, excluding pro rata distributions of any class of the insurance company’s own securities.  INDY is permitted to pay dividends up to a maximum of $3.6 million in 2010 without prior approval from the Rhode Island Commissioner of Insurance.  No dividends were paid by INDY during 2009, 2008 or 2007.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

20. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The components of accumulated other comprehensive income (loss) as of December 31, were as follows:

 
2009
  
2008
  
2007
Unrealized gains (losses) on available-for-sale
securities
$
67,970 
  
$
(111,099)
  
$
(317,402)
Changes in reserves due to unrealized losses on
available-for-sale securities
  
- 
    
- 
    
(26,702)
Unrealized (losses) gains on pension and other
postretirement plan adjustments
  
- 
    
(88,721)
    
14,894 
Changes in DAC due to unrealized losses on
available-for-sale securities
  
- 
    
- 
    
189,687 
Changes due to non-credit OTTI losses on
available-for-sale securities
  
(13,748)
    
- 
    
- 
Tax effect and other
  
(18,978)
    
69,936 
    
47,120 
                 
Accumulated other comprehensive income
  (loss)
$
35,244 
  
$
(129,884)
  
$
 (92,403)

21. COMMITMENTS AND CONTINGENCIES

Regulation and Regulatory Developments

Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants.  Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments.  Part of the assessments paid by the Company pursuant to these laws may be used as credits for a portion of the associated premium taxes.

Litigation, Income Taxes and Other Matters

In Revenue Ruling 2007-61, issued on September 25, 2007, the IRS announced its intention to issue regulations with respect to certain computational aspects of the dividends-received-deduction (the “DRD”) on separate account assets held in connection with variable annuity contracts.  Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54, issued on August 16, 2007, that purported to change accepted industry and IRS interpretations of the statutes governing computational questions impacting the DRD.  New DRD regulations that the IRS proposes for issuance on this matter will be subject to public comment, at which time the insurance industry and other interested parties will have the opportunity to raise comments and questions about the content, scope, and application of new regulations.  The timing, substance, and effective date of the new regulations are unknown, but they could result in the elimination of some or all of the separate account DRD tax benefit that the Company ultimately receives.  For the years ended December 31, 2009 and 2008, the financial statements reflect benefits of $15.5 million and $24.5 million, respectively, related to the separate account DRD.

The Company is not aware of any contingent liabilities arising from litigation or other matters that could have a material effect upon the financial position, results of operations or cash flows of the Company.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)

For the Years Ended December 31, 2009, 2008 and 2007

21. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Indemnities

In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, underwriting and agency agreements, information technology agreements, distribution agreements, and service agreements.  The Company has also agreed to indemnify its directors and certain of its officers and employees in accordance with the Company’s by-laws.  The Company believes any potential liability under these agreements is neither probable nor estimatable.  Therefore, the Company has not recorded any associated liability.

Lease Commitments

The Company leases various facilities and equipment under operating leases with terms of up to five years. As of December 31, 2009, minimum future lease payments under such leases were as follows:

 
    
2010
$
330
2011
  
54
2012
  
- 
      Total
$
384

Total rental expense for the years ended December 31, 2009, 2008 and 2007 was $6.9 million, $8.2 million and $9.4 million, respectively.

22. SUBSEQUENT EVENTS

On February 25, 2010, the Company received a $400 million capital contribution from the Parent.





 
 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Participants of Keyport Variable Account A and the Board of Directors of Sun Life Assurance Company of Canada (U.S.) (the “Sponsor”):

We have audited the accompanying statements of assets and liabilities of AIM VI Capital Appreciation Series I Sub-Account, AIM VI Core Equity Fund Sub-Account, AIM VI International Growth Series I Sub-Account, Alger American Small Capitalization Growth Portfolio Class I-2 Sub-Account, AllianceBernstein Global Thematic Growth Portfolio (B) Sub-Account, AllianceBernstein Growth & Income Portfolio (A) Sub-Account, AllianceBernstein Growth & Income Portfolio (B) Sub-Account, AllianceBernstein Growth Portfolio (B) Sub-Account, AllianceBernstein International Growth Portfolio (B) Sub-Account, AllianceBernstein Real Estate Investment Portfolio (A) Sub-Account, AllianceBernstein VPS Balanced Wealth Strategy (B) Sub-Account, AllianceBernstein VPS Intermediate Bond (A) Sub-Account, AllianceBernstein VPS Intermediate Bond (B) Sub-Account, Columbia Asset Allocation Fund, VS (A) Sub-Account, Columbia Asset Allocation Fund, VS (B) Sub-Account, Columbia Federal Securities Fund, VS (A) Sub-Account, Columbia Federal Securities Fund, VS (B) Sub-Account, Columbia High Yield Fund, VS (A) Sub-Account, Columbia High Yield Fund, VS (B) Sub-Account, Columbia International Fund , VS (A) Sub-Account, Columbia International Fund , VS (B) Sub-Account, Columbia Large Cap Growth Stock Fund, VS (A) Sub-Account, Columbia Large Cap Growth Stock Fund, VS (B) Sub-Account, Columbia Large Cap Value Fund VS, (A) Sub-Account, Columbia Large Cap Value Fund VS, (B) Sub-Account, Columbia Mid Cap Value Fund, VS (A) Sub-Account, Columbia Mid Cap Value Fund, VS (B) Sub-Account, Columbia Money Market Fund, VS (A) Sub-Account, Columbia S&P 500 Index Fund, VS (A) Sub-Account, Columbia S&P 500 Index Fund, VS (B) Sub-Account, Columbia Small Cap Value Fund, VS (A) Sub-Account, Columbia Small Cap Value Fund, VS (B) Sub-Account, Columbia Small Company Growth Fund, VS (A) Sub-Account, Columbia Strategic Income Fund, VS (A) Sub-Account, Columbia Strategic Income Fund, VS (B) Sub-Account, Fidelity VIP Equity Income Fund - SC2 Sub-Account, Fidelity VIP III Dynamic Capital Appreciation Fund-SC2 Sub-Account, Fidelity VIP III Growth Opportunities Fund - SC2 Sub-Account, MFS Bond Series IC Sub-Account, MFS Growth Series IC Sub-Account, MFS Growth Series SC Sub-Account, MFS Investors Growth Stock Series SC Sub-Account, MFS Investors Trust Series SC Sub-Account, MFS New Discovery Series SC Sub-Account, MFS Research Series IC Sub-Account, Rydex NASDAQ-100® Sub-Account, SC WMC Large Cap Growth Fund I Class Sub-Account, SC WMC Large Cap Growth Fund S Class Sub-Account, Templeton Developing Markets Securities Fund 2 Sub-Account, Wanger International Select Fund Sub-Account, Wanger International Small Cap Fund Sub-Account, Wanger Select Fund Sub-Account, Wanger USA Fund Sub-Account, Rydex VT Consumer Products Fund Sub-Account, Rydex VT Energy Fund Sub-Account, Rydex VT Energy Services Fund Sub-Account, Rydex VT Financial Services Fund Sub-Account, Rydex VT Health Care Fund Sub-Account, Rydex VT U.S. Government Money Market Fund Sub-Account, Rydex VT Europe Advantage Fund Sub-Account, Rydex VT Government Long Bond 1.2x Strategy Fund Sub-Account, Rydex VT S&P 500 2x Strategy Fund Sub-Account, Rydex VT Russell 2000 1.5x Strategy Fund Sub-Account, and USA Allocation Portfolio Sub-Account of Keyport Variable Account A (collectively the "Sub-Accounts"), as of December 31, 2009, and the related statements of operations and the statements of changes in net assets for each of the periods presented.  These financial statements are the responsibility of the Sponsor’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Sub-Accounts are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Sub-Accounts’ internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the mutual fund companies.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the Sub-Accounts as of December 31, 2009, and the results of their operations and the changes in their net assets for each of the periods presented in conformity with accounting principles generally accepted in the United States of America.



/s/DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 23, 2010


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2009
Assets:
Shares
Cost
Value
Investments at fair value:
      
AIM VI Capital Appreciation Series I Sub-Account (AI1)
289,372
$    9,565,326
$    5,882,934
AIM VI Core Equity Fund Sub-Account (AI3)
330,150
8,274,833
8,227,342
AIM VI International Growth Series I Sub-Account (AI4)
660,556
14,651,250
17,181,052
Alger American Small Capitalization Growth Portfolio Class I-2
Sub-Account (ACG)
133,683
5,792,022
3,419,619
AllianceBernstein Global Thematic Growth Portfolio (B) Sub-Account (AGT)
346,550
9,800,276
5,662,627
AllianceBernstein Growth & Income Portfolio (A) Sub-Account (AIA)
76,591
1,632,466
1,164,179
AllianceBernstein Growth & Income Portfolio (B) Sub-Account (AIB)
1,066,043
24,461,368
16,075,932
AllianceBernstein Growth Portfolio (B) Sub-Account (AGB)
29,238
411,647
499,966
AllianceBernstein International Growth Portfolio (B) Sub-Account (AGP)
193,718
3,019,996
3,198,290
AllianceBernstein Real Estate Investment Portfolio (A) Sub-Account (ARE)
19,890
195,796
191,744
AllianceBernstein VPS Balanced Wealth Strategy (B)  Sub-Account (ABW)
43,287
431,136
457,978
AllianceBernstein VPS Intermediate Bond (A)  Sub-Account (VIA)
426,857
4,763,722
5,113,746
AllianceBernstein VPS Intermediate Bond (B)  Sub-Account (VIB)
158,929
1,761,010
1,884,899
Columbia Asset Allocation Fund, VS (A) Sub-Account (CAA)
1,781,455
27,520,580
19,738,525
Columbia Asset Allocation Fund, VS (B) Sub-Account (CAB)
1,842,988
29,253,610
20,309,729
Columbia Federal Securities Fund, VS (A) Sub-Account (ACL)
1,241,675
13,016,868
12,478,832
Columbia Federal Securities Fund, VS (B) Sub-Account (LFS)
3,767,600
39,817,027
37,525,298
Columbia High Yield Fund, VS (A) Sub-Account (CHA)
190,189
2,078,061
1,856,242
Columbia High Yield Fund, VS (B) Sub-Account (CHB)
862,757
9,350,334
8,411,882
Columbia International Fund, VS (A) Sub-Account (CIA)
10,073,110
20,050,363
11,886,270
Columbia International Fund, VS (B) Sub-Account (CIB)
1,601,339
2,008,316
1,873,567
Columbia Large Cap Growth Stock Fund, VS (A) Sub-Account (CLA)
361,223
11,889,931
9,008,913
Columbia Large Cap Growth Stock Fund, VS (B) Sub-Account (CLB)
271,722
14,662,833
6,749,585
Columbia Large Cap Value Fund VS, (A) Sub-Account (CVA)
2,504,329
43,269,360
28,874,919
Columbia Large Cap Value Fund VS, (B) Sub-Account (CVB)
1,184,447
20,822,858
13,609,300
Columbia Mid Cap Value Fund, VS (A) Sub-Account (CMA)
14,782
200,443
160,237
Columbia Mid Cap Value Fund, VS (B) Sub-Account (CMB)
1,322,027
18,230,781
14,277,888
Columbia Money Market Fund, VS (A) Sub-Account (MMA)
69,469,641
69,469,641
69,469,641
Columbia S&P 500 Index Fund, VS (A) Sub-Account (CSA)
9,441
111,112
91,290
Columbia S&P 500 Index Fund, VS (B) Sub-Account (CSB)
1,904,360
20,661,438
18,319,942
Columbia Small Cap Value Fund, VS (A) Sub-Account (CCA)
174,891
1,497,678
2,450,221
Columbia Small Cap Value Fund, VS (B) Sub-Account (CCB)
482,760
5,057,461
6,748,992
Columbia Small Company Growth Fund, VS (A) Sub-Account (CGA)
191,906
3,292,719
1,832,703
Columbia Strategic Income Fund, VS (A) Sub-Account (SIA)
2,136,363
24,119,921
18,372,723
Columbia Strategic Income Fund, VS (B) Sub-Account (SIB)
2,639,725
25,001,587
22,596,046
Fidelity VIP Equity Income Fund - SC2 Sub-Account (FES)
1,126,159
25,087,425
18,660,455
Fidelity VIP III Dynamic Capital Appreciation Fund - SC2 Sub-Account (FDC)
145,024
914,450
1,023,868
Fidelity VIP III Growth Opportunities Fund - SC2 Sub-Account (FGO)
526,003
9,102,576
7,574,450
MFS Bond Series IC Sub-Account (MBS)
96,017
1,077,252
1,171,411
MFS Growth Series IC Sub-Account (MGI)
171,904
2,657,753
3,683,912
MFS Growth Series SC Sub-Account (MGS)
148,655
4,835,439
3,136,613


The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2009
Assets (continued):
Shares
Cost
Value
Investments at fair value (continued):
      
MFS Investors Growth Stock Series SC Sub-Account (MSS)
651,582
$    8,662,684
$      6,268,223
MFS Investors Trust Series SC Sub-Account (MTS)
421,381
8,279,244
7,652,281
MFS New Discovery Series SC Sub-Account (MND)
265,470
4,243,262
3,464,386
MFS Research Series IC Sub-Account (MRI)
392,558
5,906,446
6,504,678
Rydex NASDAQ-100® Sub-Account (RN1)
101,286
2,738,066
1,616,528
SC WMC Large Cap Growth Fund I Class Sub-Account (LCG)
2,156,803
22,495,457
17,577,946
SC WMC Large Cap Growth Fund S Class Sub-Account (SML)
977,363
10,193,892
7,916,637
Templeton Developing Markets Securities Fund 2 Sub-Account (TD2)
185,030
1,307,000
1,809,595
Wanger International Select Fund Sub-Account (WFF)
263,579
3,244,115
4,064,384
Wanger International Small Cap Fund Sub-Account (WSS)
437,991
7,610,651
12,999,565
Wanger Select Fund Sub-Account (WTF)
503,972
7,262,128
11,616,543
Wanger USA Fund Sub-Account (WUF)
875,674
18,766,259
24,037,245
Total investments
  
630,527,869
536,381,773
Total assets
  
 
$  630,527,869
$  536,381,773
Liabilities:
      
Payable to Sponsor
    
$                    -
Total liabilities
    
-
Net Assets
    
$  536,381,773




















The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2009
 
Net Assets:
Applicable to Owners of
Deferred Variable Annuity
Contracts
  
Reserve for
Variable
  
Total
  
Units
Value
  
Annuities
  
Value
  
             
AI1
662,064
$           5,309,160
  
$        573,774
  
$         5,882,934
  
AI3
818,322
7,586,548
  
640,794
  
8,227,342
  
AI4
1,234,923
15,934,067
  
1,246,985
  
17,181,052
  
ACG
272,701
3,246,887
  
172,732
  
3,419,619
  
AGT
783,716
5,364,409
  
298,218
  
5,662,627
  
AIA
91,605
1,073,159
  
91,020
  
1,164,179
  
AIB
1,623,459
13,935,163
  
2,140,769
  
16,075,932
  
AGB
50,761
374,911
  
125,055
  
499,966
  
AGP
243,763
2,934,626
  
263,664
  
3,198,290
  
ARE
8,931
175,830
  
15,914
  
191,744
  
ABW
45,366
294,215
  
163,763
  
457,978
  
VIA
469,216
3,904,390
  
1,209,356
  
5,113,746
  
VIB
173,826
1,481,300
  
403,599
  
1,884,899
  
CAA
627,165
15,489,554
  
4,248,971
  
19,738,525
  
CAB
688,876
16,819,250
  
3,490,479
  
20,309,729
  
ACL
437,224
10,271,731
  
2,207,101
  
12,478,832
  
LFS
1,352,976
32,984,697
  
4,540,601
  
37,525,298
  
CHA
164,145
1,673,823
  
182,419
  
1,856,242
  
CHB
745,644
7,530,604
  
881,278
  
8,411,882
  
CIA
1,004,309
10,366,383
  
1,519,887
  
11,886,270
  
CIB
121,964
1,519,269
  
354,298
  
1,873,567
  
CLA
286,375
7,692,723
  
1,316,190
  
9,008,913
  
CLB
218,231
6,171,264
  
578,321
  
6,749,585
  
CVA
1,117,016
25,333,443
  
3,541,476
  
28,874,919
  
CVB
555,976
12,505,525
  
1,103,775
  
13,609,300
  
CMB
1,077,566
13,519,906
  
757,982
  
14,277,888
  
MMA
4,129,866
64,569,759
  
4,899,882
  
69,469,641
  
CSB
2,458,314
17,185,894
  
1,134,048
  
18,319,942
  
CCA
134,732
1,819,252
  
630,969
  
2,450,221
  
CCB
376,134
6,295,284
  
453,708
  
6,748,992
  
CGA
57,856
1,713,741
  
118,962
  
1,832,703
  
SIA
787,245
15,807,256
  
2,565,467
  
18,372,723
  
SIB
996,494
20,194,378
  
2,401,668
  
22,596,046
  
FES
1,815,511
16,835,117
  
1,825,338
  
18,660,455
  
FDC
89,772
1,022,550
  
1,318
  
1,023,868
  
FGO
1,220,169
7,128,971
  
445,479
  
7,574,450
  
MBS
72,349
939,092
  
232,319
  
1,171,411
  
MGI
246,146
3,263,763
  
420,149
  
3,683,912
  
MGS
213,584
3,009,688
  
126,925
  
3,136,613
  


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2009
 
Net Assets:
Applicable to Owners of Deferred Variable Annuity Contracts
  
Reserve for Variable
  
Total
  
Units
Value
  
Annuities
  
Value
  
             
MSS
1,021,792
$          5,962,343
  
$        305,880
  
$          6,268,223
  
MTS
892,163
7,220,741
  
431,540
  
7,652,281
  
MND
393,826
3365444
  
98942
  
3,464,386
  
MRI
462,644
5,957,268
  
547,410
  
6,504,678
  
RN1
448,018
1,482,318
  
134,210
  
1,616,528
  
LCG
2,323,620
15,886,323
  
1,691,623
  
17,577,946
  
SML
1,053,135
7,387,446
  
529,191
  
7,916,637
  
TD2
96,803
1,727,518
  
82,077
  
1,809,595
  
WFF
304,921
3,799,283
  
265,101
  
4,064,384
  
WSS
792,465
12,580,932
  
418,633
  
12,999,565
  
WTF
658,009
11,004,478
  
612,065
  
11,616,543
  
WUF
1,516,204
22,840,014
  
1,197,231
  
24,037,245
  
Net asset of contracts owners
  
$      482,491,690
  
$   53,638,556
  
$      536,130,246
  
Retained by Sun life Assurance Company of Canada (U.S.)
      
