485BPOS 1 filing.htm filing.htm
 
 
 

As filed with the Securities and Exchange Commission on April 29, 2009
 
Registration Nos. 333-114126
 
811-07543


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 6
[X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 123
[X]

Keyport Variable Account A
(Exact name of Registrant)

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

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

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

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

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

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

£ immediately upon filing pursuant to paragraph (b) of Rule 485
R on May 1, 2009 pursuant to paragraph (b) of Rule 485
£ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
£ on (date) pursuant to paragraph (a)(1) of Rule 485.

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

Title of Securities Being Registered: 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.

 
 
 



CONTENTS OF REGISTRATION STATEMENT

The Facing Sheet

The Contents Page

PART A

Prospectus

PART B

Statement of Additional Information

PART C

Items 24 - 32

The Signatures

Exhibits




 
 
 



PART A


 
 
 

PROSPECTUS FOR
THE KEYPORT ADVISOR VARIABLE ANNUITY

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

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

Under the Certificate, you may elect to have value accumulate on a variable or fixed basis. You may also elect to receive periodic annuity payments on either a variable or a fixed basis. This prospectus generally describes only the variable features of the Certificate. For a summary of the Fixed Account and its features, see Appendix A. The bonus that may be paid upon an exchange from a fixed annuity contract will come from anticipated future mortality and expense risk charges.  Charges are the same for all Certificates with or without a bonus.

The Certificates are designed to help you in your retirement planning. You may purchase them on a tax qualified or non-tax qualified basis. Because they are offered on a flexible payment basis, you are permitted to make multiple payments (except in Oregon where they are offered only on a single purchase payment basis).

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

Large-Cap Equity Funds
Asset Allocation Funds
Columbia Large Cap Growth Fund, Variable Series, Class A
Columbia Asset Allocation Fund, Variable Series, Class A
Columbia Large Cap Value Fund, Variable Series, Class A
Money Market Fund
MFS VIT Growth Series – I Class
Columbia Money Market Fund, Variable Series, Class A
MFS VIT Research Series – I Class
Intermediate-Term Bond Funds
SC WMC Large Cap Growth Fund – I Class1
AllianceBernstein VPS Intermediate Bond Portfolio, Class A
Small-Cap Equity Funds
Columbia Federal Securities Fund, Variable Series, Class A
Alger American SmallCap Growth Portfolio – Class O2
Multi-Sector Bond Funds
Columbia Small Company Growth Fund, Variable Series,
Columbia Strategic Income Fund, Variable Series, Class A
Class A
 
International/Global Equity Funds
 
Columbia International Fund, Variable Series, Class A
 
_________
1
Formerly SC FI Large Cap Growth Fund – I Class.
2
No longer available for investment.

Alliance Capital Management, LP, advises the AllianceBernstein VPS Portfolios. Columbia Management Advisors, Inc., advises the Columbia Funds (with Nordea Investment Management North America, Inc. serving as the sub-advisor for Columbia Asset Allocation Fund, Variable Series). Fred Alger Management, Inc., advises the Alger American Fund. Massachusetts Financial Services Company advises the MFS Variable Insurance Trust Series. Sun Capital Advisers LLC advises the Sun Capital Fund, (with Wellington Management Company, LLP serving as the sub-advisor for SC WMC Large Cap Growth Fund).

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

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

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

This prospectus contains important information about the Contracts and Certificates you should know before investing. You should read it before investing and keep it for future reference. We have filed a Statement of Additional Information (“SAI”) with the Securities and Exchange Commission.  The current SAI has the same date as this prospectus and is incorporated by reference in this prospectus. You may obtain a free copy by writing us at P.O. Box 9133, Wellesley Hills, MA 02481, by calling (800) 367-3653, or by returning the postcard on the back cover of this prospectus. A table of contents for the SAI appears on page 36 of this prospectus. You can inspect and copy all of our filings at the SEC's public reference facilities at: 100 F Street, N.E., Washington, D.C. 20549-0102, telephone (202) 551-8090. The SEC will also provide copies by mail for a fee. You may also find these materials on the SEC's website (http:// www.sec.gov).

The date of this prospectus is May 1, 2009.

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


 
 
 

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


 
 
 

DEFINITIONS

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

Annuitant: The natural person on whose life annuity benefits are based and who will receive annuity payments starting on the Income Date.

Certificate Anniversary: Each anniversary of the Certificate Date.

Certificate Date: The date when the Certificate becomes effective.

Certificate Owner (“You”): The person(s) having the privileges of ownership defined in the Certificate.

Certificate Value: The sum of the Variable Account Value and the Fixed Account Value under your Certificate at a given time.

Certificate Withdrawal Value: The Certificate Value increased or decreased by a limited market value adjustment less any premium taxes and certificate maintenance charge and applicable contingent deferred sales charges.

Certificate Year: Each twelve-month period beginning on the Certificate Date and each Certificate Anniversary thereafter.

Company (“We”, “Us”, “Our”, “Sun Life (U.S.)”): Sun Life Assurance Company of Canada (U.S.).

Covered Person: The person(s) identified in the Certificate whose death may result in an adjustment of Certificate Value, payment of death benefit, a waiver of any contingent deferred sales charges and a waiver of any market value adjustment or whose medical stay in a hospital or nursing facility may allow the Certificate Owner to be eligible for either a total or partial waiver of the contingent deferred sales charge.

Designated Beneficiary: The person designated to receive any death benefits under the Certificate.

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

Fixed Account: Part of our general account to which purchase payments or Certificate Values may be allocated or transferred.

Fixed Account Value: The value of all Fixed Account amounts accumulated under the Certificate prior to the Income Date.

Guarantee Period Anniversary: An anniversary of a Guarantee Period’s Start Date.

Guarantee Period Month: The first Guarantee Period Month is the monthly period which begins on the Start Date. Later Guarantee Period Months begin on the same day in the following months.

Guarantee Period Year: The twelve-month period which begins on the Start Date. Guarantee Period Years thereafter begin on each Guaranteed Period Anniversary.

In Force: The status of the Certificate before the Income Date so long as:

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

Income Date: The date on which annuity payments are to begin.

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

Qualified Certificate: Certificates issued under Qualified Plans.

Qualified Plan: A retirement plan which receives special tax treatment under Sections 401, 403(b), 408(b) or 408A of the Internal Revenue Code (“Code”) or a deferred compensation plan for a state and local government or another tax exempt organization under Section 457 of the Code.

Start Date: The date money is first allocated to a Guarantee Period of the Fixed Account.

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

Variable Account Value: The value of all Variable Account amounts accumulated under the Certificate prior to the Income Date.

Written Request: A request written in a form satisfactory to us, signed by you and received by us.

SUMMARY OF CERTIFICATE FEATURES

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

The Certificate

The Certificate is a flexible premium deferred variable annuity certificate. It is designed for retirement planning purposes.  It allows you to allocate purchase payments to and receive annuity payments from the Variable Account and/or the Fixed Account.

The Variable Account is a separate investment account we maintain. If you allocate payments to the Variable Account, your accumulation values and annuity payments will fluctuate according to the investment performance of the Eligible Funds chosen.

The Fixed Account is part of our “general account”, which consists of all our assets except the Variable Account and the assets of other separate investment accounts we maintain. If you allocate payments to the Fixed Account, your accumulation value will increase at guaranteed interest rates and annuity payments will be of a fixed amount. Any surrender, withdrawal, transfer or annuitization of your values in the Fixed Account may be subject to a limited market value adjustment, which could increase or decrease the applicable amount. (See Appendix A for more information on the Fixed Account.)

If you allocate payments to both the Variable and the Fixed Accounts, then the accumulation value and annuity payments will be variable in part and fixed in part.

Purchase of the Certificate

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

Fees and Charges

   Contingent Deferred Sales Charge.
There are no sales charges at the time of your purchase payment. We may deduct a charge in the event of a total or partial surrender.  That charge is based on a table of charges. See page 6. The charge will not exceed 7% of that portion of the amount you surrender that represents purchase payments you made during the seven years immediately preceding your request for surrender. (See “Deductions for Contingent Deferred Sales Charge”.)

   Mortality and Expense Risk Charge.
We deduct a mortality and expense risk charge at an annual rate of 1.25% of your average daily net asset value in the Variable Account. (See “Deductions for Mortality and Expense Risk Charge”.)

   Distribution Charge.
We deduct a daily distribution charge at an annual rate of .15% of your daily net asset value in the Variable Account. (See “Deductions for Distribution Charge”.)

   Certificate Maintenance Charge.
We deduct an annual $36 certificate maintenance charge from Variable Account Value for administrative expenses. In certain instances, we may waive this charge. (See “Deductions for Certificate Maintenance Charge”.)

   Transfer Charge.
Currently, there is no transfer charge. However, the Certificate permits us to charge you up to $25 for each transfer in excess of 12 in each year your Certificate is In Force.

   Premium Taxes.
We charge premium taxes against your Certificate Value. Currently such premium taxes range from 0% to 3.5%. (See “Deductions for Premium Taxes”.)

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

Free Look

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

FEE TABLE

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


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

Certificate Owner Transaction Expenses

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

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

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

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

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


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

Annual Certificate Maintenance Charge
$36*

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

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

Mortality and Expense Risk Charge:
1.25%
Distribution Charge:
.15%
Total Variable Account Annual Expenses:
1.40%


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

Total Annual Eligible Fund Operating 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)
  
 
0.64%
 
1.49%1


1 The expenses shown do not reflect any fee waiver or expense reimbursement.

The advisers and/or other service providers of certain Eligible Funds have agreed to reduce their fees and/or reimburse the Eligible Funds’ expenses in order to keep the Eligible Funds’ expenses below specified limits. Nine Eligible Funds have voluntary fee reduction and/or expense reimbursement arrangements that may be terminated at any time. The minimum and maximum Total Annual Operating Expenses for all Eligible Funds after all fee reductions and expense reimbursements are taken into consideration fall within the range shown. Each fee reduction and/or expense reimbursement arrangement is described in the relevant Eligible Fund’s prospectus.

THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY THE ELIGIBLE FUNDS. WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.

EXAMPLES

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

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

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

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

1 year
3 years
5 years
10 years
$989
$1,4257
$1,995
$4,050

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

1 year
3 years
5 years
10 years
$289
$946
$1,695
$4050

( 3) If you do not surrender your Certificate at the end of the applicable time period:

1 year
3 years
5 years
10 years
$289
$946
$1,695
$4050

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

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

CONDENSED FINANCIAL INFORMATION

 
Accumulation Unit Values*
 
Accumulation
Accumulation
Number of
  
 
Unit Value
Unit Value
Accumulation
  
 
Beginning
End
Units End
  
Sub-account
of Year**
of Year
of Year
Year
         
Alger Amercian SmallCap Growth Portfolio
$16.583
$8.732
184,754
2008
 
14.343
16.583
235,579
2007
 
12.119
14.343
342,108
2006
 
10.512
12.119
815,251
2005
 
9.145
10.512
639,810
2004
 
6.514
9.145
812,339
2003
 
8.954
6.514
1,039,224
2002
 
12.882
8.954
1,193,797
2001
 
17.942
12.882
1,284,652
2000
 
12.685
17.942
1,032,743
1999
         
AllianceBernstein Intermediate Bond Portfolio
14.331
9.319
384,671
2008
 
13.169
14.331
352,106
2007
 
12.721
13.169
487,799
2006
 
13.968
12.721
834,217
2005
 
12.920
13.968
984,963
2004
 
11.567
12.920
1,177,409
2003
 
10.032
11.567
1,530,026
2002
 
10.201
10.032
1,925,057
2001
 
10.224
10.201
2,398,033
2000
 
11.042
10.224
2,012,750
1999
         
Columbia Strategic Income Fund
21.688
19.741
681,367
2008
 
20.735
21.688
884,644
2007
 
19.637
20.735
1,425,229
2006
 
19.596
19.637
2,258,745
2005
 
18.038
19.596
2,470,113
2004
 
15.448
18.038
2,967,375
2003
 
14.433
15.448
3,945,327
2002
 
14.102
14.433
4,614,656
2001
 
14.291
14.102
5,357,894
2000
 
14.237
14.291
5,550,475
1999
         
Columbia International Fund
16.786
9.132
856,054
2008
 
15.792
16.786
1,087,824
2007
 
12.793
15.792
1,561,618
2006
 
11.463
12.793
2,691,069
2005
 
10.221
11.463
2,946,585
2004
 
7.646
10.221
3,592,487
2003
 
8.948
7.646
2,869,382
2002
 
11.996
8.948
3,503,887
2001
 
14.919
11.996
3,656,245
2000
 
10.761
14.919
3,357,343
1999
         
Columbia Large Cap Value Fund
34.416
21.357
930,346
2008
 
33.971
34.416
1,236,195
2007
 
29.152
33.971
1,726,422
2006
 
27.785
29.152
3,224,760
2005
 
24.767
27.785
3,459,220
2004
 
20.965
24.767
4,067,379
2003
 
27.237
20.965
2,714,296
2002
 
27.788
27.237
3,065,182
2001
 
27.196
27.788
3,250,402
2000
 
24.622
27.196
3,282,447
1999
         
MFS Growth Series
17.922
11.060
222,263
2008
 
14.999
17.922
297,239
2007
 
14.096
14.999
432,446
2006
 
13.090
14.096
655,039
2005
 
11.751
13.090
822,325
2004
 
9.149
11.751
1,025,793
2003
 
14.006
9.149
1,378,942
2002
 
21.355
14.006
1,768,032
2001
 
26.934
21.355
2,177,096
2000
 
15.455
26.934
1,676,384
1999
         
MFS Research Series
17.357
10.940
446,258
2008
 
15.549
17.357
566,734
2007
 
14.271
15.549
757,598
2006
 
13.423
14.271
1,143,458
2005
 
11.749
13.423
1,351,444
2004
 
9.553
11.749
1,631,168
2003
 
12.837
9.553
2,130,020
2002
 
16.531
12.837
2,772,530
2001
 
17.617
16.531
3,244,606
2000
 
14.400
17.617
2,803,066
1999
         
Columbia Large Cap Growth Fund
41.186
24.193
152,345
2008
 
36.076
41.186
189,555
2007
 
33.184
36.076
287,322
2006
 
32.124
33.184
751,971
2005
 
33.223
32.124
645,968
2004
 
26.898
33.223
756,940
2003
 
39.052
26.898
1,141,918
2002
 
52.532
39.052
1,308,572
2001
 
60.541
52.532
1,591,366
2000
 
44.829
60.541
1,106,820
1999
         
Columbia Asset Allocation Fund
36.903
26.084
383,100
2008
 
34.278
36.903
493,028
2007
 
31.092
34.278
691,713
2006
 
29.594
31.092
1,478,877
2005
 
27.284
29.594
1,360,695
2004
 
22.966
27.284
1,506,542
2003
 
26.381
22.966
2,686,039
2002
 
29.460
26.381
3,067,751
2001
 
30.197
29.460
3,549,710
2000
 
27.188
30.197
2,553,234
1999
         
Columbia Federal Securities Fund
26.416
28.158
305,590
2008
 
25.227
26.416
408,910
2007
 
24.663
25.227
559,326
2006
 
24.378
24.663
1,150,933
2005
 
23.736
24.378
1,221,332
2004
 
23.449
23.736
1,514,448
2003
 
21.665
23.449
2,270,050
2002
 
20.526
21.665
2,044,237
2001
 
18.762
20.526
1,986,431
2000
 
18.826
18.762
1,905,670
1999
         
Columbia Money Market Fund
16.873
17.068
1,322,097
2008
 
16.293
16.873
1,604,844
2007
 
15.776
16.293
2,036,715
2006
 
15.559
15.776
3,617,791
2005
 
15.640
15.559
2,864,972
2004
 
15.750
15.640
2,334,395
2003
 
15.774
15.750
4,730,143
2002
 
15.437
15.774
4,200,338
2001
 
14.762
15.437
4,225,006
2000
 
14.284
14.762
3,734,162
1999
         
Columbia Small Company Growth Fund
44.920
26.212
52,353
2008
 
40.149
44.920
61,807
2007
 
36.218
40.149
88,604
2006
 
35.755
36.218
150,419
2005
 
32.523
35.755
206,479
2004
 
26.898
32.523
213,667
2003
 
30.646
26.898
237,316
2002
 
34.541
30.646
273,753
2001
 
37.025
34.541
316,182
2000
 
25.351
37.025
242,409
1999
         
SC WMC Large Cap Growth Fund
10.140
5.587
1,951,444
2008
 
10.000
10.140
2,456,998
2007

* Accumulation Unit Values are rounded to the nearest tenth of a cent and numbers of accumulation units are rounded to the nearest whole number.

** The beginning value for SC WMC Large Cap Growth Fund is as of April 27, 2007, which is the date the Eligible Fund Sub-account first became available.

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

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

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

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

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

The Variable Account was established by Keyport Life Insurance Company (“Keyport”) a predecessor of Sun Life (U.S.), on January 30, 1996, pursuant to the provisions of Rhode Island law, as a segregated investment account. On December 31, 2003, Keyport was merged with and into Sun Life (U.S.). The Variable Account survived the merger intact. The Variable Account meets the definition of “separate account” under the federal securities laws. The Variable Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. Such registration does not mean the Securities and Exchange Commission supervises us or the management of the Variable Account.

Obligations under the Certificates are our obligations. Although the assets of the Variable Account are our property, these assets are held separately from our other assets and are not chargeable with liabilities arising out of any other business we may conduct. Income, capital gains and/or capital losses, whether or not realized, from assets allocated to the Variable Account are credited to or charged against the Variable Account without regard to the income, capital gains, and/or capital losses arising out of any other business we may conduct.

PURCHASE PAYMENTS AND APPLICATIONS

The initial purchase payment is due on the Certificate Date. The minimum initial purchase payment is $5,000 and $2,000 for individual retirement annuities. You may make additional purchase payments. We reserve the right to limit each subsequent purchase payment to at least $1,000. We may reject any purchase payment or any application.

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

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

We will permit others to act on your behalf in certain instances, including:

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

Certain dealers or other authorized persons such as employers and Qualified Plan fiduciaries may inform us of your responses to application questions by telephone or by order ticket and cause the initial purchase payment to be paid to us. If the information is complete, we will issue the Certificate with a copy of an application containing that information. We will send you the Certificate and a letter so you may review the information and notify us of any errors. We may request you to confirm that the information is correct by signing a copy of the application or a Certificate delivery receipt. We will send you a written notice confirming all purchases. Our liability under any Certificate relates only to amounts so confirmed.

INVESTMENTS OF THE VARIABLE ACCOUNT

Allocations of Purchase Payments

We will invest your purchase payments in the Sub-accounts you have chosen. Your selection must specify the percentage of the purchase payment that is allocated to each Sub-account or must specify the asset allocation model selected. (See “Other Services, The Programs”.) The percentage for each Sub-account, if not zero, must be at least 5% and a whole number. You may change the allocation percentages without fee, penalty or other charge. You must notify us in writing of your allocation changes unless you, your attorney-in-fact, or another authorized person have given us written authorization to accept telephone allocation instructions. By allowing us to accept telephone changes, you agree to accept and be bound by our current conditions and procedures. The current conditions and procedures are in Appendix B. We will notify you of any changes in advance.

The Variable Account is segmented into Sub-accounts. Each Sub-account contains the shares of one of the Eligible Funds and such shares are purchased at net asset value. We may add or withdraw Eligible Funds and Sub-accounts as permitted by applicable law.

Eligible Funds

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

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

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

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

Transfer of Variable Account Value

You may transfer Variable Account Value from one Sub-account to another Sub-account and/or to the Fixed Account.

You must notify us in writing of your transfer requests unless you have given us written authorization to accept telephone transfer requests from you or your attorney-in-fact or another authorized person. By authorizing us to accept telephone transfer instructions, you agree to accept our current conditions and procedures. The current conditions and procedures are in Appendix B. You will be given prior notification of any changes. A person acting on your behalf as an attorney-in-fact may make written transfer requests.

If we receive your transfer requests before 4:00 P.M. Eastern Time, we will initiate them at the close of business that day. We will initiate any written requests received after that time at the close of the next business day. We will execute your request to transfer value by both redeeming and acquiring Accumulation Units on the day we initiate the transfer.

If you transfer 100% of any Sub-account’s value, and the allocation formula for purchase payments on your application includes that Sub-account, the allocation formula for future purchase payments will automatically change unless you tell us otherwise.

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

Frequent Transfers

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

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

     Limitations on Transfers

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

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

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

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

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

     Waiver of Transfer Limitations

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

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

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

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

     Eligible Funds’ Shareholder Trading Policies

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

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

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

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

Substitution of Eligible Funds and Other Variable Account Changes

If shares of any of the Eligible Funds are no longer available for investment by the Variable Account, or further investment in the shares of an Eligible Fund is no longer appropriate under the Certificate, we may add or substitute shares of another Eligible Fund or of another mutual fund for Eligible Fund shares already purchased or to be purchased in the future. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940.

We also reserve the right to make the following changes in the operation of the Variable Account and Eligible Funds:

l
to operate the Variable Account in any form permitted by law;
   
l
to take any action necessary to comply with applicable law or obtain and continue any exemption from applicable law;
   
l
to transfer any assets in any Sub-account to another or to one or more separate investment accounts, or to our general account;
   
l
to add, combine or remove Sub-accounts in the Variable Account; and
   
l
to change how we assess charges, so long as we do not increase them above the current total amount charged to the Variable Account and the Eligible Funds in connection with your Certificate.

DEDUCTIONS

Deductions for Certificate Maintenance Charge

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

Before the Income Date, we will deduct the certificate maintenance charge from the Variable Account Value on each Certificate Anniversary and on the date of any total surrender not falling on the Certificate Anniversary.

We will waive this charge before the Income Date if:

l
it is the first Certificate Anniversary;
   
l
the Certificate Value is at least $40,000 on the date we impose this charge; or
   
l
in the prior Certificate Year, purchase payments of at least $2,000 have been made and you have not made any partial withdrawals. The waiver will be determined annually as of each Certificate Anniversary.

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

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

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

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

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

Deductions for Mortality and Expense Risk Charge

Variable annuity payments fluctuate depending on the investment performance of the Sub-accounts.  The payments will not be affected by the mortality experience (death rate) of persons receiving such payments or of the general population. We guarantee the Death Benefits described in “Death Provisions”. We also assume an expense risk since the certificate maintenance charge after the Income Date remains the same and does not change to reflect variations in expenses.

We deduct a mortality and expense risk charge from each Sub-account as part of the calculation of Accumulation Unit Values and Annuity Unit Values for each Valuation Period. The mortality and expense risk charge is equal, on an annual basis, to 1.25% of the average daily net asset value of each Sub-account. We deduct the charge both before and after the Income Date.

We may deduct less than the full charge from Sub-account values attributable to Certificates issued to our employees and to other persons specified in “Sales of the Certificates”. Additionally, we may, in certain circumstances described in “Sales of the Certificates” offer to credit additional interest from our general account to a purchase payment upon receipt as an allowance for future deductions of the mortality and expense risk charge.

Deductions for Daily Distribution Charge

We deduct a daily distribution charge from each Sub-account as part of the calculation of Accumulation Unit Values for each Valuation Period. This charge is equal, on an annual basis, to 0.15% of the average daily net asset value of each Sub-account. This charge compensates us for certain sales distribution expenses relating to the Certificate. We do not deduct the distribution charge during the annuity period.

We will not deduct this charge from your Sub-account values once we have reached the maximum cumulative distribution charge limit. We do not deduct this charge from the values of the Certificates issued to our employees and other persons specified in “Sales of the Certificates”. We may decide not to deduct the charge from Sub-account values attributable to a Certificate issued in an internal exchange or transfer of an annuity contract from our general account.

Deductions for Contingent Deferred Sales Charge

We do not deduct a sales charge from the Certificate when you purchase it. We may deduct such a charge if you make a partial withdrawal or surrender your Certificate.

To determine whether we will deduct a contingent deferred sales charge if you surrender your Certificate, we maintain a separate set of records. These records identify the date and amount of each purchase payment you have made and the Certificate Value over time. This allows us to determine if a charge is due with respect to a particular purchase payment.

You may make partial surrenders during the Accumulation Period without incurring a contingent deferred sales charge.  During the first Certificate Year, you may withdraw an amount up to the Certificate’s earnings. Earnings equal the Certificate Value at the time of withdrawal, less purchase payments not previously withdrawn.  Beginning with the second Certificate Year, you may withdraw earnings, and an amount up to 10% of the Certificate Value on the prior Certificate Anniversary, less earnings. We will deduct a contingent deferred sales charge with respect to withdrawals in excess of these amounts.

We will deduct the contingent deferred sales charge resulting from an excess withdrawal in any Certificate Year from the purchase payments beginning with the oldest payment until we have deducted the full amount.

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

We keep a record of all amounts we have deducted for all contingent deferred sales charges and daily distribution charges.  We will never deduct more than a total of 9% from your purchase payments for sales and distribution charges.

The contingent deferred sales charge is used to cover the expenses of selling the Certificate, including compensation paid to selling dealers and the cost of sales literature. Selling dealers may receive up to 7.00% of purchase payments. (See “Sales of the Certificates”.) We pay any expenses not covered by the charge from our general account, which may include monies deducted from the Variable Account for the mortality and expense risk charge.

We will waive the contingent deferred sales charge in the event a Covered Person is confined in a medical facility in accordance with the provisions and conditions of an endorsement to the Certificate relating to such confinement.

The contingent deferred sales charge is not applicable to Certificates issued to our employees and other persons specified in “Sales of the Certificates”.

We may reduce or change any contingent deferred sales charge percentage to 0% under a Certificate issued in an internal exchange or transfer of an annuity contract from our general account.

Under the “Systematic Withdrawal Program” on page 21 and under other permitted circumstances, we may allow the 10% withdrawal amount to be available in the first Certificate Year.  If so, the initial purchase payment will be substituted for the Certificate Value.

Deductions for Transfers of Variable Account Value

Currently, we do not charge a transfer fee. However, the Certificate allows us to charge up to $25 for each transfer in excess of 12 per year that occurs outside of the optional investment related programs. We will notify you prior to the imposition of any fee.

Deductions for Premium Taxes

We deduct the amount of any premium taxes required by any state or governmental entity. Currently, we deduct premium taxes from Certificate Value upon full surrender (including a surrender for the death benefit) or annuitization.  The actual amount of any such premium taxes will depend, among other things, on the type of Certificate you purchase (Qualified or Non-Qualified), on your state of residence, the state of residence of the Annuitant, and the insurance tax laws of such states. Currently such premium taxes range from 0% to 3.5% of either total purchase payments or Certificate Value.

Deductions for Income Taxes

We will deduct income taxes from any amount payable under the Certificate that a governmental authority requires us to withhold. See “Income Tax Withholding” and “Tax-Sheltered Annuities”.

Total Variable Account Expenses

Total Variable Account expenses you will incur will be the certificate maintenance charge, the mortality and expense risk charge, and the daily distribution charge.

The value of the assets in the Variable Account will reflect the value of Eligible Fund shares and the deductions and expenses paid out of the assets of the Eligible Funds. The prospectus for the Eligible Funds describes these deductions and expenses.

OTHER SERVICES

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

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

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

Under each program that uses transfers, the transfers between and among Sub-accounts and the Fixed Account are not subject to a transfer fee and are not counted as one of the 12 free transfers. Each of the programs has its own requirements, as discussed below. We reserve the right to terminate any program and you may terminate your participation in any program at any time.

We impose no charge for participating in the asset allocation, dollar cost averaging, systematic investment, or systematic withdrawal programs.

If you have submitted a telephone authorization form, you may make certain changes by telephone. For those programs involving transfers, you may change instructions by telephone with regard to which Sub-accounts or Fixed Account Certificate Value may be transferred. We describe the current conditions and procedures in Appendix B.

Dollar Cost Averaging Program. Under the program, we make automatic transfers of Accumulation Units on a periodic basis out of the Columbia Money Market Sub-account or the One-Year Guarantee Period Fixed Account option into one or more of the other available Sub-accounts you select. The program allows you to invest in the Sub-accounts over time rather than all at once. The program is available for purchase payments and amounts transferred into the Columbia Money Market Sub-account or the One-Year Guarantee Period Fixed Account option. We reserve the right to limit the number of Sub-accounts you may choose.

If you wish to participate in the program you must specify in writing whether you want the transfers to be made from the Columbia Money Market Sub-account or a specific One-Year Guarantee Period Fixed Account option.  You must also tell us the monthly amount you want transferred (minimum $100) and the Sub-account(s) to which you want the transfers made. The first transfer will occur about 30 days after we receive your request. Each subsequent periodic transfer will occur at the close of the same valuation period. If you select monthly transfers and the first transfer occurs on April 8, the second transfer will occur at the close of the valuation period that includes May 8. When the remaining value is less than the monthly transfer amount, we will transfer that remaining value and the program will end. Before this final transfer, you may extend the program by allocating additional purchase payments, or by transferring Certificate Value, to the Columbia Money Market Sub-account or to a designated One-Year Guarantee Period Fixed Account option.

You may change the monthly amount you want transferred, the Sub-account(s) to which you want transfers made, or end the program. The program will automatically end on the Income Date. We reserve the right to end the program at any time by sending you a notice one month in advance.

We must receive your written or telephone instructions by 4:00 P.M. Eastern Time on the business day before the next scheduled transfer in order for the new instructions to be in effect for that transfer. We establish conditions and procedures for telephone instructions for dollar cost averaging from time to time. The current conditions and procedures appear in Appendix B, and you will be notified prior to any changes.

Asset Allocation Program. Previously you could select from five asset allocation model portfolios that were separately developed by Ibbotson Associates:

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

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

The Fixed Account is not available in any asset allocation model. You may allocate subsequent purchase payments, or Certificate Value, between an asset allocation model and the Fixed Account.

Rebalancing Program. Rebalancing allows you to maintain the percentage of your Certificate Value allocated to each Sub-account at a pre-set level. Over time, the variations in each Sub-account’s investment results will shift the balance of your Certificate Value allocations. Under the rebalancing program, each quarter, if the allocations change from your desired percentages, we will automatically transfer your Certificate Value, including new purchase payments (unless you tell us otherwise), back to the percentages you specify. Rebalancing maintains your percentage allocations among the Sub-accounts, although it is accomplished by reducing your Certificate Value allocated to the better performing Sub-accounts. If you choose to allocate your purchase payments at such a pre-set percentage among the Sub-accounts, we will automatically rebalance the Certificate Value of each Sub-account on the last day of the calendar quarter to match your current percentage allocations. We will not charge a transfer fee for rebalancing.

You may terminate the program at any time or change the percentages by notifying us in writing. We must receive your changes ten days before the end of the calendar quarter.

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

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

Systematic Investment Program. You may make purchase payments for Non-Qualified Certificates through monthly deductions from your bank account or payroll. You may elect this program by completing and returning a systematic investment program application and authorization form to us. You may obtain an application and authorization form from us or your sales representative. There is a current minimum of $50 per payment for the program.

Systematic Withdrawal Program. To the extent permitted by law, if you enroll in the systematic withdrawal program, we will make monthly, quarterly, semi-annual or annual distributions of a set dollar amount directly to you. We will treat such distributions for federal tax purposes as any other withdrawal or distribution of Certificate Value. You may specify the amount of each partial withdrawal, subject to a minimum of $100. You may make systematic withdrawals from any Sub-accounts or any Fixed Account option. However, any withdrawal from a Fixed Account option with a Guarantee Period whose original length is three or more years may be subject to a market value adjustment. If the value of your policy drops below $2500, the Systematic Withdrawal Program stops. (See Appendix A.)

In each Certificate Year, you may withdraw portions of Certificate Value without any contingent deferred sales charge (“free withdrawal amount”). If your withdrawals under the program exceed the free withdrawal amount, the excess will be subject to the applicable contingent deferred sales charge. We will add any unrelated voluntary partial withdrawal you make during a Certificate Year with withdrawals pursuant to the program to determine the applicability of any contingent deferred sales charge.

Unless you specify the Sub-account(s) or the Fixed Account option from which you want withdrawals of Certificate Value made, or if the amount in a specified Sub-account is less than the predetermined amount, we will make withdrawals under the program in the manner specified for partial withdrawals in “Partial Withdrawals and Surrender”. We will process all Sub-account withdrawals under the program by canceling Accumulation Units equal in value to the amount to be distributed to you and to the amount of any applicable contingent deferred sales charge.

You may combine the program with all other programs except the systematic investment program.

It may not be advisable to participate in the systematic withdrawal program when making additional purchase payments under the Certificate, if you would incur a contingent deferred sales charge or receive taxable income as a result of the withdrawal. In either circumstance, it might be financially advantageous for you not to pay the purchase payment and forego the systematic withdrawal, thereby avoiding payment of the surrender charge or potential tax liability. However, if you own a Non-Qualified Certificate and are under 59½, terminating a systematic withdrawal program or skipping a payment may subject you to penalty tax.

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

THE CERTIFICATES

Variable Account Value

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

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

Valuation Periods

We determine the value of the Variable Account each valuation period using the net asset value of the Eligible Fund shares. A valuation period is the period beginning at 4:00 P.M. (ET) which is the close of trading on the New York Stock Exchange and ending at the close of trading for the next business day. The New York Stock Exchange is currently closed on weekends, New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Net Investment Factor

Your Variable Account Value will fluctuate with the investment results of the underlying Eligible Funds you have selected. In order to determine how these fluctuations affect value, we use an Accumulation Unit value. Each Sub-account has its own Accumulation Units and value per unit. We determine the unit value applicable during any valuation period at the end of that period.

When Eligible Fund shares were first purchased on behalf of the Variable Account, each Accumulation Unit was valued at a specified dollar amount. The Unit value for each Sub-account in any valuation period thereafter is determined by multiplying the value for the prior period by a net investment factor. This factor may be greater or less than 1.0; therefore, the Accumulation Unit may increase or decrease from valuation period to valuation period. We calculate a net investment factor for each Sub-account according to the following formula (a ÷ b) - c, where:

(a)
is equal to:
     
 
(i)
the net asset value per share of the Eligible Fund at the end of the valuation period; plus
 
(ii)
the per share amount of any dividend or other distribution of the Eligible Fund made if the record date for such distribution occurs during that same valuation period.
   
(b)
is the net asset value per share of the Eligible Fund at the end of the prior valuation period.
   
(c)
is equal to:
     
 
(i)
the valuation period equivalent of the annual rate for the mortality and expense risk charge; plus
 
(ii)
the valuation period equivalent of the annual rate for the distribution charge; plus
 
(iii)
a charge factor for any tax provision established by us as a result of the operations of that Sub-account.

If we have deducted the maximum cumulative sales charge limit, we will not deduct the daily distribution charge in (c)(ii) above. For Certificates issued to our employees and other persons specified in “Sales of the Certificates”, the mortality and expense risk charge in (c)(i) above is .35% and the daily distribution charge in (c)(ii) above is eliminated. We may eliminate the daily distribution charge in (c)(ii) above for certain Certificates we issue in an internal exchange or transfer.

Modification of the Certificate

Only our President or Secretary may agree to alter the Certificate or waive any of its terms. A change may be made to the Certificate if there have been changes in applicable law or interpretation of law. Any changes must be made in writing and with your consent, except as may be required by applicable law.

Right to Revoke

You may return the Certificate within ten days after you receive it by delivering or mailing it to us.  The postmark on a properly addressed and postage-prepaid envelope determines if a Certificate is returned within the period. We will treat the returned Certificate as if we never issued it and will refund either the Certificate Value or purchase payments, whichever is required by state law. With respect to Certificates issued in exchange for a fixed annuity contract, we will refund the value of the old fixed annuity without consideration of the 3% interest credit in those states that require a return of premium. In states that require a return of Certificate Value, we will return the value of the old fixed annuity without consideration of the 3% interest credit as adjusted for positive or negative investment performance. Thus, the interest credit does not fully vest until the right to revoke period ends.

If we deliver your Certificate to you in California and you are age 60 or older, you may return the Certificate to us or to the agent from whom you purchased it. If you return the Certificate within 30 days after you received it, we will refund the Certificate Value.

DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES

Death of Primary Owner, Joint Owner or Certain Non-Owner Annuitant. If the Certificate is In Force, you or any Joint Certificate Owner dies, or if the Annuitant dies when a non-natural person (such as a trust) owns the Certificate, we will treat the Designated Beneficiary as the Certificate Owner after such a death.

If the decedent’s surviving spouse is the sole Designated Beneficiary, he or she will automatically become the new sole primary Certificate Owner as of the decedent’s date of death. If the decedent was the Annuitant, the new Annuitant will be any living contingent annuitant, otherwise the surviving spouse. The Certificate can stay In Force until another death occurs. Except for this paragraph, all of “Death Provisions” will apply to that subsequent death.

In all other cases, the Certificate may remain In Force for a period not to exceed five years from the date of death. During this period, the Designated Beneficiary may exercise all ownership rights, including the right to make transfers or partial withdrawals or the right to totally surrender the Certificate for its surrender value. If the Certificate is still in effect at the end of the five-year period, we will automatically end it by paying the Certificate Value to the Designated Beneficiary. If the Designated Beneficiary is not then alive, we will pay any person(s) named by the Designated Beneficiary in writing; otherwise we will pay the Designated Beneficiary’s estate.

The Covered Person under this paragraph shall be the decedent if he or she is the first to die among you, any joint Certificate Owner, or Annuitant. If there is a non-natural Certificate Owner such as a trust, the Annuitant shall be the Covered Person.

Upon the death of the Covered Person, we will increase the Certificate Value so that it equals the death benefit amount if it is less than the death benefit amount (“DBA”). The DBA is the greater of the “net purchase payment death benefit”, the current Certificate Value or the “greatest Anniversary Value”.

The net purchase payment death benefit is:

l
the initial purchase payment, plus
   
l
any additional purchase payments, minus
   
l
any partial withdrawals and any applicable contingent deferred sales charges.

Each day we determine the value of your Certificate during a Certificate Year, we will also value your “greatest Anniversary Value”.  The “greatest Anniversary Value” on the issue date is the initial purchase payment.  Each day we will add to this amount any additional purchase payments made that day, and subtract an adjustment for withdrawals made that day.  This adjustment equals the amount of the partial withdrawal:

l
divided by the Certificate Value immediately before the withdrawal; and
   
l
multiplied by the “greatest Anniversary Value” immediately before the withdrawal.

On each Certificate Anniversary, we compare the current Certificate Value to “greatest Anniversary Value”, adjusted as described above.  If the current Certificate Value exceeds the adjusted “greatest Anniversary Value”, the current Certificate Value will become the new “greatest Anniversary Value”.  This new “greatest Anniversary Value” will be adjusted as described above during the following Certificate Year, if necessary.  This process will continue until the Certificate Anniversary prior to the 81st birthday of the Covered Person.  On this Certificate Anniversary, the greater of the current Certificate Value and the adjusted “greatest Anniversary Value” will become the new “greatest Anniversary Value”. From that point on, the “greatest Anniversary Value” will not change unless subsequent purchase payments are made or withdrawals are taken, in which case the “greatest Anniversary Value” will be adjusted as described above.

When we receive due proof of the Covered Person’s death in a form satisfactory to us, we will compare, as of the date of death, the Certificate Value and the DBA. If the Certificate Value was less than the DBA, we will increase the current Certificate Value by the amount of the difference. Note that while the amount of the difference is determined as of the date of death, that amount is not added to the Certificate Value until we receive due proof of death.

We allocate the amount credited, if any, to the Variable Account and/or the Fixed Account based on the purchase payment allocation selection in effect when we receive due proof of death in a form satisfactory to us. The Designated Beneficiary may, by the later of the 90th day after the Covered Person’s death and the 60th day after we receive proof of the death, surrender the Certificate for the Certificate Value without incurring any applicable contingent deferred sales charge. If the Designated Beneficiary surrenders the Certificate after the applicable 90 or 60 day period or surrenders it at any time after the death of a non-Covered Person, we will deduct any applicable contingent deferred sales charge. If the Designated Beneficiary does not surrender the Certificate, it will continue for the time period specified above.

Payment of Benefits. Instead of receiving a lump sum, you or any Designated Beneficiary may direct us in writing to pay any benefit of $5,000 or more under an annuity payment option that meets the following:

l
the first payment to the Designated Beneficiary must be made no later than one year after the date of death;
   
l
payments must be made over the life of the Designated Beneficiary or over a period not extending beyond that person’s life expectancy; and
   
l
any payment option that provides for payments to continue after the death of the Designated Beneficiary will not allow the successor payee to extend the period of time during which the remaining payments are to be made.

Death of Certain Non-Certificate Owner Annuitant. These provisions apply if, while the Certificate is In Force, the Annuitant dies, the Annuitant is not the Certificate Owner or a joint Certificate Owner, and the Certificate Owner is a natural person. The Certificate will continue after the Annuitant’s death. The new Annuitant will be any living contingent annuitant.  If there is no contingent annuitant, you will be the new Annuitant.  If the Annuitant dies before you and any joint Certificate Owner, then the Annuitant is the Covered Person and we will increase the Certificate Value, as provided below, if it is less than the DBA, as defined above.

When we receive due proof of the Annuitant’s death, in a form satisfactory to us, we will compare, as of the date of death, the Certificate Value and the DBA. If the Certificate Value is less than the DBA, we will increase the Certificate Value by the difference. Note that while the amount of the difference is determined as of the date of death, that amount is not added to the Certificate Value until we receive due proof of death.

We allocate the amount credited, if any, to the Variable Account and/or the Fixed Account based on the purchase payment allocation selection in effect when we receive due proof of death. You may surrender the Certificate within 90 days of the date of the Annuitant’s death for the Certificate Value without incurring any applicable contingent deferred sales charge. If you surrender the Certificate after 90 days, we will deduct any applicable contingent deferred sales charge.

DEATH PROVISIONS FOR QUALIFIED CERTIFICATES

Death of Annuitant. If the Annuitant dies while the Certificate is In Force, the Designated Beneficiary will control the Certificate. We will increase the Certificate Value, as provided below, if it is less than the DBA as defined above. When we receive due proof of the Annuitant’s death, we will compare, as of the date of death, the Certificate Value to the DBA. If the Certificate Value was less than the DBA, we will increase the current Certificate Value by the amount of the difference. Note that while the amount of the difference is determined as of the date of death, that amount is not added to the Certificate Value until we receive due proof of death.

We will allocate the amount credited, if any, to the Variable Account and/or the Fixed Account based on the purchase payment allocation selection in effect when we receive due proof of death. The Designated Beneficiary may, by the later of the 90th day after the Annuitant’s death and the 60th day after we are notified of the death, surrender the Certificate for the Certificate Value without incurring any applicable contingent deferred sales charge. If the Designated Beneficiary surrenders the Certificate after the applicable 90 or 60 day period, we will deduct any applicable contingent deferred sales charge.

If the Designated Beneficiary does not surrender the Certificate, it may continue for the time period permitted by the Internal Revenue Code provisions applicable to the particular Qualified Plan. During this period, the Designated Beneficiary may exercise all ownership rights, including the right to make transfers or partial withdrawals or the right to totally surrender the Certificate for its Certificate Withdrawal Value. If the Certificate is still in effect at the end of the period, we will automatically end it then by paying the Certificate Withdrawal Value (without the deduction of any applicable contingent deferred sales charge) to the Designated Beneficiary. If the Designated Beneficiary is not alive then, we will pay any person(s) named by the Designated Beneficiary in writing; otherwise we will pay the Designated Beneficiary’s estate.

Payment of Benefits. You or any Designated Beneficiary may direct us in writing to pay any benefit of $5,000 or more under an annuity payment option that meets the following:

l
the first payment to the Designated Beneficiary must be made no later than one year after the date of death;
   
l
payments must be made over the life of the Designated Beneficiary or over a period not extending beyond that person’s life expectancy; and
   
l
any payment option that provides for payments to continue after the death of the Designated Beneficiary will not allow the successor payee to extend the period of time over which the remaining payments are to be made.

CERTIFICATE OWNERSHIP

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

You may direct us in writing to change the Certificate Owner, primary beneficiary, contingent beneficiary or contingent annuitant. If the selection of a beneficiary or annuitant was designated “irrevocable”, that selection may be changed only with that person’s written consent.

Because a change of Certificate Owner by means of a gift may be a taxable event, you should consult a qualified tax professional as to the tax consequences resulting from such a transfer.

Any Qualified Certificate may have limitations on transfer of ownership. You should consult the plan administrator and a qualified tax professional as to the tax consequences resulting from such a transfer.

ASSIGNMENT

You may assign the Certificate at any time. You must file a copy of any assignment with us. Your rights and those of any revocably-named person will be subject to the assignment. A Qualified Certificate may have limitations on your ability to assign the Certificate.

Because an assignment may be a taxable event, you should consult a qualified tax professional as to the tax consequences resulting from any such assignment.

PARTIAL WITHDRAWALS AND SURRENDER

You may make partial withdrawals from the Certificate by notifying us in writing. The minimum withdrawal amount is $300.  We may permit a lesser amount with the systematic withdrawal program. If the Certificate Value after a partial withdrawal would be below $2,500, we will treat the request as a withdrawal of only the amount over $2,500. If the value of your policy drops below $2,500, the systematic withdrawal program stops. The amount withdrawn will include any applicable contingent deferred sales charge and may be greater than the amount of the surrender check requested. Unless you specify otherwise, we will deduct the total amount withdrawn from all Sub-accounts of the Variable Account in the ratio that the value in each Sub-account bears to the total Variable Account Value. If there is no or insufficient value in the Variable Account, the amount surrendered, or the insufficient portion, will be deducted from the Fixed Account in the ratio that each Guarantee Period’s value bears to the total Fixed Account Value.

You may totally surrender the Certificate by notifying us in writing. Surrendering the Certificate will end it. Upon surrender, you will receive the Certificate Withdrawal Value.

We will pay the amount of any surrender within seven days of receipt of your request. Alternatively, you may apply any surrender benefit of at least $5,000 to an annuity payment option for yourself. If the Certificate Owner is not a natural person, we must consent to the selection of an annuity payment option.

