485BPOS 1 rydexfiling.htm Supplement to change transfer deadlines for Rydex Annuity

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As filed with the Securities and Exchange Commission on April 14, 2004

 

Registration Nos. 333-111647

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811-07543

=============================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

[  ]

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Post-Effective Amendment No. 1

[X]

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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

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Amendment No. 108

[X]

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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, Massachusetts 02481

(Address of Depositor's Principal Executive Offices) (Zip Code)

Depositor's Telephone Number, including Area Code: 781-446-1974

Edward M. Shea, 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)

copy to:

Joan E. Boros, Esq.

Christopher S. Petito, Esq.

Jorden Burt LLP

1025 Thomas Jefferson Street, N.W.

Washington, DC 20007-5208

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It is proposed that this filing will become effective:

( ) immediately upon filing pursuant to paragraph (b) of Rule 485

(X) on April 30, 2004 pursuant to paragraph (b) of Rule 485

( ) 60 days after filing pursuant to paragraph (a) of Rule 485

( ) on [date] pursuant to paragraph (a) of Rule 485

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Title of Securities Being Registered: Variable Portion of the Contracts Funded Through the Separate Account.

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.

==========================================================================

Exhibit Index on Page

CONTENTS OF REGISTRATION STATEMENT

The Facing Sheet

The Contents Page

PART A

Prospectus

PART B

Statement of Additional Information

PART C

The Signatures

PART A

 

Prospectus for
The Rydex Variable Annuity
Individual Flexible Purchase Payment
Deferred Variable Annuity Contract

issued by
Keyport Variable Account A
of
Sun Life Assurance Company of Canada (U.S.)
P.O. Box 9133
Wellesley Hills, Massachusetts 02481

Service Office:
Sun Life Assurance Company of Canada (U.S.)
P.O. Box 710900
Herndon, VA 20171
(877) 266-8638

This prospectus describes the Rydex variable annuity Contracts offered by Sun Life Assurance Company of Canada (U.S.). This Contract may be sold under different names. Most transactions involving this Contract may be performed through the Internet Service Center.

The value of your Contract will fluctuate on a variable basis. The Contract is designed to help you in your retirement planning. You may purchase it on a tax qualified or non-tax qualified basis.

To apply for the Contract, you must be of legal age, in a state where the Contracts may lawfully be sold.

You may not purchase a Contract if either you or the Annuitant are over 90 years old before we receive your application. You may not purchase a tax-qualified Contract if you or the Annuitant are over 75 years old before we receive your application (age 90 applies to Roth IRAs).

The minimum initial purchase payment for the Contract in most cases is $15,000. After the initial purchase payment, the minimum subsequent payment is $1,000. If you elect to have monthly electronic fund transfers, the minimum subsequent payment is $250. We reserve the right to limit the total purchase payments made under this Contract to $5,000,000.

If the value of your Contract is less than $5,000, we reserve the right to cancel your Contract and pay you the value of your Contract.

We will allocate your initial purchase payment to the investment options you choose in the proportions you choose. Subsequent purchase payments will automatically be allocated to the Rydex U.S. Government Money Market Sub-account. You may then transfer funds from the Rydex U.S. Government Money Market Sub-account to any of the other available Sub-accounts. The Contract currently offers thirty-one 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:

RYDEX VARIABLE TRUST: Rydex Nova Fund; Rydex Ursa Fund; Rydex OTC Fund; Rydex Arktos Fund; Rydex Large-Cap Europe Fund; Rydex Large-Cap Japan Fund; Rydex Banking Fund; Rydex Basic Materials Fund; Rydex Biotechnology Fund; Rydex Consumer Products Fund; Rydex Electronics Fund; Rydex Energy Fund; Rydex Energy Services Fund; Rydex Financial Services Fund; Rydex Health Care Fund; Rydex Internet Fund; Rydex Juno Fund; Rydex Leisure Fund; Rydex Medius Fund; Rydex Mekros Fund; Rydex Precious Metals Fund; Rydex Real Estate Fund; Rydex Retailing Fund; Rydex Technology Fund; Rydex Telecommunications Fund; Rydex Titan 500 Fund; Rydex Transportation Fund; Rydex Utilities Fund; Rydex U.S. Government Bond Fund, Rydex U.S. Government Money Market Fund and Rydex Velocity 100 Fund

Prospectuses for the Eligible Funds are attached. The purchase of a Contract involves certain risks. Investment performance of the Eligible Funds may vary. We do not guarantee any minimum Contract Value under the Contract. An investment in the Rydex U.S. Government Money Market Sub-account is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Rydex U.S. Government Money Market Fund, in which the Rydex U.S. Government Money Market Sub-account invests, seeks to preserve the value of your investment at $1.00 per unit it is possible to lose money by investing in the Rydex U.S. Government Money Market Sub-account.

This prospectus contains important information about the Contract you should know before investing. You should read it before investing and keep it for future reference. You may download or print the prospectus from our website. If you require a free paper copy of this prospectus or the prospectuses for the Eligible Funds, please call or write our Service Office at the address above.

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. A table of contents for the SAI appears on the last page of this prospectus. If you would like a free paper copy of this SAI, e-mail Help@mail.annuitynet.com or call the telephone number provided above. The SAI is also available through the SEC website (http://www.sec.gov). In addition, other information regarding the Company and the Separate Account is available through the SEC website or, if you prefer a paper copy, you may send an e-mail request to our Internet Service Center or by calling the telephone number above.

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The date of this prospectus is April 30, 2004.

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The SEC 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

DEFINITIONS
SUMMARY OF CONTRACT FEATURES
FEE TABLE
EXAMPLE
CONDENSED FINANCIAL INFORMATION
PERFORMANCE INFORMATION
SUN LIFE (U.S.) AND THE VARIABLE ACCOUNT
PURCHASE PAYMENTS AND APPLICATIONS
INVESTMENTS OF THE VARIABLE ACCOUNT
  Allocations of Purchase Payments
  Eligible Funds
  Transfer of Variable Account Value
SUBSTITUTION OF ELIGIBLE FUNDS AND OTHER VARIABLE ACCOUNT CHANGES
DEDUCTIONS
  Deductions for Annuity Asset Charge
  Deductions for Premium Taxes
  Deductions for Income Taxes
  Total Variable Account Expenses
THE CONTRACTS
  Variable Account Value
  Valuation Periods
  Calculation of Contract Value
  Modification of the Contract
  Right to Revoke
DEATH BENEFIT PROVISIONS
  Death of Annuitant
CONTRACT OWNERSHIP
ASSIGNMENT
PARTIAL WITHDRAWALS AND SURRENDER
ANNUITY PROVISIONS
  Annuity Benefits
  Annuity Option and Income Date
  Annuity Options
  Variable Annuity Payment Values
  Proof of Age, Sex, and Survival of Annuitant
SUSPENSION OF PAYMENTS
ADVERTISING
TAX STATUS
  Introduction
  Taxation of Annuities in General
  Qualified Plans
  Individual Retirement Annuities
  Annuity Purchases by Nonresident Aliens
VARIABLE ACCOUNT VOTING PRIVILEGES
SALES OF THE CONTRACTS
LEGAL PROCEEDINGS
RECORDS AND REPORTS
INQUIRIES BY CONTRACT OWNERS
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION

DEFINITIONS

Accumulation Unit: A unit of measurement used to calculate Variable Account Value.

Annuitant: The natural person on whose life annuity benefits are based starting on the Income Date.

Annuity Option: A form of payment of the annuity available under the Contract.

Annuity Payment: An amount paid at regular intervals after the Income Date under one of several Annuity Options. The amount paid may vary.

Annuity Unit: A unit of measure used to calculate the amount of Annuity Payments after the Income Date.

Contract: The variable annuity contract between you and us.

Contract Anniversary: Each anniversary of the Contract Date.

Contract Date: The date your Contract becomes effective. The date we receive your completed application and initial purchase payment.

Contract Owner ("you"): The person(s) having the privileges of ownership defined in the Contract.

Contract Value: The value of all Variable Account amounts under your Contract at a given time.

Contract Year: Each 12-month period beginning on the Contract Date and each Contract Anniversary thereafter.

Company ("we", "us", "our", "Sun Life (U.S.)"): Sun Life Assurance Company of Canada (U.S.).

Designated Beneficiary: The person you designate to receive any death benefits under the Contract.

Eligible Funds: The underlying mutual funds in which the Variable Account invests.

In Force: The status of your Contract before the Income Date, as long as:

(1)  

you do not totally surrender it,

(2)  

your Contract Value is greater than zero, and

(3)  

if the Annuitant or any Contract Owner has died, fewer than five years have passed since the date of death.

Income Date: The date on which Annuity Payments are to begin.

Internet Service Center: The Internet site that provides variable annuity contract documents and information to current and prospective Contract Owners and through which various transactions may be performed. Certain of these transactions may require faxed or mailed signatures.

Net Asset Value: The difference between the value of assets and the amount of liabilities.

Non-Qualified Contract: Any Contract that is not issued under a Qualified Plan.

Qualified Contract: A Contract issued under a Qualified Plan.

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.

Sub-account: The portion of the Variable Account which invests in shares of a particular Eligible Fund.

Valuation Date: Each day the New York Stock Exchange (NYSE) is open for trading.

Valuation Period: The period commencing at the close of trading (currently 4:00 p.m. ET) on each day that the NYSE is open for trading (in other words, the Valuation Date) and ending at the close of such trading on the next succeeding Valuation Date.

Variable Account: Keyport Variable Account A which is a separate investment account of the Company into which purchase payments under the Contracts may be allocated. The Variable Account is divided into Sub-accounts, each of which invests in shares of an Eligible Fund.

SUMMARY OF CONTRACT FEATURES

Because this is a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus before deciding to invest. Further, individual state requirements that are different from the information in this prospectus are described in supplements to this prospectus or in endorsements to the Contract.

WHAT ARE MY INVESTMENT CHOICES? You can allocate and reallocate your investment among the Sub-accounts of the Variable Account, each of which in turn invests in one of the following Eligible Funds:

Rydex Variable Trust ("Rydex Trust"):
  Rydex Nova Fund
  Rydex Ursa Fund
  Rydex OTC Fund
  Rydex Arktos Fund
  Rydex Large-Cap Europe Fund
  Rydex Large-Cap Japan Fund
  Rydex Banking Fund
  Rydex Basic Materials Fund
  Rydex Biotechnology Fund
  Rydex Consumer Products Fund
  Rydex Electronics Fund
  Rydex Energy Fund
  Rydex Energy Services Fund
  Rydex Financial Services Fund
  Rydex Health Care Fund
  Rydex Internet Fund
  Rydex Juno Fund
  Rydex Leisure Fund
  Rydex Medius Fund
  Rydex Mekros Fund
  Rydex Precious Metals Fund
  Rydex Real Estate Fund
  Rydex Retailing Fund
  Rydex Technology Fund
  Rydex Telecommunications Fund
  Rydex Titan 500 Fund
  Rydex Transportation Fund
  Rydex Utilities Fund
  Rydex U.S. Government Bond Fund
  Rydex U.S. Government Money Market Fund
  Rydex Velocity 100 Fund

HOW DOES THE CONTRACT WORK? During the accumulation period, you may make purchase payments to us. Prior to annuitization, you may choose to withdraw some or all of your Contract Value. When you begin Annuity Payments, your periodic Annuity Payments will be based upon your Contract Value on the Income Date. Subsequently, Annuity Payments will vary depending upon the performance of the Funds you select. (See "The Contracts".)

WHAT CAN I DO THROUGH THE INTERNET SERVICE CENTER? Most transactions associated with your Contract can be accomplished through the Internet Service Center. We will send you information concerning your Contract, and you can receive documents concerning your Contract, through the Internet Service Center. You can monitor the status of your Contract, move funds from one Sub-account to another, change your e-mail or mailing address, etc., all through the Internet Service Center. For security reasons, we may issue you a PIN or password which you will use to access the Internet Service Center. Certain transactions, however, such as a change of Beneficiary or a total withdrawal of funds from the Contract, may not be completed through the Internet Service Center, but will also require a signed request that is faxed or mailed to our Service Office.

MAY I TRANSFER VARIABLE ACCOUNT VALUE BETWEEN SUB-ACCOUNTS?

You may transfer Variable Account Value from one Sub-account to another after expiration of the Right to Revoke Period. Transfers are not subject to taxation on any gain. We do not limit the number or frequency of transfers you make between Sub-accounts. You may submit your transfer requests through the Internet Service Center.

We may impose specific restrictions on financial transactions for certain Sub-accounts based on the Sub-account's investment restrictions. The "cut-off" time for transfer requests to be processed on the same Valuation Date will be 1/2 hour prior to any announced closing of the NYSE, generally 3:30 P.M., Eastern Time, for all Sub-accounts. Any transfer request received after 3:30 P.M., Eastern Time, will be processed on the next Valuation Date.

WHAT CHARGES ARE ASSOCIATED WITH THIS CONTRACT? We apply an annual charge totaling .90% to the daily net asset value of the Variable Account. (See "Deductions".)

Each Eligible Fund also has additional operating expenses associated with its daily operation. Finally, each fund pays a management fee to its investment advisors based upon the average daily net asset value of the Fund. See the FEE TABLE. These fees and expenses are more fully described in the prospectuses for the funds.

If your state assesses a premium tax with respect to your Contract, we will deduct those amounts upon full surrender (including a surrender for the Death Benefit) or annuitization.

HOW WILL MY ANNUITY PAYMENTS BE CALCULATED? If you decide to annuitize, you elect an Annuity Option. Your periodic payment will be based upon the Annuity Option you selected, the changing values of the Sub-accounts in which you have invested, and your age at the Income Date. (See "Annuity Options".) Remember that you will benefit from any gain, and bear the risk of any drop, in the value of the securities in the Sub-accounts of the Variable Account.

WHAT HAPPENS IF I DIE BEFORE I ANNUITIZE? We will pay to your designated beneficiary the greater of your Contract Value or the sum of your purchase payments adjusted for partial withdrawals. (See "Death Provisions".)

MAY I SURRENDER THE CONTRACT OR MAKE A WITHDRAWAL? Yes. (See "Partial Withdrawals and Surrender".) You will be subject to income taxes on any earnings you withdraw and you may also be subject to a 10% income tax penalty. (See "Tax Status".)

DO I GET A FREE LOOK AT THIS CONTRACT? Yes. If within ten days (or a longer period if required by law) of the date you receive the signed Contract through the Internet Service Center, you cancel the Contract through the Internet Service Center or return it, postage prepaid, to the Service Office of Sun Life (U.S.), it will be canceled. If you live in a state that requires "return of Contract Value", you may invest in the Sub-Accounts during this period (the "Right to Revoke Period"). You bear the investment risk during this Right to Revoke Period. If you live in a state that requires "return of purchase payments", during this Right to Revoke Period and for ten additional days to allow for delivery of the notice from and to Us, your purchase payments will be invested in the Rydex U.S. Government Money Market Sub-account. You may change, at anytime during the Right to Revoke Period, the allocation(s) to the Sub-accounts of the Variable Account that you specified on your application. (See "Right to Revoke".)

FEE TABLE

The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Contract. The first table describes the fees and expenses that you will pay at the time that you buy the Contract, surrender the Contract, or transfer cash value between investment options. State premium taxes may also be deducted

Contract Owner Transaction Expenses

Sales Load Imposed on Purchases
 (as a percentage of purchase payments):


0%
   

Maximum Surrender Charge
 (as a percentage of purchase payments):


0%
   

Transfer Charge:

$0  
   

Premium Taxes

  

(as a percentage of Contract Value or total purchase payments:

0%-3.5%*

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

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

Annual Contract Maintenance Charge:

$0  

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

Annuity Asset Charge:
  (This charge is for administrative, mortality and    expense risk fees. See "Deductions".)

.90%

Total Variable Account Annual Expenses:

.90%

The next table 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 Contract. More detail concerning each Eligible Fund's fees and expenses is contained in the prospectus for each Eligible Fund.

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Total Annual Fund Operating Expenses

  

Minimum

  

Maximum

(as a percentage of average daily net assets)

        
         

(Expenses that are deducted from Eligible Fund assets, including management fees, and other expenses)

  

1.22%

  

1.71%1

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1The expenses shown do not reflect any fee waiver or expense reimbursement. Any fee reduction an/or expense reimbursement arrangement is described in the Rydex Trust prospectus.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include Contract Owner transaction expenses, Contract fees, Variable Account annual expenses, and Eligible Fund fees and expenses, and are based on a sample Contract with maximum possible fees. The Example assumes that you invest $10,000 in the Contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year and assumes the maximum fees and expenses of any of the Eligible Funds. In addition, this Example assumes no transfers were made and no premium taxes were deducted. If these arrangements were considered, the expenses shown would be higher. This Example also does 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 your Contract stays in force throughout the periods shown or you surrender or annuitize your Contract at the end of the applicable time period:

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1 year

3 years

5 years

10 years

$261

$842

$1,509

$3,625

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The Fee Table and Example 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 Example is not an estimate or a guarantee of future investment performance. See "Deductions" in this prospectus, and "Management" in the prospectus for Rydex Trust.

CONDENSED FINANCIAL INFORMATION

Accumulation Unit Values*

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Accumulation

Accumulation

Number of

  
 

Unit Value

Unit Value

Accumulation

  
 

Beginning of

End of

Units End

  

Sub-account

Year**

Year

of Year

Year
         

Rydex Nova

$  9.846

$13.582

33,668

2003
 

15.456

  9.846

11,004

2002
 

28.409

15.456

 3,581

2001
 

 25.000

 20.409

0

2000
 

Available in 2000 but no Accumulation Units were purchased
         

Rydex Ursa

39.473

29.870

7,213

2003
 

32.742

39.473

3,912

2002
 

 28.731

 32.742

21,460

2001
 

 25.000

 28.731

0

2000
 

Available in 2000 but no Accumulation Units were purchased
         

Rydex OTC

6.032

8.693

20,590

2003
 

9.953

6.032

18,818

2002
 

 15.493

  9.953

 5,559

2001
 

 25.000

 15.493

0

2000
 

Available in 2000 but no Accumulation Units were purchased
         

Rydex Arktos Fund

35.187

21.841

170,517

2003
 

29.480

35.187

4,034

2002
 

 25.000

 29.480

0

2001
 

Available in 2001 but no Accumulation Units were purchased
         

Rydex Large-Cap Europe Fund

18.032

25.569

395

2003
 

25.000

18.032

0

2002
 

Available in 2002 but no Accumulation Units were purchased
         

Rydex Large-Cap Japan Fund

20.580

28.069

60

2003
 

25.000

20.580

0

2002
 

Available in 2002 but no Accumulation Units were purchased
         

Rydex Banking Fund

24.433

31.901

661

2003
 

25.210

24.433

0

2002
 

 25.000

 25.210

0

2001
 

Available in 2001 and 2002 but no Accumulation Units were purchased
         

Rydex Basic Materials Fund

21.245

27.680

255

2003
 

24.210

21.245

0

2002
 

 25.000

 24.210

0

2001
 

Available in 2001 and 2002 but no Accumulation Units were purchased
         

Rydex Biotechnology Fund

14.097

19.855

249

2003
 

24.670

14.097

0

2002
 

 25.000

 24.670

0

2001
 

Available in 2001 and 2002 but no Accumulation Units were purchased
         

Rydex Consumer Products Fund

24.252

29.289

240

2003
 

25.320

24.252

0

2002
 

 25.000

 25.320

0

2001
 

Available in 2001 and 2002 but no Accumulation Units were purchased
         

Rydex Electronics Fund

11.799

19.859

182

2003
 

25.000

11.799

0

2002
 

Available in 2002 but no Accumulation Units were purchased
         

Rydex Energy Fund

21.764

26.534

0

2003
 

21.210

21.764

0

2002
 

 25.000

 21.210

0

2001
 

Available in 2001, 2002 and 2003 but no Accumulation Units were purchased
         

Rydex Energy Services Fund

22.981

24.692

1,297

2003
 

17.740

22.981

0

2002
 

 25.000

 17.740

0

2001
 

Available in 2001 and 2002 but no Accumulation Units were purchased
         

Rydex Financial Services Fund

21.102

26.963

0

2003
 

25.000

21.102

0

2002
 

Available in 2002 and 2003 but no Accumulation Units were purchased
         

Rydex Health Care Fund

19.953

25.663

223

2003
 

25.000

19.953

0

2002
 

Available in 2002 but no Accumulation Units were purchased
         

Rydex Internet Fund

13.002

21.184

189

2003
 

15.760

13.002

0

2002
 

 25.000

 15.760

0

2001
 

Available in 2001 and 2002 but no Accumulation Units were purchased
         

Rydex Juno Fund

25.000

25.979

3,957

2003
 

Not Available before May 1, 2003
         

Rydex Leisure Fund

20.723

27.704

0

2003
 

18.090

20.723

0

2002
 

 25.000

 18.090

0

2001
 

Available in 2001,2002 and 2003 but no Accumulation Units were purchased
         

Rydex Medius Fund

17.160

25.925

5,762

2003
 

25.000

17.160

1,042

2002
         

Rydex Mekros Fund

15.431

25.124

15,722

2003
 

25.000

15.431

1,159

2002
         

Rydex Precious Metals

38.887

54.305

4,462

2003
 

26.951

38.887

4,368

2002
 

 24.068

 26.951

   420

2001
 

 25.000

 24.068

0

2000
 

Available in 2000 but no Accumulation Units were purchased
         

Rydex Real Estate Fund

23.298

30.088

0

2003
 

25.000

23.298

0

2002
 

Available in 2002 and 2003 but no Accumulation Units were purchased
         

Rydex Retailing Fund

19.299

25.873

0

2003
 

25.000

19.299

0

2002
 

Available in 2002 and 2003 but no Accumulation Units were purchased
         

Rydex Technology Fund

14.104

22.551

0

2003
 

18.610

14.104

0

2002
 

 25.000

 18.610

0

2001
 

Available in 2001, 2002 and 2003 but no Accumulation Units were purchased

         

Rydex Telecommunications Fund

14.737

19.524

3,921

2003

25.000

14.737

1,833

2002
         

Rydex Titan 500 Fund

15.601

23.957

1,496

2003
 

25.000

15.601

392

2002
         

Rydex Transportation Fund

20.804

24.848

0

2003
 

24.400

20.804

0

2002
 

 25.000

 24.400

0

2001
 

Available in 2001, 2002 and 2003 but no Accumulation Units were purchased

         

Rydex Utilities Fund

16.794

20.872

330

2003
 

18.230

16.794

4,770

2002
 

 25.000

 18.230

0

2001
 

Available in 2001 but no Accumulation Units were purchased

         

Rydex U.S. Government Bond

32.313

31.825

236,748

2003
 

27.488

32.313

0

2002
 

 27.733

 27.488

0

2001
 

 25.000

 27.733

0

2000
 

Available in 2000, 2001 and 2002 but no Accumulation Units were purchased
         

Rydex U.S. Government Money

26.130

25.899

561,490

2003

    Market

26.240

26.130

163,280

2002
 

 25.758

 26.240

65,783

2001
 

 25.000

 25.758

 5,346

2000
         

Rydex Velocity 100 Fund

12.398

24.409

3,882

2003
 

25.000

12.398

1,469

2002

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*Accumulation Unit Values are rounded to the nearest tenth of a cent and numbers of accumulation units are rounded to the nearest whole number. The year-end accumulation unit value reflects the actual performance of the corresponding Eligible Fund reduced by Variable Account expenses at the rate shown in the Fee Table.

**Each beginning value is as of the date the Sub-accounts first became available.

The full financial statements for the Variable Account, Sun Life Assurance Company of Canada (U.S.) and Keyport Life Insurance Company are in the Statement of Additional Information.

PERFORMANCE INFORMATION

We may from time to time advertise certain performance information concerning the Sub-accounts.

Performance information is not an estimate or guarantee of future investment performance, and does not represent the actual experience of amounts invested by a particular Contract Owner.

We may advertise total return information for the Sub-accounts for various periods of time. Total return performance information is based on the overall percentage change in value of a hypothetical investment in the Sub-account over a given period of time.

We may present, along with any current required performance information, additional total return information that is computed on a different basis. Certain of the Eligible Funds have been available for other variable annuity contracts prior to the beginning of the offering of the Contracts described in this prospectus. Any performance information for such periods will be based on the historical results of the Eligible Funds and applying the fees and charges of the Contract for the specified time periods.

The Rydex U.S. Government Money Market Sub-account is a money market Sub-account that also may advertise yield and effective yield information. The yield of the Sub-account refers to the income generated by an investment in the Sub-account over a specifically identified seven-day period. We annualize this income by assuming that the amount of income generated by the investment during that week is generated each week over a 52-week period. It is shown as a percentage. The yield reflects the deduction of all charges assessed against the Sub-account but does not include premium tax charges. The yield would be lower if those charges were included.

We calculate the effective yield of the Rydex U.S. Government Money Market Sub-account in a similar manner but, when annualizing the yield, we assume income earned by the Sub-account is reinvested. This compounding effect causes effective yield to be higher than yield.

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

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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 in 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 an indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life (Canada)"). Sun Life (Canada) completed its demutualization on March 22, 2000. As a result of the demutualization, a new holding company, Sun Life Financial Inc. ("Sun Life Financial"), is now the ultimate parent of Sun Life (Canada) and Sun Life (U.S.). 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.

Effective December 31, 2003, Keyport Life Insurance Company ("Keyport") merged with and into Sun Life (U.S.), with Sun Life (U.S.) as the surviving entity. Keyport was an affiliate of Sun Life (U.S.). Keyport was a stock life insurance company organized under the laws of the State of Rhode Island in 1957. Keyport was acquired by Sun Life Financial in November 2001 from Liberty Financial Companies, Inc., a subsidiary of Liberty Mutual Insurance Company of Boston, Massachusetts.

Upon the merger, Keyport ceased to exist, and Sun Life (U.S.) became the surviving company. As a result of the merger, the Variable Account became a separate account of Sun Life (U.S.). All of the Contracts issued by Keyport before the merger were, at the time of the merger, assumed by Sun Life (U.S.). The merger did not affect any provisions of or right or obligations under, those Contracts.

In approving the merger, the board of directors of Sun Life (U.S.) and Keyport determined that the merger would result in operational and financial efficiencies, which would be in the long-term interests of their respective contract owners. On June 4, 2003, the respective 100% stockholders of Sun Life (U.S.) and Keyport voted to approve the merger. In addition, the Department of Insurance of the State of Rhode Island has approved the merger.

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, 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 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 Contracts 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 Contract Date. The minimum initial purchase payment is $15,000. You may make additional purchase payments. Each subsequent purchase payment must be at least $1,000 or any lesser amount we may permit. We will reduce the subsequent purchase payment to $250 in cases where you arrange for subsequent purchase payments by electronic funds transfer. Subsequent purchase payments will automatically be allocated to the Rydex U.S. Government Money Market Sub-account. You may then transfer funds from the Rydex U.S. Government Money Market Sub-account to any of the other available Sub-accounts. We reserve the right to cancel this Contract and return the Contract Value to you if the value of your Contract is less than $5,000. We may reject any purchase payment or any application. Purchase payments are allocated to a Contract based on the applicable Sub-account accumulation unit value(s) next determined after we receive it.

We have attempted to make the application process for the Contract as simple as possible. You may apply for the Contract on this Internet Service Center website (http://www.AnnuityNet.com) by completing our online application. During the application process, information is transferred between your computer and the Internet Service Center through a secure internet connection. In order to complete the online application, you will need to supply the following information:

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the full name, address, telephone number, date of birth, and Social Security or Taxpayer Identification Number for the Primary Owner, Annuitant, and any Joint Owner; and

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the full name, address, and relationship to the Owner of any Beneficiary(ies) that you wish to designate. If you do not designate any Beneficiary(ies), your estate will be the beneficiary.

Once you have completed the online application, you will be asked to print a copy of the application. You must sign this application and fax or mail it to our Service Office before we can process your application.

You may make your initial purchase payment by personal check, by enclosing your check with your signed application. During the online application process, you may also choose to make purchase payments by Electronic Funds Transfer (EFT). If you choose the EFT option, it will still be necessary for you to enclose either a deposit slip or a voided check with your signed application when you mail the application to our Service Office.

If your application for a Contract is complete, we will apply your initial purchase payment to the Variable Account within two business days of receipt. If you live in a state that requires "return of purchase payments", during the Right to Revoke Period and for ten additional days to allow for delivery of the notice from and to Us, your purchase payments will be invested in the Rydex U.S. Government Money Market Sub-account. Once this period has ended, your purchase payments will then be allocated to the Sub-accounts you have selected. You may change, at anytime during the Right to Revoke Period, the allocation(s) to the Sub-accounts of the Variable Account that you specified on your application.

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.

We will send you a written notification by e-mail, to your last known e-mail address, 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.

We may request you to confirm that the information is correct by signing a copy of the letter or a Contract delivery receipt. We will send you a written notice confirming all purchases. Our liability under any Contract relates only to amounts so confirmed.

INVESTMENTS OF THE VARIABLE ACCOUNT

Allocations of Purchase Payments

The Variable Account is segmented into Sub-accounts. Each Sub-account invests in shares of one of the Eligible Funds. We may add or withdraw Eligible Funds and Sub-accounts as permitted by applicable law.

We will invest your initial purchase payment to the Variable Account in the Sub-accounts you choose, after the expiration of the Right to Revoke Period. Your selection must specify the percentage of the initial purchase payment that is allocated to each Sub-account. The percentage for each Sub-account, if not zero, must be a whole number. The total of your specified allocations for the initial purchase payment must equal 100%. Subsequent purchase payments will automatically be allocated to the Rydex U.S. Government Money Market Sub-account. From there, you may transfer purchase payments to the Sub-account investing in other Eligible Funds as you may select.

Eligible Funds

The Eligible Funds are the separate funds listed within the Rydex Trust. Sun Life (U.S.) and the Variable Account may enter into agreements with other mutual funds for the purpose of making such mutual funds available as Eligible Funds under certain Contracts.

We do not promise that the Eligible Funds will meet their investment objectives. Amounts you have allocated to Sub-accounts may grow, decline, or grow less in value than you expect, depending on the investment performance of the Eligible Funds in which the Sub-accounts invest. You bear the investment risk that those Eligible Funds possibly will not meet their investment objectives. You should carefully review their attached prospectuses before allocating amounts to the Sub-accounts of the Variable Account. The Eligible Funds are available for the separate accounts of insurance companies unaffiliated with us. The risks involved in this "mixed and shared funding" are disclosed in the Eligible Funds' prospectuses under the following caption: "Purchasing and Redeeming Shares".

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PADCO Advisors II, Inc. serves as the investment adviser and manager of the Eligible Funds of the Rydex Trust.

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Please see the Fund Prospectus for a complete description of the investment techniques utilized by the Funds, including the risks and volatility of these investments. Moreover, the use of strategic or tactical asset allocation programs with a Contract may be characterized as aggressive investing and may involve additional risks. There can be no assurance that you or any financial advisor will predict market moves successfully. If you utilize a financial advisor, you should carefully consider his or her education, experience, and reputation.

We briefly describe the Eligible Funds and the objectives they seek to achieve below:

Eligible Funds of Rydex Trust
and Variable Account Sub-accounts


Investment Objective

Rydex Nova Fund ("Rydex Nova Sub-account")

Investment returns that match the performance of a specific benchmark or a daily basis. The current benchmark is 150% of the performance of the S&P 500 Index.

Rydex Ursa Fund ("Rydex Ursa Sub-account")

Investment returns that will inversely correlate to the performance of the S&P 500 Index.

Rydex OTC Fund ("Rydex OTC Sub-account")

Investment results that correspond to a benchmark for over-the-counter securities. The current benchmark is the NASDAQ 100 Index.

Rydex Arktos Fund ("Rydex Arktos Sub-account")

Investment returns that match the performance of a specific benchmark. The current benchmark is the inverse performance of the NASDAQ 100 Index.

Rydex Large-Cap Europe Fund ("Rydex Large-Cap Europe Sub-account")

Investment returns that correlate to the performance of a specific benchmark. The current benchmark is the Dow Jones Stoxx 50 Index.

Rydex Large-Cap Japan Fund ("Rydex Large-Cap Japan Sub-account")

Investment returns that correlate to the performance of a specific benchmark. The current benchmark is the Topix 100 Index.

Rydex Banking Fund ("Rydex Banking Sub-account")

Seeks to provide capital appreciation by investing in companies that are involved in the banking sector, including commercial banks (and their holding companies) and savings and loan institutions.

Rydex Basic Materials Fund ("Rydex Basic Materials Sub-account")

Seeks capital appreciation by investing in companies engaged in the mining, manufacture, or sale of basic materials, such as lumber, steel, iron, aluminum, concrete, chemicals and other basic building and manufacturing materials.

Rydex Biotechnology Fund ("Rydex Biotechnology Sub-account")

Seeks capital appreciation by investing in companies that are involved in the biotechnology industry, including companies involved in research and development, genetic or other biological engineering, and in the design, manufacture, or sale of related biotechnology products or services.

Rydex Consumer Products Fund ("Rydex Consumer Products Sub-account")

Seeks capital appreciation by investing in companies engaged in manufacturing finished goods and services both domestically and internationally.

Rydex Electronics Fund ("Rydex Electronics Sub-account")

Seeks capital appreciation by investing in companies that are involved in the electronics sector, including semiconductor manufacturers and distributors, and makers and vendors of other electronic components and devices.

Rydex Energy Fund ("Rydex Energy Sub-account")

Seeks capital appreciation by investing in companies involved in the energy field, including the exploration, production, and development of oil, gas, coal and alternative energy sources.

Rydex Energy Services Fund ("Rydex Energy Services Sub-account")

Seeks capital appreciation by investing in companies that are involved in the energy services field, including those that provide services and equipment in the areas of oil, coal, and gas exploration and production.

Rydex Financial Services Fund ("Rydex Financial Services Sub-account")

Seeks capital appreciation by investing in companies involved in the financial services sector.

Rydex Health Care Fund ("Rydex Health Care Sub-account")

Seeks capital appreciation by investing in companies that are involved in the health care industry.

Rydex Internet Fund ("Rydex Internet Sub-account")

Seeks capital appreciation by investing in companies that provide products or services designed for or related to the Internet.

Rydex Juno Fund ("Rydex Juno Sub-account")

Seeks to provide total returns that will inversely correlate to the price movements of a benchmark for U.S. Treasury debt instruments or futures contract on a specified debt instrument. The Fund's current benchmark is the inverse of the daily price movement of the Long Treasury Bond.

Rydex Leisure Fund ("Rydex Leisure Sub-account")

Seeks capital appreciation by investing in companies engaged in leisure and entertainment businesses.

Rydex Medius Fund ("Rydex Medius Sub-account")

Seeks to provide investment returns that correlate to the performance of a specific benchmark for mid-cap securities. The current benchmark is the S&P MidCap 400 Index.

Rydex Mekros Fund ("Rydex Mekros Sub-account")

Seeks to provide investment returns that correlate to the performance of a specific benchmark for small-cap securities. The current benchmark is the Russell 2000 Index.

Rydex Precious Metals Fund ("Rydex Precious Metals Sub-account")

Seeks to provide capital appreciation by investing in U.S. and foreign companies that are involved in the precious metals sector, including exploration, mining, production and development, and other precious metals related services.

Rydex Real Estate Fund ("Rydex Real Estate Sub-account")

Seeks capital appreciation by investing in companies that are involved in the real estate industry including real estate investment trusts (REITS).

Rydex Retailing Fund ("Rydex Retailing Sub-account")

Seeks capital appreciation by investing in companies engaged in merchandising furnished goods and services, including department stores, restaurant franchises, mail order operations, and other companies involved in selling products to consumers.

Rydex Technology Fund ("Rydex Technology Sub-account")

Seeks capital appreciation by investing in companies that are involved in the technology sector, including computer software and service companies, semiconductor manufacturers, networking and telecommunications equipment manufacturers, PC hardware and peripherals companies.

Rydex Telecommunications Fund ("Rydex Telecommunications Sub-account")

Seeks capital appreciation by investing in companies engaged in the development, manufacture, or sale of communications services or communications equipment.

Rydex Titan 500 Fund ("Rydex Titan 500 Sub-account")

Seeks to provide investment returns that will match the performance of a specific benchmark on a daily basis. The current benchmark is 200% of the performance of the S&P Index.

Rydex Transportation Fund ("Rydex Transportation Sub-account")

Seeks capital appreciation by investing in companies engaged in providing transportation services or companies engaged in the design, manufacture, distribution, or sale of transportation equipment.

Rydex Utilities Fund ("Rydex Utilities Sub-account")

Seeks capital appreciation by investing in companies that operate public utilities.

Rydex U.S. Government Bond Fund ("Rydex U.S. Government Bond Sub-account")

Investment results that correspond to a benchmark for U.S. Government Securities. The current benchmark is120% of the daily price movement of the Long Treasury Bond.

Rydex U.S. Government Money Market Fund ("Rydex U.S. Government Money Market Sub-account")

Security of principal, high current income and liquidity.

Rydex Velocity 100 Fund ("Rydex Velocity 100 Sub- account")

Seeks to provide investment returns that will match the performance of a specific benchmark on a daily basis. The current benchmark is 200% of the performance of the NASDAQ 100 Index.

Transfer of Variable Account Value

You may transfer Variable Account Value from one Sub-account to another after expiration of the Right to Revoke Period. Transfers are not subject to taxation on any gain. We do not limit the number or frequency of transfers.

You may submit your transfer requests through the Internet Service Center. We may impose specific restrictions on financial transactions for certain Sub-accounts based on the Sub-account's investment restrictions. The "cut-off" time for transfer requests to be processed on the same Valuation Date will be 1/2 hour prior to any announced closing of the NYSE, generally, 3:30 P.M., Eastern Time. We will not accept any request for transfers involving one of the Rydex Variable Trust Funds between the applicable deadline and 4:00 P.M., Eastern Time. Any transfer request received after 4:00 P.M., Eastern Time, will be processed on the next Valuation Date. We will execute your request to transfer value by both redeeming and acquiring Accumulation Units on the day we initiate the transfer.

You may at any time view a list of transfer requests you have submitted that are awaiting execution by accessing your personal account information through the Internet Service Center. You may also retract a transfer request for any Sub-account by removing it from the list at any time prior to 3:30 P.M., Eastern Time.

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 Contract, 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 relation to 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;

o

to transfer any assets in any Sub-account to another or to one or more separate investment accounts;

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to add, combine or remove Sub-accounts in the Variable Account; and

o

to change how we assess charges, so long as we do not increase them above the maximum total amount shown in the Fee Table in connection with your Contract.

DEDUCTIONS

Deductions for Annuity Asset Charge

We deduct an annuity asset charge on a daily basis in computing the Accumulation Unit values from each Sub-account. The annuity asset charge is equal, on an annual basis, to .90% of the average daily net asset value of each Sub-account. We deduct the charge both before and after the Income Date.

The charge compensates us for administrative expenses we incur and for mortality and expense risks we assume. Our administrative expenses include, but are not limited to, bookkeeping costs, the cost of maintaining our Service Office and our Internet Service Center, and the costs associated with sales of the Contract. We assume the risk that annuitants as a class may live longer than expected (mortality risk), and that expenses may be higher than the deductions for those expenses (expense risk). In either case, the loss will fall on us. Conversely, if such deductions exceed our actual expenses, the excess will be profit to us.

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 Contract Value when they are paid. The actual amount of any such premium taxes will depend, among other things, on the type of Contract you purchase (Qualified or Non-Qualified), on your state of residence, the state of residence of the Annuitant, and the insurance tax laws of those states. Currently such premium taxes range from 0% to 3.5% of total purchase payments.

Deductions for Income Taxes

We will deduct income taxes from any amount payable under the Contract that a governmental authority requires us to withhold. See "Income Tax Withholding".

Total Variable Account Expenses

Total Variable Account expenses you will incur will be the annuity asset charge and, if applicable, a tax charge factor. (See "Calculation of Contract Value".)

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. Each Eligible Fund pays a management fee to its investment adviser(s) based upon the average daily net asset value of the Fund. Each Eligible Fund also has additional operating expenses associated with the daily operation of the funds. The prospectuses for the Eligible Funds describe these deductions and expenses.

THE CONTRACTS

Variable Account Value

The Variable Account Value for your Contract 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 Contract and the appropriate Sub-account. Purchase payments are credited to your Contract 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.

Valuation Periods

We determine the value of the Variable Account each valuation period using the net asset value per share of the Eligible Fund shares. A valuation period is the period generally 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.

Calculation of Contract Value

Contract Value at any time prior to the Income Date equals the sum of the values of the Accumulation Units credited in the Sub-accounts under the Contract. Your Contract Value will fluctuate with the investment results of the Eligible Funds underlying the Sub-accounts you have selected.

The value of a Sub-account on any Valuation Date is the number of Accumulation Units in the Sub-account multiplied by the value of an Accumulation Unit in the Sub-account at the end of the Valuation Period.

Accumulation Units for each Sub-account are valued separately. Initially, the value of an Accumulation Unit was arbitrarily established at the inception of the Sub-account. It may increase or decrease from Valuation Period to Valuation Period. The Accumulation Unit value for a Sub-account for any later Valuation Period is determined as follows:

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the total value of Fund shares held in the Sub-account is calculated by multiplying the number of Fund shares owned by the Sub-account at the beginning of the Valuation Period by the net asset value per share of the Fund at the end of the Valuation Period (without giving effect to any transactions occurring during the Valuation Period), and adding any dividend or other distribution of the Fund if the record date for such distribution occurs during the Valuation Period; minus

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the liabilities of the Sub-account at the end of the Valuation Period (such liabilities include the daily charge (see below) imposed on the Sub-account, and may include a tax charge factor (see below); and the result is divided by

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the outstanding number of Accumulation Units in the Sub-account at the beginning of the Valuation Period.

The daily charge imposed on a Sub-account for any Valuation Period represent the annuity asset charge adjusted for the number of calendar days in the Valuation Period.

No tax charge factor is currently necessary since there are no federal income taxes attributable to the Separate Account. If we determine that there are federal income taxes attributable to the Separate Account, we may create a factor for such taxes to be included in the calculation.

Modification of the Contract

Only our President or Secretary may agree to alter the Contract or waive any of its terms. A change may be made to the Contract 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

Generally, you may return the Contract within 10 days after you receive it by delivering or mailing it to us. You may also cancel the Contract within 10 days through the Internet Service Center. If you return the Contract to us through the mail, the postmark on a properly addressed and postage-prepaid envelope determines if a Contract is returned within the 10-day period. We will treat the returned Contract as if we never issued it. We will promptly refund the Contract Value or purchase payments, whichever is required by state law, as of the date we receive the returned Contract or the date it is cancelled through the Internet Service Center. You may ask us which standard applies to your state. If you live in a state that requires "return of Contract Value", you may invest in the Sub-Accounts during this Right to Revoke Period. You bear the investment risk during this period. If you live in a state that requires "return of purchase payments", during the Right to Revoke Period and for ten additional days to allow for delivery of the notice from and to Us, your initial purchase payment will be held in the Rydex U.S. Government Money Market Sub-account. Your initial purchase payment will not be transferred to the Sub-account(s) you select until the Right to Revoke Period has ended.

You may change, at anytime during the Right to Revoke Period, the allocation(s) to the Sub-accounts of the Variable Account that you specified on your application.

In some states, under applicable law or regulation, your Right to Revoke Period may be longer than 10 days. Please refer to your Contract.

DEATH BENEFIT PROVISIONS

You may designate a Beneficiary during your lifetime and, unless prohibited by a previous designation, change the Beneficiary by mailing a request to our Service Office. A change of Beneficiary may be requested through the Internet Service Center but requires a signed request to be mailed to our Service Office. Each change of Beneficiary revokes any previous designation.

If there is a single Contract Owner and the Contract Owner dies before the Income Date, the Death Benefit paid to the designated Beneficiary will be the Contract Value as of the date on which we approve the payment of the claim.

The Death Benefit is the greater of premium payments less any partial withdrawals or the current Contract Value, less any applicable state premium taxes.

The premium payment death benefit is:

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the initial premium payment, plus

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any additional premium payments, minus

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any partial withdrawals.

We will determine the value of the Death Benefit as of the date on which the death claim is approved for payment. We will approve a claim for a Death Benefit upon receipt of:

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proof, satisfactory to us, of the death of the Contract Owner;

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a request for payment of the Death Benefit mailed to our Service Office; and

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our receipt of all required claim forms, fully completed.

We will make payment of an approved Death Benefit in accordance with applicable laws and regulations governing payment of Death Benefits. We will not allow any payment that does not satisfy the requirements of Internal Revenue Code section 72(s) or 401(a)(9) as applicable, as amended from time to time.

Unless otherwise provided in the Beneficiary designation, one of the following procedures will occur on the death of a Beneficiary:

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if any Beneficiary dies before the Contract Owner, that Beneficiary's interest will go to any other Beneficiaries named, according to their respective interests; and/or

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if no Beneficiary survives the Contract Owner, the proceeds of the Death Benefit will be paid to the Contract Owner's estate.

The Death Benefit payable to the Beneficiary must be distributed within five years of the Contract Owner's date of death unless the Beneficiary begins receiving within one year of the Contract Owner's death substantially equal installments over a period not extending beyond the Beneficiary's life expectancy.

If the Beneficiary is the spouse of the Contract Owner, then he or she may elect to continue the Contract as Contract Owner. If the Contract Owner is a corporation or other non-natural person, the death of the Annuitant will be treated as the death of the Contract Owner and the above distribution rules will apply.

If there are joint Contract Owners, upon the death of the first joint Contract Owner, the surviving joint Contract Owner will receive the Death Benefit. The surviving joint Contract Owner will be treated as the primary, Designated Beneficiary. Any other designation on record at the time of death will be treated as a contingent Beneficiary.

If the surviving joint Contract Owner, as spouse of the deceased joint Contract Owner, continues the Contract as the sole owner in lieu of receiving the Death Benefit, then the designated Beneficiary(s) will receive the Death Benefit upon the death of the surviving spouse.

Death of Annuitant

If the Annuitant is also the Contract Owner or joint Contract Owner, then the Death Benefit will be subject to the provisions of the Contract regarding death of the Contract Owner. If a surviving spouse assumes the contract upon death of a joint Contract Owner Annuitant, then the contingent Annuitant becomes the Annuitant. If no contingent Annuitant is named, then the surviving spouse becomes the Annuitant.

If an Annuitant who is not the Contract Owner or joint Contract Owner dies, then the contingent Annuitant, if any, becomes the Annuitant. If no contingent Annuitant is named, the Contract Owner (or joint Contract Owner if younger) becomes the Annuitant.

CONTRACT OWNERSHIP

The Contract Owner shall be the person designated in the application and you may exercise all the rights of the Contract. Joint Contract Owners are permitted. Contingent Contract Owners are not permitted.

You may direct us in writing to change the Contract Owner, primary beneficiary, contingent beneficiary or contingent annuitant. An irrevocably-named person may be changed only with the written consent of that person.

Because a change of Contract 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 Contract 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 Contract 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 Contract may have limitations on your ability to assign the Contract.

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 Contract through the Internet Service Center or by submitting to us by mail your request for a partial withdrawal. You may not make a partial withdrawal during the Right to Revoke Period. The minimum withdrawal amount is $300, or such lesser amount as we may permit. If the Contract Value after a partial withdrawal would be below $5,000, we will treat the request as a withdrawal of only the amount over $5,000. 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.

The minimum withdrawal amount is waived if you enter into an agreement with an investment adviser that allows the adviser to make partial withdrawals from your annuity to pay the service fees of the adviser. Such distributions may have adverse tax consequences. Please consult a qualified tax professional.

You may totally surrender the Contract by notifying us by mail. Surrendering the Contract will end it. Upon surrender, you will receive the Contract Value less any applicable premium taxes.

We will pay the amount of any surrender within seven days of receipt of your request. Alternatively, you may purchase for yourself an annuity payment option with any surrender benefit of at least $5,000 for yourself. If the Contract 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 annuity options based on life contingencies after annuity payments have begun. Once annuity payments have begun, partial withdrawals and surrenders are available only under Option A. Any partial withdrawal will reduce your future annuity payments.

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 Contract Owners, Annuitants, and Designated Beneficiaries are cautioned that you may not be able to take a partial withdrawal or surrender the Contract under a Qualified Plan. You should seek competent advice concerning the terms and conditions of the particular Qualified Plan and use of the Contract with that Plan.

ANNUITY PROVISIONS

Each of the Rydex Variable Trust Funds invests in the securities of a relatively few number of issuers. Since the assets of each Fund are invested in a limited number of issuers, the net asset value of the Fund may be more susceptible to a single adverse economic, political or regulatory occurrence. You should consider this in making your decision to annuitize.

Annuity Benefits

If the Annuitant is alive on the Income Date and the Contract is In Force, we will begin variable income 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 the Contract Value less any premium taxes not previously deducted to the option selected. See "Variable Annuity Payment Values" for additional information on how we calculate annuity payment amounts.

Subsequent payments will fluctuate in amount.

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:

o

not earlier than the first day after the Contract Date, and

o

not later than the earlier of

(i)

the later of the Annuitant's 90th birthday and the 10th Contract Anniversary or

(ii)

any maximum date permitted under state law.

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 through the Internet Service Center or by writing to us at least 30 days before the Income Date. You may continue to make purchase payments until you reach your 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; and

Option C: Joint and Last Survivor Income.

You may arrange other variable income options if we agree. Fixed income payments are not available. If you do not select an Annuity Option, we automatically choose Option B.

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 annuity 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 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 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"). At any time, the payee may elect to receive the following amount:

o

the present value of the remaining variable annuity payments, commuted at the 5% interest rate (3% per year for Florida Contracts) used to create the annuity factor for this option (this interest rate for variable annuity payments is also referred to as the assumed investment rate ("AIR") or benchmark rate).

Instead of receiving a lump sum, the payee may elect another payment option.

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

o

we will continue payments during the remainder of the period to the successor payee; or

o

the successor payee may elect to receive in a lump sum the present value of the remaining payments, commuted at the 5% interest rate (3% per year for Florida Contracts) used to create the annuity factor for this option.

The annuity asset charge is deducted during the Option A payment period, but we have no mortality risk during this period.

Currently, we permit the original payee to make a number of changes to variable payments under Option A. For regular PIPs, a change may be made generally only on the anniversary of the date of your initial PIP payment. The permissible changes include:

o

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;

o

changing to a life option - note that under this option the payee no longer may end the payments for a commuted value;

o

changing the payment frequency; and

o

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:

o

we will continue payments during the remainder of the period to the successor payee; or

o

the successor payee may elect to receive in a lump sum the present value of the remaining payments, commuted at the 5% interest rate (3% per year for Florida Contracts) used to create the annuity factor for this option.

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 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.

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.

Variable Annuity Payment Values

We determine the amount of the first payment by using an annuity purchase rate based on an assumed annual investment rate (AIR or benchmark rate) of 5% per year (3% per year for Florida Contracts). (See "Variable Annuity Payment Values" in the Statement of Additional Information for more information on AIRs.) Subsequent payments will fluctuate in amount and reflect whether the actual investment return of the selected Sub-account(s) (after deducting the annuity asset charge) is better or worse than the assumed investment rate. The total dollar amount of each payment will be equal to the sum of all Sub-account payments.

We limit 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 annuity payments to three times per contract year. We reserve the right to change the number of transfers that we allow.

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.

SUSPENSION OF PAYMENTS

We reserve the right to suspend or postpone any type of payment from the Variable Account for any period when:

o

the New York Stock Exchange (NYSE) is closed other than customary weekend or holiday closings;

o

trading on the Exchange is restricted;

o

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

o

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 prior two conditions described above exist.

ADVERTISING

We may provide to you and prospective Contract Owners advertising and other information on a variety of topics. Such topics may include the relationship between certain economic sectors and the economy as a whole and its effect on various securities markets, investment strategies and techniques (such as value investing, dollar cost averaging and asset allocation). Such topics may also include, the advantages and disadvantages of investing in tax-advantaged and taxable instruments, customer profiles and hypothetical purchase scenarios, financial management and tax and retirement planning, and other investment alternatives, including comparisons between the Contracts and the characteristics of and market for such alternatives.

In marketing the variable annuity Contracts, we may refer to certain ratings assigned to us under the rating systems of the A.M. Best and Company, Standard & Poor's, Moody's and Duff & Phelps. The objective of these rating systems is to evaluate the various factors affecting the overall performance of an insurance company in order to provide an opinion about that company's relative financial strength and ability to meet its contractual obligations. The procedure includes both a quantitative and qualitative review of the insurance company. In marketing the Contracts and the underlying funds, we may at times use data published by other nationally-known independent statistical services. These service organizations provide relative measures of such factors as an insurer's claims paying ability, the features of particular Contracts, and the comparative investment performance of the Eligible Funds with other portfolios having similar objectives. A few such services are: Duff & Phelps, the Lipper Group, Moody's, Morningstar, Standard and Poor's and VARDS. Marketing materials may employ illustrations of compound interest, discuss automatic withdrawal services, and describe our customer base, assets, and our relative size in the industry. They may also discuss other features of Sun Life (U.S.), the Variable Account, the Eligible Funds and their investment management.

TAX STATUS

Introduction

This section provides general information on the federal income tax consequences of ownership of a Contract 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 Contract is issued under a Qualified Plan and the type of retirement plan under which your Contract is issued. Also, legislation altering the current tax treatment of annuity contracts could be enacted in the future and could apply retroactively to Contracts 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 Contract or any transaction involving any Contract. You should consult a qualified tax professional for advice before purchasing a Contract or executing any other transaction (such as a rollover, distribution, withdrawal or payment) involving a Contract.

You may purchase a Contract that is not issued under a Qualified Plan ("Non-Qualified Contract") or a Contract 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 Contract"). The ultimate effect of federal income taxes on the Contract Value, on annuity payments, and on the economic benefit to the Contract Owner, Annuitant or Designated Beneficiary depends on the type of retirement plan for which you purchase the Contract 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 Contracts are not deductible. Under certain circumstances, purchase payments made under Qualified Contracts 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 Contract.

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 Contract should be based on the assumption that the purchase of a Qualified Contract 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 Contract until a distribution occurs, in the form of a full surrender, a partial withdrawal, an assignment or gift of the Contract, or annuity payments. A trust or other entity owning a Non-Qualified Contract, other than as an agent for an individual, is taxed differently; increases in the value of a Contract are taxed yearly whether or not a distribution occurs.

Surrenders, Partial Withdrawals, Death Benefit Payments, Assignments and Gifts. If you fully surrender your Contract, the portion of the payment that exceeds your cost basis in the Contract is subject to tax as ordinary income. For Non-Qualified Contracts, the cost basis is generally the amount of the purchase payments made for the Contract. For Qualified Contracts, 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 Contract. If the Designated Beneficiary elects 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 Contracts, the tax treatment applicable to Designated Beneficiaries may be contrasted with the tax treatment applicable to persons inheriting and then selling mutual fund shares who receive a "stepped-up" basis equal to the date-of-death valueof 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 Contracts prior to annuitization are first included in gross income to the extent Contract Value exceeds purchase payments. Then, to the extent the Contract Value does not exceed purchase payments, such withdrawals are treated as a non-taxable return of principal to you. For partial withdrawals under a Qualified Contract, 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 Contracts is generally zero, partial withdrawal amounts will generally be fully taxed as ordinary income.

If you assign or pledge a Non-Qualified Contract, you will be subject to taxation under the rules applicable to partial withdrawals or surrenders. If you give away your Contract to anyone other than your spouse, you are treated for income tax purposes as if you had fully surrendered the Contract. If the transition is to a charity, you may be allowed a deduction for some or all of the value of the Contract transferred.

A special computational rule applies if we issue to you, during any calendar year, two or more Contracts, or one or more Contracts and one or more of our other annuity contracts. Under this rule, all of the contracts will be treated as one contract. We believe this means that the amount of any distribution under any one Contract will be includable in gross income to the extent that at the time of distribution the sum of the values for all the Contracts 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 by the total number of expected payments. The remaining portion of each payment is taxable. Such taxable portion is taxed at ordinary income rates. For Qualified Contracts, 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 twelve 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.

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 Contract'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 59 1/2, 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 Contract 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 Contracts 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 Contracts:

o

after the taxpayer attains age 59-1/2;

o

in a series of substantially equal periodic payments made for life or life expectancy;

o

after the death of the Contract Owner (or, where the Contract Owner is not a human being, after the death of the primary annuitant, as defined in the Code);

o

if the taxpayer becomes totally and permanently disabled; or

o

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 Contract, that the Contract is not issued as a result of a Section 1035 exchange, and that the first annuity payment begins in the first Contract Year.

Similar exceptions to the 10% penalty tax apply to distributions from Qualified Contracts.

Income Tax Withholding. We are required to withhold federal income taxes on taxable amounts paid under Contracts unless the recipient elects not to have withholding apply. We will notify recipients of their right to elect not to have withholding apply.

Section 1035 Exchanges. You may purchase a Non-Qualified Contract 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:

o

the new Contract will be subject to the distribution-at-death rules described in "Death Benefit Provisions";

o

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 10 years prior to the distribution; and

o

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 Contract, as those requirements may change from time to time. If the diversification requirements are not satisfied, the Contract will not be treated as an annuity contract. As a consequence, income earned on a Contract 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 preamble to the 1986 investment diversification regulations stated that the Internal Revenue Service may promulgate guidelines under which an owner's excessive control over investments underlying a variable annuity contract will result in the owner being treated as the owner of the investments for federal tax purposes. The guidelines could impose requirements that are not reflected in the Contract. We, however, have reserved certain rights to alter the Contract and investment alternatives so as to comply with such guidelines. Since no guidelines have been issued, there can be no assurance as to the content of such guidelines or even whether application of the guidelines will be prospective. For these reasons, you are urged to consult with a qualified tax professional.

Qualified Plans

The Contract 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 Contract in a Qualified Plan, you should only consider the Contract'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 Contract with Qualified Plans. Participants under such Qualified Plans, as well as Contract 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 Contract. Following is a brief description of certain Qualified Plans and of the use of the Contract in connection with them. Purchasers of the Contract should seek competent advice concerning the terms and conditions of the particular Qualified Plan and use of the Contract with that Plan.

Individual Retirement Annuities

Sections 408(b) and 408A of the Code permit eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" and "Roth IRA", respectively. These 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.

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 Contract prior to the Income Date. The number of shares held in each Sub-account which 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.

SALES OF THE CONTRACTS

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The Contracts will be sold through the Internet Service Center we maintain for this purpose. Contracts are sold through a broker-dealer firm ("the Selling Broker-Dealer") registered under the Securities Exchange Act of 1934 who is a member of the National Association of Securities Dealers, Inc. and who has entered into a selling agreement 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 the National Association of Securities Dealers, Inc. We may also from time to time enter into selling agreements with other broker/dealers who will also distribute the Contracts. Such broker/dealers will be appropriately licensed to sell the Contracts.

Sun Life (U.S.) (or its affiliates) pays the Selling Broker-Dealer 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-Dealer 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 the Selling Broker-Dealer may vary depending on the selling agreement but it not expected to be more than 2.50% of purchase payments. We may pay or allow other promotional incentives or payments in the form of cash or other compensation to the extent permitted by NASD rules and other applicable laws and regulations.