251,527
  
Total net assets
          
$      536,381,773
  

























The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
AI1
  
AI3
  
AI4
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$            34,049
  
$          134,533
  
$          230,297
           
Expenses:
          
 Mortality and expense risk charges
75,568
  
105,166
  
223,158
 Distribution and administrative expense charges
20,739
  
32,576
  
58,340
Net investment loss
(62,258)
  
(3,209)
  
(51,201)
           
Net realized and change in unrealized gains:
          
 Net realized (losses) gains on sale of shares
(990,153)
  
(282,332)
  
637,501
 Realized gain distributions
-
      
-
 Net realized (losses) gains
(990,153)
  
(282,332)
  
637,501
           
 Net change in unrealized appreciation/ depreciation
2,013,770
  
2,016,702
  
3,963,304
           
Net realized and change in unrealized gains
1,023,617
  
1,734,370
  
4,600,805
           
Increase in net assets from operations
$          961,359
  
$       1,731,161
  
$       4,549,604
           
           
 
ACG
  
AGT
  
AIA
 
Sub-Account1
  
Sub-Account2
  
Sub-Account
Income:
          
 Dividend income
$                      -
  
$                      -
  
$             45,925
           
Expenses:
          
 Mortality and expense risk charges
42,084
  
67,753
  
16,077
 Distribution and administrative expense charges
9,569
  
30,418
  
-
Net investment (loss) income
(51,653)
  
(98,171)
  
29,848
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(507,714)
  
(1,426,687)
  
(114,085)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(507,714)
  
(1,426,687)
  
(114,085)
           
 Net change in unrealized appreciation/ depreciation
1,637,989
  
3,472,234
  
289,749
           
 Net realized and change in unrealized gains
1,130,275
  
2,045,547
  
175,664
           
Increase in net assets from operations
$       1,078,622
  
$       1,947,376
  
$          205,512

1 Effective December 4, 2009, name changed from Alger American Small Cap Growth Portfolio.
2 Effective May 4, 2009, name changed from AllianceBernstein Global Technology Portfolio.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
AIB
  
AGB
  
AGP
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$          536,482
  
$                      -
  
$          123,159
           
Expenses:
          
 Mortality and expense risk charges
210,390
  
5,741
  
38,476
 Distribution and administrative expense charges
58,438
  
1,487
  
11,234
Net investment income (loss)
267,654
  
(7,228)
  
73,449
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(2,061,531)
  
(3,879)
  
(443,633)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(2,061,531)
  
(3,879)
  
(443,633)
           
 Net change in unrealized appreciation/ depreciation
4,266,437
  
126,263
  
1,241,392
           
 Net realized and change in unrealized gains
2,204,906
  
122,384
  
797,759
           
Increase in net assets from operations
$       2,472,560
  
$          115,156
  
$          871,208
           
           
 
ARE
  
ABW
  
VIA
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$              5,764
  
$              4,493
  
$          186,436
           
Expenses:
          
 Mortality and expense risk charges
2,594
  
6,108
  
70,650
 Distribution and administrative expense charges
-
  
608
  
2,509
Net investment income (loss)
3,170
  
(2,223)
  
113,277
           
Net realized and change in unrealized gains:
          
 Net realized (losses) gains on sale of shares
(26,777)
  
(14,132)
  
1,025
 Realized gain distributions
4,182
  
-
  
-
 Net realized (losses) gains
(22,595)
  
(14,132)
  
1,025
           
 Net change in unrealized appreciation/ depreciation
62,452
  
116,027
  
686,224
           
 Net realized and change in unrealized gains
39,857
  
101,895
  
687,249
           
Increase in net assets from operations
$            43,027
  
$            99,672
  
$          800,526



The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
VIB
  
CAA
  
CAB
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$            69,398
  
$          779,847
  
$          789,952
           
Expenses:
          
 Mortality and expense risk charges
27,466
  
257,234
  
278,176
 Distribution and administrative expense charges
5,510
  
23,501
  
63,986
Net investment income
36,422
  
499,112
  
447,790
           
Net realized and change in unrealized gains:
          
 Net realized gains (losses) on sale of shares
14,819
  
(1,820,034)
  
(2,349,097)
 Realized gain distributions
-
  
-
  
-
 Net realized gains (losses)
14,819
  
(1,820,034)
  
(2,349,097)
           
 Net change in unrealized appreciation/ depreciation
255,322
  
5,106,637
  
5,714,802
           
 Net realized and change in unrealized gains
270,141
  
3,286,603
  
3,365,705
           
Increase in net assets from operations
$          306,563
  
$       3,785,715
  
$       3,813,495
           
           
 
ACL
  
LFS
  
CHA
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$          927,944
  
$       2,672,146
  
$          173,766
           
Expenses:
          
 Mortality and expense risk charges
178,784
  
534,439
  
23,519
 Distribution and administrative expense charges
16,753
  
117,400
  
3,770
Net investment income
732,407
  
2,020,307
  
146,477
           
Net realized and change in unrealized (losses) gains:
          
 Net realized losses on sale of shares
(13,795)
  
(183,992)
  
(41,044)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(13,795)
  
(183,992)
  
(41,044)
           
 Net change in unrealized appreciation/ depreciation
(674,766)
  
(1,878,012)
  
475,690
           
 Net realized and change in unrealized (losses) gains
(688,561)
  
(2,062,004)
  
434,646
           
Increase (decrease) in net assets from operations
$            43,846
  
$          (41,697)
  
$          581,123



The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
CHB
  
CIA
  
CIB
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$          793,239
  
$            57,968
  
$              2,063
           
Expenses:
          
 Mortality and expense risk charges
104,088
  
155,113
  
23,353
 Distribution and administrative expense charges
27,013
  
14,803
  
7,146
Net investment income (loss)
662,138
  
(111,948)
  
(28,436)
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(41,215)
  
(1,825,043)
  
(112,814)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(41,215)
  
(1,825,043)
  
(112,814)
           
 Net change in unrealized appreciation/ depreciation
1,938,160
  
4,698,867
  
567,794
           
 Net realized and change in unrealized gains
1,896,945
  
2,873,824
  
454,980
           
Increase in net assets from operations
$       2,559,083
  
$       2,761,876
  
$          426,544
           
           
 
CLA
  
CLB
  
CVA
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$            56,455
  
$            31,118
  
$          804,891
           
Expenses:
          
 Mortality and expense risk charges
112,486
  
84,584
  
371,808
 Distribution and administrative expense charges
20,389
  
23,663
  
36,773
Net investment (loss) income
(76,420)
  
(77,129)
  
396,310
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(1,039,648)
  
(1,275,719)
  
(3,140,895)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(1,039,648)
  
(1,275,719)
  
(3,140,895)
           
 Net change in unrealized appreciation/ depreciation
3,437,977
  
3,055,965
  
8,080,885
           
 Net realized and change in unrealized gains
2,398,329
  
1,780,246
  
4,939,990
           
Increase in net assets from operations
$       2,321,909
  
$       1,703,117
  
$       5,336,300

The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
CVB
  
CMA
  
CMB
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$          341,435
  
$              1,952
  
$          192,427
           
Expenses:
          
 Mortality and expense risk charges
176,797
  
-
  
182,030
 Distribution and administrative expense charges
53,106
  
-
  
58,539
Net investment income (loss)
111,532
  
1,952
  
(48,142)
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(1,187,420)
  
-
  
(1,192,478)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(1,187,420)
  
-
  
(1,192,478)
           
 Net change in unrealized appreciation/ depreciation
3,567,530
  
36,598
  
4,558,968
           
 Net realized and change in unrealized gains
2,380,110
  
36,598
  
3,366,490
           
Increase in net assets from operations
$       2,491,642
  
$            38,550
  
$       3,318,348
           
           
 
MMA
  
CSA
  
CSB
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$          210,214
  
$              2,374
  
$          489,477
           
Expenses:
          
 Mortality and expense risk charges
1,127,921
  
-
  
239,267
 Distribution and administrative expense charges
164,954
  
-
  
58,599
Net investment (loss) income
(1,082,661)
  
2,374
  
191,611
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
-
  
-
  
(450,454)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
-
  
-
  
(450,454)
           
 Net change in unrealized appreciation/ depreciation
-
  
16,677
  
4,015,386
           
 Net realized and change in unrealized gains
-
  
16,677
  
3,564,932
           
(Decrease) increase in net assets from operations
$     (1,082,661)
  
$            19,051
  
$       3,756,543


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
CCA
  
CCB
  
CGA
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$            27,527
  
$            58,608
  
$                     -
           
Expenses:
          
 Mortality and expense risk charges
31,734
  
86,893
  
22,077
 Distribution and administrative expense charges
8,404
  
27,213
  
999
Net investment loss
(12,611)
  
(55,498)
  
(23,076)
           
Net realized and change in unrealized gains:
          
 Net realized gains (losses) on sale of shares
118,365
  
119,028
  
(103,730)
 Realized gain distributions
4,392
  
12,122
  
-
 Net realized gains (losses)
122,757
  
131,150
  
(103,730)
           
 Net change in unrealized appreciation/ depreciation
364,082
  
1,217,580
  
472,896
           
 Net realized and change in unrealized gains
486,839
  
1,348,730
  
369,166
           
Increase in net assets from operations
$          474,228
  
$       1,293,232
  
$          346,090
           
           
 
SIA
  
SIB
  
FES
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$       1,984,379
  
$       2,494,661
  
$          340,858
           
Expenses:
          
 Mortality and expense risk charges
254,430
  
324,156
  
241,607
 Distribution and administrative expense charges
16,680
  
77,375
  
68,755
Net investment income
1,713,269
  
2,093,130
  
30,496
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(893,320)
  
(433,900)
  
(781,870)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(893,320)
  
(433,900)
  
(781,870)
           
 Net change in unrealized appreciation/ depreciation
2,296,372
  
2,172,756
  
5,050,359
           
 Net realized and change in unrealized gains
1,403,052
  
1,738,856
  
4,268,489
           
Increase in net assets from operations
$       3,116,321
  
$       3,831,986
  
$       4,298,985


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
FDC
  
FGO
  
MBS
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$                 147
  
$            15,520
  
$            53,333
           
Expenses:
          
 Mortality and expense risk charges
13,238
  
98,561
  
16,957
 Distribution and administrative expense charges
4,095
  
29,501
  
-
Net investment (loss) income
(17,186)
  
(112,542)
  
36,376
           
Net realized and change in unrealized gains:
          
 Net realized (losses) gains on sale of shares
(259,252)
  
(367,794)
  
4,827
 Realized gain distributions
-
  
-
  
-
 Net realized (losses) gains
(259,252)
  
(367,794)
  
4,827
           
 Net change in unrealized appreciation/ depreciation
509,401
  
2,977,047
  
120,959
           
 Net realized and change in unrealized gains
250,149
  
2,609,253
  
125,786
           
Increase in net assets from operations
$          232,963
  
$       2,496,711
  
$          162,162
           
           
 
MGI
  
MGS
  
MSS
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$            10,309
  
$                 795
  
$            25,681
           
Expenses:
          
 Mortality and expense risk charges
44,421
  
36,251
  
79,054
 Distribution and administrative expense charges
3,476
  
13,186
  
25,368
Net investment loss
(37,588)
  
(48,642)
  
(78,741)
           
Net realized and change in unrealized gains:
          
 Net realized gains (losses) on sale of shares
23,957
  
(200,589)
  
(455,505)
 Realized gain distributions
-
  
-
  
-
 Net realized gains (losses)
23,957
  
(200,589)
  
(455,505)
           
 Net change in unrealized appreciation/ depreciation
1,017,641
  
1,036,016
  
2,289,378
           
 Net realized and change in unrealized gains
1,041,598
  
835,427
  
1,833,873
           
Increase in net assets from operations
$       1,004,010
  
$          786,785
  
$       1,755,132


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
MTS
  
MND
  
MRI
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$            96,606
  
$                      -
  
$            87,000
           
Expenses:
          
 Mortality and expense risk charges
98,826
  
36,655
  
81,128
 Distribution and administrative expense charges
30,137
  
13,724
  
3,720
Net investment (loss) income
(32,357)
  
(50,379)
  
2,152
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(214,423)
  
(70,285)
  
(156,794)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(214,423)
  
(70,285)
  
(156,794)
           
 Net change in unrealized appreciation/ depreciation
1,744,852
  
1,353,686
  
1,657,924
           
 Net realized and change in unrealized gains
1,530,429
  
1,283,401
  
1,501,130
           
Increase in net assets from operations
$       1,498,072
  
$       1,233,022
  
$       1,503,282
           
           
 
RCP
  
REF
  
RSF
 
Sub-Account3
  
Sub-Account15
  
Sub-Account16
Income:
          
 Dividend income
$                      -
  
$                      -
  
$                      -
           
Expenses:
          
 Mortality and expense risk charges
1
  
1
  
1
 Distribution and administrative expense charges
-
  
-
  
-
Net investment loss
(1)
  
(1)
  
(1)
           
Net realized and change in unrealized (losses) gains:
          
 Net realized losses on sale of shares
(196)
  
(204)
  
(174)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(196)
  
(204)
  
(174)
           
 Net change in unrealized appreciation/ depreciation
108
  
180
  
180
           
 Net realized and change in unrealized (losses) gains
(88)
  
(24)
  
6
     
.
    
(Decrease) increase in net assets from operations
$                 (89)
  
$                 (25)
  
$                     5

3 Rydex VT Consumer Products Fund Sub-Account (RCP) was closed on May 26, 2009.
15 Rydex VT Energy Fund (REF) was closed on May 26, 2009.
16 Rydex VT Energy Services Fund (RSF) was closed on May 26, 2009.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
RFS
  
RHC
  
RN1
 
Sub-Account17
  
Sub-Account18
  
Sub-Account4
Income:
          
 Dividend income
$                      -
  
$                      -
  
$                      -
           
Expenses:
          
 Mortality and expense risk charges
-
  
1
  
17,693
 Distribution and administrative expense charges
-
  
-
  
6,532
Net investment loss
-
  
(1)
  
(24,225)
           
Net realized and change in unrealized (losses) gains:
          
 Net realized losses on sale of shares
(16)
  
(207)
  
(6,405)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(16)
  
(207)
  
(6,405)
           
 Net change in unrealized appreciation/ depreciation
15
  
178
  
553,330
           
 Net realized and change in unrealized (losses) gains
(1)
  
(29)
  
546,925
           
(Decrease) increase in net assets from operations
$                   (1)
  
$                 (30)
  
$          522,700
           
 
RMM
  
REA
  
RGL
 
Sub-Account19
  
Sub-Account20
  
Sub-Account21
Income:
          
 Dividend income
$                    1
  
$                      -
  
$                      -
           
Expenses:
          
 Mortality and expense risk charges
2
  
-
  
-
 Distribution and administrative expense charges
-
  
-
  
-
Net investment loss
(1)
  
-
  
-
           
Net realized and change in unrealized losses:
          
 Net realized (losses) gains on sale of shares
-
  
(2)
  
2
 Realized gain distributions
-
  
-
  
-
 Net realized (losses) gains
-
  
(2)
  
2
           
 Net change in unrealized appreciation/ depreciation
-
  
2
  
(11)
           
 Net realized and change in unrealized losses
-
  
-
  
(9)
           
Decrease in net assets from operations
$                   (1)
  
$                      -
  
$                   (9)

4 Effective March 31, 2008, name changed from Rydex OTC Fund.
17 Rydex VT Financial Services Fund (RFS) was closed on May 26, 2009.
18 Rydex VT Health Care Fund (RHC) was closed on May 26, 2009.
19 Rydex VT U.S. Government Money Market Fund (RMM) was closed on May 26, 2009.
20 Rydex VT Europe Advantage Fund (REA) was closed on May 26, 2009.
21 Rydex VT Government Long Bond 1.2x Strategy Fund (RGL) was closed on May 26, 2009.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
RVS
  
RXS
  
LCG
 
Sub-Account22
  
Sub-Account23
  
Sub-Account
Income:
          
 Dividend income
$                      -
  
$                      -
  
$            32,518
           
Expenses:
          
 Mortality and expense risk charges
1
  
1
  
221,809
 Distribution and administrative expense charges
-
  
-
  
27,728
Net investment loss
(1)
  
(1)
  
(217,019)
           
Net realized and change in unrealized (losses) gains:
          
 Net realized losses on sale of shares
(6,021)
  
(5,502)
  
(1,807,324)
 Realized gain distributions
-
  
-
  
-
 Net realized losses
(6,021)
  
(5,502)
  
(1,807,324)
           
 Net change in unrealized appreciation/ depreciation
5,611
  
5,041
  
6,925,027
           
 Net realized and change in unrealized (losses) gains
(410)
  
(461)
  
5,117,703
           
(Decrease) increase in net assets from operations
$               (411)
  
$               (462)
  
$       4,900,684
           
           
 
SML
  
TD2
  
USA
 
Sub-Account
  
Sub-Account
  
Sub-Account5
Income:
          
 Dividend income
$            14,418
  
$            67,906
  
$            72,296
           
Expenses:
          
 Mortality and expense risk charges
99,737
  
20,754
  
6,925
 Distribution and administrative expense charges
32,022
  
8,741
  
1,668
Net investment (loss) income
(117,341)
  
38,411
  
63,703
           
Net realized and change in unrealized gains (losses):
          
 Net realized losses on sale of shares
(913,872)
  
(43,976)
  
(1,511,727)
 Realized gain distributions
-
  
6,557
  
-
 Net realized losses
(913,872)
  
(37,419)
  
(1,511,727)
           
 Net change in unrealized appreciation/ depreciation
3,167,834
  
778,009
  
1,383,779
           
 Net realized and change in unrealized gains (losses)
2,253,962
  
740,590
  
(127,948)
           
Increase (decrease) in net assets from operations
$       2,136,621
  
$          779,001
  
$          (64,245)

5 Effective April 24, 2009, USA Allocation Portfolio Sub-Account (USA) merged with MMA Sub-Account.
22 Rydex VT S&P 500 2x Strategy Fund (RVS) was closed on May 26, 2009.
23 Rydex VT Russell 2000 1.5x Strategy Fund (RXS) was closed on May 26, 2009.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2009
 

 
WFF
  
WSS
  
WTF
 
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
          
 Dividend income
$          109,694
  
$          434,143
  
$                      -
           
Expenses:
          
 Mortality and expense risk charges
50,623
  
159,446
  
147,244
 Distribution and administrative expense charges
14,785
  
48,352
  
43,563
Net investment income (loss)
44,286
  
226,345
  
(190,807)
           
Net realized and change in unrealized gains:
          
 Net realized (losses) gains on sale of shares
(137,053)
  
443,991
  
730,601
 Realized gain distributions
-
  
-
  
-
 Net realized (losses) gains
(137,053)
  
443,991
  
730,601
           
 Net change in unrealized appreciation/ depreciation
1,029,544
  
3,729,734
  
4,719,242
           
 Net realized and change in unrealized gains
892,491
  
4,173,725
  
5,449,843
           
Increase in net assets from operations
$          936,777
  
$       4,400,070
  
$       5,259,036
           
           
 