You may not make partial withdrawals or surrender annuity options based on life contingencies after annuity payments have begun. You may make partial withdrawals or surrender under Option A, described in “Annuity Options” below, which is not based on life contingencies, if you have selected a variable payout. Any partial withdrawal will reduce your future annuity payments.

Because of the potential tax consequences of a partial withdrawal or surrender, you should consult a qualified tax professional.

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

ANNUITY PROVISIONS

Annuity Benefits

If the Annuitant is alive on the Income Date and the Certificate is In Force, we will begin payments to the Annuitant under the annuity option or options you have chosen. We determine the amount of the payments on the Income Date by applying to the Option you choose for your payments:

l
your Certificate Value,
   
l
increased or decreased by applying a limited market value adjustment of Fixed Account Value described in Appendix A,
   
l
less any premium taxes not previously deducted, and
   
l
less a pro rata portion of any applicable certificate maintenance charge that would be due on the next Certificate Anniversary.

From the payment amount determined in this way, we also subtract a portion of any applicable certificate maintenance charge, calculated as described in “Deductions for Certificate Maintenance Charge”.

Annuity Option and Income Date

You may select an Annuity Option and Income Date at the time of application. If you do not select an Annuity Option, we automatically choose Option B. If you do not select an Income Date for the Annuitant, the Income Date will automatically be the earlier of:

l
the later of the Annuitant’s 90th birthday and the 10th Certificate Anniversary, or
   
l
any maximum date permitted under state law.

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

Change in Annuity Option and Income Date

You may choose or change an Annuity Option or the Income Date by writing to us at least 30 days before the Income Date. However, any Income Date must be:

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

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

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

If you do not select an Annuity Option, we will automatically apply Option B. Unless you choose otherwise, we will apply:

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

The same amount applied to a variable option and a fixed option will produce a different initial annuity payment and different subsequent payments.

The payee is the person who will receive the sum payable under a payment option. Any payment option that provides for payments to continue after the death of the payee will not allow the successor payee to extend the period of time over which the remaining payments are to be made.

If the amount available under any variable or fixed option is less than $5,000, we reserve the right to pay such amount in one sum to the payee in lieu of the payment otherwise provided for.

We will make annuity payments monthly unless you have requested in writing quarterly, semi-annual or annual payments. However, if any payment would be less than $100, we have the right to reduce the frequency of payments to 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 while we are making variable annuity payments, the payee may elect to receive the following amount:

l
the present value of the remaining payments, commuted at the interest rate used to create the annuity factor for this option (for the variable annuity this interest rate is 6% per year (3% per year for Florida Certificates and 5% per year for Oregon and Texas Certificates), unless at the time you chose Option A you selected 3% per year in writing); less
   
l
any contingent deferred sales charge due by treating the value defined above as a total surrender.

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

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

l
we will continue payments during the remainder of the period to the successor payee; or
   
l
the successor payee may elect to receive in a lump sum the then present value of the remaining payments, commuted at the interest rate used to create the annuity factor for this option. For the variable annuity, this interest rate is 6% per year (3% per year for Florida Certificates and 5% per year for Oregon and Texas Certificates), unless the payee chose 3% per year at the time the option was selected.

The mortality and expense risk charge is deducted during the Option A payment period if a variable payout has been selected, but we have no mortality risk during this period.

You may choose a “level monthly” payment option for variable payments under Option A. Under this option, we convert your annual payment into 12 equal monthly payments.  Thus the monthly payment amount changes annually instead of monthly. We will determine each annual payment as described below in “Variable Annuity Payment Values”, place each annual payment in our general account, and distribute it in 12 equal monthly payments.  The sum of the 12 monthly payments will exceed the annual payment amount because of an interest rate factor we use, which will vary from year to year. If the payments are commuted, (1) we will use the commutation method described below for calculating the present value of remaining annual payments and (2) use the interest rate that determined the current 12 monthly payments to commute any unpaid monthly payments.

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:

l
we will continue payments during the remainder of the period to the successor payee; or
   
l
such successor payee may elect to receive in a lump sum the present value of the remaining payments, commuted at the interest rate used to create the annuity factor for this option.  For the variable annuity, this interest rate is 6% per year (3% per year for Florida Certificates and 5% per year for Oregon and Texas Certificates), unless the payee had chosen 3% per year at the time the option was selected.

In the case of Options A and B, the present value of remaining payments referred to above will be based, for variable payments, on interest compounded annually at the current assumed annual investment return (AIR) or benchmark rate and on the assumption that each future payment is equal in amount to a payment determined using the applicable Sub-account annuity unit values for the Valuation Period which ends on the date of determination. For fixed annuity payments, the present value of the remaining fixed dollar payments will be based on interest compounded annually at the interest rate we used to create the annuity factor that was used in calculating the fixed payment amount.

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.

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

Subsequent variable annuity payments will fluctuate in amount and reflect whether the actual investment return of the selected Sub-account(s) (after deducting the mortality and expense risk charge) is better or worse than the assumed investment return. The total dollar amount of each variable annuity payment will be equal to:

l
the sum of all Sub-account payments, less
   
l
the pro-rata amount of the annual certificate maintenance charge.

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

If you apply the same amount to a particular payment option, a 5% or 6% AIR will result in a larger initial payment than will a 3% AIR. You should note, however, that, assuming the same investment performance, your subsequent payments using a 5% or 6% AIR will increase by a smaller percentage (when they increase) and decrease by a larger percentage (when they decrease) than will subsequent payments using a 3% AIR. Indeed, it is possible that after a sufficient period of time, payments determined using a 5% or 6% AIR may be lower than payments commencing at the same time using the same Sub-accounts but a 3% AIR. Note that if you select Option A (Income for a Fixed Number of Years) and payments continue for the entire period, the 5% or 6% AIR payment amount will start out being larger than the 3% AIR amount but eventually the 5% or 6% AIR payment amount will become less than the 3% AIR payment amount. Whether you would be better off choosing a higher or lower AIR depends on the annuity payment option you choose, the investment performance of the Sub-accounts you choose, and the period for which payments are received.

Proof of Age, Sex, and Survival of Annuitant

We may require proof of age, sex or survival of any payee upon whose age, sex or survival payments depend. If the age or sex has been misstated, we will compute the amount payable based on the correct age and sex. If income payments have begun, we will pay in full any underpayments with the next annuity payment and deduct any overpayments, unless repaid in one sum, from future annuity payments until we are repaid in full.

SUSPENSION OF PAYMENTS

We reserve the right to postpone surrender payments from the Fixed Account for up to six months. We also reserve the right to suspend or postpone any type of payment from the Variable Account for any period when:

l
the New York Stock Exchange is closed other than customary weekend or holiday closings;
   
l
trading on the Exchange is restricted;
   
l
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
   
l
the Securities and Exchange Commission permits delay for the protection of security holders.

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

TAX STATUS

Introduction

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

You may purchase a Certificate that is not issued under a Qualified Plan (“Non-Qualified Certificate”) or a Certificate that is used under a Plan that is Qualified under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) (a “Qualified Certificate”). The ultimate effect of federal income taxes on the Certificate Value, on annuity payments, and on the economic benefit to the Certificate Owner, Annuitant or Designated Beneficiary depends on the type of retirement plan for which you purchase the Certificate and upon the tax and employment status of the individual concerned.

Taxation of Annuities in General

For federal income tax purposes, purchase payments made under Non-Qualified Certificates are not deductible.  Under certain circumstances, purchase payments made under Qualified Certificates may be excludible or deductible from taxable income.  Any such amounts will also be excluded from the cost basis for purposes of determining the taxable portion of any distributions from a Qualified Certificate.

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

Section 72 of the Code governs taxation of annuities in general. There are no income taxes on increases in the value of a Certificate until a distribution occurs, in the form of a full surrender, a partial withdrawal, an assignment or gift of the Certificate, or annuity payments. A non-natural person owning a Non-Qualified Certificate, other than as an agent for an individual, is taxed differently; increases in the value of a Certificate are taxed yearly whether or not a distribution occurs.

Surrenders, Partial Withdrawals, Death Benefit Payments, Assignments and Gifts. If you fully surrender your Certificate, the portion of the surrender payment that exceeds your cost basis in the Certificate is subject to tax as ordinary income. For Non-Qualified Certificates, the cost basis is generally the amount of the purchase payments made for the Certificate. For Qualified Certificates, the cost basis is generally zero and the entire surrender payment is generally taxed as ordinary income. A Designated Beneficiary receiving a lump sum death benefit payment after your death or the death of the Annuitant is similarly taxed on the portion of the amount that exceeds your cost basis in the Certificate. If the Designated Beneficiary elects to receive annuity payments that begin within one year of the decedent’s death, different tax rules apply.  See “Annuity Payments” below.  For Non-Qualified Certificates, the tax treatment applicable to Designated Beneficiaries may be contrasted with the tax treatment applicable to persons inheriting and then selling mutual fund shares who receive a “stepped-up” basis equal to the date-of-death value of their shares and therefore will pay no tax on the sale of their shares unless the sale price exceeds the date-of-death value.

Partial withdrawals received under Non-Qualified Certificates prior to annuitization are first included in gross income to the extent the cash value (determined without regard to surrender charges) exceeds purchase payments. Then, to the extent the cash value does not exceed purchase payments, such withdrawals are treated as a non-taxable return of principal to you. There is no definition of “cash value” in the Code and, for tax reporting purposes, we are currently treating it as the Certificate Value.  However, there can be no assurance that the IRS will agree that this is the correct cash value.  The IRS could, for example, determine that the cash value is the Certificate Value plus an additional amount representing the value of a death benefit and/or living benefit in your Certificate.  If this were to occur, any withdrawal could have a higher proportion of the withdrawal derived from taxable investment earnings.

For partial withdrawals under a Qualified Certificate, a portion of each payment is treated as a non-taxable return of principal and the remaining amount is treated as taxable income. Since the cost basis of Qualified Certificates is generally zero, partial withdrawal amounts will generally be fully taxed as ordinary income.

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

Internal Revenue Code 72(e)(12) applies if we issue to you, during any calendar year, two or more Certificates, or one or more Certificates and one or more of our other annuity contracts. Under this provision, all of the contracts will be treated as one contract. We believe this means that the amount of any distribution under any one Certificate will be includable in gross income to the extent that at the time of distribution the sum of the values for all the Certificates or contracts exceeds the sum of each contract’s cost basis.

Annuity Payments. We determine the non-taxable portion of each variable annuity payment by dividing the cost basis of your values allocated to Variable Account Value by the total number of expected payments. We determine the non-taxable portion of each fixed annuity payment with an “exclusion ratio” formula which establishes the ratio that the cost basis of your values allocated to Fixed Account Value bears to the total expected value of annuity payments for the term of the annuity. The remaining portion of each payment is taxable. Such taxable portion is taxed at ordinary income rates. For Qualified Certificates, the cost basis is generally zero.

With annuity payments based on life contingencies, the payments will become fully taxable once the payee lives longer than the life expectancy used to calculate the non-taxable portion of the prior payments, if any. Because variable annuity payments can increase over time and because certain payment options provide for a lump sum right of commutation, it is possible that the IRS could determine that variable annuity payments should not be taxed as described above but instead should be taxed as if they were received under an agreement to pay interest. This determination would result in a higher amount (up to 100%) of certain payments being taxable.

With respect to the “level monthly” payment option available under Annuity Option A, pursuant to which each annual payment is placed in our general account and paid out with interest in 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 Certificate’s remaining cost basis. Under this approach, a partial withdrawal of $10,000 when the present value is $150,000 and the remaining cost basis is $145,000 would result in taxable income of $5,000 being reported. Since private letter rulings do not bind the IRS, the IRS could take the position that the Code requires the full amount of the partial withdrawal ($10,000 in the example) to be treated as taxable income. Under either approach to determining the taxable income associated with a partial withdrawal, some taxpayers, such as those under age 59½, could be subject to additional tax penalties. Because of the potential for adverse tax results as described above, you should carefully consider, prior to making a partial withdrawal, your need for funds from the Certificate and the tax implications. You should also consult a qualified tax professional prior to making a partial withdrawal.

Penalty Tax. Payments received by you, Annuitants, and Designated Beneficiaries under Certificates may be subject to both ordinary income taxes and a penalty tax equal to 10% of the amount received that is includable in income. The penalty tax is not imposed on the following amounts received for Non-Qualified Certificates:

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

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

Federal Income Tax Withholding. We are required to withhold federal income taxes on taxable amounts paid under Certificates unless the recipient elects not to have withholding apply. We will notify recipients of their right to elect not to have withholding apply. See “Tax-Sheltered Annuities” (TSAs) for an alternative type of withholding that may apply to distributions from TSAs that are eligible for rollover to another TSA, an individual retirement annuity or account (IRA), a qualified trust or an eligible deferred compensation plan of a state or local government.

Section 1035 Exchanges. You may purchase a Non-Qualified Certificate with proceeds from the surrender of an existing annuity contract. Such a transaction may qualify as a tax-free exchange pursuant to Section 1035 of the Code. It is our understanding that in such an event:

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

Diversification Standards. The U.S. Secretary of the Treasury has issued regulations that set standards for diversification of the investments underlying variable annuity contracts (other than pension plan contracts). The Eligible Funds intend to meet the diversification requirements for the Certificate, as those requirements may change from time to time. If the diversification requirements are not satisfied, the Certificate will not be treated as an annuity contract. As a consequence, income earned on a Certificate would be taxable to you as ordinary income in the year in which diversification requirements were not satisfied, including previously non-taxable income earned in prior years.

The IRS has stated that satisfaction of the diversification requirements described above by itself does not prevent a contract owner from being treated as the owner of separate account assets under an “owner control” test.  If a contract owner is treated as the owner of separate account assets for tax purposes, the contract owner would be subject to taxation on the income and gains from the separate account assets. In published revenue rulings through 1982 and then again in 2003, the IRS has stated that a variable contract owner will be considered the owner of separate account assets if the owner possesses incidents of ownership such as the ability to exercise control over the investment of the assets.  In Revenue Ruling 2003-91, the IRS considered certain variable annuity and variable life insurance contracts and concluded that the owners of the variable contracts would not be considered the owners of the contracts’ underlying assets for federal income tax purposes.

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

Qualified Plans

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

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

Tax-Sheltered Annuities

Section 403(b) of the Code permits public school employees and employees of certain types of charitable, educational and scientific organizations specified in Section 501(c)(3) of the Code to purchase annuity contracts and, subject to certain contribution limitations, excludes the amount of purchase payments from gross income for tax purposes. However, such purchase payments may be subject to Social Security (FICA) taxes. This type of annuity contract is commonly referred to as a “Tax-Sheltered Annuity” (TSA).

Effective October 1, 2008, we no longer issued any new annuities under Section 403(b) of the Internal Revenue Code (so-called Section 403(b) annuities or tax-sheltered annuities, including Texas Optional Retirement Program annuities).  After December 31, 2008 , we no longer accepted any additional Purchase Payments to any previously issued TSAs.

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

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

The TSA regulations provide that TSA hardship withdrawals will be subject to the IRS rules applicable to hardship distributions from 401(k) plans.  Specifically, if you have not terminated your employment or reached age 59½, you may be able to withdraw a limited amount of monies if you have an immediate and heavy financial need and the withdrawal amount is necessary to satisfy such financial need.  An immediate and heavy financial need may arise only from:
 
l
deductible medical expenses incurred by you, your spouse, or your dependents;
l
payments of tuition and related educational fees for the next 12 months of post-secondary education for you, your spouse, or your dependents;
l
costs related to the purchase of your principal residence (not including mortgage payments);
l
payment necessary to prevent eviction from your principal residence or foreclosure of the mortgage on your principal residence;
l
payments for burial or funeral expenses for your parent, spouse, children, or dependents; or
l
expenses for the repair of damage to your principal residence that would qualify for the federal income tax casualty deduction.

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

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

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

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

Individual Retirement Annuities

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

Corporate Pension and Profit-Sharing Plans

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

Deferred Compensation Plans With Respect to Service for State and Local Governments

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

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

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

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

Annuity Purchases by Nonresident Aliens

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

VARIABLE ACCOUNT VOTING PRIVILEGES

In accordance with our view of present applicable law, we will vote the shares of the Eligible Funds held in the Variable Account at regular and special meetings of the shareholders of the Eligible Funds in accordance with instructions received from persons having the voting interest in the Variable Account. We will vote shares for which we have not received instructions in the same proportion as we vote shares for which we have received instructions.

However, if the Investment Company Act of 1940 or any regulation thereunder should be amended or if the present interpretation should change, and as a result we determine that we are permitted to vote the shares of the Eligible Funds in our own right, we may elect to do so.

You have the voting interest under a Certificate prior to the Income Date. The number of shares held in each Sub-account that are attributable to you is determined by dividing your Variable Account Value in each Sub-account by the net asset value of the applicable share of the Eligible Fund. The payee has the voting interest after the Income Date under an annuity payment option. The number of shares held in the Variable Account which are attributable to each payee is determined by dividing the reserve for the annuity payments by the net asset value of one share. During the annuity payment period, the votes attributable to a payee decrease as the reserves underlying the payments decrease.

We will determine the number of shares in which a person has a voting interest as of the date established by the respective Eligible Fund for determining shareholders eligible to vote at the meeting of the Eligible Fund. We will solicit voting instructions in writing prior to such meeting in accordance with the procedures established by the Eligible Fund.

Each person having a voting interest in the Variable Account will receive periodic reports relating to the Eligible Fund(s) in which he or she has an interest, proxy material and a form with which to give such voting instructions.

REPORTS TO OWNERS

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

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

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

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

SALES OF THE CERTIFICATES

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

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

The amount and timing of commissions we may pay to Selling Broker-Dealers may vary depending on the selling agreement but it not expected to be more than 6.00% of purchase payments, and 0.25% annually, based on the Certificate Value of those payments. We may pay or allow other promotional incentives or payments in the form of cash or other compensation to the extent permitted by FINRA rules and other applicable laws and regulations, and this compensation may be significant in amount.

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

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

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

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

We may sell Certificates with lower or no dealer compensation (1) to a person who is an officer, director, or employee of ours or an affiliate of ours or (2) to any Qualified Plan established for such a person. Such Certificates may be different from the Certificates sold to others in that (1) they are not subject to the deduction for the certificate maintenance charge, the asset-based distribution charge or the contingent deferred sales charge and (2) they have a mortality and expense risk charge of 0.35% per year.

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

Additionally, under an exchange program from an Old FA, we may offer to credit the initial purchase payment upon receipt with additional interest equal to 3% of the purchase payment. Interest credited represents an allowance for future deductions of the mortality and expense risk charge consistent with anticipated cost savings. Such interest will be allocated on a pro-rata basis to the Sub-accounts you select. You should consult a qualified tax professional on the tax consequences of receiving this additional interest. Please see “Right to Revoke” provision for information on the amount you would receive if you exercise that right.

Commissions may be waived or reduced in connection with certain transactions described in this prospectus. During 2006, 2007, and 2008, approximately $770,652, $746,860, and $524,137, respectively, in commissions were paid to but not retained by Clarendon in connection with the distribution of the Certificates.

LEGAL PROCEEDINGS

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

INQUIRIES BY CERTIFICATE OWNERS

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

TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION

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

 
 
 

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

Introduction

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

Fixed Account Values are subject to a market value adjustment. The adjustment may result in an increase or decrease in amounts transferred and amounts paid to you or other payees (including withdrawals, surrenders, death benefits, and amounts applied to purchase annuity payments). However, a market value adjustment will not reduce the interest rate applied to amounts you allocate to a Guarantee Period to less than 3% per year. Payments made from Fixed Account Values at the end of a Guarantee Period are not subject to the market value adjustment.

Any purchase payments you allocate to the Fixed Account option become part of our general account. Because of provisions in the securities laws, our general account, including the Fixed Account, is not subject to regulation under the Securities Act of 1933 or the Investment Company Act of 1940. The Securities and Exchange Commission has not reviewed the disclosure in the prospectus relating to the general account and the Fixed Account option.

Investments in the Fixed Account

We will allocate purchase payments to the Fixed Account according to your selection in the application. Your selection must specify the percentage of the purchase payment you want to allocate to each Guarantee Period. The percentage, if not zero, must be at least 5%. You may change the allocation percentages without any charges. You must make allocation changes in writing unless you have, in writing, authorized us to accept telephone allocation instructions. By authorizing us to accept telephone changes, you are agreeing to the conditions and procedures we establish from time to time. The current conditions and procedures are in Appendix B. We will notify you in advance of any changes.

Each Guarantee Period currently offered is available for initial and subsequent purchase payments and for transfers of Certificate Value. We currently offer Guarantee Periods of up to 7 years. We also currently offer a Guarantee Period of 1 year, which is only for use with the Dollar Cost Averaging Program. We may change at any time the number and/or length of Guarantee Periods we offer. You or your salesperson should call (800) 367-3653 for information on the Guarantee Periods that are currently offered. If we no longer offer a particular Guarantee Period, the existing Fixed Account Value in that Guarantee Period will remain until the end of the period. At that time, you must select a different Guarantee Period.

Capital Protection Plus

We offer a capital protection plus program. Under this program, we allocate part of your purchase payment to the Guarantee Period you select. Currently, you may select the 7-year Guarantee Period. Based on the length of the period and the period’s interest rate, we determine how much of your purchase payment must be allocated to the Guarantee Period so that, at the end of the Guarantee Period, the allocated amount plus interest will be equal to your total purchase payment. We will allocate the rest of your purchase payment to the Sub-account(s) of the Variable Account based on your allocation instructions. If you surrender or transfer any part of the Fixed Account Value before the end of the guarantee period, the value at the end of that period will not equal your original purchase payment amount.

For example, assume you choose the 7-year Guarantee Period and we receive your purchase payment of $10,000 when the interest rate for the Guarantee Period is 6.75% per year. We will allocate $6,331 to that Guarantee Period, because $6,331 will increase at that interest rate to $10,000 after seven years. The remaining $3,669 of the payment will be allocated to the Sub-account(s) you selected.

Fixed Account Value

Fixed Account Value is equal to:

l
all purchase payments allocated or amounts transferred to the Fixed Account plus the interest credited on those payments or amounts transferred; less
   
l
any prior partial withdrawals or transfers from the Fixed Account, including any applicable charges.


 
 
 

Interest Credits

We credit interest daily. The interest we credit is based on an annual compound interest rate. It is credited to purchase payments allocated to the Fixed Account at rates we declare for Guarantee Periods of one or more years from the month and day of allocation. Any rate we set will be at least 3% per year.

Our interest crediting method may result in each of your Guarantee Periods being subject to different rates. For purposes of this section, we treat Variable Account Value transferred to the Fixed Account and Fixed Account Value renewed for or transferred to another Guarantee Period as a purchase payment allocation.

Application of Market Value Adjustment

No market value adjustment applies to Guarantee Periods of fewer than three years.

A market value adjustment applies to any Fixed Account Value surrendered, withdrawn, transferred, or applied to an Annuity Option from a Guarantee Period of three years or more, unless:

l
the transaction occurs at the end of the Guarantee Period, or
   
l
the Certificate is surrendered within 90 days of the date of death of the first Covered Person to die.

We apply the market value adjustment before we deduct any applicable contingent deferred sales charges or taxes.

If a market value adjustment applies to a surrender or the application to an Annuity Option, we will add or deduct any positive or negative market value adjustment amount, respectively, to your Certificate Value.

If a market value adjustment applies to either a partial withdrawal or a transfer, we will add or deduct any positive or negative market value adjustment, respectively, to the partial withdrawal or transfer amount after we have deducted the requested withdrawal or transfer amount from the Fixed Account Value. This means that the net amount may be more or less than the amount requested.

Effect of Market Value Adjustment

A market value adjustment reflects the change in prevailing current interest rates since the beginning of a Guarantee Period. The market value adjustment may be positive or negative. Any negative adjustment may be limited in amount (see “Market Value Adjustment Factor” below).

Generally, if the treasury rate (see “Treasury Rates” below) for your Guarantee Period is lower than the treasury rate for a new Guarantee Period with a length equal to the time remaining in your Guarantee Period, the market value adjustment will result in a reduction of the amount surrendered, withdrawn, transferred, or applied to an Annuity Option.

On the other hand, if the treasury rate for your Guarantee Period is higher than the treasury rate for a new Guarantee Period with a length equal to the time remaining in your Guarantee Period, then the market value adjustment will result in an increase in the amount surrendered, withdrawn, transferred, or applied to an Annuity Option.

Market Value Adjustment Factor

We compute the market value adjustment for each of your Guarantee Periods by multiplying the applicable amount surrendered, withdrawn, transferred, or applied to an Annuity Option, by the market value adjustment factor. The market value adjustment factor is calculated as the larger of formulas (a) and (b):

(a) [(1+a)/(1+b)](n/12)  -  1

where:

“a” is the treasury rate for the initial number of years in your Guarantee Period;

“b” is the treasury rate for a period equal to the time remaining (rounded up to the next whole number of 12-month periods) to the expiration of your Guarantee Period; and

“n” is the number of complete Guarantee Period Months remaining before the expiration of your Guarantee Period.

(b) [(1.03)/(1+i)](y+d/#)  -  1

where:

“i”
is the guaranteed interest rate for your Guarantee Period;
   
“y”
is the number of complete 12-month periods that have elapsed in your guarantee period;
   
“d”
is the number of calendar days since the end of the last complete 12-month period in your Guarantee Period or, if “y” is zero, the number of calendar days since the start of your Guarantee Period; and
   
“#”
is the number of calendar days in the current 12-month period of your Guarantee Period, which is generally 365 days.

As stated above, the formula (b) amount will apply only if it is greater than the formula (a) amount. This will occur only when the formula (a) amount is negative and the formula (b) amount is a smaller negative number. Under these conditions, formula a’s full (normal) negative market value adjustment will be limited to the extent that adjustment would decrease your Guarantee Period’s Fixed Account Value below the following amount:

(i)
the amount allocated to your Guarantee Period; less
(ii)
any prior systematic or partial withdrawal amounts and amounts transferred; less
(iii)
interest on the above items (i) and (ii) credited annually at a rate of 3% per year.

Treasury Rates

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

To determine the “a” treasury rate, we use the weekly series first published on or after the most recent Determination Date that occurs on or before the Start Date for the Guarantee Period. If the Start Date is the same as the Determination Date or the date of publication, or any date in between, we instead use the weekly series first published after the prior Determination Date. To determine the “b” treasury rate, we use the weekly series first published on or after the most recent Determination Date which occurs on or before the date on which the market value adjustment factor is calculated. If the calculation date is the same as the Determination Date or the date of publication, or any date in between, we will instead use the weekly series first published after the prior Determination Date.

If the number of years and/or 12-month periods specified in “a” or “b” is not equal to a maturity in the Treasury Constant Maturity Series, we determine the treasury rate by straight line interpolation between the interest rates of the next highest and next lowest maturities.

If the Treasury Constant Maturity Series becomes unavailable, we will adopt a comparable constant maturity index. If such a comparable index is not available, we will replicate calculation of the Treasury Constant Maturity Series Index based on U.S. Treasury Security coupon rates.

End of a Guarantee Period

We will notify you in writing at least 30 days prior to the end of each of your Guarantee Periods. At the end of your Guarantee Period, we will automatically transfer your Guarantee Period’s Fixed Account Value to the Columbia Money Market Sub-account unless we have received:

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

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


 
 
 

Transfers of Fixed Account Value

You may transfer Fixed Account Value from one of your Guarantee Periods to another or to one or more Sub-accounts of the Variable Account subject to any applicable market value adjustment. If the Fixed Account Value represents multiple Guarantee Periods, your transfer request must specify from which values you want the transfer made.

The Certificate allows us to limit the number of transfers you may make in a specified time period. Currently, we generally limit Variable Account and Fixed Account transfers to one transfer every 30 days with a $2,000,000 per transfer dollar limit. See “Transfer of Variable Account Value” and “Limitations on Transfers”. These limitations will not apply to any transfer made at the end of a Guarantee Period. We will notify you prior to changing the current limitations.

You must request transfers in writing unless you have authorized us in writing to accept telephone transfer instructions from you or from a person acting on your behalf as an attorney-in-fact under a power of attorney. By authorizing us to accept telephone transfer instructions, you agree to the conditions and procedures we establish from time to time. The current conditions and procedures are in Appendix B. If you have authorized telephone transfers, you will be notified in advance of any changes. A person acting on your behalf as an attorney-in-fact under a power of attorney may request transfers in writing.

If we receive your transfer requests before 4:00 P.M. Eastern Time, which is the close of trading on the New York Stock Exchange, we will execute them at the close of business that day. Any written requests we receive later, we will execute at the close of the next business day.

If you transfer 100% of a Guarantee Period’s value and your current allocation for purchase payments includes that Guarantee Period, we will automatically change the allocation formula for future purchase payments unless you instruct otherwise. For example, if the allocation formula is 50% to the one-year Guarantee Period and 50% to Sub-account A and you transfer all Fixed Account Value to Sub-account A, we will change the allocation formula to 100% to Sub-account A.


 
 
 


APPENDIX B
Telephone Instructions

Telephone Transfers of Certificate Values

1. If there are Joint Certificate Owners, both must authorize us to accept telephone instructions but either Certificate Owner may give us telephone instructions.

2. All callers must identify themselves. We reserve the right to refuse to act upon any telephone instructions in cases where the caller has not sufficiently identified himself/herself to our satisfaction.

3. Neither we nor any person acting on our behalf shall be subject to any claim, loss, liability, cost or expense if we or such person acted in good faith upon a telephone instruction, including one that is unauthorized or fraudulent. However, we will employ reasonable procedures to confirm that a telephone instruction is genuine and, if we do not, we may be liable for losses due to an unauthorized or fraudulent instruction. You thus bear the risk that an unauthorized or fraudulent instruction we execute may cause your Certificate Value to be lower than it would be had we not executed the instruction.

4. We record all conversations with disclosure at the time of the call.

5. The application for the Certificate may allow you to create a power of attorney by authorizing another person to give telephone instructions. Unless prohibited by state law, we will treat such power as durable in nature and it shall not be affected by your subsequent incapacity, disability or incompetency. Either we or the authorized person may cease to honor the power by sending written notice to you at your last known address. Neither we nor any person acting on our behalf shall be subject to liability for any act executed in good faith reliance upon a power of attorney.

6. Telephone authorization shall continue in force until:

l
we receive your written revocation,
   
l
we discontinue the privilege, or
   
l
we receive written evidence that you have entered into a market timing or asset allocation agreement with an investment adviser or with a broker/dealer.

7. If we receive telephone transfer instructions at 800-367-3653 before the 4:00 P.M. Eastern Time close of trading on the New York Stock Exchange, they will be initiated that day based on the unit value prices calculated at the close of that day

8. You must make all transfers in accordance with the terms of the Certificate and current prospectus. If your transfer instructions are not in good order, we will not execute the transfer and will notify the caller within 48 hours.

9. If you transfer 100% of any Sub-account’s value and the allocation formula for purchase payments includes that Sub-account, then we will change the allocation formula for future purchase payments accordingly unless we receive telephone instructions to the contrary. For example, if the allocation formula is 50% to Sub-account A and 50% to Sub-account B and you transfer all of Sub-account A’s value to Sub-account B, we will change the allocation formula to 100% to Sub-account B unless you instruct us otherwise.

Telephone Changes to Purchase Payment Allocation Percentages

Numbers 1-6 above are applicable.




 
 
 



PART B


 
 
 

STATEMENT OF ADDITIONAL INFORMATION

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


This Statement of Additional Information (SAI) is not a prospectus but it relates to, and should be read in conjunction with, the Keyport Advisor variable annuity prospectus dated May 1, 2009. The SAI is incorporated by reference into the prospectus. The prospectus is available, at no charge, by writing Sun Life (U.S.) at P.O. Box 9133, Wellesley Hills, MA 02481 or by calling (800) 367-3653.


TABLE OF CONTENTS

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






The date of this statement of additional information is May 1, 2009.




KA2009.SAI


 
 
 

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

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

VARIABLE ANNUITY BENEFITS

Variable Annuity Payment Values

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

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

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

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

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

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

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

Re-Allocating Sub-account Payments

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

SAFEKEEPING OF ASSETS

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

PRINCIPAL UNDERWRITER

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The consolidated financial statements of Sun Life Assurance Company of Canada (U.S.) included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report, dated March 27, 2009, accompanying such financial statements expresses an unqualified opinion and includes an explanatory paragraph, referring to the Company changing its method of accounting for certain assets and liabilities to a fair value measurement approach as required by accounting guidance adopted on January 1, 2008, and changing its method of accounting for income taxes as required by accounting guidance adopted on January 1, 2007), and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.  Their office is located at 200 Berkeley Street, Boston, Massachusetts.

The financial statements of Keyport Variable Account A that are included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report, dated April 24, 2009, accompanying the financial statements expresses an unqualified opinion) and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

INVESTMENT PERFORMANCE

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

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

FINANCIAL STRENGTH AND CREDIT RATINGS

Financial strength and credit ratings risk is the risk of a downgrade by rating agencies of the Company’s financial strength and/or credit ratings.

Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under insurance policies. In recent months, the rating agencies have placed a negative outlook on the North American life insurance industry, as a result of the deterioration of global equity and credit markets. Three independent rating agencies have lowered the Company’s financial strength ratings. On March 6, 2009, Standard & Poor’s lowered the Company’s financial strength rating from AA+ (very strong) to AA (very strong). On February 27, 2009, A.M. Best lowered the Company’s financial strength rating from A++ (superior) to A+ (superior). On February 12, 2009, Moody’s lowered the Company’s financial strength rating from Aa2 (excellent) to Aa3 (excellent).

A material downgrade in the Company’s financial strength ratings may have an adverse effect on its financial condition and results of operations through loss of sales, higher levels of surrenders and withdrawals, higher reinsurance and may potentially require the Company to reduce prices for products and services to remain competitive.

FINANCIAL STATEMENTS

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


 
 
 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Sun Life Assurance Company of Canada (U.S.) and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2008.  Our audits also included the financial statement schedules listed in the Index at Item 15.  These financial statements and financial statement schedules are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sun Life Assurance Company of Canada (U.S.) and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for certain assets and liabilities to a fair value measurement approach as required by accounting guidance adopted on January 1, 2008, and changed its method of accounting for income taxes as required by accounting guidance adopted on January 1, 2007.



DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 27, 2009

 
 
 

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,

     
 
2008
    
 
2007
    
 
2006
                   
Revenues:
                  
Premiums and annuity considerations
  
$
122,733 
  
$
110,616 
  
$
59,192 
Net investment (loss) income (1)
    
(1,789,835)
    
1,098,592 
    
1,206,081 
Net derivative (loss) income (2)
    
(871,544)
    
(193,124)
    
9,089 
Net realized investment losses
    
(38,241)
    
(61,048)
    
(44,511)
Fee and other income
    
564,753 
    
479,904 
    
398,622 
Subordinated notes early redemption premium
    
- 
    
25,578 
    
- 
                   
Total revenues
    
(2,012,134)
    
1,460,518 
    
1,628,473 
                   
Benefits and expenses:
                  
Interest credited
    
561,626 
    
629,823 
    
633,405 
Interest expense
    
106,777 
    
101,532 
    
130,802 
Policyowner benefits
    
443,517 
    
229,485 
    
156,970 
Amortization of deferred policy acquisition costs and value
of business and customer renewals acquired (3)
    
 
(1,021,026)
    
 
189,121 
    
 
399,182 
Goodwill impairment
    
701,450 
    
- 
    
- 
Other operating expenses
    
289,346 
    
283,815 
    
231,434 
Partnership capital securities early redemption payment
    
- 
    
25,578 
    
- 
                   
Total benefits and expenses
    
1,081,690 
    
1,459,354 
    
1,551,793 
                   
(Loss) income before income tax benefit
    
(3,093,824)
    
1,164 
    
76,680 
                   
Income tax benefit:
                  
Federal
    
(858,989)
    
(24,289)
    
(1,717)
State
    
6 
    
431 
    
105 
Income tax benefit
    
(858,983)
    
(23,858)
    
(1,612)
                   
Net (loss) income
  
$
(2,234,841)
  
$
25,022 
  
$
78,292 

(1)
Net investment (loss) income includes a (decrease) increase in market value of trading fixed maturity securities of $(2,762.9) million, $(88.4) million and $15.2 million for the years ended December 31, 2008, 2007 and 2006, respectively.
(2)
Net derivative loss for the year ended December 31, 2008 includes $166.1 million of income related to the Company’s adoption of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurement,” which is further discussed in Note 5.
(3)
Amortization of deferred policy acquisition costs and value of business and customer renewals acquired for the year ended December 31, 2008 includes $3.2 million of expenses related to the Company’s adoption of SFAS No. 157, which is further discussed in Note 5.



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


 
 
 

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

ASSETS
December 31, 2008
  
December 31, 2007
Investments
          
Available-for-sale fixed maturities at fair value (amortized cost of
$782,861 and $11,848,397 in 2008 and 2007, respectively)
$
674,020 
  
$
11,503,230 
Trading fixed maturities at fair value (amortized cost of $14,909,429 and
$3,938,088 in 2008 and 2007, respectively)
  
11,762,146 
    
3,867,011 
Mortgage loans
  
2,083,003 
    
2,318,341 
Derivative instruments – receivable
  
727,103 
    
609,261 
Limited partnerships
  
78,289 
    
164,464 
Real estate
  
201,470 
    
201,777 
Policy loans
  
729,407 
    
712,633 
Other invested assets
  
211,431
    
568,676 
Cash and cash equivalents
  
1,624,149 
    
1,169,701 
Total investments and cash
  
18,091,018 
    
21,115,094 
           
Accrued investment income
  
282,564 
    
290,363 
Deferred policy acquisition costs
  
2,862,401 
    
1,603,397 
Value of business and customer renewals acquired
  
179,825 
    
51,806 
Net deferred tax asset
  
856,845 
    
15,945 
Goodwill
  
7,299 
    
708,829 
Receivable for investments sold
  
7,548 
    
3,482 
Reinsurance receivable
  
3,076,615 
    
2,709,249 
Other assets
  
222,840 
    
311,999 
Separate account assets
  
20,531,724 
    
24,996,603 
           
Total assets
$
46,118,679 
  
$
51,806,767 
           
LIABILITIES
          
           
Contractholder deposit funds and other policy liabilities
$
17,545,721 
  
$
18,262,569 
Future contract and policy benefits
  
1,014,688 
    
823,588 
Payable for investments purchased
  
363,513 
    
199,210 
Accrued expenses and taxes
  
118,671 
    
123,065 
Debt payable to affiliates
  
1,998,000 
    
1,945,000 
Reinsurance payable to affiliate
  
1,650,821 
    
1,691,884 
Derivative instruments – payable
  
1,494,341 
    
446,640 
Other liabilities
  
605,945 
    
888,061 
Separate account liabilities
  
20,531,724 
    
24,996,603 
           
Total liabilities
  
45,323,424
    
49,376,620 
           
Commitments and contingencies – Note 21
          
           
STOCKHOLDER’S EQUITY
          
           
Common stock, $1,000 par value – 10,000 shares authorized; 6,437 shares issued and outstanding in 2008 and 2007
  
6,437 
    
6,437
Additional paid-in capital
  
2,872,242 
    
2,146,436
Accumulated other comprehensive loss
  
(129,884)
    
(92,403)
(Accumulated deficit) Retained earnings
  
(1,953,540)
    
369,677 
           
Total stockholder’s equity
  
795,255 
    
2,430,147 
           
Total liabilities and stockholder’s equity
$
46,118,679 
  
$
51,806,767 


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,


   
 
2008
    
 
2007
    
 
2006
                 
Net (loss) income
$
(2,234,841)
  
$
25,022 
  
$
78,292 
                 
Other comprehensive loss:
                
Change in unrealized losses on available-for-sale
securities, net of tax and policyholder amounts (1)
  
(84,234)
    
(119,775)
    
(46,229)
Change in pension and other postretirement plan
adjustments, net of tax (2)
  
(66,998)
    
11,197 
    
1,842 
Reclassification adjustments of net realized investment
losses into net (loss) income (3)
  
25,718 
    
2,145 
    
40,673 
Other comprehensive loss
  
(125,514)
    
(106,433)
    
(3,714)
                 
Comprehensive (loss) income
$
(2,360,355)
  
$
(81,411) 
  
$
74,578 

(1)  
Net of tax benefit of $ 45.4 million, $64.7 million and $25.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.
(2)  
Net of tax benefit (expense) of $36.1 million, $(6.0) million and $(0.2) million for the years ended December 31, 2008, 2007 and 2006, respectively.
(3)  
Net of tax expense of $13.8 million, $1.2 million and $21.9 million for the years ended December 31, 2008, 2007 and 2006, respectively.






















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



 
 
 

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

 
Common
Stock
  
Additional
Paid-In
Capital
  
Accumulated
Other
Comprehensive
Income (Loss)
  
(Accumulated
Deficit)
Retained
Earnings
  
Total
Stockholder’s
Equity
                             
Balance at December 31, 2005
$
6,437
  
$
2,138,880
  
$
19,260 
  
$
561,187 
  
$
2,725,764 
                             
Adjustment to initially apply SFAS
No. 158, net of tax
  
-
    
-
    
(1,516)
    
-
    
(1,516)
Net income
  
-
    
-
          
78,292 
    
78,292 
Dividends
  
-
    
-
    
-  
    
(300,000)
    
(300,000)
Tax benefit from stock options
  
-
    
4,528
    
-  
    
- 
    
4,528 
Other comprehensive loss
  
-
    
-
    
(3,714) 
    
- 
    
(3,714)
                             
Balance at December 31, 2006
  
6,437
    
2,143,408
    
14,030 
    
339,479 
    
2,503,354 
                             
Cumulative effect of accounting
changes related to the adoption of
FASB Interpretation No. 48, net of
tax
  
-
    
-
    
-  
    
5,176 
    
5,176 
Net income
  
-
    
-
    
-  
    
25,022 
    
25,022 
Tax benefit from stock options
  
-
    
3,028
    
-  
    
- 
    
3,028 
Other comprehensive loss
  
-
    
-
    
(106,433)
    
- 
    
(106,433)
                             
Balance at December 31, 2007
  
6,437
    
2,146,436
    
(92,403)
    
369,677 
    
2,430,147 
                             
Cumulative effect of accounting
changes related to the adoption of
SFAS Nos.158 and 159, net of tax
  
-
    
-
    
88,033 
    
(88,376 
    
(343)
Net loss
  
-
    
-
    
-  
    
(2,234,841)
    
(2,234,841)
Tax benefit from stock options
  
-
    
806
    
-  
    
- 
    
806 
Capital contribution from Parent
  
-
    
725,000
    
-  
    
- 
    
725,000 
Other comprehensive loss
  
-
    
-
    
(125,514)
    
- 
    
(125,514)
                             
Balance at December 31, 2008
$
6,437
  
$
2,872,242
  
$
(129,884)
  
$
(1,953,540)
  
$
795,255















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,

   
 
2008
    
 
2007
    
 
2006
                 
Cash Flows From Operating Activities:
                
Net (loss) income
$
(2,234,841)
  
$
25,022 
  
$
78,292 
Adjustments to reconcile net income to net cash
provided by operating activities:
                
Net amortization of premiums on investments
  
28,371 
    
40,668 
    
58,752 
Amortization of deferred policy acquisition costs and
value of business and customer renewals acquired
  
(1,021,026)
    
189,121 
    
399,182 
Depreciation and amortization
  
6,711 
    
7,460 
    
4,608 
Net losses (gains) on derivatives
  
812,717 
    
131,503 
    
(11,853)
Net realized losses on available-for-sale investments
  
38,241 
    
61,048 
    
44,511 
Changes in fair value of trading investments
  
2,762,893 
    
88,398 
    
(15,235)
Net realized losses (gains) on trading investments
  
380,969 
    
(4,655)
    
(373)
Undistributed income on private equity limited
partnerships
  
(9,796)
    
(23,027)
    
(29,120)
Interest credited to contractholder deposits
  
561,626 
    
629,823 
    
633,405 
Goodwill impairment
  
701,450 
    
-
    
- 
Deferred federal income taxes
  
(773,143)
    
43,366 
    
4,180 
Changes in assets and liabilities:
                
Additions to deferred policy acquisition costs and value
of business and customer renewals acquired
  
(365,686)
    
(379,941)
    
(262,895)
Accrued investment income
  
7,799 
    
855 
    
(29,711)
Net change in reinsurance receivable/payable
  
(260,860)
    
33,161 
    
77,063 
Future contract and policy benefits
  
191,024 
    
66,550 
    
(6,619)
Other, net
  
253,160 
    
(134,356)
    
14,268 
Net cash provided by operating activities
  
1,079,609 
    
774,996 
    
958,455
                 
Cash Flows From Investing Activities:
                
Sales, maturities and repayments of:
                
Available-for-sale fixed maturities
  
101,757 
    
4,252,780 
    
5,872,190
Trading fixed maturities
  
1,808,498 
    
728,633 
    
2,172,797
Mortgage loans
  
294,610 
    
355,146 
    
248,264
Real estate
  
1,141 
    
- 
    
- 
Other invested assets
  
692,157 
    
667,683 
    
184,646
Redemption of subordinated note from affiliates
  
- 
    
600,000 
    
- 
Purchases of:
                
Available-for-sale fixed maturities
  
(129,474)
    
(2,557,841)
    
(4,002,244)
Trading fixed maturities
  
(2,175,143)
    
(829,469)
    
(4,038,950)
Mortgage loans
  
(58,935)
    
(399,566)
    
(780,592)
Real estate
  
(5,414)
    
(19,439)
    
(20,619)
Other invested assets
  
(122,447)
    
(57,864)
    
(489,493)
Early redemption premium
  
- 
    
25,578 
    
- 
Net change in other investments
  
(349,964)
    
(361,781)
    
399,514 
Net change in policy loans
  
(16,774)
    
(3,007)
    
(7,857)
                 
Net cash provided by (used in) investing activities
$
40,012 
  
$
2,400,853 
  
$
(462,344) 

Continued on next page

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

 
 
 

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

   
 
2008
    
 
2007
    
 
2006
                 
Cash Flows From Financing Activities:
                
Additions to contractholder deposit funds
$
2,190,099 
  
$
1,924,784 
  
$
3,520,138 
Withdrawals from contractholder deposit funds
  
(3,616,458)
    
(4,533,405)
    
(3,690,351)
Repayments of debt
  
(122,000)
    
(980,000)
    
- 
Debt proceeds
  
175,000 
    
1,000,000 
    
200,000 
Dividends paid to stockholder
  
- 
    
- 
    
(300,000)
Capital contribution from Parent
  
725,000 
    
- 
    
- 
Early redemption payment
  
- 
    
(25,578)
    
- 
Other, net
  
(16,814)
    
29,971 
    
4,528 
Net cash used in financing activities
  
(665,173)
    
(2,584,228)
    
(265,685)
                 
Net change in cash and cash equivalents
  
454,448 
    
591,621 
    
230,426 
                 
Cash and cash equivalents, beginning of year
  
1,169,701 
    
578,080 
    
347,654 
                 
Cash and cash equivalents, end of year
$
1,624,149 
  
$
1,169,701 
  
$
578,080 
                 
Supplemental Cash Flow Information
                
Interest paid
$
109,532 
  
$
73,116 
  
$
130,686 
Income taxes (refunded) paid
$
(113,194)
  
$
(16,281)
  
$
22,724 

Supplemental Schedule of non-cash investing and financing activities

Effective November 8, 2007, the Company’s subsidiary, Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”), entered into a reinsurance agreement with Sun Life Assurance Company of Canada (“SLOC”), the Company’s affiliate, under which Sun Life Vermont assumed the risks of certain individual universal life insurance contracts issued and to be issued by SLOC.  This agreement is described more fully in Note 1 and Note 9.  As part of the transaction, the Sun Life Vermont assumed $553.7 million of contractholder deposits, future contract and policy benefits of $20.4 million, funds withheld asset of $551.8 million, and a deferred loss of $22.3 million, all of which are considered non-cash items for purposes of the Company’s consolidated statement of cash flows.