Commissions may be waived or reduced in connection with certain transactions described in this prospectus. During 2002 and 2003, approximately $89,131 and $761,846, respectively, in commissions was paid to but not retained by Clarendon in connection with the distribution of the Certificates.

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LEGAL PROCEEDINGS

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

RECORDS AND REPORTS

As presently required by the Investment Company Act of 1940 ("1940 Act") and applicable regulations, we are responsible for maintaining all records and accounts relating to the Variable Account. We will electronically mail to you, at your last know e-mail address, at least semiannually after the first Contract Year, reports containing information required by the 1940 Act or any other applicable law or regulation.

INQUIRIES BY CONTRACT OWNERS

If you have questions about your Contract, you may send an e-mail to our Internet Service Center (Help@Mail.AnnuityNet.com) or visit the Internet Service Center on the world wide web at http://www.AnnuityNet.com or write to us at Sun Life Assurance Company of Canada (U.S.), P.O. Box 710900, Herndon, VA 20171. You may also call our Service Office at (877) 266-8638.

TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION
 

Page

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

2

Variable Annuity Benefits

2

  Variable Annuity Payment Values

2

  Re-Allocating Sub-account Payments

2

Safekeeping of Assets

3

Principal Underwriter

3

Experts

3

Investment Performance

3

  Average Annual Total Return for a Contract that is Surrendered

4

  Change in Accumulation Unit Value

5

  Yield for Rydex U.S. Government Money Market Sub-account

7

Financial Statements

7

  Keyport Variable Account A

8

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

82

  Keyport Life Insurance Company

129

 

PART B

STATEMENT OF ADDITIONAL INFORMATION

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.)")

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This Statement of Additional Information (SAI) is not a prospectus but it relates to, and should be read in conjunction with, the Rydex variable annuity prospectus dated April 30, 2004. The SAI is incorporated by reference into the prospectus. A free copy of the prospectus is available by writing Sun Life (U.S.) at its Service Office P.O. Box 710900, Herndon, VA 20171 or upon e-mail request through our Internet Service Center website (http://www.AnnuityNet.com) or by calling (877) 266-8638. The prospectus is also available through the SEC website (http://www.sec.gov). In addition, other information regarding the Company and the Separate Account is available at the SEC website and through our Internet Service Center.

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TABLE OF CONTENTS
 

Page
   

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

2

Variable Annuity Benefits

2

  Variable Annuity Payment Values

2

  Re-Allocating Sub-account Payments

2

Safekeeping of Assets

3

Principal Underwriter

3

Experts

3

Investment Performance

3

  Average Annual Total Return for a Contract that is Surrendered

4

  Change in Accumulation Unit Value

5

  Yield for Rydex U.S. Government Money Market Sub-account

7

Financial Statements

7

  Keyport Variable Account A

8

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

82

  Keyport Life Insurance Company

129

 

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The date of this statement of additional information is April 30, 2004.

 

 

RA.SAI

5/2004

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KEYPORT LIFE INSURANCE COMPANY

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.). For additional information about Sun Life (U.S.), see "Sun Life (U.S.) and the Variable Account" in the prospectus.

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 the sum of the payment amounts determined for all of the Sub-accounts you have selected.

The first payment for each Sub-account will be determined by deducting 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 Contract's annuity table for the particular payment option 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 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 may increase or decrease and is determined as follows:

o

the total value of Fund shares held in the Sub-account is calculated by multiplying the number of Fund shares owned by the Sub-account at the beginning of the Valuation Period by the net asset value per share of the Fund at the end of the Valuation Period (without giving effect to any transactions occurring during the Valuation Period), and adding any dividend or other distribution of the Fund if the record date for such distribution occurs during the Valuation Period; minus
   

o

the liabilities of the Sub-account at the end of the Valuation Period (such liabilities include daily charges imposed on the Sub-account, and may include a tax charge factor); and the result is divided by

   

o

the outstanding number of Annuity Units in the Sub-account at the beginning of the Valuation Period. The result is adjusted by a factor to reflect the assumed annual investment rate ("AIR"). The AIR for Annuity Units based on the Contract's annuity tables is 5% per year (3% per year for Florida Contracts).

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 Annuity Asset Charge) is better or worse than the assumed AIR percentage. For example, consider what would happen if the actual annualized investment return is 9%, 5%, 3%, or 0% between the time of the first and second payments. With an actual 9% return, the 5% AIR payments would increase in amount. With an actual 5% return, the 5% AIR payment would stay the same. With an actual return of 3%, the 5% AIR payment would decrease in amount. Finally, with an actual return of 0%, the 5% AIR payments would decrease in 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 Contracts and the Variable Account. This administration includes, but is not limited to, preparation of the Contracts, maintenance of Contract Owners' records, and all accounting, valuation, regulatory and reporting requirements.

PRINCIPAL UNDERWRITER

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

EXPERTS

<R>

The consolidated financial statements of Sun Life Assurance Company of Canada (U.S.) that are included in the Statement of Additional Information have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing therein (which report, dated March 29, 2004, accompanying such financial statements expresses an unqualified opinion and includes explanatory paragraphs relating to the Company's adoption of provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, effective January 1, 2001, Statement of Financial Account Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002, and the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Account Research Bulletin No. 51, effective October 1, 2003, described in Note 1), and have been included on their authority as experts in accounting and auditing.

The financial statements of Keyport Variable Account A that are included in the Statement of Additional Information have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing therein (which report dated March 31, 2004 accompanying the financial statements of Keyport Variable Account A expresses an unqualified opinion and includes an explanatory paragraph relating to the use of the financial statements for the year ended December 31, 2001, which were audited by other auditors), and have been included on their authority as experts in accounting and auditing.

</R>

The consolidated financial statements of Keyport Life Insurance Company as of and for the year ended December 31, 2002 that are included in the Statement of Additional Information have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing therein (which report, dated February 21, 2003, accompanying such financial statements expresses an unqualified opinion and includes an explanatory paragraph relating to Keyport Life Insurance Company's adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, described in Note 1), and have been included on their authority as experts in accounting and auditing. The Boston office of Deloitte & Touche LLP is located at 200 Berkeley Street, Boston, Massachusetts.

Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of Keyport Life Insurance Company at December 31, 2001, and for the ten-month period ended October 31, 2001, and the two-month period ended December 31, 2001, and the year ended December 31, 2000, as set forth in their report. We have included the financial statements herein in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. Their office is located at 200 Clarendon Street, Boston Massachusetts.

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 Contract 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.

Average annual total return information shows the average annual compounding percentage change applied to the value of an investment in the Sub-account from the beginning of the measuring period to the end of that period. This average annual total return reflects all historical investment results, less all Sub-account and Contract charges and deductions as required by certain regulatory rules. Average total return is not reduced by any premium taxes. Average total return would be less if these taxes were deducted.

In order to calculate average annual total return, we divide the change in value of a Sub-account under a Contract surrendered on a particular date by a hypothetical $1,000 investment in the Sub-account. We then annualize the resulting total rate for the period to obtain the average annual compounding percentage change during the period.

Average Annual Total Return for a Contract that is Surrendered

<R>

The tables below provide performance results for each Sub-account through December 31, 2003. The results shown in this section are not an estimate or guarantee of future investment performance, and do not represent the actual experience of amounts invested by a particular Contract Owner.

</R>

The following tables were calculated using the method prescribed by the Securities and Exchange Commission. They illustrate each Sub-account's average annual total return over the periods shown assuming a single $1,000 initial purchase payment and the surrender of the Contract at the end of each period. The Sub-account's average annual total return is the annual rate that would be necessary to achieve the ending value of an investment kept in the Sub-account for the period specified. The first table uses the inception date of the Contract's Sub-accounts while the second table assumes the Contract was available prior to that date on the Funds' inception date.

Each calculation assumes that the $1,000 initial purchase payment was allocated to only one Sub-account and no transfers or additional purchase payments were made. The rate of return reflects all charges assessed against a Contract and the Sub-account except for any premium taxes that may be payable. The charge reflected is the .90% annual annuity asset charge.

<R>
 

Average Annual Total Return for a
 

Contract Surrendered on 12/31/03
 

Hypothetical $1,000 Purchase Payment*
   
 

Length of Investment Period
   
 

One

Three

Five

Ten

Since Sub-account

Sub-account

Year

Years

Years

Years

Inception Shown

Rydex Arktos

-37.93%

N/A

N/A

N/A

-6.60% (01/08/02)

Rydex Banking

30.56%

N/A

N/A

N/A

13.11% (01/08/02)

Rydex Basic Materials

30.29%

N/A

N/A

N/A

5.28% (01/08/02)

Rydex Biotechnology

40.85%

N/A

N/A

N/A

-10.99% (01/08/02)

Rydex Consumer Products

20.77%

N/A

N/A

N/A

8.33% (01/08/02)

Rydex Electronics

68.31%

N/A

N/A

N/A

-10.99% (01/08/02)

Rydex Energy

21.92%

N/A

N/A

N/A

3.06% (01/08/02)

Rydex Energy Services

7.45%

N/A

N/A

N/A

-0.62% (01/08/02)

Rydex Financial Services

27.77%

N/A

N/A

N/A

3.89% (01/08/02)

Rydex Health Care

28.61%

N/A

N/A

N/A

1.33% (01/08/02)

Rydex Internet

62.93%

N/A

N/A

N/A

-8.03% (01/08/02)

Rydex Large Cap Europe

41.80%

N/A

N/A

N/A

1.15% (01/08/02)

Rydex Large Cap Japan

36.39%

N/A

N/A

N/A

6.03% (01/08/02)

Rydex Leisure

33.69%

N/A

N/A

N/A

5.33% (01/08/02)

Rydex Medius

51.07%

N/A

N/A

N/A

2.20% (01/08/02)

Rydex Mekros

62.81%

N/A

N/A

N/A

0.25% (04/30/02)

Rydex Nova

37.95%

-12.69%

N/A

N/A

-13.42% (03/15/00)

Rydex OTC

44.12%

-17.52%

N/A

N/A

-26.49% (03/15/00)

Rydex Precious Metals

39.65%

31.16%

N/A

N/A

21.12% (03/15/00)

Rydex Real Estate

29.15%

N/A

N/A

N/A

11.72% (04/30/02)

Rydex Retailing

34.06%

N/A

N/A

N/A

1.75% (01/08/02)

Rydex Technology

59.89%

N/A

N/A

N/A

-5.08% (01/08/02)

Rydex Telecommunications

32.49%

N/A

N/A

N/A

-11.75% (01/08/02)

Rydex Titan 500

53.56%

N/A

N/A

N/A

-2.52% (04/30/02)

Rydex Transportation

19.44%

N/A

N/A

N/A

-0.31% (01/08/02)

Rydex U.S. Government Bond

-1.51%

4.69%

N/A

N/A

6.94% (03/15/00)

Rydex Ursa

-24.33%

1.30%

N/A

N/A

3.23% (03/15/00)

Rydex Utilities

24.28%

N/A

N/A

N/A

-8.72% (01/08/02)

Rydex Velocity

96.87%

N/A

N/A

N/A

-1.42% (04/30/02)

</R>

* Eligible Fund expenses in excess of defined amounts were reimbursed during one or more calendar years. Without this expense reimbursement any return percentages shown that include these calendar years would be lower.

<R>
 

Average Annual Total Return for a
 

Contract Surrendered on 12/31/03
 

Hypothetical $1,000 Purchase Payment*
   
 

Length of Investment Period
   
 

One

Three

Five

Ten

Since Eligible Fund

Sub-account

Year

Years

Years

Years

Inception Shown

Rydex Arktos

-37.93%

N/A

N/A

N/A

-1.13% (05/21/01)

Rydex Banking

30.56%

N/A

N/A

N/A

9.81% (05/02/01)

Rydex Basic Materials

30.29%

N/A

N/A

N/A

3.31% (05/02/01)

Rydex Biotechnology

40.85%

N/A

N/A

N/A

-9.52% (05/02/01)

Rydex Consumer Products

20.77%

N/A

N/A

N/A

6.34% (05/29/01)

Rydex Electronics

68.31%

N/A

N/A

N/A

-12.88% (08/03/01)

Rydex Energy

21.92%

N/A

N/A

N/A

-4.98% (05/29/01)

Rydex Energy Services

7.45%

N/A

N/A

N/A

-14.31% (05/02/01)

Rydex Financial Services

27.77%

N/A

N/A

N/A

1.42% (07/20/01)

Rydex Health Care

28.61%

N/A

N/A

N/A

-2.56% (06/19/01)

Rydex Internet

62.93%

N/A

N/A

N/A

-19.10% (05/23/01)

Rydex Large Cap Europe

41.80%

N/A

N/A

N/A

3.91% (10/01/01)

Rydex Large Cap Japan

36.39%

N/A

N/A

N/A

-1.04% (10/01/01)

Rydex Leisure

33.69%

N/A

N/A

N/A

-7.47% (05/23/01)

Rydex Medius

51.07%

N/A

N/A

N/A

15.53% (10/01/01)

Rydex Mekros

62.81%

N/A

N/A

N/A

12.23% (10/01/01)

Rydex Nova

37.95%

-12.69%

-8.48%

N/A

0.38% (05/07/97)

Rydex OTC

44.12%

-17.52%

-7.63%

N/A

4.31%(05/07/97)

Rydex Precious Metals

39.65%

31.16%

11.06%

N/A

-0.21%(05/27/97)

Rydex Real Estate

29.15%

N/A

N/A

N/A

13.28% (10/01/01)

Rydex Retailing

34.06%

N/A

N/A

N/A

2.28% (07/23/01)

Rydex Technology

59.89%

N/A

N/A

N/A

-10.47% (05/02/01)

Rydex Telecommunications

32.49%

N/A

N/A

N/A

-14.19% (07/27/01)

Rydex Titan 500

53.56%

N/A

N/A

N/A

-1.05% (10/01/01)

Rydex Transportation

19.44%

N/A

N/A

N/A

0.34% (06/11/01)

Rydex U.S. Government Bond

-1.51%

4.69%

1.49%

N/A

4.79%(08/18/97)

Rydex Ursa Fund

-24.33%

1.30%

0.13%

N/A

-5.33% (06/10/97)

Rydex Utilities

24.28%

N/A

N/A

N/A

-17.22% (05/02/01)

Rydex Velocity

96.87%

N/A

N/A

N/A

-4.71% (10/01/01)

</R>

* Eligible Fund expenses in excess of defined amounts were reimbursed during one or more calendar years. Without this expense reimbursement any return percentages shown that include these calendar years would be lower.

Change in Accumulation Unit Value

The following performance information illustrates the average annual change and the actual annual change in Accumulation Unit values for each Sub-account and is computed differently than the standardized average annual total return information. Performance information for periods prior to the inception date of the Contract's Sub-accounts assumes the Contracts were available prior to that date on the Funds' inception date.

A Sub-account's average annual change in Accumulation Unit values is the annualized rate at which the value of a Unit changes over the time period illustrated. A Sub-account's actual annual change in Accumulation Unit values is the rate at which the value of a Unit changes over each 12-month period illustrated. These rates of change in Accumulation Unit values reflect the Contracts annual .90% annuity asset charge. They do not reflect deductions for any premium taxes. The rates of change would be lower if these charges were included.

<R>
 

Average Annual Change

Average Annual Change
 

In Accumulation Unit

in Accumulation Unit Value
 

Value From Eligible Fund

over the period shown
 

Inception Shown

through 12/31/03

Sub-account

through 12/31/03**

Three Years

Five Years

Ten Years

Rydex Arktos

-1.13% (05/21/01)

N/A

N/A

N/A

Rydex Banking

9.81% (05/02/01)

N/A

N/A

N/A

Rydex Basic Materials

3.31% (05/02/01)

N/A

N/A

N/A

Rydex Biotechnology

-9.52% (05/02/01)

N/A

N/A

N/A

Rydex Consumer Products

6.34% (05/29/01)

N/A

N/A

N/A

Rydex Electronics

-12.88% (08/03/01)

N/A

N/A

N/A

Rydex Energy

-4.98% (05/29/01)

N/A

N/A

N/A

Rydex Energy Services

-14.31% (05/02/01)

N/A

N/A

N/A

Rydex Financial Services

1.42% (07/20/01)

N/A

N/A

N/A

Rydex Health Care

-2.56% (06/19/01)

N/A

N/A

N/A

Rydex Internet

-19.10% (05/23/01)

N/A

N/A

N/A

Rydex Large Cap Europe

3.91% (10/01/01)

N/A

N/A

N/A

Rydex Large Cap Japan

-1.04% (10/01/01)

N/A

N/A

N/A

Rydex Leisure

-7.47% (05/23/01)

N/A

N/A

N/A

Rydex Medius

15.53% (10/01/01)

N/A

N/A

N/A

Rydex Mekros

12.23% (10/01/01)

N/A

N/A

N/A

Rydex Nova

0.38% (05/07/97)

-12.69%

-8.48%

N/A

Rydex OTC

4.31% (05/07/97)

-17.52%

-7.63%

N/A

Rydex Precious Metals

-0.21% (05/27/97)

31.16%

11.06%

N/A

Rydex Real Estate

13.28% (10/01/01)

N/A

N/A

N/A

Rydex Retailing

2.28% (07/23/01)

N/A

N/A

N/A

Rydex Technology

-10.47% (05/02/01)

N/A

N/A

N/A

Rydex Telecommunications

-14.19% (07/27/01)

N/A

N/A

N/A

Rydex Titan 500

-1.05% (10/01/01)

N/A

N/A

N/A

Rydex Transportation

0.34% (06/11/01)

N/A

N/A

N/A

Rydex U.S. Government Bond

4.79%(08/18/97)

4.69%

1.49%

N/A

Rydex Ursa Fund

-5.33%(06/10/97)

1.30%

0.13%

N/A

Rydex Utilities

-17.22% (05/02/01)

N/A

N/A

N/A

Rydex Velocity

-4.71% (10/01/01)

N/A

N/A

N/A

 

12-Month Period Change in Accumulation
 

Unit Value**

Sub-account

1997

1998

1999

2000

2001

2002

2003

Rydex Arktos

N/A

N/A

N/A

N/A

14.40%*

36.72%

-37.93%

Rydex Banking

N/A

N/A

N/A

N/A

-0.56%*

-1.16%

30.56%

Rydex Basic Materials

N/A

N/A

N/A

N/A

-2.76%*

-13.91%

30.29%

Rydex Biotechnology

N/A

N/A

N/A

N/A

0.36%*

-45.81%

40.85%

Rydex Consumer Products

N/A

N/A

N/A

N/A

2.33%*

-5.11%

20.77%

Rydex Electronics

N/A

N/A

N/A

N/A

-13.01%*

-51.01%

68.31%

Rydex Energy

N/A

N/A

N/A

N/A

-16.42%*

-14.04%

21.92%

Rydex Energy Services

N/A

N/A

N/A

N/A

-31.75%*

-9.65%

7.45%

Rydex Financial Services

N/A

N/A

N/A

N/A

-4.69%*

-15.01%

27.77%

Rydex Health Care

N/A

N/A

N/A

N/A

-6.92%*

-21.78%

28.61%

Rydex Internet

N/A

N/A

N/A

N/A

-35.51%*

-45.24%

62.93%

Rydex Large Cap Europe

N/A

N/A

N/A

N/A

12.38%*

-31.59%

41.80%

Rydex Large Cap Japan

N/A

N/A

N/A

N/A

-14.17%*

-16.57%

36.39%

Rydex Leisure

N/A

N/A

N/A

N/A

-27.65%*

-15.56%

33.69%

Rydex Medius

N/A

N/A

N/A

N/A

21.00%*

-24.30%

51.07%

Rydex Mekros

N/A

N/A

N/A

N/A

25.38%*

-36.50%

62.81%

Rydex Nova

22.50%*

30.40%

22.16%

-21.01%

-24.27% 

-36.30%

37.95%

Rydex OTC

6.88%*

84.15%

95.11%

-38.56%

-35.76% 

-39.40%

44.12%

Rydex Precious Metals

-29.64%*

-17.02%

-7.31%

-19.21%

11.98% 

44.29%

39.65%

Rydex Real Estate

N/A

N/A

N/A

N/A

3.72%*

-1.17%

29.15%

Rydex Retailing

N/A

N/A

N/A

N/A

2.80%*

-23.34%

34.06%

Rydex Technology

N/A

N/A

N/A

N/A

-21.21%*

-40.89%

59.89%

Rydex Telecommunications

N/A

N/A

N/A

N/A

-8.02%*

-43.43%

32.49%

Rydex Titan 500

N/A

N/A

N/A

N/A

18.16%*

-46.19%

53.56%

Rydex Transportation

N/A

N/A

N/A

N/A

-2.31%*

-13.54%

19.44%

Rydex U.S. Government Bond

10.60%*

13.18%

-21.22%

19.09%

-0.88% 

17.55%

-1.51%

Rydex Ursa Fund

-11.41%*

-21.71%

-15.83%

15.02%

13.96% 

20.56%

-24.33%

Rydex Utilities

N/A

N/A

N/A

N/A

-25.79%*

-34.48%

24.28%

Rydex Velocity

N/A

N/A

N/A

N/A

59.98%*

-71.52%

96.87%

</R>

* Percentage of change is for less than 12 months; it is for the period from the inception date shown to the end of the year.

** Eligible Fund expenses in excess of defined amounts were reimbursed during one or more calendar years. Without this expense reimbursement any return percentages shown that include these calendar years would be lower.

Yield for Rydex U.S. Government Money Market Sub-account

Yield percentages for the Rydex U.S. Government Money Market Sub-account are calculated using the method prescribed by the Securities and Exchange Commission. Yields reflect the deduction of the annual .90% asset-based Contract charges. Yields do not reflect premium tax charges. The yield would be lower if these charges were included. The following is the standardized formula:

Yield equals:   (A - B - 1) x  365

                             C                 7

Where:

A

=

the Accumulation Unit value at the end of the 7-day period.
     

B

=

$0.00.
     

C

=

the Accumulation Unit value at the beginning of the 7-day period.

The yield formula assumes that the weekly net income generated by an investment in the Rydex U.S. Government Money Market Sub-account will continue over an entire year.

<R>

For the 7-day period ended 12/31/03, the yield for Rydex U.S. Government Money Market Sub-account was -0.90%.

</R>

FINANCIAL STATEMENTS

The financial statements of the Variable Account, Sun Life Assurance Company of Canada (U.S.) and Keyport Life Insurance Company 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 Contracts and should not be considered as bearing on the investment performance of the assets held in the Variable Account.

<R>

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Assets and Liabilities
December 31, 2003

Assets

                    

Investments at market value:

Shares

  

Cost

  

Value
                     

AIM Variable Insurance Funds, Inc. :

 		                   

AIM VI Capital Appreciation Series I

806,498

    

$

29,195,424

    

$

17,162,283

  

AIM VI Growth Series I

151,764

      

4,234,194

      

2,250,656

  

AIM VI International Growth Series I

1,810,017

      

32,363,335

      

29,032,673

  

AIM VI Premier Equity Series I

1,167,957

      

37,072,610

      

23,627,775

  
                     

Alger American Fund :

 		                   

Alger American Growth Portfolio

1,351,121

      

70,162,556

      

44,978,824

  

Alger American Small Capitalization Portfolio

706,703

      

29,495,427

      

12,282,493

  
                     

AllianceBernstein Variable Products Series Fund, Inc. :

 		                   

AllianceBernstein Global Bond Portfolio (A)

1,428,328

      

16,878,362

      

19,282,430

  

AllianceBernstein Global Bond Portfolio (B)

422,717

      

4,683,190

      

5,664,409

  

AllianceBernstein Growth & Income Portfolio (A)

197,179

      

4,327,510

      

4,298,501

  

AllianceBernstein Growth & Income Portfolio (B)

2,126,902

      

47,395,613

      

45,983,625

  

AllianceBernstein Growth Portfolio (B)

72,974

      

1,047,193

      

1,150,073

  

AllianceBernstein International Portfolio (B)

32,460

      

361,901

      

419,704

  

AllianceBernstein Premier Growth Portfolio (A)

2,456,763

      

68,055,376

      

53,016,937

  

AllianceBernstein Premier Growth Portfolio (B)

1,489,518

      

57,046,498

      

31,771,421

  

AllianceBernstein Real Estate Investment Portfolio (A)

53,882

      

531,134

      

841,633

  

AllianceBernstein Technology Portfolio (B)

1,212,388

      

41,232,486

      

17,397,766

  

AllianceBernstein Total Return Portfolio (B)

80,674

      

1,372,163

      

1,427,115

  

AllianceBernstein Worldwide Privatization Portfolio (B)

114,014

      

1,367,886

      

1,851,594

  
                     

Brinson Series Trust :

 		                   

UBS Global AM Tactical Allocation

998,642

      

16,217,872

      

12,263,325

  
                     

Fidelity VIP Funds :

 		                   

Fidelity VIP Equity Income Fund - SC2

1,653,702

      

35,343,405

      

37,968,990

  

Fidelity VIP III Dynamic Capital Appreciation Fund-SC2

149,714

      

907,046

      

1,050,989

  

Fidelity VIP III Growth Opportunities Fund - SC2

1,098,645

      

16,841,210

      

16,457,703

  
                     

Franklin Templeton Funds:

 		                   

Templeton Developing Markets Securities Fund 2

296,898

      

2,054,956

      

2,105,006

  
                     

Liberty Variable Investment Trust :

 		                   

Colonial Small Cap Value Fund, VS (A)

536,862

      

5,120,100

      

7,639,543

  

Colonial Small Cap Value Fund, VS (B)

1,112,326

      

12,238,780

      

15,817,272

  

Colonial Strategic Income Fund, VS (A)

7,394,378

      

83,206,047

      

72,464,904

  

Colonial Strategic Income Fund, VS (B)

4,605,142

      

43,728,880

      

45,130,395

  

Columbia High Yield Fund II, VS (A)

912,958

      

8,326,355

      

8,600,060

  

Columbia High Yield Fund II, VS (B)

2,389,184

      

21,869,597

      

22,506,109

  

Columbia International Fund , VS (A)

29,382,206

      

49,048,452

      

49,655,929

  

Columbia International Fund , VS (B)

3,601,601

      

4,476,723

      

6,086,705

  

Columbia Real Estate Equity Fund II, VS (B)

180,476

      

1,805,790

      

1,983,432

  

Liberty All-Star Equity Fund, VS (A)

3,275,584

      

37,801,343

      

35,802,131

  

Liberty All-Star Equity Fund, VS (B)

368,234

      

4,461,936

      

4,024,803

  

Liberty Asset Allocation Fund, VS (A)

5,578,857

      

90,129,492

      

76,988,228

  

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Assets and Liabilities
December 31, 2003

Assets (continued)

                    
 

Shares

  

Cost

  

Value

Liberty Variable Investment Trust (continued):

 		                   

Liberty Growth & Income Fund VS, (A)

9,480,377

    

$

147,138,868

    

$

134,147,331

  

Liberty Growth & Income Fund, VS (B)

2,611,933

      

39,665,670

      

36,932,735

  

Liberty Select Value Fund, VS (A)

8,488

      

102,087

      

130,882

  

Liberty Select Value Fund, VS (B)

2,081,129

      

27,918,396

      

32,070,195

  

Liberty S&P 500 Index Fund, VS (A)

8,576

      

102,238

      

82,503

  

Liberty S&P 500 Index Fund, VS (B)

4,116,272

      

39,966,088

      

39,475,050

  

Newport Tiger Fund, VS (A)

3,483,460

      

6,434,921

      

7,245,597

  

Newport Tiger Fund, VS (B)

1,163,202

      

2,232,243

      

2,465,989

  

Wanger Foreign Forty Fund

296,925

      

3,601,150

      

4,118,354

  

Wanger International Small Cap Fund

802,189

      

12,891,920

      

15,787,070

  

Wanger Twenty Fund

1,114,754

      

17,019,068

      

20,678,694

  

Wanger US Smaller Companies Fund

1,907,597

      

40,405,923

      

50,570,392

  
                     

MFS Variable Insurance Trust :

 		                   

MFS Bond Series IC

324,975

      

3,662,172

      

3,961,448

  

MFS Emerging Growth Series IC

933,428

      

16,719,379

      

14,477,464

  

MFS Emerging Growth Series SC

387,105

      

10,267,650

      

5,965,282

  

MFS Investors Growth Stock Series SC

1,758,637

      

18,844,883

      

15,071,517

  

MFS Investors Trust Series SC

959,367

      

16,697,818

      

15,599,304

  

MFS New Discovery Series SC

555,818

      

8,225,979

      

7,698,082

  

MFS Research Series IC

1,697,136

      

28,974,011

      

22,656,768

  
                     

Rydex Variable Trust :

 		                   

Rydex Arktos Fund

154,600

      

3,898,942

      

3,724,320

  

Rydex Banking Fund

649

      

20,677

      

21,091

  

Rydex Basic Materials Fund

256

      

6,824

      

7,087

  

Rydex Biotechnology Fund

259

      

4,900

      

4,938

  

Rydex Consumer Products Fund

245

      

7,059

      

7,204

  

Rydex Electronics Fund

214

      

2,529

      

3,619

  

Rydex Energy Services Fund

2,055

      

28,987

      

32,034

  

Rydex Financial Services Fund

1

      

22

      

27

  

Rydex Health Care Fund

241

      

5,317

      

5,859

  

Rydex Internet Fund

273

      

3,041

      

4,011

  

Rydex Juno Fund

4,141

      

101,039

      

102,788

  

Rydex Lg Cap Europe Fund

447

      

10,489

      

10,220

  

Rydex Lg Cap Japan Fund

66

      

1,646

      

1,671

  

Rydex Medius Fund

6,035

      

156,503

      

149,318

  

Rydex Mekros Fund

13,278

      

420,929

      

395,011

  

Rydex Nova Fund

63,424

      

424,582

      

457,284

  

Rydex OTC Fund

241,903

      

5,013,287

      

3,183,440

  

Rydex Precious Metals Fund

24,255

      

178,245

      

242,306

  

Rydex Telecommunications Fund

4,201

      

56,880

      

76,547

  

Rydex Titan 500 Fund

1,660

      

39,484

      

35,835

  

Rydex Ursa Fund

37,276

      

221,658

      

215,455

  

Rydex US Gov't Bond Fund

645,621

      

7,450,042

      

7,534,388

  

Rydex US Gov't Money Mkt Fund

14,541,766

      

14,541,766

      

14,541,766

  

Rydex Utilities Fund

461

      

6,129

      

6,890

  

Rydex Velocity 100 Fund

4,361

      

92,274

      

94,759

  
                     

SteinRoe Variable Investment Trust :

 		                   

Liberty Federal Securities Fund, VS (A)

4,783,694

      

50,293,610

      

53,577,372

  

Liberty Federal Securities Fund, VS (B)

7,851,028

      

84,286,500

      

87,303,436

  

Liberty Asset Allocation Fund, VS (B)

3,780,194

      

55,519,184

      

51,977,662

  

Liberty Money Market Fund, VS (A)

120,466,243

      

120,466,243

      

120,466,243

  

Liberty Small Company Growth Fund, VS (A)

796,129

      

11,379,833

      

7,905,566

  

SteinRoe Growth Stock Fund, VS (A)

1,926,534

      

85,203,984

      

46,776,239

  

SteinRoe Growth Stock Fund, VS (B)

884,818

      

36,788,723

      

21,403,752

  
                     

Total Assets

 		     

$

1,797,902,634

    

$

1,578,388,231

  

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Assets and Liabilities
December 31, 2003

Net Assets

                      
 

Deferred Variable Annuity Contracts

  

Variable Annuity Reserve

    
 

Units

  

Value

  

Units

  

Value

  

Total

AIM VI Capital Appreciation Series I

1,427,858

    

14,305,202

  

280,760

    

2,857,081

  

$

17,162,283

AIM VI Growth Series I

202,983

    

1,440,793

  

113,494

    

809,863

    

2,250,656

AIM VI International Growth Series I

2,908,791

    

25,758,556

  

462,085

    

3,274,117

    

29,032,673

AIM VI Premier Equity Series I

2,929,674

    

20,333,832

  

470,966

    

3,293,944

    

23,627,775

Alger American Growth Portfolio

2,559,808

    

38,973,860

  

390,249

    

6,004,964

    

44,978,824

Alger American Small Capitalization Portfolio

1,244,601

    

11,382,462

  

98,056

    

900,031

    

12,282,493

AllianceBernstein Global Bond Portfolio (A)

1,177,255

    

15,229,858

  

313,559

    

4,052,572

    

19,282,430

AllianceBernstein Global Bond Portfolio (B)

445,194

    

5,664,409

  

-

 		   

-

 		   

5,664,409

AllianceBernstein Growth & Income Portfolio (A)

282,199

    

3,769,978

  

39,562

    

528,523

    

4,298,501

AllianceBernstein Growth & Income Portfolio (B)

3,578,733

    

37,816,891

  

772,234

    

8,166,734

    

45,983,625

AllianceBernstein Growth Portfolio (B)

49,404

    

486,067

  

67,271

    

664,006

    

1,150,073

AllianceBernstein International Portfolio (B)

27,624

    

306,621

  

10,155

    

113,084

    

419,704

AllianceBernstein Premier Growth Portfolio (A)

3,239,951

    

46,540,034

  

467,857

    

6,476,903

    

53,016,937

AllianceBernstein Premier Growth Portfolio (B)

4,372,634

    

27,875,264

  

607,541

    

3,896,157

    

31,771,421

AllianceBernstein Real Estate Investment Portfolio (A)

49,033

    

785,248

  

3,521

    

56,385

    

841,633

AllianceBernstein Technology Portfolio (A)

2,332,044

    

16,077,693

  

190,634

    

1,320,073

    

17,397,766

AllianceBernstein Total Return Portfolio (B)

81,647

    

843,476

  

56,311

    

583,639

    

1,427,115

AllianceBernstein Worldwide Privatization Portfolio (B)

162,807

    

1,463,813

  

42,937

    

387,781

    

1,851,594

Colonial Small Cap Value Fund, VS (A)

373,241

    

5,394,967

  

154,380

    

2,244,576

    

7,639,543

Colonial Small Cap Value Fund, VS (B)

984,260

    

14,214,567

  

110,247

    

1,602,705

    

15,817,272

Colonial Strategic Income Fund, VS (A)

3,505,364

    

63,217,112

  

519,599

    

9,247,792

    

72,464,904

Colonial Strategic Income Fund, VS (B)

2,043,894

    

36,605,872

  

522,809

    

8,524,523

    

45,130,395

Columbia International Fund, VS (A)

4,282,306

    

43,774,684

  

549,740

    

5,881,245

    

49,655,929

Columbia International Fund, VS (B)

332,145

    

4,516,461

  

115,349

    

1,570,244

    

6,086,705

Columbia High Yield Fund II, VS (A)

777,761

    

7,208,804

  

150,235

    

1,391,256

    

8,600,060

Columbia High Yield Fund II, VS (B)

2,143,849

    

19,656,403

  

308,934

    

2,849,706

    

22,506,109

Columbia Real Estate Equity Fund II, VS (B)

87,924

    

1,309,389

  

44,994

    

674,043

    

1,983,432

Fidelity VIP Equity Income Fund - SC2

3,158,966

    

33,285,754

  

442,506

    

4,683,236

    

37,968,990

Fidelity VIP III Dynamic Capital Appreciation Fund

91,219

    

1,050,989

  

9,374

    

-

 		   

1,050,989

Fidelity VIP III Growth Opportunities Fund - SC2

2,182,569

    

15,027,576

  

206,735

    

1,430,127

    

16,457,703

Liberty All-Star Equity Fund, VS (A)

2,746,302

    

31,588,787

  

364,521

    

4,213,344

    

35,802,131

Liberty All-Star Equity Fund, VS (B)

424,211

    

3,679,180

  

29,978

    

345,622

    

4,024,803

Liberty Asset Allocation Fund, VS (A)

2,035,441

    

55,514,114

  

823,998

    

21,474,114

    

76,988,228

Liberty Asset Allocation Fund, VS (B)

1,439,127

    

38,976,762

  

671,001

    

13,000,900

    

51,977,662

Liberty Federal Securities Fund, VS (A)

1,931,800

    

45,510,058

  

328,928

    

8,067,314

    

53,577,372

Liberty Federal Securities Fund, VS (B)

3,099,194

    

72,836,209

  

603,219

    

14,467,227

    

87,303,436

Liberty Growth & Income Fund, VS (A)

4,799,810

    

118,797,343

  

687,157

    

15,349,988

    

134,147,331

Liberty Growth & Income Fund, VS (B)

1,337,807

    

33,020,597

  

212,546

    

3,912,138

    

36,932,735

Liberty Money Market Fund, VS (A)

6,605,873

    

102,068,139

  

1,207,964

    

18,398,104

    

120,466,243

Liberty S&P 500 Index Fund, VS (B)

4,753,156

    

35,256,690

  

566,539

    

4,218,360

    

39,475,050

Liberty Select Value Fund, VS (B)

2,510,892

    

29,689,448

  

200,438

    

2,380,747

    

32,070,195

Liberty Small Company Growth Fund, VS (A)

227,201

    

7,375,199

  

18,924

    

530,367

    

7,905,566

MFS Bond Series IC

269,139

    

3,578,054

  

28,839

    

383,394

    

3,961,448

MFS Emerging Growth Series IC

1,092,056

    

12,833,687

  

142,916

    

1,643,777

    

14,477,464

MFS Emerging Growth Series SC

476,527

    

5,563,861

  

35,857

    

401,421

    

5,965,282

MFS Investors Growth Stock Series SC

2,491,332

    

13,998,947

  

190,043

    

1,072,570

    

15,071,517

MFS Investors Trust Series SC

1,906,328

    

14,259,938

  

178,249

    

1,339,366

    

15,599,304

MFS New Discovery Series SC

955,343

    

7,195,210

  

66,494

    

502,872

    

7,698,082

MFS Research Series IC

1,734,498

    

20,379,356

  

196,310

    

2,277,411

    

22,656,768

Newport Tiger Fund, VS (A)

635,530

    

6,480,963

  

78,952

    

764,633

    

7,245,597

Newport Tiger Fund, VS (B)

219,125

    

2,278,616

  

19,744

    

187,373

    

2,465,989

Rydex Arktos Fund

170,517

    

3,724,320

  

-

 		   

-

 		   

3,724,320

Rydex Banking Fund

661

    

21,091

  

-

 		   

-

 		   

21,091

Rydex Basic Materials Fund

256

    

7,087

  

-

 		   

-

 		   

7,087

Rydex Biotechnology Fund

249

    

4,938

  

-

 		   

-

 		   

4,938

Rydex Consumer Products Fund

246

    

7,204

  

-

 		   

-

 		   

7,204

Rydex Electronics Fund

182

    

3,619

  

-

 		   

-

 		   

3,619

Rydex Energy Services Fund

1,297

    

32,034

  

-

 		   

-

 		   

32,034

Rydex Financial Services Fund

1

    

27

  

-

 		   

-

 		   

27

Rydex Health Care Fund

228

    

5,859

  

-

 		   

-

 		   

5,859

Rydex Internet Fund

189

    

4,011

  

-

 		   

-

 		   

4,011

Rydex Juno Fund

3,957

    

102,788

  

-

 		   

-

 		   

102,788

Rydex Large Cap Europe Fund

400

    

10,220

  

-

 		   

-

 		   

10,220

Rydex Large Cap Japan Fund

60

    

1,671

  

-

 		   

-

 		   

1,671

Rydex Medius Fund

5,760

    

149,318

  

-

 		   

-

 		   

149,318

Rydex Mekros Fund

15,722

    

395,011

  

-

 		   

-

 		   

395,011

Rydex Nova Fund

33,668

    

457,284

  

-

 		   

-

 		   

457,284

Rydex OTC Fund

894,523

    

2,993,394

  

58,686

    

190,046

    

3,183,440

Rydex Precious Metals Fund

4,462

    

242,306

  

-

 		   

-

 		   

242,306

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Assets and Liabilities
December 31, 2003

Net Assets (continued)

                      
 

Deferred Variable Annuity Contracts

  

Variable Annuity Reserve

    
 

Units

  

Value

  

Units

  

Value

  

Total

Rydex Telecommunications Fund

3,921

  

$

76,547

  

-

    

-

  

$

76,547

Rydex Titan 500 Fund

1,496

    

35,835

  

-

    

-

    

35,835

Rydex Ursa Fund

7,213

    

215,455

  

-

    

-

    

215,455

Rydex US Government Bond Fund

236,748

    

7,534,388

  

-

    

-

    

7,534,388

Rydex US Government Money Market Fund

561,489

    

14,541,766

  

-

    

-

    

14,541,766

Rydex Utilities Fund

330

    

6,890

  

-

    

-

    

6,890

Rydex Velocity 100 Fund

3,882

    

94,759

  

-

    

-

    

94,759

SteinRoe Growth Stock Fund VS (A)

1,201,457

    

39,426,117

  

247,035

    

7,350,123

    

46,776,239

SteinRoe Growth Stock Fund VS (B)

564,136

    

18,614,377

  

144,682

    

2,789,375

    

21,403,752

Templeton Developing Markets Sec Fund 2

209,350

    

1,986,798

  

12,372

    

118,208

    

2,105,006

UBS Global AM Tactical Allocation

954,633

    

7,939,629

  

484,473

    

4,323,696

    

12,263,325

Wanger Foreign Forty Fund

455,206

    

3,716,872

  

48,961

    

401,482

    

4,118,354

Wanger International Small Cap Fund

1,703,938

    

14,760,291

  

118,044

    

1,026,779

    

15,787,070

Wanger Twenty Fund

1,473,688

    

19,351,732

  

100,719

    

1,326,963

    

20,678,694

Wanger US Smaller Companies Fund

3,473,114

    

46,603,576

  

294,593

    

3,966,816

    

50,570,392
                         

Net Asset of contracts owners

 		   

$

1,358,265,000

      

$

219,909,842

  

$

1,578,174,842
                         

Retained by Keyport Life Insurance Company

 		                     

213,389
                         

Total Net Assets

 		                   

$

1,578,388,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

 

   

AIM VI Capital
Appreciation Series I

  

AIM VI
Growth Series I

  

AIM VI International Growth Series I
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

141,747

  
                         

Expenses

                        

Mortality and expense risk and administrative charges

 		   

252,436

      

30,082

      

379,661

  

Net investment income (loss)

  

$

(252,436

)

  

$

(30,082

)

  

$

(237,914

)
                         

Realized gains (losses) on investment

                        

Realized gain (loss) on sales of fund shares

 		 

$

(1,676,073

)

  

$

(472,665

)

  

$

143

  

Realized gain distributions

 		   

-

              

-

  

Realized gain (loss)

 		 

$

(1,676,073

)

  

$

(472,665

)

  

$

143

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

5,756,247

    

$

1,035,128

    

$

6,490,837

  
                         

Net increase (decrease) in net assets from operations

 		 

$

3,827,738

    

$

532,381

    

$

6,253,066

  

 

 

   

AIM VI Premier
Equity Series I

  

Alger American
Growth Portfolio

  

Alger American
Small Capitalization
Portfolio
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

65,396

    

$

-

    

$

-

  
                         

Expenses

                        

Mortality and expense risk and administrative charges

 		   

367,210

      

611,884

      

166,378

  

Net investment income (loss)

  

$

(301,814

)

  

$

(611,884

)

  

$

(166,378

)
                         

Realized gains (losses) on investment

                        

Realized gain (loss) on sales of fund shares

 		 

$

(2,144,663

)

  

$

(6,863,169

)

  

$

(2,045,821

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(2,144,663

)

  

$

(6,863,169

)

  

$

(2,045,821

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

7,051,141

    

$

19,023,828

    

$

5,699,992

  
                         

Net increase (decrease) in net assets from operations

 		 

$

4,604,664

    

$

11,548,775

    

$

3,487,793

  

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

 

   

AllianceBernstein
Global Bond
Portfolio (A)

  

AllianceBernstein
Global Bond
Portfolio (B)

  

AllianceBernstein
Growth & Income
Portfolio (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

1,175,503

    

$

321,145

    

$

41,403

  

Expenses

                        

Mortality and expense risk and administrative charges

 		   

282,020

      

85,347

      

62,242

  

Net investment income (loss)

  

$

893,483

    

$

235,798

    

$

(20,839

)
                         

Realized gains (losses) on investment

                        

Realized gain (loss) on sales of fund shares

 		 

$

145,708

    

$

74,854

    

$

(165,592

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

145,708

    

$

74,854

    

$

(165,592

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

1,109,893

    

$

304,399

    

$

1,222,226

  
                         

Net increase (decrease) in net assets from operations

 		 

$

2,149,084

    

$

615,051

    

$

1,035,795

  

 

 

   

AllianceBernstein
Growth & Income
Portfolio (B)

  

AllianceBernstein
Growth Portfolio (B)

  

AllianceBernstein
International
Portfolio (B)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

327,178

    

$

-

    

$

321

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

599,238

      

14,747

      

5,414

  

Net investment income (loss)

 		 

$

(272,060

)

  

$

(14,747

)

  

$

(5,093

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(107,577

)

  

$

(17,513

)

  

$

5,010

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(107,577

)

  

$

(17,513

)

  

$

5,010

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

10,755,541

    

$

288,964

    

$

102,393

  
                         

Net increase (decrease) in net assets from operations

 		 

$

10,375,904

    

$

256,704

    

$

102,310

  

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

 

   

AllianceBernstein
Premier
Growth Portfolio (A)

  

AllianceBernstein
Premier
Growth Portfolio (B)

  

AllianceBernstein
Real Estate
Investment Portfolio (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

20,520

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

759,301

      

467,317

      

10,857

  

Net investment income (loss)

 		 

$

(759,301

)

  

$

(467,317

)

  

$

9,663

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(8,224,952

)

  

$

(3,418,865

)

  

$

30,538

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(8,224,952

)

  

$

(3,418,865

)

  

$

30,538

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

19,067,152

    

$

9,645,899

    

$

207,039

  
                         

Net increase (decrease) in net assets from operations

 		 

$

10,082,899

    

$

5,759,717

    

$

247,240

  

 

 

   

AllianceBernstein
Technology Portfolio (B)

  

AllianceBernstein
Total Return
Portfolio (B)

  

AllianceBernstein
Worldwide
Privatization Portfolio (B)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

37,649

    

$

13,915

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

261,372

      

19,156

      

20,560

  

Net investment income (loss)

 		 

$

(261,372

)

  

$

18,493

    

$

(6,645

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(1,204,214

)

  

$

19,638

    

$

21,419

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(1,204,214

)

  

$

19,638

    

$

21,419

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

6,530,242

    

$

184,067

    

$

491,362

  
                         

Net increase (decrease) in net assets from operations

 		 

$

5,064,656

    

$

222,198

    

$

506,136

  

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

 

   

Colonial
Small Cap
Value Fund, VS (A)

  

Colonial
Small Cap
Value Fund, VS (B)

  

Colonial
Strategic Income
Fund, VS (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

19,440

    

$

40,458

    

$

5,147,833

  

Expenses

                        

Mortality and expense risk and administrative charges

 		   

98,193

      

199,852

      

1,036,503

  

Net investment income (loss)

  

$

(78,753

)

  

$

(159,394

)

  

$

4,111,330

  
                         

Realized gains (losses) on investment

                        

Realized gain (loss) on sales of fund shares

 		 

$

(82,596

)

  

$

(13,145

)

  

$

(246,439

)

Realized gain distributions

 		   

166,348

      

345,273

      

-

  

Realized gain (loss)

 		 

$

83,752

    

$

332,128

    

$

(246,439

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

2,033,264

    

$

4,039,315

    

$

7,250,696

  
                         

Net increase (decrease) in net assets from operations

 		 

$

2,038,263

    

$

4,212,049

    

$

11,115,587

  

 

 

   

Colonial
Strategic Income
Fund, VS (B)

  

Columbia
International Fund,
VS (A) 1

 

Exeter
Growth Fund

   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

3,106,072

    

$

517,740

    

$

6,338

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

574,687

      

567,521

      

936

  

Net investment income (loss)

 		 

$

2,531,385

    

$

(49,781

)

  

$

5,402

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

146,609

    

$

388,497

    

$

(3,351

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

146,609

    

$

388,497

    

$

(3,351

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

3,035,962

    

$

13,193,081

    

$

34,924

  
                         

Net increase (decrease) in net assets from operations

 		 

$

5,713,956

    

$

13,531,797

    

$

36,975

  
                         
   

1 Changed name from Colonial International Fund for Growth VS (A) effective 04/04/2003 and merged with Stein Roe Global Utilities effective 04/14/2003.

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Exeter Moderate
Growth Fund

  

Fidelity VIP
Equity Income
Fund - SC2

  

Fidelity VIP III
Dynamic Capital
Appreciation Fund-SC2

   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

4,093

    

$

377,787

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

565

      

435,882

      

11,475

  

Net investment income (loss)

 		 

$

3,528

    

$

(58,095

)

  

$

(11,475

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

759

    

$

28,801

    

$

(1,266

)

Realized gain distributions

 		   

7

      

-

      

-

  

Realized gain (loss)

 		 

$

766

    

$

28,801

    

$

(1,266

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

13,214

    

$

7,573,496

    

$

164,643

  
                         

Net increase (decrease) in net assets from operations

 		 

$

17,508

    

$

7,544,202

    

$

151,902

  

 

 

   

Fidelity VIP III
Growth Opportunities
Fund - SC2

  

Liberty All-Star
Equity Fund, VS (A)

  

Liberty All-Star
Equity Fund, VS (B)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

50,765

    

$

61,417

    

$

6,836

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

202,036

      

443,657

      

49,576

  

Net investment income (loss)

 		 

$

(151,271

)

  

$

(382,240

)

  

$

(42,740

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(38,513

)

  

$

(1,311,192

)

  

$

(115,414

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(38,513

)

  

$

(1,311,192

)

  

$

(115,414

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

3,295,190

    

$

11,750,589

    

$

1,151,140

  
                         

Net increase (decrease) in net assets from operations

 		 

$

3,105,406

    

$

10,057,157

    

$

992,986

  

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Liberty Asset
Allocation Fund, VS (A) 2

  

Liberty Asset
Allocation Fund, VS (B) 3

  

Liberty
Federal Securities
Fund, VS (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

2,431,547

    

$

1,365,031

    

$

2,704,242

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

1,062,827

      

716,108

      

891,219

  

Net investment income (loss)

 		 

$

1,368,720

    

$

648,923

    

$

1,813,023

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(3,518,507

)

  

$

74,478

    

$

420,791

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(3,518,507

)

  

$

74,478

    

$

420,791

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

14,950,740

    

$

7,346,857

    

$

(1,563,282

)
                         

Net increase (decrease) in net assets from operations

 		 

$

12,800,953

    

$

8,070,258

    

$

670,532

  

 

 

   

Liberty
Federal Securities
Fund, VS (B)

  

Liberty Growth &
Income Fund, VS (A) 4

  

Liberty Growth &
Income Fund, VS (B) 5
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

3,272,405

    

$

1,769,963

    

$

412,442

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

1,318,148

      

1,612,823

      

475,298

  

Net investment income (loss)

 		 

$

1,954,257

    

$

157,140

    

$

(62,856

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(68,154

)

  

$

(759,199

)

  

$

(41,499

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(68,154

)

  

$

(759,199

)

  

$

(41,499

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

(1,347,215

)

  

$

25,363,633

    

$

6,130,888

  
                         

Net increase (decrease) in net assets from operations

 		 

$

538,888

    

$

24,761,574

    

$

6,026,533

  
                         
 

2 Changed name from SteinRoe Balance Fund (A) effective 04/04/2003

3 Changed name from SteinRoe Balance Fund (B) effective 04/04/2003

4 Changed name from Colonial US Growth & Income Fund VS (A) effective 04/04/2003

5 Changed name from Colonial US Growth & Income Fund VS (B) effective 04/04/2003

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Liberty
Money Market
Fund, VS (A) 6

 

Liberty S&P 500
Index Fund, VS (B)

  

Liberty Select
Value Fund, VS (B)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

1,051,553

    

$

309,361

    

$

48,533

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

2,169,226

      

479,242

      

409,125

  

Net investment income (loss)

 		 

$

(1,117,673

)

  

$

(169,881

)

  

$

(360,592

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

-

    

$

(54,772

)

  

$

9,996

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

-

    

$

(54,772

)

  

$

9,996

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

-

    

$

7,538,778

    

$

6,603,845

  
                         

Net increase (decrease) in net assets from operations

 		 

$

(1,117,673

)

  

$

7,314,125

    

$

6,253,249

  

 

 

   

Liberty
Small Company
Growth Fund, VS (A) 7

  

MFS
Bond Series IC

  

MFS Emerging
Growth Series IC
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

249,809

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

91,474

      

59,133

      

201,136

  

Net investment income (loss)

 		 

$

(91,474

)

  

$

190,676

    

$

(201,136

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(163,273

)

  

$

50,365

    

$

(2,129,378

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(163,273

)

  

$

50,365

    

$

(2,129,378

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

2,489,207

    

$

82,378

    

$

5,736,067

  
                         

Net increase (decrease) in net assets from operations

 		 

$

2,234,460

    

$

323,419

    

$

3,405,553

  
     
   

6 Changed name from SteinRoe Money Market Fund effective 04/04/2003

7 Changed name from SteinRoe Small Company Growth Fund VS (A) effective 04/11/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

MFS Emerging
Growth Series SC

  

MFS Investors
Growth Stock
Series SC

  

MFS Investors
Trust Series SC

   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

53,609

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

88,729

      

193,211

      

196,009

  

Net investment income (loss)

 		 

$

(88,729

)

  

$

(193,211

)

  

$

(142,400

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(191,718

)

  

$

(17,106

)

  

$

(106,630

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(191,718

)

  

$

(17,106

)

  

$

(106,630

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

1,557,668

    

$

2,381,357

    

$

2,594,004

  
                         

Net increase (decrease) in net assets from operations

 		 

$

1,277,221

    

$

2,171,040

    

$

2,344,974

  

 

 

   

MFS New
New Discovery
Series SC

  

MFS Research
Series IC

  

Newport
Tiger Fund, VS (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

143,517

    

$

174,229

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

104,491

      

305,019

      

94,929

  

Net investment income (loss)

 		 

$

(104,491

)

  

$

(161,502

)

  

$

79,300

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss) on sales of fund shares

 		 

$

(35,772

)

  

$

(2,483,573

)

  

$

(211,922

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(35,772

)

  

$

(2,483,573

)

  

$

(211,922

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

1,855,346

    

$

7,021,958

    

$

2,421,385

  
                         

Net increase (decrease) in net assets from operations

 		 

$

1,715,083

    

$

4,376,883

    

$

2,288,763

  

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Newport
Tiger Fund, VS (B)

  

Rydex
Arktos Fund

  

Rydex Medius
Fund

   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

16,489

    

$

7,918

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

27,018

      

5,007

      

289

  

Net investment income (loss)

 		 

$

(10,529

)

  

$

2,911

    

$

(289

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

10,601

    

$

(4,972

)

  

$

7,937

  

Realized gain distributions

 		   

-

      

-

      

11,157

  

Realized gain (loss)

 		 

$

10,601

    

$

(4,972

)

  

$

19,094

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

649,444

    

$

(180,198

)

  

$

(7,224

)
                         

Net increase (decrease) in net assets from operations

 		 

$

649,516

    

$

(182,259

)

  

$

11,581

  

 

 

   

Rydex Mekros
Fund

  

Rydex
Nova Fund

  

Rydex
OTC Fund
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

22,166

    

$

-

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

2,585

      

920

      

42,430

  

Net investment income (loss)

 		 

$

19,581

    

$

(920

)

  

$

(42,430

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

176,001

    

$

10,695

    

$

(42,156

)

Realized gain distributions

 		   

23,370

      

-

      

-

  

Realized gain (loss)

 		 

$

199,371

    

$

10,695

    

$

(42,156

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

(25,882

)

  

$

26,273

    

$

977,310

  
                         

Net increase (decrease) in net assets from operations

 		 

$

193,070

    

$

36,048

    

$

892,724

  

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Rydex Precious
Metals Fund

  

Rydex
Telecommunication
Fund

 

Rydex
Titan 500
Fund

   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

1,659

      

426

      

60

  

Net investment income (loss)

 		 

$

(1,659

)

  

$

(426

)

  

$

(60

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

78,039

    

$

2,145

    

$

1,829

  

Realized gain distributions

 		   

-

      

1

      

4,691

  

Realized gain (loss)

 		 

$

78,039

    

$

2,146

    

$

6,520

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

46,579

    

$

14,079

    

$

(3,261

)
                         

Net increase (decrease) in net assets from operations

 		 

$

122,959

    

$

15,799

    

$

3,199

  

 

 

   

Rydex
Ursa Fund

  

Rydex US Gov't
Bond Fund

  

Rydex US Gov't
Money Market Fund
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

29,374

    

$

521

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

2,575

      

8,220

      

108,127

  

Net investment income (loss)

 		 

$

(2,575

)

  

$

21,154

    

$

(107,606

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(56,540

)

  

$

33,787

    

$

-

  

Realized gain distributions

 		   

-

      

59,015

      

-

  

Realized gain (loss)

 		 

$

(56,540

)

  

$

92,802

    

$

-

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

(4,400

)

  

$

84,345

    

$

-

  
                         

Net increase (decrease) in net assets from operations

 		 

$

(63,515

)

  

$

198,301

    

$

(107,606

)

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Rydex
Utilities
Fund

 

Rydex Velocity
Fund

 

SteinRoe
Growth Stock
Fund VS (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

797

    

$

5,394

    

$

182,147

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

478

      

252

      

663,619

  

Net investment income (loss)

 		 

$

319

    

$

5,142

    

$

(481,472

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

29,714

    

$

7,571

    

$

(12,694,272

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

29,714

    

$

7,571

    

$

(12,694,272

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

(3,714

)

  

$

4,160

    

$

22,349,438

  
                         

Net increase (decrease) in net assets from operations

 		 

$

26,319

    

$

16,873

    

$

9,173,694

  

 

 

   

SteinRoe
Growth Stock
Fund VS (B)

  

Templeton
Developing Markets
Securities Fund 2

  

UBS Global
AM Tactical
Allocation
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

45,965

    

$

17,826

    

$

100,141

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

305,416

      

27,059

      

174,765

  

Net investment income (loss)

 		 

$

(259,451

)

  

$

(9,233

)

  

$

(74,624

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(561,986

)

  

$

(34,985

)

  

$

(1,527,011

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(561,986

)

  

$

(34,985

)

  

$

(1,527,011

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

4,826,267

    

$

679,664

    

$

4,234,385

  
                         

Net increase (decrease) in net assets from operations

 		 

$

4,004,830

    

$

635,446

    

$

2,632,750

  

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Wanger
Foreign Forty
Fund

  

Wanger
International
Small Cap Fund

  

Wanger
Twenty Fund
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

9,226

    

$

37,232

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

48,427

      

199,842

      

232,935

  

Net investment income (loss)

 		 