WUF
        
 
Sub-Account
        
Income:
          
 Dividend income
 $                     -
        
           
Expenses:
          
 Mortality and expense risk charges
302,828
        
 Distribution and administrative expense charges
88,426
        
Net investment loss
(391,254)
        
           
Net realized and change in unrealized gains:
          
 Net realized losses on sale of shares
(91,575)
        
 Realized gain distributions
-
        
 Net realized losses
(91,575)
        
           
 Net change in unrealized appreciation/ depreciation
7,906,613
        
           
 Net realized and change in unrealized gains
7,815,038
        
           
Increase in net assets from operations
 $      7,423,784
        


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
AI1 Sub-Account
  
AI3 Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment (loss) income
$      (62,258)
$      (151,811)
  
$          (3,209)
$         31,164
Net realized (losses) gains
(990,153)
(1,340,227)
  
(282,332)
124,458
Net change in unrealized appreciation/depreciation
2,013,770
(3,520,709)
  
2,016,702
(4,048,851)
Net increase (decrease) from operations
961,359
(5,012,747)
  
1,731,161
(3,893,229)
           
Contract Owner Transactions:
          
Purchase payments received
146,670
170,249
  
152,540
129,154
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
2,702
(173,744)
  
(302,629)
(3,294)
Withdrawals, surrenders, annuitizations
          
and contract charges
(931,404)
(2,413,395)
  
(1,250,287)
(2,665,935)
Net decrease from contract owner transactions
(782,032)
(2,416,890)
  
(1,400,376)
(2,540,075)
           
Total increase (decrease) in net assets
179,327
(7,429,637)
  
330,785
(6,433,304)
           
Net assets at beginning of year
5,703,607
13,133,244
  
7,896,557
14,329,861
Net assets at end of year
$      5,882,934
$      5,703,607
  
$       8,227,342
$       7,896,557
           
 
AI4 Sub-Account
  
ACG Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
20091
2008
Operations:
          
Net investment loss
$        (51,201)
$      (287,261)
  
$        (51,653)
$        (77,772)
Net realized gains (losses)
637,501
2,437,167
  
(507,714)
(594,364)
Net change in unrealized appreciation/depreciation
3,963,304
(14,697,173)
  
1,637,989
(2,285,755)
Net increase (decrease) from operations
4,549,604
(12,547,267)
  
1,078,622
(2,957,891)
           
Contract Owner Transactions:
          
Purchase payments received
112,093
208,465
  
49,641
57,810
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(842,881)
(406,964)
  
(254,239)
(48,730)
Withdrawals, surrenders, annuitizations
          
and contract charges
(2,886,868)
(5,054,047)
  
(402,423)
(1,154,023)
Net decrease from contract owner transactions
(3,617,656)
(5,252,546)
  
(607,021)
(1,144,943)
           
Total increase (decrease) in net assets
931,948
(17,799,813)
  
471,601
(4,102,834)
           
Net assets at beginning of year
16,249,104
34,048,917
  
2,948,018
7,050,852
Net assets at end of year
$    17,181,052
$    16,249,104
  
$      3,419,619
$       2,948,018

1 Effective December 4, 2009, name changed from Alger American Small Cap Growth Portfolio.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
AGT Sub-Account
  
AIA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
20092
2008
  
2009
2008
Operations:
          
Net investment (loss) income
$        (98,171)
$      (136,549)
  
$         29,848
$         12,783
Net realized (losses) gains
(1,426,687)
(3,693,847)
  
(114,085)
284,771
Net change in unrealized appreciation/depreciation
3,472,234
(923,931)
  
289,749
(1,223,251)
Net increase (decrease) from operations
1,947,376
(4,754,327)
  
205,512
(925,697)
           
Contract Owner Transactions:
          
Purchase payments received
192,151
112,146
  
19,628
93,311
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
382,216
(547,400)
  
280,677
245,939
Withdrawals, surrenders, annuitizations
          
and contract charges
(1,219,478)
(1,626,746)
  
(548,875)
(675,944)
Net decrease from contract owner transactions
(645,111)
(2,062,000)
  
(248,570)
(336,694)
           
Total increase (decrease) in net assets
1,302,265
(6,816,327)
  
(43,058)
(1,262,391)
           
Net assets at beginning of year
4,360,362
11,176,689
  
1,207,237
2,469,628
Net assets at end of year
$      5,662,627
$      4,360,362
  
$      1,164,179
$       1,207,237
           
 
AIB Sub-Account
  
AGB Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income (loss)
$       267,654
$         51,170
  
$          (7,228)
$        (10,659)
Net realized (losses) gains
(2,061,531)
3,930,810
  
(3,879)
(103,776)
Net change in unrealized appreciation/depreciation
4,266,437
(18,015,202)
  
126,263
(241,474)
Net increase (decrease) from operations
2,472,560
(14,033,222)
  
115,156
(355,909)
           
Contract Owner Transactions:
          
Purchase payments received
112,874
146,704
  
-
1,714
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(910,728)
(1,584,306)
  
44,552
102,024
Withdrawals, surrenders, annuitizations
          
and contract charges
(2,210,848)
(5,863,975)
  
(63,269)
(119,022)
Net decrease from contract owner transactions
(3,008,702)
(7,301,577)
  
(18,717)
(15,284)
           
Total (decrease) increase in net assets
(536,142)
(21,334,799)
  
96,439
(371,193)
           
Net assets at beginning of year
16,612,074
37,946,873
  
403,527
774,720
Net assets at end of year
$    16,075,932
$    16,612,074
  
$         499,966
$          403,527

2 Effective May 4, 2009, name changed from AllianceBernstein Global Technology Portfolio.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
   
 
AGP Sub-Account
  
ARE Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income (loss)
$         73,449
$        (89,049)
  
$            3,170
$           1,351
Net realized (losses) gains
(443,633)
(600,542)
  
(22,595)
113,335
Net change in unrealized appreciation/depreciation
1,241,392
(2,750,320)
  
62,452
(252,435)
Net increase (decrease) from operations
871,208
(3,439,911)
  
43,027
(137,749)
           
Contract Owner Transactions:
          
Purchase payments received
12,636
33,853
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(129,639)
(159,127)
  
(3,237)
(45,404)
Withdrawals, surrenders, annuitizations
          
and contract charges
(412,560)
(1,173,208)
  
(75,721)
(54,976)
Net decrease from contract owner transactions
(529,563)
(1,298,482)
  
(78,958)
(100,380)
           
Total increase (decrease) in net assets
341,645
(4,738,393)
  
(35,931)
(238,129)
           
Net assets at beginning of year
2,856,645
7,595,038
  
227,675
465,804
Net assets at end of year
$      3,198,290
$      2,856,645
  
$         191,744
$          227,675
           
 
ABW Sub-Account
  
VIA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
20086
  
2009
20087
Operations:
          
Net investment (loss) income
$          (2,223)
$          (1,913)
  
$       113,277
$        (59,045)
Net realized (losses) gains
(14,132)
(3,905)
  
1,025
(57,602)
Net change in unrealized appreciation/depreciation
116,027
(86,741)
  
686,224
(336,200)
Net increase (decrease) from operations
99,672
(92,559)
  
800,526
(452,847)
           
Contract Owner Transactions:
          
Purchase payments received
15,444
-
  
46,910
4,176
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
26,155
519,089
  
(68,671)
6,829,399
Withdrawals, surrenders, annuitizations
          
and contract charges
(106,983)
(2,840)
  
(1,013,657)
(1,032,090)
Net (decrease) increase from contract owner transactions
(65,384)
516,249
  
(1,035,418)
5,801,485
           
Total increase (decrease) in net assets
34,288
423,690
  
(234,892)
5,348,638
           
Net assets at beginning of year
423,690
-
  
5,348,638
-
Net assets at end of year
$         457,978
$         423,690
  
$      5,113,746
$       5,348,638

6 For the period September 26, 2008 (commencement of operations) through December 31, 2008.
7 For the period April 25, 2008 (commencement of operations) through December 31, 2008.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
VIB Sub-Account
  
CAA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
20087
  
2009
2008
Operations:
          
Net investment income (loss)
$         36,422
$        (24,451)
  
$       499,112
$       514,696
Net realized gains (losses)
14,819
(9,293)
  
(1,820,034)
2,309,739
Net change in unrealized appreciation/depreciation
255,322
(131,433)
  
5,106,637
(12,065,718)
Net increase (decrease) from operations
306,563
(165,177)
  
3,785,715
(9,241,283)
           
Contract Owner Transactions:
          
Purchase payments received
9,260
3,011
  
222,777
188,019
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(183,190)
2,659,702
  
(361,210)
(1,077,017)
Withdrawals, surrenders, annuitizations
          
and contract charges
(257,885)
(487,385)
  
(3,538,893)
(6,473,311)
Net (decrease) increase from contract owner transactions
(431,815)
2,175,328
  
(3,677,326)
(7,362,309)
           
Total (decrease) increase in net assets
(125,252)
2,010,151
  
108,389
(16,603,592)
           
Net assets at beginning of year
2,010,151
-
  
19,630,136
36,233,728
Net assets at end of year
$      1,884,899
$      2,010,151
  
$     19,738,525
$     19,630,136
           
 
CAB Sub-Account
  
ACL Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income
$       447,790
$       481,956
  
$       732,407
$       737,495
Net realized (losses) gains
(2,349,097)
3,010,522
  
(13,795)
(49,724)
Net change in unrealized appreciation/depreciation
5,714,802
(14,148,590)
  
(674,766)
270,571
Net increase (decrease) from operations
3,813,495
(10,656,112)
  
43,846
958,342
           
Contract Owner Transactions:
          
Purchase payments received
114,989
267,753
  
82,595
128,617
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(1,538,835)
628,819
  
815,609
(894,609)
Withdrawals, surrenders, annuitizations
          
and contract charges
(4,243,357)
(6,917,662)
  
(2,657,318)
(3,668,095)
Net decrease from contract owner transactions
(5,667,203)
(6,021,090)
  
(1,759,114)
(4,434,087)
           
Total decrease in net assets
(1,853,708)
(16,677,202)
  
(1,715,268)
(3,475,745)
           
Net assets at beginning of year
   22,163,437
  38,840,639
  
14,194,100
   17,669,845
Net assets at end of year
 $   20,309,729
 $   22,163,437
  
 $    12,478,832
 $    14,194,100

7 For the period April 25, 2008 (commencement of operations) through December 31, 2008.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
LFS Sub-Account
  
CHA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income
$      2,020,307
$     2,255,927
  
$         146,477
$         194,768
Net realized losses
(183,992)
(259,631)
  
(41,044)
(49,019)
Net change in unrealized appreciation/depreciation
(1,878,012)
845,602
  
475,690
(715,281)
Net (decrease) increase from operations
(41,697)
2,841,898
  
581,123
(569,532)
           
Contract Owner Transactions:
          
Purchase payments received
223,311
693,517
  
10,544
6,746
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
2,536,735
(9,785,912)
  
(11,450)
(62,331)
Withdrawals, surrenders, annuitizations
          
and contract charges
(7,811,618)
(10,067,131)
  
(215,678)
(701,359)
Net decrease from contract owner transactions
(5,051,572)
(19,159,526)
  
(216,584)
(756,944)
           
Total (decrease) increase in net assets
(5,093,269)
(16,317,628)
  
364,539
(1,326,476)
           
Net assets at beginning of year
42,618,567
58,936,195
  
1,491,703
2,818,179
Net assets at end of year
$    37,525,298
$    42,618,567
  
$      1,856,242
$      1,491,703
           
 
CHB Sub-Account
  
CIA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income (loss)
$         662,138
$        775,622
  
$      (111,948)
$        295,554
Net realized (losses) gains
(41,215)
(250,191)
  
(1,825,043)
3,464,192
Net change in unrealized appreciation/depreciation
1,938,160
(2,934,279)
  
4,698,867
(14,512,281)
Net increase (decrease) from operations
2,559,083
(2,408,848)
  
2,761,876
(10,752,535)
           
Contract Owner Transactions:
          
Purchase payments received
34,194
38,353
  
119,070
121,285
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
877,040
(486,888)
  
(550,286)
146,236
Withdrawals, surrenders, annuitizations
          
and contract charges
(1,224,899)
(1,723,997)
  
(2,170,182)
(5,016,647)
Net decrease from contract owner transactions
(313,665)
(2,172,532)
  
(2,601,398)
(4,749,126)
           
Total increase (decrease) in net assets
2,245,418
(4,581,380)
  
160,478
(15,501,661)
           
Net assets at beginning of year
6,166,464
10,747,844
  
11,725,792
27,227,453
Net assets at end of year
$      8,411,882
$      6,166,464
  
$    11,886,270
$     11,725,792


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
CIB Sub-Account
  
CLA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment (loss) income
$        (28,436)
$          30,351
  
$        (76,420)
$      (164,085)
Net realized (losses) gains
(112,814)
604,670
  
(1,039,648)
(1,382,342)
Net change in unrealized appreciation/depreciation
567,794
(2,247,221)
  
3,437,977
(4,634,542)
Net increase (decrease) from operations
426,544
(1,612,200)
  
2,321,909
(6,180,969)
           
Contract Owner Transactions:
          
Purchase payments received
3,578
8,823
  
379,266
147,801
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(122,690)
(98,156)
  
(90,281)
(13,871)
Withdrawals, surrenders, annuitizations
          
and contract charges
(150,762)
(627,848)
  
(1,664,304)
(2,934,979)
Net decrease from contract owner transactions
(269,874)
(717,181)
  
(1,375,319)
(2,801,049)
           
Total increase (decrease) in net assets
156,670
(2,329,381)
  
946,590
(8,982,018)
           
Net assets at beginning of year
1,716,897
4,046,278
  
8,062,323
17,044,341
Net assets at end of year
$      1,873,567
$      1,716,897
  
$      9,008,913
$       8,062,323
           
 
CLB Sub-Account
  
CVA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
 
 
      
Net investment (loss) income
$        (77,129)
$      (156,473)
  
$        396,310
$        408,289
Net realized (losses) gains
(1,275,719)
(2,101,226)
  
(3,140,895)
5,329,804
Net change in unrealized appreciation/depreciation
3,055,965
(2,580,496)
  
8,080,885
(25,777,592)
Net increase (decrease) from operations
1,703,117
(4,838,195)
  
5,336,300
(20,039,499)
           
Contract Owner Transactions:
          
Purchase payments received
94,974
64,004
  
212,507
569,083
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(123,723)
(1,068,059)
  
(786,575)
(1,735,714)
Withdrawals, surrenders, annuitizations
          
and contract charges
(902,437)
(2,160,733)
  
(4,623,188)
(11,410,371)
Net decrease from contract owner transactions
(931,186)
(3,164,788)
  
(5,197,256)
(12,577,002)
           
Total increase (decrease) in net assets
771,931
(8,002,983)
  
139,044
(32,616,501)
           
Net assets at beginning of year
5,977,654
13,980,637
  
28,735,875
61,352,376
Net assets at end of year
$      6,749,585
$      5,977,654
  
$     28,874,919
$     28,735,875


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
CVB Sub-Account
  
CMA Sub-Account8
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income
$       111,532
$         91,058
  
$           1,952
$           2,028
Net realized (losses) gains
(1,187,420)
3,154,117
  
-
29,926
Net change in unrealized appreciation/depreciation
3,567,530
(12,938,711)
  
36,598
(124,072)
Net increase (decrease) from operations
2,491,642
(9,693,536)
  
38,550
(92,118)
           
Contract Owner Transactions:
          
Purchase payments received
76,898
510,756
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(271,687)
(1,379,089)
  
-
-
Withdrawals, surrenders, annuitizations
          
and contract charges
(2,053,215)
(5,067,589)
  
-
-
Net (decrease) increase from contract owner transactions
(2,248,004)
(5,935,922)
  
-
-
           
Total increase (decrease) in net assets
243,638
(15,629,458)
  
38,550
(92,118)
           
Net assets at beginning of year
13,365,662
28,995,120
  
121,687
213,805
Net assets at end of year
$    13,609,300
$    13,365,662
  
$         160,237
$          121,687
           
 
CMB Sub-Account
  
MMA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment (loss) income
$        (48,142)
$      (139,796)
  
$   (1,082,661)
$       981,237
Net realized (losses) gains
(1,192,478)
3,279,868
  
-
-
Net change in unrealized appreciation/depreciation
4,558,968
(15,132,479)
  
-
-
Net increase (decrease) from operations
3,318,348
(11,992,407)
  
(1,082,661)
981,237
           
Contract Owner Transactions:
          
Purchase payments received
128,735
115,449
  
772,335
401,928
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(917,825)
(1,270,591)
  
8,502,591
35,743,896
Withdrawals, surrenders, annuitizations
          
and contract charges
(2,330,008)
(4,439,028)
  
(31,920,177)
(41,272,409)
Net decrease from contract owner transactions
(3,119,098)
(5,594,170)
  
(22,645,251)
(5,126,585)
           
Total increase (decrease) in net assets
199,250
(17,586,577)
  
(23,727,912)
(4,145,348)
           
Net assets at beginning of year
14,078,638
31,665,215
  
93,197,553
97,342,901
Net assets at end of year
$    14,277,888
$    14,078,638
  
$     69,469,641
$     93,197,553

8 Represents seed money invested and retained by Sun life Assurance Company of Canada (U.S.) in order for the fund to commence operations.
The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
CSA Sub-Account8
  
CSB Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income
$           2,374
$           2,071
  
$       191,611
$         48,885
Net realized (losses) gains
-
-
  
(450,454)
823,998
Net change in unrealized appreciation/depreciation
16,677
(45,046)
  
4,015,386
(12,983,605)
Net increase (decrease) from operations
19,051
(42,975)
  
3,756,543
(12,110,722)
           
Contract Owner Transactions:
          
Purchase payments received
-
-
  
103,001
253,667
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
-
-
  
(596,320)
(386,910)
Withdrawals, surrenders, annuitizations
          
and contract charges
-
-
  
(3,072,068)
(5,497,153)
Net decrease from contract owner transactions
-
-
  
(3,565,387)
(5,630,396)
           
Total increase (decrease) in net assets
19,051
(42,975)
  
191,156
(17,741,118)
           
Net assets at beginning of year
72,239
115,214
  
18,128,786
35,869,904
Net assets at end of year
$           91,290
$           72,239
  
$     18,319,942
$     18,128,786
           
 
CCA Sub-Account
  
CCB Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment loss
$        (12,611)
$        (33,875)
  
$        (55,498)
$      (132,264)
Net realized gains
122,757
835,805
  
131,150
1,642,355
Net change in unrealized appreciation/depreciation
364,082
(1,964,494)
  
1,217,580
(4,839,515)
Net increase (decrease) from operations
474,228
(1,162,564)
  
1,293,232
(3,329,424)
           