The Company did not pay any dividends to its direct parent in 2008 and 2007, respectively.  The Company declared and paid to its direct parent, Sun Life of Canada (U.S.) Holdings, Inc., cash dividends of $300.0 million in 2006.













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, 2008, 2007 and 2006

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

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

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

BASIS OF PRESENTATION

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

The consolidated financial statements include the accounts of the Company and its subsidiaries.  As of December 31, 2008, the Company directly or indirectly owned all of the outstanding shares or members interest of SLNY, which issues individual fixed and variable annuity contracts, group life, group disability, group dental and stop loss insurance, and individual life insurance in New York; Independence Life and Annuity Company (“INDY”), a Rhode Island life insurance company that sold variable and whole life insurance products; Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”), a Vermont special purpose financial captive insurance company; Clarendon Insurance Agency, Inc., a registered broker-dealer; SLF Private Placement Investment Company I, LLC; Sun Parkaire Landing LLC; 7101 France Avenue Manager, LLC; Sun MetroNorth, LLC; and SLNY Private Placement Investment Company I, LLC.

On September 6, 2006 the Company entered into an agreement with Credit and Repackaged Securities Limited Series 2006-10 Trust (the “CARS Trust”).  Through this agreement, the Company purchased a funded note, which is referenced through a credit default swap to the credit performance of a portfolio of corporate reference entities.  The Company entered into this credit structure for yield enhancement.  As the sole beneficiary of the CARS Trust, the Company is required to consolidate this trust under the requirements of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (Revised December 2003)” (“FIN 46(R)”).  As a result of the consolidation, the Company has recorded in its balance sheet a credit default swap held by the CARS Trust.   At issue, the swap had a seven year term, maturing in 2013.  Under the terms of the swap, the CARS Trust will be required to make payments to the swap counterparty upon the occurrence of a credit event, with respect to any reference entity, that is in excess of the threshold amount specified in the swap agreement.  At December 31, 2008, the CARS Trust has not had to make any payments under the terms of the swap as the sum of all credit events has not exceeded the threshold amount.  At December 31, 2008 the fair value of the credit default swap is $(42.1) million.  Under the terms of the credit derivative, the maximum future payments the CARS Trust could be required to make is $55.0 million.  In the event the trust was required to make any payments under the swap, the underlying assets held by the trust would be liquidated to fund the payment.  If the disposition of these assets is insufficient to fund the payment calculated, then under the terms of the agreement, the cash settlement amount would be capped at the amount of the proceeds from the sale of the underlying assets.  As of December 31, 2008, the fair value of the assets held as collateral by the CARS Trust was $42.3 million.

The Company had a greater than or equal to 20%, but less than 50%, interest in seven variable interest entities (“VIEs”) at December 31, 2008.  The Company is a creditor in four trusts and three limited liability companies that were used to finance commercial mortgages and franchise 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 $36.5 million and $88.4 million at December 31, 2008 and 2007, respectively.  The investments in these VIEs mature between January 2008 and October 2024.  As the Company will not absorb a majority of the VIEs’ expected losses or receive a majority of the expected returns, the Company is not required to consolidate these VIEs, in accordance with FIN 46(R).  See Note 4 for information with respect to leveraged leases.

 
 
 

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, 2008, 2007 and 2006

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

BASIS OF PRESENTATION (CONTINUED)

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

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

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

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The most significant estimates are those used in determining the fair value of financial instruments, goodwill, deferred policy acquisition costs (“DAC”), value of business acquired (“VOBA”), value of customer renewals acquired (“VOCRA”), liabilities for future contract and policyholder benefits, other-than-temporary impairments of investments and valuation allowance on deferred tax assets.  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 equivalents, fixed maturity securities, mortgage loans, equity securities, derivative financial instruments, debt, loan commitments and financial guarantees.  These instruments involve credit risk and also may be subject to risk of loss due to interest rate fluctuation.  The Company evaluates and monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents primarily include cash, commercial paper and money market investments.  All such investments have maturities of three months or less when purchased.

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 as either held-to-maturity, trading or available-for-sale.  In order for a security to be classified as held-to-maturity, the Company must have positive intent and ability to hold the security to maturity.  Securities held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts.  Securities which the Company has elected to measure at fair value under SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” are classified as trading securities.  Although classified as trading securities, the Company’s intent is to not sell these securities in the near term.  Trading securities are carried at aggregate fair value with changes in market value reported as a component of net investment income.  Securities that do not meet the held-to-maturity or trading criterion are classified as available-for-sale.  Included with available-for-sale fixed maturity securities are forward purchase commitments on mortgage backed securities better known as To Be Announced (“TBA”) securities.  The Company records TBA purchases on the trade date and the corresponding payable is recorded as an outstanding liability in payable for investments purchased until the settlement date of the transaction.  Available-for-sale securities, that are not considered other-than-temporarily impaired, are carried at fair value with the unrealized gains or losses reported in other comprehensive income.



 
 
 

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, 2008, 2007 and 2006

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

INVESTMENTS (continued)

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

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

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

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

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

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 anticipates that it will be unable to recover all amounts due under the contractual obligations of the security.  Additionally, in the event that securities that are expected to be sold before the fair value of the security recovers to amortized cost, an other-than-temporary impairment charge is also taken.


 
 
 

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, 2008, 2007 and 2006

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

INVESTMENTS (continued)

Some structured securities, typically those rated single A or below, are subject to Emerging Issues Task Force Issue No.  99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continued to Be Held by a Transferor in Securitized Financial Assets” (“EITF 99-20”).  EITF 99-20 requires the Company to periodically update its best estimate of cash flows over the life of the security.  In the event that the present value of the estimated cash flows is less than amortized cost, an other-than-temporary impairment charge is recorded.  Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral.

Other-than-temporary impairments are classified as either credit-related or interest-related.  The Company categorizes other-than-temporary impairments as credit-related if there are current fundamental credit concerns regarding the issuers’ ability to pay all principal and interest amounts due, according to the contractual terms of the security or if the decline in fair value of the security is driven by issuer-specific credit events.  The Company characterizes impairments as interest-related if the depression in fair value of the security was due primarily to changes in interest or general credit spread widening and for which the Company has determined it no longer has the intent or ability to hold a security until recovery to amortized cost.  Once an other-than-temporary impairment charge has been recorded, the Company continues to review the other-than-temporarily impaired securities for additional impairment.  The net realized loss from other-than-temporary impairments is recorded in the income statement as the difference between the fair value and the amortized cost of the security.

The Company incurred realized losses totaling $41.9 million and $68.1 million for the years ended December 31, 2008 and 2007, respectively, for other-than-temporary impairments on its available-for-sale fixed maturity securities.  The entire balance of $41.9 million realized losses for other-than-temporary impairments for the year ended December 31, 2008 were credit-related.  Of the $68.1 million realized losses for other-than-temporary impairments for the year ended December 31, 2007, $52.0 million was credit-related and $16.1 million was interest-related.

The Company discontinues the accrual of income on its holdings for issuers that are in default.  Investment income would have increased by $4.6 million for the year ended December 31, 2008, if these holdings were performing.  Accrued income was not materially impacted by the termination of accrual accounting on these holdings for the year ended December 31, 2007. As of December 31, 2008, the fair market value of holdings for issuers in default was $17.9 million.  As of December 31, 2007, the Company did not have any holding for issuers that were in default.


 
 
 

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, 2008, 2007 and 2006

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

INVESTMENTS (CONTINUED)

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 property’s value at the time that the original loan is made.  The Company assesses the value of the collateral annually.

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 lower of the present value of expected future cash flows discounted at the loan's effective interest rate or on the loan's observable market price. For the year ended December 31, 2008, the Company incurred realized losses of $3.0 million for impairments on mortgage loans.  A specific valuation allowance is established if the fair value of the impaired loan is less than the recorded amount.  The Company did not incur losses for impairments on mortgage loans for the year ended December 31, 2007.  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 calculating the valuation allowance.

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

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

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

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

Realized gains and losses on the sales of investments are recognized in operations at the date of sale and are determined using the average cost method.  When an impairment of a specific available-for-sale 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 position, after giving consideration to economic and business conditions and collection efforts, is such that collection of principal and interest is doubtful.  When an investment is placed in non-accrual status, all interest accrued is reversed against current period interest income.  Interest accruals are resumed on such investments only when the investments have performed on a sustained basis for a reasonable period of time and when, in the judgment of management, the investments are estimated to be fully collectible as to both principal and interest.

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

 
 
 

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, 2008, 2007 and 2006

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

DEFERRED POLICY ACQUISITION COSTS

Acquisition costs consist of commissions, underwriting and other costs that vary with and are primarily related to the production of new business.  Acquisition costs related to investment-type contracts, primarily deferred annuity, universal life and guaranteed investment contracts (“GICs”) are deferred and amortized with interest 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 and unrealized investment gains and losses, life and variable annuity fees, surrender charges, interest credited, policyholder benefits and direct variable administrative expenses.

Estimating future gross profit is a complex process requiring considerable judgment and the forecasting of events into the future based on historical information and actuarial assumptions.  These assumptions are subject to an annual review process.  Changes in any of the assumptions that serve to increase or decrease the estimated future gross profits will cause the amortization of DAC to decrease or increase, respectively, in the current period.  During 2008 and 2007, changes in estimated future gross profits were driven by recent experience and expectations of future performance and are related mainly to changes in lapse assumptions, future growth rates of capital markets assumptions, and expense assumptions.

DAC amortization is reviewed regularly and adjusted retrospectively when the Company calculates the actual profits or losses and revises its estimate of future gross profits to be realized from investment-type contracts, including realized and unrealized gains and losses from investments.

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

Prior to the Company’s adoption of SFAS No. 159 on January 1, 2008, DAC was adjusted for amounts relating to the change in unrealized investment gains and losses on available-for-sale fixed maturity securities that supported policyholder liabilities.  This adjustment, net of tax, was included with the change in net unrealized investment gains or losses that were recorded in accumulated other comprehensive loss.  Due to the adoption of SFAS No. 159, the net change in the market value of the securities supporting policyholder liabilities is recorded in the statement of operations in 2008, versus accumulated other comprehensive income in prior years. Accordingly, the effect of such market value changes on DAC is recorded in the statement of operations in 2008.

VALUE OF BUSINESS AND CUSTOMER RENEWALS 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 or premium income over the estimated life of the purchased block of business.

VOCRA represents the actuarially determined present value of projected future profits arising from the existing in-force business at the date of acquisition to the next policy renewal date.  This amount is amortized in proportion to the projected premium income over the period from the first renewal date to the end of the projected life of the policies.

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


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

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

GOODWILL

Goodwill represents the difference between the purchase price paid and the fair value of the net assets acquired in connection with the Company’s acquisition of Keyport Life Insurance Company (“Keyport”) on November 1, 2001 and the transfer of goodwill to SLNY based on a series of agreements between SLNY and Sun Life and Health Insurance Company (U.S.) (“SLHIC”), an affiliate, effective May 31, 2007.  Goodwill obtained in connection with the purchase of Keyport is allocated to the Wealth Management Segment.  Goodwill obtained through the agreement between SLHIC and SLNY is allocated to the Group Protection Segment in the Company’s subsidiary, SLNY.

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill 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 2008 and concluded that these assets were not impaired.   Due to market declines in the fourth quarter of 2008, the Company performed additional analyses of goodwill and indefinite-lived intangible assets and concluded that the goodwill obtained in connection with the purchase of Keyport was impaired.  An estimate of the fair value of the reporting unit was calculated, based on an actuarial appraisal of the embedded value of the reporting unit.  This fair value was then allocated among the reporting unit’s tangible and intangible assets and its liabilities to determine the implied fair value of goodwill.  As a result, the Company recorded an impairment charge of $701.5 million in the fourth quarter, which represents the entire balance of goodwill obtained in connection with the purchase of Keyport.  The impairment charge is allocated to the Wealth Management Segment.

The Company also tested the goodwill maintained in the Group Protection Segment and concluded that it is not impaired at December 31, 2008.

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.  Depreciation and amortization expenses were $1.3 million and $2.5 million for years ended December 31, 2008 and 2007, respectively.

Amortization of leasehold improvements is calculated using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements.  Intangible assets are also included in other assets.

Intangible assets, which are recorded in other assets, consist of state insurance licenses that are not subject to amortization, product rights that have a weighted-average useful life of 7 years, and the value of distribution, which was transferred to SLNY from SLHIC.  The value of distribution represents the present value of projected future profits arising from sales of new business by brokers with whom SLHIC had an existing distribution relationship contract.  This amount is amortized on a straight-line basis over 25 years, representing the period over which the Company expects to earn premiums from new sales stemming from the added distribution capacity.

POLICY LIABILITIES AND ACCRUALS

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


 
 
 


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, 2008, 2007 and 2006

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

POLICY LIABILITIES AND ACCRUALS (continued)

Policy reserves for annuity contracts include liabilities held for group pension and payout annuity payments and liabilities held for product guarantees on variable annuity products, such as guaranteed minimum death benefits.  Reserves for pension and payout annuity contracts are calculated using the best-estimate interest and decrement assumptions that were set at the time that loss recognition testing resulted in additional reserves.  The Company periodically reviews its policies for loss recognition based upon management’s best estimates.  From time to time the Company may recognize a loss on certain lines of business.  For the year ended December 31, 2007, additional reserves of $31.4 million were recorded as a reduction to income and additional reserves of $7.5 million were recorded as a component of other comprehensive loss. The Company did not record any adjustment to reserves related to loss recognition for the year ended December 31, 2008.

Reserves for guaranteed minimum death benefits and guaranteed minimum income benefits are calculated according to the methodology of American Institute of Certified Public Accountants (“AICPA”) Statement of Position  (“SOP”) 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts,” whereby the expected benefits provided by the guarantees are spread over the duration of the contract in proportion to the benefit assessments.

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

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

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

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


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

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

REVENUE AND EXPENSES

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

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

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

INCOME TAXES

The Company accounts for current and deferred income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” and recognizes reserves for income taxes in accordance with FASB Interpretation Number (“FIN”) 48, “Accounting for Uncertainty in Income Taxes.”

Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company’s differences between the bases of assets and liabilities used for financial statement versus tax reporting primarily result from policy reserves, policy acquisition expenses and unrealized gains and losses on investments.

Also as prescribed by SFAS No. 109, the Company performs the required recoverability test in terms of its ability to realize its recorded net deferred tax assets.  In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.  Using this available evidence, the Company performs an assessment of the future recoverability of its net deferred tax assets and records a valuation allowance in instances when it is not more likely than not that the deferred tax assets will be realized.

For the years ended December 31, 2008, 2007 and 2006, the Company participated in a consolidated federal income tax return with the Parent and other affiliates. For the year ended December 31, 2008, the Company and its subsidiaries were part of the consolidated federal income tax return.  For the year ended December 31, 2007, INDY and Sun Life Vermont were included as part of the consolidated federal income tax return, but SLNY filed stand-alone federal income tax returns.  For the year ended December 31, 2006, the Company’s subsidiaries INDY and SLNY filed stand-alone federal income tax returns.


 
 
 

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, 2008, 2007 and 2006

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

SEPARATE ACCOUNTS

The Company has established separate accounts applicable to various classes of contracts providing variable benefits.  Contracts for which funds are invested in separate accounts include variable life insurance and individual and group qualified and non-qualified variable annuity contracts.  Investment income and changes in mutual fund asset values are allocated to policyholders and therefore do not affect the operating results of the Company.  Assets held in the separate accounts are carried at fair value and the investment risk of such securities is retained by the contractholder.  The Company earns separate account fees for providing administrative services and bearing the mortality risks related to these contracts.  The activity of the separate accounts is not reflected in the consolidated financial statements except for:  (1) the fees the Company receives, which are assessed periodically and recognized as revenue when assessed; and (2) the activity related to the guaranteed minimum death benefit (“GMDB”), guaranteed minimum income benefit (“GMIB”), guaranteed minimum accumulation benefit (“GMAB”) and guaranteed minimum withdrawal benefit (“GMWB”) which is reflected in the Company’s consolidated financial statements and accompanying notes.

ACCOUNTING PRONOUNCEMENTS

New and Adopted Accounting Pronouncements

In January 2009, the FASB issued FASB Staff Position (“FSP”) No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20.”  FSP No. EITF 99-20-1 amends EITF 99-20 to achieve more consistent determination of whether an other-than-temporary impairment has occurred.  This guidance also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements.  FSP No. EITF 99-20-1 is effective for all interim and annual reporting periods after December 15, 2008.  The Company adopted FSP No. EITF 99-20-1 on December 31, 2008 and the adoption did not have a material impact on the Company's financial position or results of operations.

In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.”  This FSP amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to require public entities to provide additional disclosures about transfers of financial assets.  It also amends FIN 46(R) to require public enterprises to provide additional disclosures about their involvement with VIEs.  The disclosures required by FSP No. FAS 140-4 and FIN 46(R)-8 are intended to provide greater transparency to financial statement users about a transferor's continuing involvement with transferred financial assets and an enterprise's involvement with VIEs.  FSP No. FAS 140-1 and FIN 46(R)-8 is effective for all interim and annual reporting periods after December 15, 2008.  The Company adopted the FSP on December 31, 2008.  The FSP only requires additional disclosure and had no effect on the Company's consolidated financial position or results of operations. The new disclosure is included previously in Note 1.

In September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An amendment of FASB Statement No. 133 and FASB Interpretation No. 45.”  FSP No. FAS 133-1 and FIN 45-4 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” to require additional disclosures by sellers of credit derivatives, including derivatives embedded in a hybrid instrument.  This FSP also amends FIN No. 45, “Guarantor’s Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others” to require an additional disclosure about the current status of the payment/performance risk of a guarantee.  FSP No. FAS 133-1 and FIN 45-4 is effective for all interim and annual reporting periods after November 15, 2008.  The Company adopted the FSP on December 31, 2008.  The FSP only requires additional disclosures about credit derivatives and guarantees and had no effect on the Company's consolidated financial position or results of operations.  The new disclosure is included previously in Note 1.

In February 2007, the FASB issued SFAS No. 159 which permits entities to choose to measure many financial instruments and certain other items at fair value (the “FV option”).  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.



 
 
 

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, 2008, 2007 and 2006

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

New and Adopted Accounting Pronouncements (continued)

SFAS No. 159 was adopted by the Company on January 1, 2008, and the FV option was elected for all available-for-sale fixed maturity securities attributable to certain life, health and annuity products.  At December 31, 2007, such available-for-sale securities had a market value of $10.7 billion and an amortized cost of $11.1 billion, and are now classified as trading securities.  The adoption of the FV option does not relieve the Company from its obligation to monitor those available-for-sale securities that were in an unrealized loss position at December 31, 2007, which the Company does through its current portfolio monitoring process.

The FV option adoption resulted in a cumulative-effect adjustment to the Company’s December 31, 2007, balance of retained earnings and accumulated other comprehensive income of $88.4 million related to the unrealized loss on investments, net of DAC, VOBA, policyholder liabilities, and tax effects.  See Note 5 for further disclosure related to the adoption of SFAS No. 159.

In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a framework for measuring fair value under GAAP, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and expands disclosures about fair value measurements.  SFAS No. 157 does not change existing guidance as to whether or not an instrument is carried at fair value.

SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants.  The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (i.e., Level 1, 2 and 3).  Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.  Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities.  Level 3 inputs are unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability.  SFAS No. 157 requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model, if market participants would also include such an adjustment.  Quantitative and qualitative disclosures will focus on the inputs used to measure fair value for both recurring and non-recurring fair value measurements and the effects of the measurements in the financial statements.

The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007, and are to be applied prospectively.  Effective January 1, 2008, the Company adopted SFAS No. 157 and applied the provisions of the statement prospectively to assets and liabilities measured and disclosed at fair value.

In October 2008, the FASB issued FSP No. SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”.  FSP No. SFAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in the determination of the fair value of a financial asset when the market for that asset is not active.  FSP No. SFAS 157-3 was effective upon issuance and did not have an impact on the Company’s consolidated financial statements.

See Note 5 for further disclosure related to the adoption of SFAS No. 157.



 
 
 

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, 2008, 2007 and 2006

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

New and Adopted Accounting Pronouncements (continued)

In September 2006, the FASB issued SFAS No. 158, “Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans,” which amends SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers' Accounting for Postretirement Benefits Other Than Pensions,” to require recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet.  Under SFAS No. 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS No. 87 and SFAS No. 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost.  The measurement date is required to be the company's fiscal year end.  SFAS No. 158 is effective for publicly-held companies for fiscal years ending after December 15, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008.  The Company adopted the balance sheet recognition provisions of SFAS No. 158 at December 31, 2006 and adopted the year-end measurement date provisions effective January 1, 2008.  The adoption of the year-end measurement date provisions resulted in a net of tax cumulative-effect decrease of $0.3 million to the Company’s December 31, 2007 accumulated other comprehensive income.

In June 2006, the FASB issued FIN 48, which became effective for fiscal years beginning after December 15, 2006.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Company adopted FIN 48 on January 1, 2007, and recognized a decrease of $5.2 million in the liability for unrecognized tax benefits (“UTBs”) and related net interest, and an offsetting increase in its January 1, 2007 balance of retained earnings.  The Company elected on a prospective basis, with the adoption of FIN 48, to recognize interest and penalties accrued related to UTBs in interest expense.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140.”  SFAS No. 156 requires all separately recognized servicing assets and liabilities to be initially measured at fair value and permits entities to choose to either subsequently measure servicing rights at fair value and report changes in fair value in earnings, or amortize servicing rights in proportion to, and over, the estimated net servicing income or loss, and assess the rights for impairment or the need for an increased obligation.  The option to subsequently measure servicing rights at fair value allows entities which utilize derivative instruments to hedge their servicing rights to account for such hedging relationships at fair value and avoid the complications of hedge accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  SFAS No. 156 was effective for fiscal years beginning after September 15, 2006.  The adoption of this statement did not have a material impact on the Company’s financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140.”  This statement amended SFAS No. 133 and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125,” and resolved issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.”  The Company began applying SFAS No. 155 to all financial instruments acquired, issued or subject to a remeasurement event beginning January 1, 2007.  The adoption of this statement did not have a material impact on the Company’s financial position or results of operations.

In September 2005, the AICPA issued SOP 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts”.  SOP 05-1 provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts.  The adoption of SOP 05-1 on January 1, 2007 did not have a material impact on the Company’s consolidated financial position and results of operations.


 
 
 

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, 2008, 2007 and 2006

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

Accounting Standards Not Yet Adopted

In December of 2008, the FASB issued FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets”, which amends Statement 132(R) to require more detailed disclosure about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets.  This FSP is effective for fiscal years ending after December 15, 2009.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60.”  The scope of SFAS No. 163 is limited to financial guarantee insurance (and reinsurance) contracts issued by enterprises that are included within the scope of SFAS No. 60, “Accounting and Reporting by Insurance Enterprises,” and that are not accounted for as derivative instruments.  SFAS No. 163 excludes from its scope insurance contracts that are similar to financial guarantee insurance, such as mortgage guaranty insurance and credit insurance on trade receivables.  SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for certain disclosures about the insurance enterprise’s risk management activities.  Except for certain disclosures, earlier application is not permitted.  The Company does not have any contracts with guarantees within the scope of this standard.  The Company’s adoption of SFAS No. 163 on January 1, 2009 will have no impact on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.”  This statement amends and expands disclosures about an entity’s derivative and hedging activities with the intent to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  SFAS No. 161 encourages, but does not require, comparative disclosures.  The Company will adopt SFAS No. 161 on January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.”  This statement amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”). Noncontrolling interest refers to the minority interest portion of the equity of a subsidiary that is not attributable directly or indirectly to a parent. SFAS No. 160 establishes accounting and reporting standards that require for-profit entities that prepare consolidated financial statements to (a) present noncontrolling interests as a component of equity, separate from the parent’s equity, (b) separately present the amount of consolidated net income attributable to noncontrolling interests in the statement of operations, (c) consistently account for changes in a parent’s ownership interests in a subsidiary in which the parent entity has a controlling financial interest as equity transactions, (d) require an entity to measure at fair value its remaining interest in a subsidiary that is deconsolidated, and (e) require an entity to provide sufficient disclosures that identify and clearly distinguish between interests of the parent and interests of noncontrolling owners.  SFAS No. 160 applies to all for-profit entities that prepare consolidated financial statements, and affects those for-profit entities that have outstanding noncontrolling interests in one or more subsidiaries or that deconsolidate a subsidiary.  SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited.  The Company does not have any noncontrolling interests within the scope of this guidance; therefore, the adoption of SFAS No. 160 on January 1, 2009 will have no impact on its 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, 2008, 2007 and 2006

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

Accounting Standards Not Yet Adopted (continued)

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). This statement replaces SFAS No. 141 and establishes the principles and requirements for how the acquirer in a business combination (a) measures and recognizes the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquired entity, (b) measures and recognizes positive goodwill acquired or a gain from bargain purchase (negative goodwill), and (c) determines the disclosure information that is useful to users of financial statements in evaluating the nature and financial effects of the business combination.  Some of the significant changes to the existing accounting guidance on business combinations made by SFAS No. 141(R) include the following:

 
•
Most of the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquired entity shall be measured at their acquisition-date fair values rather than SFAS No. 141’s requirement to allocate the cost of an acquisition to individual assets acquired and liabilities assumed based on their estimated fair values;
     
 
•
Acquisition-related costs incurred by the acquirer shall be expensed in the periods in which the costs are incurred rather than included in the cost of the acquired entity;
     
 
•
Goodwill shall be measured as the excess of the consideration transferred, including the fair value of any contingent consideration, plus the fair value of any noncontrolling interest in the acquired entity, over the fair values of the acquired identifiable net assets, rather than measured as the excess of the cost of the acquired entity over the estimated fair values of the acquired identifiable net assets;
     
 
•
Contractual pre-acquisition contingencies are to be recognized at their acquisition date fair values and noncontractual pre-acquisition contingencies are to be recognized at their acquisition date fair values only if it is more likely than not that the contingency gives rise to an asset or liability, whereas SFAS No. 141 generally permits the deferred recognition of pre-acquisition contingencies until the recognition criteria of SFAS No. 5, “Accounting for Contingencies,” are met; and
     
 
•
Contingent consideration shall be recognized at the acquisition date rather than when the contingency is resolved and consideration is issued or becomes issuable.

SFAS No. 141(R) is effective for, and shall be applied prospectively to, business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with earlier adoption prohibited. Assets and liabilities that arose from business combinations with acquisition dates prior to the SFAS No. 141(R) effective date shall not be adjusted upon adoption of SFAS No. 141(R) with certain exceptions for acquired deferred tax assets and acquired income tax positions. The Company will adopt SFAS No. 141(R) on January 1, 2009 and will apply this guidance to future business combinations as appropriate.


 
 
 

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, 2008, 2007 and 2006

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

Accounting Standards Not Yet Adopted (continued)

In June 2007, the AICPA issued SOP 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.”  SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (“the Guide”).  This statement also addresses whether the specialized industry accounting principles of the Guide should be retained by a parent company in consolidation or by an investor that has the ability to exercise significant influence over the investment company and applies the equity method of accounting to its investment in the entity.  In addition, SOP 07-1 includes certain disclosure requirements for parent companies and equity method investors in investment companies that retain investment company accounting in the parent company’s consolidated financial statements or the financial statements of an equity method investor.  SOP 07-1 is effective for fiscal years beginning on or after December 15, 2007, with earlier application encouraged; however, in November 2007, the FASB decided to (1) delay indefinitely the effective date and (2) prohibit adoption by an entity that has not early adopted SOP 07-1.  The Company did not early adopt SOP 07-1.  SOP 07-1 as currently issued is not expected to have an impact on the Company’s consolidated financial position or results of operations.

2. MERGERS, ACQUISITIONS AND DISPOSITIONS

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

Effective May 31, 2007, Sun Life Financial completed its acquisition of Genworth Financial, Inc.'s (“Genworth’s”) Employee Benefits Group business (“EBG”).  Also effective May 31, 2007, SLNY entered into a series of agreements with SLHIC, one of the acquired companies (formerly named Genworth Life and Health Insurance Company), through which the New York issued business of SLHIC was transferred to SLNY.  These agreements include a 100% coinsurance agreement for all existing and future new business issued in New York, a renewal rights agreement under which SLNY has exclusive rights to renew in-force business assumed under the reinsurance agreement and an administrative service agreement under which SLNY has agreed to assume direct responsibility for all sales and administration of existing and new business issued in New York (collectively, “the SLHIC to SLNY asset transfer”).  These agreements, in accordance with SFAS No. 141, “Business Combinations,” were treated as a transfer of net assets between entities under common control.  SLNY paid $40 million of total consideration to SLHIC.  SLHIC transferred assets at carrying value of approximately $72 million, including $38.9 million of goodwill and other intangibles, as well as policyholder and other liabilities of approximately $32 million to SLNY.  The Group Protection Segment of the Company reflects a significant increase in business as a result of these agreements. These agreements have allowed the Company to expand its product offerings to include group dental insurance.



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

2. MERGERS, ACQUISITIONS AND DISPOSITIONS (CONTINUED)

As part of the SLHIC to SLNY asset transfer, SLNY received certain intangible assets totaling $31.3 million.  These include the value of distribution, the value of business, and the value of customer renewals acquired.  The value of distribution acquired of $7.5 million is subject to amortization on a straight line basis over its projected economic life of 25 years.  The value of business acquired of $7.6 million is subject to amortization based up on expected premium income over the period from acquisition to the first customer renewal, generally not more than two years.  The value of customer renewals acquired of $16.2 million is subject to amortization based upon expected premium income over the projected life of the in-force business acquired, which is 20 years.  The Company recorded amortization for these intangible assets for the periods identified as follows:

 
Value of
Distribution
  
VOBA
  
VOCRA
Year ended December 31, 2008
$
299
  
$
782
  
$
4,627
Year ended December 31, 2007
$
149
  
$
5,928
  
$
1,854

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES

Below is a summary of transactions with affiliates not included in these financial statements.

Reinsurance Related Transactions

As more fully described in Note 9, the Company is party to several reinsurance transactions with SLOC and other affiliates.

On October 31, 2007, the Company subscribed to $0.25 million worth of shares of, and contributed $150 million of paid-in capital to, a newly formed wholly-owned subsidiary, Sun Life Vermont.  Sun Life Vermont is a Vermont-domiciled special purpose financial captive insurance company which, effective November 8, 2007, entered into a reinsurance agreement with SLOC, the Company’s affiliate, under which the Sun Life Vermont assumed, and will assume, the risks of certain UL policies issued by SLOC prior to December 31, 2008.  This agreement is described more fully in Note 9.  A long-term financing arrangement has been established with a financial institution (the “Lender”) that will enable Sun Life Vermont to fund a portion of its obligations under the reinsurance agreement with SLOC.  Under this arrangement, Sun Life Vermont issued, in 2008 and 2007, floating rate surplus notes of $115 million and $1 billion, respectively, (the “Surplus Notes”) to a special-purpose entity, Structured Asset Repackage Company, 2007-SUNAXXX LLC (“SUNAXXX”), affiliated with the Lender.  Pursuant to an agreement between the Lender and Sun Life Assurance Company of Canada – U.S Operations Holdings, Inc. (“SLC – U.S. Ops Holdings”), SLC – U.S. Ops Holdings bears the ultimate obligation to repay the Lender and, as such, will consolidate SUNAXXX in accordance with FIN 46(R).  Sun Life Vermont has agreed to reimburse SLC – U.S. Ops Holdings for certain costs incurred in connection with the issuance of the Surplus Notes.  For the years ended December 31, 2008 and 2007, the amount of interest expense incurred by Sun Life Vermont was $46.5 million and $8.6 million, respectively.

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


 
 
 

SUN LIFE 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, 2008, 2007 and 2006

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Capital Transactions

On September 30, 2008 and November 13, 2008, the Company received capital contributions of $300.0 and $425.0 million, respectively, from the Parent.  The $725.0 million cash contributions were recorded as additional paid-in capital and were made to ensure the Company continues to exceed certain capital requirements, as prescribed by the NAIC.  The NAIC has established regulations that provide minimum capitalization requirements based on risk-based capital formulas for life companies.  The risk-based capital formula for life companies establishes capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities that contain death benefits or certain living benefits.

In 2006, the Company declared and paid $300.0 million in a cash dividend to the Parent. The Company did not declare or pay a dividend to the Parent in 2008 or 2007.

Debt Transactions

In 2002, the Company issued two promissory notes with a combined total of $460 million to Sun Life (Hungary) Group Financing Limited Company (“Sun Life (Hungary) LLC”).  The proceeds of the notes were used to purchase fixed rate government and corporate bonds.  On May 24, 2007, the Company redeemed one of the notes with a principal balance of $380 million and paid $388.7 million to Sun Life (Hungary) LLC, including $8.7 million in accrued interest.  On December 29, 2008, the Company redeemed in part, $62.0 million of the $80 million remaining note and paid $64.3 million, including $2.3 million in accrued interest, to Sun Life (Hungary) LLC.  At December 31, 2008 and 2007, the Company had $18 million and $80.0 million, respectively, in promissory notes issued to Sun Life (Hungary) LLC.  The Company pays interest semi-annually to Sun Life (Hungary) LLC.  Related to these promissory notes, the Company incurred interest expense of $4.5 million, $13.3 million and $26.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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

At December 31, 2008 and 2007, the Company had $565 million of surplus notes issued to Sun Life Financial (U.S.) Finance, Inc.  The Company expensed $42.6 million for interest on these surplus notes for each of the years ended December 31, 2008, 2007 and 2006.


 
 
 

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, 2008, 2007 and 2006

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED

Debt Transactions (continued)

Effective September 27, 2007, the Company dissolved the General Partner.  The General Partner was the sole general partner in the Partnership and, as a result, the Partnership had been consolidated with the results of the Company.  The Partnership was organized to purchase subordinated debentures issued by the Parent and to issue partnership capital securities to an affiliated business trust, the Capital Trust.  The Partnership was dissolved effective September 27, 2007.

Effective May 6, 2007, the Parent redeemed $600 million of 8.526% subordinated debentures issued to the Partnership and paid the Partnership an early redemption premium of $25.6 million.  Also effective May 6, 2007, the Partnership redeemed $600 million of the 8.526% partnership capital securities issued to the Capital Trust and paid a premium of $25.6 million to the Capital Trust.  The redemption had no impact on the Company’s net income.  Related to these partnership capital securities, the Company incurred interest expense of $17.8 million and $51.2 million for the years ended December 31, 2007 and 2006, respectively.  The Company also earned interest income, through the Partnership, $17.8 million and $51.2 million for the years ended December 31, 2007 and 2006, respectively.

Institutional Investments Contracts

On September 12, 2006, the Company entered into a Terms Agreement (the “2006-B Terms Agreement”) with its affiliates Sun Life Financial Global Funding III, L.P. (the “Issuer III”), Sun Life Financial Global Funding III, U.L.C. (the “ULC III”) and Sun Life Financial Global Funding III, L.L.C. (the “LLC III”), and with Citigroup Global Markets, Inc., Deutsche Bank Securities Inc., Morgan Stanley & Co. Incorporated, Banc of America Securities LLC, Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBC Capital Markets Corporation and Wachovia Capital Markets (each, an “Initial Purchaser” and collectively, the “2006-B Initial Purchasers”), in connection with the offer and sale by the Issuer III of $750 million of Series 2006-1 Floating Rate Notes due 2013 (“2006-B Notes”).  On September 21, 2006, the Company entered into another Terms Agreement (together with the original 2006-B Terms Agreement, the “2006-B Terms Agreements”) with the same parties as the original 2006-B Terms Agreement in connection with the offer and sale by the Issuer III of a second tranche of $150 million of 2006-B Notes.  The payment obligations of the Issuer III for the full $900 million of 2006-B Notes are unconditionally guaranteed by the LLC III pursuant to a guarantee (the “2006-B Secured Guarantee”) dated as of September 19, 2006, and the obligations of the LLC III under the 2006-B Secured Guarantee are secured by two floating rate funding agreements issued by the Company to the LLC III, one for $750 million issued on September 19, 2006 and another for $150 million issued on September 29, 2006.  On April 7, 2008, the Company issued additional floating rate funding agreement totaling $5.8 million to LLC III. Total interest credited for the funding agreements was $36.5 million, $51.6 million and $14.9 million for the years ended December 31, 2008, 2007 and 2006, respectively.

The 2006-B Terms Agreements incorporate by reference the provisions of a Purchase Agreement dated as of September 5, 2006 by and among the Issuer III, the ULC III, the LLC III, the Company and all of the 2006-B Initial Purchasers.  Pursuant to these incorporated provisions, the Company has agreed, among other things, to indemnify each 2006 Initial Purchaser against certain securities law liabilities related to the offering of the 2006-B Notes.  In addition, the Company issued a $100 million floating rate demand note payable to the LLC III on September 19, 2006.  The Company expensed $4.0 million, $5.8 million and $1.7 million for interest on this demand note for the years ended December 31, 2008, 2007 and 2006, respectively.

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




 
 
 

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, 2008, 2007 and 2006

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Institutional Investments Contracts (continued)

On May 17, 2006, the Company entered into a Terms Agreement (the “2006-A Terms Agreement”) with its affiliates Sun Life Financial Global Funding II, L.P. (the “Issuer II”), Sun Life Financial Global Funding II, U.L.C. (the “ULC II”) and Sun Life Financial Global Funding II, L.L.C. (the “LLC II”), and with Citigroup Global Markets, Inc. (“Citigroup”), Morgan Stanley & Co. Incorporated (“Morgan Stanley”), Banc of America Securities LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and RBC Capital Markets Corporation (collectively, with Citigroup and Morgan Stanley, the “2006-A Initial Purchasers”), in connection with the offer and sale by the Issuer II of $900 million of Series 2006-1 Floating Rate Notes due 2011 (the “2006-A Notes”).  The payment obligations of the Issuer II are unconditionally guaranteed by the LLC II pursuant to a guarantee (the “2006-A Secured Guarantee”), and the obligations of the LLC II under the 2006-A Secured Guarantee are secured by a $900 million floating rate funding agreement issued by the Company to the LLC II.  The 2006-A Terms Agreement incorporates by reference the provisions of a Purchase Agreement dated as of May 15, 2006 by and among the Issuer II, the ULC II, the LLC II, the Company and the 2006-A Initial Purchasers.  Pursuant to these incorporated provisions, the Company has agreed, among other things, to indemnify each 2006 Initial Purchaser against certain securities law liabilities related to the offering of the 2006-A Notes.  On April 7, 2008, the Company issued additional floating rate funding agreement totaling $7.5 million to LLC II. Total interest credited for the funding agreement was $35.7 million, $50.8 million and $30.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.

On May 24, 2006, the Company also issued a $100 million floating rate demand note payable to the LLC II.  The Company expensed $4.0 million, $5.7 million and $3.4 million for interest on this demand note for the years ended December 31, 2008, 2007 and 2006, respectively.

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

On June 3, 2005 and June 29, 2005, the Company issued two floating rate funding agreements with a combined total of $900 million to Sun Life Financial Global Funding, L.L.C. (“LLC”) due 2010.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $10 million to LLC.  Total interest credited for these funding agreements was $36.6 million, $51.6 million and $49.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.  On June 10, 2005, the Company also issued a $100.0 million floating rate demand note payable to LLC.  For interest on this demand note, the Company expensed $4.0 million, $5.8 million and $5.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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





 
 
 

 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, 2008, 2007 and 2006

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Institutional Investments Contracts (continued)

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

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

The following table lists the details of notes due to affiliates at December 31, 2007:

Payees
Type
Rate
Maturity
Principal
Interest
Expense
           
Sun Life Financial (U.S.) Finance, Inc.
Surplus
8.625%
11/06/2027
$     250,000
$        21,563
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
150,000
9,225
Sun Life Financial (U.S.) Finance, Inc.
Surplus
7.250%
12/15/2015
150,000
10,875
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.125%
12/15/2015
7,500
459
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
7,500
461
Structured Asset Repackage Company, 2007-
SUNAXXX LLC
Surplus
LIBOR + 0.89%
11/8/2037
1,000,000
8,642
Sun Life (Hungary) Group Financing Limited
Company
Promissory
5.710%
06/30/2012
80,000
4,568
Sun Life Financial Global Funding I, L.L.C.
Demand
LIBOR + 0.35%
07/6/2010
100,000
5,754
Sun Life Financial Global Funding II, L.L.C.
Demand
LIBOR + 0.26%
07/6/2011
100,000
5,663
Sun Life Financial Global Funding III, L.L.C.
Demand
LIBOR + 0.35%
10/6/2013
100,000
5,754
       
$  1,945,000
$        72,964



 
 
 

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, 2008, 2007 and 2006

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative service agreements, rent and other

The Company and certain of its subsidiaries have administrative 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 $9.9 million, $14.2 million and $9.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.

In accordance with an administrative 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 $316.7 million, $301.0 million and $212.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.

The Company has an administrative service agreement with Sun Life Information Services Canada, Inc. (“SLISC”), under which SLISC provides administrative and support services to the Company in connection with the Company’s insurance and annuity business.  Expenses under this agreement amounted to approximately $17.6 million, $16.9 million and $10.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.

The Company has a service agreement with Sun Life Information Services Ireland Limited (“SLISIL”), under which SLISIL provides various insurance related and information systems services to the Company.  Expenses under this agreement amounted to approximately $24.3 million, $26.0 million and $19.6 million for the years ended December 31, 2008, 2007 and 2006, respectively

The Company has an administrative services agreement with SLC - U.S. Ops Holdings, under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which an affiliate, Massachusetts Financial Services Company (“MFS”), serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable annuity contracts issued by the Company.  Amounts received under this agreement amounted to approximately $17.2 million, $22.3 million and $22.6 million for the years ended December 31, 2008, 2007 and 2006, respectively.

The Company has an administrative services agreement with Sun Capital Advisers LLC (“SCA”), a registered investment adviser, under which the Company provides administrative services with respect to certain open-end management investment companies for which SCA serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable contracts issued by the Company.  Amounts received under this agreement amounted to approximately $2.1 million, $1.9 million and $1.5 million for the years ended December 31, 2008, 2007 and 2006, respectively. The Company paid $18.6 million, $15.9 million and $14.9 million for the years ended December 31, 2008, 2007 and 2006, respectively, in investment management services fees to SCA.

Effective November 7, 2007, Independent Financial Marketing Group, Inc. (“IFMG”) was sold by the Parent and is no longer an affiliate of the Company.  For that period of time in 2007 during which it was still affiliated, the Company paid $22.6 million in commission fees to IFMG. The Company did not pay commission fees to IFMG in 2008. During the year ended December 31, 2006, the Company paid $20.1 million in commission fees to IFMG.

During the years ended December 31, 2008, 2007 and 2006, the Company paid $23.7 million, $31.3 million and $24.3 million, respectively, in distribution fees to Sun Life Financial Distributors, Inc. (“SLFD”), an affiliate.  The Company also had an agreement with SLFD and the Parent whereby the Parent provided expense reimbursements to the Company for administrative services provided by the Company to SLFD.  Related to this agreement, the Company received reimbursement of $0.6 million and $3.2 million for the years ended December 31, 2007 and 2006, respectively.  This agreement was terminated on March 2, 2007.


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (continued)

Administrative service agreements, rent and other (continued)

The Company leases office space to SLOC under lease agreements with terms expiring on December 31, 2009 and options to extend the terms for each of twelve successive five-year terms at fair market rental value, not to exceed 125% of the fixed rent for the term which is then ending.  Rent received by the Company under the leases amounted to approximately $10.6 million for each of the years ended December 31, 2008, 2007 and 2006, respectively.  Rental income is reported as a component of net investment income.

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

During the year ended December 31, 2008, the Company sold certain limited partnership investments to SLOC with a book value and market value of $87.2 million.

The Company records a tax benefit through paid-in-capital for SLF stock options issued to employees of the Company. Related to these stock options, the Company recorded tax benefits of approximately $0.8 million, $3.0 and $4.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

In 2004, the employees of the Company became participants in a restricted share unit (“RSU”) plan with its indirect parent, SLF.  Under the RSU plan, participants are granted units that are equivalent to one common share of SLF stock and have a fair market value of a common share of SLF stock on the date of grant.  RSUs earn dividend equivalents in the form of additional RSUs at the same rate as the dividends on common shares of SLF stock.  The redemption value, upon vesting, is the fair market value of an equal number of common shares of SLF stock.  The Company incurred expenses of $5.9 million, $4.4 million and $7.3 million relating to RSUs for the years ended December 31, 2008, 2007 and 2006, respectively.