$

(39,201

)

  

$

(162,610

)

  

$

(232,935

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

15,510

    

$

192,594

    

$

(4,848

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

15,510

    

$

192,594

    

$

(4,848

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

1,118,436

    

$

4,992,948

    

$

3,734,398

  
                         

Net increase (decrease) in net assets from operations

 		 

$

1,094,745

    

$

5,022,932

    

$

3,496,615

  

 

 

   

Wanger US
Smaller Companies
Fund

  

Columbia
International
Fund, VS (B) 8

 

Columbia High Yield
II Fund, VS (A) 9
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

48,717

    

$

465,911

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

615,386

      

63,660

      

106,769

  

Net investment income (loss)

 		 

$

(615,386

)

  

$

(14,943

)

  

$

359,142

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

815,741

    

$

71,254

    

$

52,641

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

815,741

    

$

71,254

    

$

52,641

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

13,978,465

    

$

1,609,982

    

$

273,705

  
                         

Net increase (decrease) in net assets from operations

 		 

$

14,178,820

    

$

1,666,293

    

$

685,488

  
     
   

8 New fund effective 04/04/2003

9 New fund added effective 04/11/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Columbia High Yield
II Fund, VS (B) 10

 

Liberty Select
Value Fund, VS (A)

 

Columbia
Real Estate
Equity Fund, VS (B) 11
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

943,351

    

$

388

    

$

34,781

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

230,503

      

-

      

20,011

  

Net investment income (loss)

 		 

$

712,848

    

$

388

    

$

14,770

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(10,812

)

  

$

-

    

$

20,603

  

Realized gain distributions

 		   

-

      

-

      

252,838

  

Realized gain (loss)

 		 

$

(10,812

)

  

$

-

    

$

273,441

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

636,512

    

$

27,927

    

$

177,641

  
                         

Net increase (decrease) in net assets from operations

 		 

$

1,338,548

    

$

28,315

    

$

465,852

  

 

 

   

Rydex Banking
Fund, VS (A)

  

Rydex Transportation
Fund, VS (A)

  

Rydex Technology
Fund, VS (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

51

    

$

-

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

54

      

5

      

141

  

Net investment income (loss)

 		 

$

(3

)

  

$

(5

)

  

$

(141

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

3,784

    

$

286

    

$

(18,783

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

3,784

    

$

286

    

$

(18,783

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

414

    

$

-

    

$

-

  
                         

Net increase (decrease) in net assets from operations

 		 

$

4,195

    

$

281

    

$

(18,924

)
     
   

10 New fund effective 04/11/2003

11 New fund effective 04/11/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Rydex Real Estate
Fund

  

Rydex Retailing
Fund

  

Liberty Newport
Japan Ops Fund (B)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

4,802

    

$

-

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

86

      

3

      

19

  

Net investment income (loss)

 		 

$

4,716

    

$

(3

)

  

$

(19

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(10,087

)

  

$

354

    

$

(1,493,226

)

Realized gain distributions

 		   

8,351

      

-

      

-

  

Realized gain (loss)

 		 

$

(1,736

)

  

$

354

    

$

(1,493,226

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

-

    

$

-

    

$

1,439,313

  
                         

Net increase (decrease) in net assets from operations

 		 

$

2,980

    

$

351

    

$

(53,932

)

 

 

   

Rydex Juno
Fund12

  

Rydex Basic
Materials Fund

  

Rydex Biotechnology
Fund
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

375

      

23

      

278

  

Net investment income (loss)

 		 

$

(375

)

  

$

(23

)

  

$

(278

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

46,130

    

$

2,262

    

$

(1,179

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

46,130

    

$

2,262

    

$

(1,179

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

1,749

    

$

263

    

$

39

  
                         

Net increase (decrease) in net assets from operations

 		 

$

47,504

    

$

2,502

    

$

(1,418

)

12 New fund effective 05/14/2003

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Rydex Energy
Services Fund

  

Rydex Internet
Fund

  

Rydex Leisure
Fund
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

125

      

190

      

1

  

Net investment income (loss)

 		 

$

(125

)

  

$

(190

)

  

$

(1

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

264

    

$

7,735

    

$

105

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

264

    

$

7,735

    

$

105

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

3,047

    

$

970

    

$

-

  
                         

Net increase (decrease) in net assets from operations

 		 

$

3,186

    

$

8,515

    

$

104

  

 

 

   

Rydex Consumer
Products Fund

  

Rydex Electronic
Fund

  

Rydex Energy
Fund
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

3

      

188

      

1

  

Net investment income (loss)

 		 

$

(3

)

  

$

(188

)

  

$

(1

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(40

)

  

$

8,310

    

$

190

  

Realized gain distributions

 		   

1

      

-

      

-

  

Realized gain (loss)

 		 

$

(39

)

  

$

8,310

    

$

190

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

145

    

$

1,090

    

$

-

  
                         

Net increase (decrease) in net assets from operations

 		 

$

103

    

$

9,212

    

$

189

  

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Rydex
Lg Cap Europe
Fund

  

Rydex
Lg Cap Japan
Fund

  

Liberty S&P 500
Index Fund, VS (A)
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

324

    

$

-

    

$

680

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

53

      

82

          

Net investment income (loss)

 		 

$

271

    

$

(82

)

  

$

680

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(2,542

)

  

$

11,252

    

$

-

  

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(2,542

)

  

$

11,252

    

$

-

  
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

(269

)

  

$

25

    

$

17,268

  
                         

Net increase (decrease) in net assets from operations

 		 

$

(2,540

)

  

$

11,195

    

$

17,948

  

 

 

   

Rydex Financial
Services Fund, VS (A)

  

Rydex Health Care
Fund, VS (A)

  

SteinRoe Global
Utilities Fund, VS (A)13
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

-

    

$

-

    

$

135,130

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

155

      

99

      

76,924

  

Net investment income (loss)

 		 

$

(155

)

  

$

(99

)

  

$

58,206

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(17,575

)

  

$

(17,953

)

  

$

(10,156,127

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(17,575

)

  

$

(17,953

)

  

$

(10,156,127

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

10,064

    

$

16,793

    

$

10,255,102

  
                         

Net increase (decrease) in net assets from operations

 		 

$

(7,666

)

  

$

(1,259

)

  

$

157,181

  
     
   

13 Fund merged into Columbia International Fund, VS (A) effective 04/14/2003

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Liberty Value
Fund, VS (A)14

  

Liberty Value
Fund, VS (B)15

  

Rydex Health Care
Fund, VS (B) 16
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

207,093

    

$

22,589

    

$

-

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

188,568

      

25,114

      

14,382

  

Net investment income (loss)

 		 

$

18,525

    

$

(2,525

)

  

$

(14,382

)
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(33,560,421

)

  

$

(2,795,133

)

  

$

(1,221,426

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(33,560,421

)

  

$

(2,795,133

)

  

$

(1,221,426

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

29,616,840

    

$

2,312,374

    

$

1,198,713

  
                         

Net increase (decrease) in net assets from operations

 		 

$

(3,925,056

)

  

$

(485,284

)

  

$

(37,095

)

 

 

   

Rydex Financial
Fund, VS (B) 17

  

Liberty
Newport Japan Ops
Fund, VS (A)18

  

Colonial Global
Equity Fund, VS (B)19
   

2003

  

2003

  

2003

Income

                        

Dividends

 		   

5,111

      

-

      

12,741

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

8,167

      

-

      

6,130

  

Net investment income (loss)

 		 

$

(3,056

)

  

$

-

    

$

6,611

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(706,769

)

  

$

(61,000

)

  

$

(3,597,148

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(706,769

)

  

$

(61,000

)

  

$

(3,597,148

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

601,404

    

$

58,667

    

$

3,579,125

  
                         

Net increase (decrease) in net assets from operations

 		 

$

(108,421

)

  

$

(2,333

)

  

$

(11,412

)
                         
   

14 Merged into Liberty Growth & Income Fund A effective 04/07/2003

15 Merged into Liberty Growth & Income Fund B effective 04/07/2003

16 Merged into Liberty Money Market A effective 03/27/2003

17 Merged into Liberty Money Market A effective 03/27/2003

18 Merged into Liberty Money Market A effective 02/20/2003

19 Merged into Columbia International Fund B effective 04/04/2003

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Operations
For the Year Ended December 31, 2003

   

Colonial International
Horizons Fund, VS (B)20

  

Colonial
High Yield Securities
Fund, VS (A)21

  

Colonial
High Yield Securities
Fund, VS (B)22
   

2003

  

2003

  

2003

Income

                        

Dividends

 		 

$

16,453

    

$

245,916

    

$

338,204

  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

14,412

      

35,436

      

52,026

  

Net investment income (loss)

 		 

$

2,041

    

$

210,480

    

$

286,178

  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(4,138,936

)

  

$

(4,036,999

)

  

$

(1,554,839

)

Realized gain distributions

 		   

-

      

-

      

-

  

Realized gain (loss)

 		 

$

(4,138,936

)

  

$

(4,036,999

)

  

$

(1,554,839

)
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

4,036,749

    

$

4,444,371

    

$

2,086,302

  
                         

Net increase (decrease) in net assets from operations

 		 

$

(100,146

)

  

$

617,852

    

$

817,641

  

 

 

   

Crabbe Huson
Real Estate Fund, VS (B)23

        
   

2003

        

Income

                        

Dividends

 		   

60,468

                  

Expenses

 		                       

Mortality and expense risk and administrative charges

 		   

6,485

                  

Net investment income (loss)

 		 

$

53,983

                  
                         

Realized gains (losses) on investment

 		                       

Realized gain (loss)

 		 

$

(61,826

)

                

Realized gain distributions

 		   

-

                  

Realized gain (loss)

 		 

$

(61,826

)

                
                         

Change in unrealized appreciation (depreciation) during the period

 		 

$

53,741

                  
                         

Net increase (decrease) in net assets from operations

 		 

$

45,898

                  
     
   

20 Merged into Columbia International Fund B effective 04/04/2003

21 Merged into Columbia International Fund A effective 04/14/2003

22 Merged into Columbia International Fund B effective 04/14/2003

23 Merged into Columbia Real Estate Equity Fund B effective 04/14/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

AIM VI Capital
Appreciation Series I

AIM VI
Growth Series I
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(252,436

)

  

$

(301,758

)

  

$

(30,082

)

  

$

(42,223

)

Realized gain (loss)

 		   

(1,676,073

)

    

(1,906,655

)

    

(472,665

)

    

(1,437,112

)

Change in unrealized appreciation (depreciation) during the period

 		   

5,756,247

      

(3,936,716

)

    

1,035,128

      

193,584

  

Net increase (decrease) in net assets from operations

  

$

3,827,738

    

$

(6,145,129

)

  

$

532,381

    

$

(1,285,751

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

681,913

    

$

1,163,199

    

$

117,749

    

$

62,031

  

Transfers between accounts, net

 		   

(544,884

)

    

(2,054,317

)

    

(51,143

)

    

(608,107

)

Transfer for contract terminations and annuity payouts

 		   

(1,996,186

)

    

(2,692,739

)

    

(350,752

)

    

(572,226

)

Net increase (decrease) in net assets from

                               

contract transactions

 		 

$

(1,859,157

)

  

$

(3,583,857

)

  

$

(284,146

)

  

$

(1,118,302

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

          

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,968,581

    

$

(9,728,986

)

  

$

248,235

    

$

(2,404,053

)
                                 

Net assets at beginning of period

    

15,193,702

      

24,922,688

      

2,002,421

      

4,406,474

  
                                 

Net assets at end of period

  

$

17,162,283

    

$

15,193,702

    

$

2,250,656

    

$

2,002,421

  

AIM VI International
Growth Series I

AIM VI Premier
Equity Series I
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(237,914

)

  

$

(184,039

)

  

$

(301,814

)

  

$

(361,964

)

Realized gain (loss)

 		   

143

      

(74,503

)

    

(2,144,663

)

    

(2,749,776

)

Change in unrealized appreciation (depreciation) during the period

 		   

6,490,837

      

(3,657,544

)

    

7,051,141

      

(8,523,558

)

Net increase (decrease) in net assets from operations

  

$

6,253,066

    

$

(3,916,086

)

  

$

4,604,664

    

$

(11,635,298

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

3,960,890

    

$

7,364,616

    

$

936,800

    

$

3,083,998

  

Transfers between accounts, net

 		   

(457,819

)

    

1,648,633

      

(1,995,739

)

    

(2,495,643

)

Transfers for contract terminations and annuity payouts

 		   

(2,549,766

)

    

(4,085,947

)

    

(2,090,505

)

    

(4,050,905

)

Net increase (decrease) in net assets from

                               

contract transactions

 		 

$

953,305

    

$

4,927,302

    

$

(3,149,444

)

  

$

(3,462,550

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

7,206,371

    

$

1,011,216

    

$

1,455,220

    

$

(15,097,848

)
                                 

Net assets at beginning of period

    

21,826,302

      

20,815,086

      

22,172,555

      

37,270,403

  
                                 

Net assets at end of period

  

$

29,032,673

    

$

21,826,302

    

$

23,627,775

    

$

22,172,555

  

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Alger American
Growth Portfolio

Alger American Small
Capitalization Portfolio
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(611,884

)

  

$

(782,038

)

  

$

(166,378

)

  

$

(191,977

)

Realized gain (loss)

 		   

(6,863,169

)

    

(16,145,323

)

    

(2,045,821

)

    

(2,699,029

)

Change in unrealized appreciation (depreciation) during the period

 		   

19,023,828

      

(6,770,023

)

    

5,699,992

      

(1,369,652

)

Net increase (decrease) in net assets from operations

  

$

11,548,775

    

$

(23,697,384

)

  

$

3,487,793

    

$

(4,260,658

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

402,311

    

$

630,301

    

$

156,531

    

$

18,384

  

Transfers between accounts, net

 		   

(478,614

)

    

(6,431,427

)

    

278,056

      

(402,366

)

Transfer for contract terminations and annuity payouts

 		   

(4,734,640

)

    

(8,343,144

)

    

(1,494,906

)

    

(1,911,899

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(4,810,943

)

  

$

(14,144,270

)

  

$

(1,060,319

)

  

$

(2,295,881

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

6,737,832

    

$

(37,841,654

)

  

$

2,427,474

    

$

(6,556,539

)
                                 

Net assets at beginning of period

    

38,240,992

      

76,082,646

      

9,855,019

      

16,411,558

  

Net assets at end of period

  

$

44,978,824

    

$

38,240,992

    

$

12,282,493

    

$

9,855,019

  

AllianceBernstein Global
Bond Portfolio (A)

AllianceBernstein Global
Bond Portfolio (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

893,483

    

$

(57,267

)

  

$

235,798

    

$

(30,516

)

Realized gain (loss)

 		   

145,708

      

27,017

      

74,854

      

37,393

  

Change in unrealized appreciation (depreciation) during the period

 		   

1,109,893

      

2,914,853

      

304,399

      

748,959

  

Net increase (decrease) in net assets from operations

  

$

2,149,084

    

$

2,884,603

    

$

615,051

    

$

755,836

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

92,895

    

$

285,945

    

$

149,847

    

$

-

  

Transfers between accounts, net

 		   

991,822

      

(212,498

)

    

(855,197

)

    

(435,608

)

Transfer for contract terminations and annuity payouts

 		   

(4,096,263

)

    

(5,108,963

)

    

-

      

-

  

Net increase (decrease) in net assets from

contract transactions

 		 

$

(3,011,546

)

  

$

(5,035,516

)

  

$

(705,350

)

  

$

(435,608

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(862,462

)

  

$

(2,150,913

)

  

$

(90,299

)

  

$

320,228

  
                                 

Net assets at beginning of period

    

20,144,892

      

22,295,805

      

5,754,708

      

5,434,480

  

Net assets at end of period

  

$

19,282,430

    

$

20,144,892

    

$

5,664,409

    

$

5,754,708

  

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

AllianceBernstein Growth &
Income Portfolio (A)

AllianceBernstein Growth &
Income Portfolio (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(20,839

)

  

$

(43,078

)

  

$

(272,060

)

  

$

(344,116

)

Realized gain (loss)

 		   

(165,592

)

    

(61,953

)

    

(107,577

)

    

415,196

  

Change in unrealized appreciation (depreciation) during the period

 		   

1,222,226

      

(1,422,938

)

    

10,755,541

      

(10,919,459

)

Net increase (decrease) in net assets from operations

  

$

1,035,795

    

$

(1,527,969

)

  

$

10,375,904

    

$

(10,848,379

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

3,828,937

    

$

9,671,756

    

$

226,616

    

$

50,453

  

Transfers between accounts, net

 		   

387,689

      

(4,997,242

)

    

2,438,359

      

5,772,731

  

Transfer for contract terminations and annuity payouts

 		   

(4,995,971

)

    

(6,294,774

)

    

(531,090

)

    

(327,694

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(779,345

)

  

$

(1,620,260

)

  

$

2,133,885

    

$

5,495,490

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

256,450

    

$

(3,148,229

)

  

$

12,509,789

    

$

(5,352,889

)
                                 

Net assets at beginning of period

    

4,042,051

      

7,190,280

      

33,473,836

      

38,826,725

  

Net assets at end of period

  

$

4,298,501

    

$

4,042,051

    

$

45,983,625

    

$

33,473,836

  

AllianceBernstein Growth
Portfolio (B)

AllianceBernstein International
Portfolio (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(14,747

)

  

$

(13,638

)

  

$

(5,093

)

  

$

(5,468

)

Realized gain (loss)

 		   

(17,513

)

    

(61,990

)

    

5,010

      

(563

)

Change in unrealized appreciation (depreciation) during the period

 		   

288,964

      

(263,900

)

    

102,393

      

(60,175

)

Net increase (decrease) in net assets from operations

  

$

256,704

    

$

(339,528

)

  

$

102,310

    

$

(66,206

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

15,762

    

$

-

  

Transfers between accounts, net

 		   

240,715

      

(28,458

)

    

25,228

      

(1,033

)

Transfer for contract terminations and annuity payouts

 		   

(86,135

)

    

(104,671

)

    

(46,914

)

    

(32,872

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

154,580

    

$

(133,129

)

  

$

(5,924

)

  

$

(33,905

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

411,284

    

$

(472,657

)

  

$

96,386

    

$

(100,111

)
                                 

Net assets at beginning of period

    

738,789

      

1,211,446

      

323,318

      

423,429

  

Net assets at end of period

  

$

1,150,073

    

$

738,789

    

$

419,704

    

$

323,318

  

 

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

AllianceBernstein Premier
Growth Portfolio (A)

AllianceBernstein Premier
Growth Portfolio (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(759,301

)

  

$

(1,039,011

)

  

$

(467,317

)

  

$

(573,716

)

Realized gain (loss)

 		   

(8,224,952

)

    

(15,060,343

)

    

(3,418,865

)

    

(4,157,543

)

Change in unrealized appreciation (depreciation) during the period

 		   

19,067,152

      

(13,300,767

)

    

9,645,899

      

(11,030,629

)

Net increase (decrease) in net assets from operations

  

$

10,082,899

    

$

(29,400,121

)

  

$

5,759,717

    

$

(15,761,888

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

1,892,431

    

$

4,975,985

    

$

188,993

    

$

33,239

  

Transfers between accounts, net

 		   

(187,863

)

    

(8,650,556

)

    

(3,285,879

)

    

(6,053,929

)

Transfer for contract terminations and annuity payouts

 		   

(10,905,635

)

    

(18,085,840

)

    

(84,788

)

    

(290,170

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(9,201,067

)

  

$

(21,760,411

)

  

$

(3,181,674

)

  

$

(6,310,860

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

881,832

    

$

(51,160,532

)

  

$

2,578,043

    

$

(22,072,748

)
                                 

Net assets at beginning of period

    

52,135,105

      

103,295,637

      

29,193,378

      

51,266,126

  

Net assets at end of period

  

$

53,016,937

    

$

52,135,105

    

$

31,771,421

    

$

29,193,378

  

AllianceBernstein Real Estate
Investment Portfolio (A)

AllianceBernstein
Technology Portfolio (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

9,663

    

$

8,871

    

$

(261,372

)

  

$

(292,784

)

Realized gain (loss)

 		   

30,538

      

31,972

      

(1,204,214

)

    

(3,510,270

)

Change in unrealized appreciation (depreciation) during the period

 		   

207,039

      

(35,120

)

    

6,530,242

      

(6,990,347

)

Net increase (decrease) in net assets from operations

  

$

247,240

    

$

5,723

    

$

5,064,656

    

$

(10,793,401

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

815

    

$

687,785

    

$

1,208,403

  

Transfers between accounts, net

 		   

(48,677

)

    

58,444

      

524,052

      

(1,650,704

)

Transfer for contract terminations and annuity payouts

 		   

(122,205

)

    

(211,078

)

    

(1,441,313

)

    

(1,845,792

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(170,882

)

  

$

(151,819

)

  

$

(229,476

)

  

$

(2,288,093

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

76,358

    

$

(146,096

)

  

$

4,835,180

    

$

(13,081,494

)
                                 

Net assets at beginning of period

    

765,275

      

911,371

      

12,562,586

      

25,644,080

  

Net assets at end of period

  

$

841,633

    

$

765,275

    

$

17,397,766

    

$

12,562,586

  

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

AllianceBernstein Total
Return Portfolio (B)

AllianceBernstein Worldwide
Privatization Portfolio (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

18,493

    

$

5,771

    

$

(6,645

)

  

$

1,516

  

Realized gain (loss)

 		   

19,638

      

(54,477

)

    

21,419

      

(3,068

)

Change in unrealized appreciation (depreciation) during the period

 		   

184,067

      

(145,504

)

    

491,362

      

(38,307

)

Net increase (decrease) in net assets from operations

  

$

222,198

    

$

(194,210

)

  

$

506,136

    

$

(39,859

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

126,175

    

$

275,594

    

$

595,775

    

$

314,171

  

Transfers between accounts, net

 		   

201,260

      

536,447

      

177,051

      

489,748

  

Transfer for contract terminations and annuity payouts

 		   

(495,906

)

    

(873,442

)

    

(389,107

)

    

(485,387

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(168,471

)

  

$

(61,401

)

  

$

383,719

    

$

318,532

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

53,727

    

$

(255,611

)

  

$

889,855

    

$

278,673

  
                                 

Net assets at beginning of period

    

1,373,388

      

1,628,999

      

961,739

      

683,066

  

Net assets at end of period

  

$

1,427,115

    

$

1,373,388

    

$

1,851,594

    

$

961,739

  

Colonial Small Cap
Value Fund, VS (A)

Colonial Small Cap
Value Fund, VS (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(78,753

)

  

$

(88,180

)

  

$

(159,394

)

  

$

(128,352

)

Realized gain (loss)

 		   

83,752

      

22,133

      

332,128

      

282,304

  

Change in unrealized appreciation (depreciation) during the period

 		   

2,033,264

      

(680,542

)

    

4,039,315

      

(1,138,754

)

Net increase (decrease) in net assets from operations

  

$

2,038,263

    

$

(746,589

)

  

$

4,212,049

    

$

(984,802

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

129,779

    

$

49,992

    

$

1,681,508

    

$

3,012,790

  

Transfers between accounts, net

 		   

(135,460

)

    

2,062,602

      

439,458

      

2,135,690

  

Transfer for contract terminations and annuity payouts

 		   

(607,380

)

    

(691,110

)

    

(1,142,932

)

    

(1,096,809

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(613,061

)

  

$

1,421,484

    

$

978,034

    

$

4,051,671

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,425,202

    

$

674,895

    

$

5,190,083

    

$

3,066,869

  
                                 

Net assets at beginning of period

    

6,214,341

      

5,539,446

      

10,627,189

      

7,560,320

  

Net assets at end of period

  

$

7,639,543

    

$

6,214,341

    

$

15,817,272

    

$

10,627,189

  

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Colonial
Strategic Income Fund, VS (A)

Colonial Strategic
Income Fund, VS (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

4,111,330

    

$

4,616,462

    

$

2,531,385

    

$

1,789,355

  

Realized gain (loss)

 		   

(246,439

)

    

(1,738,741

)

    

146,609

      

15,349

  

Change in unrealized appreciation (depreciation) during the period

 		   

7,250,696

      

2,036,299

      

3,035,962

      

(223,631

)

Net increase (decrease) in net assets from operations

  

$

11,115,587

    

$

4,914,020

    

$

5,713,956

    

$

1,581,073

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

424,051

    

$

721,602

    

$

6,739,978

    

$

8,812,236

  

Transfers between accounts, net

 		   

(120,498

)

    

(2,948,160

)

    

10,895,376

      

4,935,949

  

Transfer for contract terminations and annuity payouts

 		   

(10,119,185

)

    

(13,543,666

)

    

(5,637,968

)

    

(4,452,758

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(9,815,632

)

  

$

(15,770,224

)

  

$

11,997,386

    

$

9,295,427

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,299,955

    

$

(10,856,204

)

  

$

17,711,342

    

$

10,876,500

  
                                 

Net assets at beginning of period

    

71,164,949

      

82,021,153

      

27,419,053

      

16,542,553

  

Net assets at end of period

  

$

72,464,904

    

$

71,164,949

    

$

45,130,395

    

$

27,419,053

  

Columbia International
Fund, VS (A) 1


Exeter Growth Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(49,781

)

  

$

(289,687

)

  

$

5,402

    

$

6,785

  

Realized gain (loss)

 		   

388,497

      

(2,443,093

)

    

(3,351

)

    

23,223

  

Change in unrealized appreciation (depreciation) during the period

 		   

13,193,081

      

(1,415,808

)

    

34,924

      

(69,901

)

Net increase (decrease) in net assets from operations

  

$

13,531,797

    

$

(4,148,588

)

  

$

36,975

    

$

(39,893

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

437,903

    

$

117,823

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

19,048,338

      

(1,796,281

)

    

-

      

-

  

Transfer for contract terminations and annuity payouts

 		   

(5,399,786

)

    

(3,597,511

)

    

(352,263

)

    

-

  

Net increase (decrease) in net assets from

contract transactions

 		 

$

14,086,455

    

$

(5,275,969

)

  

$

(352,263

)

  

$

-

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

27,618,252

    

$

(9,424,557

)

  

$

(315,288

)

  

$

(39,893

)
                                 

Net assets at beginning of period

    

22,037,677

      

31,462,234

      

315,288

      

355,181

  

Net assets at end of period

  

$

49,655,929

    

$

22,037,677

    

$

-

    

$

315,288

  
                                 
   

1 Name changed from Colonial International Fund for Growth VS (A) effective 04/04/2003 and merged from SteinRoe Global Utilities effective 04/14/2003

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Exeter
Moderate Growth Fund

Fidelity VIP Equity
Income Fund - SC2
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

3,528

    

$

4,443

    

$

(58,095

)

  

$

(22,911

)

Realized gain (loss)

 		   

766

      

4,174

      

28,801

      

224,458

  

Change in unrealized appreciation (depreciation) during the period

 		   

13,214

      

(18,659

)

    

7,573,496

      

(4,352,830

)

Net increase (decrease) in net assets from operations

  

$

17,508

    

$

(10,042

)

  

$

7,544,202

    

$

(4,151,283

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

6,835,903

    

$

7,540,875

  

Transfers between accounts, net

 		   

-

      

-

      

6,233,721

      

3,553,501

  

Transfer for contract terminations and annuity payouts

 		   

(182,080

)

    

-

      

(3,436,542

)

    

(2,615,315

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(182,080

)

  

$

-

    

$

9,633,082

    

$

8,479,061

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(164,572

)

  

$

(10,042

)

  

$

17,177,284

    

$

4,327,778

  
                                 

Net assets at beginning of period

    

164,572

      

174,614

      

20,791,706

      

16,463,928

  

Net assets at end of period

  

$

-

    

$

164,572

    

$

37,968,990

    

$

20,791,706

  

Fidelity VIP III
Dynamic Capital
Appreciation Fund-SC2

Fidelity VIP III Growth
Opportunities Fund - SC2
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(11,475

)

  

$

(4,289

)

  

$

(151,271

)

  

$

(74,716

)

Realized gain (loss)

 		   

(1,266

)

    

(1,656

)

    

(38,513

)

    

(50,673

)

Change in unrealized appreciation (depreciation) during the period

 		   

164,643

      

(25,656

)

    

3,295,190

      

(2,447,132

)

Net increase (decrease) in net assets from operations

  

$

151,902

    

$

(31,601

)

  

$

3,105,406

    

$

(2,572,521

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

260,804

    

$

92,809

    

$

2,149,753

    

$

3,122,623

  

Transfers between accounts, net

 		   

341,409

      

76,366

      

2,488,545

      

1,595,924

  

Transfer for contract terminations and annuity payouts

 		   

(68,275

)

    

(33,489

)

    

(1,242,373

)

    

(1,243,478

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

533,938

    

$

135,686

    

$

3,395,925

    

$

3,475,069

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

685,840

    

$

104,085

    

$

6,501,331

    

$

902,548

  
                                 

Net assets at beginning of period

    

365,149

      

261,064

      

9,956,372

      

9,053,824

  

Net assets at end of period

  

$

1,050,989

    

$

365,149

    

$

16,457,703

    

$

9,956,372

  

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Liberty All-Star
Equity Fund, VS (A)

Liberty All-Star
Equity Fund, VS (B)

   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(382,240

)

  

$

(455,227

)

  

$

(42,740

)

  

$

(45,053

)

Realized gain (loss)

 		   

(1,311,192

)

    

(3,054,362

)

    

(115,414

)

    

(131,199

)

Change in unrealized appreciation (depreciation) during the period

 		   

11,750,589

      

(8,182,730

)

    

1,151,140

      

(902,077

)

Net increase (decrease) in net assets from operations

  

$

10,057,157

    

$

(11,692,319

)

  

$

992,986

    

$

(1,078,329

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

277,323

    

$

398,865

    

$

128,205

    

$

372,866

  

Transfers between accounts, net

 		   

1,294,096

      

(2,159,007

)

    

701,477

      

(111,911

)

Transfer for contract terminations and annuity payouts

 		   

(3,635,532

)

    

(5,046,162

)

    

(378,653

)

    

(467,827

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(2,064,113

)

  

$

(6,806,304

)

  

$

451,029

    

$

(206,872

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

7,993,044

    

$

(18,498,623

)

  

$

1,444,015

    

$

(1,285,201

)
                                 

Net assets at beginning of period

    

27,809,087

      

46,307,710

      

2,580,788

      

3,865,989

  

Net assets at end of period

  

$

35,802,131

    

$

27,809,087

    

$

4,024,803

    

$

2,580,788

  

Liberty Asset
Allocation Fund, VS (A) 2

Liberty Asset
Allocation Fund, VS (B) 3
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

1,368,720

    

$

1,940,004

    

$

648,923

    

$

635,257

  

Realized gain (loss)

 		   

(3,518,507

)

    

(7,719,818

)

    

74,478

      

(372,154

)

Change in unrealized appreciation (depreciation) during the period

 		   

14,950,740

      

(7,809,709

)

    

7,346,857

      

(6,772,522

)

Net increase (decrease) in net assets from operations

  

$

12,800,953

    

$

(13,589,523

)

  

$

8,070,258

    

$

(6,509,419

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

609,725

    

$

1,563,401

    

$

5,197,919

    

$

13,210,351

  

Transfers between accounts, net

 		   

(2,262,536

)

    

(7,235,967

)

    

55,986

      

4,406,045

  

Transfer for contract terminations and annuity payouts

 		   

(11,019,747

)

    

(17,261,034

)

    

(6,445,316

)

    

(8,510,039

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(12,672,558

)

  

$

(22,933,600

)

  

$

(1,191,411

)

  

$

9,106,357

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

128,395

    

$

(36,523,123

)

  

$

6,878,847

    

$

2,596,938

  
                                 

Net assets at beginning of period

    

76,859,833

      

113,382,956

      

45,098,815

      

42,501,877

  

Net assets at end of period

  

$

76,988,228

    

$

76,859,833

    

$

51,977,662

    

$

45,098,815

  
                                 
   

2 Name changed from SteinRoe Balance Fund (A) effective 04/04/2003

3 Name changed from SteinRoe Balance Fund (B) effective 04/04/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Liberty Federal
Securities Fund, VS (A)

Liberty Federal
Securities Fund, VS (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

1,813,023

    

$

1,572,772

    

$

1,954,257

    

$

1,154,960

  

Realized gain (loss)

 		   

420,791

      

67,774

      

(68,154

)

    

56,221

  

Change in unrealized appreciation (depreciation) during the period

 		   

(1,563,282

)

    

3,053,904

      

(1,347,215

)

    

3,689,207

  

Net increase (decrease) in net assets from operations

  

$

670,532

    

$

4,694,450

    

$

538,888

    

$

4,900,388

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

483,586

    

$

709,538

    

$

14,517,529

    

$

22,670,880

  

Transfers between accounts, net

 		   

(3,930,744

)

    

15,584,524

      

3,309,425

      

23,039,454

  

Transfer for contract terminations and annuity payouts

 		   

(10,424,738

)

    

(9,226,669

)

    

(13,490,689

)

    

(10,579,617

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(13,871,896

)

  

$

7,067,393

    

$

4,336,265

    

$

35,130,717

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(13,201,364

)

  

$

11,761,843

    

$

4,875,153

    

$

40,031,105

  
                                 

Net assets at beginning of period

    

66,778,736

      

55,016,893

      

82,428,283

      

42,397,178

  

Net assets at end of period

  

$

53,577,372

    

$

66,778,736

    

$

87,303,436

    

$

82,428,283

  

Liberty Growth &
Income Fund, VS (A) 4

Liberty Growth &
Income Fund, VS (B) 5

   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

157,140

    

$

(335,656

)

  

$

(62,856

)

  

$

(56,181

)

Realized gain (loss)

 		   

(759,199

)

    

(4,411,388

)

    

(41,499

)

    

(301,295

)

Change in unrealized appreciation (depreciation) during the period

 		   

25,363,633

      

(20,148,005

)

    

6,130,888

      

(6,299,512

)

Net increase (decrease) in net assets from operations

  

$

24,761,574

    

$

(24,895,049

)

  

$

6,026,533

    

$

(6,656,988

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

986,397

    

$

792,654

    

$

2,653,231

    

$

8,149,368

  

Transfers between accounts, net

 		   

51,477,613

      

(2,147,337

)

    

8,002,453

      

3,895,969

  

Transfer for contract terminations and annuity payouts

 		   

(14,187,884

)

    

(12,294,442

)

    

(2,776,887

)

    

(4,322,063

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

38,276,126

    

$

(13,649,125

)

  

$

7,878,797

    

$

7,723,274

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

63,037,700

    

$

(38,544,174

)

  

$

13,905,330

    

$

1,066,286

  
                                 

Net assets at beginning of period

    

71,109,631

      

109,653,805

      

23,027,405

      

21,961,119

  

Net assets at end of period

  

$

134,147,331

    

$

71,109,631

    

$

36,932,735

    

$

23,027,405

  
     
   

4 Name changed from Colonial US Growth & Income Fund VS (A) effective 04/04/2003

5 Name changed from Colonial US Growth & Income Fund VS (B) effective 04/04/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Liberty Money Market
Fund, VS (A) 6

Liberty S&P 500
Index Fund, VS (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(1,117,673

)

  

$

(235,408

)

  

$

(169,881

)

  

$

(113,134

)

Realized gain (loss)

 		   

-

      

-

      

(54,772

)

    

(1,088,230

)

Change in unrealized appreciation (depreciation) during the period

 		   

-

      

-

      

7,538,778

      

(5,254,933

)

Net increase (decrease) in net assets from operations

  

$

(1,117,673

)

  

$

(235,408

)

  

$

7,314,125

    

$

(6,456,297

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

31,224,181

    

$

78,802,000

    

$

5,147,150

    

$

7,256,478

  

Transfers between accounts, net

 		   

2,915,281

      

137,869,723

      

5,755,758

      

5,211,456

  

Transfer for contract terminations and annuity payouts

 		   

(89,578,278

)

    

(212,746,430

)

    

(3,339,683

)

    

(2,722,213

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(55,438,816

)

  

$

3,925,293

    

$

7,563,225

    

$

9,745,721

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

(4,006,058

)
                                 

Total increase (decrease) in net assets

 		 

$

(56,556,489

)

  

$

3,689,885

    

$

14,877,350

    

$

(716,634

)
                                 

Net assets at beginning of period

    

177,022,732

      

173,332,847

      

24,597,700

      

25,314,334

  

Net assets at end of period

  

$

120,466,243

    

$

177,022,732

    

$

39,475,050

    

$

24,597,700

  

Liberty Select
Value Fund, VS (B)

Liberty
Small Company
Growth Fund, VS (A) 7

   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(360,592

)

  

$

(257,130

)

  

$

(91,474

)

  

$

(103,718

)

Realized gain (loss)

 		   

9,996

      

333,062

      

(163,273

)

    

(316,983

)

Change in unrealized appreciation (depreciation) during the period

 		   

6,603,845

      

(2,822,974

)

    

2,489,207

      

(1,882,846

)

Net increase (decrease) in net assets from operations

  

$

6,253,249

    

$

(2,747,042

)

  

$

2,234,460

    

$

(2,303,547

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

4,503,181

    

$

6,823,492

    

$

148,966

    

$

77,019

  

Transfers between accounts, net

 		   

2,475,471

      

6,424,175

      

758,557

      

(47,776

)

Transfer for contract terminations and annuity payouts

 		   

(2,313,957

)

    

(2,378,714

)

    

(941,092

)

    

(900,350

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

4,664,695

    

$

10,868,953

    

$

(33,569

)

  

$

(871,107

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

(2,308,413

)

  

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

10,917,944

    

$

5,813,498

    

$

2,200,891

    

$

(3,174,654

)
                                 

Net assets at beginning of period

    

21,152,251

      

15,338,753

      

5,704,675

      

8,879,329

  

Net assets at end of period

  

$

32,070,195

    

$

21,152,251

    

$

7,905,566

    

$

5,704,675

  
     
   

6 Name changed from SteinRoe Money Market Fund effective 04/04/2003

7 Name changed from SteinRoe Small Company Growth Fund VS (A) effective 04/11/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002


MFS Bond Series IC

MFS Emerging
Growth Series IC
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

190,676

    

$

223,231

    

$

(201,136

)

  

$

(265,451

)

Realized gain (loss)

 		   

50,365

      

63,016

      

(2,129,378

)

    

(3,792,751

)

Change in unrealized appreciation (depreciation) during the period

 		   

82,378

      

36,634

      

5,736,067

      

(4,522,114

)

Net increase (decrease) in net assets from operations

  

$

323,419

    

$

322,881

    

$

3,405,553

    

$

(8,580,316

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

18,268

    

$

68,426

    

$

346,600

      

332,226

  

Transfers between accounts, net

 		   

147,985

      

(406,656

)

    

(607,382

)

    

(2,093,158)

  

Transfer for contract terminations and annuity payouts

 		   

(941,487

)

    

(1,475,514

)

    

(2,247,029

)

    

(2,723,780

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(775,234

)

  

$

(1,813,744

)

  

$

(2,507,811

)

  

$

(4,484,712

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(451,815

)

  

$

(1,490,863

)

  

$

897,742

    

$

(13,065,028

)
                                 

Net assets at beginning of period

    

4,413,263

      

5,904,126

      

13,579,722

      

26,644,750

  

Net assets at end of period

  

$

3,961,448

    

$

4,413,263

    

$

14,477,464

    

$

13,579,722

  

MFS Emerging
Growth Series SC

MFS Investors Growth
Stock Series SC
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(88,729

)

  

$

(98,558

)

  

$

(193,211

)

  

$

(157,080

)

Realized gain (loss)

 		   

(191,718

)

    

(567,765

)

    

(17,106

)

    

(196,102

)

Change in unrealized appreciation (depreciation) during the period

 		   

1,557,668

      

(2,355,741

)

    

2,381,357

      

(3,320,338

)

Net increase (decrease) in net assets from operations

  

$

1,277,221

    

$

(3,022,064

)

  

$

2,171,040

    

$

(3,673,520

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

416,606

    

$

939,526

    

$

1,407,967

    

$

2,213,564

  

Transfers between accounts, net

 		   

96,265

      

(622,053

)

    

3,352,904

      

719,742

  

Transfer for contract terminations and annuity payouts

 		   

(568,513

)

    

(782,061

)

    

(931,321

)

    

(1,411,720

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(55,642

)

  

$

(464,588

)

  

$

3,829,550

    

$

1,521,586

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,221,579

    

$

(3,486,652

)

  

$

6,000,590

    

$

(2,151,934

)
                                 

Net assets at beginning of period

    

4,743,703

      

8,230,355

      

9,070,927

      

11,222,861

  

Net assets at end of period

  

$

5,965,282

    

$

4,743,703

    

$

15,071,517

    

$

9,070,927

  

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002


MFS Investors
Trust Series SC

MFS New
Discovery Series SC
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(142,400

)

  

$

(110,498

)

  

$

(104,491

)

  

$

(82,950

)

Realized gain (loss)

 		   

(106,630

)

    

(111,853

)

    

(35,772

)

    

(58,378

)

Change in unrealized appreciation (depreciation) during the period

 		   

2,594,004

      

(2,575,459

)

    

1,855,346

      

(2,116,555

)

Net increase (decrease) in net assets from operations

  

$

2,344,974

    

$

(2,797,810

)

  

$

1,715,083

    

$

(2,257,883

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

2,434,062

    

$

2,966,681

    

$

765,198

    

$

1,624,067

  

Transfers between accounts, net

 		   

1,203,636

      

1,997,377

      

595,517

      

774,355

  

Transfer for contract terminations and annuity payouts

 		   

(1,357,132

)

    

(1,205,246

)

    

(576,474

)

    

(380,610

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

2,280,566

    

$

3,758,812

    

$

784,241

    

$

2,017,812

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

4,625,540

    

$

961,002

    

$

2,499,324

    

$

(240,071

)
                                 

Net assets at beginning of period

    

10,973,764

      

10,012,762

      

5,198,758

      

5,438,829

  

Net assets at end of period

  

$

15,599,304

    

$

10,973,764

    

$

7,698,082

    

$

5,198,758

  


MFS Research Series IC

Newport
Tiger Fund, VS (A)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(161,502

)

  

$

(327,751

)

  

$

79,300

    

$

(47,765

)

Realized gain (loss)

 		   

(2,483,573

)

    

(4,787,167

)

    

(211,922

)

    

1,451,610

  

Change in unrealized appreciation (depreciation) during the period

 		   

7,021,958

      

(3,870,199

)

    

2,421,385

      

(751,303

)

Net increase (decrease) in net assets from operations

  

$

4,376,883

    

$

(8,985,117

)

  

$

2,288,763

    

$

652,542

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

368,191

    

$

431,109

    

$

94,739

    

$

299,924

  

Transfers between accounts, net

 		   

(596,063

)

    

(3,531,415

)

    

(117,354

)

    

(3,508,775

)

Transfer for contract terminations and annuity payouts

 		   

(3,091,926

)

    

(4,098,900

)

    

(720,775

)

    

(1,570,277

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(3,319,798

)

  

$

(7,199,206

)

  

$

(743,390

)

  

$

(4,779,128)

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,057,085

    

$

(16,184,323

)

  

$

1,545,373

    

$

(4,126,586

)
                                 

Net assets at beginning of period

    

21,599,683

      

37,784,006

      

5,700,224

      

9,826,810

  

Net assets at end of period

  

$

22,656,768

    

$

21,599,683

    

$

7,245,597

    

$

5,700,224

  

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002


Newport
Tiger Fund, VS (B)

Rydex Arktos
Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(10,529

)

  

$

(3,445

)

  

$

2,911

    

$

436

  

Realized gain (loss)

 		   

10,601

)

    

44,072

      

(4,972

)

    

9,174

  

Change in unrealized appreciation (depreciation) during the period

 		   

649,444

      

(209,326

)

    

(180,198

)

    

5,575

  

Net increase (decrease) in net assets from operations

  

$

649,516

    

$

(168,699

)

  

$

(182,259

)

  

$

15,185

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

450,441

    

$

255,298

    

$

-

          

Transfers between accounts, net

 		   

506,637

      

553,691

      

3,873,737

      

130,581

  

Transfer for contract terminations and annuity payouts

 		   

(156,564

)

    

(649,536

)

    

(109,097

)

    

(3,827

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

800,514

    

$

159,453

    

$

3,764,640

    

$

126,754

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,450,030

    

$

(9,246

)

  

$

3,582,381

    

$

141,939

  
                                 

Net assets at beginning of period

    

1,015,959

      

1,025,205

      

141,939

      

-

  

Net assets at end of period

  

$

2,465,989

    

$

1,015,959

    

$

3,724,320

    

$

141,939

  

Rydex Medius
Fund

Rydex Mekros
Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(289

)

  

$

(57

)

  

$

19,581

    

$

(84

)

Realized gain (loss)

 		   

19,094

      

(7,562

)

    

199,371

      

(11,669

)

Change in unrealized appreciation (depreciation) during the period

 		   

(7,224

)

    

39

      

(25,882

)

    

(36

)

Net increase (decrease) in net assets from operations

  

$

11,581

    

$

(7,580

)

  

$

193,070

    

$

(11,789

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

119,857

      

25,460

      

184,049

      

31,820

  

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

-

      

(2,139

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

119,857

    

$

25,460

    

$

184,049

    

$

29,681

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

131,438

    

$

17,880

    

$

377,119

    

$

17,892

  
                                 

Net assets at beginning of period

    

17,880

      

-

      

17,892

      

-

  

Net assets at end of period

  

$

149,318

    

$

17,880

    

$

395,011

    

$

17,892

  

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Rydex
Nova Fund

Rydex
OTC Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(920

)

  

$

8,146

    

$

(42,430

)

  

$

(41,172

)

Realized gain (loss)

 		   

10,695

      

(64,587

)

    

(42,156

)

    

(202,405

)

Change in unrealized appreciation (depreciation) during the period

 		   

26,273

      

7,162

      

977,310

      

(1,226,935

)

Net increase (decrease) in net assets from operations

  

$

36,048

    

$

(49,279

)

  

$

892,724

    

$

(1,470,512

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

464,181

    

$

333,505

  

Transfers between accounts, net

 		   

312,896

      

104,463

      

97,654

      

37,615

  

Transfer for contract terminations and annuity payouts

 		   

-

      

(2,201

)

    

(359,693

)

    

(324,425

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

312,896

    

$

102,262

    

$

202,142

    

$

46,695

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

348,944

    

$

52,983

    

$

1,094,866

    

$

(1,423,817

)
                                 

Net assets at beginning of period

    

108,340

      

55,357

      

2,088,574

      

3,512,391

  

Net assets at end of period

  

$

457,284

    

$

108,340

    

$

3,183,440

    

$

2,088,574

  

Rydex Precious
Metals Fund

Rydex
Telecommunication
Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(1,659

)

  

$

(614

)

  

$

(426

)

  

$

(116

)

Realized gain (loss)

 		   

78,039

      

(27,377

)

    

2,146

      

(3,332

)

Change in unrealized appreciation (depreciation) during the period

 		   

46,579

      

17,134

      

14,079

      

5,588

  

Net increase (decrease) in net assets from operations

  

$

122,959

    

$

(10,857

)

  

$

15,799

    

$

2,140

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

(50,518

)

    

169,409

      

33,742

      

24,875

  

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

-

      

(9

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(50,518

)

  

$

169,409

    

$

33,742

    

$

24,866

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

72,441

    

$

158,552

    

$

49,541

    

$

27,006

  
                                 

Net assets at beginning of period

    

169,865

      

11,313

      

27,006

      

-

  

Net assets at end of period

  

$

242,306

    

$

169,865

    

$

76,547

    

$

27,006

  

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Rydex
Titan 500 Fund

Rydex
Ursa Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(60

)

  

$

(77

)

  

$

(2,575

)

  

$

(695

)

Realized gain (loss)

 		   

6,520

      

9,561

      

(56,540

)

    

56,109

  

Change in unrealized appreciation (depreciation) during the period

 		   

(3,261

)

    

(387

)

    

(4,400

)

    

(1,802

)

Net increase (decrease) in net assets from operations

  

$

3,199

    

$

9,097

    

$

(63,515

)

  

$

53,612

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

26,524

      

(1,985

)

    

124,882

      

(597,981

)

Transfer for contract terminations and annuity payouts

 		   

-

      

(1,000

)

    

(351

)

    

(3,827

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

26,524

    

$

(2,985

)

  

$

124,531

    

$

(601,808

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

29,723

    

$

6,112

    

$

61,016

    

$

(548,196

)
                                 

Net assets at beginning of period

    

6,112

      

-

      

154,439

      

702,635

  

Net assets at end of period

  

$

35,835

    

$

6,112

    

$

215,455

    

$

154,439

  

Rydex US Gov't
Bond Fund

Rydex US Gov't
Money Market Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

21,154

    

$

100

    

$

(107,606

)

  

$

(13,908

)

Realized gain (loss)

 		   

92,802

      

1,852

      

-

      

-

  

Change in unrealized appreciation (depreciation) during the period

 		   

84,345

      

-

      

-

      

-

  

Net increase (decrease) in net assets from operations

  

$

198,301

    

$

1,952

    

$

(107,606

)

  

$

(13,908

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

30,102,482

    

$

3,593,253

  

Transfers between accounts, net

 		   

7,618,266

      

(1,920

)

    

(12,384,631

)

    

(280,307

)

Transfer for contract terminations and annuity payouts

 		   

(282,211

)

    

-

      

(7,334,764

)

    

(758,936

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

7,336,055

    

$

(1,920

)

  

$

10,383,087

    

$

2,554,010

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

7,534,356

    

$

32

    

$

10,275,481

    

$

2,540,102

  
                                 

Net assets at beginning of period

    

32

      

-

      

4,266,285

      

1,726,183

  

Net assets at end of period

  

$

7,534,388

    

$

32

    

$

14,541,766

    

$

4,266,285

  

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Rydex
Utilities Fund

Rydex
Velocity Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

319

    

$

(225

)

  

$

5,142

    

$

(253

)

Realized gain (loss)

 		   

29,714

      

336

      

7,571

      

(62,492

)

Change in unrealized appreciation (depreciation) during the period

 		   

(3,714

)

    

4,476

      

4,160

      

(1,675

)

Net increase (decrease) in net assets from operations

  

$

26,319

    

$

4,587

    

$

16,873

    

$

(64,420

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

(99,542

)

    

75,526

      

59,675

      

89,059

  

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

-

      

(6,428

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(99,542

)

  

$

75,526

    

$

59,675

    

$

82,631

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(73,223

)

  

$

80,113

    

$

76,548

    

$

18,211

  
                                 

Net assets at beginning of period

    

80,113

      

-

      

18,211

      

-

  

Net assets at end of period

  

$

6,890

    

$

80,113

    

$

94,759

    

$

18,211

  

SteinRoe Growth
Stock Fund, VS (A)

SteinRoe Growth
Stock Fund, VS (B)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(481,472

)

  

$

(748,550

)

  

$

(259,451

)

  

$

(335,870

)

Realized gain (loss)

 		   

(12,694,272

)

    

(22,463,304

)

    

(561,986

)

    

(649,318

)

Change in unrealized appreciation (depreciation) during the period

 		   

22,349,438

      

(340,086

)

    

4,826,267

      

(7,773,778

)

Net increase (decrease) in net assets from operations

  

$

9,173,694

    

$

(23,551,940

)

  

$

4,004,830

    

$

(8,758,966

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

704,507

    

$

691,049

    

$

2,062,660

    

$

4,050,783

  

Transfers between accounts, net

 		   

(883,048

)

    

(7,223,065

)

    

(677,912

)

    

(705,785

)

Transfer for contract terminations and annuity payouts

 		   

(6,360,163

)

    

(9,098,916

)

    

(2,128,323

)

    

(3,244,970

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(6,538,704

)

  

$

(15,630,932

)

  

$

(743,575

)

  

$

100,028

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

2,634,990

    

$

(39,182,872

)

  

$

3,261,255

    

$

(8,658,938

)
                                 

Net assets at beginning of period

    

44,141,249

      

83,324,121

      

18,142,497

      

26,801,435

  

Net assets at end of period

  

$

46,776,239

    

$

44,141,249

    

$

21,403,752

    

$

18,142,497

  

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Templeton Developing
Markets Securities Fund 2

UBS Global AM
Tactical Allocation
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(9,233

)

  

$

(3,789

)

  

$

(74,624

)

  

$

(149,545

)

Realized gain (loss)

 		   

(34,985

)

    

(57,397

)

    

(1,527,011

)

    

(3,554,580

)

Change in unrealized appreciation (depreciation) during the period

 		   

679,664

      

41,971

      

4,234,385

      

(1,373,402

)

Net increase (decrease) in net assets from operations

  

$

635,446

    

$

(19,215

)

  

$

2,632,750

    

$

(5,077,527

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

44,566

    

$

14,076

    

$

146,093

    

$

64,423

  

Transfers between accounts, net

 		   

265,011

      

(277,269

)

    

(724,202

)

    

(4,506,911

)

Transfer for contract terminations and annuity payouts

 		   

(187,949

)

    

(138,102

)

    

(1,928,285

)

    

(2,983,190

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

121,628

    

$

(401,295

)

  

$

(2,506,394

)

  

$

(7,425,678

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

757,074

    

$

(420,510

)

  

$

126,356

    

$

(12,503,205

)
                                 

Net assets at beginning of period

    

1,347,932

      

1,768,442

      

12,136,969

      

24,640,174

  

Net assets at end of period

  

$

2,105,006

    

$

1,347,932

    

$

12,263,325

    

$

12,136,969

  

Wanger Foreign
Forty Fund

Wanger International
Small Cap Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(39,201

)

  

$

(31,128

)

  

$

(162,610

)

  

$

(138,308

)

Realized gain (loss)

 		   

15,510

      

50,629

      

192,594

      

1,138,002

  

Change in unrealized appreciation (depreciation) during the period

 		   

1,118,436

      

(322,093

)

    

4,992,948

      

(1,298,624

)

Net increase (decrease) in net assets from operations

  

$

1,094,745

    

$

(302,592

)

  

$

5,022,932

    

$

(298,930

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

311,701

    

$

863,166

    

$

2,475,056

    

$

3,219,236

  

Transfers between accounts, net

 		   

503,096

      

612,583

      

(1,150,488

)

    

2,295,426

  

Transfer for contract terminations and annuity payouts

 		   

(190,852

)

    

(551,980

)

    

(1,023,568

)

    

(1,692,225

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

623,945

    

$

923,769

    

$

301,000

    

$

3,822,437

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,718,690

    

$

621,177

    

$

5,323,932

    

$

3,523,507

  
                                 

Net assets at beginning of period

    

2,399,664

      

1,778,487

      

10,463,138

      

6,939,631

  

Net assets at end of period

  

$

4,118,354

    

$

2,399,664

    

$

15,787,070

    

$

10,463,138

  

 

 

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Wanger Twenty Fund

Wanger US
Smaller Companies Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(232,935

)

  

$

(111,816

)

  

$

(615,386

)

  

$

(351,966

)

Realized gain (loss)

 		   

(4,848

)

    

(60,814

)

    

815,741

      

(148,503

)

Change in unrealized appreciation (depreciation) during the period

 		   

3,734,398

      

(546,379

)

    

13,978,465

      

(4,577,706

)

Net increase (decrease) in net assets from operations

  

$

3,496,615

    

$

(719,009

)

  

$

14,178,820

    

$

(5,078,175

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

2,500,324

    

$

2,936,523

    

$

6,496,133

    

$

10,497,229

  

Transfers between accounts, net

 		   

6,983,333

      

1,970,261

      

6,130,216

)

    

7,465,094

  

Transfer for contract terminations and annuity payouts

 		   

(1,203,238

)

    

(676,899

)

    

(3,229,007

)

    

(3,267,541

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

8,280,419

    

$

4,229,885

    

$

9,397,342

    

$

14,694,782

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

11,777,034

    

$

3,510,876

    

$

23,576,162

    

$

9,616,607

  
                                 

Net assets at beginning of period

    

8,901,660

      

5,390,784

      

26,994,230

      

17,377,623

  

Net assets at end of period

  

$

20,678,694

    

$

8,901,660

    

$

50,570,392

    

$

26,994,230

  

Colonial Global Equity
Fund, VS (B) 8

Columbia High Yield
II Fund, VS (A) 9
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

6,611

    

$

(30,569

)

  

$

359,142

    

$

-

  

Realized gain (loss)

 		   

(3,597,148

)

    

(346,579

)

    

52,641

      

-

  

Change in unrealized appreciation (depreciation) during the period

 		   

3,579,125

      

(840,221

)

    

273,705

      

-

  

Net increase (decrease) in net assets from operations

  

$

(11,412

)

  

$

(1,217,369

)

  

$

685,488

    

$

-

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

2,460

    

$

4,291

    

$

358,808

    

$

-

  

Transfers between accounts, net

 		   

(1,525,141

)

    

(623,417

)

    

11,089,592

      

-

  

Transfer for contract terminations and annuity payouts

 		   

(36,363

)

    

(115,002

)

    

(3,533,828

)

    

-

  

Net increase (decrease) in net assets from

contract transactions

 		 

$

(1,559,044

)

  

$

(734,128

)

  

$

7,914,572

    

$

-

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

(2,855,363

)

  

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(4,425,819

)

  

$

(1,951,497

)

  

$

8,600,060

    

$

-

  
                                 

Net assets at beginning of period

    

4,425,819

      

6,377,316

      

-

      

-

  

Net assets at end of period

  

$

-

    

$

4,425,819

    

$

8,600,060

    

$

-

  
     
   

8 Merged with Columbia International Fund VS (A) effective 04/04/2003

9 Commenced on 04/11/2003 and merged from Colonial High Yield Fund VS A effective 04/14/2003

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Columbia High Yield
II Fund, VS (B) 10

Columbia International
Fund, VS (B) 11
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

712,848

    

$

-

    

$

(14,943

)

  

$

-

  

Realized gain (loss)

 		   

(10,812

)

    

-

      

71,254

      

-

  

Change in unrealized appreciation (depreciation) during the period

 		   

636,512

      

-

      

1,609,982

      

-

  

Net increase (decrease) in net assets from operations

  

$

1,338,548

    

$

-

    

$

1,666,293

    

$

-

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

3,188,058

    

$

-

    

$

75,913

    

$

-

  

Transfers between accounts, net

 		   

19,697,991

      

-

      

4,655,160

      

-

  

Transfer for contract terminations and annuity payouts

 		   

(1,718,488

)

    

-

      

(310,661

)

    

-

  

Net increase (decrease) in net assets from

contract transactions

 		 

$

21,167,561

    

$

-

    

$

4,420,412

    

$

-

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

22,506,109

    

$

-

    

$

6,086,705

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  

Net assets at end of period

  

$

22,506,109

    

$

-

    

$

6,086,705

    

$

-

  

Columbia Real Estate
Equity Fund, VS (B) 12

Liberty Newport Japan
Opportunities Fund, VS (B) 13
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

14,770

    

$

-

    

$

(19

)

  

$

(555

)

Realized gain (loss)

 		   

273,441

      

-

      

(1,493,226

)

    

(13,435

)