Contract Owner Transactions:
          
Purchase payments received
67,823
14,629
  
24,259
61,770
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(300,971)
(627,261)
  
(384,648)
(803,315)
Withdrawals, surrenders, annuitizations
          
and contract charges
(328,341)
(828,182)
  
(982,269)
(2,453,913)
Net decrease from contract owner transactions
(561,489)
(1,440,814)
  
(1,342,658)
(3,195,458)
           
Total decrease in net assets
(87,261)
(2,603,378)
  
(49,426)
(6,524,882)
           
Net assets at beginning of year
2,537,482
5,140,860
  
6,798,418
13,323,300
Net assets at end of year
$      2,450,221
$      2,537,482
  
$      6,748,992
$       6,798,418

8 Represents seed money invested and retained by Sun life Assurance Company of Canada (U.S.) in order for the fund to commence operations.
The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
CGA Sub-Account
  
SIA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment (loss) income
$        (23,076)
$        (34,881)
  
$    1,713,269
$    1,665,683
Net realized (losses) gains
(103,730)
196,146
  
(893,320)
(1,497,618)
Net change in unrealized appreciation/depreciation
472,896
(1,380,966)
  
2,296,372
(2,272,450)
Net increase (decrease) from operations
346,090
(1,219,701)
  
3,116,321
(2,104,385)
           
Contract Owner Transactions:
          
Purchase payments received
8,436
5,371
  
99,831
135,699
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
53,645
(47,671)
  
(117,887)
(955,255)
Withdrawals, surrenders, annuitizations
          
and contract charges
(167,699)
(381,922)
  
(3,795,505)
(5,808,868)
Net decrease from contract owner transactions
(105,618)
(424,222)
  
(3,813,561)
(6,628,424)
           
Total increase (decrease) in net assets
240,472
(1,643,923)
  
(697,240)
(8,732,809)
           
Net assets at beginning of year
1,592,231
3,236,154
  
19,069,963
27,802,772
Net assets at end of year
$      1,832,703
$      1,592,231
  
$     18,372,723
$     19,069,963
           
 
SIB Sub-Account
  
FES Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income
$    2,093,130
$    2,331,353
  
$         30,496
$         97,357
Net realized losses
(433,900)
(1,270,241)
  
(781,870)
(1,151,134)
Net change in unrealized appreciation/depreciation
2,172,756
(4,254,527)
  
5,050,359
(14,688,793)
Net increase (decrease) from operations
3,831,986
(3,193,415)
  
4,298,985
(15,742,570)
           
Contract Owner Transactions:
          
Purchase payments received
60,492
263,328
  
129,536
518,269
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
94,503
(3,020,024)
  
(821,627)
(1,390,383)
Withdrawals, surrenders, annuitizations
          
and contract charges
(7,112,017)
(8,581,707)
  
(3,435,115)
(5,792,992)
Net decrease from contract owner transactions
(6,957,022)
(11,338,403)
  
(4,127,206)
(6,665,106)
           
Total (decrease) increase in net assets
(3,125,036)
(14,531,818)
  
171,779
(22,407,676)
           
Net assets at beginning of year
25,721,082
40,252,900
  
18,488,676
40,896,352
Net assets at end of year
$    22,596,046
$    25,721,082
  
$    18,660,455
$     18,488,676


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
FDC Sub-Account
  
FGO Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment loss
$        (17,186)
$        (22,198)
  
$      (112,542)
$      (182,972)
Net realized (losses) gains
(259,252)
(147,233)
  
(367,794)
352,193
Net change in unrealized appreciation/depreciation
509,401
(836,875)
  
2,977,047
(8,743,697)
Net increase (decrease) from operations
232,963
(1,006,306)
  
2,496,711
(8,574,476)
           
Contract Owner Transactions:
          
Purchase payments received
14,192
15,897
  
89,717
59,582
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(212,477)
(169,392)
  
(697,246)
647,429
Withdrawals, surrenders, annuitizations
          
and contract charges
(172,001)
(164,011)
  
(1,368,664)
(2,009,002)
Net decrease from contract owner transactions
(370,286)
(317,506)
  
(1,976,193)
(1,301,991)
           
Total (decrease) increase in net assets
(137,323)
(1,323,812)
  
520,518
(9,876,467)
           
Net assets at beginning of year
1,161,191
2,485,003
  
7,053,932
16,930,399
Net assets at end of year
$      1,023,868
$      1,161,191
  
$       7,574,450
$       7,053,932
           
 
MBS Sub-Account
  
MGI Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
20089
Operations:
          
Net investment income (loss)
$         36,376
$         25,258
  
$        (37,588)
$        (59,018)
Net realized gains (losses)
4,827
(3,441)
  
23,957
182,859
Net change in unrealized appreciation/depreciation
120,959
(82,251)
  
1,017,641
(2,234,324)
Net increase (decrease) from operations
162,162
(60,434)
  
1,004,010
(2,110,483)
           
Contract Owner Transactions:
          
Purchase payments received
9,385
302
  
43,517
74,831
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(30,959)
(227,418)
  
(30,908)
(207,406)
Withdrawals, surrenders, annuitizations
          
and contract charges
(287,222)
(235,506)
  
(372,863)
(1,136,985)
Net decrease from contract owner transactions
(308,796)
(462,622)
  
(360,254)
(1,269,560)
           
Total (decrease) increase in net assets
(146,634)
(523,056)
  
643,756
(3,380,043)
           
Net assets at beginning of year
1,318,045
1,841,101
  
3,040,156
6,420,199
Net assets at end of year
$      1,171,411
$      1,318,045
  
$       3,683,912
$       3,040,156

9 Effective October 6, 2008, name changed from MFS Emerging Growth Series IC.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
MGS Sub-Account
  
MSS Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
200810
  
2009
2008
Operations:
          
Net investment loss
$        (48,642)
$        (68,485)
  
$        (78,741)
$      (134,509)
Net realized (losses) gains
(200,589)
(227,623)
  
(455,505)
38,924
Net change in unrealized appreciation/depreciation
1,036,016
(1,378,168)
  
2,289,378
(4,041,337)
Net increase (decrease) from operations
786,785
(1,674,276)
  
1,755,132
(4,136,922)
           
Contract Owner Transactions:
          
Purchase payments received
18,290
32,043
  
56,518
52,506
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
200,874
317,825
  
(218,497)
(914,994)
Withdrawals, surrenders, annuitizations
          
and contract charges
(378,276)
(821,095)
  
(930,167)
(2,785,251)
Net decrease from contract owner transactions
(159,112)
(471,227)
  
(1,092,146)
(3,647,739)
           
Total increase (decrease) in net assets
627,673
(2,145,503)
  
662,986
(7,784,661)
           
Net assets at beginning of year
2,508,940
4,654,443
  
5,605,237
13,389,898
Net assets at end of year
$      3,136,613
$      2,508,940
  
$       6,268,223
$       5,605,237
           
 
MTS Sub-Account
  
MND Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment loss
$        (32,357)
$      (133,177)
  
$        (50,379)
$        (61,344)
Net realized (losses) gains
(214,423)
901,344
  
(70,285)
583,938
Net change in unrealized appreciation/depreciation
1,744,852
(5,185,810)
  
1,353,686
(2,113,133)
Net increase (decrease) from operations
1,498,072
(4,417,643)
  
1,233,022
(1,590,539)
           
Contract Owner Transactions:
          
Purchase payments received
91,223
105,926
  
9,498
21,555
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(221,992)
45,436
  
597,393
(165,646)
Withdrawals, surrenders, annuitizations
          
and contract charges
(1,368,161)
(2,472,795)
  
(419,272)
(819,888)
Net (decrease) increase from contract owner
transactions
(1,498,930)
(2,321,433)
  
187,619
(963,979)
           
Total (decrease) increase in net assets
(858)
(6,739,076)
  
1,420,641
(2,554,518)
           
Net assets at beginning of year
7,653,139
14,392,215
  
2,043,745
4,598,263
Net assets at end of year
$      7,652,281
$      7,653,139
  
$      3,464,386
$       2,043,745

10 Effective October 6, 2008, name changed from MFS Emerging Growth Series SC.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
MRI Sub-Account
  
RCP Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
20093
2008
Operations:
          
Net investment income (loss)
$           2,152
$        (77,834)
  
$                 (1)
$               (13)
Net realized (losses) gains
(156,794)
(110,915)
  
(196)
40
Net change in unrealized appreciation/depreciation
1,657,924
(3,615,660)
  
108
(525)
Net increase (decrease) from operations
1,503,282
(3,804,409)
  
(89)
(498)
           
Contract Owner Transactions:
          
Purchase payments received
70,348
46,155
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(105,556)
(260,251)
  
-
-
Withdrawals, surrenders, annuitizations
          
and contract charges
(800,211)
(1,837,814)
  
(1,481)
-
Net decrease from contract owner transactions
(835,419)
(2,051,910)
  
(1,481)
-
           
Total increase (decrease) in net assets
667,863
(5,856,319)
  
(1,570)
(498)
           
Net assets at beginning of year
5,836,815
11,693,134
  
1,570
2,068
Net assets at end of year
$      6,504,678
$      5,836,815
  
$                     -
$              1,570
           
 
REF Sub-Account
  
RSF Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
20093
2008
  
20093
2008
Operations:
          
Net investment loss
$                 (1)
$             (128)
  
$                 (1)
$             (123)
Net realized (losses) gains
(204)
(2,250)
  
(174)
5,286
Net change in unrealized appreciation/depreciation
180
(5,504)
  
180
(15,506)
Net (decrease) increase from operations
(25)
(7,882)
  
5
(10,343)
           
Contract Owner Transactions:
          
Purchase payments received
-
-
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
-
893
  
-
-
Withdrawals, surrenders, annuitizations
          
and contract charges
(1,627)
(7,391)
  
(1,479)
(13,900)
Net decrease from contract owner transactions
(1,627)
(6,498)
  
(1,479)
(13,900)
           
Total decrease in net assets
(1,652)
(14,380)
  
(1,474)
(24,243)
           
Net assets at beginning of year
1,652
16,032
  
1,474
25,717
Net assets at end of year
$                     -
$             1,652
  
$                     -
$              1,474

3 Fund closed on May 26, 2009.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
RFS Sub-Account
  
RHC Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
20093
2008
  
20093
2008
Operations:
          
Net investment loss
$                 -
$             (213)
  
$                 (1)
$               (15)
Net realized (losses) gains
(16)
(21,560)
  
(207)
61
Net change in unrealized appreciation/depreciation
15
6,300
  
178
(528)
Net decrease from operations
(1)
(15,473)
  
(30)
(482)
           
Contract Owner Transactions:
          
Purchase payments received
-
-
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(14)
(13,745)
  
1
1
Withdrawals, surrenders, annuitizations
          
and contract charges
-
-
  
(1,377)
-
Net (decrease) increase from contract owner
transactions
(14)
(13,745)
  
(1,376)
1
           
Total decrease in net assets
(15)
(29,218)
  
(1,406)
(481)
           
Net assets at beginning of year
15
29,233
  
1,406
1,887
Net assets at end of year
$                     -
$                  15
  
$                     -
$              1,406
           
 
RN1 Sub-Account
  
RMM Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008 11
  
20093
2008
Operations:
          
Net investment (loss) income
$        (24,225)
$        (23,272)
  
$                 (1)
$           2,419
Net realized losses
(6,405)
(85,583)
  
-
-
Net change in unrealized appreciation/depreciation
553,330
(651,933)
  
-
-
Net increase (decrease) from operations
522,700
(760,788)
  
(1)
2,419
           
Contract Owner Transactions:
          
Purchase payments received
55,228
24,880
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
341,752
(36,034)
  
-
698,755
Withdrawals, surrenders, annuitizations
          
and contract charges
(253,067)
(262,216)
  
(6,909)
(1,595,832)
Net increase (decrease) from contract owner
transactions
143,913
(273,370)
  
(6,909)
(897,077)
           
Total increase (decrease) in net assets
666,613
(1,034,158)
  
(6,910)
(894,658)
           
Net assets at beginning of year
949,915
1,984,073
  
6,910
901,568
Net assets at end of year
$      1,616,528
$         949,915
  
$                     -
$              6,910

3 Fund closed on May 26, 2009.
11 Effective March 31, 2008, name changed from Rydex OTC Fund.  Effective November 7, 2008, fund closed to new investments.
The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
   
 
REA Sub-Account
  
RGL Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
20093
2008
  
20093
2008
Operations:
          
Net investment income
$                 -
$                 -
  
$                 -
$                42
Net realized (losses) gains
(2)
-
  
2
2,694
Net change in unrealized appreciation/depreciation
2
(2)
  
(11)
10
Net (decrease) increase from operations
-
(2)
  
(9)
2,746
           
Contract Owner Transactions:
          
Purchase payments received
-
-
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
-
(2)
  
(24)
(2,736)
Withdrawals, surrenders, annuitizations
          
and contract charges
-
-
  
-
-
Net decrease from contract owner transactions
-
-
  
(24)
(2,736)
           
Total (decrease) increase in net assets
-
(4)
  
(33)
10
           
Net assets at beginning of year
-
4
  
33
23
Net assets at end of year
 $                    -
 $                    -
  
 $                    -
 $                  33
           
 
RVS Sub-Account
  
RXS Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
20093
2008
  
20093
2008
Operations:
          
Net investment loss
$                 (1)
$             (555)
  
$                 (1)
$             (108)
Net realized losses
(6,021)
(124,182)
  
(5,502)
(14,889)
Net change in unrealized appreciation/depreciation
5,611
3,573
  
5,041
(1,393)
Net decrease from operations
(411)
(121,164)
  
(462)
(16,390)
           
Contract Owner Transactions:
          
Purchase payments received
-
-
  
-
-
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
-
34,385
  
-
7,841
Withdrawals, surrenders, annuitizations
          
and contract charges
(2,668)
(33,156)
  
(2,979)
(9,062)
Net (decrease) increase from contract owner
transactions
(2,668)
1,229
  
(2,979)
(1,221)
           
Total decrease in net assets
(3,079)
(119,935)
  
(3,441)
(17,611)
           
Net assets at beginning of year
3,079
123,014
  
3,441
21,052
Net assets at end of year
$                     -
$             3,079
  
$                     -
$              3,441

3 Sub-Account closed on May 26, 2009.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
LCG Sub-Account
  
SML Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
200812
  
2009
2008
Operations:
      
 
 
Net investment loss
$      (217,019)
$      (376,354)
  
$      (117,341)
$      (197,198)
Net realized losses
(1,807,324)
(1,515,535)
  
(913,872)
(742,431)
Net change in unrealized appreciation/depreciation
6,925,027
(12,598,160)
  
3,167,834
(5,759,455)
Net increase (decrease) from operations
4,900,684
(14,490,049)
  
2,136,621
(6,699,084)
           
Contract Owner Transactions:
          
Purchase payments received
728,452
370,430
  
310,149
189,882
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(621,531)
(983,429)
  
(373,453)
(354,758)
Withdrawals, surrenders, annuitizations
          
and contract charges
(3,179,053)
(5,726,818)
  
(1,351,737)
(2,649,547)
Net decrease from contract owner transactions
(3,072,132)
(6,339,817)
  
(1,415,041)
(2,814,423)
           
Total increase (decrease) in net assets
1,828,552
(20,829,866)
  
721,580
(9,513,507)
           
Net assets at beginning of year
15,749,394
36,579,260
  
7,195,057
16,708,564
Net assets at end of year
$    17,577,946
$    15,749,394
  
$       7,916,637
$       7,195,057
           
 
TD2 Sub-Account
  
USA Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
200913
2008
Operations:
          
Net investment income
$         38,411
$         20,934
  
$         63,703
$         42,953
Net realized (losses) gains
(37,419)
439,692
  
(1,511,727)
(289,052)
Net change in unrealized appreciation/depreciation
778,009
(2,129,468)
  
1,383,779
(1,028,163)
Net increase (decrease) from operations
779,001
(1,668,842)
  
(64,245)
(1,274,262)
           
Contract Owner Transactions:
          
Purchase payments received
12,231
16,820
  
11,283
30,542
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
5,904
35,905
  
(1,774,982)
(194,618)
Withdrawals, surrenders, annuitizations
          
and contract charges
(285,731)
(418,143)
  
(113,324)
(1,119,202)
Net decrease from contract owner transactions
(267,596)
(365,418)
  
(1,877,023)
(1,283,278)
           
Total increase (decrease) in net assets
511,405
(2,034,260)
  
(1,941,268)
(2,557,540)
           
Net assets at beginning of year
1,298,190
3,332,450
  
1,941,268
4,498,808
Net assets at end of year
$      1,809,595
$      1,298,190
  
$                     -
$       1,941,268

12 Effective August 1, 2008, name changed from SCFI Large Cap Growth Fund - I class.
13 Effective April 24, 2009, merged with CMM Sub-Account.

The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
WFF Sub-Account
  
WSS Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment income (loss)
$         44,286
$        (95,248)
  
$       226,345
$      (116,286)
Net realized (losses) gains
(137,053)
2,083,991
  
443,991
3,109,119
Net change in unrealized appreciation/depreciation
1,029,544
(5,983,919)
  
3,729,734
(12,774,826)
Net increase (decrease) from operations
936,777
(3,995,176)
  
4,400,070
(9,781,993)
           
Contract Owner Transactions:
          
Purchase payments received
9,133
59,885
  
81,790
58,651
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(232,393)
(1,378,468)
  
(393,176)
(191,199)
Withdrawals, surrenders, annuitizations
          
and contract charges
(527,768)
(2,169,652)
  
(1,906,133)
(2,819,224)
Net decrease from contract owner transactions
(751,028)
(3,488,235)
  
(2,217,519)
(2,951,772)
           
Total increase (decrease) in net assets
185,749
(7,483,411)
  
2,182,551
(12,733,765)
           
Net assets at beginning of year
3,878,635
11,362,046
  
10,817,014
23,550,779
Net assets at end of year
$      4,064,384
$      3,878,635
  
$     12,999,565
$     10,817,014
           
 
WTF Sub-Account
  
WUF Sub-Account
 
December 31,
December 31,
  
December 31,
December 31,
 
2009
2008
  
2009
2008
Operations:
          
Net investment loss
$      (190,807)
$      (288,097)
  
$      (391,254)
$      (566,961)
Net realized gains (losses)
730,601
1,823,593
  
(91,575)
5,199,172
Net change in unrealized appreciation/depreciation
4,719,242
(11,601,856)
  
7,906,613
(20,288,014)
Net increase (decrease) from operations
5,259,036
(10,066,360)
  
7,423,784
(15,655,803)
           
Contract Owner Transactions:
          
Purchase payments received
59,240
109,068
  
184,868
190,921
Transfers between Sub-Accounts
          
 (including the Fixed Account), net
(1,250,037)
(811,924)
  
(1,693,674)
(1,495,615)
Withdrawals, surrenders, annuitizations
          
and contract charges
(1,989,464)
(3,230,842)
  
(3,671,945)
(5,253,742)
Net decrease from contract owner transactions
(3,180,261)
(3,933,698)
  
(5,180,751)
(6,558,436)
           
Total increase (decrease) in net assets
2,078,775
(14,000,058)
  
2,243,033
(22,214,239)
           
Net assets at beginning of year
9,537,768
23,537,826
  
21,794,212
44,008,451
Net assets at end of year
 $   11,616,543
 $     9,537,768
  
 $    24,037,245
 $    21,794,212


The accompanying notes are an integral part of these financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009
 

1. BUSINESS AND ORGANIZATION

Keyport Variable Account A (the “Variable Account”) is a separate account of Sun Life Assurance Company of Canada (U.S.) (the “Sponsor”) and was established as a funding vehicle for the variable portion of Keyport Advisor contracts, Keyport Advisor Vista contracts, Keyport Vista contracts, Keyport Charter contracts, Keyport Advisor Charter contracts, Keyport Optima contracts, Keyport Advisor Optima contracts, Stein Roe Annuity contracts, Rydex Annuity contracts, Keyport Latitude contracts, and certain other group and individual variable annuity contracts issued by the Sponsor.  The Variable Account is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a unit investment trust existing in accordance with the regulations of the Delaware Insurance Department.