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



 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS

Fixed Maturities

The amortized cost and fair value of fixed maturities at December 31, 2008, was as follows:

   
Gross
Gross
  
 
Amortized
Unrealized
Unrealized
Fair
Available-for-sale fixed maturities:
Cost
Gains
Losses
Value
Collateralized Mortgage Obligations
$            22,504
$             94
$           (4,489)
$            18,109
Mortgage Backed Securities
40,107
1,060
(17)
41,150
Foreign Government & Agency Securities
509
-
(37)
472
U.S. Treasury & Agency Securities
61,824
13,262
(105)
74,981
Total non-corporate
124,944
14,416
(4,648)
134,712
         
Corporate securities:
        
Basic Industry
11,619
-
(3,062)
8,557
Capital Goods
29,853
317
(7,137)
23,033
Communications
111,380
1,724
(7,820)
105,284
Consumer Cyclical
62,112
1,160
(11,769)
51,503
Consumer Noncyclical
44,947
571
(1,845)
43,673
Energy
47,968
257
(8,200)
40,025
Finance
254,505
302
(67,240)
187,567
Technology
4,485
-
(624)
3,861
Transportation
6,861
4
(1,585)
5,280
Utilities
84,187
140
(13,802)
70,525
Total Corporate
657,917
4,475
(123,084)
539,308
         
Total available-for-sale fixed maturities
$           782,861
$       18,891
$        (127,732)
$           674,020
         
 
Amortized
Gross
Gross
Fair
Trading fixed maturities:
Cost
Gains
Losses
Value
Asset Backed Securities
$           796,032
$      4,357
$         (294,557)
$          505,832
Collateralized Mortgage Obligations
2,627,715
8,543
(1,141,245)
1,495,013
Mortgage Backed Securities
213,175
4,579
(325)
217,429
Foreign Government & Agency Securities
110,991
1,972
(3,788)
109,175
U.S. Treasury & Agency Securities
484,910
36,528
(18,332)
503,106
Total non-corporate
4,232,823
55,979
(1,458,247)
2,830,555
         
Corporate securities:
        
Basic Industry
201,573
67
(31,623)
170,017
Capital Goods
461,583
2,477
(71,733)
392,327
Communications
1,642,250
4,730
(165,902)
1,481,078
Consumer Cyclical
1,189,335
7,776
(250,384)
946,727
Consumer Noncyclical
496,392
2,036
(25,794)
472,634
Energy
430,413
810
(40,710)
390,513
Finance
4,188,983
2,773
(976,868)
3,214,888
Industrial Other
250,656
1,390
(9,647)
242,399
Municipals
610
-
(82)
528
Technology
88,573
-
(16,016)
72,557
Transportation
246,398
5,552
(24,662)
227,288
Utilities
1,479,840
11,365
(170,570)
1,320,635
Total Corporate
10,676,606
38,976
(1,783,991)
8,931,591
         
Total trading fixed maturities
$         14,909,429
$      94,955
$     (3,242,238)
$     11,762,146

 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

Fixed Maturities (continued)

The amortized cost and fair value of fixed maturities at December 31, 2007, was as follows:

   
Gross
Gross
  
 
Amortized
Unrealized
Unrealized
Fair
Available-for-sale fixed maturities:
Cost
Gains
Losses
Value
Asset Backed Securities
$             827,129
$      11,436
$         (71,706)
$          766,859
Collateralized Mortgage Obligations
2,594,637
22,204
(185,362)
2,431,479
Mortgage Backed Securities
447,720
2,723
(2,244)
448,199
Foreign Government & Agency Securities
74,287
2,766
-
77,053
States & Political Subdivisions
493
6
-
499
U.S. Treasury & Agency Securities
284,811
11,462
(40)
296,233
Total non-corporate
4,229,077
50,597
(259,352)
4,020,322
         
Corporate securities:
        
Basic Industry
195,959
3,146
(3,424)
195,681
Capital Goods
424,393
8,143
(7,698)
424,838
Communications
811,426
18,403
(13,190)
816,639
Consumer Cyclical
845,981
6,415
(45,142)
807,254
Consumer Noncyclical
312,647
6,708
(2,438)
316,917
Energy
314,822
5,705
(3,292)
317,235
Finance
2,944,203
19,895
(152,604)
2,811,494
Industrial Other
272,493
6,225
(7,219)
271,499
Technology
77,817
786
(821)
77,782
Transportation
241,983
8,598
(5,061)
245,520
Utilities
1,177,596
32,001
(11,548)
1,198,049
Total Corporate
7,619,320
116,025
(252,437)
7,482,908
         
Total available-for-sale fixed maturities
$        11,848,397
$    166,622
$       (511,789)
$     11,503,230
         
 
Amortized
Gross
Gross
Fair
Trading fixed maturities:
Cost
Gains
Losses
Value
Asset Backed Securities
$             105,719
$           287
$           (8,255)
$            97,751
Collateralized Mortgage Obligations
276,753
2,584
(3,519)
275,818
Mortgage Backed Securities
3,304
2
(38)
3,268
Foreign Government & Agency Securities
39,589
1,182
-
40,771
U.S. Treasury & Agency Securities
94,813
713
-
95,526
Total non-corporate
520,178
4,768
(11,812)
513,134
         
Corporate securities:
        
Basic Industry
7,417
270
(40)
7,647
Capital Goods
71,894
590
(338)
72,146
Communications
683,714
10,849
(4,105)
690,458
Consumer Cyclical
248,206
1,932
(13,458)
236,680
Consumer Noncyclical
131,746
2,199
(464)
133,481
Energy
23,609
1,745
(17)
25,337
Finance
1,886,983
15,992
(83,662)
1,819,313
Industrial Other
67,322
880
(705)
67,497
Technology
1,989
-
(21)
1,968
Transportation
40,965
1,887
(501)
42,351
Utilities
254,065
4,434
(1,500)
256,999
Total Corporate
3,417,910
40,778
(104,811)
3,353,877
         
Total trading fixed maturities
$          3,938,088
$      45,546
$       (116,623)
$       3,867,011

 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

Fixed Maturities (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 ABS and MBS because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
December 31, 2008
 
Amortized Cost
Fair Value
Maturities of available-for-sale fixed securities:
    
Due in one year or less
$                  476
$                  439
Due after one year through five years
59,496
52,545
Due after five years through ten years
87,028
70,484
Due after ten years
573,250
491,293
Subtotal – Maturities available-for-sale
720,250
614,761
ABS, CMO and MBS securities
62,611
59,259
Total Available-for-sale
$           782,861
$            674,020
     
Maturities of trading fixed securities:
    
Due in one year or less
$           409,847
$            383,929
Due after one year through five years
5,571,645
4,812,789
Due after five years through ten years
3,098,890
2,531,157
Due after ten years
2,192,125
1,815,997
Subtotal – Maturities  of trading
11,272,507
9,543,872
ABS, CMO and MBS securities
3,636,922
2,218,274
Total Trading
$       14,909,429
$       11,762,146

Gross gains of $17.8 million, $52.8 million and $39.5 million and gross losses of $321.9 million, $52.3 million and $92.3 million were realized on the sale of fixed maturities for the years ended December 31, 2008, 2007 and 2006, respectively.

Fixed maturities with an amortized cost of approximately $12.4 million and $12.0 million at December 31, 2008 and 2007, respectively, were on deposit with federal and state governmental authorities as required by law.

As of December 31, 2008 and 2007, 94.6% and 96.0%, respectively, of the Company's fixed maturity securities were investment grade.  Investment grade securities are those that are rated “BBB” or better by nationally recognized statistical rating organizations.  During 2008, 2007 and 2006, the Company incurred realized losses totaling $41.9 million, $68.1 million and $6.3 million, respectively, for other-than-temporary impairment of value of its available-for-sale fixed maturity securities.

The Company had outstanding commitments with respect to funding of limited partnerships of approximately $18.2 million and $34.9 million at December 31, 2008 and 2007, respectively.



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

OVERVIEW OF THE COMPANY’S INVESTMENT HOLDINGS AND PORTFOLIO MONITORING PROCESSES

At December 31, 2008, the Company held $18.1 billion in invested assets and cash.  Of this balance, $12.4 billion was invested in fixed-maturity securities designated as either available-for-sale ($674.0 million) or trading ($11.8 billion).  Of the $674.0 million of available-for-sale fixed maturities, securities with a fair value of $462.2 million were in an unrealized loss position totaling $127.7 million.  At December 31, 2008, 30 % of securities in an unrealized loss position, based on fair value, were securities with fair-value-to-amortized-cost percentages of greater than or equal to 90%.  The total unrealized loss position for such securities was $6.1 million.

In the available-for-sale fixed maturity portfolio, securities with a fair value of $34.1 million, representing 0.19 % of the total invested asset balance, were comprised of below-investment-grade or not-rated securities.  Of the securities that were below-investment-grade or not-rated at December 31, 2008, securities with a fair value of $23.1 million, representing 0.13% of the total invested asset balance, were in an unrealized loss position that totaled $3.1 million.  At December 31, 2008, 73 % of these securities in an unrealized loss position, based on fair value, were securities with fair value to amortized cost percentages of greater than or equal to 90%.

The Company’s portfolio monitoring process is designed to identify securities that may be other-than-temporarily impaired.  The Company has a Credit Committee comprised of professionals from the investment and accounting functions that meets at least quarterly to review individual issues or issuers that may be of concern.  The process involves a quarterly screening of all impaired securities, with particular attention paid to identify those securities whose fair value to amortized cost percentages have been less than 80% for an extended period of time.  Additionally, the Company screens all sales transactions which generated realized losses in excess of $1.5 million and 10% of amortized cost in order to identify identical securities or issuers which the Company continues to hold.  Discrete credit events, such as a ratings downgrade, are also used to identify securities that may be other-than-temporarily impaired.  The securities identified are then evaluated based on issuer-specific facts and circumstances, such as the issuer’s ability to meet current and future interest and principal payments, an evaluation of the issuer’s financial position  and its near term recovery prospects, difficulties being experienced by an issuer’s parent or affiliate, and management’s assessment of the outlook for the issuer’s sector.  Based on this evaluation, issues or issuers are considered for inclusion on one of the Company’s following credit lists:

“Monitor List”- Management has concluded that the fair value will increase enough to recover the Company’s amortized cost but that changes in issuer-specific facts and circumstances require monitoring on a quarterly basis.

“Watch List”- Management has concluded that the fair value will increase enough to recover the Company’s amortized cost but that changes in issuer-specific facts and circumstances require continued monitoring during the quarter.  A security is moved from the Monitor List to the Watch List when changes in issuer-specific facts and circumstances increase the possibility that a security may become impaired within the next 24 months.

“Impaired List”- Management has concluded that the fair value will not increase enough to recover the Company’s amortized cost and an other-than-temporary-impairment charge is recorded to income or the security is sold and a realized loss is recorded as a charge to income.  Other-than-temporary impairments are classified as either credit-related or interest-related.  The Company categorizes other-than-temporary impairments as credit-related if there are current fundamental credit concerns regarding the issuers’ ability to pay all principal and interest amounts due, according to the contractual terms of the security.  The Company characterizes other-than-temporary impairments as interest-related if the depression in fair value of the security was due to changes in interest or general credit spread widening and the Company has determined it no longer has the intent or ability to hold a security until recovery to amortized cost.  For the year ended December 31, 2008, other-than-temporary impairments on available-for-sale fixed maturities of $41.9 million were recorded as a charge to income.  The $41.9 million realized losses for other-than-temporary impairments for the year ended December 31, 2008 were credit-related.  Of the $68.1 million realized losses for other-than-temporary impairments for the year ended December 31, 2007, $52.0 million was credit-related and $16.1 million was interest-related.  The $6.3 million realized loss for other-than-temporary impairments for the year ended December 31, 2006, was credit-related.


 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

OVERVIEW OF THE COMPANY’S INVESTMENT HOLDINGS AND PORTFOLIO MONITORING PROCESSES (continued)

At each balance sheet date, management also evaluates securities in an unrealized loss position and determines if the Company has the intent and ability to hold the securities until recovery.  If events or circumstances change, such as unexpected changes in the creditworthiness of the issuer, unanticipated changes in interest rates and/or credit spreads, changes in tax laws or accounting rules, changes in statutory capital requirements, or greater than expected liquidity needs, management will reconsider whether the Company has the intent and ability to hold a security until recovery.  If subsequent to the balance sheet date and due to an unexpected change in circumstances, the Company determines that it no longer intends to hold a security until recovery, a loss is recognized in net income in the period in which the intent to hold to recovery no longer exists.

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

The Company discontinues accruing income on all of its holdings for issuers that are in default.  Investment income would have increased by $4.6 million for the year ended December 31, 2008, if these holdings were performed.  Accrued income was not materially impacted by the termination of accrual accounting on these holdings for the years ended December 31, 2007 and 2006.  As of December 31, 2008, the fair market value of holdings for issuers in default was $17.9 million.  As of December 31, 2007 and 2006, the Company did not have any holding for issuers that were in default.



 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

OVERVIEW OF THE COMPANY’S INVESTMENT HOLDINGS AND PORTFOLIO MONITORING PROCESSES (continued)

Unrealized Losses

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

 
Less Than Twelve Months
Twelve Months Or More
Total
             
Corporate Securities
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Basic Industry
$       5,008
$   (1,231)
$         3,549
$        (1,831)
$         8,557
$         (3,062)
Capital Goods
2,337
(55)
11,447
(7,082)
13,783
(7,137)
Communications
65,855
(7,747)
17,237
(73)
83,092
(7,820)
Consumer Cyclical
8,473
(2,139)
28,071
(9,630)
36,544
(11,769)
Consumer Noncyclical
11,799
(341)
11,329
(1,504)
23,128
(1,845)
Energy
21,290
(4,496)
16,469
(3,704)
37,759
(8,200)
Finance
39,132
(11,130)
122,697
(56,110)
161,829
(67,240)
Industrial Other
-
- 
-
- 
-
- 
Technology
3,861
(624)
-
- 
3,861
(624)
Transportation
435
(29)
4,709
(1,556)
5,143
(1,585)
Utilities
55,467
(9,638)
10,787
(4,164)
66,254
(13,802)
             
Total Corporate
213,657
(37,430)
226,295
(85,654)
439,952
(123,084)
             
Non-Corporate
            
Asset Backed Securities
-
- 
-
- 
-
- 
Collateralized Mortgage Obligations
2,967
(1,162)
12,739
(3,327)
15,706
(4,489)
Mortgage Backed Securities
1,054
(7)
3,137
(10)
4,191
(17)
U.S. Treasury & Agency Securities
1,855
(105)
-
- 
1,855
(105)
Foreign Government & Agency Securities
473
(37)
-
- 
472
(37)
             
Total Non-Corporate
6,349
(1,311)
15,876
(3,337)
22,224
(4,648)
             
Grand Total
$    220,006
$   (38,741)
$     242,171
$       (88,991)
$     462,176
$     (127,732)




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

OVERVIEW OF THE COMPANY’S INVESTMENT HOLDINGS AND PORTFOLIO MONITORING PROCESSES (continued)

Unrealized Losses (continued)

The following table provides the fair value and gross unrealized losses of the Company’s available-for-sale fixed maturities investments, which were deemed to be temporarily impaired, aggregated by investment category, industry sector and length of time that individual securities have been in an unrealized loss position, at December 31, 2007:

 
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
$       86,180
$     (1,459)
$         23,229
$       (1,965)
$     109,409
$      (3,424)
Capital Goods
179,854
(5,651)
36,728
(2,047)
216,582
(7,698)
Communications
213,084
(5,172)
165,027
(8,018)
378,111
(13,190)
Consumer Cyclical
349,363
(26,136)
185,094
(19,006)
534,457
(45,142)
Consumer Noncyclical
90,795
(1,114)
22,910
(1,324)
113,705
(2,438)
Energy
100,815
(1,682)
44,034
(1,610)
144,849
(3,292)
Finance
1,539,054
(106,524)
515,945
(46,080)
2,054,999
(152,604)
Industrial Other
50,543
(7,059)
12,981
(160)
63,524
(7,219)
Technology
41,379
(100)
13,278
(721)
54,657
(821)
Transportation
102,549
(2,883)
41,601
(2,178)
144,150
(5,061)
Utilities
225,892
(4,894)
235,342
(6,654)
461,234
(11,548)
             
Total Corporate
2,979,508
(162,674)
1,296,169
(89,763)
4,275,677
(252,437)
             
Non-Corporate
            
Asset Backed Securities
232,353
(29,887)
267,080
(41,819)
499,433
(71,706)
Collateralized Mortgage Obligations
1,027,142
(95,499)
934,327
(89,863)
1,961,469
(185,362)
Mortgage Backed Securities
25,960
(64)
190,905
(2,180)
216,865
(2,244)
U.S. Treasury & Agency Securities
6,517
(40)
-
- 
6,517
(40)
             
Total Non-Corporate
1,291,972
(125,490)
1,392,312
(133,862)
2,684,284
(259,352)
             
Grand Total
$  4,271,480
$ (288,164)
$    2,688,481
$   (223,625)
$  6,959,961
$   (511,789)



 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

OVERVIEW OF THE COMPANY’S INVESTMENT HOLDINGS AND PORTFOLIO MONITORING PROCESSES (continued)

Unrealized Losses (continued)

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

 
Number of
Securities Less
Than Twelve
Months
Number of
Securities Twelve
Months Or More
Total Number of
Securities
Corporate Securities
      
Basic Industry
6
2
8
Capital Goods
1
6
7
Communications
36
8
44
Consumer Cyclical
7
20
27
Consumer Noncyclical
7
4
11
Energy
12
6
18
Finance
41
73
114
Industrial Other
-
-
-
Technology
4
-
4
Transportation
1
4
5
Utilities
28
10
38
       
Total Corporate
143
133
276
       
Non-Corporate
      
Asset Backed Securities
-
-
-
Collateralized Mortgage Obligations
8
10
18
Foreign Government & Agency Securities
1
-
1
Mortgage Backed Securities
2
6
8
U.S. Treasury & Agency Securities
2
-
2
       
Total Non-Corporate
13
16
29
       
Grand Total
156
149
305



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

OVERVIEW OF THE COMPANY’S INVESTMENT HOLDINGS AND PORTFOLIO MONITORING PROCESSES (continued)

Unrealized Losses (continued)

The following table provides the number of securities of the Company’s available-for-sale fixed maturities investments with gross unrealized losses, which were deemed to be temporarily impaired, at December 31, 2007 (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
 23
7
30
Capital Goods
41
15
56
Communications
63
55
118
Consumer Cyclical
93
54
147
Consumer Noncyclical
28
9
37
Energy
24
21
45
Finance
426
178
604
Industrial Other
14
3
17
Technology
7
2
9
Transportation
44
21
65
Utilities
69
66
135
       
Total Corporate
832
431
1,263
       
Non-Corporate
      
Asset Backed Securities
79
115
194
Collateralized Mortgage Obligations
383
351
734
Mortgage Backed Securities
14
202
216
U.S. Treasury & Agency Securities
2
-
2
       
Total Non-Corporate
478
668
1,146
       
Grand Total
1,310
1,099
2,409

The Company’s available-for-sale fixed maturity gross unrealized loss position decreased $384.1 million as of December 31, 2008, as compared to December 31, 2007.  The change in unrealized losses was primarily due to the adoption of SFAS No. 159, under which the Company elected the FV option for all fixed maturity securities attributable to certain life, health and annuity products, which had previously been designated as available-for-sale.  At December 31, 2007, such available-for-sale securities had a market value of $10.7 billion and an amortized cost of $11.1 billion.


 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

OVERVIEW OF THE COMPANY’S INVESTMENT HOLDINGS AND PORTFOLIO MONITORING PROCESSES (continued)

Unrealized Losses (continued)

The sectors in the Company’s portfolio that recognized the largest unrealized losses at December 31, 2008 were financial services, consumer cyclical, and utilities.  As of December 31, 2008, there were 114 securities accounting for unrealized losses of $67.2 million in the Finance sector.   Of these unrealized losses, 99.3% were related to investment grade issues (rated AAA through BBB).

As of December 31, 2008, there were 38 securities accounting for unrealized losses of $13.8 million in the Utility sector.   Of these unrealized losses, 99.03% were related to investment-grade issues (rated AAA through BBB). As of December 31, 2008, there were 27 securities accounting for unrealized losses of $11.8 million in the Consumer Cyclical sector.   Of these unrealized losses, 95.54% were related to investment-grade issues (rated AAA through BBB). All securities held at December 31, 2008 were subject to the Company’s portfolio monitoring process.

The Company has exposure to sub-prime and Alt-A residential mortgage-backed securities.  Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles.  Alt-A mortgage lending is the origination of residential mortgage loans to customers who have credit ratings above sub-prime, but do not conform to government sponsored standards.  The combination of these two categories of securities is considered below prime.  The Company is not an originator of residential mortgages.  The slowing U.S. housing market and relaxed underwriting standards of some originators of below-prime loans have recently led to higher delinquency and loss rates especially within the 2006 and 2007 vintage years.  Ninety-two percent of these below-prime investments, based upon fair value, held by the Company were either issued before 2006 or have an AAA rating.  At December 31, 2008, the Company had exposure to residential sub-prime and Alt-a mortgages of $165.5 million and $116.9 million, respectively, representing approximately 1.6% of the Company's total invested assets.

Because securities issued by the same issuer with different CUSIP numbers typically have different investment characteristics, such as secured or unsecured, shorter or longer maturities, or different interest rates, management’s analyses of unrealized and realized losses are performed at the CUSIP number level.  The Company also considers the credit condition of issuers at the entity level and considers various issues affecting an issuer collectively as facts and circumstances warrant.

Realized Losses

During the year ended December 31, 2008, the Company did not record any realized losses related to the sale of available-for-sale securities that were in an unrealized loss position.  During the year ended December 31, 2007, the Company recorded $47.3 million realized losses related to the sale of available-for-sale fixed maturity securities that were in an unrealized loss position.

MORTGAGE LOANS AND REAL ESTATE

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


 
 
 

 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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (continued)

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

 
December 31,
 
2008
2007
     
Total mortgage loans
$       2,083,003
$     2,318,341
     
Real estate:
    
Held for production of income
201,470
201,777
Total real estate
$          201,470
$        201,777
     
Total mortgage loans and real estate
$       2,284,473
$     2,520,118

Accumulated depreciation on real estate was $36.7 million and $31.8 million at December 31, 2008 and 2007, 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.  The Company has recognized impairment on mortgage loans totaling $3.0 million and $3.3 million at December 31, 2008 and 2007, respectively.

Activity for the investment valuation allowances was as follows:

 
Balance at
    
Balance at
 
January 1,
Additions
Subtractions
December 31,
2008
        
Mortgage loans
$           3,288
$         3,000
$      (3,288)
$             3,000
         
2007
        
Mortgage loans
$           3,928
$                  -
$        (640)
$           3,288

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

 
2008
2007
Property Type:
    
Office building
$        763,405 
$       820,803 
Residential
198 
369 
Retail
923,592 
1,067,483 
Industrial/warehouse
262,436 
306,769 
Apartment
106,362 
109,919 
Other
231,480 
218,063 
Valuation allowances
(3,000)
(3,288)
Total
$     2,284,473 
$    2,520,118 


 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (continued)

 
2008
  
2007
Geographic region:
      
       
Alabama
$           9,049
  
$           9,387
Alaska
5,873
  
6,000
Arizona
4,349
  
449
Arkansas
55,987
  
59,024
California
124,004
  
132,829
Colorado
36,521
  
39,276
Connecticut
12,599
  
13,133
Delaware
7,029
  
7,188
Florida
229,681
  
269,254
Georgia
62,418
  
68,371
Idaho
3,832
  
3,885
Illinois
49,635
  
47,521
Indiana
32,082
  
32,584
Iowa
1,469
  
325
Kansas
7,620
  
7,853
Kentucky
28,038
  
29,396
Louisiana
36,426
  
38,470
Maine
1,090
  
13,425
Maryland
52,202
  
72,659
Massachusetts
120,059
  
139,203
Michigan
19,789
  
20,649
Minnesota
41,013
  
41,909
Mississippi
3,836
  
3,959
Missouri
61,293
  
64,624
Montana
3,112
  
30,843
Nebraska
12,937
  
13,457
Nevada
6,665
  
5,987
New Hampshire
649
  
762
New Jersey
35,964
  
37,952
New Mexico
13,310
  
13,787
New York
328,439
  
345,887
North Carolina
37,620
  
39,453
North Dakota
1,678
  
1,920
Ohio
145,192
  
148,743
Oklahoma
8,180
  
8,811
Oregon
31,261
  
33,852
Pennsylvania
118,744
  
132,665
South Carolina
32,318
  
33,334
South Dakota
921
  
949
Tennessee
37,845
  
39,405
Texas
340,082
  
348,817
Utah
24,363
  
27,088
Virginia
12,926
  
14,070
Washington
56,547
  
76,767
West Virginia
4,576
  
4,730
Wisconsin
3,942
  
17,785
All other
24,308
  
24,969
Valuation allowances
(3,000)
  
(3,288)
Total
$     2,284,473
  
$     2,520,118


 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (continued)

At December 31, 2008, scheduled mortgage loan maturities were as follows:

2009
$             33,474
2010
34,454
2011
124,344
2012
75,628
2013
129,595
Thereafter
1,685,508
Total
$        2,083,003

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

The Company has made funding commitments of mortgage loans on real estate and other loans into the future. The outstanding funding commitments for these mortgages amount to $2.0 million and $17.8 million at December 31, 2008 and 2007, respectively.



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

SECURITIES LENDING

The Company participates in a securities lending program to generate additional income, whereby certain fixed maturity securities are loaned for a specified period of time from the Company’s portfolio to qualifying third parties, via a lending agent.  Borrowers of these securities provide collateral of 102% of the market value of the loaned securities.  The Company generally accepts cash as the only form of collateral.  Under the terms of the securities lending program, the lending agent indemnifies the Company against borrower defaults.

As of December 31, 2008 and 2007, the fair value of the loaned securities was approximately $175.0 million and $536.4 million, respectively, and was included in fixed maturities, available-for-sale, and cash and cash equivalents in the Company’s consolidated balance sheets.  The Company had accepted cash collateral relating to the securities lending program in the amount of $183.5 million and $533.5 million as of December 31, 2008 and 2007, respectively, all of which was re-invested in certain cash instruments and other available-for-sale securities.  The Company records the collateral investments at fair value in the consolidated balance sheets in other invested assets and changes in the fair value of the available-for-sale securities are recorded in other comprehensive income.  The fair value of the collateral investments at December 31, 2008 and 2007 was $179.9 million and $517.7 million, respectively.

The Company earns income from the reinvestment of the cash collateral.  The Company recorded before-tax income from securities lending transactions, net of lending fees, of $2.6 million, $2.2 million and $2.3 million for the years ended December 31, 2008, 2007 and 2006, respectively, which was included in net investment income.

LEVERAGED LEASES

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

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

 
Year ended December 31,
 
2008
  
2007
Lease contract receivable
$          7,042 
  
$         12,836 
Less: non-recourse debt
- 
  
- 
Net Receivable
7,042 
  
12,836 
Estimated value of leased assets
20,795 
  
20,795 
       
Less: unearned and deferred income
(2,373)
  
(4,304)
Investment in leveraged leases
25,464 
  
29,327 
Less: fees
(37)
  
(87)
Net investment in leveraged leases
$        25,427 
  
$         29,240 



 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

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 counter-party interest rate payments of differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal) as an economic 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. Because the underlying principal is not exchanged, the Company's maximum exposure to counter-party credit risk is the difference in payments exchanged.  The fair value of swap agreements is included with derivative instruments - receivable or derivative instruments - payable in the accompanying balance sheet.

The Company utilizes payer swaptions to hedge exposure to interest rate risk.  Swaptions give the buyer the option to enter into an interest rate swap per the terms of the original swaption agreement.  A premium is paid on settlement date and no further cash transactions occur until the positions expire.  At expiration, the swaption either cash settles for value, settles into an interest rate swap, or expires worthless per the terms of the original swaption agreement. Swaptions are carried at fair value which is included in derivative instruments - receivable in the accompanying balance sheet and the change in value is offset to derivative income.

The Company utilizes over-the-counter (“OTC”) put options and exchange traded futures on the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500 Index”) (“S&P”, “S&P 500”, and “Standard & Poor's” are trademarks of The McGraw Hill Companies, Inc. and have been licensed for use by the Company) and other indexes to hedge against stock market exposure inherent in the GMDB and living benefit features of the Company's variable annuities.  The Company also purchases OTC 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 derivative instruments - receivable in the Company’s balance sheet.

Standard & Poor’s indexed futures contracts are entered into for purposes of hedging fixed index products.  The interest credited on these 1-, 5-, 7- and 10-year term products is based on the changes in the S&P 500 Index.  On the trade date, an initial cash margin is exchanged.  Daily cash is exchanged to settle the daily variation margin and the offset is recorded in derivative income.

The Company issues 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) and is carried at fair value.

On September 6, 2006 the Company entered into an agreement with the CARS Trust.  Through this agreement, the Company purchased a funded note, which is referenced through a credit default swap to the credit performance of a portfolio of corporate reference entities.  The Company entered into this credit structure for yield enhancement.  As the sole beneficiary of the CARS Trust, the Company is required to consolidate this trust under the requirements of FIN 46(R).  As a result of the consolidation, the Company has recorded in its balance sheet a credit default swap held by the CARS Trust.   At issue, the swap had a seven year term, maturing in 2013.  Under the terms of the swap, the CARS Trust will be required to make payments to the swap counterparty upon the occurrence of a credit event, with respect to any reference entity, that is in excess of the threshold amount specified in the swap agreement.  At December 31, 2008, the CARS Trust has not had to make any payments under the terms of the swap as the sum of all credit events has not exceeded the threshold amount.  At December 31, 2008 the fair value of the credit default swap is $(42.1) million.  Under the terms of the credit derivative, the maximum future payments the CARS Trust could be required to make is $55.0 million.  In the event the trust was required to make any payments under the swap, the underlying assets held by the trust would be liquidated to fund the payment.  If the disposition of these assets is insufficient to fund the payment calculated, then under the terms of the agreement, the cash settlement amount would be capped at the amount of the proceeds from the sale of the underlying assets.  As of December 31, 2008, the fair value of the assets held as collateral by the CARS Trust was $42.3 million.


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

DERIVATIVES (continued)

From 2000 through 2002, the Company marketed GICs to unrelated third parties.  Each transaction is highly-individualized but typically involves the issuance of foreign currency denominated contracts backed by cross currency swaps or equity-linked cross currency swaps.  The combination of the currency swaps with interest rate swaps allows the Company to lock in U.S. dollar fixed rate payments for the life of the contract.

Included in derivative income are gains (losses) on the translation of foreign currency denominated GIC liabilities of $167.7 million, $45.5 million and $(90.2) million for the years ended December 31, 2008, 2007 and 2006, respectively.

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 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 (loss) income for the years ended December 31 consisted of the following:

   
2008
    
2007
    
2006
                 
Net (expense) income on swap agreements
$
(54,513)
  
$
6,943 
  
$
(7,749)
Change in fair value of swap agreements
(interest rate, currency, and equity)
  
(613,961)
    
(255,727)
    
8,392 
Change in fair value of options, futures and
embedded derivatives
  
(203,070)
    
55,660 
    
8,446 
Total derivative (losses) income
$
(871,544)
  
$
(193,124)
  
$
9,089 

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 counterparties.  The Company currently pledges cash and U.S. Treasury bonds to satisfy this collateral requirement.  At December 31, 2008 and 2007, $400.7 million and $132.9 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 and the fair value of the (liability) asset were as follows for the years ended December 31:

 
2008
 
Notional
  
Fair Value
 
Principal
  
(Liability)
 
Amounts
  
Asset
           
Interest rate swaps
$
14,036,100
  
$
(881,867)
Currency swaps
  
408,773
    
50,554
Credit default swaps
  
55,000
    
(42,067)
Equity swaps
  
5,400
    
2,668
Currency forwards
  
-
    
-
Futures
  
1,991,840
    
(22,819)
Swaptions
  
1,150,000
    
1,863
S&P 500 index call options
  
1,166,148
    
17,125
S&P 500 index put options
  
591,385
    
107,305
           
Total
$
19,404,646
  
$
(767,238)

 
 
 

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, 2008, 2007 and 2006

4. INVESTMENTS (CONTINUED)

DERIVATIVES (continued)

 
2007
 
Notional
  
Fair Value
 
Principal
  
Asset
 
Amounts
  
(Liability)
           
Interest rate swaps
$
11,423,788
  
$
(310,616)
Currency swaps
  
452,533
    
174,311
Credit default swaps
  
55,000
    
(6,915)
Equity swaps
  
71,656
    
19,361
Currency forwards
  
45
    
 -
Futures
  
2,099,368
    
608
Swaptions
  
500,000
    
14
S&P 500 index call options
  
2,619,948
    
250,311
S&P 500 index put options
  
646,640
    
35,547
           
Total
$
17,868,978
  
$
162,621

5. FAIR VALUE MEASUREMENT

On January 1, 2008, the Company adopted SFAS No. 157.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.  SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various methods including market, income and cost approaches.  The Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs.

The impact on January 1, 2008, of adopting SFAS No. 157 was a reduction to the value of the Company’s embedded derivative liabilities of $166.1 million.  This change is primarily a result of changes to the valuation assumptions regarding policyholder behavior, primarily lapses, as well as the incorporation of risk margins and the Company’s own credit standing in the valuation of embedded derivatives.

In compliance with SFAS No. 157, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Please refer to Note 8 regarding the valuation techniques utilized by the Company to measure the fair values included herein.  There were no changes to these techniques during the year ended December 31, 2008.


 
 
 


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

For the years ended December 31, 2008, 2007 and 2006

5. FAIR VALUE MEASUREMENT (CONTINUED)

Financial assets and liabilities recorded at fair value on the Balance Sheets are categorized as follows:

Level 1

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

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

Level 2

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

Level 2 inputs include the following:

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

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

c)  
Inputs other than quoted market prices that are observable

d)  
Inputs that are derived principally from or corroborated by observable market data through correlation or other means

The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government securities not backed by the full faith and credit of the Government, municipal bonds, structured notes and certain MBS and ABS, certain corporate debt, certain private equity investments and certain derivates.

Level 3

·  
Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability.

 
 
 

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, 2008, 2007 and 2006

5. FAIR VALUE MEASUREMENT (CONTINUED)

Generally, the types of assets and liabilities utilizing Level 3 valuations are certain MBS and ABS, certain corporate debt, certain private equity investments, certain mutual fund holdings and certain derivatives, including derivatives embedded in annuity contracts and funding agreements.

Fair Value Hierarchy

The following table presents the Company's categories for its assets measured at fair value on a recurring basis as of December 31, 2008:

   
Level 1
  
Level 2
  
Level 3
  
Total
Assets
                        
Available-for-sale fixed maturities
                        
Asset-backed and mortgage-backed securities
  
$
-
  
$
54,793
  
$
4,466
  
$
59,259
Foreign government
    
-
    
472
    
-
    
472
States and political subdivisions
    
-
    
-
    
-
      
U.S. Treasury and agency securities
    
56,478
    
18,503
    
-
    
74,981
Corporate securities
    
-
    
531,420
    
7,888
    
539,308
Total available-for-sale fixed maturities
    
56,478
    
605,188
    
12,354
    
674,020
                         
Trading fixed maturities
                        
Asset-backed and mortgage-backed securities
    
-
    
1,771,382
    
462,253
    
2,233,635
Foreign governments
    
-
    
84,615
    
9,200
    
93,815
States and political subdivisions
    
-
    
528
    
-
    
528
U.S. Treasury and agency securities
    
445,732
    
57,373
    
-
    
503,105
Corporate securities
    
-
    
8,796,558
    
134,505
    
8,931,063
Total trading fixed maturities
    
445,732
    
10,710,456
    
605,958
    
11,762,146
                         
Derivative instruments - receivable
    
-
    
724,435
    
2,668
    
727,103
Other invested assets
    
36,300
    
143,645
    
-
    
179,945
Cash and cash equivalents
    
1,624,149
    
-
    
-
    
1,624,149
Total investments and cash
    
2,162,659
    
12,183,724
    
620,980
    
14,967,363
                         
Other assets
                        
Separate account assets (1) (2)
    
376,709
    
18,957,344
    
801,873
    
20,135,926
                         
                         
Total assets measured at fair value on a recurring basis
  
$
2,539,368
  
$
31,141,068
  
$
1,422,853
  
$
35,103,289

(1) Pursuant to the conditions set forth in AICPA SOP 03-1, the value of separate account liabilities is set to equal the fair value for separate account assets.

(2) Excludes $395.8 million, primarily related to investment sales receivable, net of investment purchases payable, that are not subject to SFAS No. 157.


 
 
 

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, 2008, 2007 and 2006

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table presents the Company's categories for its liabilities measured at fair value on a recurring basis as of December 31, 2008:

   
Level 1
  
Level 2
  
Level 3
  
Total
Liabilities
                        
Other policy liabilities
                        
Guaranteed minimum withdrawal benefit liability
  
$
-
  
$
- 
  
$
335,612
  
$
335,612 
Guaranteed minimum accumulation benefit liability
    
-
    
- 
    
358,604
    
358,604 
Derivatives embedded in reinsurance contracts
    
-
    
(50,792)
    
-
    
(50,792)
Fixed index annuities
    
-
    
- 
    
106,619
    
106,619 
Total other policy liabilities
    
-
    
(50,792)
    
800,835
    
750,043 
                         
Derivative instruments – payable
    
22,818
    
1,429,457 
    
42,066
    
1,494,341 
                         
Other liabilities
                        
Bank overdrafts
    
87,534
    
-
    
-
    
87,534 
                         
Total liabilities measured at fair value on a recurring basis
  
$
110,352
  
$
1,378,665 
  
$
842,901
  
$
2,331,918 




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for assets and liabilities which are categorized as Level 3 for the year ended December 31, 2008:

Assets
Beginning
balance
Total realized and unrealized
gains (losses)
Purchases,
issuances,
and
settlements
(net)
Transfers in
and/or (out)
of level 3 (2)
Ending
balance
Change in
unrealized gains
(losses) included in
earnings relating
to instruments still
held at the
reporting date
Included in
earnings
Included in
other
comprehensive
income
Available-for-sale fixed maturities
              
Asset-backed and mortgage-backed
securities
$       4,330
(591)
(1,990)
-
2,717
4,466
-
Foreign government
-
-
-
-
-
-
-
States and political subdivisions
-
-
-
-
-
-
-
U.S. Treasury and agency securities
-
-
-
-
-
-
-
Corporate securities
9,039
583
(4,808)
(1,403)
4,477
7,888
-
Total available-for-sale fixed maturities
13,369
(8)
(6,798)
(1,403)
7,194
12,354
-
               
Trading fixed maturities
              
Asset-backed and mortgage-backed
securities
1,085,287
(728,122)
-
38,480
66,608
462,253
(627,739)
Foreign governments
63,331
(1,250)
-
-
(52,881)
9,200
-
States and political subdivisions
-
-
-
-
-
-
-
U.S. Treasury and agency securities
-
-
-
-
-
-
-
Corporate securities
134,446
(37,157)
-
(2,305)
39,521
134,505
(18,872)
Total trading fixed maturities
1,283,064
(766,529)
-
36,175
53,248
605,958
(646,611)
               
Derivative instruments – receivable
24,073
2,487
-
(24,255)
363
2,668
2,668
Other invested assets
-
-
-
  
-
-
-
Cash and cash equivalents
-
-
-
  
-
-
-
Total investments and cash
1,320,506
(764,050)
(6,798)
10,517
60,805
620,980
(643,943)
               
Other assets
              
Separate account assets (1)
1,752,495
(322,652)
-
192,166
(820,136)
801,873
(238,261)
               
Total assets measured at fair value on
a recurring basis
3,073,001
(1,086,702)
(6,798)
202,683
(759,331)
1,422,853
(882,204)

(1)  
The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities which results in a net zero impact on net income for the Company.
(2)  
Transfer in and/or (out) of level 3 during the year ended December 31, 2008 are primarily attributable to changes in the observability of inputs used to price the securities.


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for assets and liabilities which are categorized as Level 3 for the year ended December 31, 2008:
Liabilities
Beginning
balance
Total realized and unrealized
(gains) losses
Purchases,
issuances, and
settlements
(net)
Transfers in
and/or (out)
of level 3
Ending
balance
Change in
unrealized
(gains) losses
included in
earnings relating
to instruments
still held at the
reporting date
Included in
earnings
Included in
other
comprehensive
income
               
Other policy liabilities
              
Guaranteed minimum withdrawal benefit liability
10,151
296,048
-
29,413
-
335,612
297,426
Guaranteed minimum accumulation  benefit liability
22,649
313,928
-
22,027
-
358,604
315,548
Derivatives embedded in reinsurance contracts
-
-
-
-
-
-
-
Fixed index annuities
392,017
(263,765)
-
(21,633)
-
106,619
(206,413)
Total other policy liabilities
424,817
346,211
-
29,807
-
800,835
406,561
               
Derivative instruments – payable
11,627
30,439
-
-
-
42,066
30,440
               
Total liabilities measured at fair value on a recurring basis
436,444
376,650
-
29,807
-
842,901
437,001

The FV Option

SFAS No. 159 provides entities the option to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period.  SFAS No. 159 permits the FV option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument.  The Company adopted SFAS No. 159 as of January 1, 2008.  The Company elected to apply the provisions of SFAS No. 159 for all fixed maturity securities attributable to certain life, health and annuity products, which had previously been designated as available-for-sale.  At December 31, 2007 such available-for-sale securities had a market value of $10.7 billion and an amortized cost of $11.1 billion, and are now classified as trading securities.

The Company adopted the FV option to more closely align the changes in the fair values of its derivative instruments, which are reported as a component of net derivative loss in the statement of operations, with the changes in the fair value of its fixed maturity investments, a significant portion of which are now reported as a component of net investment income in the statement of operations, due to the election of the FV option.  The Company does not employ hedge accounting for any of its derivative instruments.  The Company primarily uses interest rate swaps as part of its asset-liability management strategy, which generally experiences changes in fair value due to interest rate changes.  As such, the Company is attempting to mitigate earnings volatility by electing the FV option for a significant portion of its fixed maturity investment portfolio, which is expected to experience inverse movements in fair value related to interest rate changes.  Additionally, this election provides greater accounting consistency with the Parent and SLF, and will make it possible for the Company to employ different investment strategies in the future, whereby portfolio trading will not influence the Company’s accounting.

In accordance with SFAS No. 159 and SFAS No. 95, “Statement of Cash Flows (as amended),” the Company has changed the presentation of purchases and sales of its fixed maturity securities previously designated as trading in the statement of cash flows, which supports the nature and purpose for which those securities were acquired, which was to not sell them in the near term.  The prior period cash flow has been reclassified to conform to this change.  Purchases and sales of these securities are reported gross in the investing section of the statement of 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, 2008, 2007 and 2006

5. FAIR VALUE MEASUREMENT (CONTINUED)

The FV Option (continued)

Investment income for both trading and available-for-sale fixed maturities is recognized when earned, including amortization of any premium or accrual of any discount, and the effect of estimated principal repayments, if applicable.  Investment income is reported as a component of net investment income in the statement of operations.

As a result of adoption of SFAS No. 159, the Company recorded an increase to opening accumulated other comprehensive income and a related decrease to opening retained earnings of $88.4 million, related to the unrealized loss on investments, net of DAC, VOBA, policyholder liabilities, and tax effects at January 1, 2008, the date of adoption.

6. NET REALIZED INVESTMENT LOSSES

Net realized investment losses on available-for-sale fixed maturities and other investments consisted of the following for the years ended December 31:

 
2008
2007
2006
       
Fixed maturities
$            2,162 
$          (4,107)
$          (53,120)
Equity securities
- 
395 
519 
Mortgage and other loans
360 
780 
1,543 
Real estate
431 
- 
- 
Other invested assets
175 
(32)
(19)
Other-than-temporary impairments
(41,864)
(68,092)
(6,329)
Sales of previously impaired assets
495 
10,008 
12,895 
       
Net realized investment losses
$        (38,241)
$          (61,048)
$          (44,511)

7. NET INVESTMENT (LOSS) INCOME

Net investment (loss) income by asset class consisted of the following for the years ended December 31:

 
2008
2007
2006
       
Fixed maturities - Interest and other income
$      930,217 
$          998,246 
$        1,073,114 
Fixed maturities - Change in fair value and net realized
(losses) gains on trading securities
(3,143,862)
(83,743)
15,608 
Mortgages and other loans
134,963 
153,228 
135,515 
Real estate
8,575 
9,347 
10,460 
Policy loans
44,601 
43,708 
44,516 
Assumed under funds withheld reinsurance agreements
295,409 
27,477 
- 
Ceded under funds withheld reinsurance agreements
(63,513)
(78,246)
(96,984)
Other
23,604 
44,426 
38,858 
Gross investment (loss) income
(1,770,006)
1,114,488 
1,221,087 
Less: Investment expenses
19,829 
15,896 
15,006 
Net investment (loss) income
$  (1,789,835)
$        1,098,592 
$        1,206,081 

 
 
 

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, 2008, 2007 and 2006

7. NET INVESTMENT (LOSS) INCOME (CONTINUED)

Investment income on funds withheld reinsurance portfolios is included as a component of net investment income and is accounted for consistent with the policies outlined in Note 1.

The assumed and ceded investment income relates to certain funds withheld reinsurance agreements. The $267.9 million increase in assumed investment income during 2008 as compared to 2007 relates to the funds withheld reinsurance agreement between Sun Life Vermont, a subsidiary of the Company, and SLOC.  This reinsurance agreement was effective during the fourth quarter of 2007.  The $14.7 million decrease in ceded investment income during 2008 as compared to 2007, primarily relates to the funds withheld reinsurance agreement between the Company and SLOC.