Change in unrealized appreciation (depreciation) during the period

 		   

177,641

      

-

      

1,439,313

      

(147,587

)

Net increase (decrease) in net assets from operations

  

$

465,852

    

$

-

    

$

(53,932

)

  

$

(161,577

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

141,609

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

1,696,739

      

-

      

(21,639

)

    

(8,925

)

Transfer for contract terminations and annuity payouts

 		   

(320,768

)

    

-

      

-

      

(1,180

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

1,517,580

    

$

-

    

$

(21,639

)

  

$

(10,105

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

(936,000

)

  

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

1,983,432

    

$

-

    

$

(1,011,571

)

  

$

(171,682

)
                                 

Net assets at beginning of period

    

-

      

-

      

1,011,571

      

1,183,253

  

Net assets at end of period

  

$

1,983,432

    

$

-

    

$

-

    

$

1,011,571

  
     
   

10 Merged with Columbia High Yield Fund VS (B) effective 04/14/2003

11 Commenced on 04/11/2003 and merged from Colonial High Yield effective 04/14/2003

12 Merged with Crabbe Huson Real Estate Fund, VS (B) effective 04/14/2003

13 Merged with Liberty Money Market Fund effective 02/20/2003

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

Liberty S&P 500 Index Fund,
VS (A)

Liberty Newport Japan
Ops Fund, VS (A) 14
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

680

    

$

640

    

$

-

    

$

-

  

Realized gain (loss)

 		   

-

              

(61,000

)

    

-

  

Change in unrealized appreciation (depreciation) during the period

 		   

17,268

      

(19,441

)

    

58,667

      

(6,417

)

Net increase (decrease) in net assets from operations

  

$

17,948

    

$

(18,801

)

  

$

(2,333

)

  

$

(6,417

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

(1

)

    

-

      

-

      

-

  

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

-

      

-

  

Net increase (decrease) in net assets from

contract transactions

 		 

$

(1

)

  

$

-

    

$

-

    

$

-

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

(39,000

)

  

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

17,947

    

$

(18,801

)

  

$

(41,333

)

  

$

(6,417

)
                                 

Net assets at beginning of period

    

64,556

      

83,357

      

41,333

      

47,750

  

Net assets at end of period

  

$

82,503

    

$

64,556

    

$

-

    

$

41,333

  

Rydex Financial
Services Fund, VS (A)

Rydex Health
Care Fund, VS (A)
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(155

)

  

$

387

    

$

(99

)

  

$

(171

)

Realized gain (loss)

 		   

(17,575

)

    

(3,533

)

    

(17,953

)

    

(12,000

)

Change in unrealized appreciation (depreciation) during the period

 		   

10,064

      

(15,859

)

    

16,793

      

(20,667

)

Net increase (decrease) in net assets from operations

  

$

(7,666

)

  

$

(19,005

)

  

$

(1,259

)

  

$

(32,838

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

4,138

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

3,092

      

(35

)

    

3,868

      

12,919

  

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

-

      

(748

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

3,092

    

$

4,103

    

$

3,868

    

$

12,171

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

(87,675

)

  

$

-

    

$

(80,500

)

  

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(92,249

)

  

$

(14,902

)

  

$

(77,891

)

  

$

(20,667

)
                                 

Net assets at beginning of period

    

92,276

      

107,178

      

83,750

      

104,417

  

Net assets at end of period

  

$

27

    

$

92,276

    

$

5,859

    

$

83,750

  
     
   

14 Merged with Liberty Money Market Fund, VS (A) effective 03/27/2003

 

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets

For the Years Ended December 31, 2003 and 2002

SteinRoe Global,
Utilities Fund, VS (A)15

Crabbe Huson Real
Estate Fund, VS (B)16
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

58,206

    

$

411,657

    

$

53,983

    

$

162,131

  

Realized gain (loss)

 		   

(10,156,127

)

    

(3,709,319

)

    

(61,826

)

    

86,176

  

Change in unrealized appreciation (depreciation) during the period

 		   

10,255,102

      

(1,327,338

)

    

53,741

      

(255,024

)

Net increase (decrease) in net assets from operations

  

$

157,181

    

$

(4,625,000

)

  

$

45,898

    

$

(6,717

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

42,564

    

$

156,318

    

$

      

$

22,995

  

Transfers between accounts, net

 		   

(21,319,328

)

    

(3,055,765

)

    

(1,590,926

)

    

(177,175

)

Transfer for contract terminations and annuity payouts

 		   

(931,890

)

    

(3,694,123

)

    

(83,569

)

    

(234,899

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(22,208,654

)

  

$

(6,593,570

)

  

$

(1,674,495

)

  

$

(389,079

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

                  

$

(2,332,970

)

        
                                 

Total increase (decrease) in net assets

 		 

$

(22,051,473

)

  

$

(11,218,570

)

  

$

(3,961,567

)

  

$

(395,796

)
                                 

Net assets at beginning of period

    

22,051,473

      

33,270,043

      

3,961,567

      

4,357,363

  

Net assets at end of period

  

$

-

    

$

22,051,473

    

$

-

    

$

3,961,567

  

Liberty Value
Fund, VS (A)17

Liberty Value
Fund, VS (B)18
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

18,525

    

$

(127,974

)

  

$

(2,525

)

  

$

(15,582

)

Realized gain (loss)

 		   

(33,560,421

)

    

(2,859,836

)

    

(2,795,133

)

    

(55,674

)

Change in unrealized appreciation (depreciation) during the period

 		   

29,616,840

      

(15,627,590

)

    

2,312,374

      

(1,911,685

)

Net increase (decrease) in net assets from operations

  

$

(3,925,056

)

  

$

(18,615,400

)

  

$

(485,284

)

  

$

(1,982,941

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

174,145

    

$

595,744

    

$

428,398

    

$

2,127,491

  

Transfers between accounts, net

 		   

(52,505,309

)

    

(1,443,204

)

    

(6,783,224

)

    

1,425,903

  

Transfer for contract terminations and annuity payouts

 		   

(2,105,551

)

    

(10,290,528

)

    

(305,323

)

    

(1,370,144

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(54,436,715

)

  

$

(11,137,988

)

  

$

(6,660,149

)

  

$

2,183,250

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(58,361,771

)

  

$

(29,753,388

)

  

$

(7,145,433

)

  

$

200,309

  
                                 

Net assets at beginning of period

    

58,361,771

      

88,115,159

      

7,145,433

      

6,945,124

  

Net assets at end of period

  

$

-

    

$

58,361,771

    

$

-

    

$

7,145,433

  
     
   

15 Merged with Columbia International Fund A effective 04/14/2003

16 Merged with Columbia Real Estate Equity Fund B effective 04/14/2003

17 Merged with Liberty Growth & Income A effective 04/07/2003

18 Merged with Liberty Growth & Income B effective 04/07/2003

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets
For the Years Ended December 31, 2003 and 2002

Rydex Financial
Services Fund, VS (B)19

Rydex Health Care
Fund, VS (B)20
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(3,056

)

  

$

(25,750

)

  

$

(14,382

)

  

$

(76,603

)

Realized gain (loss)

 		   

(706,769

)

    

112,137

      

(1,221,426

)

    

(8,071

)

Change in unrealized appreciation (depreciation) during the period

 		   

601,404

      

(505,746

)

    

1,198,713

      

(1,127,579

)

Net increase (decrease) in net assets from operations

  

$

(108,421

)

  

$

(419,359

)

  

$

(37,095

)

  

$

(1,212,253

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

99,689

    

$

1,532,505

    

$

113,968

    

$

960,884

  

Transfers between accounts, net

 		   

(2,690,854

)

    

(754,803

)

    

(4,649,342)

      

639,697

  

Transfer for contract terminations and annuity payouts

 		   

(79,234

)

    

(334,190

)

    

(163,341)

      

(599,032

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(2,670,399

)

  

$

443,512

    

$

(4,698,715)

    

$

1,001,549

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

          

$

(1,002,559

)

          

$

(915,750

)
                                 

Total increase (decrease) in net assets

 		 

$

(2,778,820

)

  

$

(978,406

)

  

$

(4,735,810

)

  

$

(1,126,454

)
                                 

Net assets at beginning of period

    

2,778,820

      

3,757,226

      

4,735,810

      

5,862,264

  

Net assets at end of period

  

$

-

    

$

2,778,820

    

$

-

    

$

4,735,810

  

Colonial International
Horizons Fund, VS (B)21

Colonial High Yield
Securities Fund, VS (A)22
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

2,041

    

$

(61,852

)

  

$

210,480

)

  

$

678,039

  

Realized gain (loss)

 		   

(4,138,936

)

    

(273,933

)

    

(4,036,999

)

    

(614,909

)

Change in unrealized appreciation (depreciation) during the period

 		   

4,036,749

      

(742,340

)

    

4,444,371

      

(532,101

)

Net increase (decrease) in net assets from operations

  

$

(100,146

)

  

$

(1,078,125)

)

  

$

617,852

    

$

(468,971

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

641

    

$

17,389

    

$

315,467

    

$

439,448

  

Transfers between accounts, net

 		   

(3,592,183

)

    

121,311

)

    

(10,432,104

)

    

2,089,336

  

Transfer for contract terminations and annuity payouts

 		   

(80,937

)

    

(403,089

)

    

(531,423

)

    

(2,779,778

)

Net increase (decrease) in net assets from

contract transactions

 		 

$

(3,672,479

)

  

$

(264,389

)

  

$

(10,648,060

)

  

$

(250,994

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

(2,634,597

)

  

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

(6,407,222

)

  

$

(1,342,514

)

  

$

(10,030,208

)

  

$

(719,965

)
                                 

Net assets at beginning of period

    

6,407,222

      

7,749,736

      

10,030,208

      

10,750,173

  

Net assets at end of period

  

$

-

    

$

6,407,222

    

$

-

    

$

10,030,208

  
     
   

19 Merged with Liberty Money Market effective 03/27/2003

20 Merged with Liberty Money Market effective 03/27/2003

21 Merged with Columbia International Fund B effective 04/04/2003

22 Merged with Columbia High Yield Fund A effective 04/14/2003

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets
For the Years Ended December 31, 2003 and 2002

     

Colonial High Yield
Securities Fund, VS (B) 23
     

2003

  

2002

Increase (decrease) in net assets from operations:

                      

Net investment income (loss)

 		       

$

286,178

    

$

894,877

  

Realized gain (loss)

 		         

(1,554,839

)

    

(101,240

)

Change in unrealized appreciation (depreciation) during the period

 		         

2,086,302

      

(1,155,457

)
                       

Net increase (decrease) in net assets from operations

        

$

817,641

    

$

(361,820

)
                       

Contract transactions:

                      

Payments received from contract owners

 		       

$

898,187

    

$

3,796,035

  

Transfers between accounts, net

 		         

(13,968,177

)

    

4,222,352

  

Transfer for contract terminations and annuity payouts

 		         

(575,583

)

    

(1,679,627

)

Net increase (decrease) in net assets from

                      

contract transactions

 		       

$

(13,645,573)

    

$

6,338,760

  
                       

Increase (decrease) in amounts retained in Variable Account A, net

                      

Total increase (decrease) in net assets

 		       

$

(12,827,932

)

  

$

5,976,940

  
                       

Net assets at beginning of period

          

12,827,932

      

6,850,992

  
                       

Net assets at end of period

        

$

-

    

$

12,827,932

  

 

Liberty Select
Value Fund, VS (A)
     

2003

  

2002

Increase (decrease) in net assets from operations:

                      

Net investment income (loss)

 		       

$

388

    

$

236

  

Realized gain (loss)

 		         

-

      

-

  

Change in unrealized appreciation (depreciation) during the period

 		         

27,927

      

(13,085

)

Net increase (decrease) in net assets from operations

        

$

28,315

    

$

(12,849

)
                       

Contract transactions:

                      

Payments received from contract owners

 		         

-

      

-

  

Transfers between accounts, net

 		         

-

          

Transfer for contract terminations and annuity payouts

 		         

-

      

-

  

Net increase (decrease) in net assets from

                      

contract transactions

 		       

$

-

    

$

-

  
                       

Increase (decrease) in amounts retained in Variable Account A, net

        

$

-

    

$

-

  
                       

Total increase (decrease) in net assets

 		       

$

28,315

    

$

(12,849

)
                       

Net assets at beginning of period

          

102,567

      

115,416

  
                       

Net assets at end of period

        

$

130,882

    

$

102,567

  
         

23 Merged with Columbia High Yield Fund A effective 04/14/2003

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets
For the Years Ended December 31, 2003 and 2002

Rydex
Basic Materials Fund

Rydex
Consumer Products Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(23

)

  

$

(85

)

  

$

(3

)

  

$

(52

)

Realized gain (loss)

 		   

2,262

      

(65,490

)

    

(39

)

    

1,804

  

Change in unrealized appreciation (depreciation) during the period

 		   

263

      

-

      

145

      

-

  

Net increase (decrease) in net assets from operations

  

$

2,502

    

$

(65,575

)

  

$

103

    

$

1,752

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

4,585

      

65,575

      

7,101

      

(1,705

)

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

-

      

(47

)
                                 

Net increase (decrease) in net assets from

    

4,585

      

65,575

      

7,101

      

(1,752

)

contract transactions

 		                         

$

-

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

7,087

    

$

-

    

$

7,204

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

7,087

    

$

-

    

$

7,204

    

$

-

  

 

Rydex
Internet Fund

Rydex
Leisure Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(190

)

  

$

(55

)

  

$

(1

)

  

$

(9

)

Realized gain (loss)

 		   

7,735

      

(4,379

)

    

105

      

344

  

Change in unrealized appreciation (depreciation) during the period

 		   

970

      

-

      

-

      

-

  
                                 

Net increase (decrease) in net assets from operations

  

$

8,515

    

$

(4,434

)

  

$

104

    

$

335

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		   

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

15,408

      

4,434

      

(104

)

    

(326

)

Transfer for contract terminations and annuity payouts

 		   

(19,912

)

    

-

      

-

      

(9

)

Net increase (decrease) in net assets from

                                

contract transactions

 		 

$

(4,504

)

  

$

4,434

    

$

(104

)

  

$

(335

)
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

4,011

    

$

-

    

$

-

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

4,011

    

$

-

    

$

-

    

$

-

  

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets
For the Years Ended December 31, 2003 and 2002

Rydex
Energy Fund

Rydex
Energy Services Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(1

)

  

$

(143

)

  

$

(125

)

  

$

(1

)

Realized gain (loss)

 		   

190

      

23,937

      

264

      

(1,186

)

Change in unrealized appreciation (depreciation) during the period

 		   

-

      

-

      

3,047

      

-

  

Net increase (decrease) in net assets from operations

  

$

189

    

$

23,794

    

$

3,186

    

$

(1,187

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

 		   

$

-

    

$

-

  

Transfers between accounts, net

 		   

(189

)

    

(23,794

)

    

28,848

      

1,187

  

Transfer for contract terminations and annuity payouts

 		   

-

      

-

 		     

-

      

-

  

Net increase (decrease) in net assets from

    

(189

)

                        

contract transactions

 		 

$

(189

)

  

$

(23,794

)

  

$

28,848

    

$

1,187

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

-

    

$

-

    

$

32,034

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

-

    

$

-

    

$

32,034

    

$

-

  

 

Rydex
Lg Cap Europe Fund

Rydex
Lg Cap Japan Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

271

    

$

(20

)

  

$

(82

)

  

$

-

  

Realized gain (loss)

 		   

(2,542

)

    

(4,710

)

    

11,252

      

(80

)

Change in unrealized appreciation (depreciation) during the period

 		   

(269

)

    

-

      

25

      

-

  

Net increase (decrease) in net assets from operations

  

$

(2,540

)

  

$

(4,730

)

  

$

11,195

    

$

(80

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

12,760

      

6,730

      

(9,425

)

    

80

  

Transfer for contract terminations and annuity payouts

 		   

-

      

(2,000

)

    

(99

)

    

-

  

Net increase (decrease) in net assets from

                                

contract transactions

 		 

$

12,760

    

$

4,730

    

$

(9,524

)

  

$

80

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

          

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

10,220

    

$

-

    

$

1,671

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

10,220

    

$

-

    

$

1,671

    

$

-

  

 

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets
For the Years Ended December 31, 2003 and 2002

Rydex
Retailing Fund

Rydex
Transportation Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(3

)

  

$

(7

)

  

$

(5

)

  

$

-

  

Realized gain (loss)

 		   

354

      

8

      

286

      

(45

)

Change in unrealized appreciation (depreciation) during the period

 		           

-

      

-

      

-

  

Net increase (decrease) in net assets from operations

  

$

351

    

$

1

    

$

281

    

$

(45

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

(351

)

    

8

      

(281

)

    

45

  

Transfer for contract terminations and annuity payouts

 		   

-

      

(9

)

    

-

      

-

  

Net increase (decrease) in net assets from

   

(351

)

    

(1

)

    

(281

)

    

45

  

contract transactions

 		                         

$

-

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

-

    

$

-

    

$

-

    

$

-

  

 

Rydex
Banking Fund

Rydex
Biotechnology Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(3

)

  

$

(14

)

  

$

(278

)

  

$

(214

)

Realized gain (loss)

 		   

3,784

      

(913

)

    

(1,179

)

    

(18,533

)

Change in unrealized appreciation (depreciation) during the period

 		   

414

      

-

      

39

      

-

  
                                 

Net increase (decrease) in net assets from operations

  

$

4,195

    

$

(927

)

  

$

(1,418

)

  

$

(18,747

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

16,896

      

927

      

10,485

      

21,718

  

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

(4,129

)

    

(2,971

)
                                 

Net increase (decrease) in net assets from

                                

contract transactions

 		 

$

16,896

    

$

927

    

$

6,356

    

$

18,747

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

21,091

    

$

-

    

$

4,938

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

21,091

    

$

-

    

$

4,938

    

$

-

  

 

 

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Statements of Changes in Net Assets
For the Years Ended December 31, 2003 and 2002

Rydex
Real Estate Fund

Rydex
Technology Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

4,716

    

$

(1

)

  

$

(141

)

  

$

(224

)

Realized gain (loss)

 		   

(1,736

)

    

(63

)

    

(18,783

)

    

10,136

  

Change in unrealized appreciation (depreciation) during the period

 		   

-

      

-

      

-

      

-

  

Net increase (decrease) in net assets from operations

  

$

2,980

    

$

(64

)

  

$

(18,924

)

  

$

9,912

  
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

(2,980

)

    

64

      

18,924

      

(9,912

)

Transfer for contract terminations and annuity payouts

 		   

-

      

-

      

-

      

-

  
                                 

Net increase (decrease) in net assets from

   

(2,980

)

    

64

      

18,924

      

(9,912

)

contract transactions

 		 

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

-

    

$

-

    

$

-

    

$

-

  

 

Rydex
Juno Fund24

Rydex
Electronics Fund
   

2003

  

2002

  

2003

  

2002

Increase (decrease) in net assets from operations:

                                

Net investment income (loss)

 		 

$

(375

)

  

$

-

    

$

(188

)

  

$

(121

)

Realized gain (loss)

 		   

46,130

      

-

      

8,310

      

(15,696

)

Change in unrealized appreciation (depreciation) during the period

 		   

1,749

      

-

      

1,090

      

-

  

Net increase (decrease) in net assets from operations

  

$

47,504

    

$

-

    

$

9,212

    

$

(15,817

)
                                 

Contract transactions:

                                

Payments received from contract owners

 		 

$

-

    

$

-

    

$

-

    

$

-

  

Transfers between accounts, net

 		   

56,804

      

-

      

(1,064

)

    

17,892

  

Transfer for contract terminations and annuity payouts

 		   

(1,520

)

    

-

      

(4,529

)

    

(2,075

)
                                 

Net increase (decrease) in net assets from

                                

contract transactions

 		 

$

55,284

    

$

-

    

$

(5,593

)

  

$

15,817

  
                                 

Increase (decrease) in amounts retained in Variable Account A, net

  

$

-

    

$

-

    

$

-

    

$

-

  
                                 

Total increase (decrease) in net assets

 		 

$

102,788

    

$

-

    

$

3,619

    

$

-

  
                                 

Net assets at beginning of period

    

-

      

-

      

-

      

-

  
                                 

Net assets at end of period

  

$

102,788

    

$

-

    

$

3,619

    

$

-

  

24 New fund effective 05/14/2003

 

 

 

 

See notes to Financial Statements.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements

December 31, 2003

 

1. Organization

Keyport Variable Account A (the "Variable Account") is a segregated investment account of Sun Life Assurance Company of Canada (U.S.) (the "Company"). The Variable Account was previously a segregated investment account of Keyport Life Insurance Co. ("Keyport"). On December 31, 2003, Keyport merged into Sun Life Assurance Company of Canada (U.S.) (the "Company"). The merger had no effect on the existing rights and benefits of the policyholders of the Variable Accounts.

As a result of the merger, the name of the variable account changed to Sun Life Assurance Company of Canada (U.S.) - Keyport Variable Account A (previously known as Keyport Life Insurance Company - Variable Account A).

The Variable Account is registered with the Securities and Exchange Commission as a Unit Investment Trust under the Investment Company Act of 1940, as amended and invests in shares of eligible funds. The Variable Account is a funding vehicle for group and individual variable annuity contracts. The Variable Account currently offers eleven variable annuity contracts: Keyport Advisor, Keyport Advisor Vista, Keyport Advisor Charter, Keyport Advisor Optima, Keyport Charter, Keyport Vista, Keyport Optima, Keyport Exeter (formerly known as Manning & Napier), SteinRoe Annuity, Rydex, and Keyport Latitude, distinguished principally by the level of expenses, surrender charges, and eligible fund options. The eleven contracts and their respective eligible fund options are as follows:

 

Keyport Advisor Variable Annuity

Keyport Advisor Vista Variable Annuity
   

Alger American Fund:

AIM Variable Insurance Funds, Inc:

Alger American Growth Portfolio

AIM VI Capital Appreciation Fund

Alger American Small Capitalization

AIM VI Growth Fund Portfolio
 

AIM VI International Growth Fund
   

MFS Variable Insurance Trust:

MFS Variable Insurance Trust:

MFS Emerging Growth Series - IC

MFS Bond Series - IC

MFS Research Series - IC

MFS Research Series - IC
 

MFS Emerging Growth Series - IC
   

SteinRoe Variable Investment Trust (SRVIT):

SteinRoe Variable Investment Trust (SRVIT):

Liberty Asset Allocation Fund, VS (A)

Liberty Asset Allocation Fund, VS (A)

Liberty Money Market Fund, VS (A)

Liberty Money Market Fund, VS (A)

Liberty Small Company Growth Fund, VS (A)

Liberty Small Company Growth Fund, VS (A)

Liberty Federal Securities Fund, VS (A)

SteinRoe Growth Stock Fund, VS (A)

SteinRoe Growth Stock Fund, VS (A)

 		 
   

Liberty Variable Investment Trust (LVIT):

Liberty Variable Investment Trust (LVIT):
 

Liberty Growth & Income Fund, VS (A)

Colonial Strategic Income Fund, VS (A)

Columbia International Fund, VS (A)

Columbia International Fund, VS (A)

Colonial Strategic Income Fund, VS (A)

Liberty All-Star Equity Fund, VS (A)

Liberty All-Star Equity Fund, VS (A)

Liberty Growth & Income Fund, VS (A)

Colonial Small Cap Value Fund, VS (A)

Newport Tiger Fund, VS (A)

Columbia High Yield Securities Fund, VS (A)
   

AllianceBernstein Variable Products Series Fund, Inc:

AllianceBernstein Variable Products Series Fund, Inc:

AllianceBernstein Global Bond Portfolio (A)

AllianceBernstein Global Bond Portfolio (A)

AllianceBernstein Premier Growth Portfolio (A)

AllianceBernstein Premier Growth Portfolio (A)
 

AllianceBernstein Growth and Income Portfolio (A)
 

AllianceBernstein Real Estate Investment

 

Portfolio (A)

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

 

1. Organization (continued)

Keyport Advisor Charter Variable Annuity

Keyport Advisor Optima Variable Annuity
   

AIM Variable Insurance Funds, Inc:

AIM Variable Insurance Funds, Inc:

AIM VI Capital Appreciation Fund

AIM VI Capital Appreciation Fund

AIM VI Premier Equity Fund

AIM VI Premier Equity Fund
 

AIM VI Growth Fund
   

SteinRoe Variable Investment Trust (SRVIT):

SteinRoe Variable Investment Trust (SRVIT):

Liberty Money Market Fund, VS (A)

Liberty Money Market Fund, VS (A)

Liberty Asset Allocation Fund, VS (A)

Liberty Asset Allocation Fund, VS (A)

Liberty Federal Securities Fund, VS (A)

Liberty Federal Securities Fund, VS (A)

SteinRoe Growth Stock Fund, VS (A)

SteinRoe Growth Stock Fund, VS (A)
   

Liberty Variable Investment Trust (LVIT):

Liberty Variable Investment Trust (LVIT):

Columbia International Fund, VS (A)

Columbia International Fund, VS (A)

Columbia International Fund, VS (B)

Columbia International Fund, VS (B)

Columbia High Yield Securities Fund, VS (A)

Columbia High Yield Securities Fund, VS (A)

Colonial Small Cap Value Fund, VS (A)

Colonial Small Cap Value Fund, VS (A)

Liberty Growth & Income Fund, VS (A)

Liberty Growth & Income Fund, VS (A)

Liberty All-Star Equity Fund, VS (A)

Liberty All-Star Equity Fund, VS (A)

Newport Tiger Fund, VS (A)

Columbia Real Estate Equity Fund, VS (B)

Colonial Strategic Income Fund, VS (A)

 		 

Columbia Real Estate Equity Fund, VS (B)

 		 
   

AllianceBernstein Variable Products Series Fund, Inc:

AllianceBernstein Variable Products Series Fund, Inc:

AllianceBernstein Global Bond Portfolio (B)

AllianceBernstein Global Bond Portfolio (B)

AllianceBernstein Technology Portfolio (B)

AllianceBernstein Technology Portfolio (B)

AllianceBernstein Premier Growth Portfolio (B)

AllianceBernstein Growth and Income
 

Portfolio (B)

AllianceBernstein Total Return Portfolio (B)
 

AllianceBernstein International Portfolio (B)

Franklin Templeton:

AllianceBernstein Growth Portfolio (B)

Templeton Developing Markets Sec Fund 2

 		 

 

Alger American Fund:

Franklin Templeton:

Alger American Growth Portfolio

Templeton Developing Markets Sec Fund 2

Alger American Small Capitalization Portfolio

 		 
 

Brinson Series Trust:
 

UBS Global AM Tactical Allocation

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

 

1. Organization (continued)

Keyport Charter Variable Annuity

Keyport Vista Variable Annuity

   

AIM Variable Insurance Funds, Inc:

AIM Variable Insurance Funds, Inc:

AIM VI Capital Appreciation Fund

AIM VI Capital Appreciation Fund

AIM VI International Growth Fund

AIM VI International Growth Fund

AIM VI Premier Equity Fund

AIM VI Premier Equity Fund
   

SteinRoe Variable Investment Trust (SRVIT):

SteinRoe Variable Investment Trust (SRVIT):

Liberty Money Market Fund, VS (A)

Liberty Money Market Fund, VS (A)

Liberty Asset Allocation Fund, VS (B)

Liberty Asset Allocation Fund, VS (B)

Liberty Federal Securities Fund, VS (B)

Liberty Federal Securities Fund, VS (B)

SteinRoe Growth Stock Fund, VS (B)

SteinRoe Growth Stock Fund, VS (B)
   

Liberty Variable Investment Trust (LVIT):

Liberty Variable Investment Trust (LVIT):

Columbia High Yield Securities Fund, VS (B)

Columbia High Yield Securities Fund, VS (B)

Colonial Small Cap Value Fund, VS (B)

Colonial Small Cap Value Fund, VS (B)

Colonial Strategic Income Fund, VS (B)

Colonial Strategic Income Fund, VS (B)

Liberty Growth & Income Fund, VS (B)

Liberty Growth & Income Fund, VS (B)

Columbia Real Estate Equity Fund, VS (B)

Columbia Real Estate Equity Fund, VS (B)

Liberty All-Star Equity Fund, VS (B)

Liberty All-Star Equity Fund, VS (B)

Liberty Newport Japan Opportunity Fund, VS (B)

Liberty Newport Japan Opportunity Fund, VS (B)

Liberty S&P 500 Index Fund, VS (B)

Liberty S&P 500 Index Fund, VS (B)

Liberty Select Value Fund, VS (B)

Liberty Select Value Fund, VS (B)

Liberty Growth & Income Fund, VS (B)

Liberty Growth & Income Fund, VS (B)

Newport Tiger Fund, VS (B)

Newport Tiger Fund, VS (B)

Liberty Money Market Fund, VS (A)

Liberty Money Market Fund, VS (A)

Wanger Foreign Forty Fund

Wanger Foreign Forty Fund

Wanger International Small Cap Fund

Wanger International Small Cap Fund

Wanger Twenty Fund

Wanger Twenty Fund

Wanger US Smaller Companies Fund

Wanger US Smaller Companies Fund
   

AllianceBernstein Variable Products Series Fund, Inc:

AllianceBernstein Variable Products Series Fund, Inc:

AllianceBernstein Growth & Income Portfolio (B)

AllianceBernstein Growth & Income Portfolio (B)

AllianceBernstein Premier Growth Portfolio (B)

AllianceBernstein Premier Growth Portfolio (B)

AllianceBernstein Technology Portfolio (B)

AllianceBernstein Technology Portfolio (B)

AllianceBernstein Worldwide Privatization Portfolio (B)

AllianceBernstein Worldwide Privatization Portfolio (B)

 

Fidelity VIP Funds:

Fidelity VIP Funds:

Fidelity VIP Equity Income Fund - SC2

Fidelity VIP Equity Income Fund - SC2

Fidelity VIP III Growth Opportunities Fund - SC2

Fidelity VIP III Growth Opportunities Fund - SC2

Fidelity VIP III Dynamic Capital Appreciation

Fidelity VIP III Dynamic Capital Appreciation

Fund - SC2

Fund - SC2

 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

1. Organization (continued)

Keyport Charter Variable Annuity (continued)

Keyport Vista Variable Annuity (continued)

   

MFS Variable Insurance Trust:

MFS Variable Insurance Trust:

MFS Emerging Growth Series - SC

MFS Emerging Growth Series - SC

MFS Investors Growth Stock Series - SC

MFS Investors Growth Stock Series - SC

MFS Investors Trust Series - SC

MFS Investors Trust Series - SC

MFS New Discovery Series - SC

MFS New Discovery Series - SC
   

Rydex Variable Trust:

Rydex Variable Trust:

Rydex OTC Fund

Rydex OTC Fund
   

Keyport Optima Variable Annuity

Keyport Optima Variable Annuity
   

AIM Variable Insurance Funds, Inc:

AllianceBernstein Variable Products Series Fund, Inc:

AIM VI Capital Appreciation Fund

AllianceBernstein Growth & Income Portfolio (B)

AIM VI International Growth Fund

AllianceBernstein Total Return Portfolio (B)

AIM VI Premier Equity Fund

AllianceBernstein International Portfolio (B)
 

AllianceBernstein Growth Portfolio (B)
 

AllianceBernstein Global Bond Portfolio (B)
 

AllianceBernstein Technology Portfolio (B)
   

SteinRoe Variable Investment Trust (SRVIT):

MFS Variable Insurance Trust:

Liberty Money Market Fund, VS (A)

MFS Emerging Growth Series - SC

Liberty Asset Allocation Fund, VS (B)

MFS Investors Growth Stock Series - SC

Liberty Federal Securities Fund, VS (B)

MFS Investors Trust Series - SC

SteinRoe Growth Stock Fund, VS (B)

 		 
   

Liberty Variable Investment Trust (LVIT):

Brinson Series Trust

Columbia High Yield Securities Fund, VS (B)

UBS Global AM Tactical Allocation

Colonial Small Cap Value Fund, VS (B)

 		 

Colonial Strategic Income Fund, VS (B)

SteinRoe Variable Investment Trust (SRVIT):

Columbia Real Estate Equity Fund, VS (B)

Liberty Money Market Fund, VS (A)

Liberty All-Star Equity Fund, VS (B)

 

Liberty Growth & Income Fund, VS (B)

 		 

Newport Tiger Fund, VS (B)

 		 

Columbia International Fund, VS (B)

 
   

Keyport Exeter Variable Annuity

  
   

Exeter Insurance Fund, Inc:

  

Exeter Moderate Growth Fund

 

Exeter Growth Fund

 		 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

 

1. Organization (continued)

Stein Roe Variable Annuity

Stein Roe Variable Annuity
   

Liberty Variable Investment Trust (LVIT):

SteinRoe Variable Investment Trust (SRVIT):

Columbia High Yield Securities Fund, VS (A)

Liberty Asset Allocation Fund, VS (A)

Colonial Small Cap Value Fund, VS (A)

SteinRoe Growth Stock Fund, VS (A)

Colonial Strategic Income Fund, VS (A)

Liberty Money Market Fund, VS (A)

Liberty Growth & Income Fund, VS (A)

Liberty Federal Securities Fund, VS (A)

Liberty All-Star Equity Fund, VS (A)

 

Newport Tiger Fund, VS (A)

 		 

Columbia International Fund, VS (A)

 		 

Wanger Foreign Forty Fund

 		 

Wanger International Small Cap Fund

 		 

Wanger Twenty Fund

 		 

Wanger US Smaller Companies Fund

 		 
   

Keyport Latitude Variable Annuity

Keyport Latitude Variable Annuity

   

AIM Variable Insurance Funds, Inc:

AllianceBernstein Variable Products Series Fund, Inc:

AIM VI Capital Appreciation Fund

AllianceBernstein Growth & Income Portfolio (B)

AIM VI International Growth Fund

AllianceBernstein Premier Growth Portfolio (B)

AIM VI Premier Equity Series I

AllianceBernstein Technology Portfolio (B)
 

AllianceBernstein Worldwide Privatization (B)
   

SteinRoe Variable Investment Trust (SRVIT):

Fidelity VIP Funds:

Liberty Money Market Fund, VS (A)

Fidelity VIP Equity Income Fund - SC2

Liberty Asset Allocation Fund, VS (B)

Fidelity VIP III Growth Opportunities Fund - SC2

Liberty Federal Securities Fund, VS (B)

Fidelity VIP III Dynamic Capital Appreciation Fund-SC2

SteinRoe Growth Stock Fund, VS (B)

 
   

Liberty Variable Investment Trust (LVIT):

MFS Variable Insurance Trust:

Columbia High Yield Securities Fund, VS (B)

MFS Emerging Growth Series - SC

Colonial Small Cap Value Fund, VS (B)

MFS Investor Growth Stock Series - SC

Colonial Strategic Income Fund, VS (B)

MFS Investor Trust Series - SC

Liberty Growth & Income Fund, VS (B)

MFS New Discovery Series - SC

Columbia Real Estate Equity Fund, VS (B)

 		 

Liberty All-Star Equity Fund, VS (B)

Rydex Variable Trust:

Liberty Newport Japan Opportunity Fund, VS (B)

Rydex OTC Fund

Liberty S&P 500 Index Fund, VS (B)

 

Liberty Select Value Fund, VS (B)

 

Liberty Growth & Income Fund, VS (B)

 		 

Newport Tiger Fund, VS (B)

 		 

Wanger Foreign Forty Fund

 		 

Wanger International Small Cap Fund

 		 

Wanger Twenty Fund

 		 

Wanger US Smaller Companies Fund

 		 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

1. Organization (continued)

Rydex Variable Annuity

Rydex Variable Trust

Rydex Nova Fund

Rydex OTC Fund

Rydex Precious Metals Fund

Rydex Ursa Fund

Rydex US Government Money Market Fund

Rydex US Government Bond Fund

Rydex Arktos Fund

Rydex Banking Fund

Rydex Basic Materials Fund

Rydex Biotechnology Fund

Rydex Consumer Products Fund

Rydex Electronics Fund

Rydex Energy Fund

Rydex Energy Services Fund

Liberty Money Market Fund

Rydex Internet Fund

Rydex Leisure Fund

Rydex Large Cap Europe Fund

Rydex Large Cap Japan Fund

Rydex Mekros Fund

Rydex Retailing Fund

Rydex Technology Fund

Rydex Telecommunications Fund

Rydex Transportation Fund

Rydex Utilities Fund

Rydex Medius Fund

Rydex Real Estate Fund

Rydex Titan 500 Fund

Rydex Velocity 100 Fund

Rydex Financial Services Fund

Rydex Health Care Fund

Rydex Juno Fund

Effective September 15, 2003 Keyport Latitude Variable Annuity and Keyport Charter Variable Annuity were closed to new sales. On April 4, 2003, the fund names of Colonial US Growth & Income, Colonial International Fund for Growth, SteinRoe Balance and SteinRoe Money Market were changed to Liberty Growth & Income, Columbia International, Liberty Asset Allocation and Liberty Money Market, respectively. Also, on April 11, 2003 SteinRoe Small Company Growth changed its name to Liberty Small Company Growth.

On February 20, 2003, Liberty Newport Japan Ops was closed and this mutual fund was merged with Liberty Money Market. On March 27, 2003, Rydex Health Care B and Rydex Financial B were closed and funds from these mutual funds were merged with Liberty Money Market. On April 4, 2003, Colonial International Horizons and Colonial Global Equity were closed and funds from these mutual funds were merged with Columbia International. On April 7, 2003, Liberty Value was closed and merged with Liberty Growth & Income. On April 14, 2003, Colonial High Yield Securities, Crabbe Huson Real Estate and SteinRoe Global Utilities were closed and funds from these mutual funds were merged with Columbia High Yield, Columbia Real Estate Equity and Columbia International, respectively.

Columbia International was added to the funds line-up on April 4, 2003. On April 11, 2003, Columbia High Yield and Columbia Real Estate Equity were added to the funds line-up.

On May 1, 2002, the fund names AIM International Equity, AIM Value, Brinson Tactical Allocation and Wanger US Small

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

1. Organization (continued)

Cap were changed to AIM International Growth, AIM Premier Equity, UBS Global AM Tactical Allocation and Wanger US Smaller Companies, respectively. Also, on January 8, 2002 and April 30, 2002, twenty-four new Rydex funds were added to the Rydex Variable Annuity.

2. Significant Accounting Policies

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported therein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the Variable Account.

Shares of the eligible funds are sold to the Variable Account at the reported net asset values. Transactions are recorded on the trade date. Income from dividends is recorded on the ex-dividend date. Realized gains and losses on sales of investments are computed on the basis of identified cost of the investments sold.

Annuity reserves are computed for contracts in the income stage according to the 1983a Individual Annuity Mortality Table. The assumed investment rate is either 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 Company.

The net assets retained by the Company represent seed money shares invested in certain sub-accounts required to commence operations. The seed money is stated at market value (shares multiplied by net asset value per share).

The operations of the Variable Account are included in the federal income tax return of the Company, which is taxed as a Life Insurance Company under the provisions of the Internal Revenue Code. The Company does not anticipate any tax liability resulting from the operations of the Variable Account. Therefore, a provision for income taxes has not been charged against the Variable Account.

3. Expenses

Keyport Advisor, Keyport Advisor Charter, Keyport Advisor Optima, Keyport Charter, Keyport Optima, and Keyport Latitude Variable Annuity

There are no deductions made from purchase payments for sales charges at the time of purchase. In the event of a contract termination, a contingent deferred sales charge, based on a graded table of charges, is deducted. An annual contract maintenance charge of $36 to cover the cost of contract administration is deducted from each contractholder's account on the contract anniversary date. Daily deductions are made from each Sub-Account for assumption of mortality and expense risk at an effective annual rate of 1.25% of contract value. A daily deduction is also made for distribution costs incurred by the Company at an effective annual rate of 0.15% of contract value. For the contact series Keyport Advisor Employee, the effective annual rate for daily deductions for the assumption of mortality and expense risk is 0.35%; no other charges apply.

Optional riders are available for Keyport Advisor Charter and Optima only. The deduction is a yearly charge of 0.35% for a guaranteed income benefit rider, 0.05% for an enhanced death benefit (if purchased with income rider) and 0.10% for an enhanced death benefit (if purchased without the income rider).

Keyport Advisor Vista and Keyport Vista Variable Annuity

There are no deductions made from purchase payments for sales charges at the time of purchase. There are also no contingent deferred sales charges or distribution charges. Daily deductions are made from each Sub-Account for administrative charges incurred by the Company at an effective annual rate of 0.15% of contract value. A daily deduction is also made from each sub-account for assumption of mortality and expense risk at an effective annual rate of 1.25% of contract value.

Keyport Exeter Variable Annuity

There are no deductions made from purchase payments for sales charges at the time of purchase. There are also no contingent deferred sales charges or distribution charges. An annual contract maintenance charge of $35 to cover the cost of contract administration is deducted from each contractholder's account on the contract anniversary date. Daily deductions are made from each Sub-Account for assumption of mortality and expense risk at an effective annual rate 0.35% of contract value.

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

3. Expenses (continued)

Stein Roe Variable Annuity

There are no deductions made from purchase payments for sales charges at the time of purchase. There are also no contingent deferred sales charges or distribution charges. Daily deductions are made from each Sub-Account for assumption of mortality and expense risk at an effective annual rate of 0.65% of contract value.

Rydex Variable Annuity

There are no deductions made from purchase payments for sales charges at the time of purchase. There are also no contingent deferred sales charges or distribution charges. Daily deductions are made from each Sub-Account for assumption of mortality and expense risk at an effective annual rate of 0.90% of contract value.

4. Affiliated Company Transactions

The Company provides administrative services necessary for the operation of the Variable Account. The Company has absorbed all organizational expenses including the fees of registering the Variable Account and its contracts for distribution under federal and state securities laws. Clarendon Insurance Agency, Inc. ("Clarendon"), a wholly owned subsidiary of the Company, is the principal underwriter for SRVIT and LVIT. On December 31, 2003, Keyport Financial Service Corp. (KFSC), (former principal underwriter for SRVIT and LVIT and a wholly owned subsidiary of Keyport), merged into Clarendon. Clarendon is the surviving entity. The investment advisors' compensation is based upon the fair value of the mutual funds.

 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

5. Unit Values

A summary of the accumulation unit values at December 31, 2003, 2002 and 2001, the accumulation units and dollar value, the investment income ratios, the expense ratios (excluding expenses of the underlying funds) and the total return for the years ended December 31, 2003, 2002 and 2001 are as follows:

 

At December 31

  

For the year ended December 31
             

Investment

        
     

Unit Fair Value

  

Net

  

Income

  

Expense Ratio 2

  

Total Return 3
 

Units

  

lowest to highest

  

Assets 4

  

Ratio 1

  

lowest to highest

  

lowest to highest
                                 

AIM VI Capital Appreciation Series I

                                

December 31, 2003

1,708,618

  

$ 10.019

to

$ 10.186

  

$ 17,162,283

  

0.00%

  

1.24%

to

1.39%

  

27.73%

to

27.92%

December 31, 2002

1,932,189

  

7.843

to

7.963

  

15,193,702

  

0.00%

  

1.24%

to

1.39%

  

-25.40%

to

-25.29%

December 31, 2001

2,364,054

  

10.514

to

10.658

  

24,922,688

  

0.00%

  

1.24%

to

1.39%

  

-24.35%

to

-24.23%
                                   

AIM VI Growth Series I

                                  

December 31, 2003

316,477

  

7.098

to

7.147

  

2,250,656

  

0.00%

  

1.24%

to

1.39%

  

29.43%

to

29.62%

December 31, 2002

364,564

  

5.484

to

5.514

  

2,002,421

  

0.00%

  

1.24%

to

1.39%

  

-31.93%

to

-31.82%

December 31, 2001

546,226

  

8.056

to

8.088

  

4,406,474

  

0.20%

  

1.24%

to

1.39%

  

-34.80%

to

-34.71%
                                   

AIM VI International Growth Fund Series I

                                  

December 31, 2003

3,370,876

  

6.481

to

8.855

  

29,032,673

  

0.58%

  

1.24%

to

1.39%

  

27.28%

to

27.47%

December 31, 2002

3,255,872

  

5.085

to

6.957

  

21,826,302

  

0.63%

  

1.24%

to

1.39%

  

-16.84%

to

-16.72%

December 31, 2001

2,600,301

  

6.105

to

8.366

  

20,815,086

  

0.29%

  

1.24%

to

1.39%

  

-24.60%

to

-24.48%
                                   

AIM VI Premier Equity Fund Series I

                                  

December 31, 2003

3,400,640

  

6.900

to

8.106

  

23,627,775

  

0.29%

  

1.24%

to

1.39%

  

23.35%

to

23.54%

December 31, 2002

3,936,931

  

5.594

to

6.571

  

22,172,555

  

0.31%

  

1.24%

to

1.39%

  

-31.22%

to

-31.12%

December 31, 2001

4,551,768

  

8.133

to

9.555

  

37,270,403

  

0.13%

  

1.24%

to

1.39%

  

-13.78%

to

-13.65%
                                   

Alger American Growth Portfolio

                                  

December 31, 2003

2,950,057

  

15.224

to

16.087

  

44,978,824

  

0.00%

  

0.35%

to

1.39%

  

33.30%

to

34.69%

December 31, 2002

3,343,221

  

11.421

to

11.944

  

38,240,992

  

0.04%

  

0.35%

to

1.39%

  

-33.92%

to

-33.23%

December 31, 2001

4,395,475

  

17.283

to

21.054

  

76,082,646

  

0.24%

  

0.35%

to

1.39%

  

-13.04%

to

5.60%
                                   

Alger American Small Capitalization Portfolio

                                  

December 31, 2003

1,342,657

  

9.145

to

10.292

  

12,282,493

  

0.00%

  

0.35%

to

1.39%

  

40.38%

to

41.85%

December 31, 2002

1,512,410

  

6.514

to

7.256

  

9,855,019

  

0.00%

  

0.35%

to

1.39%

  

-27.25%

to

-26.48%

December 31, 2001

1,832,649

  

8.954

to

12.488

  

16,411,558

  

0.05%

  

0.35%

to

1.39%

  

-30.49%

to

-3.36%
                                   

AllianceBernstein Global Bond Portfolio (A)

                                  

December 31, 2003

1,490,814

  

12.892

to

13.782

  

19,282,430

  

5.99%

  

0.35%

to

1.39%

  

11.70%

to

12.87%

December 31, 2002

1,739,794

  

11.542

to

12.211

  

20,144,892

  

1.15%

  

0.35%

to

1.39%

  

0.00%

to

16.51%

December 31, 2001

2,220,556

  

10.010

to

10.481

  

22,295,805

  

0.00%

  

0.35%

to

1.39%

  

-1.66%

to

-0.54%
                                   

AllianceBernstein Global Bond Portfolio (B)

                                  

December 31, 2003

445,194

  

12.696

to

12.782

  

5,664,409

  

5.64%

  

1.24%

to

1.39%

  

11.52%

to

11.69%

December 31, 2002

504,684

  

11.384

to

11.444

  

5,754,708

  

0.94%

  

1.24%

to

1.39%

  

14.98%

to

15.15%

December 31, 2001

548,236

  

9.901

to

9.938

  

5,434,480

  

0.00%

  

1.24%

to

1.39%

  

-1.93%

to

-1.78%
                                   

AllianceBernstein Growth and Income Portfolio (A)

                                  

December 31, 2003

321,761

  

13.359

to

13.359

  

4,298,501

  

1.04%

  

1.39%

to

1.39%

  

30.68%

to

30.68%

December 31, 2002

395,376

  

10.223

to

10.223

  

4,042,051

  

0.64%

  

1.39%

to

1.39%

  

-23.13%

to

-23.13%

December 31, 2001

540,647

  

13.299

to

13.299

  

7,190,280

  

0.60%

  

1.39%

to

1.39%

  

-1.04%

to

-1.04%
                                   

AllianceBernstein Growth and Income Portfolio (B)

                                  

December 31, 2003

4,350,967

  

10.100

to

10.639

  

45,983,625

  

0.85%

  

1.24%

to

1.39%

  

30.36%

to

30.56%

December 31, 2002

4,128,896

  

7.748

to

8.149

  

33,473,836

  

0.57%

  

1.24%

to

1.39%

  

-24.89%

to

-23.23%

December 31, 2001

3,671,104

  

10.107

to

10.614

  

38,826,725

  

0.56%

  

1.24%

to

1.39%

  

-1.24%

to

-1.09%
                                   

AllianceBernstein Growth Portfolio (B)

                                  

December 31, 2003

116,675

  

9.838

to

9.871

  

1,150,073

  

0.00%

  

1.24%

to

1.39%

  

32.84%

to

33.04%

December 31, 2002

99,651

  

7.406

to

7.419

  

738,789

  

0.00%

  

1.24%

to

1.39%

  

-29.26%

to

-29.15%

December 31, 2001

115,702

  

10.469

to

10.472

  

1,211,446

  

0.00%

  

1.24%

to

1.39%

  

4.69%

to

4.72%
                                   

AllianceBernstein International Portfolio (B)

                                  

December 31, 2003

37,779

  

11.100

to

11.136

  

419,704

  

0.09%

  

1.24%

to

1.39%

  

29.30%

to

29.50%

December 31, 2002

37,644

  

8.584

to

8.600

  

323,318

  

0.00%

  

1.24%

to

1.39%

  

-16.67%

to

-16.54%

December 31, 2001

41,102

  

10.301

to

10.304

  

423,429

  

0.00%

  

1.24%

to

1.39%

  

3.01%

to

3.04%
                                   

AllianceBernstein Premier Growth Portfolio (A)

                                  

December 31, 2003

3,707,808

  

8.922

to

14.703

  

53,016,937

  

0.00%

  

0.35%

to

1.39%

  

21.96%

to

23.24%

December 31, 2002

4,445,805

  

7.316

to

11.930

  

52,135,105

  

0.00%

  

0.35%

to

1.39%

  

-31.60%

to

-30.89%

December 31, 2001

6,028,392

  

10.696

to

22.946

  

103,295,637

  

0.00%

  

0.35%

to

1.39%

  

-18.36%

to

8.46%
                                   

AllianceBernstein Premier Growth Portfolio (B)

                                  

December 31, 2003

4,980,175

  

6.300

to

6.472

  

31,771,421

  

0.00%

  

1.24%

to

1.39%

  

21.66%

to

21.85%

December 31, 2002

5,567,625

  

5.178

to

6.518

  

29,193,378

  

0.00%

  

1.24%

to

1.39%

  

-31.80%

to

-28.71%

December 31, 2001

6,668,554

  

7.593

to

9.144

  

51,266,126

  

0.00%

  

1.24%

to

1.39%

  

-18.55%

to

-18.43%

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

5. Unit Values (continued)

 

At December 31

  

For the year ended December 31
             

Investment

        
     

Unit Fair Value

  

Net

  

Income

  

Expense Ratio 2

  

Total Return 3
 

Units

  

lowest to highest

  

Assets 4

  

Ratio 1

  

lowest to highest

  

lowest to highest
                                 

AllianceBernstein Real Estate Investment Portfolio (A)

 		                               

December 31, 2003

52,554

  

$ 16.015

to

$ 16.015

  

$ 841,633

  

2.65%

  

1.39%

to

1.39%

  

37.38%

to

37.38%

December 31, 2002

65,646

  

11.658

to

11.658

  

765,275

  

2.45%

  

1.39%

to

1.39%

  

1.18%

to

1.18%

December 31, 2001

79,104

  

11.521

to

11.521

  

911,371

  

3.59%

  

1.39%

to

1.39%

  

9.26%

to

9.26%
                                   

AllianceBernstein Technology Portfolio (B)

 		                                 

December 31, 2003

2,522,678

  

6.541

to

7.020

  

17,397,766

  

0.00%

  

1.24%

to

1.39%

  

41.81%

to

42.02%

December 31, 2002

2,583,241

  

4.613

to

17.682

  

12,562,586

  

0.00%

  

1.24%

to

1.39%

  

-42.61%

to

-42.53%

December 31, 2001

3,026,025

  

8.038

to

17.682

  

25,644,080

  

0.00%

  

1.24%

to

1.39%

  

-26.49%

to

-26.38%
                                   

AllianceBernstein Total Return Portfolio (B)

 		                                 

December 31, 2003

137,958

  

10.331

to

10.365

  

1,427,115

  

2.69%

  

1.24%

to

1.39%

  

17.14%

to

17.32%

December 31, 2002

155,596

  

8.819

to

8.835

  

1,373,388

  

1.84%

  

1.24%

to

1.39%

  

-12.04%

to

-11.90%

December 31, 2001

162,454

  

10.026

to

10.029

  

1,628,999

  

0.00%

  

1.24%

to

1.39%

  

0.26%

to

0.29%
                                   

AllianceBernstein Worldwide Privatization Portfolio (B)

 		                                 

December 31, 2003

205,744

  

8.991

to

9.039

  

1,851,594

  

1.06%

  

1.24%

to

1.39%

  

41.10%

to

41.31%

December 31, 2002

150,875

  

6.372

to

6.397

  

961,739

  

1.71%

  

1.24%

to

1.39%

  

-5.58%

to

-5.44%

December 31, 2001

101,196

  

6.749

to

6.765

  

683,066

  

0.16%

  

1.24%

to

1.39%

  

-18.43%

to

-18.31%
                                   

Colonial Small Cap Value Fund, VS (A)

 		                                 

December 31, 2003

527,621

  

14.454

to

14.554

  

7,639,543

  

0.31%

  

0.65%

to

1.39%

  

37.52%

to

37.72%

December 31, 2002

590,439

  

10.511

to

10.568

  

6,214,341

  

0.20%

  

0.65%

to

1.39%

  

-7.50%

to

-7.37%

December 31, 2001

486,886

  

11.364

to

13.043

  

5,539,446

  

0.32%

  

0.65%

to

1.39%

  

5.36%

to

7.94%
                                   

Colonial Small Cap Value Fund, VS (B)

 		                                 

December 31, 2003

1,094,507

  

14.442

to

14.541

  

15,817,272

  

0.33%

  

1.24%

to

1.39%

  

37.42%

to

37.63%

December 31, 2002

1,010,552

  

10.509

to

10.566

  

10,627,189

  

0.21%

  

1.24%

to

1.39%

  

-7.44%

to

-7.30%

December 31, 2001

665,467

  

11.354

to

11.398

  

7,560,320

  

0.37%

  

1.24%

to

1.39%

  

7.69%

to

7.85%
                                   

Colonial Strategic Income Fund, VS (A)

 		                                 

December 31, 2003

4,024,963

  

12.882

to

19.772

  

72,464,904

  

7.16%

  

0.35%

to

1.39%

  

16.77%

to

17.99%

December 31, 2002

4,616,119

  

11.032

to

16.758

  

71,164,949

  

7.55%

  

0.35%

to

1.39%

  

7.03%

to

8.15%

December 31, 2001

5,686,325

  

10.278

to

15.495

  

82,021,153

  

8.11%

  

0.35%

to

1.39%

  

2.35%

to

3.42%
                                   

Colonial Strategic Income Fund, VS (B)

 		                                 

December 31, 2003

2,566,703

  

12.790

to

18.096

  

45,130,395

  

8.14%

  

1.24%

to

1.39%

  

16.66%

to

16.84%

December 31, 2002

1,821,568

  

10.964

to

15.488

  

27,419,053

  

9.61%

  

1.24%

to

1.39%

  

6.71%

to

6.87%

December 31, 2001

1,171,866

  

10.274

to

14.493

  

16,542,553

  

13.82%

  

1.24%

to

1.39%

  

2.22%

to

2.37%
                                   

Columbia International Fund, VS (A)

 		                                 

December 31, 2003

4,832,046

  

10.221

to

13.597

  

49,655,929

  

1.31%

  

0.35%

to

1.39%

  

33.67%

to

35.97%

December 31, 2002

2,867,881

  

7.646

to

8.583

  

22,037,677

  

0.33%

  

0.35%

to

1.39%

  

-14.55%

to

-13.66%

December 31, 2001

3,498,902

  

8.948

to

9.941

  

31,462,234

  

0.00%

  

0.35%

to

1.39%

  

-25.41%

to

-24.62%
                                   

Exeter Growth Fund

 		                                 

December 31, 2003

-

  

17.420

to

17.420

  

-

  

2.39%

  

0.35%

to

0.35%

  

14.73%

to

14.73%

December 31, 2002

20,766

  

15.183

to

15.183

  

315,288

  

2.42%

  

0.35%

to

0.35%

  

-11.22%

to

-11.22%

December 31, 2001

20,768

  

17.103

to

17.103

  

355,181

  

2.45%

  

0.35%

to

0.35%

  

4.97%

to

4.97%
                                   

Exeter Moderate Growth Fund

 		                                 

December 31, 2003

-

  

15.641

to

15.641

  

-

  

2.61%

  

0.35%

to

0.35%

  

13.92%

to

13.92%

December 31, 2002

11,986

  

13.730

to

13.730

  

164,572

  

3.03%

  

0.35%

to

0.35%

  

-5.73%

to

-5.73%

December 31, 2001

11,989

  

14.565

to

14.565

  

174,614

  

2.24%

  

0.35%

to

0.35%

  

3.05%

to

3.05%
                                   

Fidelity VIP Equity Income Fund - SC2

 		                                 

December 31, 2003

3,601,472

  

10.537

to

10.593

  

37,968,990

  

1.37%

  

1.24%

to

1.39%

  

28.23%

to

28.43%

December 31, 2002

2,529,381

  

8.217

to

8.248

  

20,791,706

  

1.37%

  

1.24%

to

1.39%

  

-18.30%

to

-18.17%

December 31, 2001

1,636,586

  

10.057

to

10.080

  

16,463,928

  

0.84%

  

1.24%

to

1.39%

  

-6.54%

to

-6.40%
                                   

Fidelity VIP III Dynamic Capital Appreciation Fund - SC2

 		                                 

December 31, 2003

100,593

  

9.515

to

10.487

  

1,050,989

  

0.00%

  

1.24%

to

1.39%

  

23.19%

to

23.37%

December 31, 2002

43,247

  

7.712

to

8.513

  

365,149

  

0.21%

  

1.24%

to

1.39%

  

-8.83%

to

-8.69%

December 31, 2001

28,365

  

8.447

to

9.337

  

261,064

  

0.00%

  

1.24%

to

1.39%

  

-15.53%

to

-6.63%
                                   

Fidelity VIP III Growth Opportunities Fund - SC2

 		                                 

December 31, 2003

2,389,304

  

6.885

to

6.922

  

16,457,703

  

0.40%

  

1.24%

to

1.39%

  

27.62%

to

27.81%

December 31, 2002

1,844,676

  

5.395

to

5.416

  

9,956,372

  

0.72%

  

1.24%

to

1.39%

  

-23.09%

to

-22.97%

December 31, 2001

1,290,336

  

7.015

to

7.031

  

9,053,824

  

0.23%

  

1.24%

to

1.39%

  

-15.83%

to

-15.70%
                                   

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

5. Unit Values (continued)

 

At December 31

  

For the year ended December 31
             

Investment

        
     

Unit Fair Value

  

Net

  

Income

  

Expense Ratio 2

  