The assets of the Variable Account are divided into “Sub-Accounts”. Each Sub-Account is invested in shares of a specific mutual fund (collectively the “Funds”), or series thereof, selected by contract owners from available mutual funds registered under the Investment Company Act of 1940, as amended.

Under applicable insurance law, the assets and liabilities of the Variable Account are clearly identified and distinguished from the Sponsor’s other assets and liabilities.  Assets applicable to the Variable Account are not chargeable with liabilities arising out of any other business the Sponsor may conduct.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires the Sponsor’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from these estimates.

Investment Valuation and Transactions
Investments made in mutual funds are carried at fair value and are valued at their closing net asset value each business day. Transactions are recorded on a trade date basis.  Realized gains and losses on sales of investments are determined on the first in, first out basis.  Dividend income and realized gain distributions are reinvested in additional fund shares and recognized on the ex-dividend date.

Units
The number of units credited is determined by dividing the dollar amount allocated to a Sub-Account by the unit value for that Sub-Account for the period during which the purchase payment was received.  The unit value for each Sub-Account is established at $10.00 for the first period of that Sub-Account and is subsequently measured based on the performance of the investments and the contract charges selected by the contract holder, as discussed in Note 4.

Purchase Payments
Upon issuance of new contracts, the initial purchase payment is credited to the contract in the form of units.  All subsequent purchase payments are applied using the unit values for the period during which the purchase payment is received.

Transfers
Transfers between Sub-Accounts requested by contract owners are recorded in the new Sub-Account upon receipt of the redemption proceeds at the net asset value at the time of receipt.  In addition, transfers can be made between the Sub-Accounts and the “Fixed Account”.  The Fixed Account is part of the general account of the Sponsor in which purchase payments or contract values may be allocated or transferred.

Withdrawals
At any time during the accumulation phase (the period before the first annuity payment), the contract owner may elect to receive a cash withdrawal payment under the contract.  If the contract owner requests a full withdrawal, the contract owner will receive the value of their account at the end of period, less the contract maintenance charge for the current contract year and any applicable withdrawal charge.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Withdrawals (continued)
If the contract owner requests a partial withdrawal, the contract owner will receive the amount requested less any applicable withdrawal charge and the account value will be reduced by the amount requested.  Any requests for partial withdrawals that would result in the value of the contract owner’s account being reduced to an amount less than the contract maintenance charge for the current contract year is treated as a request for a full withdrawal.

Annuitization
On the annuity commencement date, the contract's accumulation account is canceled and its adjusted value is applied to provide an annuity. The adjusted value will be equal to the value of the accumulation account for the period that ends immediately before the annuity commencement date, reduced by any applicable premium taxes or similar taxes and a proportionate amount of the contract maintenance charge

Annuity Payments
The amount of the first variable annuity payment is determined in accordance with the annuity payment rates found in the contract.
The number of units to be credited in respect of a particular Sub-Account is determined by dividing that portion of the first variable annuity payment attributable to that Sub-Account by the annuity unit value of that Sub-Account for the period that ends immediately before the annuity commencement date. The number of units of each Sub-Account credited to the contract then remains fixed, unless an exchange of units is made. The dollar amount of each variable annuity payment after the first may increase, decrease or remain constant, depending on the investment performance of the Sub-Accounts.

Federal Income Tax Status
The operations of the Variable Account are part of the operations of the Sponsor and are not taxed separately. The Sponsor qualifies for the federal income tax treatment granted to life insurance companies under Subchapter L of the Internal Revenue Code (the “Code”). Under existing federal income tax law, investment income and realized gain distributions earned by the Variable Account on contract owner reserves are not taxable, and therefore, no provision has been made for federal income taxes. The Sponsor will periodically review the status of this policy in the event of changes in the tax law.

New and Adopted Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Topic 105, “Generally Accepted Accounting Principles.”  This guidance establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP.  FASB ASC Topic 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Variable Account adopted FASB ASC Topic 105 on December 31, 2009 and has updated all disclosures to reference the codification herein.

The Variable Account has adopted certain provisions of FASB ASC Topic 855, “Subsequent Events,” which were originally issued in May 2009.  This topic requires evaluation of subsequent events through the date that the financial statements are issued or are available to be issued.  FASB ASC Topic 855 sets forth the period under which the reporting entity should evaluate the subsequent events to be recognized or disclosed, the circumstances under which the reporting entity should recognize the events or transactions that occur after the balance sheets date, and the disclosures that the reporting entity should make about the subsequent events.

In February 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-09 “Subsequent Events (Topic 855)-Amendments to Certain Recognition and Disclosure Requirements” which removes the requirement for U.S. Securities and Exchange Commission filers to disclose the date through which subsequent events have been evaluated.  ASU No. 2010-09 is effective upon issuance.  Events that have occurred subsequent to December 31, 2009 have been evaluated by the Variable Account’s management in accordance with ASU No. 2010-09.

The Variable Account has adopted certain provisions of FASB ASC Topic 820, “Fair Value Measurements”, which were originally issued in April 2009.  This issuance provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased in relation to normal market activity for the asset or liability, as well as guidance on identifying circumstances that indicate a transaction is not orderly.  FASB ASC Topic 820 also requires annual and interim disclosure of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any during the period, and definitions of each major category for equity and debt securities, as described in FASB ASC Topic 320, “Investments- Debt and Equity Securities”.  The Variable Account adopted the above-noted aspects of FASB ASC Topic 820 on April 1, 2009; such adoption did not have a material impact on the Variable Account’s financial statements.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounting Pronouncements Not Yet Adopted
In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value.”  This update will amend FASB ASC Topic 820 and provides clarification regarding the valuation techniques required to be used to measure the fair value of liabilities where quoted prices in active markets for identical liabilities are not available.  In addition, this update clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  The guidance provided in ASU No. 2009-05 is effective for the first reporting period, including interim periods, beginning after issuance.  The Variable Account will adopt this guidance on January 1, 2010.  The Sponsor does not expect the adoption of this guidance to have a material impact on the Variable Account’s financial statements.

In January 2010, the FASB issued ASU 2010-06 “Fair Value Measurement and Disclosures (Topic 820)-Improving Disclosure about Fair Value Measurements,” which provides amendments to FASB ASC Topic 820 that will provide more robust disclosures about the following:

Ø  
The different classes of assets and liabilities measured at fair value;
Ø  
The valuation techniques and inputs used;
Ø  
The transfers between Levels 1, 2, and 3; and
Ø  
The activity in Level 3 fair value measurements.

Certain new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 31, 2009.  Disclosures about purchases, sales, issuances and settlements in the roll-forward of activities in Level 3 are effective for fiscal years beginning after December 15, 2010.  The Variable Account adopted this guidance on January 1, 2010, and will include the new disclosures prospectively, as required.


3. RELATED PARTY TRANSACTIONS

Massachusetts Financial Services Company and Sun Capital Advisers LLC, affiliates of the Sponsor, are investment advisers to the Funds and charge a management fees at an annual rate ranging from 0.50% to 0.90% and 0.75% of the Funds’ average daily net assets, respectively.


4. CONTRACT CHARGES

Mortality and expense risk charges
Charges for mortality and expense risks are based on the value of the Sub-Account and are deducted from the Variable Account at the end of each valuation period to cover the risks assumed by the Sponsor. The deductions are transferred periodically to the Sponsor.  As of December 31, 2009, the deduction is at an effective annual rate of the average daily net asset value as follows:

Sub-Account
Mortality and Expense Risk
Keyport Advisor Variable Annuity
1.25%
Keyport Advisor Charter Variable Annuity
1.25%
Keyport Advisor Optima Variable Annuity
1.25%
Keyport Charter Variable Annuity
1.25%
Keyport Optima Variable Annuity
1.25%
Keyport Latitude Variable Annuity
1.25%
Keyport Advisor Vista Variable Annuity
1.25%
Keyport Vista Variable Annuity
1.25%
Stein Roe Variable Annuity
0.65%
Rydex Variable Annuity
0.90%
Keyport Advisor Employee
0.35%


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


4. CONTRACT CHARGES (CONTINUED)

Administration charges
For Keyport Advisor Variable Annuity, Keyport Advisor Charter Variable Annuity, Keyport Advisor Optima Variable Annuity, Keyport Charter Variable Annuity, Keyport Optima Variable Annuity, and Keyport Latitude Variable Annuity the Account Fee is $36.  For Keyport Advisor Vista Variable Annuity and Keyport Vista Variable Annuity, the Account Fee is at an effective annual rate of 0.15% of contract value.

Distribution charge
A daily deduction from the Variable Account is made for distribution costs incurred by the Sponsor at an effective annual rate of 0.15% of average net assets for Keyport Advisor Variable Annuity, Keyport Advisor Charter Variable Annuity, Keyport Advisor Optima Variable Annuity, Keyport Charter Variable Annuity, Keyport Optima Variable Annuity, and Keyport Latitude Variable Annuity.  Keyport Advisor Vista Variable Annuity, Keyport Vista Variable Annuity, Stein Roe Variable Annuity, and Rydex Variable Annuity have no distribution charges.

Optional benefit rider charges
Optional riders are available for Keyport Advisor Charter and Keyport Advisor Optima only.  There is a yearly charge of 0.35% of the benefit base for a guaranteed income benefit rider, 0.05% of the benefit base for an enhanced death benefit (if purchased with income rider) and 0.10% of the benefit base for an enhanced death benefit (if purchased without the income rider).  The charge is deducted from the value of the Variable Account and Fixed Account held by the contract holder.

Surrender charges
The Sponsor does not deduct a sales charge from purchase payments.  However, Keyport Advisor Variable Annuity, Keyport Advisor Charter Variable Annuity, Keyport Advisor Optima Variable Annuity, Keyport Charter Variable Annuity, Keyport Optima Variable Annuity and Keyport Latitude Variable Annuity have a surrender charge (contingent deferred sales charge) based on a graded table of charges which is deducted upon contract termination from the amount surrendered if the contract holder requests a full withdrawal prior to reaching the pay-out phase.  Keyport Advisor Vista Variable Annuity, Keyport Vista Variable Annuity, Stein Roe Variable Annuity, and Rydex Variable Annuity have no surrender charges.

Premium Taxes
A deduction, when applicable, is made for premium taxes or similar state or local taxes.  It is currently the policy of the Sponsor to deduct the taxes from the value upon full surrender or annuitization.
 
 

5. RESERVE FOR VARIABLE ANNUITIES

Reserve for variable annuities represents the actuarial present value of future contract benefits for those contract holders who are in the payout phase of their contract and chose the variable payout option. Annuity reserves are calculated using the 1983 Individual Annuity Mortality Table and the assumed interest rate of 3.0%, 4.0%, 5.0% or 6.0%, unless the annuitant elects otherwise, in which case the rate may vary from 3.0% to 6.0%, as regulated by the laws of the respective states.  The mortality risk is fully borne by the Sponsor and may result in additional amounts being transferred into the variable annuity account by the Sponsor to cover greater longevity of annuities than expected.  Required adjustments to the reserves are accomplished by transfers to or from the Sponsor.


6.  INVESTMENT PURCHASES AND SALES

The cost of purchases and proceeds from sales of investments for the year ended December 31, 2009 were as follows:

 
Purchases
  
Sales
AI1
$
304,617
  
$
1,148,907
AI3
  
209,497
    
1,613,082
AI4
  
717,429
    
4,386,286
ACG
  
3,925
    
662,599
AGT
  
713,571
    
1,456,853
AIA
  
162,375
    
381,096
AIB
  
837,290
    
3,578,338
AGB
  
52,851
    
78,796
AGP
  
300,436
    
756,550


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

6.  INVESTMENT PURCHASES AND SALES (CONTINUED)

 
Purchases
  
Sales
ARE
$
14,321
  
$
85,928
ABW
  
87,032
    
152,157
VIA
  
265,926
    
1,188,067
VIB
  
146,758
    
542,151
CAA
  
1,226,308
    
4,404,523
CAB
  
1,053,725
    
6,273,137
ACL
  
2,005,173
    
3,031,880
LFS
  
6,985,105
    
10,016,370
CHA
  
228,584
    
298,692
CHB
  
2,515,651
    
2,167,178
CIA
  
365,155
    
3,078,502
CIB
  
44,165
    
342,475
CLA
  
389,619
    
1,841,359
CLB
  
249,241
    
1,257,557
CVA
  
1,058,706
    
5,859,653
CVB
  
723,181
    
2,859,654
CMB
  
712,471
    
3,879,711
MMA
  
12,616,682
    
36,344,594
CSB
  
1,340,567
    
4,714,342
CCA
  
158,238
    
727,945
CCB
  
398,595
    
1,784,629
CGA
  
140,805
    
269,499
SIA
  
2,273,142
    
4,373,434
SIB
  
5,063,800
    
9,927,691
FES
  
1,471,004
    
5,567,714
FDC
  
62,141
    
449,613
FGO
  
635,684
    
2,724,419
MBS
  
158,446
    
430,867
MGI
  
156,102
    
553,945
MGS
  
329,471
    
537,226
MSS
  
199,160
    
1,370,047
MTS
  
426,434
    
1,957,721
MND
  
814,187
    
676,947
MRI
  
211,817
    
1,045,083
RCP
  
-
    
1,483
REF
  
-
    
1,628
RSF
  
-
    
1,480
RFS
  
-
    
15
RHC
  
-
    
1,377
RN1
  
498,186
    
378,498
RMM
  
1
    
6,911
REA
  
-
    
2
RGL
  
-
    
24
RVS
  
-
    
2,669
RXS
  
-
    
2,980
LCG
  
164,346
    
3,453,496
SML
  
71,321
    
1,603,704
TD2
  
165,706
    
388,335
USA
  
73,924
    
1,887,244
WSS
  
1,280,763
    
3,271,937
WFF
  
311,524
    
1,018,266
WTF
  
497,934
    
3,869,002
WUF
  
459,347
    
6,031,352

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

7. CHANGES IN UNITS OUTSTANDING

The changes in units outstanding for the year ended December 31, 2009 were as follows:

 
Units
Issued
  
Units
Redeemed
  
Net (Decrease)
Increase
AI1
39,036
  
143,113
  
(104,077)
AI3
9,006
  
184,509
  
(175,503)
AI4
42,251
  
369,324
  
(327,073)
ACG
348
  
64,936
  
(64,588)
AGT
115,350
  
242,938
  
(127,588)
AIA
10,892
  
32,475
  
(21,583)
AIB
42,191
  
409,623
  
(367,432)
AGB
6,503
  
9,409
  
(2,906)
AGP
16,733
  
72,000
  
(55,267)
ARE
377
  
4,984
  
(4,607)
ABW
10,906
  
16,780
  
(5,874)
VIA
9,140
  
113,723
  
(104,583)
VIB
8,163
  
50,500
  
(42,339)
CAA
15,792
  
150,374
  
(134,582)
CAB
10,702
  
236,158
  
(225,456)
ACL
39,497
  
102,809
  
(63,312)
LFS
161,067
  
349,508
  
(188,441)
CHA
5,933
  
29,332
  
(23,399)
CHB
186,112
  
216,384
  
(30,272)
CIA
34,664
  
303,532
  
(268,868)
CIB
3,728
  
25,193
  
(21,465)
CLA
12,628
  
67,541
  
(54,913)
CLB
9,005
  
48,049
  
(39,044)
CVA
14,128
  
257,370
  
(243,242)
CVB
21,007
  
132,975
  
(111,968)
CMB
52,318
  
354,668
  
(302,350)
MMA
739,659
  
2,085,629
  
(1,345,970)
CSB
154,895
  
718,243
  
(563,348)
CCA
9,233
  
46,751
  
(37,518)
CCB
24,324
  
115,171
  
(90,847)
CGA
5,082
  
9,674
  
(4,592)
SIA
14,676
  
196,138
  
(181,462)
SIB
129,338
  
474,096
  
(344,758)
FES
151,377
  
640,203
  
(488,826)
FDC
7,206
  
53,771
  
(46,565)
FGO
116,760
  
526,913
  
(410,153)
MBS
7,148
  
28,053
  
(20,905)
MGI
12,452
  
42,197
  
(29,745)
MGS
26,064
  
43,853
  
(17,789)
MSS
35,828
  
267,559
  
(231,731)
MTS
46,865
  
268,436
  
(221,571)
MND
115,411
  
94,917
  
20,494
MRI
12,404
  
84,110
  
(71,706)
RCP
-
  
50
  
(50)
REF
-
  
44
  
(44)
RSF
-
  
49
  
(49)
RFS
-
  
1
  
(1)



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

7. CHANGES IN UNITS OUTSTANDING (CONTINUED)

 
Units
Issued
  
Units
Redeemed
  
Net (Decrease)
Increase
RHC
-
  
58
  
(58)
RN1
179,807
  
126,441
  
53,366
RMM
-
  
250
  
(250)
REA
-
  
-
  
-
RGL
-
  
1
  
(1)
RVS
-
  
279
  
(279)
RXS
-
  
201
  
(201)
LCG
24,074
  
518,323
  
(494,249)
SML
10,029
  
250,917
  
(240,888)
TD2
5,759
  
27,163
  
(21,404)
USA
506
  
282,959
  
(282,453)
WFF
18,368
  
94,893
  
(76,525)
WSS
63,760
  
245,312
  
(181,552)
WTF
39,878
  
267,049
  
(227,171)
WUF
43,205
  
455,303
  
(412,098)


8.  FAIR VALUE MEASUREMENTS

The following section applies the FASB ASC Topic 820 fair value hierarchy and disclosure requirements to the Variable Account’s financial instruments that are carried at fair value. FASB ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants. The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (i.e., Level 1, 2 and 3). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Variable Account has the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Level 3 inputs are unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability. FASB ASC Topic 820 requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model, if market participants would also include such an adjustment.