8.  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 at December 31:

 
2008
  
2007
 
Carrying
Estimated
  
Carrying
Estimated
 
Amount
Fair Value
  
Amount
Fair Value
Financial assets:
          
Cash and cash equivalents
$           1,624,149
$           1,624,149
  
$              1,169,701
$             1,169,701
Fixed maturities
12,436,166
12,436,166
  
15,370,241
15,370,241
Mortgages
2,083,003
2,083,089
  
2,318,341
2,324,351
Derivative instruments -receivables
727,103
727,103
  
609,261
605,058
Policy loans
729,407
768,658
  
712,633
712,633
Other invested assets
179,945
179,945
  
533,476
533,476
Separate accounts
20,531,724
20,531,724
  
24,996,603
24,996,603
           
Financial liabilities:
          
Contractholder deposit funds and
other policy liabilities
14,292,665
13,256,964
  
15,716,209
14,060,467
Derivative instruments - payables
1,494,341
1,494,341
  
446,640
442,437
Long-term debt to affiliates
1,998,000
1,998,000
  
1,945,000
1,945,000
Other liabilities
87,534
87,534
  
105,154
105,154
Separate accounts
20,531,724
20,531,724
  
24,996,603
24,996,603

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

Interest receivable on the above financial instruments is stated at carrying value which approximates fair value.

Cash and cash equivalents: The carrying value for cash and cash equivalents approximates fair values due to the short-term nature and liquidity of the balance.


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

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

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

For privately placed fixed maturities, fair values are estimated using matrices, which take into account credit spreads for publicly traded securities of similar credit risk, maturity, prepayment and liquidity characteristics.  A portion of privately placed fixed maturities are also priced using market prices or broker quotes.

Mortgages: The fair values of mortgage and other loans are estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Derivative instruments, receivables and payables: The fair values of swaps are based on current settlement values, dealer quotes and market prices.  Fair values for options and futures are also based on dealer quotes and market prices.

Policy loans:  The fair value of policy loans is determined by estimating future cash flows, discounted at the current average policy loan rate.

Other invested assets:  This financial instrument primarily consists of certain cash instruments and fixed maturity securitites, which were purchased using cash collateral related to a securities lending program in which the Company participates.  The fair value of the cash instrument is consistent with the method used in calculating the fair value of the cash and cash equivalents, as described above.  The pricing methods used for the fixed maturity securities component of the securities lending is as explained in the fair value of fixed maturities above.

Separate accounts, assets and liabilities: The estimated fair value of assets held in separate accounts is based on quoted market prices.  The fair value of liabilities related to separate accounts is the amount payable on demand, which excludes surrender charges.



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Contractholder deposit funds and other policy liabilities: The fair values of the Company's general account insurance reserves and contractholder deposits under investment-type contracts (insurance, annuity and pension contracts that do not involve mortality or morbidity risks) are estimated using discounted cash flow analyses or surrender values based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for all contracts being valued. Those contracts that are deemed to have short-term guarantees have a carrying amount equal to the estimated market value.  The fair values of other deposits with future maturity dates are estimated using discounted cash flows.  The fair values of S&P 500 Index and other equity-linked embedded derivatives are produced using standard derivative valuation techniques.  GMABs or GMWBs are considered to be derivatives under SFAS No. 133 and are included in contractholder deposit funds.  Prior to the adoption of SFAS No. 157, the fair value of the embedded derivatives was calculated stochastically using risk neutral scenarios over a fifty-year projection.  Policyholder assumptions were based on experience studies and industry standards.  Consistent with the provisions of SFAS No. 157, effective January 1, 2008, the Company began incorporating risk margins and the Company’s own credit standing, as well as changes in assumptions regarding policyholder behavior, in the calculation of the fair value of embedded derivatives.

Long term debt: The fair value of notes payable and other borrowings is based on future cash flow discounted at the stated interest rate, considering all appropriate terms of the related agreements. Due to provisions included in such agreements, whereby the issuer of the notes has the ability to call each note at par with appropriate approvals, the fair value is equal to par value.

Other liabilities:  This financial instrument consists of issued checks and transmitted wires that have not been cashed and processed in the Company’s bank accounts at the end of the reporting period.  The fair value of other liabilities is consistent with the method used in calculating the fair value of the cash and cash equivalents, as described above.



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

9. REINSURANCE

Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders.  The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreement.  To minimize its exposure to significant losses from reinsurer insolvencies, the Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.  Management believes that any liability from this contingency is unlikely.

The effects of the Company’s reinsurance agreement were as follows:


 
For the Years Ended December 31,
 
2008
2007
2006
Premiums and annuity considerations:
      
Direct
$           67,938 
$          62,645 
$          61,713 
Assumed
58,961 
50,986 
- 
Ceded
(4,166)
(3,015)
(2,521)
Net premiums and annuity considerations
$         122,733 
$        110,616 
$          59,192 
       
Policyowner benefits:
      
Direct
$          482,737 
$        260,008 
$        197,872 
Assumed
95,086 
30,430 
- 
Ceded
(134,306)
(60,953)
(40,902)
Net policyowner benefits:
$          443,517 
$        229,485 
$        156,970 
       
Commission and expense:
      
Direct
$            13,203 
$            5,617 
$         25,175 
Assumed
28,490 
7,521 
- 
Ceded
(9,560)
(502)
(200) 
Net commission and expense
$            32,133 
$          12,636 
$         24,975 
       
Interest Credited:
      
Direct
$          601,435 
$         693,665 
$       705,943 
Assumed
38,834 
14,075 
8,749 
Ceded
(78,643)
(77,917)
(81,287)
Net interest credited
$          561,626 
$         629,823 
$       633,405 
       
Fee and other income:
      
Direct
$          608,066 
$         599,132 
$       477,600 
Assumed
114,762 
4,495 
- 
Ceded
(158,075)
(123,723)
(78,978)
Net fee and other income
$          564,753 
$         479,904 
$       398,622 



 
 
 

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, 2008, 2007 and 2006

9. REINSURANCE (CONTINUED)

A brief discussion of the Company’s significant reinsurance agreements by business segment follows.  (See Note 17 for additional information on the Company's business segments).

Wealth Management Segment

The Wealth Management Segment manages a closed block of single premium whole life (“SPWL”) insurance policies, a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of SPWL policies in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of approximately $1.6 billion as of December 31, 2008 and 2007.  On December 31, 2003, this entire block of business was reinsured on a funds withheld coinsurance basis with SLOC, an affiliate.

Related to this agreement, the Company held the following assets and liabilities at December 31:

 
2008
  
2007
Assets
          
Reinsurance receivables
$
1,560,946
  
$
1,591,315
Other assets
  
38,998
    
6,380
           
Liabilities
          
Contractholder deposit funds and other policy
liabilities
  
1,428,331
    
1,591,315
Reinsurance payable to an affiliate
  
1,509,989
    
1,574,516

The funds withheld assets are comprised of trading bonds and mortgages being managed by the Company.  The significant decline in the value of the funds withheld assets during the year ended December 31, 2008 increased the value of an embedded derivative which has been separated from the host reinsurance contract and recorded at fair value in the Company’s consolidated balance sheet.  The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $130.6 million at December 31, 2008 and resulted in derivative income of $130.6 million for the year ended December 31, 2008.  Reinsurance payable to affiliates includes a funds withheld liability of $1,510.0 million and $1,534.0 million at December 31, 2008 and 2007.

By reinsuring the SPWL policies, the Company reduced net investment income by $60.3 million, $78.2 million and $97.0 million for the years ended December 31, 2008, 2007 and 2006, respectively.  The Company also reduced interest credited by $74.8 million, $74.8 million and $76.0 million for the years ended December 31, 2008, 2007 and 2006, respectively.  In addition, the Company increased net investment income, relating to an experience rating refund under the reinsurance agreement with SLOC, by $5.3 million, $8.9 million and $13.0 million for the years ended December 31, 2008, 2007 and 2006, 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, 2008, 2007 and 2006

9. REINSURANCE (CONTINUED)

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, UL, individual private placement 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.  In accordance with these agreements, fee income was reduced by $80.0 million, $21.6 million and $37.8 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Pursuant to a reinsurance agreement with SLOC that was effective November 8, 2007, Sun Life Vermont will fund AXXX reserves, attributable to certain UL policies sold by SLOC through its United States branch (the “Branch”).  Sun Life Vermont is reinsuring, on a coinsurance basis, a 100% quota share of SLOC's risk on the UL policies covered under the reinsurance agreement.  New UL business issued through December 31, 2008 has been reinsured under this agreement.  Sun Life Vermont's obligations will be secured in part through a reinsurance trust and in part on a funds-withheld basis.  On November 8, 2007, pursuant to the reinsurance agreement, Sun Life Vermont recorded total assets of $576.9 million, including a funds withheld reinsurance receivable of $551.8 million, deferred costs of $22.4 million, and other assets of $2.8 million.  Total liabilities assumed on November 8, 2007 of $576.9 million consisted of $553.7 million in contractholder deposit account value, $20.4 million in future contract and policy benefits, and other liabilities of $2.8 million.  Under the reinsurance agreement, Sun Life Vermont held the following assets and liabilities at December 31:

 
2008
  
2007
Assets
          
Reinsurance receivable for funds withheld
$
1,105,722 
  
$
626,608 
Reinsurance receivable for deferred costs
  
19,686 
    
22,322 
           
Liabilities
          
Contractholder deposit funds and other policy
liabilities
  
813,387 
    
580,613 
Future contract and policy benefits
  
73,058 
    
23,692 
Other liabilities
  
12,004 
    
33,150 




 
 
 


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, 2008, 2007 and 2006

9. REINSURANCE (CONTINUED)

Individual Protection Segment (continued)

Funds withheld assets comprised of trading bonds, mortgages and derivatives, amounting to $1,105.7 million and $626.6 million at December 31, 2008 and 2007, respectively, are being held in a separate trust account for the protection of policyholders and claimants of the Branch.  The Company recorded assumed investment income of $295.4 million and $27.5 million for the years ended December 31, 2008 and 2007, respectively.  The assets of the trust are managed by SLOC with all of the investment returns, net of expenses, inuring to the Company.  The funds withheld asset is reported as reinsurance receivable.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $91.8 million and $3.1 million at December 31, 2008 and 2007, respectively.  Included in derivative income are losses of $88.7 million and $3.1 million for the years ended December 31, 2008 and 2007, respectively, related to the embedded derivative.

In addition, the reinsurance agreement between SLOC and Sun Life Vermont has increased revenues by approximately $321.2 million and $29.7 million for the years ended December 31, 2008 and 2007, respectively, and increased expenses by $134.0 million and $14.1 million for the years ended December 31, 2008 and 2007, respectively.

Effective December 31, 2007, SLNY entered into a reinsurance agreement with SLOC under which SLOC will fund AXXX reserves, attributable to certain UL policies sold by SLNY.  Under this agreement SLNY ceded, and SLOC assumed, on a funds withheld 90% coinsurance basis certain in-force policies at December 31, 2007.  Future new business will also be reinsured under this agreement.  Related to this agreement, SLNY held the following assets and liabilities at December 31:

 
2008
  
2007
Assets
          
Reinsurance receivables
$
77,628 
  
$
117,293 
Other assets
  
2,676 
    
- 
           
Liabilities
          
Contractholder deposit funds and other policy
liabilities
  
63,210 
    
66,170 
Future contract and policy benefits
  
3,162 
    
3,974 
Reinsurance payable to an affiliate
  
140,832 
    
117,367 
Other liabilities
  
1,057 
    
- 

Reinsurance payable to an affiliate includes a funds withheld liability of $89.4 million and $71.6 million at December 31, 2008 and 2007, respectively; and, a deferred gain of $51.4 million and $45.7 million at December 31, 2008 and 2007, respectively.  The funds withheld assets comprised of trading bonds and mortgages being managed by the Company.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $12.0 million at December 31, 2008 and resulted in derivative income of 12.0 million for the year ended December 31, 2008.

In addition, the reinsurance agreement between SLOC and SLNY has decreased revenues by $9.7 million and decreased expenses by $11.5 million for the year ended December 31, 2008.




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

9. REINSURANCE (CONTINUED)

Group Protection Segment

The Company, through its subsidiary, SLNY, has several agreements with unrelated companies whereby the unrelated companies reinsure the mortality and morbidity risks of certain of the Company’s group contracts.

The Company, through its subsidiary, SLNY, has also an agreement, effective May 31, 2007, to assume the net risks of SLHIC’s New York issued contracts.  At December 31, 2008, SLNY held policyholder liabilities of $32.8 million related to this agreement. In addition, the activities related to the reinsurance agreement have increased revenues by $59.0 million and $51.0 million for the years ended December 31, 2008 and 2007, respectively, and increased expenses by $48.6 million and $34.6 million for the years ended December 31, 2008 and 2007, respectively.




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

10.  RETIREMENT PLANS

Prior to the December 31, 2008 merger of plans described below, the Company sponsored three non-contributory defined benefit pension plans for its employees and certain affiliated employees.  These plans were the staff qualified pension plan (“staff pension plan”), the agents’ qualified pension plan (“agents’ pension plan”) and the staff nonqualified pension plan (“UBF plan”) (collectively, the “Pension Plans”).  Expenses are allocated to participating companies based in a manner consistent with the allocation of employee compensation expenses.  The Company's funding policies for the staff pension plan is to contribute amounts which at least satisfy the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”).  Most pension plan assets consist of separate accounts of SLOC or other insurance company contracts.

Effective December 31, 2008, the agents’ pension plan was merged into the staff pension plan. The plan merger resulted in a transfer from the agents’ pension plan to the staff pension plan of a projected benefit obligation of $8.8 million and plan assets of $28.3 million. The plan merger did not change the provisions of the agents’ pension plan.

Until the funding requirements for the 2009 plan year under the Pension Protection Act of 2006 are determined in April of 2009, the Company is not expected to make contributions to the staff pension plan in 2009.  The Company will be required to make a contribution for the 2009 plan year by September 2010.

Effective November 7, 2007, IFMG ceased to be an affiliated employer under the staff pension plan, when IFMG was sold by the Parent. As of that date, the staff pension plan was amended to allow IFMG to continue as a participating employer. Effective December 9, 2008 the staff pension plan was amended to eliminate IFMG as a participating employer.

Effective January 1, 2007, the agents’ pension plan was amended for a cost of living adjustment for eligible participants.

The Company sponsors a postretirement benefit plan for its employees and certain affiliated employees providing certain health, dental and life insurance benefits for retired employees and dependents (the “Other Post Retirement Benefit Plan”).  Expenses 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.

On May 31, 2007, as part of Sun Life Financial’s acquisition of EBG, the Company provided prior service credit under its retiree medical plan to the transferred EBG employees not currently eligible for those benefits under the corresponding Genworth plan.  Additionally, as part of the acquisition, the fair value of the liabilities assumed by the Company included the unfunded accumulated postretirement benefit obligation (“APBO”) attributable to the prior service cost associated with the transferred EBG employees.  The final purchase price was adjusted at May 31, 2007, to settle the unfunded APBO undertaken by the Company.

On September 29, 2006, the FASB issued SFAS No. 158, which requires recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet.  The measurement date – the date at which the benefit obligation and plan assets are measured – is required to be the Company's fiscal year end.  The Company adopted the balance sheet recognition provisions of SFAS No. 158 at December 31, 2006 and adopted the year end measurement date provisions effective January 1, 2008.  The adoption of the year-end measurement date provisions resulted in a net of tax cumulative-effect decrease of $0.3 million to the Company’s January 1, 2008, other comprehensive income (“OCI”).



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

10.  RETIREMENT PLANS (CONTINUED)

The following tables set forth the change in the Pension Plans’ and Other Post Retirement Benefit Plan’s projected benefit obligations and assets, as well as information on the plans’ funded status at December 31:

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2008
2007
  
2008
2007
Change in projected benefit obligation:
          
Projected benefit obligation at beginning of year
$         262,757 
$        261,380 
  
$         52,229 
$         45,852 
Effect of eliminating early measurement date
1,982 
- 
  
705 
- 
Service cost
3,520 
4,108 
  
1,616 
1,234 
Interest cost
16,617 
15,754 
  
3,332 
2,915 
Actuarial (gain) loss
(3,424)
(11,210)
  
(6,729)
213 
Benefits paid
(10,550)
(8,577)
  
(2,266)
(2,979)
Plan amendments
- 
1,302 
  
- 
- 
Federal subsidy
- 
- 
  
225 
194 
Unfunded APBO as a result of EBG acquisition
- 
- 
  
- 
4,800 
Projected benefit obligation at end of year
$         270,902 
$        262,757 
  
$         49,112 
$         52,229 

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2008
2007
  
2008
2007
Change in fair value of plan assets:
          
Fair value of plan assets at beginning of year
$          291,824 
$        269,712 
  
$              - 
$                   - 
Effect of eliminating early measurement date
1,981 
- 
  
- 
- 
Employer contributions
- 
- 
  
2,266 
2,979
Other
350 
(262)
  
- 
- 
Actual return on plan assets
(88,094)
30,951 
  
- 
- 
Benefits paid
(10,550)
(8,577)
  
(2,266)
(2,979)
Fair value of plan assets at end of year
$          195,511 
$        291,824 
  
$              - 
$                   - 

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2008
2007
  
2008
2007
Information on the funded status of the plan:
          
Funded status
$          (75,391)
$         29,067 
  
$      (49,112)
$       (52,229)
4th quarter contribution
- 
(710)
  
- 
532 
(Accrued) prepaid benefit cost
$          (75,391)
$         28,357 
  
$      (49,112)
$       (51,697)

The accumulated benefit obligation for the Pension Plans at December 31, 2008 and 2007 was $263.1 million and $253.6 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, 2008, 2007 and 2006

10.  RETIREMENT PLANS (CONTINUED)

The Pension Plans were underfunded at December 31, 2008.  For the year ended December 31, 2007, the UBF plan was underfunded. The following table provides information on the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31:

 
Pension Plans
  
Pension Plans
 
2008
  
2007
Projected benefit obligations
$        270,902
  
$        27,277
Accumulated benefit obligation
263,142
  
25,138
Plan assets
195,511
  
-

The staff pension plan and agent’s pension plan were overfunded at December 31, 2007.

Amounts recognized in the Company’s consolidated balance sheets for the Pension Plans and Other Post Retirement Benefit Plan consist of the following, as of December 31:

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2008
2007
  
2008
2007
Other assets
$                      - 
$         59,423 
  
$                    - 
$                   - 
Other liabilities
(75,391)
(31,066)
  
(49,112)
(51,697)
 
$           (75,391)
$         28,357 
  
$         (49,112)
$        (51,697)

Amounts recognized in the Company’s AOCI consist of the following:

 
Pension Plans
  
Other Post Retirement
Benefit Plan
 
2008
2007
  
2008
2007
Net actuarial loss (gain)
$          86,528 
$        (22,103)
  
$           5,563 
$          13,437 
Prior service cost
4,109 
4,529 
  
(3,890)
(4,551)
Transition asset
(3,589)
(6,206)
  
- 
- 
 
$           87,048 
$        (23,780)
  
$           1,673 
$            8,886 

The following table sets forth the effect on retained earnings and AOCI of eliminating the early measurement date:

 
Pension Plans
2008
  
Other Post Retirement
Benefit Plan
2008
Retained earnings
$     (1,346)
  
$     1,334 
       
Amounts amortized from AOCI:
      
Amortization of actuarial loss (gain)
$          198 
  
$     (229)
Amortization of prior service (cost) credit
(83)
  
132 
Amortization of transition asset
524 
  
- 
Total amortization from AOCI
     $          639 
  
$      (97)


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

10.  RETIREMENT PLANS (CONTINUED)

The following table sets forth the components of the net periodic benefit cost and the Company’s share of net periodic benefit costs related to the Pension Plans and Other Post Retirement Benefit Plan for the years ended December 31:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2008
2007
2006
  
2008
2007
2006
Components of net periodic (benefit) cost:
              
Service cost
$     3,520 
$    4,108 
$     6,024 
  
$     1,616 
$   1,234 
$    1,311 
Interest cost
16,617 
15,754 
15,065 
  
3,332 
2,915 
2,967 
Expected return on plan assets
(22,972)
(21,874)
(21,672)
  
- 
- 
- 
Amortization of transition obligation asset
(2,093)
(2,093)
(2,093)
  
- 
- 
- 
Amortization of prior service cost
337 
337 
266 
  
(529)
(529)
(529)
Recognized net actuarial (gain) loss
(792)
(107)
437 
  
916 
912 
1,450 
Net periodic (benefit) cost
$    (5,383)
$   (3,875)
$    (1,973)
  
$     5,335 
$    4,532 
$    5,199 
               
The Company’s share of net periodic (benefit) cost
$    (5,383)
$   (3,875)
$    (1,973)
  
$     4,638 
$    3,910 
$    4,501 

The following table shows changes in the Company’s AOCI related to the Pension Plans and Other Post Retirement Benefit Plan for the following years:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2008
2007
2006
  
2008
2007
2006
Net actuarial loss (gain) arising during the year
$  107,641 
$  (20,287)
$   (1,923)
  
$  (6,729)
$       279 
$ 14,070 
Net actuarial gain (loss) recognized during the year
792 
107 
- 
  
(916)
(912)
- 
Prior service cost arising during the year
- 
1,302 
3,564 
  
- 
- 
(5,080)
Prior service cost recognized during the year
(337)
(337)
- 
  
529 
529 
- 
Transition asset recognized during the year
2,093 
2,093 
- 
  
- 
- 
- 
Transition asset arising during the year
- 
- 
(8,299)
  
- 
- 
- 
Change in effect of additional minimum liability
- 
- 
(2,834)
  
- 
- 
- 
Total recognized in AOCI
110,189 
(17,122)
(9,492)
  
(7,116)
(104)
 8,990 
Tax effect
(38,566)
5,993 
3,322 
  
2,491 
36 
(3,147)
Total recognized in AOCI, net of tax
71,623 
(11,129)
(6,170)
  
(4,625)
(68)
5,843 
               
Total recognized in net periodic benefit cost and
other comprehensive income, net of tax
$   66,240 
$  (15,004)
$   (8,143)
  
$        13 
$    3,842 
$ 10,344 

The estimated amounts that will be amortized from AOCI into net periodic benefit costs in 2009 are as follows:

 
Pension Plans
  
Other Post
Retirement
Benefit Plan
Actuarial gain
$          2,470 
  
$            379 
Prior service cost
337 
  
(529)
Transition asset
(2,093)
  
- 
Total
$            714 
  
$           (150)


 
 
 

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, 2008, 2007 and 2006

10.  RETIREMENT PLANS (CONTINUED)

Assumptions

Weighted average assumptions used to determine benefit obligations for the Pension Plans and Other Post Retirement Benefit Plan were as follows:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2008
2007
2006
  
2008
2007
2006
Discount rate
6.5%
6.35%
6.0%
  
6.5%
6.35%
6.0%
Rate of compensation increase
3.75%
4.0%
4.0%
  
n/a
n/a
n/a

Weighted average assumptions used to determine net benefit cost for the Pension Plans and Other Post Retirement Benefit Plan were as follows:

 
Pension Plans
  
Other Post Retirement Benefit Plan
 
2008
2007
2006
  
2008
2007
2006
Discount rate
6.35%
6.0%
5.8%
  
6.35%
6.0%
5.8%
Expected long term return on plan assets
8.0%
8.25%
8.75%
  
n/a
n/a
n/a
Rate of compensation increase
4.0%
4.0%
4.0%
  
n/a
n/a
n/a

The Company determines the expected long-term rate of return on plan assets by taking the weighted average return expectations based on the long-term return expectations and investment strategy then adjusted for the impact of rebalancing. The difference between actual and expected returns is recognized as a component of unrecognized gains/losses, which is recognized over the average remaining lifetime of inactive participants or the average remaining service lifetime of active participants in the plan, as provided by accounting standards.

In order to measure the Other Post Retirement Benefit Plan’s obligation for 2008, the Company assumed a 9% annual rate of increase in the per capita cost of covered healthcare benefits.  In addition, medical cost inflation is assumed to be 8.5% in 2009 and assumed to decrease gradually to 5.00% for 2014 and remain at that level thereafter.  Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare 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
$           3,608
  
$        (3,446)
Effect on total of service and interest cost
$              434
  
$           (433)




 
 
 

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, 2008, 2007 and 2006

10.  RETIREMENT PLANS (CONTINUED)

Plan Assets

The asset allocation for the Company’s staff pension plan assets for 2008 measurement and staff pension plan and agents’ plan assets for 2007 measurement, and the target allocation for 2009, by asset category, are as follows:

 
Target Allocation
  
Percentage of Plan Assets
Asset Category
2009
  
2008
2007
Equity Securities
60%
  
54%
65%
Debt Securities
25%
  
30%
26%
Commercial Mortgages
15%
  
16%
9%
Total
100%
  
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)
exceeds the return of customized index created by combining benchmark returns in appropriate weightings based on an average asset mix of funds; and
3)
generates a real rate of return of at least 3% after inflation, and sufficient income or liquidity to pay retirement benefits on a timely basis.

The objective of the fund is to maximize the rate of return on assets over the long term. Safety of principal, credit quality and diversification are important considerations. Pursuant with this objective the fund will invest in a diversified portfolio of common stocks and fixed income investments. The fund is permitted to invest in derivative securities as long as the total derivatives exposure does not exceed 20% of the fund’s value.

Cash Flow

The Company does not expect to make contributions to the staff pension plan in 2009. However, the Company will contribute $1.3 million to the UBF plan in 2009.

The Company has estimated the following future benefit payments for the Pension Plans and the future benefit payments and expected federal subsidy for the Other Post Retirement Benefit Plan for the years 2009 through 2018:

     
Other Post Retirement Benefit Plan’s
 
Pension Plans’
Benefits
  
 
Benefits
Expected Federal
Subsidy
2009
$           10,109
  
$           3,128
$           224
2010
10,769
  
3,275
226
2011
11,594
  
3,448
227
2012
12,485
  
3,620
227
2013
13,261
  
3,831
223
2014 to 2018
80,720
  
23,054
982



 
 
 

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, 2008, 2007 and 2006

10.  RETIREMENT PLANS (CONTINUED)

Savings and Investment Plan

The Company sponsors and participates in a savings plan that qualifies under Section 401(k) of the Internal Revenue Code (“the 401(k) Plan”) for which substantially all employees of at least age 21 are eligible to participate at date of hire. Under the 401(k) Plan, the Company matches, up to specified amounts, the employees’ contributions to the plan.

On September 21, 2005, the Board of Directors of the Company approved amendments pertaining to the 401(k) Plan including the following:

Effective January 1, 2006, the 401 (k) Plan also includes a retirement investment account that qualifies under Section 401(a) of the Internal Revenue Code (“the RIA”).  The Company contributes a percentage of the participant’s eligible compensation determined under the following chart based on the sum of the participant’s age and service on January 1 of the applicable plan year.

Age Plus Service
Company Contribution
Less than 40
3%
At least 40 but less than 55
5%
At least 55
7%

For RIA participants who are at least age 40 on January 1, 2006 and whose age plus service on January 1, 2006 equals or exceeds 45, the Company also contributes to the RIA from January 1, 2006 through December 31, 2015, a percentage of the participant’s eligible compensation determined under the following chart based on the participant’s age and service on January 1, 2006.

 
Service
Age
Less than 5 years
5 or more years
At least 40 but less than 43
3.0%
5.0%
At least 43 but less than 45
3.5%
5.5%
At least 45
4.5%
6.5%

For RIA participants who did not become participants in the Other Post Retirement Benefit Plan before January 1, 2006, the Company made a one-time RIA contribution in January 2006 based on their applicable percentage from the first chart above as of January 1, 2006 and their eligible compensation paid during the period beginning on their hire date and ending on December 31, 2005.

The amount of the 2008 employer contributions under the 401(k) Plan for the Company and its affiliates was $22.7 million.  Amounts are allocated to affiliates based on their respective employees’ contributions.  The Company’s portion of the expense was $18.1 million, $16.1 million and $10.8 million for the years ended December 31, 2008, 2007 and 2006, 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, 2008, 2007 and 2006

11. FEDERAL INCOME TAXES

The Company accounts for current and deferred income taxes in the manner prescribed by SFAS No. 109.  A summary of the components of income tax (benefit) expense in the consolidated statements of operations for the years ended December 31 is as follows:

   
2008
  
2007
  
2006
Income tax (benefit) expense:
            
Current
$
(85,841)
$
    (108,526)
$
(5,792)
Deferred
  
(773,142)
  
     84,668 
  
4,180 
             
Total income tax benefit
$
(858,983)
$
  (23,858)
$
(1,612)

Federal income taxes attributable to the Company’s consolidated operations are different from the amounts determined by multiplying income before federal income taxes by the expected federal income tax rate at 35%. The Company's effective rate differed from the federal income tax rate as follows:

   
2008
  
2007
  
2006
             
Expected federal income tax (benefit) expense
$
(1,082,838)
$
407 
$
26,838 
Low income housing credit
  
(4,016)
  
(5,490)
  
(6,225)
Separate account dividend received deduction
  
(18,144)
  
(11,988)
  
(13,090)
Prior year adjustments/settlements
  
(7,279)
  
932 
  
(8,396)
Valuation allowance
  
79,963 
  
- 
  
- 
Goodwill impairment not deductible
  
176,885 
  
- 
  
- 
FIN 48 adjustments/settlements
  
(932)
  
(6,375)
  
- 
Other items
  
(2,628)
  
(1,775)
  
(844)
             
Federal income tax benefit
  
(858,989)
  
(24,289)
  
(1,717)
State income tax expense
  
6 
  
431 
  
105 
             
Total income tax benefit
$
(858,983)
$
(23,858)
$
(1,612)

The net deferred tax asset represents the tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's net deferred tax asset as of December 31 were as follows:

   
2008
    
2007
Deferred tax assets:
          
Actuarial liabilities
$
194,253 
  
$
110,617 
Net operating loss
  
98,958 
    
- 
Investments, net
  
1,331,665 
    
230,416 
Other
  
80,233 
    
- 
   
1,705,109 
    
341,033 
Valuation allowance
  
(79,963)
    
- 
Total deferred tax assets
  
1,625,146 
    
341,033 
           
Deferred tax liabilities:
          
Deferred policy acquisition costs
  
(768,301)
    
(322,461)
Other
  
- 
    
(2,627)
Total deferred tax liabilities
  
(768,301)
    
(325,088)
           
Net deferred tax asset
$
856,845 
  
$
15,945 

 
 
 

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, 2008, 2007 and 2006

11. FEDERAL INCOME TAXES (CONTINUED)

The Company’s net deferred tax asset of $856.8 million at December 31, 2008 is comprised of gross deferred tax assets, gross deferred tax liabilities and a valuation allowance.  The gross deferred tax assets are primarily related to realized and unrealized investment security losses, actuarial liabilities, as well as a current period net operating loss (“NOL”) which, if unutilized, will expire in 2023.

The Company recorded a valuation allowance of $79.9 million in the statement of operations relating to the tax benefits associated with realized investment impairment losses recorded during the third and fourth quarter of 2008.  Management has determined that it is not more likely than not that the losses will be utilized either against prior year capital gains or through the generation of future capital gains within the applicable carry-forward period.

The Company believes that it is more likely than not that the deferred tax assets related to the remaining unrealized investment losses will be realized due to the Company’s intent and ability to hold the related investment securities to recovery of value, whereby a capital loss will not be realized for tax purposes.  Based on the sufficient positive evidence available, specifically existing taxable temporary differences that will reverse in future periods and projected future taxable income, the Company also believes that it is more likely than not that the deferred tax assets for the NOL, tax reserves and other items will be realized.

The Company adopted FIN 48 on January 1, 2007.  FIN 48 establishes a comprehensive reporting model which addresses how a business entity should recognize, measure, present and disclose uncertain tax positions that the entity has taken or plans to take on a tax return.

As a result of the implementation of FIN 48, the Company recognized a decrease of $5.2 million in the liability for UTBs and related net interest, which was accounted for as an increase to its January 1, 2007 balance of retained earnings.  The liability for UTBs related to permanent and temporary tax adjustments, exclusive of interest, was $50.7 million and $63.0 million at December 31, 2008 and December 31, 2007, respectively.  Of the $50.7 million, $6.7 million represents the amount of UTBs that, if recognized, would favorably affect the Company’s effective income tax rate in future periods, exclusive of any related interest.  In addition, consistent with the provisions of FIN 48, the Company reclassified $78.3 million of income taxes from deferred tax liabilities to accrued expenses and taxes at December 31, 2008.

The net (decrease) increase in the tax liability for UTBs of $(12.4) million and $8.9 million in the years ended December 31, 2008 and 2007, respectively, resulted from the following:

   
2008
  
2007
Balance at January 1
$
63,043 
$
54,086 
Gross increases related to tax positions in prior years
  
111,473 
  
20,717 
Gross decreases related to tax positions in prior years
  
(90,772)
  
(11,760)
Gross increases related to tax positions in current year
  
- 
  
- 
Settlements
  
(33,065)
  
- 
Close of tax examinations/statutes of limitations
  
- 
  
- 
         
Balance at December 31
$
50,679 
$
63,043 

The Company has elected on a prospective basis, with the adoption of FIN 48, to recognize interest and penalties accrued related to UTBs in interest expense.  During the year ended December 31, 2008 and 2007, the Company recognized $3.4 million and $2.0 million, respectively, in gross interest related to UTBs.  The Company did not accrue any penalties.

While the Company expects the amount of unrecognized tax liabilities to change in the next twelve months, it does not expect the change to have a significant impact on its results of operations or financial position.


 
 
 

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, 2008, 2007 and 2006

11. FEDERAL INCOME TAXES (CONTINUED)

The Company files federal income tax returns and income tax returns in various state and local jurisdictions.  With few exceptions, the Company is no longer subject to examinations by the tax authorities in these jurisdictions for tax years before 2001.  In August 2006, the IRS issued a Revenue Agent’s Report for the Company’s 2001 and 2002 tax years.  The Company is currently at the Appeals Division of the IRS (“Appeals”) with respect to that two-year audit cycle.  In the first quarter of 2007, the IRS commenced an examination of the Company’s U.S. federal income tax returns for the tax years 2003 and 2004. In October 2008, the IRS issued a Revenue Agent’s Report for the Company’s tax years 2003 and 2004. The Company filed a protest and expects that it will be assigned to Appeals in 2009.  While the final outcome of the appeal and ongoing tax examinations is not determinable, the Company has adequate liabilities accrued as prescribed by FIN 48 and does not believe that any adjustments would be material to its financial position.

The Company will file a consolidated return with SLC -U.S. Ops Holdings for the year ended December 31, 2008 as the Company did for the years ended December 31, 2007 and 2006. The Company’s subsidiaries, INDY and Sun Life Vermont were included as part of the consolidation for the year ended December 31, 2007.  For the year ended December 31, 2007 and 2006, SLNY filed stand-alone federal income tax returns.  INDY filed a stand-alone federal income tax return for the year ended December 31, 2006.

The Company makes or receives payments under certain tax sharing agreements with SLC – U.S. Ops Holdings.  Under these agreements, such payments are determined based on the Company’s stand-alone taxable income (as if it were filing as a separate company) and based upon the SLC - U.S. Ops Holdings’ consolidated group’s overall taxable position.  Sun Life Vermont is subject to an adjustment in the amount payable or receivable under its Tax Allocation Agreement to the extent of a subsequent change in its stand-alone taxable income.  Sun Life Vermont is not required to pay SLC – U.S. Ops Holdings for changes in the consolidated federal tax liability that may result from changes in the timing of the utilization of Sun Life Vermont’s losses in the consolidated federal tax return.  The Company received income tax refunds of $113.2 million and $16.2 million in 2008 and 2007, respectively, and made income tax payments of $22.7 million in 2006.


 
 
 

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, 2008, 2007 and 2006

12.  LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES

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

 
2008
  
2007
       
Balance at January 1
$    74,878 
  
$      36,689 
Less reinsurance recoverable
(5,921)
  
(5,906)
Net balance at January 1
68,957 
  
30,783 
Incurred related to:
      
Current year
79,725 
  
96,377 
Prior years
(6,557)
  
(1,805)
Total incurred
73,168 
  
94,572 
Paid losses related to:
      
Current year
(53,615)
  
(47,531)
Prior years
(22,541)
  
(8,867)
Total paid
(76,156)
  
(56,398)
       
Balance at December 31
71,316 
  
74,878 
Less reinsurance recoverable
(5,347)
  
(5,921)
       
Net balance at December 31
$    65,969 
  
$      68,957 

The Company regularly updates its estimates of liabilities for unpaid claims and claims adjustment expenses as new information becomes available and events occur which may impact the resolution of unsettled claims.  Changes in prior estimates are recorded in results of operations in the year such changes are made.

As a result of changes in estimates of insured events in prior years, the liability for unpaid claims and claims adjustment expense decreased by $6.6 million and $1.8 million in 2008 and 2007, respectively.  The favorable development experienced in both years was driven mainly by better than expected loss experience in group life.


 
 
 

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, 2008, 2007 and 2006

13.  LIABILITIES FOR CONTRACT GUARANTEES

The major provisions of AICPA SOP 03-1 that affect the Company require:

o
Establishment of reserves primarily related to death benefit and income benefit guarantees provided under variable annuity contracts;
o
Deferral of sales inducements that meet certain criteria, and amortization using the same method used for DAC; and,
o
Reporting and measuring the Company’s interest in its separate accounts as investments.

The Company offers various guarantees to certain policyholders including a return of no less than (a) total deposits made on the contract adjusted for any customer withdrawals, (b) total deposits made on the contract adjusted for any customer withdrawals plus a minimum return, or (c) the highest contract value on a specified anniversary date minus any customer withdrawals following the contract anniversary.  These guarantees include benefits that are payable in the event of death, upon annuitization, or at specified dates during the accumulation period of an annuity.

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2008:

Benefit Type
Account Balance
Net Amount
at Risk 1
Average
Attained Age
Minimum Death
$          12,627,787
$           4,398,559
66.7
Minimum Income
$               189,863
$              130,177
60.8
Minimum Accumulation or
Withdrawal
$            4,961,237
$              857,764
63.0

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2007:

Benefit Type
Account Balance
Net Amount
at Risk 1
Average
Attained Age
Minimum Death
$          17,771,546
$         1,318,150
66.4
Minimum Income
$               343,853
$              43,233
60.3
Minimum Accumulation or
Withdrawal
$            5,321,780
$                4,204
62.4

1 Net amount at risk represents the difference between guaranteed benefits and account balance.




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

13.  LIABILITIES FOR CONTRACT GUARANTEES (CONTINUED)

The following roll-forward summarizes the change in reserve for the GMDBs and GMIBs for the year ended December 31, 2008:

 
Guaranteed
Minimum
Death Benefit
  
Guaranteed
Minimum
Income Benefit
  
 
 
Total
Balance at January 1, 2008
$              39,673 
  
$           4,817 
  
$          44,490 
           
Benefit Ratio Change /
Assumption Changes
193,678 
  
15,867 
  
209,545 
Incurred guaranteed benefits
19,072 
  
906 
  
19,978 
Paid guaranteed benefits
(58,226)
  
(3,244)
  
(61,470)
Interest
7,451 
  
427 
  
7,878 
           
Balance at December 31, 2008
$             201,648  
  
$             18,773
  
$           220,421

The following roll-forward summarizes the change in reserve for the GMDBs and GMIBs for the year ended December 31, 2007:

 
Guaranteed
Minimum
Death Benefit
  
Guaranteed
Minimum
Income Benefit
  
 
 
Total
Balance at January 1, 2007
$             39,923 
  
$           1,448 
  
$          41,371 
           
Benefit Ratio Change /
Assumption Changes
3,016 
  
9,206 
  
12,222 
Incurred guaranteed benefits
24,841 
  
704 
  
25,545 
Paid guaranteed benefits
(30,158)
  
(6,613)
  
(36,771)
Interest
2,051 
  
72 
  
2,123 
           
Balance at December 31, 2007
$             39,673 
  
$            4,817 
  
$         44,490 

The liability for death and income benefit guarantees is established equal to a benefit ratio multiplied by the cumulative contract charges earned, plus accrued interest less contract benefit payments.  The benefit ratio is calculated as the estimated present value of all expected contract benefits divided by the present value of all expected contract charges.  The benefit ratio may be in excess of 100%.  For guarantees in the event of death, benefits represent the current guaranteed minimum death payments in excess of the current account balance.  For guarantees at annuitization, benefits represent the present value of the minimum guaranteed annuity benefits in excess of the current account balance.

Projected benefits and assessments used in determining the liability for contract guarantees are developed using models and stochastic scenarios that are also used in the development of estimated expected future gross profits.  Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based upon factors such as eligibility conditions and the annuitant’s attained age.

The liability for guarantees is re-evaluated regularly, and adjustments are made to the liability balance through a charge or credit to policyholder benefits.


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

13.  LIABILITIES FOR CONTRACT GUARANTEES (CONTINUED)

Guaranteed minimum accumulation benefits (“GMABs”) and withdrawal benefits (“GMWBs”) are considered to be derivatives under SFAS No. 133 and are recorded at fair value through earnings. Prior to the adoption of SFAS No. 157, the fair value of the embedded derivatives was calculated stochastically using risk neutral scenarios over a fifty-year projection.  Policyholder assumptions were based on experience studies and industry standards.  Consistent with the provisions of SFAS No. 157, effective January 1, 2008, the Company began incorporating the following unobservable inputs in its calculation of the embedded derivatives:

Actively-Managed Volatility Adjustments - This component incorporates the basis differential between the observable implied volatilities for each index and the actively-managed funds underlying the variable annuity product.  The adjustment is based on historical actively-managed fund volatilities and historical weighted-average index volatilities.

Credit Standing Adjustment - This component makes an adjustment that market participants would make to reflect the non-performance risk associated with the embedded derivatives.  The adjustment is based on the published credit spread for insurance companies with a rating equal to the rating of the Company.

Behavior Risk Margin - This component adds a margin that market participants would require for the risk that the Company's best estimate policyholder behavior assumptions could differ from actual experience.  This risk margin is determined by taking the difference between the fair value based on adverse policyholder behavior assumptions and the fair value based on best estimate policyholder behavior assumptions, using assumptions the Company believes market participants would use in developing risk margins.

The net balance of GMABs and GMWBs constituted a liability in the amount of $694.2 million and $37.4 million at December 31, 2008 and 2007, respectively.

14. DEFERRED POLICY ACQUISITION COSTS

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

 
2008
  
2007
Balance at January 1
$
1,603,397
  
$
1,234,206
Acquisition costs deferred
  
365,918
    
356,087
Amortized to expense during the year
  
893,086
    
(169,799)
Adjustment for unrealized investment losses during the year
  
-
    
182,903
Balance at December 31
$
2,862,401
  
$
1,603,397

See Note 1 for information regarding the deferral and amortization methodologies related to DAC.  The Company tests its DAC asset for future recoverability, and has determined that the asset is not impaired at December 31, 2008.



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

15. VALUE OF BUSINESS AND CUSTOMER RENEWALS ACQUIRED

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

 
2008
  
2007
Balance at January 1
$
51,806
  
$
47,744 
Amount capitalized due to acquisition of new business
  
-
    
23,854 
Amortized to expense during the year
  
128,019
    
(19,322)
Adjustment for unrealized investment gains during the year
  
-
    
(470)
Balance at December 31
$
179,825
  
$
51,806 

Additions to VOBA and VOCRA for the year ended December 31, 2007, were a result of the SLHIC to SLNY asset transfer, as described in Note 2.  VOBA transferred was $7.6 million and the value of customer renewals transferred was $16.2 million. Decreased actual gross profits in 2008 contributed to negative amortization and an increase to the VOBA asset.  The Company tests its VOBA asset for future recoverability, and has determined that the asset is not impaired at December 31, 2008.

16. CONSOLIDATING FINANCIAL INFORMATION

The following consolidating financial statements are provided in compliance with Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”) and in accordance with SEC Rule 12h-5.

The Company’s wholly-owned subsidiary, SLNY, sells, among other products, combination fixed and variable annuity contracts (the “Contracts”) in the State of New York.  These Contracts contain a fixed investment option, where interest is paid at a guaranteed rate for a specified period of time, and withdrawals made before the end of the specified period may be subject to a market value adjustment that can increase or decrease the amount of the withdrawal proceeds (the “fixed investment option period”).  Effective September 27, 2007, the Company provided a full and unconditional guarantee (the “guarantee”) of SLNY’s obligation related to the Contracts’ fixed investment option period related to policies currently in-force or sold on or after September 30, 2007.  The guarantee relieves SLNY of its obligation to file annual, quarterly, and current reports with the SEC on Form 10-K, Form 10-Q and Form 8-K.

In the following presentation of consolidating financial statements, the term “SLUS as Parent” is used to denote the Company as a stand-alone entity, isolated from its subsidiaries and the term “Other Subs” is used to denote the Company's other subsidiaries, with the exception of SLNY.  All consolidating financial statements are presented in thousands.