Total Return 3
 

Units

  

lowest to highest

  

Assets 4

  

Ratio 1

  

lowest to highest

  

lowest to highest
                                 

Liberty All-Star Equity Fund, VS (A)

                                

December 31, 2003

3,110,823

  

$ 10.501

to

$ 12.258

  

$ 35,802,131

  

0.20%

  

0.35%

to

1.39%

  

38.79%

to

40.24%

December 31, 2002

3,353,983

  

7.566

to

8.741

  

27,809,087

  

0.16%

  

0.35%

to

1.39%

  

-27.06%

to

-26.29%

December 31, 2001

4,074,881

  

10.101

to

13.446

  

46,307,710

  

0.26%

  

0.35%

to

1.39%

  

-13.95%

to

1.52%
                                   

Liberty All-Star Equity Fund, VS (B)

                                  

December 31, 2003

454,189

  

8.673

to

11.617

  

4,024,803

  

0.23%

  

1.24%

to

1.39%

  

38.79%

to

38.99%

December 31, 2002

402,929

  

6.249

to

8.358

  

2,580,788

  

0.17%

  

1.24%

to

1.39%

  

-26.99%

to

-26.88%

December 31, 2001

438,061

  

8.559

to

11.430

  

3,865,989

  

0.31%

  

1.24%

to

1.39%

  

-14.03%

to

-13.90%
                                   

Liberty Asset Allocation Fund VS (A)

                                  

December 31, 2003

2,859,439

  

9.520

to

28.075

  

76,988,228

  

3.25%

  

0.35%

to

1.39%

  

18.80%

to

20.04%

December 31, 2002

3,406,893

  

7.954

to

23.597

  

76,859,833

  

3.44%

  

0.35%

to

1.39%

  

-12.95%

to

-12.03%

December 31, 2001

4,403,990

  

9.069

to

27.065

  

113,382,956

  

3.11%

  

0.35%

to

1.39%

  

-10.45%

to

-9.51%
                                   

Liberty Asset Allocation Fund VS (B)

                                  

December 31, 2003

2,110,128

  

10.685

to

27.869

  

51,977,662

  

2.90%

  

1.24%

to

1.39%

  

18.63%

to

18.81%

December 31, 2002

2,182,653

  

9.007

to

23.457

  

45,098,815

  

2.86%

  

1.24%

to

1.39%

  

-13.16%

to

-13.03%

December 31, 2001

1,804,890

  

10.371

to

26.971

  

42,501,877

  

1.99%

  

1.24%

to

1.39%

  

-10.65%

to

-10.52%
                                   

Liberty Federal Securities Fund VS (A)

                                  

December 31, 2003

2,260,728

  

13.043

to

24.992

  

53,577,372

  

4.42%

  

0.35%

to

1.39%

  

1.22%

to

2.28%

December 31, 2002

2,837,128

  

12.790

to

24.652

  

66,778,736

  

4.06%

  

0.35%

to

1.39%

  

8.23%

to

9.37%

December 31, 2001

2,530,031

  

11.729

to

22.743

  

55,016,893

  

5.53%

  

0.35%

to

1.39%

  

5.55%

to

6.66%
                                   

Liberty Federal Securities Fund VS (B)

                                  

December 31, 2003

3,702,413

  

23.502

to

24.745

  

87,303,436

  

3.79%

  

1.24%

to

1.39%

  

0.90%

to

1.05%

December 31, 2002

3,526,816

  

23.291

to

24.487

  

82,428,283

  

3.33%

  

1.24%

to

1.39%

  

8.07%

to

8.24%

December 31, 2001

1,960,299

  

21.551

to

22.624

  

42,397,178

  

2.87%

  

1.24%

to

1.39%

  

5.28%

to

5.44%
                                   

Liberty Growth & Income Fund, VS (A)

                                  

December 31, 2003

5,486,967

  

9.657

to

27.448

  

134,147,331

  

1.60%

  

0.35%

to

1.39%

  

18.14%

to

19.37%

December 31, 2002

3,437,304

8.114

to

22.993

71,109,631

1.08%

0.35%

to

1.39%

-23.03%

to

-22.22%

December 31, 2001

4,071,114

  

10.464

to

29.563

  

109,653,805

  

1.01%

  

0.35%

to

1.39%

  

-1.98%

to

-0.95%
                                   

Liberty Growth & Income Fund, VS (B)

                                  

December 31, 2003

1,550,353

  

10.812

to

24.939

  

36,932,735

  

1.37%

  

1.24%

to

1.39%

  

18.01%

to

18.19%

December 31, 2002

1,140,031

  

9.162

to

21.102

  

23,027,405

  

1.23%

  

1.24%

to

1.39%

  

-23.14%

to

-23.02%

December 31, 2001

825,607

  

11.920

to

27.412

  

21,961,119

  

1.86%

  

1.24%

to

1.39%

  

-2.03%

to

-1.88%
                                   

Liberty Money Market Fund VS (A)

                                  

December 31, 2003

7,813,837

  

10.933

to

16.433

  

120,466,243

  

0.69%

  

0.00%

to

1.39%

  

-0.70%

to

0.69%

December 31, 2002

11,349,307

  

10.929

to

16.321

  

177,022,732

  

1.27%

  

0.00%

to

1.39%

  

-0.15%

to

1.25%

December 31, 2001

11,243,870

  

10.865

to

16.120

  

173,332,847

  

3.40%

  

0.00%

to

1.39%

  

2.19%

to

3.63%
                                   

Liberty S&P 500 Index Fund, VS (B)

                                  

December 31, 2003

5,319,695

  

7.418

to

7.457

  

39,475,050

  

1.01%

  

1.24%

to

1.39%

  

25.92%

to

26.11%

December 31, 2002

4,174,320

  

5.891

to

5.913

  

24,597,700

  

0.99%

  

1.24%

to

1.39%

  

-23.82%

to

-23.70%

December 31, 2001

2,745,357

  

7.732

to

7.750

  

21,234,014

  

0.84%

  

1.24%

to

1.39%

  

-13.37%

to

-13.24%
                                   

Liberty Select Value Fund, VS (B)

                                  

December 31, 2003

2,711,330

  

11.824

to

11.887

  

32,070,195

  

0.19%

  

1.24%

to

1.39%

  

25.68%

to

25.87%

December 31, 2002

2,247,681

9.408

to

9.444

21,152,251

0.10%

1.24%

to

1.39%

-12.44%

to

-12.30%

December 31, 2001

1,223,499

  

10.744

to

10.769

  

13,149,049

  

0.44%

  

1.24%

to

1.39%

  

2.04%

to

2.19%
                                   

Liberty Small Company Growth Fund VS (A)

                                  

December 31, 2003

246,125

  

11.195

to

33.026

  

7,905,566

  

0.00%

  

0.35%

to

1.39%

  

42.13%

to

43.62%

December 31, 2002

252,195

  

7.877

to

23.201

  

5,704,675

  

0.00%

  

0.35%

to

1.39%

  

-25.33%

to

-24.55%

December 31, 2001

292,905

  

10.549

to

31.027

  

8,879,327

  

0.00%

  

0.35%

to

1.39%

  

-11.28%

to

-10.34%
                                   

MFS Bond Series IC

                                  

December 31, 2003

297,978

  

13.294

to

13.294

  

3,961,448

  

5.90%

  

1.39%

to

1.39%

  

7.83%

to

7.83%

December 31, 2002

357,952

  

12.329

to

12.329

  

4,413,263

  

6.06%

  

1.39%

to

1.39%

  

7.42%

to

7.42%

December 31, 2001

514,397

  

11.478

to

11.478

  

5,904,126

  

6.76%

  

1.39%

to

1.39%

  

7.20%

to

7.20%
                                   

MFS Emerging Growth Series IC

                                  

December 31, 2003

1,234,972

  

8.819

to

13.372

  

14,477,464

  

0.00%

  

0.35%

to

1.39%

  

28.43%

to

29.77%

December 31, 2002

1,488,352

  

6.867

to

10.304

  

13,579,722

  

0.00%

  

0.35%

to

1.39%

  

-34.68%

to

-33.99%

December 31, 2001

1,906,401

  

10.513

to

20.424

  

26,644,750

  

0.00%

  

0.35%

to

1.39%

  

-34.41%

to

-4.66%

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

5. Unit Values (continued)

 

At December 31

  

For the year ended December 31
             

Investment

        
     

Unit Fair Value

  

Net

  

Income

  

Expense Ratio 2

  

Total Return 3
 

Units

  

lowest to highest

  

Assets 4

  

Ratio 1

  

lowest to highest

  

lowest to highest
                                 

MFS Emerging Growth Series SC

                                

December 31, 2003

512,384

  

$ 8.763

to

$ 11.801

  

$ 5,965,282

  

0.00%

  

1.24%

to

1.39%

  

28.14%

to

28.33%

December 31, 2002

523,632

  

6.839

to

9.196

  

4,743,703

  

0.00%

  

1.24%

to

1.39%

  

-34.77%

to

-34.67%

December 31, 2001

591,515

  

10.484

to

14.076

  

8,230,355

  

0.00%

  

1.24%

to

1.39%

  

-34.54%

to

-34.44%
                                   

MFS Investors Growth Stock Series SC

                                  

December 31, 2003

2,681,375

  

5.619

to

5.649

  

15,071,517

  

0.00%

  

1.24%

to

1.39%

  

20.91%

to

21.09%

December 31, 2002

1,951,409

  

4.647

to

4.665

  

9,070,927

  

0.00%

  

1.24%

to

1.39%

  

-28.72%

to

-28.61%

December 31, 2001

1,721,237

  

6.519

to

6.534

  

11,222,861

  

0.07%

  

1.24%

to

1.39%

  

-25.88%

to

-25.76%
                                   

MFS Investors Trust Series SC

                                  

December 31, 2003

2,084,577

  

7.480

to

7.520

  

15,599,304

  

0.43%

  

1.24%

to

1.39%

  

20.15%

to

20.33%

December 31, 2002

1,761,945

  

6.226

to

6.249

  

10,973,764

  

0.45%

  

1.24%

to

1.39%

  

-22.24%

to

-22.13%

December 31, 2001

1,250,131

  

8.007

to

8.025

  

10,012,762

  

0.35%

  

1.24%

to

1.39%

  

-17.27%

to

-17.14%
                                   

MFS New Discovery Series SC

                                  

December 31, 2003

1,021,837

  

7.532

to

7.572

  

7,698,082

  

0.00%

  

1.24%

to

1.39%

  

31.59%

to

31.79%

December 31, 2002

908,075

  

5.723

to

5.745

  

5,198,758

  

0.00%

  

1.24%

to

1.39%

  

-32.74%

to

-32.64%

December 31, 2001

638,935

  

8.510

to

8.530

  

5,438,829

  

0.00%

  

1.24%

to

1.39%

  

-6.57%

to

-6.43%
                                   

MFS Research Series IC

                                  

December 31, 2003

1,930,808

  

8.840

to

12.225

  

22,656,768

  

0.67%

  

0.35%

to

1.39%

  

22.98%

to

24.27%

December 31, 2002

2,263,966

  

7.188

to

9.838

  

21,599,683

  

0.28%

  

0.35%

to

1.39%

  

-25.58%

to

-24.80%

December 31, 2001

2,948,210

  

9.659

to

17.349

  

37,784,006

  

0.01%

  

0.35%

to

1.39%

  

-22.35%

to

4.62%
                                   

Newport Tiger Fund, VS (A)

                                  

December 31, 2003

714,482

  

8.451

to

11.157

  

7,245,597

  

2.92%

  

0.35%

to

1.39%

  

42.87%

to

44.29%

December 31, 2002

803,630

  

5.915

to

7.732

  

5,700,224

  

0.76%

  

0.35%

to

1.39%

  

-18.11%

to

-17.26%

December 31, 2001

1,167,179

  

7.085

to

9.345

  

9,826,810

  

0.72%

  

0.35%

to

1.39%

  

-19.62%

to

-18.77%
                                   

Newport Tiger Fund, VS (B)

                                  

December 31, 2003

238,869

  

9.347

to

10.507

  

2,465,989

  

1.05%

  

1.24%

to

1.39%

  

43.19%

to

43.41%

December 31, 2002

140,502

6.518

to

7.327

1,015,959

1.35%

1.24%

to

1.39%

-18.84%

to

-18.72%

December 31, 2001

115,261

  

8.019

to

9.014

  

1,025,205

  

1.13%

  

1.24%

to

1.39%

  

-17.82%

to

-17.69%
                                   

Rydex Arktos Fund

                                  

December 31, 2003

170,517

  

21.841

to

21.841

  

3,724,320

  

1.39%

  

0.90%

to

0.90%

  

-37.93%

to

-37.93%

December 31, 2002

4,034

  

35.187

to

35.187

  

141,939

  

1.91%

  

0.90%

to

0.90%

  

40.75%

to

40.75%

December 31, 2001

-

  

0.000

to

0.000

  

-

  

0.00%

  

0.90%

to

0.90%

  

0.00%

to

0.00%
                                   

Rydex Medius Fund

                                  

December 31, 2003

5,760

  

25.925

to

25.925

  

149,318

  

0.00%

  

0.90%

to

0.90%

  

51.07%

to

51.07%

December 31, 2002

1,042

  

17.160

to

17.160

  

17,880

  

0.00%

  

0.90%

to

0.90%

  

-31.36%

to

-31.36%

December 31, 2001

-

  

0.000

to

0.000

  

-

  

0.00%

  

0.90%

to

0.90%

  

0.00%

to

0.00%
                                   

Rydex Mekros Fund

                                  

December 31, 2003

15,722

  

25.124

to

25.124

  

395,011

  

7.66%

  

0.90%

to

0.90%

  

62.81%

to

62.81%

December 31, 2002

1,159

  

15.431

to

15.431

  

17,892

  

0.00%

  

0.90%

to

0.90%

  

-38.27%

to

-38.27%

December 31, 2001

-

  

0.000

to

0.000

  

-

  

0.00%

  

0.90%

to

0.90%

  

0.00%

to

0.00%
                                   

Rydex Nova Fund

                                  

December 31, 2003

33,668

  

13.582

to

13.582

  

457,284

  

0.00%

  

0.90%

to

1.39%

  

37.95%

to

37.95%

December 31, 2002

11,004

9.846

to

9.846

108,340

8.55%

0.90%

to

0.90%

-36.30%

to

-36.30%

December 31, 2001

3,581

  

15.456

to

15.456

  

55,356

  

0.00%

  

0.90%

to

0.90%

  

-24.27%

to

-24.27%
                                   

Rydex OTC Fund

                                  

December 31, 2003

953,209

  

3.220

to

8.693

  

3,183,440

  

0.00%

  

0.90%

to

1.39%

  

43.41%

to

44.12%

December 31, 2002

898,236

  

2.246

to

6.032

  

2,088,574

  

0.00%

  

0.90%

to

1.39%

  

-39.70%

to

-39.40%

December 31, 2001

933,771

  

3.724

to

9.953

  

3,512,391

  

0.00%

  

0.90%

to

1.39%

  

-36.08%

to

-35.76%
                                   

Rydex Precious Metals Fund

                                  

December 31, 2003

4,462

  

54.305

to

54.305

  

242,306

  

0.00%

  

0.90%

to

0.90%

  

39.65%

to

39.65%

December 31, 2002

4,368

  

38.887

to

38.887

  

169,865

  

0.00%

  

0.90%

to

0.90%

  

44.29%

to

44.29%

December 31, 2001

420

  

26.951

to

26.951

  

11,313

  

0.00%

  

0.90%

to

0.90%

  

11.98%

to

11.98%
                                   

Rydex Telecommunications Fund

                                  

December 31, 2003

3,921

  

19.524

to

19.524

  

76,547

  

0.00%

  

0.90%

to

0.90%

  

32.49%

to

32.49%

December 31, 2002

1,833

  

14.737

to

14.737

  

27,006

  

0.00%

  

0.90%

to

0.90%

  

-41.05%

to

-41.05%

December 31, 2001

-

  

0.000

to

0.000

  

-

  

0.00%

  

0.90%

to

0.90%

  

0.00%

to

0.00%

 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

5. Unit Values (continued)

 

At December 31

  

For the year ended December 31
             

Investment

        
     

Unit Fair Value

  

Net

  

Income

  

Expense Ratio 2

  

Total Return 3
 

Units

  

lowest to highest

  

Assets 4

  

Ratio 1

  

lowest to highest

  

lowest to highest
                                 

Rydex Titan 500 Fund

                                

December 31, 2003

1,496

  

$ 23.957

to

$ 23.957

  

$ 35,835

  

0.00%

  

0.90%

to

0.90%

  

53.56%

to

53.56%

December 31, 2002

392

  

15.601

to

15.601

  

6,112

  

0.00%

  

0.90%

to

0.90%

  

-37.60%

to

-37.60%

December 31, 2001

-

  

0.000

to

0.000

  

-

  

0.00%

  

0.90%

to

0.90%

  

0.00%

to

0.00%
                                   

Rydex Ursa Fund

                                  

December 31, 2003

7,213

  

29.870

to

29.870

  

215,455

  

0.00%

  

0.90%

to

0.90%

  

-24.33%

to

-24.33%

December 31, 2002

3,912

  

39.473

to

39.473

  

154,439

  

0.54%

  

0.90%

to

0.90%

  

20.56%

to

20.56%

December 31, 2001

21,460

  

32.742

to

32.742

  

702,635

  

1.81%

  

0.90%

to

0.90%

  

13.96%

to

13.96%
                                   

Rydex US Government Bond Fund

                                  

December 31, 2003

236,748

  

31.825

to

31.825

  

7,534,388

  

3.10%

  

0.90%

to

0.90%

  

-1.51%

to

-1.51%

December 31, 2002

1

  

32.313

to

32.313

  

32

  

0.08%

  

0.90%

to

0.90%

  

17.55%

to

17.55%

December 31, 2001

-

  

27.488

to

27.488

  

-

  

3.07%

  

0.90%

to

0.90%

  

-0.88%

to

-0.88%
                                   

Rydex US Government Money Market Fund

                                  

December 31, 2003

561,489

  

25.899

to

25.899

  

14,541,766

  

0.00%

  

0.90%

to

0.90%

  

-0.88%

to

-0.88%

December 31, 2002

163,280

  

26.129

to

26.129

  

4,266,285

  

0.47%

  

0.90%

to

0.90%

  

-0.43%

to

-0.43%

December 31, 2001

65,783

  

26.240

to

26.240

  

1,726,183

  

1.89%

  

0.90%

to

0.90%

  

1.87%

to

1.87%
                                   

Rydex Utilities Fund

                                  

December 31, 2003

330

  

20.872

to

20.872

  

6,890

  

1.53%

  

0.90%

to

0.90%

  

24.28%

to

24.28%

December 31, 2002

4,770

  

16.794

to

16.794

  

80,113

  

0.04%

  

0.90%

to

0.90%

  

-32.82%

to

-32.82%

December 31, 2001

-

  

0.000

to

0.000

  

-

  

0.00%

  

0.90%

to

0.90%

  

0.00%

to

0.00%
                                   

Rydex Velocity 100 Fund

                                  

December 31, 2003

3,882

  

24.409

to

24.409

  

94,759

  

19.19%

  

0.90%

to

0.90%

  

96.87%

to

96.87%

December 31, 2002

1,469

  

12.398

to

12.398

  

18,211

  

0.00%

  

0.90%

to

0.90%

  

-50.41%

to

-50.41%

December 31, 2001

-

  

0.000

to

0.000

  

-

  

0.00%

  

0.90%

to

0.90%

  

0.00%

to

0.00%
                                   

SteinRoe Growth Stock Fund VS (A)

                                  

December 31, 2003

1,448,492

  

5.859

to

35.091

  

46,776,239

  

0.42%

  

0.35%

to

1.39%

  

23.51%

to

24.80%

December 31, 2002

1,673,654

4.708

to

28.368

44,141,249

0.23%

0.35%

to

1.39%

-31.12%

to

-30.40%

December 31, 2001

2,181,952

  

6.785

to

41.125

  

83,324,121

  

0.00%

  

0.35%

to

1.39%

  

-25.66%

to

-24.88%
                                   

SteinRoe Growth Stock Fund VS (B)

                                  

December 31, 2003

708,818

  

8.340

to

34.852

  

21,403,752

  

0.24%

  

1.24%

to

1.39%

  

23.32%

to

23.51%

December 31, 2002

722,202

  

6.763

to

28.219

  

18,142,497

  

0.00%

  

1.24%

to

1.39%

  

-31.23%

to

-31.13%

December 31, 2001

718,912

  

9.834

to

40.973

  

26,801,435

  

0.00%

  

1.24%

to

1.39%

  

-25.83%

to

-25.72%
                                   

Templeton Developing Markets Sec Fund 2

                                  

December 31, 2003

221,722

  

9.490

to

9.555

  

2,105,006

  

1.19%

  

1.24%

to

1.39%

  

50.88%

to

51.11%

December 31, 2002

214,213

  

6.290

to

6.323

  

1,347,932

  

1.52%

  

1.24%

to

1.39%

  

-1.53%

to

-1.38%

December 31, 2001

276,785

  

6.387

to

6.411

  

1,768,442

  

0.79%

  

1.24%

to

1.39%

  

-9.36%

to

-9.22%
                                   

UBS Global AM Tactical Allocation

                                  

December 31, 2003

1,439,106

  

8.317

to

8.925

  

12,263,325

  

0.86%

  

1.24%

to

1.39%

  

25.61%

to

25.80%

December 31, 2002

1,782,891

  

6.621

to

7.094

  

12,136,969

  

0.60%

  

1.24%

to

1.39%

  

-24.02%

to

-23.91%

December 31, 2001

2,747,118

  

8.714

to

9.323

  

24,640,174

  

2.10%

  

1.24%

to

1.39%

  

-13.76%

to

-13.63%
                                   

Wanger Foreign Forty Fund

                                  

December 31, 2003

504,167

  

8.165

to

8.205

  

4,118,354

  

0.31%

  

0.65%

to

1.39%

  

39.29%

to

39.50%

December 31, 2002

409,193

5.862

to

5.959

2,399,664

0.00%

0.65%

to

1.39%

-16.46%

to

-16.34%

December 31, 2001

251,875

  

7.017

to

7.481

  

1,778,487

  

0.06%

  

0.65%

to

1.39%

  

-27.63%

to

-27.09%
                                   

Wanger International Small Cap Fund

                                  

December 31, 2003

1,821,982

  

8.662

to

8.704

  

15,787,070

  

0.30%

  

0.65%

to

1.39%

  

46.81%

to

47.03%

December 31, 2002

1,772,820

  

5.900

to

5.920

  

10,463,138

  

0.00%

  

0.65%

to

1.39%

  

-15.02%

to

-14.89%

December 31, 2001

993,895

  

6.943

to

7.469

  

6,939,631

  

0.00%

  

0.65%

to

1.39%

  

-22.25%

to

-21.67%
                                   

Wanger Twenty Fund

                                  

December 31, 2003

1,574,407

  

13.131

to

13.231

  

20,678,694

  

0.00%

  

0.65%

to

1.39%

  

28.92%

to

29.88%

December 31, 2002

873,845

  

10.185

to

10.219

  

8,901,660

  

0.00%

  

0.65%

to

1.39%

  

-8.89%

to

-8.21%

December 31, 2001

482,151

  

11.099

to

11.200

  

5,390,784

  

0.00%

  

0.65%

to

1.39%

  

7.57%

to

8.38%
                                   

Wanger US Smaller Companies Fund

                                  

December 31, 2003

3,767,707

  

13.417

to

13.800

  

50,570,392

  

0.00%

  

0.65%

to

1.39%

  

41.25%

to

42.30%

December 31, 2002

2,841,152

  

9.499

to

9.698

  

26,994,230

  

0.00%

  

0.65%

to

1.39%

  

-17.96%

to

-17.35%

December 31, 2001

1,500,602

  

11.578

to

11.734

  

17,377,623

  

0.02%

  

0.65%

to

1.39%

  

9.84%

to

10.66%

 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

5. Unit Values (continued)

 

At December 31

  

For the year ended December 31
             

Investment

        
     

Unit Fair Value

  

Net

  

Income

  

Expense Ratio 2

  

Total Return 3
 

Units

  

lowest to highest

  

Assets 4

  

Ratio 1

  

lowest to highest

  

lowest to highest

Colonial Global Equity Fund, VS (B)

                                

December 31, 2003

-

  

$ 5.137

to

$ 5.166

  

$ -

  

3.43%5

  

1.24%

to

1.39%

  

-0.41%

to

-0.37%

December 31, 2002

303,749

  

5.158

to

5.185

  

1,568,903

  

0.00%

  

1.24%

to

1.39%

  

-21.19%

to

-21.07%

December 31, 2001

427,744

  

6.545

to

6.570

  

2,802,406

  

0.00%

  

1.24%

to

1.39%

  

-25.63%

to

-25.51%
                                   

Colonial High Yield Securities, VS (A)

                                  

December 31, 2003

-

  

8.579

to

9.124

  

-

  

9.05%5

  

0.65%

to

1.39%

  

6.26%

to

6.48%

December 31, 2002

1,228,433

  

8.074

to

8.569

  

10,030,208

  

8.69%

  

0.65%

to

1.39%

  

-5.12%

to

-4.41%

December 31, 2001

1,262,538

  

8.509

to

8.964

  

10,750,173

  

8.68%

  

0.65%

to

1.39%

  

-4.02%

to

-3.30%
                                   

Colonial High Yield Securities, VS (B)

                                  

December 31, 2003

-

  

8.549

to

8.599

  

-

  

9.09%5

  

1.24%

to

1.39%

  

6.27%

to

6.31%

December 31, 2002

1,593,619

  

8.045

to

8.088

  

12,827,932

  

11.21%

  

1.24%

to

1.39%

  

-5.09%

to

-4.95%

December 31, 2001

807,527

  

8.476

to

8.509

  

6,850,992

  

12.97%

  

1.24%

to

1.39%

  

-4.17%

to

-4.02%
                                   

Colonial International Horizons Fund, VS (B)

                                  

December 31, 2003

-

  

5.883

to

5.916

  

-

  

1.86%5

  

1.24%

to

1.39%

  

-2.21%

to

-2.17%

December 31, 2002

620,837

  

6.016

to

6.047

  

3,739,200

  

0.05%

  

1.24%

to

1.39%

  

-14.14%

to

-14.01%

December 31, 2001

667,937

  

7.006

to

7.032

  

4,685,399

  

0.46%

  

1.24%

to

1.39%

  

-24.40%

to

-24.28%
                                   

Crabbe Huson Real Estate Investment Fund, VS (B)

                                  

December 31, 2003

-

  

9.773

to

11.570

  

-

  

13.6%5

  

1.24%

to

1.39%

  

0.96%

to

1.00%

December 31, 2002

145,593

  

9.773

to

11.455

  

1,659,698

  

4.49%

  

1.24%

to

1.39%

  

-0.97%

to

-0.82%

December 31, 2001

179,465

  

9.773

to

11.549

  

2,065,134

  

4.59%

  

1.24%

to

1.39%

  

0.00%

to

13.10%
                                   

Liberty Newport Japan Opp Fund, VS (B)

                                  

December 31, 2003

-

  

3.630

to

3.645

  

-

  

0.00%

  

1.24%

to

1.39%

  

-5.64%

to

-5.62%

December 31, 2002

5,607

  

3.847

to

3.862

  

21,571

  

0.00%

  

1.24%

to

1.39%

  

-14.81%

to

-14.68%

December 31, 2001

8,248

  

4.516

to

4.526

  

37,253

  

0.00%

  

1.24%

to

1.39%

  

-33.05%

to

-32.95%
                                   

Liberty Value Fund, VS (A)

                                  

December 31, 2003

-

  

8.809

to

20.047

  

-

  

1.47%5

  

0.35%

to

1.39%

  

-6.77%

to

-6.52%

December 31, 2002

3,004,872

9.449

to

21.444

58,361,771

1.24%

0.35%

to

1.39%

-21.63%

to

-20.81%

December 31, 2001

3,556,488

  

12.057

to

27.080

  

88,115,159

  

1.26%

  

0.35%

to

1.39%

  

-1.57%

to

-0.53%
                                   

Liberty Value Fund, VS (B)

                                  

December 31, 2003

-

  

8.744

to

18.626

  

-

  

1.26%5

  

1.24%

to

1.39%

  

-6.84%

to

-6.81%

December 31, 2002

374,089

  

9.386

to

19.986

  

7,145,433

  

1.25%

  

1.24%

to

1.39%

  

-21.80%

to

-21.68%

December 31, 2001

281,467

  

12.003

to

25.520

  

6,945,124

  

1.83%

  

1.24%

to

1.39%

  

-1.82%

to

-1.67%
                                   

Rydex Financial Services Fund, VS (B)

                                  

December 31, 2003

-

  

8.599

to

8.634

  

-

  

0.84%5

  

1.24%

to

1.39%

  

-3.54%

to

-3.50%

December 31, 2002

311,670

  

8.914

to

8.948

  

2,778,820

  

0.66%

  

1.24%

to

1.39%

  

-15.12%

to

-14.99%

December 31, 2001

266,015

  

10.501

to

10.525

  

2,794,133

  

0.53%

  

1.24%

to

1.39%

  

-13.36%

to

-13.23%
                                   

Rydex Health Care Fund, VS (B)

                                  

December 31, 2003

-

  

7.598

to

7.629

  

-

  

0.00%

  

1.24%

to

1.39%

  

-0.23%

to

-0.19%

December 31, 2002

621,781

  

7.615

to

7.644

  

4,735,810

  

0.00%

  

1.24%

to

1.39%

  

-20.84%

to

-20.72%

December 31, 2001

511,714

  

9.620

to

9.642

  

4,923,264

  

0.00%

  

1.24%

to

1.39%

  

-13.18%

to

-13.05%
                                   

SteinRoe Global Utilities Fund, VS (A)

                                  

December 31, 2003

-

  

6.698

to

15.565

  

-

  

2.25%5

  

0.35%

to

1.39%

  

0.84%

to

1.11%

December 31, 2002

1,570,875

6.630

to

15.394

22,051,473

2.98%

0.35%

to

1.39%

-14.52%

to

-13.63%

December 31, 2001

2,033,336

  

7.699

to

17.823

  

33,270,043

  

1.46%

  

0.35%

to

1.39%

  

-15.21%

to

-14.32%
                                   

Columbia High Yield Fund II, VS (A)

                                  

December 31, 2003

927,996

  

9.205

to

9.842

  

8,600,060

  

6.80%5

  

0.65%

to

1.39%

  

7.29%

to

7.87%
                                   

Columbia High Yield Fund II, VS (B)

                                  

December 31, 2003

2,452,783

  

9.169

to

9.232

  

22,506,109

  

6.70%5

  

1.24%

to

1.39%

  

7.25%

to

7.37%
                                   

Columbia Real Estate Equity Fund, VS (B)

 		                                 

December 31, 2003

132,918

  

12.651

to

14.993

  

1,983,432

  

2.62%5

  

1.24%

to

1.39%

  

29.45%

to

29.59%
                                   

Columbia International Fund, VS (B)

 		                                 

December 31, 2003

447,494

  

13.598

to

13.613

  

6,086,705

  

1.21%5

  

1.24%

to

1.39%

  

35.98%

to

36.13%
                                   

Rydex Banking Fund

 		                                 

December 31, 2003

661

  

31.901

to

31.901

  

21,091

  

0.87%

  

0.90%

to

0.90%

  

30.56%

to

30.56%

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

5. Unit Values (continued)

 

At December 31

  

For the year ended December 31
             

Investment

        
     

Unit Fair Value

  

Net

  

Income

  

Expense Ratio 2

  

Total Return 3
 

Units

  

lowest to highest

  

Assets 4

  

Ratio 1

  

lowest to highest

  

lowest to highest
                                   

Rydex Basic Materials Fund

                                  

December 31, 2003

256

  

$ 27.680

to

$ 27.680

  

$ 7,087

  

0.00%

  

0.90%

to

0.90%

  

30.29%

to

30.29%
                                   

Rydex Biotechnology Fund

                                  

December 31, 2003

249

  

19.855

to

19.855

  

4,938

  

0.00%

  

0.90%

to

0.90%

  

40.85%

to

40.85%
                                   

Rydex Consumer Products Fund

                                  

December 31, 2003

246

  

29.289

to

29.289

  

7,204

  

0.04%

  

0.90%

to

0.90%

  

20.77%

to

20.77%
                                   

Rydex Electronics Fund

                                  

December 31, 2003

182

  

19.859

to

19.859

  

3,619

  

0.00%

  

0.90%

to

0.90%

  

68.31%

to

68.31%
                                   

Rydex Energy Services Fund

                                  

December 31, 2003

1,297

  

24.69

to

24.69

  

32,034

  

0.00%

  

0.90%

to

0.90%

  

7.45%

to

7.45%
                                   

Rydex Health Care Fund

                                  

December 31, 2003

228

  

25.66

to

25.66

  

5,859

  

0.00%

  

0.90%

to

1.39%

  

28.61%

to

28.61%
                                   

Rydex Internet Fund

                                  

December 31, 2003

189

  

21.184

to

21.184

  

4,011

  

0.00%

  

0.90%

to

0.90%

  

62.93%

to

62.93%
                                   

Rydex Juno Fund

                                  

December 31, 2003

3,957

  

25.979

to

25.979

  

102,788

  

0.00%

  

0.90%

to

0.90%

  

3.92%

to

3.92%
                                   

Rydex Lg Cap Europe Fund

                                  

December 31, 2003

400

  

25.569

to

25.569

  

10,220

  

5.09%

  

0.90%

to

0.90%

  

41.80%

to

41.80%
                                   

Rydex Lg Cap Japan Fund

                                  

December 31, 2003

60

  

28.069

to

28.069

  

1,671

  

0.00%

  

0.90%

to

0.90%

  

36.39%

to

36.39%
                                   

Rydex Financial Services Fund

                                  

December 31, 2003

1

  

26.963

to

26.963

  

27

  

0.00%

  

0.90%

to

1.39%

  

27.77%

to

27.77%
                                   

Rydex Real Estate Fund

                                  

December 31, 2003

-

  

30.088

to

30.088

  

-

  

50.56%

  

0.90%

to

0.90%

  

29.15%

to

29.15%

1 These amounts represent the dividends and other income received by the Sub-Account from the underlying mutual fund, net of management fees assessed by the portfolio manager, divided by the average net assets. These ratios exclude 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 These ratio ranges represent the annualized contract expenses of the Variable Account, consisting primarily of mortality and expense charges, for each period indicated. The ratio ranges include 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 These return ranges represent the total returns for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return ratio does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a 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 ratio is calculated for the period indicated or from the effective date through the end of the reporting period.

4 These net assets do not include seed money retained by the Company. The seed money was invested by the company in certain Sub-Accounts that required funds to commence operations.

5 Income Ratio is annualized.

 

 

 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

 

6. Purchases and Sales of Securities

The cost of shares purchased and proceeds from shares sold by the Variable Account during 2003 are shown below:

 

Purchases

  

Sales
           

AIM VI Capital Appreciation Series I

$

961,301

  

$

3,072,894
           

AIM VI Growth Series I

  

150,339

    

464,569
           

AIM VI International Growth Series I

  

5,213,023

    

4,497,632
           

AIM VI Premier Equity Series I

  

1,098,605

    

4,549,864
           

Alger American Growth Portfolio

  

1,365,655

    

6,788,481
           

Alger American Small Capitalization Portfolio

  

1,665,219

    

2,891,917
           

AllianceBernstein Global Bond Portfolio (A)

  

2,304,629

    

4,422,692
           

AllianceBernstein Global Bond Portfolio (B)

  

1,248,675

    

1,718,226
           

AllianceBernstein Growth and Income Portfolio (A)

  

383,424

    

1,183,608
           

AllianceBernstein Growth and Income Portfolio (B)

  

7,355,842

    

5,494,018
           

AllianceBernstein Growth Portfolio (B)

  

350,495

    

210,661
           

AllianceBernstein International Portfolio (B)

  

47,468

    

58,485
           

AllianceBernstein Premier Growth Portfolio (A)

  

741,914

    

10,702,281
           

AllianceBernstein Premier Growth Portfolio (B)

  

2,131,363

    

5,780,354
           

AllianceBernstein Real Estate Investment Portfolio (A)

  

42,864

    

204,083
           

AllianceBernstein Technology Portfolio (B)

  

2,274,422

    

2,765,271
           

AllianceBernstein Total Return Portfolio (B)

  

305,869

    

455,848
           

AllianceBernstein Worldwide Privatization Portfolio (B)

  

941,285

    

564,211
           

Crabbe Huson Real Estate Fund

  

110,433

    

4,063,915
           

Colonial Global Equity Fund, VS (A)

  

33,503

    

4,441,298
           

Colonial High Yield Securities Fund, VS (A)

  

3,055,053

    

13,492,633
           

Colonial High Yield Securities Fund, VS (B)

  

4,028,430

    

17,387,825
           

Colonial International Horizon Fund, VS (B)

  

47,525

    

6,352,560
           

Colonial Small Cap Value Fund, VS (A)

  

1,215,960

    

1,741,426
           

Colonial Small Cap Value Fund, VS (B)

  

3,321,809

    

2,157,896

 

 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

6. Purchases and Sales of Securities (continued)

 

Purchases

  

Sales
           

Colonial Strategic Income Fund, VS (A)

  

8,192,407

    

13,896,708
           

Colonial Strategic Income Fund, VS (B)

  

24,032,724

    

9,503,953
           

Columbia High Yield Fund II, VS (A)

  

18,866,195

    

10,592,482
           

Columbia High Yield Fund II, VS (B)

  

25,758,724

    

3,878,315
           

Columbia International Fund, VS (A)

  

43,458,651

    

29,421,976
           

Columbia International Fund, VS (B)

  

5,238,748

    

833,279
           

Columbia Real Estate Equity Fund II, VS (B)

  

2,261,612

    

476,424
           

Exeter Growth Fund

  

6,338

    

353,199
           

Exeter Moderate Growth Fund

  

4,100

    

182,645
           

Fidelity VIP Equity Income Fund - SC2

  

12,848,632

    

3,273,645
           

Fidelity VIP III Dynamic Capital Appreciation Fund - SC2

  

726,358

    

203,894
           

Fidelity VIP III Growth Opportunities Fund - SC2

  

4,353,115

    

1,108,462
           

Liberty All-Star Equity Fund, VS (A)

  

2,876,305

    

5,322,658
           

Liberty All-Star Equity Fund, VS (B)

  

972,268

    

563,979
           

Liberty Asset Allocation Fund VS (A)

  

4,237,453

    

15,541,292
           

Liberty Asset Allocation Fund VS (B)

  

9,263,782

    

9,806,270
           

Liberty Federal Securities Fund VS (A)

  

7,921,102

    

19,979,974
           

Liberty Federal Securities Fund VS (B)

  

24,231,324

    

17,940,802
           

Liberty Growth & Income Fund, VS (A)

  

57,288,008

    

18,854,740
           

Liberty Growth & Income Fund, VS (B)

  

11,849,787

    

4,033,844
           

Liberty Money Market Fund VS (A)

  

116,267,144

    

172,823,633
           

Liberty S&P 500 Index Fund, VS (A)

  

679

    

-
           

Liberty S&P 500 Index Fund, VS (B)

  

10,409,124

    

3,015,780
           

Liberty Select Value Fund, VS (A)

  

388

    

-
           

Liberty Select Value Fund, VS (B)

  

7,481,440

    

3,177,338
           

Liberty Small Company Growth Fund VS (A)

  

1,098,031

    

1,223,075
           

Liberty Value Fund, VS (A)

  

440,329

    

54,858,519
           

Liberty Value Fund, VS (B)

  

621,302

    

7,283,976
           

MFS Bond Series IC

  

593,596

    

1,178,155

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

6. Purchases and Sales of Securities (continued)

 

Purchases

  

Sales

MFS Emerging Growth Series IC

  

415,976

    

3,124,923
           

MFS Emerging Growth Series SC

  

806,712

    

951,082
           

MFS Investors Growth Stock Series SC

  

4,444,227

    

807,888
           

MFS Investors Trust Series SC

  

3,879,490

    

1,741,323
           

MFS New Discovery Series SC

  

1,535,644

    

855,895
           

MFS Research Series IC

  

669,196

    

4,150,496
           

Newport Tiger Fund, VS (A)

  

697,663

    

1,361,753
           

Newport Tiger Fund, VS (B)

  

1,130,764

    

340,779
           

Rydex Arktos Fund

  

11,701,310

    

7,933,760
           

Rydex Banking Fund

  

146,215

    

129,322
           

Rydex Basic Materials Fund

  

82,498

    

77,936
           

Rydex Biotechnology Fund

  

206,861

    

200,782
           

Rydex Consumer Products Fund

  

11,167

    

4,068
           

Rydex Electronics Fund

  

108,038

    

113,819
           

Rydex Energy Fund

  

11,171

    

11,361
           

Rydex Energy Services Fund

  

115,725

    

87,002
           

Rydex Financial Services Fund, VS (A)

  

3,511,320

    

3,596,056
           

Rydex Financial Services Fund, (B)

  

85,992

    

2,759,448
           

Rydex Health Care Fund, (B)

  

66,201

    

4,779,298
           

Rydex Health Care Fund, VS (A)

  

768,951

    

845,681
           

Rydex Internet Fund

  

124,057

    

128,751
           

Rydex Juno Fund

  

1,651,112

    

1,596,203
           

Rydex Leisure Fund

  

10,343

    

10,448
           

Rydex Lg Cap Europe Fund

  

545,947

    

532,916
           

Rydex Lg Cap Japan Fund

  

1,072,262

    

1,081,868
           

Rydex Medius Fund

  

970,040

    

839,315
           

Rydex Mekros Fund

  

6,193,079

    

5,966,079
           

Rydex Nova Fund

  

2,366,974

    

2,054,997
           

Rydex OTC Fund

  

4,377,657

    

4,217,946

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

6. Purchases and Sales of Securities (continued)

 

Purchases

  

Sales
           

Liberty Newport Japan Opportunity Fund, VS (A)

  

-

    

39,000
           

Liberty Newport Japan Opportunity Fund, VS (B)

  

-

    

957,659
           

Rydex Precious Metals Fund

  

1,332,305

    

1,384,482
           

Rydex Real Estate Fund

  

233,915

    

223,828
           

Rydex Retailing Fund

  

43,914

    

44,268
           

Rydex Technology Fund

  

3,679,863

    

3,661,080
           

Rydex Telecommunications Fund

  

110,531

    

77,214
           

Rydex Titan 500 Fund

  

228,178

    

197,022
           

Rydex Transportation Fund

  

25,506

    

25,792
           

Rydex Ursa Fund

  

9,999,930

    

9,877,973
           

Rydex US Government Bond Fund

  

18,190,166

    

10,773,942
           

Rydex US Government Money Market Fund

  

61,946,948

    

51,671,467
           

Rydex Utilities Fund

  

451,557

    

550,779
           

Rydex Velocity 100 Fund

  

419,705

    

354,888
           

SteinRoe Global Utilities Fund VS (A)

  

273,488

    

22,423,936
           

SteinRoe Growth Stock Fund VS (A)

  

2,131,909

    

9,152,086
           

SteinRoe Growth Stock Fund VS (B)

  

2,535,874

    

3,538,900
           

Templeton Developing Markets Sec Fund 2

  

595,556

    

483,160
           

UBS Global AM Tactical Allocation

  

127,687

    

2,708,705
           

Wanger Foreign Forty Fund

  

1,064,933

    

480,188
           

Wanger International Small Cap Fund

  

3,981,740

    

3,843,349
           

Wanger Twenty Fund

  

9,248,695

    

1,201,211
           

Wanger US Smaller Companies Fund

  

29,639,239

    

20,857,290
           
 

$

635,662,995

  

$

709,621,070

 

 

 

 

 

 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

7. Change in Units Outstanding

The change in the units of respective sub-account outstanding for the year ended December 31, 2003 were as follow:

Units Issued

Units Redeemed

Net Increase

(Decrease)

AIM VI Capital Appreciation Series I

  

116,127

    

339,698

  

(223,571

)

AIM VI Growth Series I

  

23,754

    

71,841

  

(48,087

)

AIM VI International Growth Series I

  

734,016

    

619,012

  

115,004

  

AIM VI Premier Equity Series I

  

174,807

    

711,098

  

(536,291

)

Alger American Growth Portfolio

  

105,051

    

498,215

  

(393,164

)

Alger American Small Capitalization Portfolio

  

208,369

    

378,122

  

(169,753

)

AllianceBernstein Global Bond Portfolio (A)

  

128,778

    

377,758

  

(248,980

)

AllianceBernstein Global Bond Portfolio (B)

  

48,287

    

107,777

  

(59,490

)

AllianceBernstein Growth and Income Portfolio (A)

  

29,617

    

103,232

  

(73,615

)

AllianceBernstein Growth and Income Portfolio (B)

  

791,407

    

569,336

  

222,071

  

AllianceBernstein Growth Portfolio (B)

  

39,833

    

22,809

  

17,024

  

AllianceBernstein International Portfolio (B)

  

134

    

-

  

134

  

AllianceBernstein Premier Growth Portfolio (A)

  

69,107

    

807,104

  

(737,997

)

AllianceBernstein Premier Growth Portfolio (B)

  

386,294

    

973,744

  

(587,450

)

AllianceBernstein Real Estate Investment Portfolio (A)

  

1,741

    

14,833

  

(13,092

)

AllianceBernstein Technology Portfolio (B)

  

397,181

    

457,745

  

(60,564

)

AllianceBernstein Total Return Portfolio (B)

  

33,951

    

51,589

  

(17,638

)

AllianceBernstein Worldwide Privatization Portfolio (B)

  

132,190

    

77,323

  

54,867

  

Colonial Small Cap Value Fund, VS (A)

  

87,113

    

149,931

  

(62,818

)

Colonial Small Cap Value Fund, VS (B)

  

262,557

    

178,602

  

83,955

  

Colonial Strategic Income Fund, VS (A)

  

209,175

    

800,332

  

(591,157

)

Colonial Strategic Income Fund, VS (B)

  

1,330,460

    

585,325

  

745,135

  

Columbia International Fund, VS (A)

  

4,753,178

    

2,789,014

  

1,964,164

  

Exeter Growth Fund

  

-

    

20,766

  

(20,766

)

Exeter Moderate Growth Fund

  

-

    

11,986

  

(11,986

)

Fidelity VIP Equity Income Fund - SC2

  

1,414,477

    

342,386

  

1,072,091

  

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

7. Change in Units Outstanding (continued)

Units Issued

Units Redeemed

Net Increase

(Decrease)

Fidelity VIP III Dynamic Capital Appreciation Fund - SC2

  

78,864

    

21,518

  

57,346

  

Fidelity VIP III Growth Opportunities Fund - SC2

  

728,940

    

184,312

  

544,628

  

Liberty All-Star Equity Fund, VS (A)

  

289,902

    

533,062

  

(243,160

)

Liberty All-Star Equity Fund, VS (B)

  

123,986

    

72,726

  

51,260

  

Liberty Asset Allocation Fund VS (A)

  

76,115

    

623,569

  

(547,454

)

Liberty Asset Allocation Fund VS (B)

  

391,262

    

463,788

  

(72,526

)

Liberty Federal Securities Fund VS (A)

  

256,128

    

832,528

  

(576,400

)

Liberty Federal Securities Fund VS (B)

  

915,002

    

739,405

  

175,597

  

Liberty Growth & Income Fund, VS (A)

  

2,895,554

    

845,890

  

2,049,664

  

Liberty Growth & Income Fund, VS (B)

  

594,251

    

183,929

  

410,322

  

Liberty Money Market Fund VS (A)

  

9,142,980

    

12,678,450

  

(3,535,470

)

Liberty S&P 500 Index Fund, VS (B)

  

1,585,323

    

439,947

  

1,145,376

  

Liberty Newport Japan Opportunity Fund, VS (B)

  

-

    

5,607

  

(5,607

)

Liberty Select Value Fund, VS (B)

  

759,622

    

295,973

  

463,649

  

Liberty Small Company Growth Fund VS (A)

  

41,697

    

47,767

  

(6,070

)

MFS Bond Series IC

  

27,834

    

87,808

  

(59,974

)

MFS Emerging Growth Series IC

  

39,310

    

292,690

  

(253,380

)

MFS Emerging Growth Series SC

  

80,120

    

91,367

  

(11,247

)

MFS Investors Growth Stock Series SC

  

882,038

    

152,072

  

729,966

  

MFS Investors Trust Series SC

  

587,234

    

264,602

  

322,632

  

MFS New Discovery Series SC

  

240,484

    

126,722

  

113,762

  

MFS Research Series IC

  

52,300

    

385,457

  

(333,157

)

Newport Tiger Fund, VS (A)

  

73,810

    

162,959

  

(89,149

)

Newport Tiger Fund, VS (B)

  

135,199

    

36,831

  

98,368

  

Rydex Arktos Fund

  

475,543

    

309,060

  

166,483

  

Rydex Banking Fund

  

5,207

    

4,546

  

661

  

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

7. Change in Units Outstanding (continued)

Units Issued

Units Redeemed

Net Increase

(Decrease)
                 

Rydex Basic Materials Fund

  

3,440

    

3,184

  

256

  
                 

Rydex Biotechnology Fund

  

12,271

    

12,022

  

249

  
                 

Rydex Consumer Products Fund

  

421

    

175

  

246

  
                 

Rydex Electronics Fund

  

7,197

    

7,015

  

182

  
                 

Rydex Energy Fund

  

500

    

500

  

-

  
                 

Rydex Energy Services Fund

  

4,858

    

3,561

  

1,297

  
                 

Rydex Financial Services Fund, VS (A)

  

158,593

    

158,592

  

1

  
                 

Rydex Health Care Fund, VS (A)

  

37,053

    

36,825

  

228

  
                 

Rydex Internet Fund

  

7,555

    

7,366

  

189

  
                 

Rydex Juno Fund

  

63,565

    

59,608

  

3,957

  
                 

Rydex Leisure Fund

  

527

    

527

  

-

  
                 

Rydex Lg Cap Europe Fund

  

26,840

    

26,440

  

400

  
                 

Rydex Lg Cap Japan Fund

  

45,599

    

45,539

  

60

  
                 

Rydex Medius Fund

  

41,073

    

36,355

  

4,718

  
                 

Rydex Mekros Fund

  

282,643

    

268,080

  

14,563

  
                 

Rydex Nova Fund

  

213,901

    

191,237

  

22,664

  
                 

Rydex OTC Fund

  

750,241

    

695,268

  

54,973

  
                 

Rydex Precious Metals Fund

  

34,838

    

34,744

  

94

  
                 

Rydex Real Estate Fund

  

7,652

    

7,652

  

-

  
                 

Rydex Retailing Fund

  

2,008

    

2,008

  

-

  
                 

Rydex Technology Fund

  

237,035

    

237,035

  

-

  
                 

Rydex Telecommunications Fund

  

6,745

    

4,657

  

2,088

  
                 

Rydex Titan 500 Fund

  

11,337

    

10,233

  

1,104

  
                 

Rydex Transportation Fund

  

1,175

    

1,175

  

-

  
                 

Rydex Ursa Fund

  

275,521

    

272,220

  

3,301

  

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

7. Change in Units Outstanding (continued)

Units Issued

Units Redeemed

Net Increase

(Decrease)

Rydex US Government Bond Fund

  

578,336

    

341,589

  

236,747

  

Rydex US Government Money Market Fund

  

2,385,573

    

1,987,364

  

398,209

  

Rydex Utilities Fund

  

22,684

    

27,124

  

(4,440

)

Rydex Velocity 100 Fund

  

23,604

    

21,191

  

2,413

  

SteinRoe Growth Stock Fund VS (A)

  

118,187

    

343,349

  

(225,162

)

SteinRoe Growth Stock Fund VS (B)

  

114,152

    

127,535

  

(13,383

)

Templeton Developing Markets Sec Fund 2

  

71,798

    

64,289

  

7,509

  

UBS Global AM Tactical Allocation

  

3,750

    

347,534

  

(343,784

)

Wanger Foreign Forty Fund

  

163,463

    

68,489

  

94,974

  

Wanger International Small Cap Fund

  

607,053

    

557,892

  

49,161

  

Wanger Twenty Fund

  

806,014

    

105,452

  

700,562

  

Wanger US Smaller Companies Fund

  

2,562,703

    

1,636,148

  

926,555

  

Colonial Global Equity Fund, VS (B)

  

4,389

    

308,138

  

(303,749

)

Colonial High Yield Securities Fund, VS (A)

  

324,750

    

1,553,183

  

(1,228,433

)

Colonial High Yield Securities Fund, VS (B)

  

447,490

    

2,041,109

  

(1,593,619

)

Colonial International Horizons Fund, VS (B)

  

6,011

    

626,848

  

(620,837

)

Crabbe Huson Real Estate Investment Fund, VS (B)

  

4,540

    

150,133

  

(145,593

)

Liberty Value Fund, VS (A)

  

15,946

    

3,020,818

  

(3,004,872

)

Liberty Value Fund, VS (B)

  

33,523

    

407,612

  

(374,089

)

Rydex Financial Services Fund, VS (B)

  

9,361

    

321,031

  

(311,670

)

Rydex Health Care Fund, VS (B)

  

8,692

    

630,473

  

(621,781

)

SteinRoe Global Utilities Fund, VS (A)

  

16,741

    

1,587,616

  

(1,570,875

)

Columbia High Yield Fund, VS (A)

  

2,065,719

    

1,137,723

  

927,996

  

Columbia High Yield Fund, VS (B)

  

2,881,874

    

429,091

  

2,452,783

  

Columbia International Fund, VS (B)

  

515,375

    

67,881

  

447,494

  

Columbia Real Estate Equity Fund, VS (B)

  

167,004

    

34,086

  

132,918

  

   

48,147,629

    

51,007,879

  

(2,860,250

)

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) - KEYPORT VARIABLE ACCOUNT A

Notes to Financial Statements (continued)

 

 

8. Diversification Requirements

Under the provisions of Section 817(h) of the Internal Revenue Code, (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 for 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 Internal Revenue Service has issued regulations under Section 817(h) of the Code. The Company 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.

Independent Auditors' Report

 

To the Board of Directors of Sun Life Assurance and Annuity Company of Canada (U.S.)

and Contract Owners of Keyport Variable Account A:

We have audited the accompanying statements of assets and liabilities of the Sub-Accounts of Sun Life Assurance and Annuity Company of Canada (U.S.) - Keyport Variable Account A (comprising, respectively, AIM VI Capital Appreciation Series I Sub-Account, AIM VI Growth Series I Sub-Account, AIM VI International Growth Series I Sub-Account, AIM VI Premier Equity Series I Sub-Account, Alger American Growth Portfolio Sub-Account, Alger American Small Capitalization Portfolio Sub-Account, AllianceBernstein Global Bond Portfolio (A) Sub-Account, AllianceBernstein Global Bond 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 Portfolio(B) Sub-Account, AllianceBernstein Premier Growth Portfolio(A) Sub-Account, AllianceBernstein Premier Growth Portfolio(B) Sub-Account, AllianceBernstein Real Estate Investment Portfolio(A) Sub-Account, AllianceBernstein Technology Portfolio(B) Sub-Account, AllianceBernstein Total Return Portfolio(B) Sub-Account, AllianceBernstein Worldwide Privatization Portfolio(B) Sub-Account, UBS Global AM Tactical Allocation 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, Franklin Templeton Developing Markets Sec Fund 2 Sub-Account, Colonial Small Cap Value Fund, VS(A) Sub-Account, Colonial Small Cap Value Fund, VS(B) Sub-Account, Colonial Strategic Income Fund, VS(A) Sub-Account, Colonial Strategic Income Fund, VS(B) Sub-Account, Columbia High Yield Fund II, VS(A) Sub-Account, Columbia High Yield Fund II, VS(B) Sub-Account, Columbia International Fund, VS(A) Sub-Account, Columbia International Fund, VS(B) Sub-Account, Columbia Real Estate Equity Fund II, VS(B) Sub-Account, Liberty All-Star Equity Fund, VS(A) Sub-Account, Liberty All-Star Equity Fund, VS(B) Sub-Account, Liberty Asset Allocation Fund, VS(A) Sub-Account, Liberty Asset Allocation Fund, VS(B) Sub-Account, Liberty Growth & Income Fund, VS(A) Sub-Account, Liberty Growth & Income Fund VS(B) Sub-Account, Liberty Money Market Fund, VS(A) Sub-Account, Liberty Select Value Fund, VS(A) Sub-Account, Liberty Select Value, VS(B) Sub-Account, Liberty Small Company Growth Fund, VS(A), Liberty S&P 500 Index Fund, VS(A) Sub-Account, Liberty S&P 500 Index Fund, VS(B) Sub-Account, Newport Tiger Fund, VS(A) Sub-Account, Newport Tiger Fund, VS(B) Sub-Account, Wanger Foreign Forty Fund Sub-Account, Wanger International Small Cap Fund Sub-Account, Wanger Twenty Fund Sub-Account, Wanger US Smaller Companies Fund Sub-Account, MFS Bond Series IC Sub-Account, MFS Emerging Growth Series IC Sub-Account, MFS Emerging 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 Arktos Fund Sub-Account, Rydex Banking Fund Sub-Account, Rydex Basic Materials Fund Sub-Account, Rydex Biotechnology Fund Sub-Account, Rydex Consumer Products Fund Sub-Account, Rydex Electronics Fund Sub-Account, Rydex Energy Services Fund Sub-Account, Rydex Financial Services Fund, VS(A) Sub-Account, Rydex Health Care Fund, VS (A) Sub-Account, Rydex Internet Fund Sub-Account, Rydex Juno Fund Sub-Account, Rydex Large Cap Europe Fund Sub-Account, Rydex Large Cap Japan Fund Sub-Account, Rydex Medius Fund Sub-Account, Rydex Mekros Fund Sub-Account, Rydex Nova Fund Sub-Account, Rydex OTC Fund Sub-Account, Rydex Precious Metals Fund Sub-Account, Rydex Telecommunications Fund Sub-Account, Rydex Titan 500 Fund Sub-Account, Rydex Ursa Fund Sub-Account, Rydex US Government Bond Fund Sub-Account, Rydex US Government Money Market Fund Sub-Account, Rydex Utilities Fund Sub-Account, Rydex Velocity 100 Fund Sub-Account, Liberty Federal Securities Fund, VS(A) Sub-Account, Liberty Federal Securities Fund, VS(B) Sub-Account, SteinRoe Growth Stock Fund, VS(A) Sub-Account, SteinRoe Growth Stock Fund, VS(B) Sub-Account, Exeter Growth Fund Sub-Account, Exeter Moderate Growth Fund Sub-Account, Rydex Transportation Fund, VS(A) Sub-Account, Rydex Technology Fund, VS(A) Sub-Account, Rydex Real Estate Fund, VS(A) Sub-Account, Rydex Retailing Fund, VS(A) Sub-Account, Liberty Newport Japan Opportunities Fund, VS(B) Sub-Account Rydex Leisure Fund, VS(A) Sub-Account, SteinRoe Global Utilities Fund, VS(A) Sub-Account, Liberty Value Fund, VS(A) Sub-Account, Liberty Value Fund, VS(B) Sub-Account, Rydex Health Care Fund, VS(B) Sub-Account, Rydex Financial Services Fund, VS(B) Sub-Account, Liberty Newport Japan Opportunities Fund, VS(A) Sub-Account, Colonial Global Equity Fund, VS(B) Sub-Account, Colonial International Horizons Fund, VS(B) Sub-Account, Colonial High Yield Securities Fund, VS (A) Sub-Account, Colonial High Yield Securities Fund, VS (B) Sub-Account, Crabbe Huson Real Estate Fund, VS(B) Sub-Account (the "Sub-Accounts") as of December 31, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the periods presented, and the financial highlights for each of periods presented. These financial statements are the responsibility of the management of Sun Life Assurance and Annuity Company of Canada (U.S.). Our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights of the Sub-Accounts for the year ended December 31, 2001 were audited by other auditors whose report, dated April 19, 2002, expressed an unqualified opinion, on such financial highlights.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2003 by correspondence with the custodian and brokers. An audit also includes 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, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Sub-Accounts as of December 31, 2003, and the results of their operations for the year then ended, the changes in their net assets for each of the periods presented, and the financial highlights for each of periods presented, in conformity with accounting principles generally accepted in the United States of America.