In compliance with FASB ASC Topic 820, the Variable Account has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three level hierarchy described above.  If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

As of December 31, 2009, the Funds of the Variable Account are identical to public mutual funds, but are only available to the contract holders of the Variable Account.  The inputs used to price the Funds are observable and are identical to mutual funds readily tradable in public markets and represent Level 1 assets under the FASB ASC Topic 820 hierarchy levels. There were no Level 2 or 3 investments in the Variable Account.

On April 1, 2009, the FASB issued additional guidance on estimating fair value, when the volume and level of activity for the asset or liability have significantly decreased, as well as guidance on identifying circumstances that indicate a transaction is not orderly.  The Variable Account reviewed its pricing sources and methodologies and has concluded that its various pricing sources and methodologies are in compliance with this guidance, which is now a part of FASB ASC Topic 820.



 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 


8.  FAIR VALUE MEASUREMENTS (CONTINUED)

Fair Value Hierarchy

The following table presents the Variable Account's categories for its assets measured at fair value on a recurring basis as of December 31, 2009:

 
Level 1
  
Level 2
  
Level 3
  
Total
Assets
              
Investment in the Funds
 $      536,381,773
  
$                     -
  
$                     -
  
$    536,381,773
Total assets measured at fair
              
   value on a recurring basis
$      536,381,773
  
$                     -
  
$                     -
  
$    536,381,773

9. FINANCIAL HIGHLIGHTS

The summary of units outstanding, unit value (some of which may be rounded), net assets, investment income ratio, expense ratio (excluding expenses of the underlying funds) and the total return, for each of the five years in the period ended December 31, is as follows:

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
AI1
                          
2009
662,064
$   8.8666
to
$  9.0965
$    5,882,934
  
   0.62%
  1.24%
to
    1.39%
    19.41%
to
19.59%
2008
766,141
7.4255
to
7.6067
5,703,607
  
-
1.24
to
1.39
(43.29)
to
(43.21)
2007
1,000,060
13.0940
to
13.3930
13,133,244
  
-
1.24
to
1.39
10.46
to
10.62
2006
1,295,604
11.8540
to
12.1070
15,400,097
  
0.06
1.24
to
1.39
4.84
to
4.99
2005
1,371,125
11.3075
to
11.5313
15,545,675
  
0.06
1.24
to
1.39
7.34
to
7.50
                           
AI3
                          
2009
818,322
10.0500
to
10.1055
8,227,342
  
1.77
1.24
to
1.39
26.53
to
26.72
2008
993,825
7.9430
to
7.9750
7,896,557
  
1.99
1.24
to
1.39
(31.11)
to
(31.01)
2007
1,242,558
11.5301
to
11.5591
14,329,861
  
1.01
1.24
to
1.39
6.62
to
6.78
 20064
1,588,466
7.8820
to
9.2600
17,180,328
  
0.81
1.24
to
1.39
5.10
to
5.15
                           
AI4
                          
2009
1,234,923
10.4352
to
14.1298
17,181,052
  
1.44
1.24
to
1.39
33.38
to
33.57
2008
1,561,996
7.8122
to
10.5941
16,249,104
  
0.50
1.24
to
1.39
(41.21)
to
(41.12)
2007
1,926,668
13.2678
to
18.0193
34,048,917
  
0.38
1.24
to
1.39
13.13
to
13.30
2006
2,378,499
11.7106
to
15.9284
37,115,125
  
1.00
1.24
to
1.39
26.47
to
26.66
2005
2,696,977
9.2459
to
12.5948
33,188,740
  
0.66
1.24
to
1.39
16.30
to
16.48
                           
ACG
                          
2009
272,701
12.5302
to
15.0116
3,419,619
  
-
1.24
to
1.39
43.50
to
45.00
2008
337,289
8.7320
to
10.3530
2,948,018
  
-
0.35
to
1.39
(47.34)
to
(46.79)
2007
424,803
16.5827
to
19.4564
7,050,852
  
-
0.35
to
1.39
15.61
to
16.83
2006
643,911
14.3432
to
16.6537
9,242,528
  
-
0.35
to
1.39
18.36
to
19.60
2005
894,352
12.1179
to
13.9247
10,844,934
  
-
0.35
to
1.39
15.27
to
16.47


 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
AGT
                          
2009
783,716
$   6.8512
to
$ 17.6819
$   5,662,627
  
   -%
    1.24%
to
    1.39%
   - %
to
  51.25%
2008
911,304
4.5364
to
17.6819
4,360,362
  
-
1.24
to
1.39
(48.19)
to
-
2007
1,210,284
8.7566
to
17.6819
11,176,689
  
-
1.24
to
1.39
18.24
to
18.41
2006
1,524,791
7.4060
to
7.9490
11,909,372
  
-
1.24
to
1.39
6.89
to
7.05
2005
1,845,923
6.9291
to
7.4370
13,487,399
  
-
1.24
to
1.39
2.22
to
2.37
                           
AGB
                          
2009
50,761
9.8194
to
9.9404
499,966
  
-
1.24
to
1.39
31.03
to
31.23
2008
53,667
7.4938
to
7.5749
403,527
  
-
1.24
to
1.39
(43.39)
to
(43.31)
2007
58,336
13.2380
to
13.3610
774,720
  
-
1.24
to
1.39
11.10
to
11.27
2006
69,102
11.9160
to
12.0090
825,869
  
-
1.24
to
1.39
(2.60)
to
(2.46)
2005
92,630
12.2341
to
12.3109
1,135,695
  
-
1.24
to
1.39
10.10
to
10.26
                           
AIA
                          
2009
91,605
12.7087
to
12.7087
1,164,179
  
3.97
1.39
to
1.39
19.16
to
19.16
2008
113,188
10.6657
to
10.6657
1,207,237
  
2.11
1.39
to
1.39
(41.43)
to
(41.43)
2007
135,621
18.2098
to
18.2098
2,469,628
  
1.43
1.39
to
1.39
3.66
to
3.66
2006
183,419
17.5670
to
17.5670
3,222,127
  
1.43
1.39
to
1.39
15.67
to
15.67
2005
228,823
15.1870
to
15.1870
3,475,143
  
1.52
1.39
to
1.39
3.42
to
3.42
                           
AIB
                          
2009
1,623,459
9.4630
to
12.7494
16,075,932
  
3.51
1.24
to
1.39
-
to
18.86
2008
1,990,891
7.9731
to
12.7494
16,612,074
  
1.86
1.24
to
1.39
(41.52)
to
-
2007
2,659,499
12.7494
to
14.4462
37,946,873
  
1.21
1.24
to
1.39
-
to
3.56
2006
3,182,751
12.7494
to
13.9496
43,920,143
  
1.16
1.24
to
1.39
9.56
to
15.55
2005
3,802,765
11.4276
to
12.0729
45,481,963
  
1.27
1.24
to
1.39
3.16
to
3.31
                           
AGP
                          
2009
243,763
13.1069
to
13.2955
3,198,290
  
4.44
1.24
to
1.39
37.31
to
37.52
2008
299,030
9.5452
to
9.6680
2,856,645
  
-
1.24
to
1.39
(49.67)
to
(49.60)
2007
400,181
18.9664
to
19.1816
7,595,038
  
1.31
1.24
to
1.39
16.14
to
16.32
2006
388,804
16.3300
to
16.4900
6,351,257
  
0.70
1.24
to
1.39
24.95
to
25.14
2005
462,461
13.0689
to
13.1776
6,045,588
  
0.32
1.24
to
1.39
18.89
to
19.07
                           
ARE
                          
2009
8,931
21.4705
to
21.4705
191,744
  
3.13
1.39
to
1.39
27.67
to
27.67
2008
13,538
16.8172
to
16.8172
227,675
  
1.78
1.39
to
1.39
(36.58)
to
(36.58)
2007
17,567
26.5163
to
26.5163
465,804
  
1.46
1.39
to
1.39
(15.72)
to
(15.72)
2006
26,192
31.4609
to
31.4609
824,040
  
1.92
1.39
to
1.39
33.37
to
33.37
2005
32,299
23.5900
to
23.5900
761,923
  
3.33
1.39
to
1.39
10.13
to
10.13



 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
ABW
                          
2009
45,366
$  10.0884
to
$ 10.1075
$      457,978
  
   0.99%
    1.24%
to
    1.39%
   22.73%
to
  22.92%
 20085
51,240
8.2230
to
8.2230
423,690
  
-
1.24
to
1.39
(17.77)
to
(17.77)
                           
VIA
                          
2009
469,216
10.8923
to
11.0848
5,113,746
  
3.61
0.35
to
1.39
16.88
to
18.10
 20086
573,799
9.3194
to
9.3860
5,348,638
  
-
0.35
to
1.39
(6.81)
to
(6.14)
                           
VIB
                          
2009
173,826
10.8377
to
10.8651
1,884,899
  
3.46
1.24
to
1.39
16.57
to
16.74
 20086
216,165
9.2973
to
9.3068
2,010,151
  
-
1.24
to
1.39
(7.03)
to
(6.93)
                           
CAA
                          
2009
627,165
12.5843
to
33.1205
19,738,525
  
4.11
1.24
to
1.39
22.29
to
23.57
2008
761,747
9.4464
to
27.0429
19,630,136
  
3.26
0.35
to
1.39
(29.32)
to
(28.57)
2007
994,764
13.2651
to
38.2018
36,233,728
  
2.71
0.35
to
1.39
7.66
to
8.79
2006
1,382,239
12.2299
to
35.4310
46,850,010
  
2.34
0.35
to
1.39
10.25
to
11.40
2005
1,960,282
11.0112
to
32.0896
60,318,796
  
2.66
0.35
to
1.39
5.06
to
6.16
                           
CAB
                          
2009
688,876
12.3788
to
32.5797
20,309,729
  
3.92
1.24
to
1.39
22.08
to
22.26
2008
914,332
10.1402
to
26.6481
22,163,437
  
3.17
1.24
to
1.39
(29.44)
to
(29.33)
2007
1,128,976
14.3710
to
37.7098
38,840,639
  
2.67
1.24
to
1.39
7.54
to
7.70
2006
1,368,372
13.3631
to
35.0124
43,501,641
  
2.34
1.24
to
1.39
10.07
to
10.23
2005
1,642,697
12.1408
to
31.7624
46,644,475
  
2.47
1.24
to
1.39
4.94
to
5.09
                           
ACL
                          
2009
437,224
23.1087
to
30.0632
12,478,832
  
7.10
1.24
to
1.39
0.50
to
1.55
2008
500,536
16.0587
to
29.8703
14,194,100
  
6.10
0.35
to
1.39
6.59
to
7.71
2007
664,438
14.9538
to
27.9810
17,669,845
  
5.75
0.35
to
1.39
4.71
to
5.81
2006
911,454
14.1745
to
26.6814
23,123,984
  
5.25
0.35
to
1.39
2.29
to
3.36
2005
1,329,782
13.7551
to
26.0455
32,958,991
  
5.95
0.35
to
1.39
1.17
to
2.22
                           
LFS
                          
2009
1,352,976
27.6476
to
29.3731
37,525,298
  
6.90
1.24
to
1.39
0.31
to
0.46
2008
1,541,417
27.5632
to
29.2397
42,618,567
  
5.98
1.24
to
1.39
6.32
to
6.48
2007
2,267,147
25.9250
to
27.4610
58,936,195
  
5.69
1.24
to
1.39
4.50
to
4.66
2006
2,600,889
24.8083
to
26.2383
64,710,572
  
5.35
1.24
to
1.39
1.96
to
2.12
2005
2,942,077
24.3306
to
25.6947
71,800,914
  
5.46
1.24
to
1.39
1.02
to
1.17
                           
CHA
                          
2009
164,145
11.3038
to
11.3662
1,856,242
  
10.31
1.24
to
1.39
42.16
to
42.38
2008
187,544
7.9513
to
8.1112
1,491,703
  
10.36
0.65
to
1.39
(25.82)
to
(25.26)
2007
262,833
10.7189
to
10.8532
2,818,179
  
4.71
0.65
to
1.39
0.43
to
1.18
2006
378,830
9.8880
to
10.7570
4,043,974
  
7.43
0.65
to
1.39
0.68
to
0.92
2005
525,660
9.8215
to
10.6585
5,168,013
  
-
0.65
to
1.39
1.10
to
1.85

 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
CHB
                          
2009
745,644
$  11.2753
to
$ 11.3375
$   8,411,882
  
   10.61%
   1.24%
to
   1.39%
   41.93%
to
42.14%
2008
775,916
7.9444
to
7.9763
6,166,464
  
10.34
1.24
to
1.39
(25.80)
to
(25.69)
2007
1,003,610
10.7067
to
10.7336
10,747,844
  
5.05
1.24
to
1.39
0.29
to
0.44
2006
1,241,102
9.8452
to
10.6863
13,250,678
  
4.18
1.24
to
1.39
0.70
to
8.23
2005
1,672,228
9.7766
to
9.8735
16,364,803
  
-
1.24
to
1.39
1.00
to
1.15
                           
CIA
                          
2009
1,004,309
11.7379
to
15.5299
11,886,270
  
0.52
0.35
to
1.39
28.54
to
29.88
2008
1,273,177
9.1319
to
12.6090
11,725,792
  
2.97
0.35
to
1.39
(45.60)
to
(45.03)
2007
1,609,936
16.7861
to
23.0052
27,227,453
  
2.80
0.35
to
1.39
6.29
to
7.41
2006
2,257,043
15.7921
to
21.4818
35,872,393
  
1.36
0.35
to
1.39
23.44
to
24.73
2005
3,037,073
12.7931
to
17.2739
39,112,207
  
-
0.35
to
1.39
11.60
to
12.76
                           
CIB
                          
2009
121,964
15.3324
to
15.4880
1,873,567
  
0.12
1.24
to
1.39
28.36
to
28.55
2008
143,429
11.9450
to
12.0481
1,716,897
  
2.69
1.24
to
1.39
(45.78)
to
(45.70)
2007
183,305
22.0308
to
22.1877
4,046,278
  
2.53
1.24
to
1.39
5.69
to
5.85
2006
270,514
20.8449
to
20.9617
5,646,510
  
1.24
1.24
to
1.39
23.32
to
23.50
2005
327,628
16.9037
to
16.9731
5,543,450
  
-
1.24
to
1.39
11.08
to
11.25
                           
CLA
                          
2009
286,375
8.1295
to
34.2799
9,008,913
  
0.69
0.35
to
1.39
32.95
to
34.34
2008
341,288
4.4281
to
25.7458
8,062,323
  
0.25
0.35
to
1.39
(41.26)
to
(40.64)
2007
432,631
7.4822
to
43.7638
17,044,341
  
0.37
0.35
to
1.39
14.16
to
15.36
2006
628,682
6.5052
to
38.2766
22,206,251
  
0.34
0.35
to
1.39
8.72
to
9.85
2005
890,447
5.9395
to
35.1557
28,907,133
  
0.65
0.35
to
1.39
3.30
to
4.38
                           
CLB
                          
2009
218,231
7.9901
to
33.6922
6,749,585
  
0.51
1.24
to
1.39
32.74
to
32.94
2008
257,275
6.0193
to
25.3437
5,977,654
  
0.08
1.24
to
1.39
(41.36)
to
(41.27)
2007
354,320
10.2650
to
43.1552
13,980,637
  
0.25
1.24
to
1.39
13.97
to
14.14
2006
423,168
9.0070
to
37.8090
14,339,849
  
0.19
1.24
to
1.39
8.61
to
8.77
2005
490,910
8.2933
to
34.7613
14,972,235
  
0.40
1.24
to
1.39
3.05
to
3.21
                           
CVA
                          
2009
1,117,016
11.4391
to
30.8068
28,874,919
  
2.97
0.35
to
1.39
22.28
to
23.56
2008
1,360,258
8.6431
to
24.9336
28,735,875
  
2.40
0.35
to
1.39
(37.95)
to
(37.29)
2007
1,804,173
13.8246
to
39.7618
61,352,376
  
1.40
0.35
to
1.39
1.31
to
2.37
2006
2,560,018
13.5443
to
38.8394
85,742,272
  
1.28
0.35
to
1.39
16.53
to
17.74
2005
3,658,223
11.5373
to
32.9863
105,281,602
  
-
0.35
to
1.39
4.92
to
6.01


 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
CVB
                          
2009
555,976
$  11.2395
to
$ 26.1593
$  13,609,300
  
  2.68%
   1.24%
to
   1.39%
    21.97%
to
 22.15%
2008
667,944
9.2153
to
21.4160
13,365,662
  
2.13
1.24
to
1.39
(38.09)
to
(37.99)
2007
873,557
14.8838
to
34.5374
28,995,120
  
1.25
1.24
to
1.39
1.07
to
1.22
2006
1,079,267
14.7268
to
34.1218
35,338,280
  
1.13
1.24
to
1.39
16.23
to
16.40
2005
1,238,143
12.6708
to
29.3144
34,823,989
  
-
1.24
to
1.39
4.74
to
4.90
                           
CMB
                          
2009
1,077,566
13.2411
to
13.4315
14,277,888
  
1.47
1.24
to
1.39
28.21
to
30.05
2008
1,379,916
10.1968
to
10.3280
14,078,638
  
1.11
1.24
to
1.39
(43.91)
to
(43.83)
2007
1,740,949
18.1794
to
18.3857
31,665,215
  