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations
For the year ended December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Revenues
                            
                             
Premiums and annuity considerations
$
16,066 
  
$
106,667 
  
$
- 
  
$
- 
  
$
122,733 
Net investment (loss) income (1)
  
(1,862,501)
    
(112,508)
    
185,174 
    
- 
    
(1,789,835)
Net derivative loss (2)
  
(573,399)
    
(32,059)
    
(266,086)
    
- 
    
(871,544)
Net realized investment losses
  
(21,852)
    
(10,986)
    
(5,403)
    
- 
    
(38,241)
Fee and other income
  
436,075 
    
9,681 
    
118,997 
    
- 
    
564,753 
   
(2,005,611)
    
(39,205)
    
32,682 
    
- 
    
(2,012,134)
Total revenues
                            
                             
Benefits and Expenses
                            
                             
Interest credited
  
483,769 
    
45,129 
    
32,728 
    
- 
    
561,626 
Interest expense
  
60,887 
    
(602)
    
46,492 
    
- 
    
106,777 
Policyowner benefits
  
306,404 
    
80,789 
    
56,324 
    
- 
    
443,517 
Amortization of DAC, VOBA and VOCRA (3)
  
(963,422)
    
(82,218)
    
24,614 
    
- 
    
(1,021,026)
Goodwill impairment
  
658,051 
    
37,788 
    
5,611 
    
- 
    
701,450 
Other operating expenses
  
214,654 
    
44,725 
    
29,967 
    
- 
    
289,346 
                             
Total benefits and expenses
  
760,343 
    
125,611 
    
195,736 
    
- 
    
1,081,690 
                             
Loss before income tax benefit
  
(2,765,954)
    
(164,816)
    
(163,054)
    
- 
    
(3,093,824)
                             
Income tax benefit expense
  
(772,699)
    
(41,418)
    
(44,866)
    
- 
    
(858,983)
Equity in the net loss of subsidiaries
  
(241,586)
    
- 
    
- 
    
241,586 
    
- 
                             
Net loss
$
(2,234,841)
  
$
(123,398)
  
$
(118,188)
  
$
241,568 
  
$
(2,234,841)

(1)
SLUS’, SLNY’s and Other Subs’ net investment (loss) income includes a decrease in market value of $2,448.8 million, $154.9 million and $159.2 million, respectively, for the year ended December 31, 2008, related to the Company’s trading securities.
(2)
SLUS’ and SLNY’s net derivative loss for the year ended December 31, 2008 includes $165.8 million and $0.3 million, respectively, of income related to the Company’s adoption of SFAS No. 157, which is further discussed in Note 5.
(3)
SLUS’ and SLNY’s amortization of DAC, VOBA, and VOCRA for year ended December 31, 2008 includes $3.0 million and $0.2 million, respectively, of expenses related to the Company’s adoption of SFAS No. 157, which is further discussed in Note 5.



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations
For the year ended December 31, 2007

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Revenues
                            
                             
Premiums and annuity considerations
$
15,330 
  
$
95,286 
  
$
- 
  
$
- 
  
$
110,616 
Net investment income (1)
  
941,185 
    
94,309 
    
63,098 
    
- 
    
1,098,592 
Net derivative loss
  
(185,682)
    
(3,967)
    
(3,475)
    
- 
    
(193,124)
Net realized investment losses
  
(57,547)
    
(3,487)
    
(14)
    
- 
    
(61,048)
Fee and other income
  
445,248 
    
26,648 
    
8,008 
    
- 
    
479,904 
Subordinated notes early redemption premium
  
- 
    
- 
    
25,578 
    
- 
    
25,578 
                             
Total revenues
  
1,158,534 
    
208,789 
    
93,195 
    
- 
    
1,460,518 
                             
Benefits and Expenses
                            
                             
Interest credited
  
571,309 
    
51,390 
    
7,124 
    
- 
    
629,823 
Interest expense
  
75,052 
    
74 
    
26,406 
    
- 
    
101,532 
Policyowner benefits
  
155,903 
    
69,309 
    
4,273 
    
- 
    
229,485 
Amortization of DAC, VOBA and VOCRA
  
165,666 
    
19,921 
    
 3,534 
    
- 
    
189,121 
Other operating expenses
  
238,810 
    
37,061 
    
7,944 
    
- 
    
283,815 
Partnership capital securities early redemption
payment
  
 
- 
    
 
- 
    
 
25,578 
    
 
- 
    
 
25,578 
                             
Total benefits and expenses
  
1,206,740 
    
177,755 
    
74,859 
    
- 
    
1,459,354 
                             
(Loss) income before income tax (benefit) expense
  
(48,206)
    
31,034 
    
18,336 
    
- 
    
1,164 
                             
Income tax (benefit) expense
  
(40,222)
    
10,231 
    
6,133 
    
- 
    
(23,858)
Equity in the net income of subsidiaries
  
33,006 
    
- 
    
1,811 
    
(34,817)
    
- 
                             
Net income
$
25,022 
  
$
20,803 
  
$
14,014 
  
$
(34,817)
  
$
25,022 

(1)
SLUS’ and Other Subs’ net investment income includes a (decrease) increase in market value of $(89.2) million and $0.8 million, respectively, for the year ended December 31, 2007 related to the Company’s trading securities.




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations
For the year ended December 31, 2006

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Revenues
                            
                             
Premiums and annuity considerations
$
20,870 
  
$
38,322 
  
$
- 
  
$
- 
  
$
59,192 
Net investment income (1)
  
1,049,425 
    
97,365 
    
59,784 
    
(493)
    
1,206,081 
Net derivative income
  
8,596 
    
- 
    
- 
    
493 
    
9,089 
Net realized investment losses
  
(38,327)
    
(6,081)
    
(103)
    
- 
    
(44,511)
Fee and other income
  
375,144 
    
21,083 
    
2,395 
    
- 
    
398,622 
                             
Total revenues
  
1,415,708 
    
150,689 
    
62,076 
    
- 
    
1,628,473 
                             
Benefits and Expenses
                            
                             
Interest credited
  
573,178 
    
56,379 
    
3,848 
    
- 
    
633,405 
Interest expense
  
79,637 
    
- 
    
51,157 
    
8 
    
130,802 
Policyowner benefits
  
126,393 
    
29,257 
    
1,320 
    
- 
    
156,970 
Amortization DAC, VOBA and VOCRA
  
380,760 
    
18,422 
    
- 
    
- 
    
399,182 
Other operating expenses
  
207,903 
    
22,988 
    
551 
    
(8)
    
231,434 
                             
Total benefits and expenses
  
1,367,871 
    
127,046 
    
56,876 
    
- 
    
1,551,793 
                             
Income before income tax (benefit) expense
  
47,837 
    
23,643 
    
5,200 
    
- 
    
76,680 
                             
Income tax (benefit) expense
  
(10,495)
    
7,410 
    
1,473 
    
- 
    
(1,612)
Equity in the net income of subsidiaries
  
19,960 
    
- 
    
3,096 
    
(23,056)
    
- 
                             
Net income
$
78,292 
  
$
16,233 
  
$
6,823 
  
$
(23,056)
  
$
78,292 


(1)
SLUS’ net investment income includes a decrease in market value of $15.2 million for the year ended December 31, 2006 related to the Company’s trading securities



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Balance Sheets at December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
ASSETS
                            
                             
Investments
                            
Available-for-sale fixed maturities at fair value
$
476,180 
  
$
148,124 
  
$
49,716 
  
$
- 
  
$
674,020 
Trading fixed maturities at fair value
  
9,639,477 
    
988,809 
    
1,133,860 
    
- 
    
11,762,146 
Investment in subsidiaries
  
450,444 
    
- 
    
- 
    
(450,444)
    
- 
Mortgage loans
  
1,911,114 
    
171,889 
    
- 
    
- 
    
2,083,003 
Derivative instruments – receivable
  
727,103 
    
- 
    
- 
    
- 
    
727,103 
Limited partnerships
  
78,289 
    
- 
    
- 
    
- 
    
78,289 
Real estate
  
157,403 
    
- 
    
44,067 
    
- 
    
201,470 
Policy loans
  
704,548 
    
156 
    
24,703 
    
- 
    
729,407 
Other invested assets
  
206,902 
    
4,529 
    
- 
    
- 
    
211,431 
Cash and cash equivalents
  
1,202,336 
    
377,958 
    
43,855 
    
- 
    
1,624,149 
Total investments and cash
  
15,553,796 
    
1,691,465 
    
1,296,201 
    
(450,444)
    
18,091,018 
                             
Accrued investment income
  
250,170 
    
15,226 
    
17,168 
    
- 
    
282,564 
Deferred policy acquisition costs
  
2,555,042 
    
233,401 
    
73,958 
    
- 
    
2,862,401 
Value of business and customer renewals acquired
  
169,083 
    
10,742 
    
- 
    
- 
    
179,825 
Net deferred tax asset
  
910,344 
    
22,627 
    
- 
    
(76,126)
    
856,845 
Goodwill
  
- 
    
7,299 
    
-  
    
- 
    
7,299 
Receivable for investments sold
  
6,743 
    
430 
    
375 
    
- 
    
7,548 
Reinsurance receivable
  
1,872,687 
    
82,976 
    
1,120,952 
    
- 
    
3,076,615 
Other assets
  
200,218 
    
20,835 
    
1,787 
    
- 
    
222,840 
Separate account assets
  
19,797,280 
    
690,524 
    
43,920 
    
- 
    
20,531,724 
                             
Total assets
$
41,315,363 
  
$
2,775,525 
  
$
2,554,361 
  
$
(526,570)
  
$
46,118,679 
                             
LIABILITIES
                            
                             
Contractholder deposit funds and other policy liabilities
$
15,351,097 
  
$
1,348,109 
  
$
846,515 
  
$
- 
  
$
17,545,721 
Future contract and policy benefits
  
847,228 
    
93,975 
    
73,485 
    
- 
    
1,014,688 
Payable for investments purchased
  
212,788 
    
150,160 
    
565 
    
- 
    
363,513 
Accrued expenses and taxes
  
81,362 
    
(21,325)
    
58,634 
    
- 
    
118,671 
 Deferred tax liability
  
- 
    
- 
    
76,126 
    
(76,126)
    
- 
Debt payable to affiliates
  
883,000 
    
- 
    
1,115,000 
    
- 
    
1,998,000 
Reinsurance payable to affiliate
  
1,509,989 
    
140,832 
    
- 
    
- 
    
1,650,821 
Derivative instruments – payable
  
1,327,126 
    
- 
    
167,215 
    
- 
    
1,494,341 
Other liabilities
  
510,238 
    
44,597 
    
51,110 
    
- 
    
605,945 
Separate account liabilities
  
19,797,280 
    
690,524 
    
43,920 
    
- 
    
20,531,724 
                             
Total liabilities
  
40,520,108 
    
2,446,872 
    
2,432,570 
    
(76,126)
    
45,323,424 
                             
STOCKHOLDER’S EQUITY
                            
                             
Common stock
$
6,437 
  
$
2,100 
  
$
2,542 
  
$
(4,642)
  
$
6,437 
Additional paid-in capital
  
2,872,242 
    
389,963 
    
209,749 
    
(599,712)
    
2,872,242 
Accumulated other comprehensive loss
  
(129,884)
    
(20,008)
    
(3,626)
    
23,634 
    
(129,884)
Accumulated deficit
  
(1,953,540)
    
(43,402)
    
(86,874)
    
130,276 
    
(1,953,540)
                             
Total stockholder’s equity
  
795,255 
    
328,653 
    
121,791 
    
(450,444)
    
795,255  
                             
Total liabilities and stockholder’s equity
$
41,315,363 
  
$
2,775,525 
  
$
2,554,361 
  
$
(526,570) 
  
$
46,118,679 

 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Balance Sheets at December 31, 2007

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
ASSETS
                            
                             
Investments
                            
Available-for-sale fixed maturities at fair value
$
10,157,376 
  
$
1,288,568 
  
$
57,286 
  
$
- 
  
$
11,503,230 
Trading fixed maturities at fair value
  
3,288,671 
    
- 
    
578,340 
    
- 
    
3,867,011 
Investment in subsidiaries
  
559,851 
    
- 
    
- 
    
(559,851)
    
- 
Mortgage loans
  
2,146,286 
    
170,205 
    
1,850 
    
- 
    
2,318,341 
Derivative instruments – receivable
  
609,261 
    
- 
    
- 
    
- 
    
609,261 
Limited partnerships
  
164,464 
    
- 
    
- 
    
- 
    
164,464 
Real estate
  
157,147 
    
- 
    
44,630 
    
- 
    
201,777 
Policy loans
  
686,099 
    
118 
    
26,416 
    
- 
    
712,633 
Other invested assets
  
499,538 
    
69,138 
    
- 
    
- 
    
568,676 
Cash and cash equivalents
  
415,494 
    
65,901 
    
688,306 
    
- 
    
1,169,701 
Total investments and cash
  
18,684,187 
    
1,593,930 
    
1,396,828 
    
(559,851)
    
21,115,094 
                             
Accrued investment income
  
268,732 
    
15,245 
    
6,386 
    
- 
    
290,363 
Deferred policy acquisition costs
  
1,469,976 
    
118,126 
    
15,295 
    
- 
    
1,603,397 
Value of business and customer renewals acquired
  
35,735 
    
16,071 
    
- 
    
- 
    
51,806 
Net deferred tax asset
  
171,899 
    
- 
    
- 
    
(155,954)
    
15,945 
Goodwill
  
658,051 
    
45,167 
    
5,611 
    
- 
    
708,829 
Receivable for investments sold
  
2,796 
    
615 
    
71 
    
- 
    
3,482 
Reinsurance receivable
  
1,937,814 
    
123,214 
    
648,221 
    
- 
    
2,709,249 
Other assets
  
278,573 
    
32,877 
    
155,221 
    
(154,672)
    
311,999 
Separate account assets
  
23,996,463 
    
929,008 
    
71,132 
    
- 
    
24,996,603 
                             
Total assets
$
47,504,226 
  
$
2,874,253 
  
$
2,298,765 
  
$
(870,477)
  
$
51,806,767 
                             
LIABILITIES
                            
                             
Contractholder deposit funds and other policy liabilities
$
16,361,329 
  
$
1,285,259 
  
$
615,981 
  
$
- 
  
$
18,262,569 
Future contract and policy benefits
  
706,657 
    
93,001 
    
23,930 
    
- 
    
823,588 
Payable for investments purchased
  
169,606 
    
635 
    
28,969 
    
- 
    
199,210 
Accrued expenses and taxes
  
169,532 
    
22,915 
    
85,290 
    
(154,672)
    
123,065 
Deferred tax liability
  
- 
    
1,045 
    
154,909 
    
(155,954)
    
-
Debt payable to affiliates
  
945,000 
    
- 
    
1,000,000 
    
- 
    
1,945,000 
Reinsurance payable to affiliate
  
1,574,517 
    
117,367 
    
- 
    
- 
    
1,691,884 
Derivative instruments – payable
  
446,508 
    
- 
    
132 
    
- 
    
446,640 
Other liabilities
  
704,467 
    
107,458 
    
76,136 
    
- 
    
888,061 
Separate account liabilities
  
23,996,463 
    
929,008 
    
71,132 
    
- 
    
24,996,603 
                             
Total liabilities
  
45,074,079 
    
2,556,688 
    
2,056,479 
    
(310,626)
    
49,376,620 
                             
STOCKHOLDER’S EQUITY
                            
                             
Common stock, $1,000 par value
$
6,437 
  
$
2,100 
  
$
2,542 
  
$
(4,642)
  
$
6,437 
Additional paid-in capital
  
2,146,436 
    
239,963 
    
274,555 
    
(514,518)
    
2,146,436 
Accumulated other comprehensive loss
  
(92,403)
    
(11,924)
    
(1,333)
    
13,257 
    
(92,403)
Retained earnings (Accumulated deficit)
  
369,677 
    
87,426 
    
(33,478)
    
(53,948)
    
369,677 
                             
Total stockholder’s equity
  
2,430,147 
    
317,565 
    
242,286 
    
(559,851)
    
2,430,147 
                             
Total liabilities and stockholder’s equity
$
47,504,226 
  
$
2,874,253 
  
$
2,298,765 
  
$
(870,477)
  
$
51,806,767 


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow
For the year ended December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Operating Activities:
                            
Net loss from operations
$
(2,234,841)
  
$
(123,398)
  
$
(118,188)
  
$
241,586 
  
$
(2,234,841)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
                            
Net amortization of premiums on investments
  
27,009 
    
2,663 
    
(1,301)
    
- 
    
28,371 
Amortization of DAC, VOBA and VOCRA
  
(963,422)
    
(82,218)
    
24,614 
    
- 
    
(1,021,026)
Depreciation and amortization
  
5,478 
    
311 
    
922 
    
- 
    
6,711 
Net loss on derivatives
  
522,838 
    
32,059 
    
257,820 
    
- 
    
812,717 
Net realized losses on available-for-sale
investments
  
21,852 
    
10,986 
    
5,403 
    
- 
    
38,241 
Changes in fair value of trading investments
  
2,448,822 
    
154,926 
    
159,145 
    
- 
    
2,762,893 
Net realized losses on trading investments
  
324,369 
    
30,622 
    
25,978 
    
- 
    
380,969 
Net change in unrealized and undistributed losses
in private equity limited partnerships
  
(9,796)
    
- 
    
- 
    
- 
    
(9,796)
Interest credited to contractholder deposits
  
483,769 
    
45,129 
    
32,728 
    
- 
    
561,626 
Goodwill impairment
  
658,051 
    
37,788 
    
5,611 
    
- 
    
701,450 
Investment in subsidiaries
  
241,586 
    
- 
    
- 
    
(241,586)
    
- 
Deferred federal income taxes
  
(680,276)
    
(15,318)
    
(77,549)
    
- 
    
(773,143)
Changes in assets and liabilities:
                            
Additions to DAC, VOBA and VOCRA
  
(254,761)
    
(27,648)
    
(83,277)
    
- 
    
(365,686)
Accrued investment income
  
18,562 
    
19 
    
(10,782)
    
- 
    
7,799 
Net reinsurance receivable/payable
  
145,172 
    
66,699 
    
(472,731)
    
- 
    
(260,860)
Future contract and policy benefits
  
140,571 
    
898 
    
49,555 
    
- 
    
191,024 
Dividends received from subsidiaries
  
- 
    
- 
    
- 
    
- 
    
- 
Other, net
  
29,356 
    
122,486 
    
101,318 
    
- 
    
253,160 
                             
Net cash provided by (used in) operating activities
  
924,339 
    
256,004 
    
(100,734)
    
- 
    
1,079,609 
                             
Cash Flows From Investing Activities:
                            
Sales, maturities and repayments of:
                            
Available-for-sale fixed maturities
  
89,468 
    
6,440 
    
5,849 
    
- 
    
101,757 
Trading fixed maturities
  
1,469,669 
    
194,980 
    
143,849 
    
- 
    
1,808,498 
Mortgage loans
  
258,736 
    
15,202 
    
20,672 
    
- 
    
294,610 
Real estate
  
1,141 
    
- 
    
- 
    
- 
    
1,141 
Other invested assets
  
629,692 
    
64,482 
    
(2,017)
    
- 
    
692,157 
Purchases of:
                            
Available-for-sale fixed maturities
  
(107,709)
    
(14,027)
    
(7,738)
    
- 
    
(129,474)
Trading fixed maturities
  
(1,005,670)
    
(258,714)
    
(910,759)
  
- 
    
(2,175,143)
Mortgage loans
  
(23,285)
    
(16,650)
    
(19,000)
    
- 
    
(58,935)
Real estate
  
(5,055)
    
- 
    
(359)
    
- 
    
(5,414)
Other invested assets
  
(122,447)
    
- 
    
- 
    
- 
    
(122,447)
Net change in other investments
  
(285,810)
    
(64,154)
    
- 
    
- 
    
(349,964)
Net change in policy loans
  
(18,449)
    
(38)
    
1,713 
    
- 
    
(16,774)
                             
Net cash provided by (used in) investing activities
$
880,281 
  
$
(72,479)
  
$
(767,790)
  
$
- 
  
$
40,012 

 
 
 

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, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow (continued)
For the year ended December 31, 2008

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Financing Activities:
                            
Additions to contractholder deposit funds
$
1,744,752 
  
$
330,909 
  
$
114,438 
  
$
- 
  
$
2,190,099 
Withdrawals from contractholder deposit funds
  
(3,262,864)
    
(348,243)
    
(5,351)
    
- 
    
(3,616,458)
Additional capital contribution to subsidiaries
  
(150,000)
    
- 
    
- 
    
150,000 
    
- 
Debt proceeds
  
60,000 
    
- 
    
115,000 
    
- 
    
175,000 
Repayments of debt
  
(122,000)
    
- 
    
- 
    
- 
    
(122,000)
Capital contribution from parent
  
725,000 
    
150,000 
    
- 
    
(150,000)
    
725,000 
Other, net
  
(12,666)
    
(4,134)
    
(14)
    
- 
    
(16,814)
                             
Net cash used in financing activities
  
(1,017,778)
    
128,532 
    
224,073 
    
- 
    
(665,173)
                             
Net change in cash and cash equivalents
  
786,842 
    
312,057 
    
(644,451)
    
- 
    
454,448 
                             
Cash and cash equivalents, beginning of period
  
415,494 
    
65,901 
    
688,306 
    
- 
    
1,169,701 
                             
Cash and cash equivalents, end of period
$
1,202,336 
  
$
377,958 
  
$
43,855 
  
$
- 
  
$
1,624,149 



 
 
 

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, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow
For the year ended December 31, 2007

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Operating Activities:
                            
Net income from operations
$
25,022 
  
$
20,803 
  
$
14,014 
  
$
(34,817)
  
$
25,022 
Adjustments to reconcile net income to net cash
provided by operating activities:
                            
Net amortization of premiums on investments
  
38,661 
    
1,782 
    
225 
    
- 
    
40,668 
Amortization of DAC, VOBA and VOCRA
  
165,666 
    
19,921 
    
3,534 
    
- 
    
189,121 
Depreciation and amortization
  
6,467 
    
164 
    
829 
    
- 
    
7,460 
Net loss on derivatives
  
124,290 
    
3,970 
    
3,243 
    
- 
    
131,503 
Net realized losses on available-for-sale
investments
  
 
57,547 
    
 
3,487 
    
 
14 
    
 
- 
    
 
61,048 
Changes in fair value of trading investments
  
89,159 
    
- 
    
(761)
    
- 
    
88,398 
Net realized gains on trading investments
  
(3,438)
    
- 
    
(1,217)
    
- 
    
(4,655)
Net change in unrealized and undistributed gains
in private equity limited partnerships
  
 
(23,027)
    
 
- 
    
 
- 
    
 
- 
    
 
(23,027)
Interest credited to contractholder deposits
  
571,309 
    
51,390 
    
7,124 
    
- 
    
629,823 
Deferred federal income taxes
  
(114,110)
    
290 
    
157,186 
    
- 
    
43,366 
Equity in net income of subsidiaries
  
(33,006)
    
- 
    
(1,811)
    
34,817 
    
- 
Changes in assets and liabilities:
                            
DAC, VOBA and VOCRA additions
  
(304,466)
    
(56,650)
    
(18,825)
    
- 
    
(379,941)
Accrued investment income
  
(2,591)
    
(120)
    
3,566 
    
- 
    
855 
Net reinsurance receivable/payable
  
127,619 
    
59 
    
(94,517)
    
- 
    
33,161 
Future contract and policy benefits
  
3,184 
    
39,436 
    
23,930 
    
- 
    
66,550 
Dividends received from subsidiaries
  
63,995 
    
- 
    
- 
    
(63,995)
    
- 
Other, net
  
(122,356)
    
4,931 
    
(16,931)
    
- 
    
(134,356)
                             
Net cash provided by operating activities
  
669,925 
    
89,463 
    
79,603
    
(63,995)
    
774,996 
                             
Cash Flows From Investing Activities:
                            
Sales, maturities and repayments of:
                            
Available-for-sale fixed maturities
  
3,847,569
    
337,825
    
67,386
    
- 
    
4,252,780
Trading fixed maturities
  
608,231
    
-
    
120,402
    
-
    
728,633
Mortgage loans
  
314,620
    
40,526
    
- 
    
- 
    
355,146
Other invested assets
  
669,930
    
24
    
960
    
(3,231)
    
667,683
Redemption of subordinated note from affiliate
  
- 
    
- 
    
600,000
    
- 
    
600,000
Purchases of:
                            
Available-for-sale fixed maturities
  
(2,366,255)
    
(205,932)
    
14,346
    
- 
    
(2,557,841)
Trading fixed maturities
  
(132,891)
    
-
    
(696,578)
    
-
    
(829,469)
Mortgage loans
  
(348,256)
    
(49,460)
    
(1,850)
    
- 
    
(399,566)
Real estate
  
(3,590)
    
- 
    
(15,849)
    
- 
    
(19,439)
Other invested assets
  
(57,864)
    
(3,231)
    
- 
    
3,231 
    
(57,864)
Early redemption premium
  
- 
    
- 
    
25,578
    
- 
    
25,578
Net change in other investing activities
  
(365,012)
    
3,231 
    
- 
    
- 
    
(361,781)
Net change in policy loans
  
(13,546)
    
21 
    
10,518
    
- 
    
(3,007)
                             
Net cash provided by investing activities
$
2,152,936 
  
$
123,004 
  
$
124,913
  
$
- 
  
$
2,400,853 

Continued on next page


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow (continued)
For the year ended December 31, 2007

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Financing Activities:
                            
Additions to contractholder deposit funds
$
1,725,614 
  
$
180,702 
  
$
18,468 
  
$
- 
  
$
1,924,784 
Withdrawals from contractholder deposit funds
  
(4,132,822)
    
(388,199)
    
(12,384)
    
- 
    
(4,533,405)
Repayments of debt
  
(380,000)
    
- 
    
(600,000)
    
- 
    
(980,000)
Debt proceeds
  
- 
    
- 
    
1,000,000 
    
- 
    
1,000,000 
Dividends paid to parent
  
- 
    
- 
    
(63,995)
    
63,995 
    
- 
Early redemption payment
  
- 
    
- 
    
(25,578)
    
- 
    
(25,578)
Additional capital contributed to subsidiaries
  
(156,620)
    
- 
    
156,620 
    
- 
    
- 
Other, net
  
23,271 
    
6,700 
    
- 
    
- 
    
29,971 
                             
Net cash used in financing activities
  
(2,920,557)
    
(200,797)
    
473,131 
    
63,995 
    
(2,584,228)
                             
Net change in cash and cash equivalents
  
(97,696)
    
11,670 
    
677,647 
    
- 
    
591,621 
                             
Cash and cash equivalents, beginning of period
  
513,190 
    
54,231 
    
10,659 
    
- 
    
578,080 
                             
Cash and cash equivalents, end of period
$
415,494 
  
$
65,901 
  
$
688,306 
  
$
- 
  
$
1,169,701 



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow
For the year ended December 31, 2006

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Operating Activities:
                            
Net income from operations
$
78,292 
  
$
16,233 
  
$
6,823 
  
$
(23,056)
  
$
78,292 
Adjustments to reconcile net income to net cash
provided by operating activities:
                            
Net amortization of premiums on investments
  
53,995 
    
3,956 
    
801 
    
- 
    
58,752 
Amortization of DAC and VOBA
  
380,760 
    
18,422 
    
- 
    
- 
    
399,182 
Depreciation and amortization
  
4,008 
    
- 
    
600 
    
- 
    
4,608 
Net gains on derivatives
  
(11,360)
    
- 
    
- 
    
(493)
    
(11,853)
Net realized losses on available-for-sale
investments
  
 
38,328 
    
 
6,081 
    
 
102 
    
 
- 
    
 
44,511 
Changes in fair value of trading investments
  
(15,235)
    
- 
    
- 
    
- 
    
(15,235)
Net realized gains on trading investments
  
(373)
    
- 
    
- 
    
- 
    
(373)
Net change in unrealized and undistributed gains
in private equity limited partnerships
  
 
(29,120)
    
 
- 
    
 
- 
    
 
- 
    
 
(29,120)
Interest credited to contractholder deposits
  
573,178 
    
56,379 
    
3,848 
    
- 
    
633,405 
Deferred federal income taxes
  
(6,146)
    
10,193 
    
133 
    
- 
    
4,180 
Equity in net income of subsidiaries
  
(19,960)
    
- 
    
(3,096)
    
23,056 
    
- 
Changes in assets and liabilities:
                            
DAC additions
  
(238,986)
    
(23,909)
    
- 
    
- 
    
(262,895)
Accrued investment income
  
(32,925)
    
3,275 
    
(61)
    
- 
    
(29,711)
Net reinsurance receivable/payable
  
77,083
    
(20)
    
-
    
-
    
77,063
Future contract and policy benefits
  
(9,725)
    
3,106 
    
- 
    
- 
    
(6,619)
Dividends received from subsidiaries
  
8,000 
    
- 
    
- 
    
(8,000)
    
- 
Other, net
  
39,943 
    
(24,855)
    
(1,313)
    
493 
    
14,268 
                             
Net cash provided by operating activities
  
889,757
    
68,861 
    
7,837 
    
(8,000)
    
958,455
                             
Cash Flows From Investing Activities:
                            
Sales, maturities and repayments of:
                            
Available-for-sale fixed maturities
  
5,041,508
    
757,662
    
73,020
    
- 
    
5,872,190
Trading fixed maturities
  
2,172,797
    
-
    
-
    
-
    
2,172,797
Mortgage loans
  
218,849
    
29,415
    
-
    
- 
    
248,264 
Other invested assets
  
184,646
    
-
    
-
    
- 
    
184,646 
Purchases of:
                            
Available-for-sale fixed maturities
  
(3,380,467)
    
(549,218)
    
(72,559)
    
- 
    
(4,002,244)
Trading fixed maturities
  
(4,038,950)
    
-
    
-
    
-
    
(4,038,950)
Mortgage loans
  
(734,307)
    
(46,285)
    
- 
    
- 
    
(780,592)
Real estate
  
(20,464)
    
- 
    
(155)
    
- 
    
(20,619)
Other invested assets
  
(423,635)
    
(65,858)
    
- 
    
- 
    
(489,493)
Net change in other investing activities
  
333,669 
    
65,845 
    
- 
    
- 
    
399,514 
Net change in policy loans
  
(9,979)
    
49 
    
2,073 
    
- 
    
(7,857)
                             
Net cash (used in) provided by investing activities
$
(656,333) 
  
$
191,610 
  
$
2,379 
  
$
- 
  
$
(462,344) 

Continued on next page


 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

16. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flow (continued)
For the year ended December 31, 2006

 
SLUS
as Parent
  
SLNY
  
Other
Subs
  
Elimination
  
Consolidated
Company
                             
Cash Flows From Financing Activities:
                            
Additions to contractholder deposit funds
$
3,395,794 
  
$
121,837 
  
$
- 
  
$
2,507 
  
$
3,520,138 
Withdrawals from contractholder deposit funds
  
(3,301,631)
    
(382,617)
    
(3,596)
    
(2,507)
    
(3,690,351)
Debt proceeds
  
200,000 
    
- 
    
- 
    
- 
    
200,000 
Dividends paid to parent
  
(300,000)
    
- 
    
(8,000)
    
8,000 
    
(300,000)
Additional capital contributed to subsidiaries
  
(265)
    
- 
    
265 
    
- 
    
- 
Other, net
  
4,528 
    
- 
    
- 
    
- 
    
4,528 
                             
Net cash used in financing activities
  
(1,574)
    
(260,780)
    
(11,331)
    
8,000 
    
(265,685)
                             
Net change in cash and cash equivalents
  
231,850 
    
(309)
    
(1,115)
    
- 
    
230,426 
                             
Cash and cash equivalents, beginning of period
  
281,340 
    
54,540 
    
11,774 
    
- 
    
347,654 
                             
Cash and cash equivalents, end of period
$
513,190 
  
$
54,231 
  
$
10,659 
  
$
- 
  
$
578,080 



 
 
 

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, 2008, 2007 and 2006

17. SEGMENT INFORMATION

As described below, the Company conducts business primarily in three operating segments and maintains a Corporate Segment to provide for the capital needs of the three operating segments and to engage in other financing related activities.  Each segment is defined consistently with the way results are evaluated by the chief operating decision-maker.

Net investment income is allocated based on segmented assets, including allocated capital, by line of business.  Allocations of operating expenses among segments are made using both standard rates and actual expenses incurred.  Management evaluates the results of the operating segments on an after-tax basis.  The Company does not depend on one or a few customers, brokers or agents for a significant portion of its operations.

Wealth Management

The Wealth Management Segment markets, sells and administers funding agreements, individual and group variable annuity products, individual and group fixed annuity products and other retirement benefit products.  These contracts may contain any of a number of features including variable or fixed interest rates and equity index options and may be denominated in foreign currencies.  The Company uses derivative instruments to manage the risks inherent in the contract options.  Additionally, the Company consolidates the CARS Trust as a component of the Wealth Management Segment.

Individual Protection

The Individual Protection Segment markets, sells and administers a variety of life insurance products sold to individuals and corporate owners of life insurance. The products include whole life, universal life and variable life products.

Group Protection

The Group Protection Segment markets, sells and administers group life, group long-term disability, group short-term disability, group dental and group stop loss insurance products to small and mid-size employers in the State of New York through the Company’s subsidiary, SLNY.

Corporate

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



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

17. SEGMENT INFORMATION (CONTINUED)

The following amounts pertain to the various business segments:

 
Year ended December 31, 2008
    
                   
 
Wealth
  
Individual
  
Group
        
 
Management
  
Protection
  
 Protection
  
Corporate
  
Totals
                   
Total revenues
$    (2,207,978)
  
$      113,357 
  
$   102,827 
  
$  (20,340)
  
$ (2,012,134)
Total expenditures
645,665 
  
301,604 
  
111,097 
  
23,324 
  
1,081,690 
Loss before income tax
benefit
(2,853,643)
  
(188,247)
  
(8,270)
  
(43,664)
  
(3,093,824)
                   
Net loss
(2,017,095)
  
(122,220)
  
(5,335)
  
(90,191)
  
(2,234,841)
                   
Total assets
$    33,357,432 
  
$   12,154,968 
  
$   164,123 
  
$ 442,156 
  
$ 46,118,679 
                   
 
Year ended December 31, 2007
    
                   
 
Wealth
  
Individual
  
Group
        
 
Management
  
Protection
  
 Protection
  
Corporate
  
Totals
                   
Total revenues
$     1,087,817 
  
$       184,315
  
$       97,657
  
$     90,729
  
$    1,460,518
Total expenditures
1,139,538 
  
148,122
  
93,950
  
77,744
  
1,459,354
(Loss) income before
income tax (benefit)
expense
(51,721)
  
36,193
  
3,707
  
12,985
  
1,164
                   
Net (loss) income
(19,734)
  
23,665
  
2,409
  
18,682
  
25,022
                   
Total assets
$    39,855,777 
  
$   10,767,117
  
$     121,096
  
$1,062,777
  
$  51,806,767
                   
 
Year ended December 31, 2006
    
                   
 
Wealth
  
Individual
  
Group
        
 
Management
  
Protection
  
 Protection
  
Corporate
  
Totals
                   
Total revenues
$        1,386,626
  
$         101,447
  
$       39,833
  
$   100,567
  
$    1,628,473
Total expenditures
1,354,554
  
95,815
  
35,356
  
66,068
  
1,551,793
Income before income tax
expense
32,072
  
5,632
  
4,477
  
34,499
  
76,680
                   
Net income
39,857
  
3,801
  
2,910
  
31,724
  
78,292
                   
Total assets
$      41,485,295
  
$     5,784,705
  
$       78,838
  
$1,633,710
  
$  48,982,548



 
 
 

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, 2008, 2007 and 2006

18.  REGULATORY FINANCIAL INFORMATION

The Company and its insurance subsidiaries are required to file annual statements with state regulatory authorities prepared on a statutory accounting basis prescribed or permitted by such authorities.  For the year ended December 31, 2008, the Company followed one permitted practice relating to the treatment of its deferred tax assets.  For the years ended December 31, 2007 and 2006, there were no permitted practices followed.  Statutory surplus differs from stockholder's equity reported in accordance with GAAP primarily because policy acquisition costs are expensed when incurred, policy liabilities are based on different assumptions, investments are valued differently, post-retirement benefit costs are based on different assumptions, and deferred income taxes are calculated differently.  The Company’s statutory financials are not prepared on a consolidated basis.

At December 31, the Company and its insurance subsidiaries’ combined statutory capital and surplus and net (loss) income were as follows:

 
Unaudited for the Years ended December 31,
 
2008
2007
2006
       
Statutory capital and surplus
$     1,949,215 
$       1,790,457 
$      1,610,425
Statutory net (loss) income
$   (1,431,516)
(913,114)
123,305



 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

19. DIVIDEND RESTRICTIONS

The Company’s and its insurance company subsidiaries’ ability to pay dividends is subject to certain statutory restrictions.  Delaware, New York, Rhode Island, and Vermont, states in which the Company and its insurance company subsidiaries are domiciled, have enacted laws governing the payment of dividends to stockholders by domestic insurers.

Pursuant to Delaware's statute, the maximum amount of dividends and other distributions that a domestic insurer may pay in any twelve-month period without prior approval of the Delaware Commissioner of Insurance is limited to the greater of (i) ten percent of its statutory surplus as of the preceding December 31, or (ii) the individual company's statutory net gain from operations for the preceding calendar year.  Any dividends to be paid by an insurer from a source other than statutory surplus, whether or not in excess of the aforementioned threshold, would also require the prior approval of the Delaware Commissioner of Insurance.  The Company is permitted to pay dividends up to a maximum of $126.7 million in 2009 without prior approval from the Delaware Commissioner of Insurance.

In 2008 and 2007, the Company did not pay any dividends to the Parent.  In 2006, the Company’s board of directors approved and the Company paid a $300.0 million dividend to the Parent.

New York law permits a domestic stock life insurance company to distribute a dividend to its shareholders without prior notice to the New York Superintendent of Insurance, where the aggregate amount of such dividends in any calendar year does not exceed the lesser of: (i) ten percent of its surplus to policyholders as of the immediately preceding calendar year; or (ii) its net gain from operations for the immediately preceding calendar year, not including realized capital gains.  SLNY is permitted to pay dividends up to a maximum of $20.7 million in 2009 without prior approval from the New York Commissioner of Insurance.  No dividends were paid by SLNY during 2008, 2007 or 2006.

Rhode Island law requires prior regulatory approval for any dividend where the amount of such dividend paid during the preceding twelve-month period would exceed the lesser of (i) ten percent of the insurance company’s surplus as of the December 31 next preceding, or (ii) its net gain from operations, not including realized capital gains, for the immediately preceding calendar year, excluding pro rata distributions of any class of the insurance company’s own securities.  INDY is permitted to pay dividends up to a maximum of $2.8 million in 2009 without prior approval from the Rhode Island Commissioner of Insurance.  No dividends were paid by INDY during 2008, 2007 or 2006.

The Company’s Vermont domestic insurance company subsidiary, Sun Life Vermont, is permitted to pay dividends only to the extent that such dividends or distributions would not jeopardize its ability to fulfill its respective obligations pursuant to the reinsurance agreement with SLOC or any related transaction.  Sun Life Vermont may declare and pay dividends or distributions with respect to its common stock from its capital and surplus, subject to the following: (i) its total adjusted capital will equal or exceed 200% of its company action level risk-based capital after giving effect to the dividend or distribution and (ii) notice of each dividend or distribution is provided to the Vermont regulator within five days following the payment of the dividend or distribution.  No dividends were paid by Sun Life Vermont during 2008 and 2007.




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

20. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The components of accumulated other comprehensive (loss) income as of December 31, were as follows:

 
2008
  
2007
  
2006
Unrealized (losses) gains on available-for-sale
securities
$     (111,099)
  
$     (317,402)
  
$         38,400 
Changes in reserves due to unrealized losses on
available-for-sale securities
- 
  
(26,702)
  
(9,346)
Unrealized (losses) gains on pension and other
postretirement plan adjustments
(88,721)
  
14,894 
  
(2,332)
Changes in DAC due to unrealized losses
(gains) on available-for-sale securities
- 
  
189,687
  
(2,719)
Changes in VOBA due to unrealized gains on
available-for-sale securities
- 
  
- 
  
470 
Tax effect and other
69,936 
  
47,120 
  
(10,443)
           
Accumulated other comprehensive (loss)
income
$    (129,884)
  
$     (92,403)
  
$          14,030 

21. COMMITMENTS AND CONTINGENCIES

Regulation and Regulatory Developments

Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants.  Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments.  Part of the assessments paid by the Company pursuant to these laws may be used as credits for a portion of the associated premium taxes.

Litigation, Income Taxes and Other Matters

In Revenue Ruling 2007-61, issued on September 25, 2007, the IRS announced its intention to issue regulations with respect to certain computational aspects of the dividends-received-deduction (the “DRD”) on separate account assets held in connection with variable annuity contracts.  Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54, issued on August 16, 2007, that purported to change accepted industry and IRS interpretations of the statutes governing computational questions impacting the DRD.  New DRD regulations that the IRS proposes for issuance on this matter will be subject to public comment, at which time the insurance industry and other interested parties will have the opportunity to raise comments and questions about the content, scope, and application of new regulations.  The timing, substance, and effective date of the new regulations are unknown, but they could result in the elimination of some or all of the separate account DRD tax benefit that the Company ultimately receives.  For the years ended December 31, 2008 and 2007, the financial statements reflect benefits of $24.5 million and $12.0 million, respectively, related to the separate account DRD.

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




 
 
 

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

For the years ended December 31, 2008, 2007 and 2006

21. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Indemnities

In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, underwriting and agency agreements, information technology agreements, distribution agreements, and service agreements.  The Company has also agreed to indemnify its directors and certain of its officers and employees in accordance with the Company’s by-laws.  The Company believes any potential liability under these agreements is neither probable nor estimatable. Therefore, the Company has not recorded any associated liability.

Lease Commitments

The Company leases various facilities and equipment under operating leases with terms of up to five years. As of December 31, 2008, minimum future lease payments under such leases were as follows:

   
2009
$             301
2010
49
2011
-
Total
350

Total rental expense for the years ended December 31, 2008, 2007 and 2006 was $8.2 million, $9.4 million and $7.6 million, respectively.

The Company has two noncancelable sublease agreements that expire on June 30, 2009 and December 31, 2009.  As of December 31, 2008, the minimum future lease payment under the sublease agreements was $0.1 million.

22. SUBSEQUENT EVENTS

Effective January 1, 2009, the Company is required to prospectively adopt Statement of Statutory Accounting Principles (“SSAP”) No. 98, “Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, an Amendment of SSAP No. 43 - Loan-backed and Structured Securities.”  The Company anticipates that the effect of adopting SSAP No. 98 will decrease its statutory surplus between $150.0 million and $200.0 million.  After adoption, the Company expects its statutory surplus will continue to exceed minimum company action level requirements.

In January 2009, the Company undertook an action to reduce the Company’s cost structure and staffing levels due to the current economic environment.  The Company severed 143 employees and incurred $2.1 million in expenses in connection with this initiative.

In 2009, the Company received capital contributions totaling $623.7 million from the Parent.

After receiving regulatory approval, on February 11, 2009, the Company entered into a reinsurance agreement effective January 1, 2009 with Sun Life Reinsurance (Barbados) No. 3 Corp (“BarbCo 3”), an affiliate, to cede all of the risks associated with certain in-force corporate owned variable universal life and private placement variable universal life policies on a combination coinsurance, coinsurance with funds withheld basis and a modified coinsurance basis.  Future new business will also be ceded under this agreement.

BarbCo 3 paid an initial ceding commission to the Company of $41.5 million on February 11, 2009 and will pay a percentage of first year and single premiums as an ongoing ceding commission on a quarterly basis.  The funds withheld payable to BarbCo 3 and related reinsurance receivable at the inception of the transaction are $247.9 million and $329.2 million, respectively.


 
 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Participants of Keyport Variable Account A and the Board of Directors of Sun Life Assurance Company of Canada (U.S.) (the “Sponsor”):

We have audited the accompanying statements of assets and liabilities of AIM VI Capital Appreciation Series I Sub-Account, AIM VI Core Equity Fund Sub-Account, AIM VI International Growth Fund Series I Sub-Account, Alger American Small Capitalization Portfolio Sub-Account, AllianceBernstein Global Technology Portfolio (B) Sub-Account, AllianceBernstein Growth & Income Portfolio (A) Sub-Account, AllianceBernstein Growth & Income Portfolio (B) Sub-Account, AllianceBernstein Growth Portfolio (B) Sub-Account, AllianceBernstein International Growth Portfolio (B) Sub-Account, AllianceBernstein Real Estate Investment Portfolio (A) Sub-Account, AllianceBernstein VPS Balanced Wealth Strategy (B) Sub-Account, AllianceBernstein VPS Intermediate Bond (A) Sub-Account, AllianceBernstein VPS Intermediate Bond (B) Sub-Account, U.S. Allocation Portfolio Sub-Account, Columbia Asset Allocation Fund, VS (A) Sub-Account, Columbia Asset Allocation Fund, VS (B) Sub-Account, Columbia Federal Securities Fund, VS (A) Sub-Account, Columbia Federal Securities Fund, VS (B) Sub-Account, Columbia High Yield Fund, VS (A) Sub-Account, Columbia High Yield Fund, VS (B) Sub-Account, Columbia International Fund, VS (A) Sub-Account, Columbia International Fund, VS (B) Sub-Account, Columbia Large Cap Growth Stock Fund, VS (A) Sub-Account, Columbia Large Cap Growth Stock Fund, VS (B) Sub-Account, Columbia Large Cap Value Fund, VS (A) Sub-Account, Columbia Large Cap Value Fund, VS (B) Sub-Account, Columbia Mid Cap Value Fund, VS (A) Sub-Account, Columbia Mid Cap Value Fund, VS (B) Sub-Account, Columbia Money Market Fund, VS (A) Sub-Account, Columbia S&P 500 Index Fund, VS (A) Sub-Account, Columbia S&P 500 Index Fund, VS (B) Sub-Account, Columbia Small Cap Value Fund, VS (A) Sub-Account, Columbia Small Cap Value Fund, VS (B) Sub-Account, Columbia Small Company Growth Fund, VS (A) Sub-Account, Columbia Strategic Income Fund, VS (A) Sub-Account, Columbia Strategic Income Fund, VS (B) Sub-Account, Fidelity VIP Equity Income Fund – SC2 Sub-Account, Fidelity VIP III Dynamic Capital Appreciation Fund – SC2 Sub-Account, Fidelity VIP III Growth Opportunities Fund – SC2 Sub-Account, Templeton Developing Markets Securities Fund 2 Sub-Account, MFS Bond Series IC Sub-Account, MFS Growth Series IC Sub-Account, MFS Growth Series SC Sub-Account, MFS Investors Growth Stock Series SC Sub-Account, MFS Investors Trust Series SC Sub-Account, MFS New Discovery Series SC Sub-Account, MFS Research Series IC Sub-Account, Rydex Consumer Products Fund Sub-Account, Rydex Energy 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 OTC Fund Sub-Account, Rydex US Government Money Market Fund Sub-Account, Rydex VT S&P 500 2x Strategy Fund Sub-Account, Rydex Government Long Bond 1.2x Strategy Fund Sub-Account, Rydex VT Russell 2000 1.5x Strategy Fund Sub-Account, SC WMC Large Cap Growth Fund I Class Sub-Account, SC WMC Large Cap Growth Fund S Class Sub-Account, Wanger International Select Fund Sub-Account, Wanger International Small Cap Fund Sub-Account, Wanger Select Fund Sub-Account, and Wanger USA Fund Sub-Account of Keyport Variable Account A (collectively the "Sub-Accounts"), as of December 31, 2008, and the related statements of operations for the year then ended and the statements of changes in net assets for each of the two years in the period then ended.  These financial statements are the responsibility of the Sponsor’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Sub-Accounts are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Sub-Accounts’ internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the asset managers.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the Sub-Accounts as of December 31, 2008, the results of their operations for the year then ended and the changes in their net assets for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America.