The information contained in footnote 5 for the year ended December 31, 2001 was derived from the financial statements for the year ended December 31, 2001 audited by other auditors, whose report dated April 19, 2002 expressed an unqualified opinion.

 

DELOITTE & TOUCHE, LLP

Boston, Massachusetts

March 31, 2004

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,

 

2003

  

2002

Restated

  

2001

Restated
           

Revenues

   Premiums and annuity considerations

$ 60,518

  

$ 43,574

 

$    41,009

   Net investment income

1,208,750

  

1,185,210

  

555,054

Net derivative loss

(203,200)

  

 (159,285)

  

(10,056)

   Net realized investment gains (losses)

134,085

  

 (38,966)

  

14,630

   Fee and other income

319,596

  

390,691

  

295,064
           

Total revenues

1,519,749

  

 1,421,224

  

895,701
           

Benefits and expenses

Interest credited

783,999

  

704,690

  

276,295

Interest expense

120,905

  

106,043

  

94,422

   Policyowner benefits

201,248

  

 221,162

  

134,900 

   Other operating expenses

184,472

  

 237,797

  

162,556 

   Amortization of deferred acquisition costs and value of business acquired

98,398

  

251,513

  

139,034 
           

Total benefits and expenses

1,389,022

  

1,521,205

  

807,207
           

Income (loss) before income tax expense (benefit) and cumulative effect of change in accounting principles

130,727

  

(99,981)

  

88,494
           

Income tax expense (benefit):

          

Federal

27,366

  

(59,449)

  

20,713

State

823

  

1,265

  

(1,313)

   Income tax expense (benefit)

28,189

  

(58,184)

  

19,400
           

Net income (loss) before cumulative

          

      effect of change in accounting principles

102,538

  

(41,797)

  

69,094
           

Cumulative effect of change in accounting principles, net of tax benefit (expense) of $4,064 and $(2,799) in 2003 and 2001, respectively

(7,547)

  

-

  

5,198
           

Net income (loss)

$ 94,991

  

$ (41,797)

  

$    74,292

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 share data)

December 31,

ASSETS

2003

  

2002

Restated

Investments

      

Available-for-sale fixed maturities at fair value (amortized cost of
$16,338,241 and $15,954,813 in 2003 and 2002, respectively)

$ 16,858,414


$ 16,423,020

Trading fixed maturities at fair value (amortized cost of $1,434,654 and
$1,354,969 in 2003 and 2002, respectively)

1,527,619

  

1,404,825

Subordinated note from affiliate held-to-maturity (fair value of $699,069
and $616,520 in 2003 and 2002, respectively)

600,000

  


600,000

Short-term investments

24,662

  

178,017

Mortgage loans

972,102

948,529

Derivative instruments - receivable

400,037

  

408,832

Limited partnerships

330,562

  

481,557

Equity securities

1,452

  

1,127

Real estate

84,421

  

79,783

Policy loans

692,887

  

682,029

Other invested assets

46,996

  

40,026

Cash and cash equivalents

513,454

  

725,550

Total investments

22,052,606

  

21,973,295
       

Accrued investment income

285,224

  

256,569

Deferred policy acquisition costs

889,601

  

795,648

Value of business acquired

22,391

  

57,692

Goodwill

705,202

  

705,202

Deferred federal income taxes

-

  

20,507

Receivable for investments sold

37,049

  

110,621

Reinsurance receivable from affiliate

1,741,962

  

-

Other assets

371,474

  

208,329

Separate account assets

17,521,009

15,718,113
       

Total assets

$ 43,626,518

  

$ 39,845,976

       

LIABILITIES

      
       

Contractholder deposit funds and other policy liabilities

$ 18,317,422

$ 17,952,084

Future contract and policy benefits

716,819

717,673

Payable for investments purchased

261,673

  

365,446

Accrued expenses and taxes

73,111

  

117,519

Deferred federal income taxes

18,897

  

-

Long-term debt

40,500

  

-

Long-term debt payable to affiliates

1,025,000

  

1,025,000

Partnership capital securities

607,826

  

607,826

Reinsurance payable to affiliate

1,741,962

  

-

Derivative instruments - payable

248,272

  

399,906

Other liabilities

196,401

  

163,973

Separate account liabilities

17,509,294

  

15,700,969
       

Total liabilities

40,757,177

  

37,050,396
       

Commitments and contingencies - Note 18

      
       

STOCKHOLDER'S EQUITY

      
       

Common stock, $1,000 par value - 10,000 shares authorized; 6,437 shares
issued and outstanding in 2003 and 2002

$ 6,437

$ 6,437

Additional paid-in capital

2,071,888

  

2,071,888

Accumulated other comprehensive income

227,681

  

248,911

Retained earnings

563,335

  

468,344
       

Total stockholder's equity

2,869,341

  

2,795,580
       

Total liabilities and stockholder's equity

$ 43,626,518

  

$ 39,845,976

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,

 
 

2003

  

2002

Restated

  

2001

Restated
           

Net income (loss)

$ 94,991

  

$ (41,797)

  

$        74,292

Other comprehensive income

          

   Net change in unrealized holding gains (losses) on

          

      available-for-sale securities, net of tax and
       policyholder amounts

158,442

  


208,297

  


(24,383)

   Reclassification adjustments of realized investment (gains)
      losses into net income (loss)

(179,672)


34,767


(8,319)

Other comprehensive (loss) income

(21,230)

243,064

(32,702)
           

Comprehensive income

$ 73,761

$ 201,267

$        41,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

         

Accumulated

       
     

Additional

  

Other

      

Total
 

Common

  

Paid-In

  

Comprehensive

  

Retained

  

Stockholder's
 

Stock

  

Capital

  

Income

  

Earnings

  

Equity
                   

Balance at December 31, 2000

$ 6,437

  

$ 265,411

  

$ 38,549

  

$ 450,849

  

$ 761,246
                   

Acquisition of Keyport Life (note 2)

 		   

1,706,477

          

1,706,477

   Net income - Restated

            

74,292

  

74,292

   Dividends declared - Restated

            

(15,000)

  

(15,000)

   Other comprehensive loss - Restated

 		       

(32,702)

      

(32,702)

Balance at December 31, 2001 -Restated

$ 6,437

  

$ 1,971,888

  

$ 5,847

  

$ 510,141

  

$ 2,494,313

                   

   Net loss - Restated

            

(41,797)

  

(41,797)

Additional paid-in-capital - Restated

 		   

100,000

          

100,000

   Other comprehensive income - Restated

 		       

243,064

      

243,064
                   

Balance at December 31, 2002 - Restated

$ 6,437

  

$ 2,071,888

  

$ 248,911

  

$ 468,344

  

$ 2,795,580
                   

   Net income

            

94,991

  

94,991

   Other comprehensive loss

        

(21,230)

      

(21,230)
                   

Balance at December 31, 2003

$ 6,437

  

$ 2,071,888

  

$ 227,681

  

$ 563,335

  

$ 2,869,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2003

  

2002

Restated

  

2001

Restated
           

Cash Flows From Operating Activities:

          

Net income (loss) from operations

$ 94,991

  

$ (41,797)

  

$ 74,292

Adjustments to reconcile net income (loss) to net cash provided

          

       by (used in) operating activities:

          

  Amortization (accretion) of discount and premiums

112,761

  

58,246

  

(7,185)

Amortization of DAC and VOBA

98,398

  

251,513

  

139,034

  Depreciation and amortization

1,730

  

1,876

  

1,602

Non cash derivative activity

144,091

  

231,131

  

(36,010)

  Net realized (gains) losses on investments

(134,085)

  

38,966

  

(14,630)

  Net unrealized gains on trading investments

(63,573)

  

(111,740)

  

(112,802)

Net change in unrealized and undistributed losses in private equity limited partnerships

15,789

  

17,186

  

5,413

  Interest credited to contractholder deposits

781,834

  

701,505

  

283,231

  Deferred federal income taxes (benefits)

43,029

  

(44,316)

  

104,324

  Cumulative effect of change in accounting principles, net of tax

7,547

  

-

  

(5,198)

Changes in assets and liabilities:

         

  Deferred acquisition costs

(263,762)

  

(288,463)

  

(155,263)

  Accrued investment income

(28,655)

  

(5,038)

  

1,481

  Other assets

(11,709)

  

(59,560)

  

(46,425)

  Future contract and policy benefits

(854)

  

25,584

  

(23,255)

  Other, net

138,765

  

28,055

  

75,227

Net purchases of trading fixed maturities

(60,321)

  

(369,794)

  

(372,352)

Net cash provided by (used in) operating activities

875,976

  

433,354

  

(88,516)
           

Cash Flows From Investing Activities:

          

  Sales, maturities and repayments of:

     Available-for-sale fixed maturities

13,004,400

11,137,476

2,905,931

     Net cash from sale of subsidiary

1,500

  

3,331

  

-

     Other invested assets

127,944

  

152,512

  

3,131

     Mortgage loans

339,735

  

234,191

  

112,767

     Real estate

14,275

  

6,036

  

10,009

  Purchases of:

     Available-for-sale fixed maturities

(13,414,490)

  

(12,867,827)

   
(2,322,734)

     Subsidiaries

-

  

-

  

(4,965)

     Other invested assets

(4,926)

  

(233,255)

  

(29,776)

     Mortgage loans

(338,627)

  

(249,867)

  

(184,787)

     Real estate

(16,153)

  

(3,634)

  

(16,284)

  Changes in other investing activities, net

5,100

  

(8,109)

  

1,285

  Net change in policy loans

(10,858)

  

(3,406)

  

(3,894)

  Net change in short-term investments

153,355

  

(81,713)

  

8,782
           

Net cash (used in) provided by investing activities

$ (138,745)

  

$ (1,914,265)

  

$ 479,465

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,

 

2003

  

2002

Restated

  

2001

Restated
           

Cash Flows From Financing Activities:

          

Deposits to contractholder deposit funds

$ 2,461,677

  

$ 3,627,924

  

$ 2,010,861

Withdrawals from contractholder deposit funds

(3,411,004)

  

(3,116,836)

  

(2,366,475)

Issuance of long-term debt

-

  

460,000

  

-

Net change in securities lending

-

  

(1,152,861)

  

30,900

Dividends paid to stockholder

-

  

-

  

(15,000)

Additional capital contributed

-

  

100,000

  

-

Net cash used in financing activities

(949,327)

  

(81,773)

  

(339,714)
           

Net change in cash and cash equivalents

(212,096)

  

(1,562,684)

  

51,235

Cash and cash equivalents, beginning of year

725,550

  

2,288,234

  

390,056
           

Cash acquired from acquisition through merger of Keyport Life Insurance Company

-

  

-

  

1,846,943
           

Cash and cash equivalents, end of year

$ 513,454

  

$ 725,550

  

$ 2,288,234
           

Supplemental Cash Flow Information

          

Interest paid

$ 118,302

  

$ 107,358

  

$ 94,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2003, 2002 and 2001

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Sun Life Assurance Company of Canada (U.S.) ("SLUS") was incorporated in 1970 as a life insurance company domiciled in the State of Delaware. On April 3, 2003, SLUS and its affiliate Keyport Life Insurance Company ("Keyport"), filed a Form D (Prior notice of Transaction) with the Division of Insurance Department of Business Regulation of the State of Rhode Island and filed similar documents with the Delaware Department of Insurance. Both filings sought regulatory approval for the merger of Keyport with and into SLUS. On December 31, 2003 at 5:00 p.m., SLUS and Keyport completed the merger. Pursuant to the Merger Agreement, Keyport merged with and into SLUS with SLUS as the surviving company ("the Company"). The Company is licensed and authorized to write all business that was previously written by Keyport and SLUS. The merger has no effect on the existing rights and benefits of policyholders or contractholders from either company. Both Keyport and SLUS were direct wholly-owned subsidiaries of Sun Life of Canada (U.S.) Holdings, Inc. ("SLC U.S. Holdings"), and indirect wholly-owned subsidiaries of Sun Life Financial Inc. ("SLF"), a reporting company under the Securities Exchange Act of 1934.

The following summarizes the results of operations and total assets as of and for the year ended December 31, 2003:
 

Keyport

SLUS

Surviving Entity

Total revenues

$ 893,846

$ 625,903

$ 1,519,749

Total expenditures

764,596

624,426

1,389,022

Pretax income

129,250

1,477

130,727
       

Net income

$ 76,452

$ 18,539

$ 94,991
       

Total Assets

$ 21,084,746

$ 22,541,772

$ 43,626,518

The merger was accounted for under Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." Under SFAS No. 141, transfers of net assets and exchanges of shares between entities under common control are recorded at their carrying amounts at the date of transfer. The financial statements of prior periods have been restated to give effect to the merger as of November 1, 2001, the date on which the companies came under common control.

The impact of the merger with Keyport (decreased) increased net income by $(22.6) million and $87.7 million for the years ended December 31, 2002 and 2001, respectively.

As of December 31, 2003, the Company was licensed in 49 states and certain other territories. In addition, the Company's wholly-owned subsidiary, Sun Life Insurance and Annuity Company of New York ("SLNY"), is licensed in New York. The Company and its subsidiaries are engaged in the sale of individual and group variable life insurance, individual fixed and variable annuities, group fixed and variable annuities, group pension contracts, guaranteed investment contracts ("GICs"), group life, group disability and stop loss insurance, and other asset management services.

The Company is a wholly-owned subsidiary of SLC (U.S.) Holdings, which is an indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada ("SLOC"). SLOC is a life insurance company domiciled in Canada, which reorganized from a mutual life insurance company to a stock life insurance company on March 22, 2000. As a result of the demutualization, a new holding company, SLF, is now the ultimate parent of SLOC and 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, 2003, 2002 and 2001

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

BASIS OF PRESENTATION

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for stockholder-owned life insurance companies.

The consolidated financial statements include the accounts of the Company and its subsidiaries. As of December 31, 2003, the Company owned all of the outstanding shares of SLNY, Sun Benefit Services Company, Inc. ("SBSC"), Sun Capital Advisers, Inc. ("SCA"), Sun Life of Canada (U.S.) SPE 97-1, Inc. ("SPE 97-1), Sun Life of Canada (U.S.) Holdings General Partner LLC ("the General Partner"), Clarendon Insurance Agency, Inc. ("Clarendon"), and Independence Life and Annuity Company ("Independence Life"). The General Partner is the sole general partner in Sun Life of Canada (U.S.) Limited Partnership I ('the Partnership") and as a result, the Partnership is consolidated with the results of the Company.

SLNY is engaged in the sale of individual fixed and variable annuity contracts, variable universal life insurance, and group life, group disability insurance and stop loss contracts in its state of domicile, New York. SBSC became an inactive subsidiary 2002. SCA is a registered investment adviser. SPE 97-1 was organized for the purpose of engaging in activities incidental to securitizing mortgage loans. The General Partner is the sole general partner of the Partnership. The Partnership was established to purchase subordinated debentures issued by the Company's parent, SLC U.S. Holdings, and to issue Partnership capital securities to an affiliated business trust, Sun Life of Canada (U.S.) Capital Trust I, ("Capital Trust I"). Clarendon is a registered broker-dealer that acts as the general distributor of certain annuity and life insurance contracts issued by the Company and its affiliates. Independence Life is a life insurance company that sold variable and whole life insurance products.

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. Actual results could differ from those estimates. The most significant estimates are those used in determining the fair value of financial instruments, deferred policy acquisition costs ("DAC"), value of business acquired ("VOBA"), the liabilities for future contract and policyholder benefits and other than temporary impairments of investments. Actual results could differ from those estimates.

FINANCIAL INSTRUMENTS

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including cash and cash equivalents, fixed maturity investments, mortgage loans, equity securities, off balance sheet 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 AND CASH EQUIVALENTS

Cash and cash equivalents primarily include cash, commercial paper, money market investments and short-term bank participations. All such investments have maturities of three months or less when purchased and are considered cash equivalents for purposes of reporting cash flows.

 

 

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, 2003, 2002 and 2001

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

INVESTMENTS

The Company accounts for its investments in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At the time of purchase, fixed maturity securities are classified based on intent as either held-to-maturity, trading or available-for-sale. In order for the security to be classified as held-to-maturity, the Company must have positive intent and ability to hold the securities to maturity. Securities held-to-maturity are stated at cost adjusted for amortization of premiums and accretion of discounts. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading. Trading securities are carried at aggregate fair value with changes in unrealized gains or losses reported as a component of net investment income. Securities that do not meet the held-to-maturity or trading criterion are classified as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized gains or losses reported in other comprehensive income.

Fair values for publicly traded securities are obtained from external market quotations. For privately placed fixed maturities, fair values are estimated by taking into account prices for publicly traded securities of similar credit risk, maturities repayment and liquidity characteristics. All security transactions are recorded on a trade date basis.

The Company's accounting policy for impairment requires recognition of an other-than-temporary impairment write-down on a security if it is determined that the Company is unable to recover all amounts due under the contractual obligation of the security. Once an impairment charge has been recorded, the Company continues to review the other-than-temporarily impaired security for additional impairment, if necessary. Other-than-temporary impairments are reported as a component of net realized investment gains (losses).

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 values net of provisions for estimated losses. Mortgage loans, which include primarily 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 properties' value at the time that the original loan is made.

A loan is recognized as impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan. Measurement of impairment is based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price. A specific valuation allowance is established if the fair value of the impaired loan is less than the recorded amount. Loans are also charged against the allowance when determined to be uncollectible. The allowance is based on a continuing review of the loan portfolio, past loss experience and current economic conditions, which may affect the borrower's ability to pay. While management believes that it uses the best information available to establish the allowance, future adjustments to the allowance may become necessary if economic conditions differ from the assumptions used in making the evaluation.

Real estate investments are held for the production of income or held-for-sale. Real estate investments held for the production of income are carried at the lower of cost adjusted for accumulated depreciation or fair value. 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.

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 excess of the net cash surrender value of such policy.

 

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, 2003, 2002 and 2001

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

Investments in private equity limited partnerships are accounted for on either the cost or equity method. The equity method of accounting is used for all partnerships in which the Company has an ownership interest in excess of 3%.

The Company uses derivative financial instruments including swaps and options 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.

Realized gains and losses on the sales of investments are recognized in operations at the date of sale and are determined using the specific cost identification method. When an impairment of a specific investment is determined to be other-than-temporary, a realized investment loss is recorded. Changes in the provision for estimated losses on mortgage loans and real estate are included in net realized investment gains and losses.

Interest income is recorded on the accrual basis. Investments are placed in a non-accrual status when management believes that the borrower's financial condition, 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 previously accrued is reversed against current period interest income. Interest accruals are resumed on such investments only when they are brought fully current with respect to principal and interest, 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.

DEFERRED POLICY ACQUISITION COSTS

Acquisition costs consist of commissions, underwriting and other costs, which vary with and are primarily related to the production of new business. Acquisition costs related to investment-type contracts, primarily deferred annuity and GICs, and universal and variable life products are deferred and amortized with interest in proportion to the present value of estimated gross profits to be realized over the estimated lives of the contracts. Estimated gross profits are composed of net investment income, net realized investment gains and losses, life and variable annuity fees, surrender charges and direct variable administrative expenses. This amortization is reviewed periodically and adjusted retrospectively when the Company revises the actual profits and its estimate of future gross profits to be realized from this group of products, including realized and unrealized gains and losses from investments.

DAC for each product is reviewed to determine if it is recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. Although realization of DAC is not assured, the Company believes it is more likely than not that all of these costs will be realized. The amount of DAC considered realizable, however, could be reduced in the near term if the estimates of gross profits or total revenues discussed above are reduced.

DAC is also adjusted for amounts relating to the recognition of unrealized investment gains and losses. This adjustment, net of tax, is included with the change in net unrealized investment gains or losses that is credited or charged directly to accumulated other comprehensive income (loss). DAC adjustments were $(79.2) million and $(39.9) million at December 31, 2003 and 2002, respectively.

VALUE OF BUSINESS ACQUIRED

VOBA represents the actuarially-determined present value of projected future gross profits from policies in force at the date of their acquisition. This amount is amortized in proportion to the projected emergence of profits. Interest is accrued on the unamortized balance at the average interest crediting rate.

 

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, 2003, 2002 and 2001

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

VALUE OF BUSINESS ACQUIRED (CONTINUED)

VOBA is also adjusted for amounts relating to the recognition of unrealized investment gains and losses. This adjustment, net of tax, is included with the change in net unrealized investment gains or losses that is credited or charged directly to accumulated other comprehensive income (loss). VOBA adjustments were $(27.5) million and $(32.9) million at December 31, 2003 and 2002, respectively.

GOODWILL

Goodwill represents the difference between the purchase price paid and the fair value of the net assets acquired in connection with the acquisition of Keyport on October 31, 2001 by SLC (U.S.) Holdings. Goodwill is accounted for in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Effective January 1, 2002, goodwill is no longer amortized and is tested for impairment on an annual basis. The Company completed the required impairment tests of goodwill and indefinite-lived intangible assets during the second quarter of 2003 and concluded that these assets are not impaired. The Company used the actuarial appraisal method, with assumptions and discount rates reflective of current market conditions and determined that the fair value of the Company was at least equal to the carrying value. The Company also compared the results of that valuation to a range of values based on historical multiples, and found them to be consistent with the results of the actuarial appraisal method. Goodwill is allocated to the Company's Wealth Management Segment.

OTHER ASSETS

Property, equipment, leasehold improvements and capitalized software costs that are included in other assets 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. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements. Intangible assets and reinsurance receivables from reinsurance ceded are also included in other assets.

Intangible assets acquired primarily consist of state insurance licenses ($10.1 million) that are not subject to amortization. The remaining $2.0 million of intangible assets relate to product rights that have a weighted-average useful life of 7 years.

POLICY LIABILITIES AND ACCRUALS

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 policies and GICS. The liabilities consist of deposits received plus interest credited, less accumulated policyholder charges, assessments and withdrawals. The liability is before the deduction of any applicable surrender charges.

Other policy liabilities include liabilities for policy and contract claims. These amounts 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.

Future contract and policy benefits are liabilities for traditional life, health and stop loss products. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. The liabilities associated with traditional life insurance and disability insurance products are computed using the net level premium method based on assumptions about future investment yields, mortality, morbidity and persistency. The assumptions used are based upon the Company's experience and industry standards.

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, 2003, 2002 and 2001

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

REVENUE AND EXPENSES

Premiums for traditional individual life products are considered revenue when due. Premiums related to group life, stop loss and group disability insurance are recognized as 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.

Other than DAC, 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 spread income recognition over expected policy lives. 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

For the 2003 tax year, as in prior years, SLUS will participate in the consolidated federal income tax return with Sun Life of Canada - US Operations Holdings, Inc. ("SLOC U.S. Operations Holdings") and other affiliates. For 2003, Keyport will continue to file a separate consolidated return with its affiliate, Independence Life. Effective for the tax year 2004, the combined entity will participate in the consolidated federal income tax return with SLOC U.S. Operations Holdings. Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by SFAS No. 109, "Accounting for Income Taxes." These differences primarily result from policy reserves, policy acquisition expenses and unrealized gains or losses on investments.

SEPARATE ACCOUNTS

The Company has established separate accounts applicable to various classes of contracts providing for variable benefits. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. 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.

RECLASSIFICATIONS

Certain amounts in the prior years' financial statements have been reclassified to conform to the 2003 presentation.

NEW ACCOUNTING PRONOUNCEMENTS

Effective December 31, 2003, the Company adopted the disclosure requirements of Emerging Issues Task Force ("EITF") Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments". Under the consensus, disclosures are required for unrealized losses on fixed maturity and equity securities accounted for under SFAS No. 115, "Accounting for Certain Investment in Debt and Equity Securities," that are classified as either available-for-sale or held-to-maturity.

 

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, 2003, 2002 and 2001

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

NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

The disclosure requirements include quantitative information regarding the aggregate amount of unrealized losses and the associated fair value of the investments in an unrealized loss position, segregated into time periods for which the investments have been in an unrealized loss position. The consensus also requires certain qualitative disclosures about the unrealized holdings in order to provide additional information that the Company considered in concluding that the unrealized losses were not other-than-temporary. For further discussion, see disclosures in Note 4.

In June 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 is intended to result in more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the Company's financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. SFAS No. 150 was effective July 1, 2003 for the Company. The adoption of SFAS No. 150 did not have a material effect on the Company's financial position or results of operations.

In April 2003, the FASB issued guidance in Statement 133 Implementation Issue No. B36, "Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor of Those Instruments" ("DIG B36"), that addresses the instances in which bifurcation of an instrument into a debt host contract and an embedded derivative is required. The effective date of DIG B36 was October 1, 2003. The adoption of DIG B36 did not have a material effect on the Company's financial position or results of operations.

On March 14, 2003, the American Institute of Certified Public Accountants ("AICPA") issued a proposed Statement of Position ("SOP"), "Accounting by Insurance Enterprises for Deferred Acquisition Costs on Internal Replacements other than those specifically described in FASB Statement No. 97." This proposed SOP provides guidance on accounting by insurance companies for DAC on internal replacements other than those specifically described in FASB Statement No. 97. This proposed SOP is effective for fiscal years beginning after December 15, 2004. The Company is in the process of evaluating the provision of this proposed SOP and its impact to the Company's financial position and results of operations.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). In December 2003, the FASB issued a revised version of FIN 46 ("FIN 46R"), which incorporates a number of modifications and changes made to the original version. FIN 46R replaces the previously issued FIN No. 46 and, subject to certain special provisions, is effective no later than the first reporting period that ends after December 15, 2003 for entities considered to be special-purpose entities and no later than the end of the first reporting period that ends after March 15, 2004 for all other VIE's. Early adoption is permitted. The Company adopted FIN No. 46 and FIN 46R in the fourth quarter of 2003. Implementation of FIN No. 46 and FIN 46R resulted in the consolidation of two variable interest entities ("VIE's") and increased total consolidated assets by $67.8 million at December 31, 2003. As required by FIN No. 46 and FIN 46R, the difference between the carrying amount of the assets and the fair value of the VIE's resulted in a cumulative effect of change in accounting principles, net of tax, of $7.5 million as of the date of adoption.

 

 

 

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, 2003, 2002 and 2001

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

NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

The Company is not the primary beneficiary in any VIEs other than the two entities that were discussed above. The Company does have a greater than or equal to 21% involvement in 11 VIEs at December 31, 2003. The Company is a creditor in 8 trusts, 2 limited liability companies and one special purpose entity that were used to finance commercial mortgages, franchise receivables, auto receivables and equipment used in utility generation. The Company's maximum exposure to loss related to all of these VIEs is the investments' carrying value, which was $42.1 million at December 31, 2003. The notes mature between June 2004 and December 2035. See Note 4 for additional information with respect to leveraged leases.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others" ("FIN No. 45"). FIN No. 45 requires entities to establish liabilities for certain types of guarantees, and expands financial statement disclosures for others. Disclosure requirements under FIN No. 45 are effective for financial statements of annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to the provisions of FIN No. 45. The initial recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Adoption of FIN No. 45 did not have a material impact on the Company.

In July 2002, the AICPA issued Statement of Position 03-1 ("SOP 03-1"), "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP 03-1 provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts. SOP 03-1 is effective for financial statements for fiscal years beginning after December 15, 2003. The Company is in the process of evaluating the provisions of SOP 03-1 and its impact on the Company's financial position or results of operations.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements changed the accounting for business combinations and goodwill in two significant ways. First, SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. Use of the pooling-of-interests method is prohibited. Second, SFAS No. 142 changed the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, ceased upon the Company's adoption of SFAS No. 142, which was January 1, 2002. Adopting SFAS No. 141 and SFAS No. 142 did not have a material impact on the Company.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities including fair value hedges and cash flow hedges. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. For a derivative that does not qualify as a hedge, changes in fair value are recognized in earnings.

The Company applied SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, on January 1, 2001. As a result, the Company recorded as a change in accounting principle in the accompanying consolidated statements of income, a cumulative transition adjustment of $5.2 million, net of tax, that increased earnings relating to embedded derivatives. Prior to the adoption of SFAS No. 133, the Company had been recognizing changes in fair value of derivatives in earnings; however, embedded derivatives in insurance contracts had not been accounted for separately.

2. MERGERS, ACQUISITIONS AND DISPOSITIONS



On April 2, 2003, the Company and its affiliate, Keyport, filed a Form D (Prior Notice of a Transaction) with the Division of Insurance, Department of Business Regulation of Rhode Island. On April 3, 2003, the Company and Keyport filed similar documents with the Delaware Department of Insurance.  Both filings sought regulatory approval for a contemplated merger of Keyport with and into 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, 2003, 2002 and 2001



2. MERGERS, ACQUISITIONS AND DISPOSITIONS (CONTINUED)




The Company is, and Keyport was, a direct wholly-owned subsidiary of SLC (U.S.) Holdings and indirect wholly-owned subsidiaries of SLF. The boards of directors of both the Company and Keyport voted to approve the merger at their meetings on April 24, 2003. Regulatory approval from the States of Rhode Island and Delaware was received on June 11, 2003 and July 21, 2003, respectively.  The merger occurred as planned on December 31, 2003, with the Company as the surviving entity. The merger had no effect on the existing rights and benefits of policyholders or contract holders from either company.




On December 31, 2003, Clarendon merged with an affiliate, Keyport Financial Services Corp. ("KFSC"), with Clarendon as the surviving entity.  KFSC was a wholly-owned subsidiary of Keyport.    




On November 18, 2003, the Company sold its interest in its' wholly-owned subsidiary, Vision Financial Corporation ("Vision"), for $1.5 million.  A loss of approximately $1.0 million was realized on this transaction.   




On April 1, 2003, Sun Life Financial Services Limited ("SLFSL"), a wholly-owned subsidiary of the Company, ceased operations and SLFSL was liquidated during the fourth quarter of 2003.  SLFSL served as marketing administrator for the distribution of offshore products offered by SLOC, an affiliate.




On October 31, 2001, SLC (U.S.) Holdings acquired Keyport and its subsidiaries for approximately $1.7 billion in cash.  As part of the acquisition, Sun Life Financial (U.S.) Holdings, Inc. ("SLF (U.S.) Holdings"), another indirect subsidiary of SLOC, acquired Independent Financial Marketing Group, Inc. ("IFMG").  The acquisition of Keyport and IFMG complemented SLF's product array and distribution capabilities and advanced SLF toward its strategic goal of reaching a top ten position in certain target product markets in North America. 




This acquisition was accounted for using the purchase method under SFAS No. 141, "Business Combinations."  Under the purchase method of accounting, the assets acquired and liabilities assumed are recorded at estimated fair value on the date of acquisition.  The following summarizes the estimated fair values of the assets acquired and the liabilities assumed as of November 1, 2001:






 


Assets:

 



 


  Fixed-maturity securities



$         10,609,150




 


  Equity securities



35,313




 


  Mortgage loans



7,216




 


  Policy loans



631,916




 


  Value of business acquired



105,400




 


  Goodwill



714,755




 


  Intangible assets



12,100




 


  Deferred taxes



217,633




 


  Other invested assets



363,586




 


  Cash and cash equivalents



1,846,887




 


  Other assets acquired



465,152




 


  Separate account assets



3,941,527




 


          Total assets acquired



$         18,950,635




 


Liabilities:

 



 


  Policy liabilities



$         12,052,071




 


  Other liabilities



1,262,045




 


  Separate accounts



3,930,042




 


          Total liabilities assumed



$         17,244,158




 


Net assets acquired



$           1,706,477












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, 2003, 2002 and 2001



2. MERGERS, ACQUISITIONS AND DISPOSITIONS (CONTINUED)




In 2002, the Company completed its valuation of certain assets acquired and liabilities assumed.  The revisions decreased goodwill by $9.6 million, increased the deferred tax assets by $54.9 million, increased policy liabilities by $13.0 million, increased other liabilities by $13.7 million and reduced investments and other assets by $12.8 million and $5.8 million, respectively.




On December 18, 2002, the Company sold its interest in its wholly-owned subsidiary, Sun Life of Canada (U.S.) Distributors, Inc. ("SLD") to another affiliate, SLF (U.S.) Holdings, for $10.5 million.  No gain or loss was realized on this transaction.  Effective January 1, 2003, SLD changed its name to MFS/Sun Life Financial Distributors, Inc. ("MFSLF") and thereafter Massachusetts Financial Services Company ("MFS"), an affiliate of the Company, acquired a 50% ownership interest in MFSLF.  Total net income of SLD for the years ended December 31, 2002 and 2001 was $4.9 million and $10.2 million, respectively.




On October 9, 2002, SLNY, a wholly-owned subsidiary of the Company, and Keyport Benefit Life Insurance Company ("KBL"), which was a wholly-owned subsidiary of Keyport, filed an Agreement and Plan of Merger ("Merger Agreement") with the New York State Insurance Department.  On December 31, 2002 at 5:00 p.m., SLNY and KBL completed the merger.  Pursuant to the Merger Agreement, KBL merged with and into SLNY, with SLNY as the surviving entity.  The merger had no effect on the existing rights and benefits of policyholders or contract holders from either company.  Keyport, KBL, the Company, and SLNY are, and at all times relevant to the merger were, indirectly wholly-owned subsidiaries of SLOC.  




3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES



In 2003, the Company sold a $100 million note from MFS, an affiliate, to another affiliate, Sun Life (Hungary) Group Financing Limited Liability Company ("Sun Life (Hungary) LLC"), for approximately $109.1 million.  The note was included in fixed maturities available-for-sale at December 31, 2002.  The note was sold at a gain of $9.1 million.




The Company and its subsidiaries have management services agreements with SLOC which provide that SLOC will furnish, as requested, certain services and facilities on a cost-reimbursement basis. Expenses under these agreements amounted to approximately $73.3 million in 2003, $64.4 million in 2002, and $42.9 million in 2001. 



The Company has an administrative services agreement with Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc., under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which 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 amounted to approximately $21.3 million, $24.0 million and $13.8 million for the years ended December 31, 2003, 2002 and 2001, respectively.



The Company leases office space to SLOC under lease agreements with terms expiring in September 2005 and options to extend the terms for each of twelve successive five year terms at fair market value of the fixed rent for the term, which is ending.  Rent received by the Company under the leases amounted to approximately $11.8 million, $11.7 million, and $8.8 million in 2003, 2002 and 2001, respectively.  Rental income is reported as a component of net investment income.



As more fully described in Note 7, the Company has been involved in several reinsurance transactions with SLOC.  



The Company did not make any dividend payments in 2003 or 2002. In 2001, the Company declared and paid dividends in the amount of  $15 million to its parent, SLC (U.S.) Holdings. 



On September 24, 2002, the Company received a $100 million capital contribution from its parent, SLC (U.S.) Holdings.




 





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, 2003, 2002 and 2001




3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)




On July 25, 2002, the Company issued a $380 million promissory note at 5.76% and an $80 million promissory note at 5.71%, both maturing June 30, 2012 to an affiliate, Sun Life (Hungary) LTD.  The Company pays interest semi-annually to Sun Life (Hungary) LTD. Total interest paid was $26.5 million and $11.5 million for the years ended December 31, 2003 and 2002, respectively.  The proceeds of the notes were used to purchase fixed rate government and corporate bonds.



Effective January 2002, essentially all United States employees of SLOC became employees of the Company.   As a result, the Company has assumed most of the salaries and benefits previously incurred by SLOC in the United States. In accordance with a management service agreement between the Company and SLOC, the Company provides personnel and certain services to SLOC, as requested.  Reimbursements under this agreement, which are recorded as a reduction of other operating expenses, were approximately $152.2 and $135.1 million for the years ended December 31, 2003 and 2002, respectively.



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 standalone basis.



At December 31, 2003 and 2002, the Company had $565 million of surplus notes issued to Sun Life Financial (U.S.) Finance, Inc., an affiliate of the Company.  The Company expensed $43.3 million for interest on these surplus notes for each of the years ended December 31, 2003, 2002 and 2001, respectively.  



During 2003, the Company purchased $80 million in promissory notes from MFS.  These promissory notes are included with fixed maturities available-for-sale in the financial statements.  The interest rates on these notes range from 2.988% to 3.512% and the terms are from 3-5 years.  Interest earned as of December 31, 2003 was $0.6 million.



During 2003, the Company paid $14.6 million in commission fees to MFSLF.




During 2003, 2002 and 2001, the Company paid $64.5 million, $79.4 million and $11.8 million, respectively, in commission fees to IFMG.




The following table lists the details of notes due to affiliates at December 31, 2003 (in 000's):







Type



Principal



Maturity



Rate
















Surplus



$  150,000



12/15/27



6.150%






Surplus



150,000



12/15/15



7.250%






Surplus



    7,500



12/15/15



6.125%






Surplus



    7,500



12/15/27



6.150%






Promissory



80,000



06/30/12



5.710%






Promissory



380,000



06/30/12



5.760%






Surplus



 250,000



11/06/27



8.625%







$1,025,000














 




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, 2003, 2002 and 2001



4. INVESTMENTS



Fixed Maturities



The amortized cost and fair value of fixed maturities was as follows:





 


December 31, 2003




 
 


Gross



Gross



Estimated




 


Amortized



Unrealized



Unrealized



Fair




 


Cost



Gains



Losses



Value






Available-for-sale fixed maturities:

 
 
 
 






Asset Backed and Mortgage Backed Securities




$      5,251,364



$   116,712



$       (71,242)



$   5,296,834







Foreign Government & Agency Securities




82,774



13,696



(47)



96,423







States & Political Subdivisions




1,693



87



-



1,780







U.S. Treasury & Agency Securities




685,075



13,343



(8,316)



690,102







Subordinated notes from affiliate




80,000



-



(934)



79,066






Corporate securities:

 
 
 
 






Basic Industry




497,699



25,760



(5,877)



517,582







Capital Goods




600,303



45,999



(1,477)



644,825







Communications




1,214,136



54,673



(7,378)



1,261,431







Consumer Cyclical




1,156,471



66,259



(3,973)



1,218,757







Consumer Noncyclical




551,144



39,761



(719)



590,186







Energy




568,786



33,235



(2,573)



599,448







Finance




2,896,392



120,219



(15,662)



3,000,949







Industrial Other




414,828



15,723



(2,768)



427,783







Technology




79,775



3,235



-



83,010







Transportation 




579,351



29,589



(15,540)



593,400







Utilities




1,678,450



90,491



(12,103)



1,756,838






Total Corporate



10,237,335



524,944



(68,070)



10,694,209




 
 
 
 
 





Total available-for-sale fixed maturities



$    16,338,241



$   668,782



$     (148,609)



$ 16,858,414




 
 
 
 
 





Trading fixed maturities:

 
 
 
 






Asset Backed and Mortgage Backed Securities




$           96,189



$       5,773



$            (227)



$      101,735







Foreign Government & Agency Securities




5,227



893



(14)



6,106






Corporate securities:

 
 
 
 






Basic Industry




67,321



7,696



(7)



75,010







Capital Goods




83,797



8,634



-



92,431







Communications




170,219



15,478



(222)



185,475







Consumer Cyclical




167,633



14,226



(609)



181,250







Consumer Noncyclical




40,623



1,065



(419)



41,269







Energy




80,957



6,478



(276)



87,159







Finance




323,412



27,219



(455)



350,176







Industrial Other




57,925



5,918



(62)



63,781







Technology




3,804



310



-



4,114







Transportation 




76,614



6,112



(7,505)



75,221







Utilities




260,933



14,873



(11,914)



263,892






Total Corporate



1,333,238



108,009



(21,469)



1,419,778




 
 
 
 
 





Total trading fixed maturities



$      1,434,654



$   114,675



$       (21,710)



$   1,527,619




 
 
 
 
 





Held-to-maturity fixed maturities:

 
 
 
 





Sun Life of Canada (U.S.) Holdings, Inc.,

 
 
 
 





8.526% subordinated debt, due 2027



$         600,000



$     99,069



$                   -



$      699,069






Total held-to-maturity fixed maturities



$         600,000



$     99,069



$                   -



$      699,069













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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)






 


December 31, 2002 -Restated




 
 


Gross



Gross



Estimated




 


Amortized



Unrealized



Unrealized



Fair




 


Cost



Gains



Losses



Value






Available-for-sale fixed maturities:

 
 
 
 






Asset Backed and Mortgage Backed Securities




$      5,515,743 



$   172,928 



$       (83,406)



$   5,605,265 







Foreign Government & Agency Securities




        113,149 



       14,574 



                (8)



        127,715 







States & Political Subdivisions




            2,149 



            111 



                -   



            2,260 







U.S. Treasury & Agency Securities




        901,574 



       26,667 



          (1,237)



        927,004 






Corporate securities:

 
 
 
 






Basic Industry




        415,226 



       27,157 



          (1,234)



        441,149 







Capital Goods




        466,926 



       36,641 



          (1,614)



        501,953 







Communications




        872,633 



       47,640 



        (13,601)



        906,672 







Consumer Cyclical




        855,133 



       48,655 



          (5,013)



        898,775 







Consumer Noncyclical




        541,147 



       36,729 



          (6,467)



        571,409 







Energy




        607,540 



       35,836 



        (13,810)



        629,566 







Finance




3,250,631



     135,735 



        (26,680)



     3,359,686 







Industrial Other




        206,187 



       16,459 



             (337)



        222,309 







Technology




          71,076 



         2,089 



             (702)



          72,463 







Transportation 




        640,459 



       31,882 



        (39,044)



        633,297 







Utilities




      1,495,240 



       75,145 



        (46,888)



     1,523,497 






Total Corporate



      9,422,198 



     493,968 



       (155,390)



     9,760,776 




 
 
 
 
 





Total available-for-sale fixed maturities



$    15,954,813 



$   708,248 



$     (240,041)



$ 16,423,020 




 
 
 
 
 





Trading fixed maturities:

 
 
 
 






Asset Backed and Mortgage Backed Securities




$           87,470 



$       8,017 



$                   - 



$        95,487 







Foreign Government & Agency Securities




            4,568 



         1,012 



                -   



            5,580 







U.S. Treasury & Agency Securities




          23,491 



            423 



                -   



          23,914 






Corporate securities:

 
 
 
 






Basic Industry




          59,201 



         6,283 



             (297)



          65,187 







Capital Goods




          56,432 



         5,255 



          (1,600)



          60,087 







Communications




        120,120 



       10,688 



             (620)



        130,188 







Consumer Cyclical




        146,174 



       12,244 



             (207)



        158,211 







Consumer Noncyclical




          25,106 



            675 



          (2,951)



          22,830 







Energy




          90,471 



         7,428 



          (3,405)



          94,494 







Finance




        351,478 



       27,364 



             (688)



        378,154 







Industrial Other




          64,185 



         5,606 



             (119)



          69,672 







Technology




            3,805 



              -   



             (155)



            3,650 







Transportation 




          80,555 



         6,481 



        (10,711)



          76,325 







Utilities




        241,913 



       10,081 



        (30,948)



        221,046 






Total Corporate



      1,239,440 



       92,105 



        (51,701)



     1,279,844 




 
 
 
 
 





Total trading fixed maturities



$      1,354,969 



$   101,557 



$       (51,701)



$   1,404,825 




 
 
 
 
 





Held-to-maturity fixed maturities:

 
 
 
 





Sun Life of Canada (U.S.) Holdings, Inc.,

 
 
 
 





8.526% subordinated debt, due 2027



 $        600,000 



 $    16,520 



 $                  -   



 $     616,520 




 
 
 
 
 





Total held-to-maturity fixed maturities



 $        600,000 



 $    16,520 



 $                  -   



$     616,520 













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, 2003, 2002 and 2001


 


4. INVESTMENTS (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 asset-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or the Company may have the right to put or sell the obligations back to the issuers.














December 31, 2003













Amortized 

Cost



Estimated

Fair Value






Maturities of available-for-sale fixed securities:











Due in one year or less



$                   601,359



$                     610,303







Due after one year through five years



3,840,803



4,001,500







Due after five years through ten years



4,158,360



4,353,913







Due after ten years







2,486,355



2,595,864






          Subtotal - Maturities available-for-sale





11,086,877



11,561,580






Asset-backed securities





5,251,364



5,296,834






          Total Available-for-sale





$              16,338,241



$                16,858,414
















Maturities of trading fixed securities:











Due in one year or less



$                     18,998



$                       19,220







Due after one year through five years



534,603



569,548







Due after five years through ten years



503,320



535,579







Due after ten years



281,544



301,538







Subtotal - Maturities  of trading               



1,338,465



1,425,885






Asset-backed securities



96,189



101,734







Total Trading



$                1,434,654



$                  1,527,619
















Maturities of held-to-maturity fixed securities:











Due after ten years



 $                  600,000       



$                     699,069         










Gross gains of $196.4 million, $163.4 million and $28.2 million and gross losses of $44.9 million, $134.9 million and $16.6 were realized on the voluntary sale of fixed maturities for the years ended December 31, 2003, 2002 and 2001, respectively.




Fixed maturities with an amortized cost of approximately $18.6 million and $18.6 million at December 31, 2003 and 2002, respectively, were on deposit with federal and state governmental authorities as required by law.




At December 31, 2003, the Company has unfunded commitments of approximately $126.2 million with respect to the funding of limited partnerships.




 




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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)



As of December 31, 2003 and 2002, 93.7% and 95.1%, respectively, of the Company's fixed maturities were investment grade.  Investment grade securities are those that are rated "BBB" or better by nationally recognized rating agencies.  During 2003, 2002 and 2001, the Company incurred realized losses totaling $58.1 million, $94.4 million and $5.5 million, respectively, for other-than-temporary impairment of value of some of its fixed maturities after determining that not all of the unrealized losses were temporary in nature.




During 2003, 2002 and 2001, $6.6 million, $1.6 million and $9.7 million, respectively, of the losses recorded in prior years were recovered through dispositions and are included in realized gains.  The Company has stopped accruing income on several of its holdings for issuers that are in default.  The termination of accrual accounting on these holdings reduced income by $10.1 million, $2.5 million and $0.4 million during 2003, 2002 and 2001, respectively. 



The following table provides the fair value and gross unrealized losses of the Company's investments, which were deemed to be temporarily impaired, aggregated by investment category and length of time that individual securities have been in an unrealized loss position, at December 31, 2003:





 


Less Than Twelve Months



Twelve Months Or More





Total






Corporate Securities

 
 
 
 
 
 



 




Fair 


Value



Gross Unrealized Losses





Fair Value



Gross Unrealized Losses





Fair 


Value



Gross Unrealized Losses






   Basic Industry



$     82,585



$     (5,877)



$             -



$             -



$     82,585



$     (5,877)






   Capital Goods



43,154



(1,283)



8,887



(194)



52,041



(1,477)






   Communications



242,224



(6,548)



16,271



(830)



258,495



(7,378)






   Consumer Cyclical



131,401



(2,725)



13,538



(1,248)



144,939



(3,973)






   Consumer Noncyclical



59,880



(634)



4,775



(85)



64,655



(719)






   Energy



66,595



(2,256)



7,746



(317)



74,341



(2,573)






   Finance



386,695



(11,054)



209,576



(4,608)



596,271



(15,662)






   Industrial Other



103,548



(1,880)



49,210



(888)



152,758



(2,768)






   Transportation



83,546



(4,451)



84,352



(11,089)



167,898



(15,540)






   Utilities



360,785



(10,218)



33,224



(1,885)



394,009



(12,103)




 
 
 
 
 
 
 





Total Corporate 



1,560,413



(46,926)



427,579



(21,144)



1,987,992



(68,070)




 
 
 
 
 
 
 





Non-Corporate

 
 
 
 
 
 





   Asset Backed and Mortgage Backed Securities



1,121,105



(25,516)



287,666



(45,726)



1,408,771



(71,242)






   Foreign Government & Agency Securities



3,850



(47)



-



-



3,850



(47)






   U.S. Treasury & Agency Securities



222,365



(8,105)



9,735



(211)



232,100



(8,316)






   Subordinated note from affiliate



79,066



(934)



-



-



79,066



(934)




 
 
 
 
 
 
 





Total Non-Corporate



1,426,386



(34,602)



297,401



(45,937)



1,723,787



(80,539)




 
 
 
 
 
 
 





Grand Total



$2,986,799



$   (81,528)



$  724,980



$   (67,081)



$3,711,779



$ (148,609)








The Company has a comprehensive process in place to identify potential problem securities that could have an impairment that is other-than-temporary. At the end of each quarter, all securities with a market value below 80% of amortized cost for more than six months are reviewed.  An analysis is undertaken to determine whether this decline in market value is other-than-temporary. The Company's process focuses on issuer operating performance and overall industry and market conditions.  Any deterioration in operating performance is assessed relative to the impact on financial ratios including leverage and coverage measures specific to an industry and relative to any investment covenants.  






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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)



The Company's analysis also assesses each issuer's ability to service its debts in a timely fashion, the length of time the security has been trading below 80% of amortized cost, rating agency actions, and any other key developments. The Company has a Credit Committee that includes members from the Investment, Finance and Actuarial functions.  The committee meets and reviews the results of the Company's impairment analysis on a quarterly basis.



The following table provides the number of securities with gross unrealized losses, which were deemed to be temporarily impaired, at December 31, 2003 (not in thousands):





 


Number of Securities Less Than Twelve Months





Number of Securities Twelve Months Or More





 


Total Number of Securities






Corporate Securities

 
 
 



 
 
 
 





   Basic Industry



22



-



22






   Capital Goods



10



4



14






   Communications



58



3



61






   Consumer Cyclical



21



4



25






   Consumer Noncyclical



23



1



24






   Energy



20



1



21






   Finance



84



31



115






   Industrial Other



13



3



16






   Transportation



28



36



64






   Utilities



72



11



83




 
 
 
 





Total Corporate 



351



94



445




 
 
 
 





Non-Corporate

 
 
 





   Asset Backed and Mortgage Backed Securities



279



100



379






   Foreign Government & Agency Securities



7



-



7






   U.S. Treasury & Agency Securities



19



3



22






   Subordinated note from affiliate



1



-



1




 
 
 
 





Total Non-Corporate



306



103



409




 
 
 
 





Grand Total



657



197



854








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 properties' value at the time that the original loan is made. Real estate investments classified as held-for-sale have been obtained primarily through foreclosure. 



 




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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)




MORTGAGE LOANS AND REAL ESTATE




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













December 31, 











2003



2002 -Restated
















Total mortgage loans





$                 972,102



$                   948,529


















Real estate:















Held-for-sale





628



-







Held for production of income



83,793



79,783






Total real estate





$                   84,421



$                     79,783











Real estate held for the production of income primarily consists of the Company's office park located in Wellesley Hills, Massachusetts. Accumulated depreciation on real estate was $16.3 million and $17.9 million at December 31, 2003 and 2002, respectively.  




The Company monitors the condition of the mortgage loans in its portfolio.  In those cases where mortgages have been restructured, values are impaired or values are impaired but mortgages are performing, appropriate allowances for losses have been made.  The Company has restructured mortgage loans, impaired mortgage loans and impaired but performing mortgage loans totaling $19.5 million and $9.0 million at December 31, 2003 and 2002, respectively, against which there are allowances for losses of $6.4 million and $7.1 million, respectively.  The investment valuation allowances were as follows:








Balance at







Balance at







January 1, 



Additions 



Subtractions 



December 31,






2003














Mortgage loans



$                7,098



$                   200



$                (933)   



$                6,365               






2002 - Restated














Mortgage loans



$                7,140



$                   484



$                (526)



$                7,098










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








 


2003



2002


Restated






Property Type:










Office building



$           428,312



$           389,125 






Residential



27,427



35,467






Retail



356,080



     358,939 






Industrial/warehouse



181,195



     219,467 






Other



69,874



      32,412 






Valuation allowances



(6,365)



       (7,098)






Total



$        1,056,523 



$        1,028,312 












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, 2003, 2002 and 2001



4.   INVESTMENTS (CONTINUED)














2003



2002


Restated






Geographic region:


















Arizona



$             32,083



$             20,433






California



77,832



81,351






Colorado



15,015



7,324






Connecticut



34,177



26,418






Delaware



13,025



15,266






Florida



86,922



39,958






Georgia



39,681



68,686






Indiana



17,962



15,131






Kentucky



7,224



17,555






Louisiana



23,578



18,652






Maryland



42,934



19,318






Massachusetts



135,722



123,436






Michigan



21,614



41,537






Minnesota



6,539



8,578






Missouri



11,250



5,676






Nevada



6,980



4,581






New Jersey



21,482



16,333






New York



121,069



119,251






North Carolina



30,362



36,318






Ohio



46,478



50,884






Oregon



5,225



5,415   






Pennsylvania



85,474



116,826  






Tennessee



19,388



12,414






Texas



34,342



24,698






Utah



20,921



18,561






Virginia



17,466



25,593






Washington



59,441



60,844






All other



28,702



34,373






Valuation allowances



(6,365)



(7,098)






Total





$        1,056,523



$        1,028,312












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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)



At December 31, 2003, scheduled mortgage loan maturities were as follows:







2003



$                 26,169






2004



40,226






2005



18,320






2006



93,852






2007



53,604






Thereafter



739,931






Total



$               972,102











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 commitments of mortgage loans on real estate and other loans into the future. The outstanding commitments for these mortgages amounted to $126.8 million and $92.2 million at December 31, 2003 and 2002, respectively.




During 2003 and 2002, the Company sold commercial mortgage loans in securitization transactions. The Company did not sell any commercial mortgage loans in securitization transactions during 2001.  The mortgages were sold to qualified special purpose entities that were established for the purpose of purchasing the assets and issuing trust certificates.  In these transactions, the Company retained investment tranches as well as servicing rights, which are considered available for sale securities.  The securitizations are structured so that investors have no recourse to the Company's other assets for failure of debtors to pay when due.  The value of the Company's retained interest is subject to credit and interest rate risk on the transferred financial assets.  The Company recognized pretax gains of $24.6 million and $4.5 million for its 2003 and 2002 securitization transactions, respectively.




Key economic assumptions used in measuring the retained interest at the date of securitization resulting from securitizations completed during the year ended December 31, 2003 were as follows:





 


Class C



Class D



Class E




 
 
 
 





Prepayment speed



0



0



0






Weighted average life in years



14.123



14.63



14.84






Expected credit losses



0



0



0






Residual cash flows discount rate



5.65



5.77



5.92






Treasury rate interpolated for average life



4.37



4.39



4.40






Spread over treasuries



1.28%



1.38%



1.52%






Duration in years



20.46



20.55



20.66










 


 


 






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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)



Key economic assumptions and the sensitivity of the current fair value of cash flows in those assumptions were as follows:








Commercial Mortgages







Class C



Class D



Class E






Amortized cost of retained












    Interests



$                10,640       



$                   2,399      



$                   2,437






Fair value of retained interests



12,049



2,717



2,761






Weighted average life in years



20.55



20.55



20.66
















Expected Credit Losses












Fair value of retained interest as a result of a .20% of adverse change



12,038



2,713



2,757






Fair value of retained interest as a result of a .30% of adverse change



12,030



2,711



2,754
















Residual Cash flows Discount Rate










Fair value of retained interest as a result of a 10% of adverse change



11,563



2,605



2,648






Fair value of retained interest as a result of a 20% of adverse change



11,102



2,499



2,540











The outstanding principal amount of the securitized commercial mortgage loans was $435.3 million at December 31, 2003, none of which were 60 days or more past due.  There were no net credit losses incurred relating to the securitized commercial mortgage loans at the dates of securitization and at December 31, 2003.




Key economic assumptions used in measuring the retained interests at the dates of securitizations completed during the year ended December 31, 2002 were as follows:









Class AA



Class A



Class BBB






Prepayment speed



0



0



0






Weighted average life in years



6.532



6.843



8.417






Expected credit losses



0



0



0






Residual cash flows discount rate



6.06%



6.51%



7.56%






Treasury rate interpolated for average life



4.57%



4.60%



4.68%






Spread over treasuries



1.49%



1.91%



2.88%






Duration in years



5.22



5.263



6.013










 






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, 2003, 2002 and 2001




4. INVESTMENTS (CONTINUED)



Key economic assumptions and the sensitivity of the current fair value of cash flows in those assumptions at December 31, 2002 were as follows:








Commercial Mortgages







Class AA



Class A



Class BBB






Amortized cost of retained












    Interests



$                  2,702       



$            1,291      



$            1,841






Fair value of retained interests



3,009



1,437



2,044






Weighted average life in years



5.49



5.78



7.31
















Expected Credit Losses












Fair value of retained interest as a result of a .20% of adverse change



2,892



1,415



1,955






Fair value of retained interest as a result of a .30% of adverse change



2,891



1,414



1,846
















Residual Cash flows Discount Rate










Fair value of retained interest as a result of a 10% of adverse change



2,838



1,389



1,973






Fair value of retained interest as a result of a 20% of adverse change



2,783



1,362



1,932











The outstanding principal amount of the securitized commercial mortgage loans was $270.0 million at December 31, 2003, none of which were 60 days or more past due.  There were no net credit losses incurred relating to the securitized commercial mortgage loans at the date of securitization and at December 31, 2003.




Securities Lending 




The Company has a securities lending program operated on its behalf by the Company's two primary custodians, JP Morgan Chase and Citibank, N.A., both located in New York. The custodians have indemnified the Company against losses arising from these programs. At December 31, 2003, the Company had securities out on loan of approximately $80.0 million.  There were no securities on loan at December 31, 2002.  The income resulting from these programs was $1.4 million, $1.7 million, and $0.1 million for the years ended December 31, 2003, 2002 and 2001, 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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)




Leveraged Leases




The Company is a lessor in a leverage lease agreement entered into on October 21, 1994, under which equipment having an estimated economic life of 25-40 years was originally leased 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 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 may exercise a fixed price purchase option to purchase the equipment.  Leveraged leases are included as a part of other invested assets.  The Company's net investment in leveraged leases is composed of the following elements:








Year ended December 31,







2003





2002






Lease contract receivable



$         44,149





$       56,760 






Less: non-recourse debt



(10,874)





(23,485)






Net Receivable



33,275





33,275






Estimated value of leased assets



21,420





21,420 






Less: unearned and deferred income



(14,790)





(17,323)






Investment in leveraged leases



39,905





37,372 






Less: fees



(162)





(187)






Net investment in leveraged leases



$         39,743





$       37,185 










Derivatives




The Company uses derivative financial instruments for risk management purposes to hedge against specific interest rate risk, to alter investment rate exposures arising from mismatches between assets and liabilities, and to minimize the Company's exposure to fluctuations in interest rates, foreign currency exchange rates and general market conditions. The Company does not hold or issue any derivative instruments for trading purposes. 