0.67
1.24
to
1.39
6.08
to
6.24
2006
2,052,718
17.1378
to
17.3061
35,194,954
  
0.50
1.24
to
1.39
15.30
to
15.48
2005
2,367,547
14.8632
to
14.9869
35,205,422
  
-
1.24
to
1.39
10.53
to
10.70
                           
MMA
                          
2009
4,129,866
12.0405
to
19.2713
69,469,641
  
0.26
-
to
1.39
(1.15)
to
0.23
2008
5,475,836
12.1807
to
19.2263
93,197,553
  
2.55
-
to
1.39
1.16
to
2.58
2007
5,791,656
12.0410
to
18.7430
97,342,901
  
4.90
0.35
to
1.39
3.55
to
5.02
2006
7,186,191
11.6275
to
17.8479
116,027,363
  
4.60
0.35
to
1.39
3.28
to
4.72
2005
8,566,370
11.1933
to
17.0433
133,974,900
  
2.78
-
to
1.39
1.40
to
2.81
                           
CCA
                          
2009
134,732
18.1275
to
18.4172
2,450,221
  
1.18
1.24
to
1.39
23.43
to
23.62
2008
172,250
14.6863
to
14.8986
2,537,482
  
0.71
1.24
to
1.39
(29.02)
to
(28.91)
2007
247,765
20.6903
to
20.9579
5,140,860
  
0.43
1.24
to
1.39
(3.71)
to
(3.57)
2006
366,911
21.4880
to
21.7330
7,900,514
  
0.51
1.24
to
1.39
17.92
to
18.10
2005
474,277
18.2225
to
18.4029
8,659,404
  
-
0.65
to
1.39
4.18
to
4.34
                           
CCB
                          
2009
376,134
17.9248
to
18.2112
6,748,992
  
0.93
1.24
to
1.39
23.27
to
23.45
2008
466,981
14.5411
to
14.7514
6,798,418
  
0.46
1.24
to
1.39
(29.15)
to
(29.04)
2007
648,492
20.5242
to
20.7897
13,323,300
  
0.26
1.24
to
1.39
(3.93)
to
(3.79)
2006
847,524
21.3640
to
21.6078
18,121,796
  
0.33
1.24
to
1.39
17.72
to
17.89
2005
991,327
18.1483
to
18.3280
18,006,053
  
-
1.24
to
1.39
4.02
to
4.17
                           
CGA
                          
2009
57,856
11.1814
to
33.2831
1,832,703
  
-
0.35
to
1.39
23.92
to
25.22
2008
62,448
9.0230
to
26.8180
1,592,231
  
-
0.35
to
1.39
(41.65)
to
(41.03)
2007
74,020
15.4627
to
45.8888
3,236,154
  
-
0.35
to
1.39
11.88
to
13.06
2006
104,739
13.8204
to
40.9533
4,115,136
  
-
0.35
to
1.39
10.85
to
12.01
2005
162,744
12.4674
to
36.8889
5,829,102
  
-
0.35
to
1.39
1.30
to
2.35

 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
SIA
                          
2009
787,245
$  16.7190
to
$ 27.3150
$  18,372,723
 
  10.77%
   0.35%
to
   1.39%
  18.59%
to
19.83%
2008
968,707
14.0983
to
22.7952
19,069,963
  
8.41
0.35
to
1.39
(8.97)
to
(8.02)
2007
1,284,541
15.4882
to
24.7825
27,802,772
  
7.74
0.35
to
1.39
4.60
to
5.69
2006
1,750,784
14.8077
to
23.4473
36,215,918
  
9.63
0.35
to
1.39
5.59
to
6.69
2005
2,589,859
14.0237
to
21.9766
50,757,201
  
-
0.35
to
1.39
0.21
to
1.25
                           
SIB
                          
2009
996,494
16.3835
to
23.3887
22,596,046
  
10.70
1.24
to
1.39
18.34
to
18.51
2008
1,341,252
13.8448
to
19.7350
25,721,082
  
8.30
1.24
to
1.39
(9.08)
to
(8.94)
2007
1,909,961
15.2272
to
21.6730
40,252,900
  
7.82
1.24
to
1.39
4.28
to
4.44
2006
2,116,104
14.6020
to
20.7520
42,740,666
  
10.05
1.24
to
1.39
5.37
to
5.53
2005
2,360,977
13.8577
to
19.6647
45,297,775
  
-
1.24
to
1.39
0.01
to
0.16
                           
CSB
                          
2009
2,458,314
7.4478
to
7.5549
18,319,942
  
2.84
1.24
to
1.39
24.22
to
24.41
2008
3,021,662
5.9954
to
6.0726
18,128,786
  
1.84
1.24
to
1.39
(38.27)
to
(38.18)
2007
3,690,746
9.7130
to
9.8231
35,869,904
  
1.22
1.24
to
1.39
3.42
to
3.57
2006
4,113,887
9.3920
to
9.4842
38,659,141
  
1.28
1.24
to
1.39
13.44
to
13.61
2005
4,930,583
8.2790
to
8.3479
40,840,330
  
-
1.24
to
1.39
2.78
to
2.94
                           
FES
                          
2009
1,815,511
10.2679
to
10.4156
18,660,455
  
1.95
1.24
to
1.39
28.09
to
28.28
2008
2,304,337
8.0162
to
8.1193
18,488,676
  
2.01
1.24
to
1.39
(43.61)
to
(43.52)
2007
2,874,699
14.2146
to
14.3758
40,896,352
  
1.50
1.24
to
1.39
(0.13)
to
0.02
2006
3,325,969
14.2336
to
14.3734
47,375,874
  
2.99
1.24
to
1.39
18.28
to
18.45
2005
3,643,228
12.0341
to
12.1342
43,870,477
  
1.45
1.24
to
1.39
4.12
to
4.27
                           
FDC
                          
2009
89,772
10.4430
to
11.4065
1,023,868
  
0.02
1.24
to
1.39
33.91
to
34.11
2008
136,337
7.7867
to
8.5179
1,161,191
  
0.44
1.24
to
1.39
(42.16)
to
(42.07)
2007
168,851
13.4420
to
14.7270
2,485,003
  
0.10
1.24
to
1.39
5.25
to
5.41
2006
207,189
12.7530
to
13.9926
2,896,507
  
0.25
1.24
to
1.39
12.25
to
12.41
2005
150,280
11.3446
to
12.4658
1,869,379
  
-
1.24
to
1.39
19.01
to
19.19
                           
FGO
                          
2009
1,220,169
6.2031
to
6.2923
7,574,450
  
0.22
1.24
to
1.39
43.45
to
43.67
2008
1,630,322
4.3241
to
4.3797
7,053,932
  
0.13
1.24
to
1.39
(55.76)
to
(55.69)
2007
1,731,081
9.7741
to
9.8850
16,930,399
  
-
1.24
to
1.39
21.20
to
21.38
2006
2,092,554
8.0645
to
8.1437
16,885,699
  
0.48
1.24
to
1.39
3.67
to
3.83
2005
2,265,072
7.7789
to
7.8436
17,631,071
  
0.67
1.24
to
1.39
7.18
to
7.34

 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
MBS
                          
2009
72,349
$ 16.1910
to
$ 16.1910
$   1,171,411
  
   4.40%
   1.39%
to
   1.39%
   14.55%
to
 14.55%
2008
93,254
14.1339
to
14.1339
1,318,045
  
2.96
1.39
to
1.39
(3.72)
to
(3.72)
2007
125,418
14.6800
to
14.6800
1,841,101
  
3.18
1.39
to
1.39
2.76
to
2.76
2006
148,834
14.2853
to
14.2853
2,126,149
  
4.28
1.39
to
1.39
2.61
to
2.61
2005
169,713
13.9215
to
13.9215
2,362,659
  
5.23
1.39
to
1.39
0.12
to
0.12
                           
MGI
                          
2009
246,146
11.2714
to
18.1913
3,683,912
  
0.32
0.35
to
1.39
35.77
to
37.19
2008
275,891
8.3016
to
13.2596
3,040,156
  
0.24
0.35
to
1.39
(38.29)
to
(37.64)
2007
359,979
13.4516
to
21.2619
6,420,199
  
-
0.35
to
1.39
19.49
to
20.75
2006
516,673
11.2574
to
17.6087
7,718,489
  
-
0.35
to
1.39
6.41
to
7.52
2005
724,412
10.5796
to
16.3776
10,178,489
  
-
0.35
to
1.39
7.69
to
8.81
                           
MGS
                          
2009
213,584
11.0413
to
15.0027
3,136,613
  
0.03
1.24
to
1.39
35.43
to
35.63
2008
231,373
8.1527
to
11.0612
2,508,940
  
-
1.24
to
1.39
(38.41)
to
(38.32)
2007
264,373
13.2376
to
17.9332
4,654,443
  
-
1.24
to
1.39
19.20
to
19.38
2006
333,189
11.1057
to
15.0224
4,922,552
  
-
1.24
to
1.39
6.13
to
6.29
2005
367,398
10.4644
to
14.1338
5,113,323
  
-
1.24
to
1.39
7.42
to
7.58
                           
MSS
                          
2009
1,021,792
6.1314
to
6.2196
6,268,223
  
0.45
1.24
to
1.39
37.17
to
37.38
2008
1,253,523
4.4698
to
4.5273
5,605,237
  
0.31
1.24
to
1.39
(37.85)
to
(37.76)
2007
1,861,012
7.1924
to
7.2740
13,389,898
  
0.09
1.24
to
1.39
9.48
to
9.65
2006
2,098,150
6.5694
to
6.6340
13,788,286
  
-
1.24
to
1.39
5.83
to
5.98
2005
2,362,160
6.2077
to
6.2594
14,669,265
  
0.15
1.24
to
1.39
2.79
to
2.94
                           
MTS
                          
2009
892,163
8.5717
to
8.6950
7,652,281
  
1.36
1.24
to
1.39
24.81
to
25.00
2008
1,113,734
6.8678
to
6.9562
7,653,139
  
0.55
1.24
to
1.39
(34.18)
to
(34.08)
2007
1,378,653
10.4341
to
10.5524
14,392,215
  
0.61
1.24
to
1.39
8.51
to
8.67
2006
1,690,285
9.6162
to
9.7107
16,262,742
  
0.26
1.24
to
1.39
11.14
to
11.31
2005
1,929,386
8.6523
to
8.7243
16,701,714
  
0.32
1.24
to
1.39
5.55
to
5.71
                           
MND
                          
2009
393,826
8.7933
to
8.9199
3,464,386
  
-
1.24
to
1.39
60.67
to
60.91
2008
373,332
5.4729
to
5.5433
2,043,745
  
-
1.24
to
1.39
(40.36)
to
(40.27)
2007
500,965
9.1763
to
9.2804
4,598,263
  
-
1.24
to
1.39
0.83
to
0.98
2006
686,283
9.1007
to
9.1901
6,247,295
  
-
1.24
to
1.39
11.37
to
11.54
2005
781,811
8.1712
to
8.2392
6,390,248
  
-
1.24
to
1.39
3.58
to
3.74

 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
MRI
                          
2009
462,644
$ 10.5974
to
$ 15.5996
$   6,504,678
  
  1.49%
  0.35%
to
   1.39%
 28.74%
to
30.09%
2008
534,350
8.2315
to
11.9916
5,836,815
  
0.56
0.35
to
1.39
(36.97)
to
(36.31)
2007
674,627
13.0602
to
18.8281
11,693,134
  
0.73
0.35
to
1.39
11.63
to
12.81
2006
908,302
11.6993
to
16.6907
14,102,176
  
0.54
0.35
to
1.39
8.96
to
10.09
2005
1,263,205
10.7377
to
15.1607
18,007,788
  
0.49
0.35
to
1.39
6.32
to
7.42
                           
RCP
                          
  20097
-
-
to
-
-
  
-
0.90
to
0.90
(1.11)
to
(1.11)
2008
50
31.5811
to
31.5811
1,570
  
0.17
0.90
to
0.90
(24.08)
to
(24.08)
2007
50
41.5955
to
41.5955
2,068
  
1.67
0.90
to
0.90
10.08
to
10.08
2006
57
37.7857
to
37.7857
2,165
  
0.07
0.90
to
0.90
16.38
to
16.38
2005
555
32.4673
to
32.4673
18,007
  
5.33
0.90
to
0.90
(1.28)
to
(1.28)
                           
REF
                          
  20097
-
-
to
-
-
  
-
0.90
to
0.90
14.09
to
14.09
2008
44
37.4091
to
37.4091
1,652
  
(0.00)
0.90
to
0.90
(46.52)
to
(46.52)
2007
229
69.9475
to
69.9475
16,032
  
-
0.90
to
0.90
32.02
to
32.02
2006
236
52.9820
to
52.9820
12,499
  
-
0.90
to
0.90
10.93
to
10.93
2005
951
47.7613
to
47.7613
45,410
  
0.06
0.90
to
0.90
37.31
to
37.31
                           
RSF
                          
  20097
-
-
to
-
-
  
-
0.90
to
0.90
28.67
to
28.67
2008
49
30.2063
to
30.2063
1,474
  
-
0.90
to
0.90
(57.98)
to
(57.98)
2007
358
71.8900
to
71.8900
25,717
  
-
0.90
to
0.90
35.87
to
35.87
2006
700
52.9112
to
52.9112
37,043
  
-
0.90
to
0.90
9.99
to
9.99
2005
1,447
48.1044
to
48.1044
69,584
  
-
0.90
to
0.90
46.98
to
46.98
                           
RFS
                          
   20097
-
-
to
-
-
  
-
0.90
to
0.90
(6.55)
to
(6.55)
2008
1
15.3706
to
15.3706
15
  
-
0.90
to
0.90
(48.51)
to
(48.51)
2007
979
-
to
29.8514
29,233
  
15.71
0.90
to
1.39
(19.53)
to
-
2006
1
37.0970
to
37.0967
37
  
0.01
0.90
to
1.39
15.69
to
15.69
2005
557
32.0650
to
32.0650
17,863
  
0.88
0.90
to
1.39
2.46
to
2.46
                           
RHC
                          
  20097
-
-
to
-
-
  
-
0.90
to
0.90
(2.60)
to
(2.60)
2008
58
24.1500
to
24.1500
1,406
  
0.00
0.90
to
0.90
(25.53)
to
(25.53)
2007
58
32.4297
to
32.4297
1,887
  
-
0.90
to
1.39
5.07
to
5.07
2006
67
30.8640
to
30.8640
2,070
  
-
0.90
to
1.39
4.18
to
4.18
2005
1,870
29.6260
to
29.6262
55,398
  
-
0.90
to
1.39
9.66
to
9.66

 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
RN1
                          
2009
448,018
$  3.6039
to
$ 3.6558
$   1,616,528
  
  -%
   1.24%
to
   1.39%
  40.26%
to
 42.21%
2008
394,652
2.4042
to
2.4350
949,915
  
0.15
0.90
to
1.39
(78.92)
to
(42.72)
2007
472,266
4.1972
to
11.5558
1,984,073
  
0.07
0.90
to
1.39
16.19
to
16.77
2006
510,859
3.6124
to
9.8965
1,846,983
  
-
0.90
to
1.39
4.32
to
4.83
2005
638,955
3.4630
to
9.4403
2,429,063
  
-
0.90
to
1.39
(0.28)
to
0.21
                           
RMM
                          
   20097
-
-
to
-
-
  
-
0.90
to
0.90
(0.33)
to
(0.33)
2008
250
27.6215
to
27.6215
6,910
  
1.20
0.90
to
0.90
0.24
to
0.24
2007
32,717
27.5563
to
27.5563
901,568
  
3.86
0.90
to
0.90
2.96
to
2.96
2006
53,338
26.7640
to
26.7640
1,427,537
  
3.58
0.90
to
0.90
2.89
to
2.89
2005
72,522
26.0118
to
26.0118
1,886,435
  
1.67
0.90
to
0.90
1.10
to
1.10
                           
REA
                          
  20097
-
-
to
-
-
  
-
-
to
-
-
to
-
2008
-
-
to
-
-
  
-
-
to
-
-
to
-
2007
-
44.6226
to
44.6226
4
  
0.04
0.90
to
0.90
12.05
to
12.05
2006
120
39.8246
to
39.8246
4,797
  
1.05
0.90
to
0.90
28.36
to
28.36
2005
737
31.0263
to
31.0263
22,878
  
0.29
0.90
to
0.90
5.41
to
5.41
                           
RVS
                          
  20097
-
-
to
-
-
  
-
0.90
to
0.90
828.78
to
828.78
2008
279
11.0303
to
11.0303
3,079
  
-
0.90
to
0.90
(68.27)
to
(68.27)
2007
3,538
34.7650
to
34.7650
123,014
  
0.30
0.90
to
0.90
(0.29)
to
(0.29)
2006
1,546
34.8658
to
34.8658
53,897
  
0.37
0.90
to
0.90
22.60
to
22.60
2005
35,588
28.4390
to
28.4390
1,012,074
  
0.08
0.90
to
0.90
2.46
to
2.46
                           
RGL
                          
  20097
-
-
to
-
-
  
0.31
0.90
to
0.90
(29.86)
to
(29.86)
2008
1
54.7291
to
54.7291
33
  
3.54
0.90
to
0.90
43.55
to
43.55
2007
1
38.1248
to
38.1248
23
  
3.66
0.90
to
0.90
8.79
to
8.79
2006
-
35.0454
to
35.0454
9
  
3.66
0.90
to
0.90
(4.01)
to
(4.01)
2005
1,218
36.5086
to
36.5086
44,462
  
3.73
0.90
to
0.90
6.76
to
6.76
                           
RXS
                          
  20097
-
-
to
-
-
  
-
0.90
to
0.90
(10.03)
to
(10.03)
2008
201
17.1308
to
17.1308
3,441
  
0.27
0.90
to
0.90
(51.80)
to
(51.80)
2007
592
35.5428
to
35.5428
21,052
  
0.76
0.90
to
0.90
(7.58)
to
(7.58)
2006
1,455
38.4559
to
38.4560
55,971
  
0.32
0.90
to
0.90
19.77
to
19.77
2005
137
32.1070
to
32.1070
4,410
  
2.11
0.90
to
0.90
2.99
to
2.99

 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
LCG
                          
2009
2,323,620
$  7.5618
to
$  7.7760
$  17,577,946
  
  0.20%
   1.24%
to
    1.39%
 35.34%
to
36.75%
2008
2,817,869
5.5875
to
5.6863
15,749,394
  
0.01
0.35
to
1.39
(44.90)
to
(44.32)
 20078
3,606,816
10.1404
to
10.2123
36,579,260
  
-
0.35
to
1.39
1.40
to
2.12
                           
SML
                          
2009
1,053,135
7.5155
to
7.5458
7,916,637
  
0.20
1.24
to
1.39
35.19
to
35.39
2008
1,294,023
5.5593
to
5.5734
7,195,057
  
0.01
1.24
to
1.39
(45.07)
to
(44.99)
 20078
1,650,714
10.1214
to
10.1317
16,708,564
  