/s/DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 2009


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2008

Assets
                  
Investments at fair value:
  
Shares
  
Cost
  
Value
                   
AIM Variable Insurance Funds, Inc. :
                  
AIM V.I. Capital Appreciation Fund Sub-Account ("AIM VI Capital Appreciation Series I")
    
337,691
  
$
11,399,768
  
$
5,703,607
AIM VI Core Equity Fund Sub-Account ("AIM VI Core Equity Fund")
    
399,826
    
9,960,750
    
7,896,557
AIM V.I. International Growth Fund Sub-Account ("AIM VI International Growth Series I")
    
833,715
    
17,682,606
    
16,249,104
                   
Alger American Fund :
                  
Alger American Small Capitalization Growth Portfolio Sub-Account ("Alger American
                  
Small Capitalization Growth Portfolio")
    
167,692
    
6,958,410
    
2,948,018
                   
AllianceBernstein Variable Products Series Fund, Inc. :
                  
AllianceBernstein Global Technology Portfolio (B) Sub-Account ("AllianceBernstein
                  
Global Technology Portfolio (B)")
    
408,656
    
11,970,245
    
4,360,362
AllianceBernstein Growth & Income Portfolio (A) Sub-Account ("AllianceBernstein
                  
Growth & Income Portfolio (A)")
    
92,155
    
1,965,273
    
1,207,237
AllianceBernstein Growth & Income Portfolio (B) Sub-Account ("AllianceBernstein
                  
Growth & Income Portfolio (B)")
    
1,280,808
    
29,263,947
    
16,612,074
AllianceBernstein Growth Portfolio (B) Sub-Account ("AllianceBernstein Growth Portfolio (B)")
    
31,354
    
441,471
    
403,527
AllianceBernstein International Growth Portfolio (B) Sub-Account ("AllianceBernstein
                  
International Growth Portfolio (B)")
    
230,189
    
3,919,742
    
2,856,645
AllianceBernstein Real Estate Investment Portfolio (A) Sub-Account ("AllianceBernstein
                  
Real Estate Investment Portfolio (A)")
    
28,966
    
294,179
    
227,675
AllianceBernstein Balanced Wealth Strategy Portfolio (B) Sub-Account ("Alliance Bernstein
                  
VPS Balanced Wealth Strategy (B)")
    
49,095
    
510,432
    
423,690
AllianceBernstein Intermediate Bond Portfolio (A) Sub-Account ("Alliance Bernstein VPS
                  
Intermediate Bond (A)")
    
509,394
    
5,684,838
    
5,348,638
AllianceBernstein Intermediate Bond Portfolio (B) Sub-Account ("Alliance Bernstein VPS
                  
Intermediate Bond (B)")
    
193,284
    
2,141,584
    
2,010,151
                   
Columbia Funds Variable Insurance Trust:
                  
Columbia Asset Allocation Fund, VS (A) Sub-Account ("Columbia Asset Allocation Fund, VS (A)")
    
2,106,238
    
32,518,828
    
19,630,136
Columbia Asset Allocation Fund, VS (B) Sub-Account ("Columbia Asset Allocation Fund, VS (B)")
    
2,390,878
    
36,822,120
    
22,163,437
Columbia Federal Securities Fund, VS (A) Sub-Account ("Columbia Federal Securities Fund, VS (A)")
    
1,337,804
    
14,057,370
    
14,194,100
Columbia Federal Securities Fund, VS (B) Sub-Account ("Columbia Federal Securities Fund, VS (B)")
    
4,051,195
    
43,032,284
    
42,618,567
Columbia High Yield Fund, VS (A) Sub-Account ("Columbia High Yield Fund, VS (A)")
    
197,839
    
2,189,212
    
1,491,703
Columbia High Yield Fund, VS (B) Sub-Account ("Columbia High Yield Fund, VS (B)")
    
817,833
    
9,043,076
    
6,166,464


Continued on next page






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2008

Investments at fair value (continued):
  
Shares
  
Cost
  
Value
Columbia International Fund , VS (A) Sub-Account ("Columbia International Fund , VS (A)")
    
12,885,485
  
$
24,588,752
  
$
11,725,792
Columbia International Fund , VS (B) Sub-Account ("Columbia International Fund , VS (B)")
    
1,907,663
    
2,419,440
    
1,716,897
Columbia Large Cap Growth Stock Fund, VS (A) Sub-Account ("Columbia Large Cap
                  
Growth Stock Fund, VS (A)")
    
432,760
    
14,381,319
    
8,062,323
Columbia Large Cap Growth Stock Fund, VS (B) Sub-Account ("Columbia Large Cap
                  
Growth Stock Fund, VS (B)")
    
322,245
    
16,946,867
    
5,977,654
Columbia Large Cap Value Fund, VS (A) Sub-Account ("Columbia Large Cap Value Fund, VS (A)")
    
2,996,442
    
51,211,202
    
28,735,875
Columbia Large Cap Value Fund, VS (B) Sub-Account ("Columbia Large Cap Value Fund, VS (B)")
    
1,399,546
    
24,146,750
    
13,365,662
Columbia Mid Cap Value Fund, VS (A) Sub-Account ("Columbia Mid Cap Value Fund, VS (A)")
    
14,556
    
198,491
    
121,687
Columbia Mid Cap Value Fund, VS (B) Sub-Account ("Columbia Mid Cap Value Fund, VS (B)")
    
1,690,113
    
22,590,499
    
14,078,638
Columbia Money Market Fund, VS (A) Sub-Account ("Columbia Money Market Fund, VS (A)")
    
93,197,553
    
93,197,553
    
93,197,553
Columbia S&P 500 Index Fund, VS (A) Sub-Account ("Columbia S&P 500 Index Fund, VS (A)")
    
9,144
    
108,738
    
72,239
Columbia S&P 500 Index Fund, VS (B) Sub-Account ("Columbia S&P 500 Index Fund, VS (B)")
    
2,306,461
    
24,485,668
    
18,128,786
Columbia Small Cap Value Fund, VS (A) Sub-Account ("Columbia Small Cap Value Fund, VS (A)")
    
223,567
    
1,949,021
    
2,537,482
Columbia Small Cap Value Fund, VS (B) Sub-Account ("Columbia Small Cap Value Fund, VS (B)")
    
601,098
    
6,324,467
    
6,798,418
Columbia Small Company Growth Fund, VS (A) Sub-Account ("Columbia Small
                  
Company Growth Fund, VS (A)")
    
209,504
    
3,525,143
    
1,592,231
Columbia Strategic Income Fund, VS (A) Sub-Account ("Columbia Strategic Income
                  
Fund, VS (A)")
    
2,377,801
    
27,113,533
    
19,069,963
Columbia Strategic Income Fund, VS (B) Sub-Account ("Columbia Strategic Income
                  
Fund, VS (B)")
    
3,219,159
    
30,299,378
    
25,721,082
                   
Fidelity Variable  Insurance Products Fund:
                  
Equity Income Fund – SC2 Sub-Account ("Fidelity VIP Equity Income Fund - SC2")
    
1,422,206
    
29,966,005
    
18,488,676
                   
Fidelity Variable  Insurance Products Fund III:
                  
Dynamic Capital Appreciation Portfolio Sub-Account ("Fidelity VIP III
                  
Dynamic Capital Appreciation Fund - SC2")
    
223,306
    
1,561,173
    
1,161,191
Growth Opportunities Portfolio Sub-Account ("Fidelity VIP III Growth
                  
Opportunities Fund - SC2")
    
711,082
    
11,559,105
    
7,053,932
                   
Franklin Templeton Variable Insurance Products Trust:
                  
Templeton Developing Markets Securities Fund 2 Sub-Account ("Templeton Developing
                  
Markets Securities Fund 2")
    
214,932
    
1,573,604
    
1,298,190
                   
MFS Variable Insurance Trust :
                  
MFS Bond Series IC Sub-Account ("MFS Bond Series IC")
    
119,822
    
1,344,846
    
1,318,045
MFS Growth Series IC Sub-Account ("MFS Growth Series IC")
    
194,632
    
3,031,638
    
3,040,156
MFS Growth Series SC Sub-Account ("MFS Growth Series SC")
    
163,236
    
5,243,782
    
2,508,940


Continued on next page





The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2008

Investments at fair value (continued):
  
Shares
  
Cost
  
Value
  
MFS Variable Insurance Trust (continued) :
                    
MFS Investors Growth Stock Series SC Sub-Account ("MFS Investors Growth Stock Series SC")
    
806,509
  
$
10,289,076
  
$
5,605,237
  
MFS Investors Trust Series SC Sub-Account ("MFS Investors Trust Series SC")
    
525,628
    
10,024,954
    
7,653,139
  
MFS New Discovery Series SC Sub-Account ("MFS New Discovery Series SC")
    
255,149
    
4,176,307
    
2,043,745
  
MFS Research Series IC Sub-Account ("MFS Research Series IC")
    
452,466
    
6,896,506
    
5,836,815
  
                     
Rydex Variable Trust :
                  
Consumer Products Fund Sub-Account ("Rydex Consumer Products Fund")
    
57
    
1,679
    
1,570
Energy Fund Sub-Account ("Rydex Energy Fund ")
    
81
    
1,832
    
1,652
Energy Services Fund Sub-Account ("Rydex Energy Services Fund")
    
104
    
1,654
    
1,474
Financial Services Fund Sub-Account ("Rydex Financial Services Fund, VS (A)")
    
1
    
31
    
15
Health Care Fund Sub-Account ("Rydex Health Care Fund, VS(A)")
    
66
    
1,584
    
1,406
NASDAQ-100(R) Fund  Sub-Account ("Rydex OTC Fund")
    
90,468
    
2,624,783
    
949,915
US Government Money Market Fund Sub-Account ("Rydex US Government
                  
Money Market Fund")
    
6,910
    
6,910
    
6,910
S&P 500 2x Strategy Fund Sub-Account ("Rydex VT S&P 500 2x Strategy Fund")
    
500
    
8,689
    
3,079
Government Long Bond 1.2x Strategy Fund Sub-Account ("Rydex VT
                  
Government Long Bond 1.2X Strategy Fund")
    
2
    
22
    
33
Russell 2000(R) 1.5x Strategy Fund Sub-Account ("Rydex VT Russell 2000 1.5x
                  
Strategy Fund")
    
208
    
8,482
    
3,441
                   
Sun Capital Advisers Trust:
                  
SC WMC Large Cap Growth Fund I Class Sub-Account ("SC FI Large Cap Growth Fund I Class")
    
2,646,957
    
27,591,932
    
15,749,394
SC WMC Large Cap Growth Fund S Class Sub-Account ("SC FI Large Cap Growth Fund S Class")
    
1,215,381
    
12,640,146
    
7,195,057
                   
UBS Series Trust :
                  
U.S. Allocation Portfolio Sub-Account (" U.S. Allocation Portfolio")
    
201,168
    
3,325,047
    
1,941,268
                   
Wagner Advisors Trust:
                  
Wanger International Select Fund Sub-Account ("Wanger International Select Fund")
    
322,950
    
4,087,910
    
3,878,635
Wanger International Sub-Account ("Wanger International Small Cap Fund")
    
522,814
    
9,157,834
    
10,817,014
Wanger Select Fund Sub-Account ("Wanger Select Fund")
    
687,655
    
9,902,595
    
9,537,768
Wanger USA Fund Sub-Account ("Wanger USA Fund")
    
1,129,234
    
24,429,839
    
21,794,212
                   
Total investments
          
762,800,921
    
551,304,883
                   
Total assets
        
$
762,800,921
  
$
 551,304,883
                   
Liabilities
                  
Payable to sponsor
              
$
                 -
                   
Total liabilities
              
$
                -







The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2008

   
Deferred Variable Annuity
    
Variable Annuity Reserve
      
     
Units
      
Value
      
Units
      
Value
      
Total units
      
Total Value
Net Assets
                                            
Investments at fair value:
                                              
                                               
AIM Variable Insurance Funds, Inc. :
                                              
AIM VI Capital Appreciation Series I
    
675,261
    
$
5,014,171
      
90,880
    
$
689,436
      
766,141
    
$
5,703,607
AIM VI Core Equity Fund
    
904,641
      
7,185,585
      
89,184
      
710,972
      
993,825
      
7,896,557
AIM VI International Growth Series I
    
1,410,808
      
14,946,205
      
151,188
      
1,302,899
      
1,561,996
      
16,249,104
                                               
Alger American Fund :
                                              
Alger American Small Capitalization Growth Portfolio
    
314,422
      
2,746,089
      
22,867
      
201,929
      
337,289
      
2,948,018
                                               
AllianceBernstein Variable Products Series Fund, Inc. :
                                              
AllianceBernstein Global Technology Portfolio (B)
    
853,189
      
4,079,406
      
58,115
      
280,956
      
911,304
      
4,360,362
AllianceBernstein Growth & Income Portfolio (A)
    
103,634
      
1,105,335
      
9,554
      
101,902
      
113,188
      
1,207,237
AllianceBernstein Growth & Income Portfolio (B)
    
1,707,902
      
14,246,861
      
282,989
      
2,365,213
      
1,990,891
      
16,612,074
AllianceBernstein Growth Portfolio (B)
    
36,870
      
276,293
      
16,797
      
127,234
      
53,667
      
403,527
AllianceBernstein International Growth Portfolio (B)
    
276,700
      
2,641,163
      
22,330
      
215,482
      
299,030
      
2,856,645
AllianceBernstein Real Estate Investment Portfolio (A)
    
12,655
      
212,814
      
884
      
14,861
      
13,539
      
227,675
AllianceBernstein VPS Balanced Wealth Strategy (B)
    
42,926
      
355,321
      
8,314
      
68,369
      
51,240
      
423,690
AllianceBernstein VPS Intermediate Bond (A)
    
445,349
      
4,150,392
      
128,450
      
1,198,246
      
573,799
      
5,348,638
AllianceBernstein VPS Intermediate Bond (B)
    
173,269
      
1,610,930
      
42,896
      
399,221
      
216,165
      
2,010,151
                                               
Columbia Funds Variable Insurance Trust:
                                              
Columbia Asset Allocation Fund, VS (A)
    
572,775
      
14,896,394
      
188,972
      
4,733,742
      
761,747
      
19,630,136
Columbia Asset Allocation Fund, VS (B)
    
719,028
      
18,481,611
      
195,304
      
3,681,826
      
914,332
      
22,163,437
Columbia Federal Securities Fund, VS (A)
    
421,864
      
11,878,493
      
78,672
      
2,315,607
      
500,536
      
14,194,100
Columbia Federal Securities Fund, VS (B)
    
1,356,954
      
37,402,033
      
184,463
      
5,216,534
      
1,541,417
      
42,618,567
Columbia High Yield Fund, VS (A)
    
166,941
      
1,327,389
      
20,603
      
164,314
      
187,544
      
1,491,703
Columbia High Yield Fund, VS (B)
    
696,411
      
5,532,548
      
79,505
      
633,916
      
775,916
      
6,166,464
Columbia International Fund, VS (A)
    
1,110,610
      
10,143,200
      
162,567
      
1,582,592
      
1,273,177
      
11,725,792
Columbia International Fund, VS (B)
    
108,200
      
1,292,449
      
35,229
      
424,448
      
143,429
      
1,716,897
Columbia Large Cap Growth Stock Fund, VS (A)
    
279,217
      
6,751,293
      
62,071
      
1,311,030
      
341,288
      
8,062,323
Columbia Large Cap Growth Stock Fund, VS (B)
    
225,832
      
5,378,202
      
31,443
      
599,452
      
257,275
      
5,977,654
Columbia Large Cap Value Fund, VS (A)
    
1,165,325
      
24,889,971
      
194,933
      
3,845,904
      
1,360,258
      
28,735,875
Columbia Large Cap Value Fund, VS (B)
    
577,910
      
12,157,834
      
90,034
      
1,207,828
      
667,944
      
13,365,662
Columbia Mid Cap Value Fund, VS (B)
    
1,312,163
      
13,379,898
      
67,753
      
698,740
      
1,379,916
      
14,078,638
Columbia Money Market Fund, VS (A)
    
5,099,821
      
87,026,876
      
376,015
      
6,170,677
      
5,475,836
      
93,197,553
Columbia S&P 500 Index Fund, VS (B)
    
2,793,079
      
16,745,668
      
228,583
      
1,383,118
      
3,021,662
      
18,128,786
Columbia Small Cap Value Fund, VS (A)
    
125,797
      
1,847,484
      
46,453
      
689,998
      
172,250
      
2,537,482
Columbia Small Cap Value Fund, VS (B)
    
427,775
      
6,220,333
      
39,206
      
578,085
      
466,981
      
6,798,418
Columbia Small Company Growth Fund, VS (A)
    
56,018
      
1,465,916
      
6,430
      
126,315
      
62,448
      
1,592,231
Columbia Strategic Income Fund, VS (A)
    
831,462
      
16,414,266
      
137,245
      
2,655,697
      
968,707
      
19,069,963
Columbia Strategic Income Fund, VS (B)
    
1,183,962
      
22,952,702
      
157,290
      
2,768,380
      
1,341,252
      
25,721,082
                                               
Fidelity Variable  Insurance Products Fund :
                                              
Fidelity VIP Equity Income Fund - SC2
    
2,082,202
      
16,691,305
      
222,135
      
1,797,371
      
2,304,337
      
18,488,676
                                               
Fidelity Variable  Insurance Products Fund III:
                                              
Fidelity VIP III Dynamic Capital Appreciation Fund-SC2
    
136,181
      
1,159,975
      
156
      
1,216
      
136,337
      
1,161,191
Fidelity VIP III Growth Opportunities Fund - SC2
    
1,541,803
      
6,666,908
      
88,519
      
387,024
      
1,630,322
      
7,053,932


Continued on next page



The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2008

   
Deferred Variable Annuity
    
Variable Annuity Reserve
      
     
Units
      
Value
      
Units
      
Value
      
Total units
      
Total Value
Net Assets (continued)
                                              
Investments at fair value (continued):
                                              
                                               
Franklin Templeton Variable Insurance Products Trust:
                                              
Templeton Developing Markets Securities Fund 2
    
112,619
    
$
1,235,988
      
5,588
    
$
62,202
      
118,207
    
$
1,298,190
                                               
MFS Variable Insurance Trust :
                                              
MFS Bond Series IC
    
74,205
      
1,048,813
      
19,049
      
269,232
      
93,254
      
1,318,045
MFS Growth Series IC
    
243,977
      
2,700,694
      
31,914
      
339,462
      
275,891
      
3,040,156
MFS Growth Series SC
    
224,155
      
2,434,808
      
7,218
      
74,132
      
231,373
      
2,508,940
MFS Investors Growth Stock Series SC
    
1,197,762
      
5,353,738
      
55,761
      
251,499
      
1,253,523
      
5,605,237
MFS Investors Trust Series SC
    
1,052,957
      
7,231,518
      
60,777
      
421,621
      
1,113,734
      
7,653,139
MFS New Discovery Series SC
    
364,571
      
1,995,243
      
8,761
      
48,502
      
373,332
      
2,043,745
MFS Research Series IC
    
486,422
      
5,321,564
      
47,928
      
515,251
      
534,350
      
5,836,815
                                               
Rydex Variable Trust :
                                              
Rydex Consumer Products Fund
    
50
      
1,570
      
-
      
-
      
50
      
1,570
Rydex Energy Fund
    
44
      
1,652
      
-
      
-
      
44
      
1,652
Rydex Energy Services Fund
    
49
      
1,474
      
-
      
-
      
49
      
1,474
Rydex Financial Services Fund, VS (A)
    
1
      
15
      
-
      
-
      
1
      
15
Rydex Health Care Fund, VS (A)
    
58
      
1,406
      
-
      
-
      
58
      
1,406
Rydex OTC Fund
    
359,165
      
863,499
      
35,487
      
86,416
      
394,652
      
949,915
Rydex US Government Money Market Fund
    
250
      
6,910
      
-
      
-
      
250
      
6,910
Rydex VT S&P 500 2x Strategy Fund
    
279
      
3,079
      
-
      
-
      
279
      
3,079
Rydex VT Government Long Bond 1.2x Strategy Fund
    
1
      
33
      
-
      
-
      
1
      
33
Rydex VT Russell 2000 1.5x Strategy Fund
    
201
      
3,441
      
-
      
-
      
201
      
3,441
                                               
Sun Capital Advisers Trust:
                                              
SC WMC Large Cap Growth Fund I Class
    
2,504,220
      
13,992,830
      
313,649
      
1,756,564
      
2,817,869
      
15,749,394
SC WMC Large Cap Growth Fund S Class
    
1,195,000
      
6,643,379
      
99,023
      
551,678
      
1,294,023
      
7,195,057
                                               
UBS Series Trust :
                                              
U.S. Allocation Portfolio
    
179,780
      
1,200,213
      
102,673
      
741,055
      
282,453
      
1,941,268
                                               
Wagner Advisors Trust:
                                              
Wanger International Select Fund
    
356,411
      
3,622,129
      
25,035
      
256,506
      
381,446
      
3,878,635
Wanger International Small Cap Fund
    
936,688
      
10,398,419
      
37,329
      
418,595
      
974,017
      
10,817,014
Wanger Select Fund
    
813,741
      
8,763,068
      
71,439
      
774,700
      
885,180
      
9,537,768
Wanger USA Fund
    
1,828,322
      
20,654,387
      
99,980
      
1,139,825
      
1,928,302
      
21,794,212
                                               
Net asset of contracts owners
          
$
492,753,183
            
$
58,357,774
            
$
551,110,957
                                               
Retained by Sun Life Assurance Company of Canada (U.S.)
                                            
193,926
                                               
Total net assets
                                          
$
551,304,883






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008


   
AIM VI Capital
    
AIM VI
    
AIM VI International
  
   
Appreciation Series I
    
Core Equity Fund
    
Growth Series I
  
Income:
                        
Dividend income
  
$
-
    
$
225,963
    
$
124,024
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(126,164
)
    
(156,938
)
    
(342,049
)
Administrative charges
    
(25,647
)
    
(37,861
)
    
(69,236
)
Net investment (loss) income
    
(151,811
)
    
31,164
      
(287,261
)
                         
Net realized and change in unrealized losses:
                        
Net realized (losses) gains on sale of fund shares
    
(1,340,227
)
    
124,458
      
2,137,263
  
Realized gain distributions
    
-
              
299,904
  
Net realized (losses) gains
    
(1,340,227
)
    
124,458
      
2,437,167
  
                         
Net change in unrealized appreciation/ depreciation
    
(3,520,709
)
    
(4,048,851
)
    
(14,697,173
)
                         
Net realized and change in unrealized losses
    
(4,860,936
)
    
(3,924,393
)
    
(12,260,006
)
                         
Decrease in net assets from operations
  
$
(5,012,747
)
  
$
(3,893,229
)
  
$
(12,547,267
)
                         
   
Alger American
    
AllianceBernstein
    
AllianceBernstein
  
   
Small Capitalization
    
Balanced Shared
    
Global Bond
  
   
Growth Portfolio1
    
Portfolio (B)2
    
Portfolio (A)3
  
Income:
                        
Dividend income
  
$
-
    
$
27,918
    
$
749,635
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(67,044
)
    
(6,065
)
    
(32,199
)
Administrative charges
    
(10,728
)
    
(659
)
    
(917
)
Net investment (loss) income
    
(77,772
)
    
21,194
      
716,519
  
                         
Net realized and change in unrealized losses:
                        
Net realized (losses) gains on sale of fund shares
    
(663,867
)
    
(99,289
)
    
205,241
  
Realized gain distributions
    
69,503
      
58,466
      
-
  
Net realized (losses) gains
    
(594,364
)
    
(40,823
)
    
205,241
  
                         
Net change in unrealized appreciation/ depreciation
    
(2,285,755
)
    
(96,093
)
    
(558,903
)
                         
Net realized and change in unrealized losses
    
(2,880,119
)
    
(136,916
)
    
(353,662
)
                         
(Decrease) increase in net assets from operations
  
$
(2,957,891
)
  
$
(115,722
)
  
$
362,857
  

1 Changed name from Alger Small Cap Portfolio effective 07/01/2008
2 Merged with Alliance Bernstein VPS Balanced Wealth Strategy (B) effective 09/26/2008
3 Merged with Alliance Bernstein VPS Intermediate Bond (A)  effective 04/25/2008






The accompanying notes are an integral part of these financial statements.





 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
AllianceBernstein
    
AllianceBernstein
    
AllianceBernstein
  
   
Global Bond
    
Global Technology
    
Growth & Income
  
   
Portfolio (B)4
    
Portfolio (B)
    
Portfolio (A)
  
Income:
                        
Dividend income
  
$
277,142
    
$
-
    
$
37,416
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(12,141
)
    
(103,858
)
    
(24,633
)
Administrative charges
    
(2,104
)
    
(32,691
)
    
-
  
Net investment income (loss)
    
262,897
      
(136,549
)
    
12,783
  
                         
Net realized and change in unrealized losses:
                        
Net realized gains (losses) on sale of fund shares
    
114,056
      
(3,693,847
)
    
(33,771
)
Realized gain distributions
    
-
      
-
      
318,542
  
Net realized gains (losses)
    
114,056
      
(3,693,847
)
    
284,771
  
                         
Net change in unrealized appreciation/ depreciation
    
(242,742
)
    
(923,931
)
    
(1,223,251
)
                         
Net realized and change in unrealized losses
    
(128,686
)
    
(4,617,778
)
    
(938,480
)
                         
Increase (decrease) in net assets from operations
  
$
134,211
    
$
(4,754,327
)
  
$
(925,697
)
                         
   
AllianceBernstein
            
AllianceBernstein
  
   
Growth & Income
    
AllianceBernstein
    
International
  
   
Portfolio (B)
    
Growth Portfolio (B)
    
Growth Portfolio (B)
  
Income:
                        
Dividend income
  
$
498,795
    
$
-
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(369,622
)
    
(8,492
)
    
(75,081
)
Administrative charges
    
(78,003
)
    
(2,167
)
    
(13,968
)
Net investment income (loss)
    
51,170
      
(10,659
)
    
(89,049
)
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(1,215,721
)
    
(103,776
)
    
(711,772
)
Realized gain distributions
    
5,146,531
      
-
      
111,230
  
Net realized gains (losses)
    
3,930,810
      
(103,776
)
    
(600,542
)
                         
Net change in unrealized appreciation/ depreciation
    
(18,015,202
)
    
(241,474
)
    
(2,750,320
)
                         
Net realized and change in unrealized losses
    
(14,084,392
)
    
(345,250
)
    
(3,350,862
)
                         
Decrease in net assets from operations
  
$
(14,033,222
)
  
$
(355,909
)
  
$
(3,439,911
)


4 Merged with Alliance Bernstein VPS Intermediate Bond (B)  effective 04/25/2008






The accompanying notes are an integral part of these financial statements.




 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008


   
AllianceBernstein
    
AllianceBernstein
    
AllianceBernstein
  
   
Real Estate
    
VPS Balanced Wealth
    
VPS Intermediate
  
   
Investment Portfolio (A)
    
Strategy (B)5
    
Bond (A)6
  
Income:
                        
Dividend income
  
$
6,450
    
$
-
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(5,099
)
    
(1,548
)
    
(57,439
)
Administrative charges
    
-
      
(365
)
    
(1,606
)
Net investment income (loss)
    
1,351
      
(1,913
)
    
(59,045
)
                         
Net realized and change in unrealized losses:
                        
Net realized gains (losses) on sale of fund shares
    
15,113
      
(3,905
)
    
(57,602
)
Realized gain distributions
    
98,222
      
-
      
-
  
Net realized gains (losses)
    
113,335
      
(3,905
)
    
(57,602
)
                         
Net change in unrealized appreciation/ depreciation
    
(252,435
)
    
(86,741
)
    
(336,200
)
                         
Net realized and change in unrealized losses
    
(139,100
)
    
(90,646
)
    
(393,802
)
                         
Decrease in net assets from operations
  
$
(137,749
)
  
$
(92,559
)
  
$
(452,847
)
                         
   
AllianceBernstein
                  
   
VPS Intermediate
    
Columbia Asset
    
Columbia Asset
  
   
Bond (B)7
    
Allocation Fund, VS (A)
    
Allocation Fund, VS (B)
  
Income:
                        
Dividend income
  
$
-
    
$
918,419
    
$
993,987
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(21,027
)
    
(379,879
)
    
(430,701)
  
Administrative charges
    
(3,424
)
    
(23,844
)
    
(81,330)
  
Net investment (loss) income
    
(24,451
)
    
514,696
      
481,956
  
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(9,293
)
    
(1,003,322
)
    
(777,616
)
Realized gain distributions
    
-
      
3,313,061
      
3,788,138
  
Net realized (losses) gains
    
(9,293
)
    
2,309,739
      
3,010,522
  
                         
Net change in unrealized appreciation/ depreciation
    
(131,433
)
    
(12,065,718
)
    
(14,148,590
)
                         
Net realized and change in unrealized losses
    
(140,726
)
    
(9,755,979
)
    
(11,138,068
)
                         
Decrease in net assets from operations
  
$
(165,177
)
  
$
(9,241,283
)
  
$
(10,656,112
)


5 New Fund effective 09/26/2008
6 New Fund effective 04/25/2008
7 New Fund effective 04/25/2008






The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
Columbia
    
Columbia
        
   
Federal Securities
    
Federal Securities
    
Columbia High Yield
  
   
Fund, VS (A)
    
Fund, VS (B)
    
Fund, VS (A)
  
Income:
                        
Dividend income
  
$
972,342
    
$
3,117,477
    
$
229,128
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(218,988
)
    
(722,943
)
    
(30,304
)
Administrative charges
    
(15,859
)
    
(138,607)
      
(4,056
)
Net investment income
    
737,495
      
2,255,927
      
194,768
  
                         
Net realized and change in unrealized gains (losses):
                        
Net realized losses on sale of fund shares
    
(49,724
)
    
(259,631
)
    
(49,019
)
Realized gain distributions
    
-
      
-
      
-
  
Net realized losses
    
(49,724
)
    
(259,631
)
    
(49,019
)
                         
Net change in unrealized appreciation/ depreciation
    
270,571
      
845,602
      
(715,281
)
                         
Net realized and change in unrealized gains (losses)
    
220,847
      
585,971
      
(764,300
)
                         
Increase (decrease) in net assets from operations
  
$
958,342
    
$
2,841,898
    
$
(569,532
)
                         
         
Columbia
    
Columbia
  
   
Columbia High Yield
    
International Fund,
    
International Fund,
  
   
Fund, VS (B)
    
VS (A)
    
VS (B)
  
Income:
                        
Dividend income
  
$
924,444
    
$
583,109
    
$
77,471
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(122,754
)
    
(269,298
)
    
(38,891
)
Administrative charges
    
(26,068
)
    
(18,257
)
    
(8,229
)
Net investment income
    
775,622
      
295,554
      
30,351
  
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(250,191
)
    
(768,586
)
    
(30,989
)
Realized gain distributions
    
-
      
4,232,778
      
635,659
  
Net realized (losses) gains
    
(250,191
)
    
3,464,192
      
604,670
  
                         
Net change in unrealized appreciation/ depreciation
    
(2,934,279
)
    
(14,512,281
)
    
(2,247,221
)
                         
Net realized and change in unrealized losses
    
(3,184,470
)
    
(11,048,089
)
    
(1,642,551
)
                         
Decrease in net assets from operations
  
$
(2,408,848
)
  
$
(10,752,535
)
  
$
(1,612,200
)
                         
                         






The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008


   
Columbia Large Cap
    
Columbia Large Cap
        
   
Growth Stock
    
Growth Stock
    
Columbia Large Cap
  
   
Fund, VS (A)
    
Fund, VS (B)
    
Value Fund, VS (A)
  
Income:
                        
Dividend income
  
$
31,500
    
$
8,005
    
$
1,064,961
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(171,321
)
    
(135,457
)
    
(611,980
)
Administrative charges
    
(24,264
)
    
(29,021
)
    
(44,692
)
Net investment (loss) income
    
(164,085
)
    
(156,473
)
    
408,289
  
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(1,382,342
)
    
(2,101,226
)
    
(1,384,798
)
Realized gain distributions
    
-
      
-
      
6,714,602
  
Net realized (losses) gains
    
(1,382,342
)
    
(2,101,226
)
    
5,329,804
  
                         
Net change in unrealized appreciation/ depreciation
    
(4,634,542
)
    
(2,580,496
)
    
(25,777,592
)
                         
Net realized and change in unrealized losses
    
(6,016,884
)
    
(4,681,722
)
    
(20,447,788
)
                         
Decrease in net assets from operations
  
$
(6,180,969
)
  
$
(4,838,195
)
  
$
(20,039,499
)
                         
   
Columbia Large Cap
    
Columbia Mid Cap
    
Columbia Mid Cap
  
   
Value Fund, VS (B)
    
Value Fund, VS (A)
    
Value Fund, VS (B)
  
                         
Income:
                        
Dividend income
  
$
454,684
    
$
2,028
    
$
251,143
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(295,748
)
    
-
      
(313,946
)
Administrative charges
    
(67,878
)
    
-
      
(76,993
)
Net investment income (loss)
    
91,058
      
2,028
      
(139,796
)
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(107,283
)
    
-
      
(558,174
)
Realized gain distributions
    
3,261,400
      
29,926
      
3,838,042
  
Net realized gains
    
3,154,117
      
29,926
      
3,279,868
  
                         
Net change in unrealized appreciation/ depreciation
    
(12,938,711
)
    
(124,072
)
    
(15,132,479
)
                         
Net realized and change in unrealized losses
    
(9,784,594
)
    
(94,146
)
    
(11,852,611
)
                         
Decrease in net assets from operations
  
$
(9,693,536
)
  
$
(92,118
)
  
$
(11,992,407
)








The accompanying notes are an integral part of these financial statements.






 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
Columbia
                  
   
Money Market
    
Columbia S&P 500
    
Columbia S&P 500
  
   
Fund, VS (A)
    
Index Fund, VS (A)
    
Index Fund, VS (B)
  
Income:
                        
Dividend income
  
$
2,442,895
    
$
2,071
    
$
494,126
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(1,321,714
)
    
-
      
(372,479
)
Administrative charges
    
(139,944
)
    
-
      
(72,762
)
Net investment income
    
981,237
      
2,071
      
48,885
  
                         
Net realized and change in unrealized losses:
                        
Net realized gains on sale of fund shares
    
-
      
-
      
823,998
  
Realized gain distributions
    
-
      
-
      
-
  
Net realized gains
    
-
      
-
      
823,998
  
                         
Net change in unrealized appreciation/ depreciation
    
-
      
(45,046
)
    
(12,983,605
)
                         
Net realized and change in unrealized losses
    
-
      
(45,046
)
    
(12,159,607
)
                         
Increase (decrease) in net assets from operations
  
$
981,237
    
$
(42,975
)
  
$
(12,110,722
)
                         
   
Columbia
    
Columbia
    
Columbia
  
   
Small Cap
    
Small Cap
    
Small Company
  
   
Value Fund, VS (A)
    
Value Fund, VS (B)
    
Growth Fund, VS (A)
  
Income:
                        
Dividend income
  
$
25,981
    
$
47,336
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(50,404
)
    
(144,521
)
    
(33,706
)
Administrative charges
    
(9,452
)
    
(35,079
)
    
(1,175)
  
Net investment loss
    
(33,875
)
    
(132,264
)
    
(34,881)
  
                         
Net realized and change in unrealized losses:
                        
Net realized gains (losses) on sale of fund shares
    
391,517
      
370,806
      
(105,796
)
Realized gain distributions
    
444,288
      
1,271,549
      
301,942
  
Net realized gains
    
835,805
      
1,642,355
      
196,146
  
                         
Net change in unrealized appreciation/ depreciation
    
(1,964,494
)
    
(4,839,515
)
    
(1,380,966
)
                         
Net realized and change in unrealized losses
    
(1,128,689
)
    
(3,197,160
)
    
(1,184,820
)
                         
Decrease in net assets from operations
  
$
(1,162,564
)
  
$
(3,329,424
)
  
$
(1,219,701
)






The accompanying notes are an integral part of these financial statements.




 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
Columbia
    
Columbia
    
Fidelity VIP
  
   
Strategic Income
    
Strategic Income
    
Equity Income
  
   
Fund, VS (A)
    
Fund, VS (B)
    
Fund - SC2
  
Income:
                        
Dividend income
  
$
2,011,628
    
$
2,902,761
    
$
597,948
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(328,315
)
    
(483,260
)
    
(410,883
)
Administrative charges
    
(17,630
)
    
(88,148
)
    
(89,708
)
Net investment income
    
1,665,683
      
2,331,353
      
97,357
  
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(1,497,618
)
    
(1,270,241
)
    
(1,184,788
)
Realized gain distributions
    
-
      
-
      
33,654
  
Net realized losses
    
(1,497,618
)
    
(1,270,241
)
    
(1,151,134
)
                         
Net change in unrealized appreciation/ depreciation
    
(2,272,450
)
    
(4,254,527
)
    
(14,688,793
)
                         
Net realized and change in unrealized losses
    
(3,770,068
)
    
(5,524,768
)
    
(15,839,927
)
                         
Decrease in net assets from operations
  
$
(2,104,385
)
  
$
(3,193,415
)
  
$
(15,742,570
)
                         
   
Fidelity VIP III
    
Fidelity VIP III
          
   
Dynamic Capital
    
Growth Opportunities
    
MFS
  
   
Appreciation Fund-SC2
    
Fund - SC2
    
Bond Series IC
  
Income:
                        
Dividend income
  
$
7,761
    
$
14,505
    
$
47,756
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(24,385
)
    
(159,547
)
    
(22,498
)
Administrative charges
    
(5,574
)
    
(37,930
)
    
-
  
Net investment (loss) income
    
(22,198
)
    
(182,972
)
    
25,258
  
                         
Net realized and change in unrealized losses:
                        
Net realized (losses) gains on sale of fund shares
    
(158,435
)
    
352,193
      
(3,441
)
Realized gain distributions
    
11,202
      
-
      
-
  
Net realized (losses) gains
    
(147,233
)
    
352,193
      
(3,441
)
                         
Net change in unrealized appreciation/ depreciation
    
(836,875
)
    
(8,743,697
)
    
(82,251
)
                         
Net realized and change in unrealized losses
    
(984,108
)
    
(8,391,504
)
    
(85,692
)
                         
Decrease in net assets from operations
  
$
(1,006,306
)
  
$
(8,574,476
)
  
$
(60,434
)









The accompanying notes are an integral part of these financial statements.






 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

                   
MFS Investors
  
   
MFS
    
MFS
    
Growth Stock
  
   
Growth Series IC8
    
Growth Series SC9
    
Series SC
  
Income:
                        
Dividend income
  
$
11,448
    
$
-
    
$
29,702
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(66,684
)
    
(52,640
)
    
(131,754
)
Administrative charges
    
(3,782
)
    
(15,845
)
    
(32,457
)
Net investment loss
    
(59,018
)
    
(68,485
)
    
(134,509
)
                         
Net realized and change in unrealized losses:
                        
Net realized gains (losses) on sale of fund shares
    
182,859
      
(227,623
)
    
(456,771
)
Realized gain distributions
    
-
      
-
      
495,695
  
Net realized gains (losses)
    
182,859
      
(227,623
)
    
38,924
  
                         
Net change in unrealized appreciation/ depreciation
    
(2,234,324
)
    
(1,378,168
)
    
(4,041,337
)
                         
Net realized and change in unrealized losses
    
(2,051,465
)
    
(1,605,791
)
    
(4,002,413
)
                         
Decrease in net assets from operations
  
$
(2,110,483
)
  
$
(1,674,276
)
  
$
(4,136,922
)
                         
                         
                         
                         
   
MFS Investors
    
MFS New Discovery
    
MFS Research
  
   
Trust Series SC
    
Series SC
    
Series IC
  
Income:
                        
Dividend income
  
$
62,410
    
$
-
    
$
49,878
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(158,504
)
    
(47,841
)
    
(123,683
)
Administrative charges
    
(37,083
)
    
(13,503
)
    
(4,029
)
Net investment loss
    
(133,177
)
    
(61,344
)
    
(77,834
)
                         
Net realized and change in unrealized losses:
                        
Net realized gains (losses) on sale of fund shares
    
63,451
      
(170,024
)
    
(110,915
)
Realized gain distributions
    
837,893
      
753,962
      
-
  
Net realized gains (losses)
    
901,344
      
583,938
      
(110,915
)
                         
Net change in unrealized appreciation/ depreciation
    
(5,185,810
)
    
(2,113,133
)
    
(3,615,660
)
                         
Net realized and change in unrealized losses
    
(4,284,466
)
    
(1,529,195
)
    
(3,726,575
)
                         
Decrease in net assets from operations
  
$
(4,417,643
)
  
$
(1,590,539
)
  
$
(3,804,409
)

8 Changed name from MFS Emerging Growth Series - IC effective 10/06/2008
9 Changed name from MFS Emerging Growth Series - SC effective 10/06/2008





The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
Rydex Banking
    
Rydex Biotechnology
    
Rydex Consumer
  
   
Fund
    
Fund
    
Products Fund
  
                         
Income:
                        
Dividend income
  
$
50
    
$
-
    
$
3
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(492
)
    
(294
)
    
(16
)
Administrative charges
    
-
      
-
      
-
  
Net investment loss
    
(442
)
    
(294
)
    
(13
)
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(29,551
)
    
(11,121
)
    
(2
)
Realized gain distributions
    
-
      
-
      
42
  
Net realized (losses) gains
    
(29,551
)
    
(11,121
)
    
40
  
                         
Net change in unrealized appreciation/ depreciation
    
3,159
      
-
      
(525
)
                         
Net realized and change in unrealized losses
    
(26,392
)
    
(11,121
)
    
(485
)
                         
Decrease in net assets from operations
  
$
(26,834
)
  
$
(11,415
)
  
$
(498
)
                         
   
Rydex Energy
    
Rydex Energy
    
Rydex Financial
  
   
Fund
    
Services Fund
    
Services Fund, VS (A)
  
Income:
                        
Dividend income
  
$
-
    
$
-
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(128
)
    
(123
)
    
(213
)
Administrative charges
    
-
      
-
      
-
  
Net investment loss
    
(128
)
    
(123
)
    
(213
)
                         
Net realized and change in unrealized losses:
                        
Net realized (losses) gains on sale of fund shares
    
(2,656
)
    
4,338
      
(21,560
)
Realized gain distributions
    
406
      
948
      
-
  
Net realized (losses) gains
    
(2,250
)
    
5,286
      
(21,560
)
                         
Net change in unrealized appreciation/ depreciation
    
(5,504
)
    
(15,506
)
    
6,300
  
                         
Net realized and change in unrealized losses
    
(7,754
)
    
(10,220
)
    
(15,260
)
                         
Decrease in net assets from operations
  
$
(7,882
)
  
$
(10,343
)
  
$
(15,473
)








The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
Rydex Health Care
    
Rydex
    
Rydex
  
   
Fund, VS (A)
    
Nova Fund10
    
OTC Fund11
  
Income:
                        
Dividend income
  
$
-
    
$
-
    
$
2,209
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(15
)
    
(101
)
    
(19,783
)
Administrative charges
    
-
      
-
      
(5,698
)
Net investment loss
    
(15
)
    
(101
)
    
(23,272
)
                         
Net realized and change in unrealized (losses) gains:
                        
Net realized losses on sale of fund shares
    
(2
)
    
(3,509
)
    
(85,583
)
Realized gain distributions
    
63
      
-
      
-
  
Net realized gains (losses)
    
61
      
(3,509
)
    
(85,583
)
                         
Net change in unrealized appreciation/ depreciation
    
(528
)
    
8,050
      
(651,933
)
                         
Net realized and change in unrealized (losses) gains
    
(467
)
    
4,541
      
(737,516
)
                         
(Decrease) increase in net assets from operations
  
$
(482
)
  
$
4,440
    
$
(760,788
)
                         
   
Rydex Precious
    
Rydex Real
    
Rydex
  
   
Metals Fund
    
Estate Fund
    
Retailing Fund
  
Income:
                        
Dividend income
  
$
-
    
$
75
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(895
)
    
(98
)
    
(325
)
Administrative charges
    
-
      
-
      
-
  
Net investment loss
    
(895
)
    
(23
)
    
(325
)
                         
Net realized and change in unrealized gains (losses):
                        
Net realized gains (losses) on sale of fund shares
    
200,555
      
(7,082
)
    
(24,875
)
Realized gain distributions
    
-
      
753
      
94
  
Net realized gains (losses)
    
200,555
      
(6,329
)
    
(24,781
)
                         
Net change in unrealized appreciation/ depreciation
    
(178,259
)
    
(182
)
    
12,387
  
                         
Net realized and change in unrealized gains (losses)
    
22,296
      
(6,511
)
    
(12,394
)
                         
Increase (decrease) in net assets from operations
  
$
21,401
    
$
(6,534
)
  
$
(12,719
)
                         

10 Fund was closed on 11/07/2008
11 Fund was closed to new investments on 11/07/2008







The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
Rydex
    
Rydex Transportation
    
Rydex
  
   
Technology Fund
    
Fund
    
Ursa Fund
  
Income:
                        
Dividend income
  
$
-
    
$
-
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(437
)
    
(156
)
    
(235
)
Administrative charges
    
-
      
-
      
-
  
Net investment loss
    
(437
)
    
(156
)
    
(235
)
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(29,859
)
    
(33,709
)
    
(9,818
)
Realized gain distributions
    
7,134
      
1,102
      
-
  
Net realized losses
    
(22,725
)
    
(32,607
)
    
(9,818
)
                         
Net change in unrealized appreciation/ depreciation
    
-
      
-
      
-
  
                         
Net realized and change in unrealized losses
    
(22,725
)
    
(32,607
)
    
(9,818
)
                         
Decrease in net assets from operations
  
$
(23,162
)
  
$
(32,763
)
  
$
(10,053
)
                         
           
Rydex VT
    
Rydex VT
  
   
Rydex US Government
    
Europe Advantage
    
Government Long Bond
  
   
Money Market Fund
    
Fund
    
1.2x Strategy Fund
  
Income:
                        
Dividend income
  
$
9,570
    
$
-
    
$
55
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(7,151
)
    
-
      
(13
)
Administrative charges
    
-
      
-
      
-
  
Net investment income
    
2,419
      
-
      
42
  
                         
Net realized and change in unrealized (losses) gains:
                        
Net realized gains on sale of fund shares
    
-
      
-
      
2,694
  
Realized gain distributions
    
-
      
-
      
-
  
Net realized gains
    
-
      
-
      
2,694
  
                         
Net change in unrealized appreciation/ depreciation
    
-
      
(2
)
    
10
  
                         
Net realized and change in unrealized (losses) gains
    
-
      
(2
)
    
2,704
  
                         
Increase (decrease) in net assets from operations
  
$
2,419
    
$
(2
)
  
$
2,746
  










The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

   
Rydex VT
    
Rydex VT
    
Rydex VT
  
   
Inverse OTC
    
Mid Cap 1.5x Strategy
    
OTC 2x Strategy
  
   
Strategy Fund
    
Fund12
    
Fund13
  
Income:
                        
Dividend income
  
$
-
    
$
-
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(133
)
    
(231
)
    
(512
)
Administrative charges
    
-
      
-
      
-
  
Net investment loss
    
(133
)
    
(231
)
    
(512
)
                         
Net realized and change in unrealized gains (losses):
                        
Net realized gains (losses) on sale of fund shares
    
1,179
      
(11,898
)
    
(30,055
)
Realized gain distributions
    
-
      
-
      
-
  
Net realized gains (losses)
    
1,179
      
(11,898
)
    
(30,055
)
                         
Net change in unrealized appreciation/ depreciation
    
-
      
7,970
      
(5,437)
  
                         
Net realized and change in unrealized gains (losses)
    
1,179
      
(3,928
)
    
(35,492
)
                         
Increase (decrease) in net assets from operations
  
$
1,046
    
$
(4,159
)
  
$
(36,004
)
                         
   
Rydex VT
    
Rydex VT
          
   
S&P 500 2x Strategy
    
Russell 2000 1.5x Strategy
    
SC WMC Large Cap
  
   
Fund
    
Fund
    
Growth Fund I Class14
  
Income:
                        
Dividend income
  
$
-
    
$
46
    
$
3,616
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(555
)
    
(154
)
    
(347,785
)
Administrative charges
    
-
      
-
      
(32,185)
  
Net investment loss
    
(555
)
    
(108
)
    
(376,354
)
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(124,182
)
    
(14,889
)
    
(1,515,535
)
Realized gain distributions
    
-
      
-
      
-
  
Net realized losses
    
(124,182
)
    
(14,889
)
    
(1,515,535
)
                         
Net change in unrealized appreciation/ depreciation
    
3,573
      
(1,393
)
    
(12,598,160
)
                         
Net realized and change in unrealized losses
    
(120,609
)
    
(16,282
)
    
(14,113,695
)
                         
Decrease in net assets from operations
  
$
(121,164
)
  
$
(16,390
)
  
$
(14,490,049
)

12 Fund was closed on 11/07/2008
13 Fund was closed on 11/07/2008
14 Changed name from SCFI Large Cap Growth Fund - I class effective 08/01/2008






The accompanying notes are an integral part of these financial statements.