As a component of its investment strategy and to reduce its exposure to interest rate risk, the Company utilizes interest rate swap agreements.  Interest rate swap agreements are agreements to exchange with a counterparty interest rate payments of differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. No cash is exchanged at the outset of the contract and no principal payments are made by either party.  A single net payment is usually made by one counter-party at each interest payment date. The net payment is recorded as a component of derivative income (loss). Because the underlying principal is not exchanged, the Company's maximum exposure to counterparty credit risk is the difference in payments exchanged.   The fair value of swap agreements are included with derivative instruments (positive position) or other liabilities (negative position) in the accompanying balance sheet.



The Company utilizes put options on the S&P 500 Index to hedge against stock market exposure inherent in the mortality and expense risk charges and guaranteed minimum death benefit features of the Company's variable annuities.  The Company also purchases call options on the S&P 500 Index to economically hedge its obligation under certain fixed annuity contracts.  Options are carried at fair value and are included with other invested assets in the accompanying balance sheet.



 




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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)




The Company issues annuity contracts and GICS 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 GIC contract) and is carried at fair value.




From the second quarter in 2000 until the second quarter in 2002, the Company marketed GICS to unrelated third parties.  Each deal 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 these swaps with interest rate swaps allows the Company to lock in U.S. dollar fixed rate payments for the life of the contract.




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 SFAS No.133, "Accounting for Derivative Instruments," 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 derivative income.




Net derivative income (loss) consisted of the following:






 


Year Ended December 31




 




2003



2002


Restated



2001


Restated






Net expense on swap agreements



$                        (87,721)



$                        (74,699)



$                            (23,493)






Change in fair value of swap agreements (interest rate, currency, and equity)





197,506





(159,093)





5,869






Change in fair value of options, futures and embedded derivatives




(312,985)





74,507





7,568






Total derivative losses



$                      (203,200)



$                      (159,285)



$                            (10,056)




 
 
 
 








The Company is required to pledge and receive collateral for open derivative contracts.  The amount of collateral required is determined by agreed upon thresholds with the counter-parties.  The Company currently pledges cash and U.S. Treasury bonds to satisfy this collateral requirement.  At December 31, 2003 and 2002, $59.5 million and $114.8 million, respectively, of fixed maturities were pledged as collateral and are included with fixed maturities.




The Company's underlying notional or principal amounts associated with open derivatives positions were as follows:





 


Outstanding at 

December 31, 2003




 


Notional 



Fair Value




 


Principal



Asset (Liability)




 


Amounts

 

















Interest rate swaps



$



5,892,626

 


$         (229,925)






Currency swaps

 


805,211

 


238,212






Equity swaps 

 


1,544,152

 


20,265






S&P 500 index call options

 


1,668,813

 


57,573






S&P 500 index put options

 


1,313,855

 


65,640


















Total



$



11,224,657

 


$            151,765










 





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, 2003, 2002 and 2001



4. INVESTMENTS (CONTINUED)






 


Outstanding at 

December 31, 2002 -Restated




 


Notional Principal Amounts



Fair Value


Asset (Liability)


















Interest rate swaps



$



4,481,776

 


$          (387,773)






Currency swaps

 


761,424

 


97,398






Equity swaps 

 


1,396,116

 


61,374






S&P 500 index call options

 


976,759

 


24,753






S&P 500 index put options

 


1,153,168

 


213,174


















Total



$



8,769,243

 


 $                8,926










5. NET REALIZED INVESTMENT GAINS AND LOSSES



Net realized investment gains (losses) consisted of the following for the years ended December 31:










2003



2002


Restated



2001


Restated


















Fixed maturities





$               159,474



$       38,814 



$      21,891






Equity securities



(1,465)



2,378 



- 






Mortgage and other loans



25,528



4,648 



(2,557)






Real estate 





3,862



514 



1,150






Short term investments





-



2



196






Other invested assets



4,800



8,815



- 






Other than temporary declines



(58,114)



(94,137)



(6,050)

















Total



$               134,085



$        (38,966)



$      14,630










6. NET INVESTMENT INCOME



Net investment income consisted of the following for the years ended December 31: 










2003



2002


Restated



2001


Restated
















Fixed maturities



$          1,114,949



$   1,080,965



$       476,990 






Equity securities



-



484



796 






Mortgage and other loans



76,259



75,024



73,160 






Real estate 





6,952



7,855



5,961 






Policy loans





43,335



39,269



8,719 






Other 



(20,364)



(4,848)



       (3,563) 







Gross investment income



1,221,131



1,198,749



562,063






Less: Investment expenses



12,381



13,539



7,009







Net investment income



$            1,208,750



$   1,185,210



$       555,054












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, 2003, 2002 and 2001




7.  FAIR VALUE OF FINANCIAL INSTRUMENTS




SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," 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:













December 31, 2003



December 31, 2002 -Restated











Carrying



Estimated



Carrying



Estimated











Amount



Fair Value



Amount



Fair Value






Financial assets:















Cash and cash equivalents



$                 513,454



$                 513,454



$                 725,550



$                 725,550







Fixed maturities



18,986,033



19,085,102



18,427,845



18,444,365







Equity Securities



1,452



1,452



1,127



1,127







Short-term investments



24,662



24,662



178,017



178,017







Mortgages



972,102



1,059,145



948,529



1,083,530







Derivatives instruments - receivables





400,037





400,037





408,832





408,832







Policy loans



692,887



692,887



682,029



682,029







Separate accounts



17,521,009



17,521,009



15,718,113



15,718,113




















Financial liabilities:















Policy Liabilities



18,317,422



15,325,216



17,952,084



17,763,772







Derivative instruments - payables



248,272



248,272



399,906



399,906







Long-term debt



40,500



32,953



-



-







Long-term debt to affiliates



1,025,000



1,123,194



1,025,000



1,068,647







Partnership Capital Securities



607,826



699,069



607,826



616,520






 



Separate accounts



17,509,294



17,509,294



15,700,969



15,700,969











The following methods and assumptions were used by the Company in determining the estimated fair value of its financial instruments:




Cash and cash equivalents: The fair values of cash and cash equivalents are estimated to be cost plus accrued interest.




Fixed maturities, short term investments, and equity securities: The fair values of short-term bonds are estimated to be amortized cost.  The fair values of publicly traded fixed maturities are based upon market prices or dealer quotes.  For privately placed fixed maturities, fair values are estimated by taking into account prices for publicly traded securities of similar credit risk, maturity, repayment and liquidity characteristics.  The fair value of equity securities are based on quoted market prices.




Mortgage loans: 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. 




Derivatives:  Fair value of swaps are based on current settlement values.  The current settlement values are based on dealer quotes and market prices.  Fair values for options and futures are based on dealer quotes and market prices.





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, 2003, 2002 and 2001



7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)




Policy loans: Policy loans are stated at unpaid principal balances, which approximate fair value.  




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.




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.  




Long term debt: The fair value of notes payable and other borrowings are estimated using discounted cash flow analyses based upon the Company's current incremental borrowing rates for similar types of borrowings.




8. 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 evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.  A brief discussion of the Company's reinsurance agreements by segment (see Note 14) follows.




Wealth Management Segment




While the Wealth Management Segment currently does not offer traditional life insurance products, it manages a closed block of single premium whole life insurance policies ("SPWL"), a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of SPWL's in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of $1.7 billion as of December 31, 2003.  On December 31, 2003, this entire block of business was reinsured on a funds withheld basis with SLOC, an affiliated company.




The Company, through its affiliate SLNY, has an agreement with an unrelated company whereby the unrelated company reimburses SLNY for benefits, expenses and interest credits for Focus V and Galaxy V fixed annuities issued in 2000 if the asset pool backing the liability is insufficient.



Individual Protection Segment




The Company has agreements with SLOC and several unrelated companies, which provide for reinsurance of portions of the net-amount-at-risk under certain individual variable universal life, bank owned life insurance ("BOLI"), and corporate owned life insurance ("COLI") policies. These amounts are reinsured on either a monthly renewable or a yearly renewable term basis.




The Company also acts as the reinsurer of risk under the lapse protection benefit under certain universal life contracts issued by SLOC.  One hundred percent of such risk is retroceded to Sun Life Financial Insurance and Annuity Company (Bermuda) Ltd.




 




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, 2003, 2002 and 2001



8. REINSURANCE (CONTINUED)




Group Protection Segment




The Company, through its affiliate SLNY, has an agreement with SLOC whereby SLOC reinsures the mortality risks of SLNY's group life insurance contracts. Under this agreement, certain death benefits are reinsured on a yearly renewable term basis.  The agreement provides that SLOC will reinsure mortality risks in excess of $50,000 per claim for group life contracts ceded by SLNY.  The block was closed for new business effective December 31, 2003.



The Company, through its affiliate SLNY, has an agreement with SLOC whereby SLOC reinsures morbidity risks of a block of SLNY's group long-term disability contracts.  The block is closed for new business.




The Company, through its affiliate SLNY, has an agreement with an unrelated company whereby the unrelated company reinsures the morbidity risks of SLNY's group stop loss contracts.  Under this agreement, certain stop loss benefits are reinsured on a yearly renewable term basis. The agreement provides that the unrelated company will reinsure specific claims for amounts above $1,000,000 per claim for stop loss contracts ceded by SLNY.



The Company, through its affiliate SLNY, has an agreement with an unrelated company whereby the unrelated company reinsures the morbidity risks of SLNY's group long-term disability contracts.  Under this agreement, certain long-term disability benefits are reinsured on a yearly renewable term basis.   The agreement provides that the unrelated company will reinsure amounts in excess of $4,000 per claim per month for long-term disability contracts ceded by SLNY.




The effects of reinsurance were as follows:










For the Years Ended December 31,













2003



2002 - Restated



2001 - Restated
























Insurance premiums:

















Direct









$                65,479



$                 49,190



$                 43,980







Assumed









-



-



-







Ceded









4,961



5,616



2,971






Net premiums









$                60,518



$                 43,574



$                 41,009
























Insurance and other individual policy benefits and 


   Claims:













Direct









$              207,979



$               225,287



$               139,963







Assumed









-



-



-







Ceded









6,731



4,125



5,063






Net policy benefits and claims



$              201,248



$               221,162



$               134,900











The Company is contingently liable for the portion of the policies reinsured under each of its existing reinsurance agreements in the event the reinsurance companies are unable to pay their portion of any reinsured claim. Management believes that any liability from this contingency is unlikely.  However, to limit the possibility of such losses, the Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk.




 




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, 2003, 2002 and 2001



9.  RETIREMENT PLANS




Through December 31, 2001, the Company was a participant in a non-contributory defined benefit pension plans for employees sponsored by SLOC.  Consistent with the transfer of all employees to the Company on January 1, 2002, the plans sponsorship for the employee retirement plan and the agent pension plan was transferred to the Company.  Expenses are allocated to participating companies based on a manner consistent with the allocation of employee compensation expenses.  The Company's funding policies for the pension plans are to contribute amounts which at least satisfy the minimum amount required by the Employee Retirement Income Security Act of 1974 ("ERISA"); currently the plans are fully-funded.  Most pension plan assets consist of separate accounts of SLOC or other insurance company contracts. 



The Company uses a measurement date of September 30 for its pension and other post retirement benefit plans. 



The following table sets forth the change in the pension plans' projected benefit obligations and assets, as well as the plans' funded status at December 31:










2003



2002






Change in projected benefit obligation:










Projected benefit obligation at beginning of year 



$           159,650



$           149,595






Service cost



8,954



8,436






Interest cost



10,494



10,673






Actuarial loss (gain)



16,876



(8,075)






Benefits paid



(5,333)



(4,925)






Plan amendments



-



3,946






Acquisitions



1,048



-






Projected benefit obligation at end of year



$           191,689



$           159,650














Change in fair value of plan assets:










Fair value of plan assets at beginning of year



$           179,470



$           212,965






Other



(888)



(888)






Actual return on plan assets



32,059



(27,682)






Benefits paid



(5,333)



(4,925)






Acquisitions



429



-






Fair value of plan assets at end of year



$           205,737



$           179,470






Information on the funded status of the plan:










Funded status



$             14,048



$             19,820






Unrecognized net actuarial loss



34,480



38,632






Unrecognized transition obligation  



(16,494)



(19,545)






Unrecognized prior service cost



8,276



9,132






4rth quarter contribution



(1,050)



-






Prepaid benefit cost 



$             39,260



$             48,039










The accumulated benefit obligation at the end of 2003 and 2002 was $169.0 million and $140.0 million, 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, 2003, 2002 and 2001



9.  RETIREMENT PLANS (CONTINUED)



The funded status of the employee retirement plan was as follows:





 


2003



2002




 
 
 





Plan assets



$       171,978



$       150,331






Projected benefit obligations



(183,227)



(150,885)






Funded status



$      (11,249)



$           (554)




 
 
 





Accumulated benefit obligation



$       160,227



$       131,199








The following table sets forth the components of the net periodic pension cost for the year ended December 31:










2003



2002
















Components of net periodic benefit cost:










Service cost



$                      8,954



$                      8,437






Interest cost



10,494



10,674






Expected return on plan assets



(14,358)



(18,395)






Amortization of transition obligation asset



(3,051)



(3,051)






Amortization of prior service cost



855



216






Recognized net actuarial loss (gain)



4,215



120






Net periodic benefit cost



$                      7,109



$                   (1,999)






The Company's share of net periodic benefit cost                                                                                   



$                      5,522



$                      3,834










The Company's share of the net periodic benefit costs for the year ended December 31, 2001 was $1.0 million.



Assumptions




Weighted average assumptions used to determine benefit obligations were as follows:









Pension Benefits







2003



2002






Discount rate



6.1%



6.75%






Rate of compensation increase



4.0%



4.0%

















The assumed weighted average discount rate was 7.00% for the year ended December 31, 2001. The expected return on plan assets was 8.75% and the assumed rate of compensation increase was 4.5% for 2001.  



Weighted average assumptions used to determine net benefit cost were as follows:








Pension Benefits







2003



2002






Discount rate



6.75%



7.0%






Expected long term return on plan assets



8.75%



8.75%






Rate of compensation increase



4.0%



4.5%











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, 2003, 2002 and 2001



9. RETIREMENT PLANS (CONTINUED)




Assumptions (continued)



The Company relies on historical market returns from Ibbotson Associates (1926-2002) to determine its overall long term rate of return on asset assumption.  Applying Ibbotson's annualized market returns of 12% stock, 5.8% bonds and 3.8% cash to the Company's target allocation results in an expected return consistent with the one used by the Company for purposes of determining the benefit obligation.



Plan Assets



The asset allocation for the Company's pension plan assets for 2003 and 2002 measurement, and the target allocation for 2004, by asset category, are as follows:








Target Allocation



Percentage of Plan Assets






Asset Category



2004



2003



2002






Equity Securities



30%-60%



55%



50%






Debt Securities



10%-40%



26%



34%






Commercial Mortgages



10%-25%



15%



15%






Other



5%



4%



1%






Total



-



100%



100%








The target allocations were established to reflect the Company's investment risk posture and to achieve the desired level of return commensurate with the needs of the fund.  The target ranges are based upon a three to five year time horizon and may be changed as circumstances warrant.



The portfolio of investments should, over a period of time, earn a gross annualized rate of return that:


    


  1. exceeds the assumed actuarial rate;
    2. 

  2. exceeds the return of customized index created by combining benchmark returns in appropriate weightings based on an average asset mix of funds; and
    3. 

  3. generates a real rate of return of at least 3% after inflation (CPI), and sufficient income or liquidity to pay retirement benefits on a timely basis.




Equity securities include SLF common stock in the amount of $3.0 million and $2.4 million for 2003 and 2002, respectively.




Cash Flow



Due to the over funded status of the defined benefit plan, the Company will not be making contributions to the plan in 2004.




401(k) Savings Plan




The Company sponsors and participates in a 401(k) savings plan for which substantially all employees of at least age 21 are eligible to participate at date of hire. Under the plan, the Company matches, up to specified amounts, the employees' contributions to the plan.




The amount of the 2003 employer contributions under plan sponsorship for the Company and its affiliates was $4.4 million.  Amounts are allocated to affiliates based on employees' contributions.  The Company's portion of the expense was $885,000, $956,000 and $462,000 for the years ended December 31, 2003, 2002 and 2001, 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, 2003, 2002 and 2001



9. RETIREMENT PLANS (CONTINUED)



Other Post-Retirement Benefit Plans




Through December 31, 2001, the Company was a participant in a post-retirement benefit pension plan for employees sponsored by SLOC providing certain health, dental and life insurance benefits ("post-retirement benefits") for retired employees and dependents.  Consistent with the transfer of all employees to the Company on January 1, 2002, the plan's sponsorship was transferred to the Company.  Expenses are 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.




The following table sets forth the change in other post-retirement benefit plans' obligations and assets, as well as the plans' funded status at December 31, (in 000's): 







Change in benefit obligation:



2003



2002






Benefit obligation at beginning of year



$                 35,981



$                   45,515






Service cost



872



1,195






Interest cost



2,369



2,488






Actuarial (gain) 



14,330



(7,586)






Benefits paid



(2,368)



(2,202)






Plan Amendments



-



(3,429)






Acquisitions



94



-






Benefit obligation at end of year



$                51,278



$                   35,981














Change in fair value of plan assets:










Fair value of plan assets at beginning of year



$                           -



$                           - 






Employer contributions



2,368



2,202






Benefits paid



(2,368)



(2,202)






Fair value of plan assets at end of year



$                           -



$                            -














Information on the funded status of the plan:










Funded Status



$               (51,278)



$                (35,981)






Unrecognized net actuarial loss



25,523



12,477






4TH quarter contribution



639



-






Unrecognized prior service cost



(2,898)



(3,138)






Accrued benefit cost



$               (28,014)



$                (26,642)










 


 




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, 2003, 2002 and 2001



9. RETIREMENT PLANS (CONTINUED)



The following table sets forth the components of the net periodic post-retirement benefit costs for the year ended December 31 (in 000's):










2003



2002
















Components of net periodic benefit cost










Service cost



$                      872



$                   1,195






Interest cost



2,369



2,488






Amortization of prior service cost



(241)



(241)






Recognized net actuarial loss 



832



933







Net periodic benefit cost





$                   3,832              





$                   4,375














The Company's share of net periodic benefit cost



$                   2,917



$                      380










Assumptions




Weighted average assumptions used to determine benefit obligations were as follows:











Other    Benefits











2003



2002






Discount Rate







6.1%



6.75%






Rate of Compensation increase







4.0%



4.0%









Weighted average assumptions used to determine net cost for year-end December 31, 2003 and December 31, 2002 were as follows:









Other  Benefits







2003



2002






Discount rate



6.75%



7.0%






Rate of compensation increase



4.0%



4.5%









In order to measure the post-retirement benefit obligation for 2003, the Company assumed a 11% annual rate of increase in the per capita cost of covered health care benefits.  In addition, medical cost inflation is assumed to be 10% in 2004 and assumed to decrease gradually to 5.5% for 2009 and remain at that level thereafter.  Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.  A one-percentage point change in assumed health care cost trend rates would have the following effect:









1- Percentage-Point



1- Percentage-Point







          Increase



 Decrease






Effect on Post retirement benefit obligation



$6,205 



($5,487)






Effect on total of service and interest cost



515 



(413)











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, 2003, 2002 and 2001



10. FEDERAL INCOME TAXES




SLUS will continue to file a consolidated federal income tax return with SLOC U.S. Operations Holdings for the year ended December 31, 2003.  Keyport will file a return with its subsidiary, Independence Life, for the year ended December 31, 2003.  (See Note 1 for an explanation of merger).  In 2004 and periods thereafter, the Company will file as part of SLOC U.S. Operations Holding's consolidated return.  A summary of the components of federal income tax expense (benefit) in the consolidated statements of income for the years ended December 31 is as follows: 





 
 
 
 


Restated




 
 


2003

 


2002

 


2001






Federal income tax expense (benefit):

 
 
 
 
 
 





Current



$



(29,240)



$



(80,155)



$



(83,679)






Deferred

 


56,606

 


20,706

 


107,190






















Total 



$



27,366



$



(59,449)



$



23,511











Federal income taxes attributable to the 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 Company's effective rate differed from the federal income tax rate as follows:






 
 
 
 


Restated




 
 


2003

 


2002

 


2001




 
 
 
 
 
 
 





Expected federal income tax expense (benefit)



$



44,251



$



(34,994)



$



33,398






Low income housing credit

 


(6,026)

 


(6,138)

 


(6,138)






Non-taxable investment income

 


-

 


(1,622)

 


(195)






Additional tax benefit

 


(12,118)

 


(16,700)

 


(4,200)






Other

 


1,259

 


5

 


646




 
 
 
 
 
 
 





Federal income tax expense (benefit)



$



27,366



$



(59,449)



$



23,511











The deferred income tax asset (liability) 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 deferred tax assets and (liabilities) as of December 31 were as follows:





 
 
 
 


Restated




 
 


2003

 


2002






Deferred tax assets:

 
 
 
 





    Actuarial liabilities

 


$              283,479

 


$                88,032






    Net operating loss



 



51,355

 


46,431






    Other

 


(1,912)

 


53,755






Total deferred tax assets

 


332,922

 


188,218




 
 
 
 
 





Deferred tax liabilities:

 
 
 
 





    Deferred policy acquisition costs 

 


(107,075)

 


(50,880)






    Investments, net

 


(244,744)

 


(116,831)






Total deferred tax liabilities

 


(351,819)

 


(167,711)




 
 
 
 
 





Net deferred tax (liability) asset

 


$             (18,897)

 


$                20,507













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, 2003, 2002 and 2001



10. FEDERAL INCOME TAXES (CONTINUED)




The Company makes payments under certain tax sharing agreements as if it were filing as a separate company. The Company received income tax refunds of $17.1 million in 2003, SLUS received refunds of $14.9 million in 2002 and Keyport made income tax payments of $9.9 million in 2002.  Additionally, the Company made income tax payments of $10.9 million in 2001.  At December 31, 2003, the Company had $146.7 million of net operating loss carry forwards available.  These amounts were incurred in 2001, 2002 and 2003 and will expire, if unused, beginning in 2016 and ending in 2018.




The Company's federal income tax returns are routinely audited by the Internal Revenue Service ("IRS"), and provisions are made in the consolidated financial statements in anticipation of the results of these audits.  SLUS and Keyport are currently under audit by the IRS for the years 1998 through 2000 and 1999 through October 31, 2001, respectively.  In the Company's opinion, adequate tax liabilities have been established for all years and any adjustments that might be required for the years under audit will not have a material effect on the Company's financial statements. However, the amounts of these tax liabilities could be revised in the future if estimates of the Company's ultimate liability are revised.



11.  LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES



Activity in the liability for unpaid claims and claims adjustment expenses related to the Company's group life, group disability and stop loss products is summarized below:








 


2003





2002 - Restated
















Balance at January 1



$          24,294                





$          23,615






Less reinsurance recoverable



(6,621)





(6,078)






Net balance at January 1



17,673





17,537






Incurred related to:













Current year



15,538





12,062







Prior years



(160)





(1,946)






Total incurred



15,378





10,116






Paid losses related to:













Current year



(5,867)





(6,660)







Prior years



(4,257)





(3,320)






Total paid



(10,124)





(9,980)


















Balance at December 31



32,410





24,294






Less reinsurance recoverable



(9,483)





(6,621)
















Net balance at December 31



$          22,927





$          17,673











The Company regularly updates its estimates of liabilities for unpaid claims and claims adjustment expenses as new information becomes available and further events occur which may impact the resolution of unsettled claims for its group disability lines of business. Changes in prior estimates are recorded in results of operations in the year such changes are determined to be needed. 






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, 2003, 2002 and 2001



12. DEFERRED POLICY ACQUISITION COSTS (DAC)



The changes in DAC for the years ended December 31 were as follows:










 


2003





2002


Restated






Balance at January 1





$              795,648





$          794,015 






Acquisition costs deferred





263,762





288,463






Amortized to expense during the year





(90,608)





(246,973)






Adjustment for unrealized investment gains (losses) during the year





(79,201)





(39,858)






Balance at December 31





$              889,601





$          795,648 











13. VALUE OF BUSINESS ACQUIRED (VOBA)



The changes in VOBA for the years ended December 31 were as follows: 










2003





2002 - Restated






Balance at January 1





$                57,692





$             95,155






Amortized to expense during the year





(7,790)





(4,540)






Adjustment for unrealized investment gains (losses) during the year





(27,511)





(32,923)






Balance at December 31





$                22,391





$             57,692










14. SEGMENT INFORMATION




The Company offers financial products and services such as fixed and variable annuities, GICS, retirement plan services, and life insurance on an individual and group basis, as well as disability insurance on a group basis. Within these areas, the Company conducts business principally 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.  Net investment income is allocated based on segmented assets by line of business. 



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.




The Wealth Management Segment markets and administers 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.




The Individual Protection Segment markets 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.




 





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, 2003, 2002 and 2001




14. SEGMENT INFORMATION (CONTINUED)



The Group Protection Segment markets and administers group life, long-term disability and stop loss insurance to small and mid-size employers in the State of New York.  



The Corporate Segment includes the unallocated capital of the Company, its debt financing, and items not otherwise attributable to the other segments.  



The following amounts pertain to the various business segments. Prior years segmented results have been restated to include the results of the Company's investment advisor subsidiary, SCA, with the Wealth Management Segment instead of the Corporate Segment:











Year ended December 31, 2003








 
 
 
 
 


 

 
 
 
 



 


Wealth

 


Individual

 


Group

 


 

 
 



 


Management

 


Protection

 


 Protection

 


Corporate

 


Totals




 
 
 
 
 
 
 
 
 
 





Total Revenues



$      1,409,642

 


$               49,357

 


$       26,609

 


$             34,141

 


$    1,519,749






Total Expenditures



1,247,670

 


53,848

 


25,712

 


61,792

 


1,389,022






Pretax Income (Loss)



161,972

 


(4,491)

 


897

 


(27,651)

 


130,727




 
 
 
 
 
 
 
 
 
 





Net  Income (Loss)



106,655

 


(2,331)

 


608

 


(9,941)

 


94,991




 
 
 
 
 
 
 
 
 
 





Total Assets



$    39,766,404

 


$          2,973,014

 


$       46,535

 


$           840,565

 


$  43,626,518







































Year ended December 31, 2002 (Restated)








 
 
 
 
 
 
 
 
 
 





Total Revenues



$      1,273,384

 


$               62,030

 


$       20,181

 


$             65,629

 


$    1,421,224






Total Expenditures



1,406,024

 


61,445

 


15,630

 


38,106

 


1,521,205






Pretax Income (Loss)



(132,640)

 


585

 


4,551

 


27,523

 


(99,981)




 
 
 
 
 
 
 
 
 
 





Net Income (Loss)



(84,004)

 


464

 


3,195

 


38,548

 


(41,797)




 
 
 
 
 
 
 
 
 
 





Total Assets



$    36,551,209

 


$          2,705,917

 


$       34,946

 


$           553,904

 


$  39,845,976




 
 
 
 
 
 
 
 
 
 



 
 
 
 






Year ended December 31, 2001 (Restated)








 
 
 
 
 
 
 
 
 
 





Total Revenues



$         765,387





$               32,345





$       19,407





$             78,562





$       895,701






Total Expenditures



661,257





28,383





15,930





101,637





807,207






Pretax Income (Loss)



104,130

 


3,962

 


3,477

 


(23,075)

 


88,494




 
 
 
 
 
 
 
 
 
 





Net Income (Loss)



81,081

 


3,443

 


2,641

 


(12,873)

 


74,292




 
 
 
 
 
 
 
 
 
 





Total Assets



$  39,323,297

 


$   1,677,937

 


$   37,728

 


$    313,801

 


$  41,352,763












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, 2003, 2002 and 2001



15.  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.  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's combined statutory surplus and net income (loss) were as follows (in 000's):






 


Unaudited for the Years ended December 31,




 


2003



2002


Restated



2001


Restated
















Statutory surplus and capital



$        1,654,147



$        1,335,391



$            1,509,987






Statutory net income (loss)



226,136



(286,911)



(284,761)










16. DIVIDEND RESTRICTIONS




The Company's and its insurance company subsidiaries' ability to pay dividends are subject to certain statutory restrictions. Delaware, New York, and Rhode Island 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) 10% 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.  On March 19, 2004, the Company's Board of Directors approved $50.0 million of dividends to its parent, SLC (U.S.) Holdings.  The Company did not pay any dividends in 2003 or 2002 and paid $15.0 million of dividends to its parent, SLC (U.S.) Holdings, during 2001. 




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 dividend 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.  No dividends were paid by SLNY during 2003, 2002 or 2001. 




Rhode Island law requires prior regulatory approval for any dividend where the amount of such dividend paid during the preceding twelve (12) month period would exceed the lesser of (i) 10% 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.  No dividends were paid by Independence Life during 2003, 2002 or 2001






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, 2003, 2003 and 2001



17. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME




The components of accumulated other comprehensive income as of December 31 were as follows (in thousands):






 


2003



2002






Unrealized gains (losses) on available-for-sale securities





$                          520,173





$                        468,207






DAC amortization



(132,323)



(53,123)






VOBA amortization



(54,766)



(27,255)






Tax effect



(105,403)



(138,918)






Accumulated Other Comprehensive Income



$                          227,681



$                        248,911









18. COMMITMENTS AND CONTINGENCIES




Regulatory and Industry Developments




Unfavorable economic conditions may contribute to an increase in the number of insurance companies that are under regulatory supervision.  This may result in an increase in mandatory assessments by state guaranty funds, or voluntary payments by solvent insurance companies to cover losses to policyholders of insolvent or rehabilitated companies. 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 partially recovered through a reduction in future premium taxes in some states.




The Company's variable annuity contracts and variable life insurance policies are subject to various levels of regulation under federal securities laws administered by the Securities and Exchange Commission (the "SEC") and under certain state securities laws.  On or about October 30, 2003, the Company received a request from the SEC for information regarding its policies, practices and procedures with respect to subaccount "market timing," its policies, practices and procedures with respect to receiving and processing exchange orders from contract owners, and its oversight of such activities in the Company's separate accounts.  The Company responded to this request and an additional related request.  On March 4, 2004, the Boston District Office of the SEC notified the Company that it intended to commence an examination of the Company and certain of its affiliates pursuant to Section 31(b) of the Investment Company Act of 1940 and the Securities Exchange Act of 1934 relating to these and certain other subjects.  The Company is cooperating in the examination.  



In addition, the SEC and other regulators have conducted or are conducting investigations and examinations of certain of the Company's affiliates relating to various issues, including market timing and late trading of mutual funds and variable insurance products, directed brokerage, revenue-sharing and other arrangements with distributors.




Litigation



The Company is not aware of any contingent liabilities arising from litigation, income taxes and other matters that could have a material effect upon the financial condition, results of operations or cash flows of the Company.




Indemnities



In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as engagement letters 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.  Due to the nature of these indemnification agreements, it is not possible to estimate the Company's potential liability.






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, 2003, 2003 and 2001



18. COMMITMENTS AND CONTINGENCIES (CONTINUED)




Lease Commitments




The Company leases various facilities and equipment under operating leases with terms of up to 25 years. As of December 31, 2003, minimum future lease payments under such leases were as follows:








 

 





2004



$                 6,206






2005



5,797






2006



5,695






2007



4,403






2008



1,052






Thereafter



-






      Total 



$               23,153











Total rental expense for the years ended December 31, 2003, 2002 and 2001 was $23.6 million, $13.8 million and $6.9 million, respectively.




The Company has two noncancelable sublease agreements that expire on December 31, 2007 and March 31, 2008.  As of December 31, 2003, the minimum future lease payments under the two sublease agreements were as follows:






 
 





2004



$                    224






2005



224






2006



224






2007



224






2008



56






Thereafter



-






      Total 



$                    952











 





INDEPENDENT AUDITORS' REPORT



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


Wellesley Hills, Massachusetts



We have audited the consolidated balance sheets of Sun Life Assurance Company of Canada (U.S.) and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of income, comprehensive income, stockholder's equity, and cash flows for each of the two years in the period ended December 31, 2003.  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 auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  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, 2003 and 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2003 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 financial statements taken as a whole, present fairly in all material respects the information set forth therein.



We previously audited and reported on the consolidated statements of income, comprehensive income, stockholder's equity, and cash flows of Sun Life Assurance Company of Canada (U.S.) and subsidiaries for the year ended December 31, 2001, prior to the restatement for the 2003 merger of Sun Life Assurance Company of Canada (U.S.) and Keyport Life Insurance Company, which was accounted for at historical cost as required by Statement of Financial Accounting Standards No. 141 "Business Combinations"  for transfers of assets among affiliates (the "2003 Merger").  The contribution of Sun Life Assurance Company of Canada (U.S.) to revenues and net income represented $631.3 million and $(12.7) million of the respective restated totals. Separate financial statements of Keyport Life Insurance Company included in the 2001 restated consolidated statements of income, comprehensive income, stockholder's equity, and cash flows were audited and reported on separately by other auditors. We also audited the combination of the accompanying consolidated statements of income, comprehensive income, stockholder's equity, and cash flows for the year ended December 31, 2001, after restatement for the 2003 Merger; in our opinion, such consolidated statements have been properly combined on the basis described in Note 1 of the notes to consolidated financial statements.



As discussed in Note 1 to the consolidated financial statements, effective January 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities".  As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets".   As discussed in Note 1 to the consolidated financial statements, effective October 1, 2003, the Company adopted the provisions of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51."



 


 


Deloitte & Touche LLP


Boston, Massachusetts


March 29, 2004



 




Pro forma Financial Statements



 


Effective December 31, 2003, Keyport Life Insurance Company ("Keyport"), an affiliate, merged with and into Sun Life Assurance Company of Canada (U.S.) ("Sun Life (U.S.)").  Sun Life (U.S.) is the surviving company (the "Surviving Company").



The Surviving Company will be licensed and authorized to write all the business that was being written by Keyport.  Keyport ceased to exist on December 31, 2003 and the Surviving Company will carry on the business of Sun Life (U.S.) along with that previously conducted through Keyport.



The following pro forma balance sheets as of December 31, 2002 and September 30, 2003 as well as the pro forma income statements for the year ended December 31, 2002 and the nine month period ended September 30, 2003 reflect the pro forma financial position and results of operations of the Surviving Company as if the merger had occurred on the date the entities came under common control (November 1, 2001). Since the two companies are affiliates, historical values are used in combining the assets and liabilities, which will not give rise to purchase price accounting adjustments. Certain reclassification adjustments were made to both companies' financial statements in order to conform presentation. 



On December 31, 2002 Keyport Benefit Life Insurance Company, an affiliate of Keyport, merged with and into Sun Life Insurance and Annuity Company of New York  ("SLNY Predecessor"), an affiliate of the Company, with SLNY Predecessor as the surviving company ("SLNY").  For the year ended December 31, 2002, the results of SLNY Predecessor were included with the results of Sun Life (U.S.).  Also, the results of SLNY were consolidated with Keyport and a minority interest was established for the portion of ownership attributable to the Sun Life (U.S.) interest. Pro-forma adjustments were necessary to eliminate the duplication of the results of SLNY Predecessor for the year ended December 31, 2002 and the minority interest attributed to SLNY for the year ended December 31, 2002 and the nine months ended September 30, 2003. 



For the year ended December 31, 2002 and the nine month period ended September 30, 2003 pro forma adjustments were also necessary to reflect the cancellation of the common stock of Keyport and to eliminate inter-company transactions. 




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


PRO FORMA BALANCE SHEET


(in thousands)


December 31, 2002









Assets





Keyport





Sun Life (U.S.)



Pro-Forma Adjustments



(Unaudited) Surviving Company




 
 
 
 
 





Available for sale fixed maturities



$   14,219,184



$    2,211,836



$         (8,000)



$   16,423,020






Trading fixed maturities



-



1,404,825

 


1,404,825






Subordinated note from affiliate 

held-to maturity





-





600,000











600,000






Short-term investments



6,390



171,627

 


178,017






Mortgage loans



169,567



778,962

 


948,529






Equity securities



1,127



-

 


1,127




 
 
 
 
 





Equity investment in affiliate



-



95,803



(95,803)



-






Real estate



-



79,783

 


79,783






Policy loans



642,712



39,317

 


682,029






Other invested assets



486,093



379,719

 


865,812




 
 
 
 
 





Cash and cash equivalents



448,446



277,104

 


725,550




 
 
 
 
 





Total cash and investments



15,973,519



6,038,976



(103,803)



21,908,692


















Accrued investment income



189,798



66,771





256,569


















Deferred policy acquisition costs



209,833



585,815





795,648






Value of business acquired



57,692



-





57,692






Goodwill



705,202



-





705,202






Current income tax receivable



53,917



-





53,917






Receivable for investments sold



107,608



3,013





110,621






Other assets                        



143,527



121,919





265,446






Separate account assets



2,334,755



13,383,358





15,718,113








Total assets





$   19,775,851





$  20,199,852





$   (103,803)





$   39,871,900




 
 
 
 
 





Liabilities

 
 
 
 





Contract holder deposit funds and 

other policy liabilities





$  14,434,364





$   3,517,720











$   17,952,084






Future contract and policy benefits



40,510



677,163

 


717,673






Payable for investments purchased



308,317



57,129

 


365,446






Accrued expenses and taxes



-



117,519

 


117,519






Deferred federal income taxes



(76,012)



104,736



(2,800)



25,924






Long-term debt payable to affiliates



380,000



645,000

 


1,025,000






Partnership capital securities



-



607,826

 


607,826






Other liabilities



320,978



242,901

 


563,879






Separate account liabilities



2,317,611



13,383,358

 


15,700,969






Total liabilities



  17,725,768



  19,353,352



(2,800)



  37,076,320




 
 
 
 
 





Minority interest



         95,803

 


    (95,803)



                   -




 
 
 
 
 





Stockholder's Equity

 
 
 
 





Common Stock



           3,015



6,437



(3,015)



6,437






Additional paid-in-capital



1,682,080



388,672



1,136



2,071,888






Accumulated other comprehensive 

income





198,517





47,384





3,010





248,911






Retained earnings



70,668



404,007



(6,331)



468,344






Total stockholder's equity



   1,954,280



846,500



(5,200)



2,795,580




 
 
 
 
 





Total liabilities, minority interest and 

stockholder's equity





$  19,775,851





$  20,199,852





$  (103,803)





$   39,871,900











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


PRO FORMA STATEMENT OF INCOME


(in thousands)


December 31, 2002





 




Keyport





Sun Life (U.S.)



Pro-Forma 

Adjustments



(Unaudited) 

Surviving Company






Revenues

 
 
 
 



 
 
 
 
 





Premiums and annuity 

considerations





$        20,285





$      43,574





$      (20,285)





$      43,574






Net investment income



833,881



360,914



(9,585)



1,185,210






Derivative income



(185,613)



26,328



-



(159,285)






Net realized investment 

gains (losses)





(48,461)





17,978





(8,483)





(38,966)






Fee and other income



66,632



352,403



(5,935)



413,100






Total revenues



686,724



801,197



(44,288)



1,443,633




 
 
 
 
 





Benefits and Expenses

 
 
 
 



 
 
 
 
 





Interest credited



575,485



132,856



(3,651)



704,690






Interest expense



9,546



96,497



-



106,043






Policyowner benefits



29,489



207,695



(16,022)



221,162






Amortization of DAC 

and VOBA





15,602





243,927





(8,016)





251,513






Other operating 

expenses





85,464





184,289





(9,547)





260,206






Total benefits and 

expenses





715,586





865,264





(37,236)





1,543,614




 
 
 
 
 





Income before income 

tax expense and 

minority interest







(28,862)







(64,067)







(7,052)







(99,981)




 
 
 
 
 





Income Tax Expense (Benefit)

 
 
 
 





Federal



(11,025)



(46,174)



(2,250)



(59,449)






State

 


1,265



-



1,265






Income tax expense 

(benefit)





(11,025)





(44,909)





(2,250)





(58,184)




 
 
 
 
 



 
 
 
 
 





Income (loss) before 

minority interest





(17,837)





(19,158)





(4,802)





(41,797)




 
 
 
 
 





Minority interest



(1,612)



-



1,612



-




 
 
 
 
 





Net income (loss)



$    (16,225)



 $    (19,158)



$   (6,414)



$   (41,797)










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


PRO FORMA BALANCE SHEET


(in thousands)


September 30, 2003









Assets





Keyport





Sun Life (U.S.)



Pro-Forma Adjustments



(Unaudited)

Surviving Company




 
 
 
 
 





Available for sale fixed maturities



$ 13,963,427



$ 2,770,906

 


16,734,333






Trading fixed maturities



-



1,474,552

 


1,474,552






Subordinated note from affiliate 

held-to maturity





-





600,000

 




600,000






Mortgage loans



272,399



571,956

 


844,355






Equity securities



1,174



-

 


1,174




 
 
 
 
 





Equity investment in affiliate



-



97,828



(97,828)



-






Real estate



-



69,696

 


69,696






Policy loans



654,204



35,327

 


689,531






Other invested assets



510,067



224,978

 


735,045








Cash and cash equivalents





359,477





362,165











721,642








Total cash and investments





15,760,748





6,207,408





(97,828)





21,870,328




















Accrued investment income





174,329





82,445











256,774








Deferred policy acquisition costs





222,967





568,199







791,166








Value of business acquired





18,135



-





18,135






Goodwill



705,202



-





705,202






Receivable for investments sold



26,141



62,156





88,297






Other assets



59,088



155,163





214,251






Separate account assets



2,435,610



14,073,734





16,509,344








Total assets







$  19,402,220





$  21,149,105





$   (97,828)





$   40,453,497




 
 
 
 
 





Liabilities

 
 
 
 





Contract holder deposit funds and 

other policy liabilities





$  14,143,766





$    3,737,634











$   17,881,400






Future contract and policy benefits



47,856



670,252

 


718,108






Payable for investments purchased



150,757



210,460

 


361,217






Accrued expenses and taxes



7,179



87,320

 


94,499






Deferred federal income taxes



(113,921)



131,126

 


17,205






Long-term debt payable to affiliates



380,000



645,000

 


1,025,000






Partnership capital securities



-



620,615

 


620,615






Other liabilities



288,839



73,394

 


362,233






Separate account liabilities



2,425,232



14,073,734

 


16,498,966






Total liabilities



17,329,708



20,249,535



-



37,579,243




 
 
 
 
 





Minority interest



97,828

 


(97,828)



-




 
 
 
 
 





Stockholder's Equity

 
 
 
 





Common Stock



3,015



6,437



(3,015)



6,437






Additional paid-in-capital



1,682,080



388,672



1,136



2,071,888






Accumulated other comprehensive 

income





191,609





63,755





3,010





258,374






Retained earnings



97,980



440,706



(1,131)



537,555






Total stockholder's equity



1,974,684



899,570



-



2,874,254




 
 
 
 
 





Total liabilities, minority interest and

stockholder's equity





$   19,402,220





$  21,149,105





$   (97,828)





$   40,453,497










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


PRO FORMA STATEMENT OF INCOME


(in thousands)


September 30, 2003





 




Keyport





Sun Life (U.S.)



Pro-Forma 

Adjustments



(Unaudited) 

Surviving Company






Revenues

 
 
 
 



 
 
 
 
 





Premiums and annuity 

considerations





$       21,701





$       26,727











$        48,428






Net investment income



599,653



313,724



(258)



913,119






Derivative income



(88,282)



(62,157)

 


(150,439)






Net realized investment 

gains (losses)





85,448





22,093





8,000





115,541






Fee and other income



43,337



196,732

 


240,069






Total revenues



661,857



497,119



7,742



1,166,718




 
 
 
 
 





Benefits and Expenses

 
 
 
 



 
 
 
 
 





Interest credited



488,496



107,795

 


596,291






Interest expense



16,416



74,269

 


90,685






Policyowner benefits



31,312



123,813

 


155,125






Amortization of DAC 

and VOBA





27,439





64,490

 




91,929






Other operating 

expenses





55,836





83,827

 




139,663






Total benefits and 

expenses





619,499





454,194











1,073,693




 
 
 
 
 





Income before income 

tax expense and 

minority interest







42,358







42,925







7,742







93,025




 
 
 
 
 





Income Tax Expense 

(Benefit)





14,788





6,226





2,800





23,814




 
 
 
 
 



 
 
 
 
 





Income (loss) before 

minority interest





27,570





36,699





4,942





69,211




 
 
 
 
 





Minority interest



258

 


(258)



-




 
 
 
 
 





Net income (loss)



$      27,312



$      36,699



$      5,200



$    69,211








 





INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholder of Keyport Life Insurance Company


Wellesley, Massachusetts



 


We have audited the accompanying consolidated balance sheet of Keyport Life Insurance Company (the "Company") and subsidiaries as of December 31, 2002, and the related consolidated statements of income, comprehensive income, stockholder's equity and cash flows for the year ended December 31, 2002.  Our audit also included the related 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 audit.




We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.




In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Keyport Life Insurance Company and subsidiaries at December 31, 2002, and the results of their operations and their cash flows for the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such related 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, effective January 1, 2002, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.




 


Deloitte & Touche LLP


Boston, Massachusetts




February 21, 2003




 




Report of Independent Auditors




 


The Board of Directors


Keyport Life Insurance Company



 


We have audited the consolidated balance sheet of Keyport Life Insurance Company as of December 31, 2001, and the related consolidated statements of income, stockholder's equity, comprehensive income, and cash flows for the ten-month period ended October 31, 2001 and the two-month period ended December 31, 2001 and for the year ended December 31, 2000. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.




We conducted our audits in accordance with auditing standards generally accepted in the 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.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and the 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Keyport Life Insurance Company at December 31, 2001, and the consolidated results of its operations and its cash flows for the ten-month period ended October 31, 2001 and the two-month period ended December 31, 2001 and for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.



As discussed in Note 3 to the financial statements, in 2001, the Company changed its method of accounting for its derivatives.



ERNST & YOUNG LLP



Boston, Massachusetts


February 7, 2002 (except for the second paragraph of "Principles of Consolidation" in Note 2, as to which the date is December 31, 2002)





KEYPORT LIFE INSURANCE COMPANY




CONSOLIDATED BALANCE SHEETS


(in thousands)








December 31,







2002



2001






ASSETS





Restated














Cash and investments:










          Fixed maturities available for sale (amortized cost: 2002 -$13,858,732;










                      2001 -$12,166,570)  



$ 14,219,184



$ 12,108,767






          Equity securities (cost:  2002 - $1,105;  2001 - $36,859)



1,127



39,658






          Mortgage loans



169,567



31,124






          Policy loans



642,712



636,351






          Other invested assets



280,465



521,259






          Short term investments



6,390



17,758






          Cash and cash equivalents



448,446



2,117,200






          Total cash and investments 



15,767,891



15,472,117














Accrued investment income



189,798



185,268






Deferred policy acquisition costs



209,833



47,611






Value of business acquired



57,692



95,155






Goodwill



705,202



714,755






Current income tax receivable



53,917



1,622






Deferred income tax asset



76,012



181,175






Intangible assets



11,814



12,100






Receivable for investments sold



107,608



21,797






Other assets



64,867



36,306






Separate account assets



2,334,755



2,995,094














          Total assets



$ 19,579,389



$ 19,763,000














LIABILITIES, MINORITY INTEREST AND STOCKHOLDER'S EQUITY


















Liabilities:










          Future contract and policy benefits



$        40,510





$        39,919








          Policy liabilities



      14,434,364



13,710,588






          Payable for investments purchased and loaned



308,317



1,165,609






          Other liabilities



428,504



59,602






          Separate account liabilities



2,317,611



2,966,820






          Total liabilities



17,529,306



17,942,538














Commitments and contingencies - Note 13


















Minority interest



95,803



73,485














Stockholder's equity:










          Common stock, $1.25 par value; authorized 2,500 shares;










                2,412 issued and outstanding 



3,015



3,015






          Additional paid-in capital  



1,682,080



1,688,841






          Retained earnings



70,668





86,893






          Accumulated other comprehensive income (loss)



198,517



(31,772)






          Total stockholder's equity



1,954,280



1,746,977














Total liabilities, minority interest and stockholder's equity



$ 19,579,389



$ 19,763,000







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






KEYPORT LIFE INSURANCE COMPANY




CONSOLIDATED STATEMENTS OF INCOME


(in thousands)














Year Ended 





For the 2 month period ended December 31,







For the 10 month period ended 











Year Ended







December 31,





2001





October 31,





December 31,







2002





Restated





2001





2000
























Revenues:




















Net investment income, including distributions from




















private equity limited partnerships



$    802,297





$    146,603





$   735,641 





$  856,808 






Interest credited to policyholders



575,485





107,315





498,668 





539,643 






Investment spread



226,812





39,288





236,973 





317,165 
























Net realized investment gains (losses)



(41,148)





2,223





(22,790)





(35,796)






Net derivative gains (losses) 



(123,426)





99,972





446 





-






Net change in unrealized and undistributed (losses)




















     gains in private equity limited partnerships



(7,591)





-





(17,088)





31,604 






Premiums



20,285





4,057





-





-
























Fee income:




















Surrender charges



29,291





2,261





13,654 





24,266 






Separate account income



30,587





8,699





44,460 





43,518 






Management fees



6,754





1,080





5,715 





6,207 






Total fee income



66,632





12,040





63,829 





73,991 
























Expenses:




















Policy benefits



29,489





4,629





4,869 





4,997 






Operating expenses



94,724





12,499





55,710 





64,875 






Amortization of deferred policy acquisition costs



23,241





1,694





95,507 





116,123 






Amortization of value of business acquired



22,686





3,828





-





-






Amortization of intangible assets



286





-





1,047  





1,256 






Total expenses



170,426





22,650





157,133 





187,251 
























(Loss) income before income taxes, minority interest and




















      Cumulative effect of accounting changes



(28,862)





134,930





104,237 





199,713 






Income tax expense (benefit)



(11,025)





47,228





26,635   





57,128 
























(Loss) income before minority interest and cumulative effect




















      of accounting changes, net of tax



(17,837)





87,702





77,602 





142,585 
























Minority interest share of (loss) income



(1,612)





809





-





-
























(Loss) income before cumulative effect of




















     accounting changes



(16,225)





86,893





77,602 





142,585 






Cumulative effect of accounting changes, net of tax



-





-





60,847 





-
























           Net (loss) income 



  $   (16,225)





$     86,893





$     16,755 





$  142,585 








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




KEYPORT LIFE INSURANCE COMPANY




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(in thousands)














Year Ended 





For the 2 month period ended December 31,







For the 10 month period ended 











Year Ended







December 31,





2001





October 31,





December 31,







2002





Restated





2001





2000
























Net (loss) income 



  $   (16,225)





$     86,893





$     16,755 





$  142,585 
























Other comprehensive income




















  Net change in unrealized holding gains (losses) on




















      available-for-sale securities



  $   359,070





$  (52,372)





$    415,507 





$  213,396 






  Net change in deferred acquisition costs



(20,800)





600





(343,300)





(192,300)






  Net change in value of business acquired



(32,923)





5,700





- 





-






  Reclassification adjustments of realized investment




















      gains (losses) into net income (loss)



48,944





(2,800)





29,300





45,900






  Income tax (expense) benefit



(124,002)





17,100





(16,400)





67,300
























  Other comprehensive income (loss), net of tax



  $   230,289





$  (31,772)





$     85,107 





$  134,296 
























Comprehensive income



  $   214,064





$     55,121





$     101,862 





$  276,881 







 


 


 


 





















 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


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






KEYPORT LIFE INSURANCE COMPANY




CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY


(in thousands)





 
 
 
 
 
 
 
 


Accumulated

 
 



 
 
 
 


Additional

 
 
 


Other

 
 



 
 


Common

 


Paid-in

 


Retained

 


Comprehensive

 
 



 
 


Stock

 


Capital

 


Earnings

 


Income (Loss)

 


Total




 
 
 
 
 
 
 
 
 
 
 





Balance, December 31, 1999



3,015 

 


505,933 

 


665,055 

 


(160,615)

 


1,013,388 




 
 
 
 
 
 
 
 
 
 
 





Net income



-

 


-

 


142,585 

 


-

 


142,585 






Other comprehensive income, net of tax:



-

 


-

 


-

 


134,296 

 


134,296 






Dividends paid



-

 


-

 


(10,034)

 


-

 


(10,034)




 
 
 
 
 
 
 
 
 
 
 





Balance, December 31, 2000



3,015 

 


505,933 

 


797,606

 


(26,319)

 


1,280,235 




 
 
 
 
 
 
 
 
 
 
 





Net income



-

 


-

 


16,755 

 


-

 


16,755 






Other comprehensive income, net of tax:



-

 


-

 


-

 


85,107 

 


85,107 






Dividends paid



-

 


-

 


(99)

 


-

 


(99)




 
 
 
 
 
 
 
 
 
 





Balance, October 31, 2001

 


3,015 

 


505,933 

 


814,262 

 


58,788 

 


1,381,998 




 
 
 
 
 
 
 
 
 
 





Sale of stockholder's equity



(3,015)

 


(505,933)

 


(814,262)

 


(58,788)

 


(1,381,998)




 
 
 
 
 
 
 
 
 
 





Sun Life acquisition cost



3,015 

 


1,703,462 

 


-

 


-

 


1,706,477 




 
 
 
 
 
 
 
 
 
 





Consolidation of SLNY



-

 


(14,621)

 


-

 


-

 


(14,621)






Net income



-

 


-

 


86,893 

 


-

 


86,893 






Other comprehensive income, net of tax:



-

 


-

 


-

 


(31,772)

 


(31,772)




 
 
 
 
 
 
 
 
 
 





Balance, December 31, 2001 - Restated



3,015 

 


1,688,841

 


86,893 

 


(31,772)

 


1,746,977 




 
 
 
 
 
 
 
 
 
 
 





Consolidation of SLNY



-

 


(6,761)

 


-

 


-

 


(6,761)






Net loss



-

 


-

 


(16,225)

 


-

 


(16,225)






Other comprehensive income, net of tax:



-

 


-

 


-

 


230,289

 


230,289




 
 
 
 
 
 
 
 
 
 





Balance, December 31, 2002 



$ 3,015

 


$ 1,682,080

 


$ 70,668 

 


$ 198,517

 


$1,954,280










 


 


 


 


 


 


 


 


 


 


 


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






KEYPORT LIFE INSURANCE COMPANY



CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)














Year Ended 





For the 2 month period ended December 31,







For the 10 month period ended 











Year Ended







December 31,





2001





October 31,





December 31,







2002





Restated





2001





2000
























Cash flows from operating activities:




















  Net (loss) income



$    (16,225)  





$     86,893 





$     16,755 





$    142,585 






  Adjustments to reconcile net (loss) income to net cash




















       provided by operating activities:




















        (Loss) income to minority interest



(1,612)





809







-





-






         Cumulative effect of accounting changes



-





-





60,847





-






         Non-cash derivative activity



145,277







(116,870)





94,048 





-






         Interest credited to policyholders



575,485





107,315 





498,668 





539,643 






         Net realized investment losses (gains) 



41,148





(2,223)





22,790 





35,796 






         Net change in unrealized and undistributed losses 




















            (gains) in private equity limited partnerships



7,591





-





17,088 





(31,604)






         Amortization of intangible



286





-





-





-






         Amortization of value of insurance in force & DAC



38,180





-





-





-






         Net amortization on investments



55,597





(4,980)





(11,544)





59,836 






         Change in deferred policy acquisition costs



(188,239)





(12,102)





(64,985)





9,023 






         Change in current and deferred income taxes



(72,383)





49,519 





(41,200)





5,783 






         Net change in other assets and liabilities



(17,171)





20,058





(116,807)





22,487 






                 Net cash provided by operating activities



567,934







128,419





475,660 





783,549 
























Cash flows from investing activities:




















  Investments purchased - available for sale



(11,413,485)





(1,511,630)





(1,973,207)





(3,802,286)






  Investments sold - available for sale



9,864,337





1,664,219 





2,026,942 





2,877,082 






  Investments matured - available for sale



-





-





86,626 





894,779 






  Decrease in policy loans



(6,361)





(4,022)





(11,092)





(21,346)






  Decrease in mortgage loans



(138,443)





2,210 





2,217 





2,692 






  Other invested assets sold (purchased), net



37,286





(28,689)





46,111 





8,336 






  Net change in short term investments



11,368





(2,689)





-





-






                 Net cash  (used in) provided by 




















                         investing activities



(1,645,298)





119,399 





177,597 





(40,743)
























Cash flows from financing activities:




















     Withdrawals from policyholder accounts



(2,292,504)





(469,068)





(1,993,388)





(2,249,950)






     Deposits to policyholder accounts



2,473,975





446,220 





1,565,504 





1,569,168 






     Debt proceeds



380,000





-





-





-






     Net change in securities lending



(1,152,861)





30,900 





(106,709)





600,386 






     Dividend



-





-





-





(10,034)






                           Net cash (used in) provided by 




















                               financing activities



(591,390)





8,052





(534,593)





(90,430)
























Change in cash and cash equivalents



(1,668,754)





255,870







118,664 





652,376 






Cash from consolidation of SLNY



-





14,387





-





-






Cash and cash equivalents at beginning of period



2,117,200





1,846,943 





1,728,279 





1,075,903 
























Cash and cash equivalents at end of period



$ 448,446





$ 2,117,200 





$ 1,846,943 





$ 1,728,279 











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




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




1.  Change of Control




Through October 31, 2001, Keyport Life Insurance Company ("the Company") was a wholly owned subsidiary of Liberty Financial Companies, Incorporated ("LFC"), which is a majority-owned, indirect subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").  




On May 3, 2001, LFC announced that it had reached a definitive agreement to sell its annuity and bank marketing businesses to Sun Life Financial Services of Canada Inc. ("SLF"), a Canadian holding company and parent of Sun Life Assurance Company of Canada ("SLOC").  The transaction was subject to customary conditions to closing, including receipt of approvals by various state insurance regulators in the U.S., certain other regulatory authorities in the U.S. and Canada and LFC's shareholders.




Effective after the close of business on October 31, 2001, all required approvals had been obtained and SLF Holdings, acquired the Company for approximately $1.7 billion in cash.  As part of the acquisition, SLF Holdings, another indirect subsidiary of SLOC, acquired Independent Financial Marketing Group, Inc. ("IFMG"), an affiliate of the Company ($20 million of the total purchase price was allocated to IFMG).  The acquisition of the Company and IFMG complements both SLF's product array and distribution capabilities and advances SLF towards its strategic goal of reaching a top 10 position in target product markets in North America.  SLF also expects to reduce costs through economies of scale.