-
1.24
to
1.39
1.21
to
1.32
                           
TD2
                          
2009
96,803
18.6804
to
18.9766
1,809,595
  
4.57
1.24
to
1.39
70.21
to
70.46
2008
118,207
10.9749
to
11.1323
1,298,190
  
2.75
1.24
to
1.39
(53.36)
to
(53.29)
2007
141,510
23.5320
to
23.8340
3,332,450
  
2.36
1.24
to
1.39
27.00
to
27.19
2006
280,414
18.5300
to
18.7390
5,198,058
  
1.12
1.24
to
1.39
26.33
to
26.51
2005
312,993
14.6682
to
14.8117
4,592,522
  
1.28
1.24
to
1.39
25.67
to
25.86
                           
USA
                          
 20099
-
6.5122
to
7.0438
-
  
4.42
1.24
to
1.39
(2.45)
to
(2.41)
2008
282,453
6.6760
to
7.2176
1,941,268
  
2.93
1.24
to
1.39
(36.23)
to
(36.13)
2007
417,731
10.4690
to
11.3013
4,498,808
  
2.21
1.24
to
1.39
0.49
to
0.64
2006
656,391
10.4185
to
11.2298
7,018,743
  
2.52
1.24
to
1.39
9.47
to
9.63
2005
948,186
9.5175
to
10.2434
9,269,680
  
1.40
1.24
to
1.39
5.13
to
5.29
                           
WFF
                          
2009
304,921
13.3217
to
13.5067
4,064,384
  
3.03
1.24
to
1.39
31.08
to
31.28
2008
381,446
10.1628
to
10.2886
3,878,635
  
0.41
1.24
to
1.39
(45.12)
to
(45.04)
2007
613,299
18.5179
to
18.7189
11,362,046
  
0.77
1.24
to
1.39
20.09
to
20.27
2006
694,967
15.4190
to
15.5637
10,721,225
  
0.27
0.65
to
1.39
34.13
to
34.33
2005
694,436
11.4963
to
11.5863
7,987,070
  
1.94
0.65
to
1.39
14.83
to
15.00
                           
WSS
                          
2009
792,465
16.3981
to
16.6258
12,999,565
  
3.81
1.24
to
1.39
47.71
to
47.93
2008
974,017
11.1013
to
11.2386
10,817,014
  
1.01
1.24
to
1.39
(46.36)
to
(46.28)
2007
1,137,620
20.6943
to
20.9189
23,550,779
  
0.91
1.24
to
1.39
14.70
to
14.87
2006
1,447,433
18.0400
to
18.2109
26,123,078
  
0.58
0.65
to
1.39
35.27
to
35.47
2005
1,693,216
13.3379
to
13.4423
22,590,786
  
1.04
0.65
to
1.39
19.85
to
20.03


 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 

9. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
WTF
                          
2009
658,009
$  17.6493
to
$ 17.8944
11,616,543
  
   -%
    1.24%
to
    1.39%
   63.89%
to
 64.14%
2008
885,180
10.7689
to
11.2621
9,537,768
  
-
0.65
to
1.39
(49.77)
to
(49.39)
2007
1,097,369
21.4394
to
22.2544
23,537,826
  
-
0.65
to
1.39
7.87
to
8.68
2006
1,420,045
19.8744
to
20.4765
28,232,706
  
0.38
0.65
to
1.39
18.05
to
18.93
2005
1,588,305
16.8350
to
17.2170
26,749,193
  
-
0.65
to
1.39
8.97
to
9.78
                           
WUF
                          
2009
1,516,204
15.8455
to
16.0656
24,037,245
  
-
1.24
to
1.39
40.26
to
40.21
2008
1,928,302
11.2969
to
12.0602
21,794,212
  
-
0.65
to
1.39
(40.52)
to
(40.08)
2007
2,316,040
18.9935
to
20.1259
44,008,451
  
-
0.65
to
1.39
3.93
to
4.70
2006
2,785,624
18.2762
to
19.2216
50,929,000
  
0.23
0.65
to
1.39
6.39
to
7.18
2005
3,193,098
17.1789
to
17.9342
54,872,559
  
-
0.65
to
1.39
9.72
to
10.54


1 Represents the dividends, excluding distributions of capital gains, received by the Sub-Account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. The ratio excludes those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the Sub-Account is affected by the timing of the declaration of dividends by the underlying fund in which the Sub-Accounts invest.

2 Ratio represents the annualized contract expenses of the Sub-Account, consisting primarily of mortality and expense charges. The ratio includes only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded

3 Ratio represents the total return for the year indicated and reflects a deduction only for expenses assessed through the daily unit value calculation.  The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in reduction in the total return presented.  Investment options with a date notation indicate the effective date of that investment option in the Variable Account.  The total return is calculated for the year indicated or from the effective date through the end of the reporting period.

4 For the period May 1, 2006 (commencement of operations) through December 31, 2006.

5 For the period September 26, 2008 (commencement of operations) through December 31, 2008.

6 For the period April 25, 2008 (commencement of operations) through December 31, 2008.

7 Fund closed on May 26, 2009.

8 For the period April 30, 2007 (commencement of operations) through December 31, 2007.

9 Effective April 24, 2009, USA Sub-Account merged with CMM Sub-Account.






 
 
 

KEYPORT VARIABLE ACCOUNT A
 
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))
 


10. TAX DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Code, a variable annuity contract, other than a contract issued in connection with certain types of employee benefit plans, is not treated as an annuity contract for federal tax purposes for any period in which the investments of the segregated asset account on which the contract is based are not adequately diversified.  The Code provides that the “adequately diversified” requirement may be met if the underlying investments satisfy either a statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of Treasury.  The Sponsor believes that the Variable Account satisfies the current requirements of the regulations, and it intends that the Variable Account will continue to meet such requirements.


11. SUBSEQUENT EVENTS

Events that have occurred subsequent to December 31, 2009 have been evaluated by the Sponsor’s management in accordance with FASB ASC Topic 855 through April 23, 2010.

On January 15, 2010, the Sponsor redeemed the seed money invested in CMA and CSA Sub-Accounts.






 
 
 



PART C




 
 
 

Item 24. Financial Statements and Exhibits

 
(a)
Financial Statements:
   
Included in Part B:
     
   
Sun Life Assurance Company of Canada (U.S.):
   
Report of Independent Registered Public Accounting Firm;
   
Consolidated Statement of Income, Years Ended December 31, 2009, 2008 and 2007;
   
Consolidated Balance Sheets, December 31, 2009 and 2008;
   
Consolidated Statements of Comprehensive Income, Years Ended December 31, 2009, 2008 and 2007;
   
Consolidated Statements of Stockholder's Equity, Years Ended December 31, 2009, 2008 and 2007;
   
Consolidated Statements of Cash Flows, Years Ended December 31, 2009, 2008 and 2007; and
   
Notes to Consolidated Financial Statement.
     
   
Keyport Variable Account A:
   
Report of Independent Registered Public Accounting Firm;
   
Statement of Assets and Liabilities - December 31, 2009;
   
Statement of Operations for the years ended December 31, 2009 and 2008;
   
Statement of Changes in Net Assets for the years ended December 31, 2009 and 2008; and
   
Notes to Financial Statements.

 
(b)
Exhibits:

 
(1)
Amended and Restated Resolution of the Board of Directors establishing Keyport Variable Account A (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(2)
Not applicable
     
 
(3)(a)
Marketing Services Agreement by and between Sun Life Assurance Company of Canada (U.S.), Sun Life of Canada (U.S.) Distributors, Inc. and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-37907) filed on or about January 16, 1998);
     
 
(3)(b)(i)
Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 16 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83364) filed on or about April 27, 2009);
     
 
(3)(b)(ii)
Amendment to Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 16 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83364) filed on or about April 27, 2009);
     
 
(3)(c)(i)
Specimen Sales Operations and General Agent Agreement (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-37907) filed on or about January 16, 1998);
     
 
(3)(c)(ii)
Specimen Broker-Dealer Supervisory and Service Agreement (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-37907) filed on or about January 16, 1998);
     
 
(3)(c)(iii)
Specimen Registered Representatives Agent Agreement (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-37907) filed on or about January 16, 1998);
     
 
(4)(a)
Specimen Group Variable Annuity Contract of Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(4)(b)
Specimen Variable Annuity Certificate of Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement on Norm N-4 (File No. 333-111642) filed on or about April 14, 2004);
     
 
(4)(c)
Specimen Tax-Sheltered Annuity Endorsement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(4)(d)
Specimen Individual Retirement Annuity Endorsement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(4)(e)
Specimen Corporate/Keogh 401(a) Plan Endorsement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(4)(f)
Specimen Individual Variable Annuity Contract of Sun Life Assurance Company of Canada (U.S.)
     
 
(4)(g)
Specimen Group Exchange Program Endorsement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(4)(h)
Specimen Individual Exchange Program Endorsement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(4)(i)
Specimen Optional Enhanced Death Benefit Rider (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-75729) filed on or about June 16, 1999);
     
 
(4)(j)
Specimen Optional Minimum Income Benefit Rider (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-75729) filed on or about June 16, 1999);
     
 
(4)(k)
Specimen Name Change Endorsement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(5)(a)
Specimen Application for a Group Variable Annuity Contract (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(5)(b)
Specimen Application for a Group Variable Annuity Certificate (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(6)(a)
Articles of Incorporation of Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Depositor's Annual Report on Form 10-K (File No. 333-82824) filed on or about March 29, 2004);
     
 
(6)(b)
By-Laws, as amended March 19 2004, of Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Depositor's Annual Report on Form 10-K (File No. 333-82824) filed on or about March 29, 2004);
     
 
(7)
Not applicable
     
 
(8)(a)
Form of Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(8)(b)
Participation Agreement By and Among Sun Life Assurance Company of Canada (U.S.), Clarendon Insurance Agency, Inc., Alliance Capital Management L.P., and Alliance Fund Distributors, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 7 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-82957) filed on or about July 27, 2001);
     
 
(8)(b)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(8)(c)
Participation Agreement By and Among Sun Life Assurance Company of Canada (U.S.), AIM Variable Insurance Funds, Inc., AIM Distributors Inc., and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-82957) filed on or about February 3, 2000);
     
 
(8)(c)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (file No. 333-114129) filed on or about April 1, 2004);
     
 
(8)d)
Participation Agreement Among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., Sun Life Assurance Company of Canada (U.S.), Sun Life Insurance and Annuity Company of New York and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-102278) filed on or about December 31, 2002);
     
 
(8)(d)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (333-111642) filed on or about December 31, 2003);
     
 
(8)(e)
Participation Agreement Among Liberty Variable Investment Trust, Liberty Funds Distributor, Inc., and Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(8)(e)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(8)(f)
Participation Agreement Among SteinRoe Variable Investment Trust, Liberty Funds Distributor, Inc., and Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(8)(f)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(8)(g)
Participation Agreement Among MFS Variable Insurance Trust, Sun Life Assurance Company of Canada (U.S.), and Massachusetts Financial Services Corp. (Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form S-6 (File No. 333-13087) filed on or about January 21, 1997);
     
 
(8)(g)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004);
     
 
(8)(h)
Participation Agreement Among Sun Life Assurance Company of Canada (U.S.), Variable Insurance Products, Funds, and Fidelity Distributors Corporation (Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form S-6 (File No. 333-13087) filed on or about January 21, 1997);
     
 
(8)(h)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114132) filed on or about April 1, 2004);
     
 
(8)(i)
Participation Agreement Among Rydex Variable Trust, Rydex Distributors, Inc. and Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to Post-Effective Amendment No. 7 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-82957) filed on or about July 27, 2001);
     
 
(8)(i)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114132) filed on or about April 1, 2004);
     
 
(8)(j)
Participation Agreement Among Wanger Advisors Funds, Wanger Asset Management LP and Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114132) filed on or about April 1, 2004);
     
 
(8)(j)(i)
Amendment to Participation Agreement (Incorporated herein by reference to the Registration Statement on Form N-4 (File No. 333-114132) filed on or about April 1, 2004);
     
 
(9)
Opinion and Consent of Counsel (Incorporated herein by reference to the Registration Statement on Form N-4 (333-111642) filed on or about December 31, 2003);
     
 
(10)(a)
Consent of Independent Registered Public Accounting Firm (filed herewith)
     
 
(10)(b)
Representation of Counsel pursuant to Rule 485(b) (filed herewith)
     
 
(11)
Financial Statement Schedules I and VI (Incorporated herein by reference to the Depositor's Form 10-K Annual Report for the fiscal year ended December 31, 2009, filed on March 26, 2010);
     
 
(12)
Not applicable
     
 
(13)
Chart of Affiliations (Incorporated herein by reference to Post-Effective Amendment No. 38 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83516) filed on or about April 27, 2010);.
     
 
(14)(a)
Powers of Attorney (filed herewith)
     
 
(14)(b)
Resolution of the Board of Directors of the depositor dated March 26, 2008, authorizing the use of powers of attorney for Officer signatures (Incorporated herein by reference to Post-Effective Amendment No. 32 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83516) filed on or about February 27, 2009).

Item 25. Directors and Officers of the Depositor.

Name and Principal
Business Address
Positions and Offices
With Depositor
   
Jon A. Boscia
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Director and Chairman
   
Scott M. Davis
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and General Counsel and
Director
   
Stephen L. Deschenes
Sun Life Assurance Company of Canada  (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and General Manager, Annuities
and Director
   
Ronald H. Friesen
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA  02481
Senior Vice President and Chief Financial Officer
and Treasurer and Director
   
Terrence J. Mullen
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Director
   
Westley V. Thompson
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
President, SLF U.S., and Director
   
Michael S. Bloom
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Assistant Vice President and Senior Counsel and
Secretary
   
Priscilla S. Brown
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and Head of U.S. Marketing
   
Keith Gubbay
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and Chief Actuary
   
Stephen C. Peacher
Sun Life Assurance Company of Canada
150 King Street West
Toronto, ON M5H 1J9
Executive Vice President and Chief Investment Officer
   
Sean N. Woodroffe
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Vice President, Human Resources
   
Janet Whitehouse
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and General Manager,
Individual Life Insurance
   
John R. Wright
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Executive Vice President, Sun Life Financial U.S.
Operations

Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.

No person is directly or indirectly controlled by the Registrant. The Registrant is a separate account of Sun Life Assurance Company of Canada (U.S.), which is ultimately controlled by Sun Life Financial.

The chart for the affiliations of the Depositor is incorporated by reference to Post-Effective Amendment No. 38 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83516) filed on or about April 27, 2010.

None of the companies listed in such Exhibit 13 is a subsidiary of the Registrant; therefore, the only financial statements being filed are those of Sun Life Assurance Company of Canada (U.S.).

Item 27. Number of Contract Owners.

As of March 31, 2010, there were 2,577 qualified contract owners and 1,810 non-qualified contract owners.

Item 28. Indemnification.

Pursuant to Section 145 of the Delaware Corporation Law, Article 8 of the By-laws of Sun Life Assurance Company of Canada (U.S.) ("Sun Life (U.S.)"), as amended March 19, 2004 (a copy of which was filed as Exhibit 3.2 to Depositor’s Form 10-K, File No. 333-82824, filed on March 29, 2004) provides for the indemnification of directors, officers and employees of Sun Life (U.S.). Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of Sun Life (U.S.) pursuant to the certificate of incorporation, by-laws, or otherwise, Sun Life (U.S.) has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Sun Life (U.S.) of expenses incurred or paid by a director, officer, or controlling person of Sun Life (U.S.) in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Sun Life (U.S.) will submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act, unless in the opinion of their counsel the matter has been settled by controlling precedent, and will be governed by the final adjudication of such issue.

Item 29. Principal Underwriters.

Clarendon Insurance Agency, Inc., which is a wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.), acts as general distributor for the Registrant, Sun Life of Canada (U.S.) Variable Accounts C, D, E, F, G, I, and K, KMA Variable Account, Keyport Variable Account I, KBL Variable Account A, KBL Variable Annuity Account, Sun Life (N.Y.) Variable Accounts A, B, C, D, J, and N, and Money Market Variable Account, High Yield Variable Account, Capital Appreciation Variable Account, Government Securities Variable Account, World Governments Variable Account, and Total Return Variable Account.

The directors and officers of Clarendon Insurance Agency, Inc. are:

(b)
Name and Principal
Position and Offices
 
Business Address*
with Underwriter
     
 
Terrance J. Mullen
President and Director
 
Scott M. Davis
Director
 
Ronald H. Friesen
Director
 
Michael S. Bloom
Secretary
 
Ann B. Teixeira
Assistant Vice President, Compliance
 
Kathleen T. Baron
Chief Compliance Officer
 
William T. Evers
Assistant Vice President and Senior Counsel
 
Jane F. Jette
Financial/Operations Principal and Treasurer
 
Michelle D'Albero
Counsel
 
Matthew S. MacMillen
Tax Officer

* The principal business address of all directors and officers of the principal underwriter, is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

(c) Inapplicable.

Item 30. Location of Accounts and Records.

     Sun Life Assurance Company of Canada (U.S.), 112 Worcester Street, Wellesley Hills, 02481

Item 31. Management Services.

     Not applicable.

Item 32. Undertakings.

The Registrant hereby undertakes:

(a)
To file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity Contracts may be accepted;
   
(b)
To include either (1) as part of any application to purchase a Contract offered by the prospectus, a space that an Applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the Applicant can remove to send for a Statement of Additional Information;
   
(c)
To deliver any Statement of Additional Information and any financial statements required to be made available under SEC Form N-4 promptly upon written or oral request.
   
(d)
Representation with respect to Section 26(f)(2)(A) of the Investment Company Act of 1940: Sun Life Assurance Company of Canada (U.S.) represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company.
   
 
The Registrant is relying on the no-action letter issued by the Division of Investment Management of the Securities and Exchange Commission to American Council of Life Insurance, Ref. No. IP-6-88, dated November 28, 1988, the requirements for which have been complied with by the Registrant.


 
 
 

SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf, in the Town of Wellesley Hills and State of Massachusetts, on this 27th day of April, 2010.

     
Keyport Variable Account A
     
(Registrant)
       
     
Sun Life Assurance Company of Canada (U.S.)
     
(Depositor)
       
       
   
By:
/s/ Westley V. Thompson*
     
Westley V. Thompson
     
President, SLF U.S.
       
*By:
/s/ Elizabeth B. Love
    
 
Elizabeth B. Love
    
 
Counsel
    

As required by the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

SIGNATURE
TITLE
DATE
     
     
/s/ Westley V. Thompson*
President, SLF U.S. and Director
April 27, 2010
Westley V. Thompson
(Principal Executive Officer)
  
     
     
/s/ Ronald H. Friesen*
Senior Vice President and Chief Financial Officer
April 27, 2010
Ronald H. Friesen
and Treasurer and Director
  
 
(Principal Financial Officer)
  
     
     
/s/ Douglas C. Miller*
Vice President and Controller
April 27, 2010
Douglas C. Miller
(Principal Accounting Officer)
  
     
     
*By: /s/ Elizabeth B. Love
Attorney-in-Fact for:
April 27, 2010
Elizabeth B. Love
Jon A. Boscia, Director
  
 
Scott M. Davis, Director
  
 
Stephen L. Deschenes, Director
  
 
Terrence J. Mullen, Director
  

* Elizabeth B. Love has signed this document on the indicated date on behalf of the above Directors and Officers for the Depositor pursuant to powers or attorney duly executed by such persons and a resolution of the Board of Directors authorizing use of powers of attorney for Officer signatures. Resolution of the Board of Directors is incorporated herein by reference to Post-Effective Amendment No. 32 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-83516, filed on or about February 27, 2009. Powers of attorney are included herein as Exhibit 14(a).

 
 
 




EXHIBIT INDEX


Item
    
     
(10)(a)
Consent of Independent Registered Public Accounting Firm
  
     
(10(b)
Representation of Counsel pursuant to Rule 485(b)
  
     
(14)(a)
Powers of Attorney