The acquisition was accounted for using the purchase method under Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets".  Under the purchase method of accounting, the assets acquired and liabilities assumed are recorded at estimated fair value at the date of acquisition. 




 


 


 


 


 


 


 


 


 


 


 


 


 


 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of November 1, 2001 (in thousands):






 


Assets:

 



 


  Fixed-maturity securities



$     10,609,150




 


  Equity securities



35,313




 


  Mortgage loans



7,216




 


  Policy loans



631,916




 


  Value of business acquired



105,400




 


  Goodwill



714,755




 


  Intangible assets



12,100




 


  Deferred taxes



217,633




 


  Other invested assets



363,586




 


  Cash and cash equivalents



1,846,887




 


  Other assets acquired



465,152




 


  Separate account assets



3,941,527




 


          Total assets acquired



18,950,635




 


  

 



 


Liabilities:

 



 


  Policy liabilities



12,052,071




 


  Other liabilities



1,262,045




 


  Separate accounts



3,930,042




 


          Total liabilities assumed



17,244,158




 
 
 



 


Net assets acquired



$      1,706,477











In 2002, the Company completed its valuation of certain assets acquired and liabilities assumed.  The revisions decreased goodwill by $9.6 million, decreased deferred taxes by $54.9 million, increased policy liabilities by $13.0 million, increased other liabilities by $13.7 million and reduced investments and other assets by $12.8 million and $5.8 million, respectively.




Intangible assets acquired primarily consist of state insurance licenses ($10.1 million) that are not subject to amortization.  The remaining $2.0 million of intangible assets relate to product rights that have a weighted-average useful life of 7 years.  Most of the goodwill is expected to be deductible for tax purposes.




As a result of the acquisition, the financial statements for the period subsequent to the acquisition are presented on a different basis of accounting than those for the periods prior to the acquisition and, therefore, are not directly comparable.  For periods prior to the date of the acquisition, the balances are referred to as "Predecessor Basis."




2.  Accounting Policies




Organization




The Company offers a diversified line of fixed, indexed and variable annuity products designed to serve the growing retirement savings market.  These annuity products are sold through a wide-ranging network of banks, agents and security dealers throughout the United States.




 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




Principles of Consolidation




The consolidated financial statements include the Company and its wholly owned subsidiaries, Independence Life and Annuity Company ("Independence Life"), Keyport Benefit Life Insurance Company ("KBL") (through December 31, 2002), Liberty Advisory Services Corp. (through October 31, 2001) and Keyport Financial Services Corp. ("KFSC").  On October 31, 2001, the Company transferred its ownership interest in Liberty Advisory Service Corp., through a dividend, to LFC.




On December 31, 2002 the Company transferred its ownership interest in KBL for a 67% interest in Sun Life of New York ("SLNY").  SLNY and the Company are under common control.  Accounting principles generally accepted in the United States (GAAP) require that the financial statements reflect such transaction to the earliest year presented or to the date the entities became under common control (November 1, 2001).  Accordingly, the accompanying financial statements of the Company at December 31, 2001 and the two months then ended reflect the inclusion of SLNY in a manner similar to a pooling of interest.  Minority interest has been established for a portion of the earnings not attributable to Keyport's 67% ownership.  The restatement increased the Company's assets by $518.9 million and $619.2 million at December 31, 2002 and 2001, respectively.  Net income was increased by $1.2 million for the year ended December 31, 2002 and decreased by $83,000 for the two-month period ended December 31, 2001.




The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), which vary in certain respects from reporting practices prescribed or permitted by state insurance regulatory authorities.  All significant intercompany transactions and balances have been eliminated.




Use of Estimates




The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.  Actual results could differ from those estimates.



Investments




Investments in debt and equity securities classified as available for sale are carried at fair value, and after tax unrealized gains and losses (net of adjustments to deferred acquisition costs ("DAC") and value of business acquired ("VOBA")) are reported as a separate component of accumulated other comprehensive income (loss).  The cost basis of securities is adjusted for declines in value that are determined to be other-than-temporary.  Realized investment gains and losses are calculated on a first-in, first-out basis, net of adjustments for amortization of DAC and value of business acquired.




For the mortgage-backed bond portion of the fixed-maturity investment portfolio, the Company recognizes income using a constant effective yield based on anticipated prepayments over the estimated economic life of the security.  When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments, and any resulting adjustment is included in net investment income.  




Mortgage loans are carried at amortized cost.  Policy loans are carried at the unpaid principal balances plus accrued interest and do not exceed the net cash surrender value of the related insurance policy.  




Investments in private equity limited partnerships, which are included in other invested assets, are accounted for on either the cost method or equity method.  The equity method of accounting is used for all partnerships in which the Company has an ownership interest in excess of 3%.






KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




The net change in unrealized and undistributed gains in private equity limited partnerships primarily represents increases (decreases) in the fair value of the underlying investments of the private equity limited partnerships that are accounted for under the equity method.  The net change is recorded net of the related amortization of value of business acquired and of DAC, and net of the amounts realized, which are recognized in investment income. The financial information for these investments is obtained directly from the private equity limited partnerships on a periodic basis.  There can be no assurance that any unrealized and undistributed gains(losses) will ultimately be realized or that the Company will not incur losses in the future on such investments. 




The following amount represents the net change in unrealized and undistributed (losses) gains in private equity limited partnerships:






 


Year Ended December 31, 2002

 


For the 2 month Period ended December 31, 2001

 


For the 10 month period ended October 31, 2001

 




Year Ended December 31, 2000




 
 
 
 
 
 
 
 





Gross (loss) gain



 $ (8,924)

 


-

 


 $ (14,688)

 


$ 103,604






Net reclassification into net 

 
 
 
 
 
 
 





    investment income



-

 


-

 


(34,100)

 


(13,300)




 


(8,924)

 


-

 


(48,788)

 


90,304






Less:

 
 
 
 
 
 
 





DAC & VOBA Amortization



(1,333)

 


-

 


(31,700)

 


58,700




 


$ (7,591)

 


-

 


$ (17,088)

 


 $    31,604









Fee Income




Fees from investment advisory services are recognized as revenues when services are provided. Revenues from fixed and variable annuities and single-premium whole life policies include mortality charges, surrender charges, policy fees, and contract fees and are recognized when earned.




Deferred Policy Acquisition Costs (DAC)




DAC relates to the costs of acquiring new business, which vary with, and are primarily related to, the production of new annuity business.  Such acquisition costs include commissions, costs of policy issuance, and underwriting and selling expenses.  These costs are deferred and amortized with interest in relation to the present value of estimated gross profits from mortality; investment spread and expense margins over the estimated lives of the contracts.  This amortization is reviewed annually and adjusted retrospectively when the Company revises its estimate of current or future gross profits to be realized, including realized and unrealized gains and losses from investments.




DAC is adjusted for amounts relating to unrealized gains and losses on available for sale fixed-maturity securities.  This adjustment, net of tax, is included with the change in net unrealized investment gains or losses that is credited or charged directly to accumulated other comprehensive income (loss). The impact of this adjustment on DAC was to (decrease) increase it by ($20.2) million and $0.6 million at December 31, 2002 and 2001, respectively, relating to this adjustment.




Although realization of DAC is not assured, the Company believes it is more likely than not that all of these costs will be realized.  The amount of DAC considered realizable, however, could be reduced in the near term if the estimates of gross profits or total revenues discussed above are reduced.  The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.






KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




Value of Business Acquired




The value of business acquired represents the actuarial-determined present value of projected future gross profits from policies in force at the date of their acquisition.  This amount is amortized in proportion to the projected emergence of profits over the estimated lives of the contracts. 




The value of business acquired is adjusted for amounts relating to the recognition of unrealized investment gains and losses.  This adjustment, net of tax, is included with the change in net unrealized investment gains or losses that is credited or charged directly to accumulated other comprehensive income (loss).  Value of business acquired was ($27.3) million and $0.6 million at December 31, 2002 and 2001, respectively, relating to this adjustment.  




Estimated future net amortization expense of the value of business acquired as of December 31, 2002 is as follows (in thousands):








2003



$10,961 






2004



9,701






2005



8,395






2006



6,991






2007



5,586






Thereafter



16,058






Total



$57,692 











Goodwill




Goodwill represents the difference between the purchase price paid and the fair value of the net assets acquired in connection with the acquisition of the Company.  In accordance with SFAS 142, the Company has completed the required impairment tests of goodwill and indefinite-lived intangible assets and concluded that these assets are not impaired.  Goodwill is tested for impairment on an annual basis using the discounted cash flow method.




Intangible Assets




Intangible assets consist of state insurance licenses of $10.1 million that are not subject to amortization and $2.0 million of product rights that have a weighted-average useful life of 7 years.  




Separate Account Assets and Liabilities




The assets and liabilities resulting from variable annuities and variable life policies are segregated in separate accounts.  Separate account assets consist principally of investments in mutual funds are carried at fair value.  Investment income and changes in mutual fund asset values are allocated to the policyholders and, therefore, do not affect the operating results of the Company.  The Company earns separate account fees for providing administrative services and bearing the mortality risk related to these contracts.  The difference between investment income and interest credited on the institutional accounts was reported as separate account fee income through October 31, 2001.  Effective November 1, 2001, the separate institutional accounts were classified as general account assets.  Investment income and interest credited were reported as components of net investment income and interest credited, respectively. 




As of December 31, 2002 and 2001, the Company also classified $17.1 million and $28.3 million, respectively, of investments in certain mutual funds sponsored by former affiliates of the Company as separate account assets.



 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)


Policy liabilities 



Policy liabilities consist of deposits received plus credited interest, less accumulated policyholder charges, assessments, and withdrawals related to deferred annuities and single-premium whole life policies.  Policy benefits that are charged to expense include benefit claims incurred in the period in excess of related policy account balances.



Future contract and policy benefits



Future contract and policy benefits are liabilities for traditional life and health products.  Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force.  The liabilities associated with traditional life insurance and disability insurance products are computed using the net level premium method based on assumptions about future investment yields, mortality, morbidity and persistency.  The assumptions used are based upon the Company's experience and industry standards. 




Income Taxes




Income taxes have been provided using the liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." 




In 2002, as in prior years, the Company will file a consolidated federal income tax return with its life insurance subsidiaries, Independence Life and KBL stand-alone.  Because of KBL's merger into SLNY, starting in 2003 Keyport and Independence Life will file a consolidated federal income tax return, and SLNY will file on a standalone basis.  KFSC also files a standalone federal income tax return.  The Company and its subsidiaries will be eligible to file a consolidated return with Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc. ("US Holdco") beginning in 2006.  US Holdco is a member of the Sun Life Financial Group Insurance Holding Company system and is an indirect subsidiary of SLOC.



The Company and its life insurance subsidiaries have a tax-sharing agreement that allocates income taxes to the Company and its subsidiaries as if each entity were to file separate income tax returns.  Tax benefits resulting from losses are paid to the extent such losses are utilized in the consolidated income tax return.  Effective December 21, 2002, KBL (as part of SLNY) is no longer included in this tax sharing agreement.  KFSC also had a tax-sharing agreement (through October 31, 2001) with the same terms as those outlined above. 




Cash Equivalents




Short-term investments having a maturity of three months or less when purchased are classified as cash equivalents.




Reclassifications




Certain prior-year amounts have been reclassified to conform to the 2001 presentation.




Restatement




On December 31, 2002, the Company acquired a 67% interest in SLNY, an affiliated company, in exchange for its interest in its wholly owned subsidiary, KBL.  SLNY was merged with KBL on December 31, 2002 and SLNY was the surviving entity. SLNY and Keyport are under common control.  Accounting principles generally accepted in the United States (GAAP) indicate that the financials should be restated to the earliest year presented or to the date the entities became under common control (November 1, 2001).  The financial condition and results of SLNY are included in the accompanying financial statements from November 1, 2001.





KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




3. Accounting Changes



The cumulative effect of accounting changes, net of tax, for the ten-month period ended October 31, 2001 of $60.8 million includes a loss of $54.3 million relating to the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of SFAS No. 133" (collectively hereafter referred to as the "Statement") in the quarter ended March 31, 2001 and a loss of $6.5 million relating to the adoption of Emerging Issues Task Force ("EITF") Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets" in the quarter ended June 30, 2001.




The Company adopted the Statement on January 1, 2001. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value.  Derivatives that are not hedges must be adjusted to fair value through income.  If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset by the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings.  The ineffective portion of a derivative's change in fair value will be immediately recognized in operations.




The cumulative effect, reported after tax and net of related effects on DAC, upon adoption of the Statement at January 1, 2001 decreased net income and stockholder's equity by $54.3 million.  The adoption of the Statement may increase volatility in future reported income due, among other reasons, to the requirements of defining an effective hedging relationship under the Statement as opposed to certain hedges the Company believes are effective economic hedges.  The Company anticipates that it will continue to utilize its current risk management philosophy, which includes the use of derivative instruments.



The Company adopted EITF Issue No. 99-20 on April 1, 2001. EITF Issue 99-20 governs the method of recognizing interest income and impairment on asset-backed investment securities.  EITF Issue No. 99-20 requires the Company to update the estimate of cash flows over the life of certain retained beneficial interests in securitization transactions and purchased beneficial interests in securitized financial assets.  Pursuant to EITF Issue No. 99-20, based on current information and events, if the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value and if there has been a decrease in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment should be recognized.  The cumulative effect, reported after tax and net of related effects on DAC, upon adoption of EITF Issue No. 99-20 on April 1, 2001 decreased net income by $6.5 million with a related increase to accumulated other comprehensive income of $1.8 million.




In September 2001, the EITF discussed Issue No. 01-10 "Accounting for the Impact of the Terrorist Attacks of September 11, 2001" which gives accounting guidance and recommended disclosures.  Following this guidance, the Company has reviewed its insurance contracts to quantify potential losses, if any, as a result of the tragedy and has determined that there were no material claims exposure to the Company.  The national tragedy of September 11, 2001 has also had an adverse impact on the airline, hotel and hospitality businesses.  The Company has investments associated with these industries.  As of December 31, 2002, the Company recorded a $4.5 million write-down of its airline industry investments for "other-than-temporary declines" due to the decrease in market value.  The Company will continue to monitor these investments to determine if any further adjustments are necessary.




In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others ("FIN 45")."  FIN 45 requires entities to establish liabilities for certain types of guarantees, and expands financial statement disclosures for others.  This interpretation has no impact for Keyport.






KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)



3. Accounting Changes (continued)



In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," to improve financial reporting by enterprises involved with variable interest entities.  This interpretation states that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise.  This interpretation has no impact for Keyport as Keyport does not maintain any involvement with variable interest entities.  




In July 2002, the American Institute of Certified Public Accountants ("AICPA") issued a proposed Statement of Position ("SOP"), "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Separate Accounts."  This SOP provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts.  The Company is in the process of evaluating the provisions of this SOP and its impact to the Company's financial position or results of operations.



4. Accounting for Derivatives and Hedging Activities




All derivatives are recognized on the balance sheet at fair value.  On the date the derivative contract is entered into, the Company designates the derivative as either (1) a hedge of the fair value of a recognized asset ("fair value hedge") or (2) utilizes the derivative as an economic hedge ("non-designated derivative").  Changes in the fair value of a derivative that is highly effective and is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset attributable to the hedged risk, are recorded in current period operations as a component of net derivative gains.  Changes in the fair value of non-designated derivatives are reported in current period operations as a component of net derivative gains.




The Company issues equity-indexed annuity contracts 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), is carried at fair value, and is considered a non-designated derivative.  




The Company purchases call options and futures on the S&P 500 Index to economically hedge its obligation under the annuity contract to provide returns based upon this index.  The call options and futures are non-designated derivatives.  In addition, the Company utilizes non-designated total return swap agreements to hedge certain contract obligations.




As a component of its investment strategy and to reduce its exposure to interest rate risk, the Company utilizes interest rate swap agreements.  Interest rate swap agreements are agreements to exchange with a counterparty interest rate payments of differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes.  Prior to October 31, 2001, the interest rate swap agreements were designated and qualified as fair value hedges.  The ineffective portion of the fair value hedges, net of related effects on DAC, resulted in a loss of $2.6 million for the ten-month period ended October 31, 2001.




The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedging transactions.  This process included linking all fair value hedges to specific assets on the balance sheet.  The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values.  When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.







KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




4. Accounting for Derivatives and Hedging Activities (continued)




When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative will continue to be carried on the balance sheet at its fair value and changes in fair value will be reported in operations.  The subsequent fair value changes in the hedged asset will no longer be reported in current period operations.




Effective November 1, 2001, in conformity with SLOC accounting policies, the Company discontinued hedge accounting and classified its interest rate swap agreements as non-designated derivatives.  The Company believes that these derivatives provide economic hedges and the cost of formally documenting the effectiveness of the fair value of the hedged assets in accordance with the provisions of SFAS 133 was not justified.  The decrease in the swap values, net of related effects on the value of business acquired, resulted in a (loss) income of $(113.7) million and $64.9 million for the year ended December 31, 2002 and for the two month period ended December 31, 2001, respectively.  The change in values of the call options, futures, and the embedded derivative, net of related effects on the value of business acquired and DAC, (decreased) increased income by $(9.7) million and $35.1 million for the year ended December 31, 2002 and for the two month period ended December 31, 2001, respectively.  



Outstanding derivatives, shown in notional amounts along with their carrying value and fair value, are as follows (in thousands): 






 
 
 


Assets /(Liabilities)




 


Notional Amounts

 
 


Carrying Value

 


Fair 

Value




 
 


12/31/2002

 
 


12/31/2002

 


12/31/2002




 
 
 
 
 
 
 
 





Interest rate swaps

 


$3,697,630

 
 


(205,569)

 


(205,569)






Total return swaps

 


203,018

 
 


(164,992)

 


(164,992)






S&P 500 Index call options

 


976,759

 
 


24,753

 


24,753











 
 


12/31/2001

 
 


12/31/2001

 


12/31/2001




 
 
 
 
 
 
 
 





Interest rate swaps

 


$2,172,526

 
 


$ (71,906)

 


$ (71,906)






Total return swaps

 


1,035,438

 
 


42,171 

 


42,171 






S&P 500 Index call options

 


-

 
 


56,125 

 


56,125 









The interest rate and total return swap agreements expire in 2003 through 2017.  The S&P 500 call options and futures maturities range from 2003 to 2009.




At December 31, 2002 and 2001, the Company had approximately $96.9 million and $92.5 million, respectively, of unamortized premium in call option contracts.




Fair values for swap and cap agreements are based on current settlement values.  The current settlement values are based on quoted market prices and brokerage quotes, which utilize pricing models or formulas using current assumptions.  Fair values for call options and futures contracts are based on quoted market prices. 




There are risks associated with some of the techniques the Company uses to match its assets and liabilities.  The primary risk associated with swap, cap and call option agreements is the risk associated with counterparty nonperformance.  The Company believes that the counterparties to its swap, cap and call option agreements are financially responsible and that the counterparty risk associated with these transactions is minimal.  Futures contracts trade on organized exchanges and, therefore, have minimal credit risk.





KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




5.  Investments



Fixed Maturities




The amortized cost, gross unrealized gains and losses, and fair value of fixed-maturity securities are as follows (in thousands):












December 31, 2002





Amortized Cost

 


Gross Unrealized Gains

 


Gross Unrealized Losses

 




Estimated

Fair Value




 
 
 
 
 
 
 
 





Fixed-maturity securities:

 
 
 
 
 
 
 






Asset Backed and Mortgage Backed Securities




$   5,158,297

 


$    161,843

 


$      (81,822)

 


$   5,238,318







Foreign Government & Agency Securities




87,846

 


12,512

 


(8)

 


100,350






       States & Political Subdivisions



1,649

 


96

 


-

 


1,745







U.S. Treasury & Agency Securities




589,627

 


14,842

 


(981)

 


603,488






Corporate securities:

 
 
 
 
 
 
 





       Basic Industry



$      313,960

 


$      16,874

 


$             (56)

 


$      330,778






       Capital Goods



370,441

 


25,960

 


(1,325)

 


395,076






       Communications



787,935

 


42,982

 


(10,330)

 


820,587






       Consumer Cyclical



744,063

 


41,818

 


(1,727)

 


784,154






       Consumer Noncyclical



429,530

 


22,489

 


(3,543)

 


448,476







Energy




537,089

 


27,270

 


(11,980)

 


552,379







Finance




2,920,881

 


117,824

 


(21,943)

 


3,016,762







Industrial Other




137,885

 


5,782

 


(258)

 


143,409







Technology




66,294

 


1,928

 


(702)

 


67,520







Transportation 




505,660

 


23,742

 


(25,039)

 


504,363







Utilities




1,207,575

 


47,016

 


(42,812)

 


1,211,779






Total Corporate



$   8,021,313





$   373,685





$     (119,715)





$   8,275,283






 

 
 
 
 
 
 
 





Total fixed maturity securities



$ 13,858,732

 


$   562,978

 


$     (202,526)

 


$ 14,219,184









 


 


 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




5.  Investments (continued)












December 31, 2001 - Restated





Amortized Cost

 


Gross Unrealized Gains

 


Gross Unrealized Losses

 




Estimated

Fair Value




 
 
 
 
 
 
 
 





Fixed-maturity securities:

 
 
 
 
 
 
 






Asset Backed and Mortgage Backed Securities




$   5,068,049

 


$        53,350

 


$      (87,382)

 


$   5,034,016







Foreign Government & Agency Securities




306,578

 


15,191

 


(4,588)

 


317,182






       States & Political Subdivisions



2,099

 


25

 


-

 


2,124







U.S. Treasury & Agency Securities




339,476

 


540

 


(6,113)

 


333,903






Corporate securities:

 
 
 
 
 
 
 





       Basic Industry



$      294,373

 


$          3,704

 


$        (8,531)

 


$      289,546






       Capital Goods



346,352

 


9,556

 


(2,347)

 


353,561






       Communications



854,824

 


11,438

 


(10,674)

 


855,588






       Consumer Cyclical



679,878

 


3,074

 


(4,487)

 


678,465






       Consumer Noncyclical



513,491

 


7,572

 


(5,493)

 


515,570







Energy




467,518

 


1,943

 


(6,650)

 


462,811







Finance




1,987,366

 


12,127

 


(25,175)

 


1,974,318







Industrial Other




102,023

 


2,271

 


(1,868)

 


102,426







Technology




67,988

 


887

 


(1,874)

 


67,001







Transportation 




426,033

 


6,703

 


(8,080)

 


424,656







Utilities




710,522

 


2,259

 


(15,181)

 


697,600






Total Corporate



$    6,450,368

 


$        61,534

 


$      (90,360)

 


$   6,421,542






 

 
 
 
 
 
 
 





Total fixed maturity securities



$  12,166,570

 


$      130,640

 


$    (188,443)

 


$ 12,108,767









At December 31, 2002 and 2001, net unrealized (losses) gains on equity securities and investments in separate accounts aggregated $(1.5) million and $4.7 million, respectively.  




No investment in any person or its affiliates (other than bonds issued by agencies of the United States government) exceeded ten percent of stockholder's equity at December 31, 2002.  At December 31, 2002, the Company did not have a material concentration of financial instruments in a single investee, industry or geographic location.




At December 31, 2002 and 2001, $595.9 million and $1.2 billion of fixed maturities were below investment grade, respectively.



Contractual Maturities




The amortized cost and fair value of fixed maturities by contractual maturity as of December 31, 2002 are as follows (in thousands):






 


Amortized Cost

 


Fair Value




 
 
 
 





Due in one year or less



$     631,206

 


$     635,956






Due after one year through five years



3,935,454

 


4,054,445






Due after five years through ten years



2,791,680

 


2,899,022






Due after ten years



1,342,094

 


1,391,443




 


8,700,734

 


8,980,866






Mortgage and asset-backed securities



5,158,298

 


5,238,318




 


$ 13,858,732

 


$ 14,219,184









Actual maturities may differ as borrowers may have the right to call or prepay obligations.






KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)



5. Investments (continued)




Mortgage loans



The Company invests in commercial first mortgage loans 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 70% of the properties' value at the time that the original loan is made. The carrying value of mortgage loans was $169.6 million and $31.1 million at December 31, 2002 and 2001, respectively.




The Company monitors the condition of the mortgage loans in its portfolio.  In those cases where mortgages have been restructured, appropriate allowances for losses have been made.  In those cases where, in management's judgement, the mortgage loan's value has been impaired, appropriate losses are recorded.   The company had no restructured or impaired mortgage loans at December 31, 2002 and 2001, respectively.  The allowances for losses at December 31, 2002 were $81,000.  




Mortgage loans comprise the following property types and geographic regions at December 31 (in thousands):








Property Type:



2002





2001 - Restated






Office building



$              66,167





$           6,508






Residential



3,353





7,931






Retail



44,189





9,865






Industrial/warehouse



40,690





3,600






Other



15,249





3,220






Valuation allowance



(81)





-
















Total



$            169,567   





$         31,124










 


 


 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)



5. Investments (continued)







Geographic region:



2002 - 





2001 - Restated






Arizona



$                2,434





$           2,524






California



10,981





1,959






Delaware



8,944





-






Florida



7,949





4,206






Georgia



6,945





1,060






Indiana



1,836





1,894






Kentucky



8,018





-






Louisiana



4,551





-






Maryland



4,774





3,301






Massachusetts



9,417





-






Michigan



5,875





549






New York



25,047





4,128






North Carolina



12,838





473






Ohio



11,479





2,736






Pennsylvania



17,835





1,986






Tennessee



3,177





90






Texas



7,347





668






Utah



1,980





1,538






Virginia



1,160





1,200






Washington



8,637





1,610






Other



8,424





1,202






Valuation allowance



(81)





-
















Total



$            169,567





$         31,124










At December 31, 2002, scheduled mortgage loan maturities were as follows (in thousands):







2003



$                -






2004



3,792






2005



2,538






2006



-






2007



31,252






Thereafter



131,985






Total



$    169,567










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 commitments of mortgage loans on real estate and other loans into the future.  The outstanding commitments for these mortgages amount to $80.1 million and $0.5 million at December 31, 2002 and 2001, respectively.  The fair value of the outstanding commitments is not material to the Company.





KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)



5.  Investments (continued)



Net Investment Income 




Net investment income is summarized as follows (in thousands):






 
 
 


2 months 

 
 
 
 



 


Year Ended December 31,

 


ended 12/31/2001

 


10 months ended

 


Year Ended December 31,




 


2002

 


Restated

 


10/31/2001

 


2000




 
 
 
 
 
 
 
 





Fixed maturities



$  802,328

 


$  146,509 

 


$  678,035 

 


$  807,884 






Mortgage loans 



7,070

 


466 

 


788 

 


972 






Other invested assets



(35,325)

 


(4,059)

 


33,485 

 


84,745 






Policy loans



36,648

 


5,758 

 


30,701 

 


36,985 






Equity securities



484

 


797 

 


9,651 

 


276 






Cash and cash equivalents



1,607

 


385 

 


917 

 


27,368 






     Gross investment income



812,812

 


149,586 

 


753,577 

 


958,230 






Investment expenses



(10,515)

 


(3,253)

 


(17,936)

 


(21,014)






Amortization of options and interest rate caps



-

 


-

 


-

 


(80,408)




 
 
 
 
 
 
 
 





      Net investment income



$  802,297

 


$  146,603 

 


$  735,641 

 


$  856,808 









As of December 31, 2002 and 2001, the carrying value of non-income-producing fixed-maturity investments was $0.5 million and $81.8 million, respectively. 




Net Realized Investment Gains (Losses) 




Net realized investment gains (losses) are summarized as follows (in thousands):






 
 
 


2 months 

 
 
 
 



 


Year Ended December 31,

 


Ended 12/31/2001

 


10 months ended

 


Year Ended December 31,




 


2002

 


Restated

 


10/31/2001

 


2000






Fixed maturities available for sale:

 
 
 
 
 
 
 





   Gross gains



$     135,821

 


$   12,722 

 


$   19,374 

 


$  35,430 






   Gross losses



(128,637)

 


(9,821)

 


(7,510)

 


(70,474)






   Other-than-temporary declines in value



(66,838)

 


-

 


(42,800)

 


(16,731)




 


(56,654)

 


2,901 

 


(30,936)

 


(51,775)




 
 
 
 
 
 
 
 





Equity securities



2,378

 


-

 


1,665 

 


-






Investments in separate accounts



-

 


-

 


-

 


4,386 






Other invested assets



8,815

 


-

 


-

 


1,497 




 
 
 
 
 
 
 
 





Gross realized investment (losses) gains 



(48,461)

 


2,901 

 


(29,271)

 


(45,892)




 
 
 
 
 
 
 
 





Amortization adjustments of deferred policy

 
 
 
 
 
 
 





     acquisition costs and value of business acquired



7,313

 


(678)

 


6,481 

 


10,096 




 
 
 
 
 
 
 
 





Net realized investment (losses) gains



$       (41,148)

 


$      2,223 

 


$   (22,790)

 


$(35,796)










KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)



6.  Reinsurance



The Company's subsidiary, SLNY, has an agreement with SLOC whereby SLOC reinsures the mortality risks of the group life insurance contracts.  Under this agreement, certain death benefits are reinsured on a yearly renewable term basis.  The agreement provides that SLOC will reinsure the mortality risks in excess of $50,000 per claim for group life contracts ceded by SLNY. 




SLNY has an agreement with an unrelated company whereby the unrelated company reinsures the morbidity risks of the group long-term disability contracts.  Under this agreement, certain long-term disability benefits are reinsured on a yearly renewable term basis. The agreement provides that the unrelated company will reinsure amounts above $4,000 per claim per month for long-term disability contracts ceded by SLNY.



The effects of reinsurance were as follows (in thousands):





 


Year ended December 31,

 


2 months ended

 


10 months ended

 


Year ended December 31,




 


2002

 


12/31/2001

 


10/31/2001

 


2000






Insurance premiums:

 
 
 
 
 
 
 





     Direct



$     25,900

 


$   4,597

 


-

 


-






     Ceded - Affiliated



4,133

 


280

 


-

 


-






     Ceded - Non-affiliated



1,482

 


261

 


-

 


-






Net Premiums



$     20,285

 


$   4,056

 


-

 


-




 
 
 
 
 
 
 
 





Insurance and other individual policy benefits, and claims:

 
 
 
 
 
 
 





     Direct



$     19,644





$   3,501





-





-






     Ceded - Affiliated



2,858





1,227





-





-






     Ceded - Non-affiliated



358





66





-





-






Net policy benefits and claims



$     16,428





$   2,208





-





-








SLNY is contingently liable for the portion of the policies reinsured under each of its existing reinsurance agreements in the event the reinsurance companies are unable to pay their portion of any reinsured claim.  Management believes that any liability from this contingency is unlikely.  However, to limit the possibility of such losses, SLNY evaluates the financial condition of its reinsurers and monitors concentration of credit risk.



7.  Income Taxes



Income tax expense (benefit) is summarized as follows (in thousands):





 


Year ended 

December 31,

 


2 months ended Restated

 


10 months ended

 


Year ended 

December 31,




 


2002

 


12/31/2001

 


10/31/2001

 


2000




 
 
 
 
 
 
 
 





Current



$ (45,827)

 


$  (2,359)

 


$ 89,493 

 


$ 96,219 






Deferred



34,802

 


49,587 

 


(53,128)

 


(29,667)






Valuation allowance



-

 


-

 


(9,730)

 


(9,424)







$ (11,025) 





$ 47,228  





$ 26,635 





$ 57,128 











KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)



7.   Income Taxes (continued)



A reconciliation of income tax expense, with the expected federal income tax expense computed at the applicable federal income tax rate of 35%, is as follows (in thousands):





 


Year ended December 31,

 


2 months ended Restated

 


10 months ended

 


Year ended December 31,




 


2002

 


12/31/2001

 


10/31/2001

 


2000




 
 
 
 
 
 
 
 





Expected income tax expense



$ (10,103)

 


$ 47,224 

 


$36,483 

 


$69,899 






Increase (decrease) in income taxes resulting from:

 
 
 
 
 
 
 





    Nontaxable investment income



(1,622)

 


(195)

 


(1,002)

 


(2,704)






    Amortization of goodwill



-

 


-

 


366 

 


440 






    Change in valuation allowance



-

 


-

 


(9,730)

 


(9,424)






    Other, net



700

 


199 

 


518 

 


(1,083)






Income tax expense



$ (11,025) 

 


$ 47,228  

 


$26,635 

 


$57,128 








The components of deferred income tax assets are as follows (in thousands):





 


December 31,




 


2002

 


2001  Restated






Deferred tax assets:












   Policy liabilities



 $   33,104

 


$  65,433






   Deferred policy acquisition costs



53,319

 


100,559






   Investments, net



-

 


20,142






   Other



35,293

 


-






Total deferred tax assets



121,716

 


186,134




 
 
 
 





Deferred tax liabilities:

 
 
 





   Investments, net



45,704

 


-






   Other



-

 


4,959






Total  deferred tax  liabilities



45,704

 


4,959




 
 
 
 





Net deferred  tax asset 



$   76,012

 


$181,175








Income taxes paid were $9.9 million, $64.0 million and $51.5 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively.




As part of the Stock Purchase Agreement between SLF and LFC, LFC was obligated to reimburse the Company for any federal, state or local taxes arising from certain tax elections under Section 338(h) of the Internal Revenue Code of 1986.  LFC had given notice to the Company of certain objections it had with the calculation of these taxes.  The amount in dispute was approximately $27 million.  This dispute has been resolved and the recoverable amount was not adjusted.




 





KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




8.  Retirement Plans




As a result of the acquisition of the Company by SLF Holdings, the LFC Pension Plan was terminated effective November 1, 2001. Effective January 2002, essentially all United States employees of the Company became employees of Sun Life Assurance Company of Canada (U.S.) ("SLUS").  The employees of the Company were eligible to participate in a plan sponsored by SLUS when they achieved 1,000 hours of service.  The gain or loss on the termination of the Plan did not have any effect on the Company's financial statements as LFC was responsible for such gain or loss.




Prior to the acquisition by SLF Holdings, the Company's employees and certain employees of LFC were eligible to participate in the LFC Pension Plan (the "Plan").  It was the Company's practice to fund amounts for the Plan sufficient to meet the minimum requirements of the Employee Retirement Income Security Act of 1974.  Additional amounts were contributed from time to time when deemed appropriate by the Company.  Under the Plan, all employees were vested after five years of service.  Benefits were based on years of service, the employee's average pay for the highest five consecutive years during the last ten years of employment and the employee's estimated social security retirement benefit.  The Company also had an unfunded nonqualified Supplemental Pension Plan ("Supplemental Plan") collectively with the Plan (the "Plans") to replace benefits lost due to limits imposed on Plan benefits under the Internal Revenue Code.  Plan assets consisted principally of investments in certain mutual funds sponsored by an affiliated company.




Pension cost related to the LFC Pension Plan is as follows (in thousands):





 
 


10 months

ended

 


Year Ended December 31,




 
 


10/31/2001

 


2000






Pension cost consists of:

 
 
 
 





   Service cost benefits earned during the period

 


$    706 

 


$    734 






   Interest cost on projected benefit obligation

 


1,046 

 


1,184 






   Expected return on Plan assets

 


(719)

 


(829)






   Net amortization and deferred amounts

 


11 

 


18 




 
 
 
 
 





Total net periodic pension cost

 


$  1,044 

 


$  1,107 










The assumptions used to develop the accrued pension obligation and pension cost are as follows:





 
 
 
 
 



 
 


2001

 


2000




 
 
 
 
 





Discount rate

 


7.75%

 


7.75%






Rate of increase in compensation level

 


4.50

 


4.50






Expected long-term rate of return on assets

 


9.00

 


9.00









The Company provides various other funded and unfunded defined contribution plans, which include savings and investment plans and supplemental savings plans (under LFC through October 31, 2001 and SLOC thereafter).  Expenses related to these defined contribution plans totaled $0.8 million, and $0.9 million for the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively.




 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




9.  Fair Value of Financial Instruments




The following discussion outlines the methodologies and assumptions used to determine the estimated fair value of the Company's financial instruments.  The aggregate fair-value amounts presented herein do not necessarily represent the underlying value of the Company, and, accordingly, 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 methods and assumptions were used by the Company in determining estimated fair value of financial instruments:




Fixed maturities and equity securities: Fair values for fixed-maturity securities are based on quoted market prices, where available.  For fixed maturities not actively traded, the fair values are determined using values from independent pricing services, or, in the case of private placements, are determined by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the securities.  The fair values for equity securities are based on quoted market prices.




Mortgage loans: The fair value of mortgage loans is determined by discounting future cash flows to the present at current market rates, using expected prepayment rates.




Policy loans: The carrying value of policy loans approximates fair value.




Other invested assets: The carrying value of private equity limited partnerships and all other assets classified as other invested assets in the accompanying consolidated balance sheet approximate their fair value.  Fair values for call options are based on market prices quoted by the counterparty to the respective call option contract. 




Cash and cash equivalents: The carrying value of cash and cash equivalents approximates fair value.




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 includes surrender charges.




Policy liabilities: Deferred annuity contracts are assigned fair value equal to current net surrender value.  Annuitized contracts are valued based on the present value of the future cash flows at current pricing rates.




 


 


 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




9.  Fair Value of Financial Instruments (continued)




The fair values and carrying values of the Company's financial instruments are as follows (in thousands):






 


December 31,



December 31,




 


2002

 


2001




 
 
 


Restated




 


Carrying

Value



Fair

Value

 


Carrying

Value

 


Fair

Value






Assets:

 
 
 
 
 
 





  Fixed-maturity securities



$14,219,184



$14,219,184

 


$ 12,108,767

 


$ 12,108,767






  Equity securities



1,127



1,127

 


39,658

 


39,658






  Mortgage loans



169,567



188,922

 


31,124

 


33,388






  Policy loans



642,712



642,712

 


636,351

 


636,351






  Other invested assets



280,465



280,465

 


521,259

 


521,259






  Short term investments



6,390



6,390

 


17,758

 


17,758






  Cash and cash equivalents



448,446



448,446

 


2,117,200

 


2,117,200






  Separate accounts



2,334,755



2,334,755

 


2,995,094

 


2,995,094






Liabilities:

 
 
 
 
 
 





  Policy liabilities



14,434,364



14,366,270

 


13,710,558

 


13,266,681






  Separate accounts



2,317,611



2,317,611

 


2,966,820

 


2,966,820









10.  Quarterly Financial Data (Unaudited)




The following is a tabulation of the unaudited quarterly results of operations (in thousands).  The balances have been adjusted to reflect the merger of SLNY with Keyport at November 1, 2001.









2002 Quarters 




 


March 31 Restated

 


June 30 Restated

 


September 30


Restated

 


December 31




 
 
 
 
 
 
 
 





Net investment income, including

 
 
 
 
 
 
 





   distributions from private equity

 
 
 
 
 
 
 





   limited partnerships



 $ 211,852

 


 $ 206,664

 


 $ 193,016

 


 $ 190,765






Interest credited to policyholders



142,734

 


138,182

 


140,289

 


154,280






Investment spread



69,118

 


68,482

 


52,727

 


36,485




 
 
 
 
 
 
 
 





Premiums



5,677

 


5,268

 


3,611

 


5,729






Net realized investment (losses) gains



7,471

 


(24,584)

 


16,465

 


(40,500)






Net derivative income (losses)



9,941

 


(70,640)

 


(110,871)

 


48,144






Net change in unrealized and

 
 
 
 
 
 
 





   undistributed gains (losses) in private

 
 
 
 
 
 
 





   equity limited partnerships



(21,247)

 


10,993

 


12,498

 


(9,835)






Fee income



17,010

 


16,899

 


14,998

 


17,725






Pretax income (loss) before 

 
 
 
 
 
 
 





   minority interest and cumulative

 
 
 
 
 
 
 





   effect of accounting changes



49,396

 


(32,922)

 


(62,612)

 


17,276






Net (loss) income



32,108

 


(21,399)

 


(40,937)

 


14,003










KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




10.  Quarterly Financial Data (Unaudited) (continued)






 
 
 
 
 
 
 


2001 periods















2 Months ended




 


2001 Quarters 

 


Month ended

 


December 31




 


March 31

 


June 30

 


September 30

 


October 31

 


Restated




 
 
 
 
 
 
 
 
 
 





Net investment income, including

 
 
 
 
 
 
 
 
 





   distributions from private equity

 
 
 
 
 
 
 
 
 





   limited partnerships



$ 234,919 

 


$  235,766 

 


$  195,391 

 


$    69,565

 


$    146,603






Interest credited to policyholders



148,494 

 


153,361 

 


148,099 

 


48,714

 


107,315






Investment spread



86,425 

 


82,405 

 


47,292 

 


20,851

 


39,288




 
 
 
 
 
 
 
 
 
 





Premiums

 
 
 
 
 
 
 
 
 





Net realized investment (losses)



-

 


-

 


-

 


-

 


4,057






     gains



(14,372)

 


(3,421)

 


(14,021)

 


9,024

 


2,223






Net derivative income (losses)



(3,823)

 


8,526 

 


(6,537)

 


2,280

 


99,972






Net change in unrealized and

 
 
 
 
 
 
 
 
 





   undistributed gains (losses) in

 
 
 
 
 
 
 
 
 





   private equity limited

 
 
 
 
 
 
 
 
 





   partnerships



2,656 

 


(17,261)

 


(2,483)

 


-

 


-






Fee income



18,448 

 


19,850 

 


17,795 

 


7,736

 


12,040






Pretax income (loss) before 

 
 
 
 
 
 
 
 
 





   minority interest and cumulative

 
 
 
 
 
 
 
 
 





   effect of accounting changes



38,179 

 


41,964 

 


(977)

 


25,071

 


134,930






Net (loss) income



(23,877)

 


21,241 

 


1,469 

 


17,922

 


86,893









11.  Statutory Information




The Company's primary insurance company, Keyport Life Insurance Company, is domiciled in the State of Rhode Island and prepares its statutory financial statements in accordance with accounting principles and practices prescribed or permitted by the State of Rhode Island Insurance Department.  Statutory surplus and capital and statutory net (loss) income differ from stockholder's equity and net income reported in accordance with GAAP primarily because policy acquisition costs are expensed when incurred, policy liabilities are based on different assumptions and income tax expense reflects only taxes paid or currently payable.  The Company's statutory surplus and net (loss) are as follows (in thousands):






 


Year ended December 31,




 


2002

 


2001

 


2000




 
 
 
 
 
 





Statutory surplus and capital



$ 533,613 

 


$ 571,051 

 


$ 805,235 






Statutory net (loss)



(89,926)

 


(136,238)

 


  (5,877)









Effective January 1, 2001, the State of Rhode Island required that insurance companies domiciled in the State of Rhode Island prepare their statutory basis financial statements in accordance with the NAIC Accounting Practices and Procedures manual, version effective January 1, 2001, subject to any deviations prescribed or permitted by the Commissioner of Insurance of the State of Rhode Island.




 




KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




11.  Statutory Information (continued)




Accounting changes adopted to conform to the provisions of the NAIC Accounting Practices and Procedures manual, version effective January 1, 2001, are reported as changes in accounting principles for statutory purposes.  As a result of these changes, the Company reported an adjustment on a statutory basis that decreased unassigned surplus by $17.4 million as of January 1, 2001, which was primarily due to deferred tax assets and liabilities established as of that date.




The Company's ability to pay dividends is subject to certain restrictions.  Current Rhode Island insurance law permits the payment of dividends or distributions from the Company to its parent, which, together with dividends and distributions paid during the preceding 12 months, do not exceed the lesser of (i) 10% of statutory surplus as of the preceding December 31 or (ii) the net gain from operations for the preceding fiscal year. Any proposed dividend in excess of this amount is called an "extraordinary dividend" and may not be paid until it is approved by the Commissioner of Insurance of the State of Rhode Island.  The Company paid $0.1 million and $10.0 million in dividends to LFC in 2001 and 2000, respectively.  In connection with the SLOC acquisition, the Company will not be allowed to make any dividend payments for a period of 18 months (May 1, 2003) without the prior approval of the Rhode Island Insurance Department.  Subsequent to the 18 month period, the amounts of dividends that the Company will be able to pay will be based upon current Rhode Island insurance law.




12.  Transactions with Affiliated Companies




The Company reimbursed SLOC and LFC (prior to November 1, 2001) and certain affiliates for expenses incurred on its behalf for the years ended December 31, 2002 and 2000 and for the ten-month period ended October 31, 2001.  These reimbursements included corporate, general and administrative expenses, corporate overhead, such as executive and legal support, employee benefits, and investment management services.  The total amounts reimbursed were $66.1 million, $6.1 million, and $7.5 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively.  In addition, certain affiliated companies distribute the Company's products and were paid $84.2 million, $47.1 million and $39.4 million by the Company for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. 




On July 25, 2002, the Company issued a $380,000,000 promissory note at 5.76% to an affiliate, Sun Life (Hungary) Group Financing Limited Liability Company, which matures on June 30, 2012.  The Company will pay interest semi-annually beginning December 31, 2002.  The proceeds of the note were used to purchase fixed rate corporate and government bonds.




On December 31, 2002, Keyport Benefit Life Insurance Company ("KBL"), a wholly owned subsidiary of the Company, merged with and into Sun Life Insurance and Annuity Company of New York ("SLNY"), an affiliate.  Keyport and its subsidiaries, including KBL, were purchased on October 31, 2001 by Sun Life of Canada (U.S.) Holding, Inc., an upstream parent of SLNY.  On December 31, 2002, prior to the completion of the merger, the Company contributed capital in the amount of $30.15 million to KBL.  Sun Life Assurance Company of Canada (U.S.) ("Sun Life (U.S.)"), the parent of SLNY, contributed capital totaling $14.85 million to SLNY.  These contributions were approved by the respective boards of directors in anticipation of the merger transaction.  As a result of the merger, Sun Life (U.S.) continued to hold 2,000 shares of SLNY's common stock; however, the par value of the common stock was converted to $350 per share.  In exchange for its investment in KBL, SLNY issued the Company 4,001 shares of its common stock valued at $350 per share.  As a result of the share issuance and changes in par value, Sun Life (U.S.) ownership percentage of SLNY became 33%, with the Company holding the remaining 67%.




There were no material related party transactions during the two months ended December 31, 2001.





KEYPORT LIFE INSURANCE COMPANY



Notes to Consolidated Financial Statements


(in thousands)




13.  Commitments and Contingencies




Leases




The Company leases data processing equipment, furniture and certain office facilities from others under operating leases expiring in various years through 2007.  Rental expense amounted to $5.7 million, $7.1 million, and $6.5 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively.  The following are the minimum future rental payments under noncancelable operating leases having remaining terms in excess of one year at December 31, 2002 (in thousands):








2003



$       5,267






2004



5,220






2005



5,080






2006



5,146






2007



4,769






Thereafter



1,241







$    26,723










Legal Matters




The Company is involved at various times in litigation common to its business. In the opinion of management, provisions made for potential losses are adequate, and the resolution of any such litigation is not expected to have a material adverse effect on the Company's financial condition or its results of operations.




Regulatory Matters




Under existing guaranty fund laws in all states, insurers licensed to do business in those states can be assessed for certain obligations of insolvent insurance companies to policyholders and claimants. The actual amount of such assessments will depend upon the final outcome of rehabilitation proceedings and will be paid over several years. 




Investments




The Company has extended commitments to fund additional investments in private equity limited partnerships of $145.2 million. 




</R>





PART C





Item 24. Financial Statements and Exhibits


<R>








 (a)



Financial Statements:




 


Included in Part B:




 


Keyport Variable Account A:




 


Statement of Assets and Liabilities - December 31, 2003




 


Statement of Operations for the years ended December 31, 2003 and 2002




 


Statement of Changes in Net Assets for the years ended December 31, 2003 and 2002




 


Notes to Financial Statements




 


Sun Life Assurance Company of Canada (U.S.):




 
 


Consolidated Statement of Income, Years Ended December 31, 2003, 2002 and 2001;




 
 


Consolidated Balance Sheets, December 31, 2003 and 2002;




 
 


Consolidated Statements of Comprehensive Income, Years Ended December 31, 2003, 2002 and 2001;




 
 


Consolidated Statements of Stockholder's Equity, Years Ended December 31, 2003, 2002 and 2001;




 
 


Consolidated Statements of Cash Flows, Years Ended December 31, 2003, 2002 and 2001;




 
 


Notes to Consolidated Financial Statement; and




 
 


Independent Auditors' Report.




 


Pro Forma Financial Information:









Unaudited Pro Forma Balance Sheet of Sun Life Assurance Company of Canada (U.S.) for the year ended December









Unaudited Pro Forma Statement of Income of Sun Life Assurance Company of Canada (U.S.) for the year ended December 31, 2003









Unaudited Pro Forma Balance Sheet of Sun Life Assurance Company of Canada (U.S.) for the year ended September 30, 2003r









Unaudited Pro Forma Statement of Income of Sun Life Assurance Company of Canada (U.S.) for the year ended September 30, 2003






</R>




Keyport Life Insurance Company:




 


Consolidated Balance Sheet - December 31, 2002 and 2001




 


Consolidated Income Statement for the year ended December 31, 2002 for the ten-month period ended October 31, 2001 and the two-month period ended December 31, 2001 and for the year ended December 31, 2000




 


Consolidated Statement of Stockholder's Equity for the year ended December 31, 2002 for the ten-month period ended October 31, 2001 and the two-month period ended December 31, 2001 and for the year ended December 31, 2000 




 


Consolidated Statement of Cash Flows for the year ended December 31, 2002 for the ten-month period ended October 31, 2001 and the two-month period ended December 31, 2001 and for the year ended December 31, 2000




 


Notes to Consolidated Financial Statements













(b)



Exhibits:

 





#



(1)  



Amended and Restated Resolution of the Board of Directors establishing Keyport Variable Account A




 


(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.






+



(3)(b)



Specimen Sales Operations and General Agent Agreement






**  



(4)(a)



Specimen Variable Annuity Contract 






*



(4)(b)



Specimen Individual Retirement Annuity Endorsement






<R>



 
 





###



(4)(c)



Specimen Name Change Endorsement 






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**



(5) 



Specimen Application for a Variable Annuity Contract






++



(6)(a)



Articles of Incorporation of Sun Life Assurance Company of Canada (U.S.)






<R>



 
 





++



(6)(b)



By-Laws, as amended March 19, 2004, of Sun Life Assurance Company of Canada (U.S.)






</R>



 
 



 


(7) 



Not applicable






##



(8) 



Participation Agreement Among Rydex Variable Trust, Rydex Distributors, Inc. and Sun Life Assurance Company of Canada (U.S.)






<R>



 
 





@@



(8)(a)



Amendment to Participation Agreement 






###



(9)  



Opinion and Consent of Counsel 






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(10)



Consents of Independent Auditors (Filed herewith)




 


(11)



Not applicable




 


(12)



Not applicable






#



(13) 



Chart of Affiliations






<R>



 
 





@



(14)(a)



Powers of Attorney






@



(14)(b)



Resolution of the Board of Directors of the depositor dated July 24, 2003, authorizing the use of powers of attorney for Officer signatures







</R>






*



Incorporated by reference to the Registration Statement (File No. 333-84701) filed on or about August 6, 1999.




 
 





**



Incorporated by reference to the Registration Statement (File No. 333-92947) filed on or about December 17, 1999.




 
 





+



Incorporated 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.






<R>



 





++



Incorporated by reference to the Depositor's Annual Report on Form 10-K (File No. 333-82824) filed on or about March 29, 2004.




 
 





#



Incorporated by reference to the Registration Statement on Form N-4 (Filed No. 333-114136 filed on or about April 1, 2004.






</R>



 





##



Incorporated 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.






<R>



 





###



Incorporated by reference to the Registration Statement of Keyport Variable Account A on Form N-4 (File No. 333-111647) filed on or about December 31, 2003.




 
 





@



Incorporated by reference to the Registration Statement of Keyport Variable Account A on Form N-4 (File No. 333-112506) filed on or about February 5, 2004.




 
 





@@



Incorporated by reference to the Registration Statement of Keyport Variable Account A on Form N-4 (File No. 333-114132) filed on or about April 1, 2004.







</R>




Item 25. Directors and Officers of the Depositor.








Name and Principal



Positions and Offices






Business Address



With Depositor




 
 





James C. Baillie



Director






Torys LLP

 





Suite 300, Maritime Life Tower

 





Toronto, Ontario Canada MSK 1N2

 



 
 





Paul W. Derksen



Director






Sun Life Assurance Company of Canada

 





150 King Street West

 





Toronto, Ontario Canada M5H 1J9

 



 
 





David D. Horn



Director






257 Lake Street

 





P.O. Box 24

 





New Vineyard, ME 04956

 



 
 





C. James Prieur



Chairman and Director






Sun Life Assurance Company of Canada

 





150 King Street West

 





Toronto, Ontario Canada M5H 1J9

 



 
 





S. Caesar Raboy



Director






220 Boylston Street

 





Boston, MA 02110

 



 
 





Robert C. Salipante



President and Director






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

 





One Sun Life Executive Park

 





Wellesley Hills, MA 02481

 



 
 





David K. Stevenson



Director






359 Grove Street

 





Needham, MA 02492

 



 
 





Donald A. Stewart



Director






Sun Life Assurance Company of Canada

 





150 King Street West

 





Toronto, Ontario Canada M5H 1J9

 



 
 





William W. Stinson



Director






1001 13th Avenue S.W.

 





Calgary, Alberta Canada T2R 0L5

 



 
 





Claude A. Accum



Vice President and Chief Actuary






One Sun Life Executive Park

 





Wellesley Hills, MA 02481

 



 
 





James M.A. Anderson



Vice President, Investments






One Sun Life Executive Park

 





Wellesley Hills, MA 02481

 



 
 





Nancy L. Conlin



Vice President and Chief Counsel






One Sun Life Executive Park

 





Wellesley Hills, MA 02481

 



 
 





Gary Corsi



Vice President and Chief Financial Officer






One Sun Life Executive Park

 





Wellesley Hills, MA 02481

 



 
 





Mark W. DeTora



Vice President, Individual Insurance






One Sun Life Executive Park

 





Wellesley Hills, MA 02481

 



 
 





Ellen B. King



Assistant Vice President and Senior Counsel and 






One Sun Life Executive Park



Secretary






Wellesley Hills, MA 02481

 





<R>


</R>


 





James R. Smith



Vice President and Chief Information Officer






One Sun Life Executive Park

 





Wellesley Hills, MA 02481

 



 
 





Janet V. Whitehouse



Vice President, Human Resources and






One Sun Life Executive Park



Administrative Services






Wellesley Hills, MA 02481

 








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.), a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc., a wholly-owned subsidiary of Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc., which is in turn a wholly owned subsidiary of Sun Life Assurance Company of Canada.




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.)


<R>




The chart for the affiliations of the Depositor is incorporated by reference to the Registration Statement on Form N-4 (File No. 333-114126) filed on or about April 1, 2004.


</R>




Item 27. Number of Contract Owners.


<R>




As of Feburary 27, 2004, there were 221 qualified contract owners and 188 non-qualified contract owners.


</R>




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 effective as of January 1, 2000 (a copy of which was filed as Exhibit 6(b) to Pre-Effective Amendment No. 1 to Registrant's Registration Statement on Form N-4, File No. 333-30844) 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.


<R>




     Clarendon Insurance Agency, Inc. (Clarendon) is principal underwriter of the variable annuity and variable life insurance contracts. Clarendon is the principal underwriter for Keyport Variable Account A of Sun Life Assurance Company of Canada (U.S.). Clarendon is also principal underwriter for the KMA Variable Account, Variable Account C, Variable Account D, Variable Account F, and Keyport Variable Account I of Sun Life Assurance Company of Canada (U.S.); and for the KBL Variable Account A, KBL Variable Annuity Account, Variable Account A, Variable Account B and Variable Account C of Sun Life Insurance and Annuity Company of New York. Clarendon receives no compensation for its services.




The directors and officers of Clarendon Insurance Agency, Inc. are:








Name and Principal


Business Address*



Positions and Officers


with Underwriter




 
 





Imants Saksons



President






James M.A. Anderson



Director






Gary Corsi



Director






Ellen B. King



Clerk






George E. Maden



Vice President & Chief Compliance Officer






John E. Coleman



Vice President






Nancy C. Atherton



Assistant Vice President and Tax Officer






Jane F. Jette



Financial/Operations Principal and Treasurer









* The principal business address of all directors and officers of the principal underwriter is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. 


</R>




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.




     (a) Registrant undertakes 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) Registrant undertakes 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 or equivalent electronic method; and




     (c) Registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request.




Representation




     Depositor represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Depositor.  Further, this representation applies to each form of the contract described in a prospectus and statement of additional information included in this registration statement.






<R>



 


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 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 Commonwealth of Massachusetts, on this 14th day of April, 2004.






 


Keyport Variable Account A




 


(Registrant)




 
 



 
 





BY:



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




 


(Depositor)




 
 



 
 





BY:



/s/ Robert C. Salipante*




 


Robert C. Salipante




 


President




 
 





*By:



/s/ Edward M. Shea

 



 


Edward M. Shea

 



 


Assistant Vice President




 


and Senior Counsel









 


 






     As required by the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.








/s/ James C. Baillie*



/s/ Robert C. Salipante*



April 14, 2004






James C. Baillie



Robert C. Salipante



Date






Director



President

 



 


(Principal Executive Officer)

 



 
 
 





/s/ Paul W. Derksen*



/s/ Gary Corsi*

 





Paul W. Derksen



Gary Corsi



April 14, 2004






Director



Vice President and Chief Financial Officer



Date




 


(Principal Financial and Accounting Officer)

 



 
 
 





/s/ David D. Horn*

 
 





David D. Horn

 
 





Director

 
 



 
 
 





/s/ James A. McNulty, III*

 
 





James A. McNulty, III

 
 





Director

 
 



 
 
 





/s/ C. James Prieur*

 
 





C. James Prieur

 
 





Director

 
 



 
 
 





/s/ S. Caesar Raboy*

 
 





S. Caesar Raboy

 
 





Director

 
 



 
 
 





/s/ Robert C. Salipante*

 
 





Robert C. Salipante

 
 





Director

 
 



 
 
 





/s/ David K. Stevenson*

 
 





David K Stevenson

 
 





Director

 
 



 
 
 





/s/ Donald A. Stewart*

 
 





Donald A. Stewart

 
 





Director

 
 



 
 
 





/s/ William W. Stinson*

 
 





William W. Stinson

 
 





Director

 
 












*BY:



/s/ Edward M. Shea



April 14, 2004




 


Edward M. Shea



Date




 


Attorney-in-Fact

 








*  Edward M. Shea has signed this document on the indicated date on behalf of the above Directors and Officers of the Depositor pursuant to powers of attorney duly executed by such persons and a resolution of the Board of Directors authorizing use of powers of attorney for Officer signatures. Incorporated by reference to the Registration Statement on Form N-4 (File No. 333-112506) filed on or about February 5, 2004.





Exhibit Index







Item

 



 
 



 
 





10



Consents of Independent Auditors







</R>