 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

           
Templeton
          
   
SC WMC Large Cap
    
Developing Markets
    
U.S. Allocation
  
   
Growth Fund S Class15
    
Securities Fund 2
    
Portfolio
  
Income:
                        
Dividend income
  
$
1,656
    
$
65,201
    
$
94,479
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(159,475
)
    
(32,494
)
    
(43,205
)
Administrative charges
    
(39,379
)
    
(11,773
)
    
(8,321
)
Net investment (loss) income
    
(197,198
)
    
20,934
      
42,953
  
                         
Net realized and change in unrealized losses:
                        
Net realized losses on sale of fund shares
    
(742,431
)
    
(49,033
)
    
(289,052
)
Realized gain distributions
    
-
      
488,725
      
-
  
Net realized (losses) gains
    
(742,431
)
    
439,692
      
(289,052
)
                         
Net change in unrealized appreciation/ depreciation
    
(5,759,455
)
    
(2,129,468
)
    
(1,028,163
)
                         
Net realized and change in unrealized losses
    
(6,501,886
)
    
(1,689,776
)
    
(1,317,215
)
                         
Decrease in net assets from operations
  
$
(6,699,084
)
  
$
(1,668,842
)
  
$
(1,274,262
)
                         
   
Wanger
    
Wanger
          
   
International
    
International
    
Wanger
  
   
Select Fund
    
Small Cap Fund
    
Select Fund
  
Income:
                        
Dividend income
  
$
30,359
    
$
171,477
    
$
-
  
                         
Expenses:
                        
Mortality and expense risk charges
    
(102,616
)
    
(235,140
)
    
(234,318
)
Administrative charges
    
(22,991
)
    
(52,623
)
    
(53,779
)
Net investment loss
    
(95,248
)
    
(116,286
)
    
(288,097
)
                         
Net realized and change in unrealized losses:
                        
Net realized gains on sale of fund shares
    
47,216
      
515,407
      
1,238,721
  
Realized gain distributions
    
2,036,775
      
2,593,712
      
584,872
  
Net realized gains
    
2,083,991
      
3,109,119
      
1,823,593
  
                         
Net change in unrealized appreciation/ depreciation
    
(5,983,919
)
    
(12,774,826
)
    
(11,601,856
)
                         
Net realized and change in unrealized losses
    
(3,899,928
)
    
(9,665,707
)
    
(9,778,263
)
                         
Decrease in net assets from operations
  
$
(3,995,176
)
  
$
(9,781,993
)
  
$
(10,066,360
)

15 Changed name from SCFI Large Cap Growth Fund - S class effective 08/01/2008





The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2008

 
Wanger USA
  
 
Fund16
  
Income:
      
Dividend income
$
-
  
       
Expenses:
      
Mortality and expense risk charges
  
(463,186
)
Administrative charges
  
(103,775
)
Net investment loss
  
(566,961
)
       
Net realized and change in unrealized losses:
      
Net realized gains on sale of fund shares
  
927,256
  
Realized gain distributions
  
4,271,916
  
Net realized gains
  
5,199,172
  
       
Net change in unrealized appreciation/ depreciation
  
(20,288,014
)
       
Net realized and change in unrealized losses
  
(15,088,842
)
       
Decrease in net assets from operations
$
(15,655,803
)

16
Changed name from Wanger US Smaller Companies Fund effective 10/06/2008






The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
AIM VI Capital
  
AIM VI
   
Appreciation Series I
  
Core Equity Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(151,811
)
  
$
(232,480
)
  
$
31,164
    
$
(107,688
)
Net realized (losses) gains
    
(1,340,227
)
    
(1,155,632
)
    
124,458
      
556,899
  
Net change in unrealized appreciation/ depreciation
    
(3,520,709
)
    
2,817,642
      
(4,048,851
)
    
627,672
  
(Decrease) increase in net assets from operations
    
(5,012,747
)
    
1,429,530
      
(3,893,229
)
    
1,076,883
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
170,249
      
273,397
      
129,154
      
339,919
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(173,744
)
    
(993,401
)
    
(3,294
)
    
(595,699
)
Transfer for contract terminations and annuity payouts
    
(2,413,395
)
    
(2,976,379
)
    
(2,665,935
)
    
(3,671,570
)
Decrease in net assets operations from contract transactions
    
(2,416,890
)
    
(3,696,383
)
    
(2,540,075
)
    
(3,927,350
)
                                 
Decrease in net assets
    
(7,429,637
)
    
(2,266,853
)
    
(6,433,304
)
    
(2,850,467
)
                                 
Net Assets:
                                
Beginning of year
    
13,133,244
      
15,400,097
      
14,329,861
      
17,180,328
  
End of year
  
$
5,703,607
    
$
13,133,244
    
$
7,896,557
    
$
14,329,861
  
                                 
         
   
AIM VI International
  
Alger American
   
Growth Series I
  
Growth Portfolio1
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(287,261
)
  
$
(459,594
)
  
$
-
    
$
(123,867
)
Net realized gains (losses)
    
2,437,167
      
4,186,339
      
-
      
(2,421,971
)
Net change in unrealized appreciation/ depreciation
    
(14,697,173
)
    
790,559
      
-
      
4,149,040
  
(Decrease) increase in net assets from operations
    
(12,547,267
)
    
4,517,304
      
-
      
1,603,202
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
208,465
      
175,012
      
-
      
61,210
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(406,964
)
    
(1,855,753
)
    
-
      
(23,642,285
)
Transfer for contract terminations and annuity payouts
    
(5,054,047
)
    
(5,902,771
)
    
-
      
(2,778,452
)
Decrease in net assets operations from contract transactions
    
(5,252,546
)
    
(7,583,512
)
    
-
      
(26,359,527
)
                                 
Decrease in net assets
    
(17,799,813
)
    
(3,066,208
)
    
-
      
(24,756,325
)
                                 
Net Assets:
                                
Beginning of year
    
34,048,917
      
37,115,125
      
-
      
24,756,325
  
End of year
  
$
16,249,104
    
$
34,048,917
    
$
-
    
$
-
  

1
Merged with SC FI Large Cap Growth Fund I Class effective 04/30/2007




The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Alger American Small
  
AllianceBernstein Balanced
   
Capitalization Growth Portfolio2
  
Shared Portfolio (B)3
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(77,772
)
  
$
(129,984
)
  
$
21,194
    
$
8,231
  
Net realized (losses) gains
    
(594,364
)
    
(1,177,341
)
    
(40,823
)
    
124,868
  
Net change in unrealized appreciation/ depreciation
    
(2,285,755
)
    
2,542,840
      
(96,093
)
    
(112,007
)
(Decrease) increase in net assets from operations
    
(2,957,891
)
    
1,235,515
      
(115,722
)
    
21,092
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
57,810
      
73,764
      
2,570
      
101,947
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(48,730
)
    
(639,343
)
    
(606,543
)
    
(98,398
)
Transfer for contract terminations and annuity payouts
    
(1,154,023
)
    
(2,861,612
)
    
(50,081
)
    
(677,175
)
Decrease in net assets operations from contract transactions
    
(1,144,943
)
    
(3,427,191
)
    
(654,054
)
    
(673,626
)
                                 
Decrease in net assets
    
(4,102,834
)
    
(2,191,676
)
    
(769,776
)
    
(652,534
)
                                 
Net Assets:
                                
Beginning of year
    
7,050,852
      
9,242,528
      
769,776
      
1,422,310
  
End of year
  
$
2,948,018
    
$
7,050,852
    
$
-
    
$
769,776
  
                                 
         
   
AllianceBernstein Global
  
AllianceBernstein Global
   
Bond Portfolio (A)4
  
Bond Portfolio (B)5
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
716,519
    
$
143,955
    
$
262,897
    
$
41,975
  
Net realized gains (losses)
    
205,241
      
(79,358
)
    
114,056
      
52,388
  
Net change in unrealized appreciation/ depreciation
    
(558,903
)
    
586,005
      
(242,742
)
    
137,839
  
Increase in net assets from operations
    
362,857
      
650,602
      
134,211
      
232,202
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
26,891
      
104,074
      
2,947
      
3,851
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(7,199,215
)
    
28,852
      
(2,707,976
)
    
(162,260
)
Transfer for contract terminations and annuity payouts
    
(474,595
)
    
(2,487,512
)
    
(210,912
)
    
(820,373
)
Decrease in net assets operations from contract transactions
    
(7,646,919
)
    
(2,354,586
)
    
(2,915,941
)
    
(978,782
)
                                 
Decrease in net assets
    
(7,284,062
)
    
(1,703,984
)
    
(2,781,730
)
    
(746,580
)
                                 
Net Assets:
                                
Beginning of year
    
7,284,062
      
8,988,046
      
2,781,730
      
3,528,310
  
End of year
  
$
-
    
$
7,284,062
    
$
-
    
$
2,781,730
  

2
Changed name from Alger Small Cap Portfolio effective 07/01/2008
 
3
Merged with Alliance Bernstein VPS Balanced Wealth Strategy (B) effective 09/26/2008
 
4
Merged with Alliance Bernstein VPS Intermediate Bond (A) effective 04/25/2008
 
5
Merged with Alliance Bernstein VPS Intermediate Bond (B) effective 04/25/2008





The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
AllianceBernstein
  
AllianceBernstein Growth &
   
Global Technology Portfolio (B)
  
Income Portfolio (A)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(136,549
)
  
$
(201,584
)
  
$
12,783
    
$
806
  
Net realized (losses) gains
    
(3,693,847
)
    
(2,902,116
)
    
284,771
      
276,197
  
Net change in unrealized appreciation/ depreciation
    
(923,931
)
    
4,947,832
      
(1,223,251
)
    
(172,997
)
(Decrease) increase in net assets from operations
    
(4,754,327
)
    
1,844,132
      
(925,697
)
    
104,006
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
112,146
      
107,921
      
93,311
      
91,952
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(547,400
)
    
42,033
      
245,939
      
653,106
  
Transfer for contract terminations and annuity payouts
    
(1,626,746
)
    
(2,726,769
)
    
(675,944
)
    
(1,601,563
)
Decrease in net assets operations from contract transactions
    
(2,062,000
)
    
(2,576,815
)
    
(336,694
)
    
(856,505
)
                                 
Decrease in net assets
    
(6,816,327
)
    
(732,683
)
    
(1,262,391
)
    
(752,499
)
                                 
Net Assets:
                                
Beginning of year
    
11,176,689
      
11,909,372
      
2,469,628
      
3,222,127
  
End of year
  
$
4,360,362
    
$
11,176,689
    
$
1,207,237
    
$
2,469,628
  
                                 
         
   
AllianceBernstein Growth &
  
AllianceBernstein Growth
   
Income Portfolio (B)
  
Portfolio (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income (loss)
  
$
51,170
    
$
(171,009
)
  
$
(10,659
)
  
$
(11,516
)
Net realized gains (losses)
    
3,930,810
      
3,160,762
      
(103,776
)
    
78,726
  
Net change in unrealized appreciation/ depreciation
    
(18,015,202
)
    
(1,584,845
)
    
(241,474
)
    
8,657
  
(Decrease) increase in net assets from operations
    
(14,033,222
)
    
1,404,908
      
(355,909
)
    
75,867
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
146,704
      
241,095
      
1,714
      
39,315
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(1,584,306
)
    
(834,271
)
    
102,024
      
127,843
  
Transfer for contract terminations and annuity payouts
    
(5,863,975
)
    
(6,785,002
)
    
(119,022
)
    
(294,174
)
Decrease in net assets operations from contract transactions
    
(7,301,577
)
    
(7,378,178
)
    
(15,284
)
    
(127,016
)
                                 
Decrease in net assets
    
(21,334,799
)
    
(5,973,270
)
    
(371,193
)
    
(51,149
)
                                 
Net Assets:
                                
Beginning of year
    
37,946,873
      
43,920,143
      
774,720
      
825,869
  
End of year
  
$
16,612,074
    
$
37,946,873
    
$
403,527
    
$
774,720
  





The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
AllianceBernstein International
  
AllianceBernstein International
   
Growth Portfolio (B)
  
Research Growth Portfolio (B)6
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(89,049
)
  
$
(26,233
)
  
$
-
    
$
(3,841
)
Net realized (losses) gains
    
(600,542
)
    
2,364,103
      
-
      
571,688
  
Net change in unrealized appreciation/ depreciation
    
(2,750,320
)
    
(1,330,013
)
    
-
      
(428,416
)
(Decrease) increase in net assets from operations
    
(3,439,911
)
    
1,007,857
      
-
      
139,431
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
33,853
      
17,606
      
-
      
58,419
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(159,127
)
    
1,460,090
      
-
      
(931,240
)
Transfer for contract terminations and annuity payouts
    
(1,173,208
)
    
(1,241,772
)
    
-
      
(278,325
)
(Decrease) increase in net assets from contract transactions
    
(1,298,482
)
    
235,924
      
-
      
(1,151,146
)
                                 
(Decrease) increase in net assets
    
(4,738,393
)
    
1,243,781
      
-
      
(1,011,715
)
                                 
Net Assets:
                                
Beginning of year
    
7,595,038
      
6,351,257
      
-
      
1,011,715
  
End of year
  
$
2,856,645
    
$
7,595,038
    
$
-
    
$
-
  
                                 
         
   
AllianceBernstein Large Cap
  
AllianceBernstein Large Cap
   
Growth Portfolio (A)7
  
Growth Portfolio (B)8
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
-
    
$
(113,104
)
  
$
-
    
$
(118,632
)
Net realized gains (losses)
    
-
      
3,337,882
      
-
      
(8,564,500
)
Net change in unrealized appreciation/ depreciation
    
-
      
(2,226,279
)
    
-
      
9,523,046
  
Increase in net assets from operations
    
-
      
998,499
      
-
      
839,914
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
61,102
      
-
      
79,377
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
-
      
(23,786,700
)
    
-
      
(20,550,233
)
Transfer for contract terminations and annuity payouts
    
-
      
(2,462,390
)
    
-
      
(1,804,942
)
Decrease in net assets operations from contract transactions
    
-
      
(26,187,988
)
    
-
      
(22,275,798
)
                                 
Decrease in net assets
    
-
      
(25,189,489
)
    
-
      
(21,435,884
)
                                 
Net Assets:
                                
Beginning of year
    
-
      
25,189,489
      
-
      
21,435,884
  
End of year
  
$
-
    
$
-
    
$
-
    
$
-
  

6
Merged with AllianceBernstein International Growth Portfolio (B) effective 12/08/2007
 
7
Merged with SC FI Large Cap Growth Fund I Class effective 04/30/2007
 
8
Merged with SC FI Large Cap Growth Fund S Class effective 04/30/2007






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

       
AllianceBernstein
   
AllianceBernstein Real Estate
  
VPS Balanced Wealth
   
Investment Portfolio (A)
  
Strategy (B)9
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income (loss)
  
$
1,351
    
$
446
    
$
(1,913
)
  
$
-
  
Net realized gains (losses)
    
113,335
      
152,159
      
(3,905
)
    
-
  
Net change in unrealized appreciation/ depreciation
    
(252,435
)
    
(255,371
)
    
(86,741
)
    
-
  
Decrease in net assets operations from operations
    
(137,749
)
    
(102,766
)
    
(92,559
)
    
-
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
31,398
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(45,404
)
    
(33,362
)
    
519,089
      
-
  
Transfer for contract terminations and annuity payouts
    
(54,976
)
    
(253,506
)
    
(2,840
)
    
-
  
(Decrease) increase in net assets from contract transactions
    
(100,380
)
    
(255,470
)
    
516,249
      
-
  
                                 
(Decrease) increase in net assets
    
(238,129
)
    
(358,236
)
    
423,690
      
-
  
                                 
Net Assets:
                                
Beginning of year
    
465,804
      
824,040
      
-
      
-
  
End of year
  
$
227,675
    
$
465,804
    
$
423,690
    
$
-
  
                                 
         
   
AllianceBernstein
  
AllianceBernstein
   
VPS Intermediate
  
VPS Intermediate
   
Bond (A)10
  
Bond (B)11
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(59,045
)
  
$
-
    
$
(24,451
)
  
$
-
  
Net realized losses
    
(57,602
)
    
-
      
(9,293
)
    
-
  
Net change in unrealized appreciation/ depreciation
    
(336,200
)
    
-
      
(131,433
)
    
-
  
Decrease in net assets operations from operations
    
(452,847
)
    
-
      
(165,177
)
    
-
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
4,176
      
-
      
3,011
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
6,829,399
      
-
      
2,659,702
      
-
  
Transfer for contract terminations and annuity payouts
    
(1,032,090
)
    
-
      
(487,385
)
    
-
  
Increase in net assets from contract transactions
    
5,801,485
      
-
      
2,175,328
      
-
  
                                 
Increase in net assets
    
5,348,638
      
-
      
2,010,151
      
-
  
                                 
Net Assets:
                                
Beginning of year
    
-
      
-
      
-
      
-
  
End of year
  
$
5,348,638
    
$
-
    
$
2,010,151
    
$
-
  


9
New Fund effective 09/26/2008
 
10
New Fund effective 04/25/2008
 
11
New Fund effective 04/25/2008





The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Columbia Asset
  
Columbia Asset
   
Allocation Fund, VS (A)
  
Allocation Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
514,696
    
$
530,851
    
$
481,956
    
$
443,002
  
Net realized gains
    
2,309,739
      
3,732,793
      
3,010,522
      
4,363,944
  
Net change in unrealized appreciation/ depreciation
    
(12,065,718
)
    
(1,039,056
)
    
(14,148,590
)
    
(1,852,352
)
(Decrease) increase in net assets from operations
    
(9,241,283
)
    
3,224,588
      
(10,656,112
)
    
2,954,594
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
188,019
      
371,349
      
267,753
      
108,230
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(1,077,017
)
    
(1,443,431
)
    
628,819
      
(1,032,975
)
Transfer for contract terminations and annuity payouts
    
(6,473,311
)
    
(12,768,788
)
    
(6,917,662
)
    
(6,690,851
)
Decrease in net assets operations from contract transactions
    
(7,362,309
)
    
(13,840,870
)
    
(6,021,090
)
    
(7,615,596
)
                                 
Decrease in net assets
    
(16,603,592
)
    
(10,616,282
)
    
(16,677,202
)
    
(4,661,002
)
                                 
Net Assets:
                                
Beginning of year
    
36,233,728
      
46,850,010
      
38,840,639
      
43,501,641
  
End of year
  
$
19,630,136
    
$
36,233,728
    
$
22,163,437
    
$
38,840,639
  
                                 
         
   
Columbia Federal
  
Columbia Federal
   
Securities Fund, VS (A)
  
Securities Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
737,495
    
$
853,678
    
$
2,255,927
    
$
2,503,370
  
Net realized losses
    
(49,724
)
    
(126,266
)
    
(259,631
)
    
(143,106
)
Net change in unrealized appreciation/ depreciation
    
270,571
      
130,057
      
845,602
      
201,047
  
Increase in net assets from operations
    
958,342
      
857,469
      
2,841,898
      
2,561,311
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
128,617
      
147,840
      
693,517
      
357,965
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(894,609
)
    
(169,793
)
    
(9,785,912
)
    
399,844
  
Transfer for contract terminations and annuity payouts
    
(3,668,095
)
    
(6,289,655
)
    
(10,067,131
)
    
(9,093,497
)
Decrease in net assets operations from contract transactions
    
(4,434,087
)
    
(6,311,608
)
    
(19,159,526
)
    
(8,335,688
)
                                 
Decrease in net assets
    
(3,475,745
)
    
(5,454,139
)
    
(16,317,628
)
    
(5,774,377
)
                                 
Net Assets:
                                
Beginning of year
    
17,669,845
      
23,123,984
      
58,936,195
      
64,710,572
  
End of year
  
$
14,194,100
    
$
17,669,845
    
$
42,618,567
    
$
58,936,195
  






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Columbia High Yield
  
Columbia High Yield
   
Fund, VS (A)
  
Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
194,768
    
$
104,502
    
$
775,622
    
$
414,479
  
Net realized (losses) gains
    
(49,019
)
    
60,462
      
(250,191
)
    
81,220
  
Net change in unrealized appreciation/ depreciation
    
(715,281
)
    
(140,136
)
    
(2,934,279
)
    
(465,825
)
(Decrease) increase in net assets from operations
    
(569,532
)
    
24,828
      
(2,408,848
)
    
29,874
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
6,746
      
67,639
      
38,353
      
46,590
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(62,331
)
    
(189,570
)
    
(486,888
)
    
(1,113,778
)
Transfer for contract terminations and annuity payouts
    
(701,359
)
    
(1,128,692
)
    
(1,723,997
)
    
(1,465,520
)
Decrease in net assets operations from contract transactions
    
(756,944
)
    
(1,250,623
)
    
(2,172,532
)
    
(2,532,708
)
                                 
Decrease in net assets
    
(1,326,476
)
    
(1,225,795
)
    
(4,581,380
)
    
(2,502,834
)
                                 
Net Assets:
                                
Beginning of year
    
2,818,179
      
4,043,974
      
10,747,844
      
13,250,678
  
End of year
  
$
1,491,703
    
$
2,818,179
    
$
6,166,464
    
$
10,747,844
  
                                 
                                 
   
Columbia International
  
Columbia International
   
Fund, VS (A)
  
Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
295,554
    
$
439,921
    
$
30,351
    
$
44,859
  
Net realized gains
    
3,464,192
      
6,953,031
      
604,670
      
1,500,480
  
Net change in unrealized appreciation/ depreciation
    
(14,512,281
)
    
(4,985,046
)
    
(2,247,221
)
    
(1,226,999
)
(Decrease) increase in net assets from operations
    
(10,752,535
)
    
2,407,906
      
(1,612,200
)
    
318,340
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
121,285
      
263,234
      
8,823
      
81,132
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
146,236
      
(659,830
)
    
(98,156
)
    
(446,084
)
Transfer for contract terminations and annuity payouts
    
(5,016,647
)
    
(10,656,250
)
    
(627,848
)
    
(1,553,620
)
Decrease in net assets operations from contract transactions
    
(4,749,126
)
    
(11,052,846
)
    
(717,181
)
    
(1,918,572
)
                                 
Decrease in net assets
    
(15,501,661
)
    
(8,644,940
)
    
(2,329,381
)
    
(1,600,232
)
                                 
Net Assets:
                                
Beginning of year
    
27,227,453
      
35,872,393
      
4,046,278
      
5,646,510
  
End of year
  
$
11,725,792
    
$
27,227,453
    
$
1,716,897
    
$
4,046,278
  






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Columbia Large Cap
  
Columbia Large Cap
   
Growth Stock Fund, VS (A)
  
Growth Stock Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(164,085
)
  
$
(231,582
)
  
$
(156,473
)
  
$
(188,474
)
Net realized losses
    
(1,382,342
)
    
(3,838,479
)
    
(2,101,226
)
    
(1,025,075
)
Net change in unrealized appreciation/ depreciation
    
(4,634,542
)
    
6,634,591
      
(2,580,496
)
    
2,991,322
  
(Decrease) increase in net assets from operations
    
(6,180,969
)
    
2,564,530
      
(4,838,195
)
    
1,777,773
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
147,801
      
179,736
      
64,004
      
113,057
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(13,871
)
    
(805,841
)
    
(1,068,059
)
    
550,572
  
Transfer for contract terminations and annuity payouts
    
(2,934,979
)
    
(7,100,335
)
    
(2,160,733
)
    
(2,800,614
)
Decrease in net assets operations from contract transactions
    
(2,801,049
)
    
(7,726,440)
      
(3,164,788
)
    
(2,136,985
)
                                 
Decrease in net assets
    
(8,982,018
)
    
(5,161,910
)
    
(8,002,983
)
    
(359,212
)
                                 
Net Assets:
                                
Beginning of year
    
17,044,341
      
22,206,251
      
13,980,637
      
14,339,849
  
End of year
  
$
8,062,323
    
$
17,044,341
    
$
5,977,654
    
$
13,980,637
  
                                 
         
   
Columbia Large Cap
  
Columbia Large Cap
   
Value Fund, VS (A)
  
Value Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income (loss)
  
$
408,289
    
$
(49,940
)
  
$
91,058
    
$
(127,758
)
Net realized gains
    
5,329,804
      
5,641,169
      
3,154,117
      
3,647,547
  
Net change in unrealized appreciation/ depreciation
    
(25,777,592
)
    
(3,863,014
)
    
(12,938,711
)
    
(3,062,588
)
(Decrease) increase in net assets from operations
    
(20,039,499)
      
1,728,215
      
(9,693,536)
      
457,201
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
569,083
      
417,632
      
510,756
      
142,642
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(1,735,714
)
    
(1,642,595
)
    
(1,379,089
)
    
(932,707
)
Transfer for contract terminations and annuity payouts
    
(11,410,371
)
    
(24,893,148
)
    
(5,067,589
)
    
(6,010,296
)
Decrease in net assets operations from contract transactions
    
(12,577,002
)
    
(26,118,111)
      
(5,935,922
)
    
(6,800,361
)
                                 
Decrease in net assets
    
(32,616,501
)
    
(24,389,896
)
    
(15,629,458
)
    
(6,343,160
)
                                 
Net Assets:
                                
Beginning of year
    
61,352,376
      
85,742,272
      
28,995,120
      
35,338,280
  
End of year
  
$
28,735,875
    
$
61,352,376
    
$
13,365,662
    
$
28,995,120
  




The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Columbia Mid Cap
  
Columbia Mid Cap
   
Value Fund, VS (A)12
  
Value Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income (loss)
  
$
2,028
    
$
1,590
    
$
(139,796
)
  
$
(345,715
)
Net realized gains
    
29,926
      
30,412
      
3,279,868
      
5,355,315
  
Net change in unrealized appreciation/ depreciation
    
(124,072
)
    
(16,891
)
    
(15,132,479
)
    
(2,821,396
)
(Decrease) increase in net assets from operations
    
(92,118
)
    
15,111
      
(11,992,407
)
    
2,188,204
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
115,449
      
155,984
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
-
      
-
      
(1,270,591
)
    
(509,102
)
Transfer for contract terminations and annuity payouts
    
-
      
-
      
(4,439,028)
      
(5,364,825
)
Decrease in net assets operations from contract transactions
    
-
      
-
      
(5,594,170
)
    
(5,717,943
)
                                 
(Decrease) increase in net assets
    
(92,118
)
    
15,111
      
(17,586,577
)
    
(3,529,739
)
                                 
Net Assets:
                                
Beginning of year
    
213,805
      
198,694
      
31,665,215
      
35,194,954
  
End of year
  
$
121,687
    
$
213,805
    
$
14,078,638
    
$
31,665,215
  
                                 
         
   
Columbia Money Market
  
Columbia S&P 500 Index
   
Fund, VS (A)
  
Fund, VS (A)12
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
981,237
    
$
3,799,150
    
$
2,071
    
$
1,650
  
Net realized gains
    
-
      
-
      
-
      
-
  
Net change in unrealized appreciation/ depreciation
    
-
      
-
      
(45,046
)
    
4,080
  
Increase (decrease) in net assets from operations
    
981,237
      
3,799,150
      
(42,975
)
    
5,730
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
401,928
      
609,315
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
35,743,896
      
37,262,622
      
-
      
-
  
Transfer for contract terminations and annuity payouts
    
(41,272,409
)
    
(60,355,549
)
    
-
      
-
  
Decrease in net assets operations from contract transactions
    
(5,126,585
)
    
(22,483,612
)
    
-
      
-
  
                                 
(Decrease) increase in net assets
    
(4,145,348
)
    
(18,684,462
)
    
(42,975
)
    
5,730
  
                                 
Net Assets:
                                
Beginning of year
    
97,342,901
      
116,027,363
      
115,214
      
109,484
  
End of year
  
$
93,197,553
    
$
97,342,901
    
$
72,239
    
$
115,214
  

12
Represents seed money invested and retained by Sun life Assurance Company of Canada (U.S.) in order for the fund to commence operations.





The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Columbia S&P 500 Index
  
Columbia Small Cap
   
Fund, VS(B)
  
Value Fund, VS (A)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income (loss)
  
$
48,885
    
$
(151,672
)
  
$
(33,875
)
  
$
(78,949
)
Net realized gains
    
823,998
      
1,828,513
      
835,805
      
1,768,453
  
Net change in unrealized appreciation/ depreciation
    
(12,983,605
)
    
(398,437
)
    
(1,964,494
)
    
(1,849,932
)
(Decrease) increase in net assets from operations
    
(12,110,722
)
    
1,278,404
      
(1,162,564
)
    
(160,428
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
253,667
      
377,542
      
14,629
      
63,870
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(386,910
)
    
670,231
      
(627,261
)
    
(541,117
)
Transfer for contract terminations and annuity payouts
    
(5,497,153
)
    
(5,115,414
)
    
(828,182
)
    
(2,121,979
)
Decrease in net assets operations from contract transactions
    
(5,630,396
)
    
(4,067,641
)
    
(1,440,814
)
    
(2,599,226
)
                                 
Decrease in net assets
    
(17,741,118
)
    
(2,789,237
)
    
(2,603,378
)
    
(2,759,654
)
                                 
Net Assets:
                                
Beginning of year
    
35,869,904
      
38,659,141
      
5,140,860
      
7,900,514
  
End of year
  
$
18,128,786
    
$
35,869,904
    
$
2,537,482
    
$
5,140,860
  
                                 
         
       
Columbia
   
Columbia Small Cap
  
Small Company
   
Value Fund, VS (B)
  
Growth Fund, VS (A)
   
2008
  
2007
  
2008
  
2007
                                 
Operations:
                                
Net investment loss
  
$
(132,264
)
  
$
(225,074
)
  
$
(34,881
)
  
$
(52,674
)
Net realized gains (losses)
    
1,642,355
      
2,773,819
      
196,146
      
(210,638
)
Net change in unrealized appreciation/ depreciation
    
(4,839,515
)
    
(3,040,526
)
    
(1,380,966
)
    
712,255
  
(Decrease) increase in net assets from operations
    
(3,329,424
)
    
(491,781
)
    
(1,219,701
)
    
448,943
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
61,770
      
184,917
      
5,371
      
61,800
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(803,315
)
    
(1,098,707
)
    
(47,671
)
    
(349,952
)
Transfer for contract terminations and annuity payouts
    
(2,453,913
)
    
(3,392,925
)
    
(381,922
)
    
(1,039,773
)
Decrease in net assets operations from contract transactions
    
(3,195,458
)
    
(4,306,715
)
    
(424,222
)
    
(1,327,925
)
                                 
Decrease in net assets
    
(6,524,882
)
    
(4,798,496
)
    
(1,643,923
)
    
(878,982
)
                                 
Net Assets:
                                
Beginning of year
    
13,323,300
      
18,121,796
      
3,236,154
      
4,115,136
  
End of year
  
$
6,798,418
    
$
13,323,300
    
$
1,592,231
    
$
3,236,154
  




The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Columbia
  
Columbia
   
Strategic Income Fund, VS (A)
  
Strategic Income Fund, VS (B)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
1,665,683
    
$
1,995,848
    
$
2,331,353
    
$
2,632,173
  
Net realized (losses) gains
    
(1,497,618
)
    
(1,261,657
)
    
(1,270,241
)
    
237,317
  
Net change in unrealized appreciation/ depreciation
    
(2,272,450
)
    
682,390
      
(4,254,527
)
    
(1,182,171
)
(Decrease) increase in net assets from operations
    
(2,104,385
)
    
1,416,581
      
(3,193,415
)
    
1,687,319
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
135,699
      
148,755
      
263,328
      
194,959
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(955,255
)
    
(420,221
)
    
(3,020,024
)
    
2,071,711
  
Transfer for contract terminations and annuity payouts
    
(5,808,868
)
    
(9,558,261
)
    
(8,581,707
)
    
(6,441,755
)
Decrease in net assets operations from contract transactions
    
(6,628,424
)
    
(9,829,727
)
    
(11,338,403
)
    
(4,175,085
)
                                 
Decrease in net assets
    
(8,732,809
)
    
(8,413,146
)
    
(14,531,818
)
    
(2,487,766
)
                                 
Net Assets:
                                
Beginning of year
    
27,802,772
      
36,215,918
      
40,252,900
      
42,740,666
  
End of year
  
$
19,069,963
    
$
27,802,772
    
$
25,721,082
    
$
40,252,900
  
                                 
         
       
Fidelity VIP III
   
Fidelity VIP Equity
  
Dynamic Capital
   
Income Fund - SC2
  
Appreciation Fund-SC2
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income (loss)
  
$
97,357
    
$
(62,825
)
  
$
(22,198
)
  
$
(42,269
)
Net realized (losses) gains
    
(1,151,134
)
    
4,139,132
      
(147,233
)
    
338,863
  
Net change in unrealized appreciation/ depreciation
    
(14,688,793
)
    
(3,957,885
)
    
(836,875
)
    
(151,809
)
(Decrease) increase in net assets from operations
    
(15,742,570
)
    
118,422
      
(1,006,306
)
    
144,785
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
518,269
      
296,158
      
15,897
      
19,749
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(1,390,383
)
    
(85,931
)
    
(169,392
)
    
(17,723
)
Transfer for contract terminations and annuity payouts
    
(5,792,992
)
    
(6,808,171
)
    
(164,011
)
    
(558,315
)
Decrease in net assets operations from contract transactions
    
(6,665,106
)
    
(6,597,944
)
    
(317,506
)
    
(556,289
)
                                 
Decrease in net assets
    
(22,407,676
)
    
(6,479,522
)
    
(1,323,812
)
    
(411,504
)
                                 
Net Assets:
                                
Beginning of year
    
40,896,352
      
47,375,874
      
2,485,003
      
2,896,507
  
End of year
  
$
18,488,676
    
$
40,896,352
    
$
1,161,191
    
$
2,485,003
  




The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Fidelity VIP III Growth
    
   
Opportunities Fund - SC2
  
MFS Bond Series IC
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(182,972
)
  
$
(279,383
)
  
$
25,258
    
$
33,363
  
Net realized gains (losses)
    
352,193
      
1,470,179
      
(3,441
)
    
10,273
  
Net change in unrealized appreciation/ depreciation
    
(8,743,697
)
    
1,988,232
      
(82,251
)
    
12,627
  
(Decrease) increase in net assets from operations
    
(8,574,476
)
    
3,179,028
      
(60,434
)
    
56,263
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
59,582
      
75,374
      
302
      
27,041
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
647,429
      
(827,499
)
    
(227,418
)
    
168,933
  
Transfer for contract terminations and annuity payouts
    
(2,009,002
)
    
(2,382,203
)
    
(235,506
)
    
(537,285
)
Decrease in net assets operations from contract transactions
    
(1,301,991
)
    
(3,134,328
)
    
(462,622
)
    
(341,311
)
                                 
(Decrease) increase in net assets
    
(9,876,467)
      
44,700
      
(523,056)
      
(285,048
)
                                 
Net Assets:
                                
Beginning of year
    
16,930,399
      
16,885,699
      
1,841,101
      
2,126,149
  
End of year
  
$
7,053,932
    
$
16,930,399
    
$
1,318,045
    
$
1,841,101
  
                                 
         
   
MFS
  
MFS
   
Growth Series IC 13
  
Growth Series SC 14
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(59,018
)
  
$
(101,810
)
  
$
(68,485
)
  
$
(85,589
)
Net realized gains (losses)
    
182,859
      
452,734
      
(227,623
)
    
(48,702
)
Net change in unrealized appreciation/ depreciation
    
(2,234,324
)
    
901,671
      
(1,378,168
)
    
995,624
  
(Decrease) increase in net assets from operations
    
(2,110,483
)
    
1,252,595
      
(1,674,276
)
    
861,333
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
74,831
      
28,369
      
32,043
      
17,343
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(207,406
)
    
(552,484
)
    
317,825
      
(502,262
)
Transfer for contract terminations and annuity payouts
    
(1,136,985
)
    
(2,026,770
)
    
(821,095
)
    
(644,523
)
Decrease in net assets operations from contract transactions
    
(1,269,560
)
    
(2,550,885
)
    
(471,227
)
    
(1,129,442
)
                                 
Decrease in net assets
    
(3,380,043
)
    
(1,298,290
)
    
(2,145,503
)
    
(268,109
)
                                 
Net Assets:
                                
Beginning of year
    
6,420,199
      
7,718,489
      
4,654,443
      
4,922,552
  
End of year
  
$
3,040,156
    
$
6,420,199
    
$
2,508,940
    
$
4,654,443
  

13 Changed name from MFS Emerging Growth Series - IC effective 10/06/2008
14 Changed name from MFS Emerging Growth Series - SC effective 10/06/2008





The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
MFS Investors Growth
  
MFS Investors
   
Stock Series SC
  
Trust Series SC
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(134,509
)
  
$
(218,282
)
  
$
(133,177
)
  
$
(164,812
)
Net realized gains
    
38,924
      
629,351
      
901,344
      
1,223,575
  
Net change in unrealized appreciation/ depreciation
    
(4,041,337
)
    
833,415
      
(5,185,810
)
    
203,550
  
(Decrease) increase in net assets from operations
    
(4,136,922
)
    
1,244,484
      
(4,417,643
)
    
1,262,313
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
52,506
      
68,642
      
105,926
      
40,490
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(914,994
)
    
351,349
      
45,436
      
(474,185
)
Transfer for contract terminations and annuity payouts
    
(2,785,251
)
    
(2,062,863
)
    
(2,472,795
)
    
(2,699,145
)
Decrease in net assets operations from contract transactions
    
(3,647,739
)
    
(1,642,872
)
    
(2,321,433
)
    
(3,132,840
)
                                 
Decrease in net assets
    
(7,784,661
)
    
(398,388
)
    
(6,739,076
)
    
(1,870,527
)
                                 
Net Assets:
                                
Beginning of year
    
13,389,898
      
13,788,286
      
14,392,215
      
16,262,742
  
End of year
  
$
5,605,237
    
$
13,389,898
    
$
7,653,139
    
$
14,392,215
  
                                 
         
   
MFS New
  
MFS
   
Discovery Series SC
  
Research Series IC
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(61,344
)
  
$
(95,678
)
  
$
(77,834
)
  
$
(90,838
)
Net realized gains (losses)
    
583,938
      
729,914
      
(110,915
)
    
308,093
  
Net change in unrealized appreciation/ depreciation
    
(2,113,133
)
    
(503,327
)
    
(3,615,660
)
    
1,271,846
  
(Decrease) increase in net assets from operations
    
(1,590,539
)
    
130,909
      
(3,804,409
)
    
1,489,101
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
21,555
      
10,840
      
46,155
      
77,884
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(165,646
)
    
(181,908
)
    
(260,251
)
    
(416,621
)
Transfer for contract terminations and annuity payouts
    
(819,888
)
    
(1,608,873
)
    
(1,837,814
)
    
(3,559,406
)
Decrease in net assets operations from contract transactions
    
(963,979
)
    
(1,779,941
)
    
(2,051,910
)
    
(3,898,143
)
                                 
Decrease in net assets
    
(2,554,518
)
    
(1,649,032
)
    
(5,856,319
)
    
(2,409,042
)
                                 
Net Assets:
                                
Beginning of year
    
4,598,263
      
6,247,295
      
11,693,134
      
14,102,176
  
End of year
  
$
2,043,745
    
$
4,598,263
    
$
5,836,815
    
$
11,693,134
  




The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Rydex
  
Rydex
   
Banking Fund
  
Biotechnology Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(442
)
  
$
1,028
    
$
(294
)
  
$
-
  
Net realized (losses) gains
    
(29,551
)
    
1
      
(11,121
)
    
-
  
Net change in unrealized appreciation/ depreciation
    
3,159
      
(3,159
)
    
-
      
-
  
Decrease in net assets operations from operations
    
(26,834
)
    
(2,130
)
    
(11,415)
      
-
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
              
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(1,823
)
    
30,787
      
76,239
      
-
  
Transfer for contract terminations and annuity payouts
    
-
      
-
      
(64,824
)
    
-
  
(Decrease) increase in net assets from contract transactions
    
(1,823
)
    
30,787
      
11,415
      
-
  
                                 
(Decrease) increase in net assets
    
(28,657
)
    
28,657
      
-
      
-
  
                                 
Net Assets:
                                
Beginning of year
    
28,657
      
-
      
-
      
-
  
End of year
  
$
-
    
$
28,657
    
$
-
    
$
-
  
                                 
         
   
Rydex
  
Rydex
   
Consumer Products Fund
  
Energy Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(13
)
  
$
16
    
$
(128
)
  
$
(247
)
Net realized gains (losses)
    
40
      
225
      
(2,250
)
    
9,290
  
Net change in unrealized appreciation/ depreciation
    
(525
)
    
(32
)
    
(5,504
)
    
2,489
  
(Decrease) increase in net assets from operations
    
(498
)
    
209
      
(7,882
)
    
11,532
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
-
      
(306
)
    
893
      
(7,583
)
Transfer for contract terminations and annuity payouts
    
-
      
-
      
(7,391
)
    
(416
)
Decrease in net assets operations from contract transactions
    
-
      
(306
)
    
(6,498
)
    
(7,999
)
                                 
(Decrease) increase in net assets
    
(498
)
    
(97
)
    
(14,380
)
    
3,533
  
                                 
Net Assets:
                                
Beginning of year
    
2,068
      
2,165
      
16,032
      
12,499
  
End of year
  
$
1,570
    
$
2,068
    
$
1,652
    
$
16,032
  




The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Rydex
  
Rydex Financial
   
Energy Services Fund
  
Services Fund, VS (A)
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(123
)
  
$
(293
)
  
$
(213
)
  
$
693
  
Net realized gains (losses)
    
5,286
      
11,578
      
(21,560
)
    
4,044
  
Net change in unrealized appreciation/ depreciation
    
(15,506
)
    
(1,612
)
    
6,300
      
(6,327
)
(Decrease) increase in net assets from operations
    
(10,343
)
    
9,673
      
(15,473
)
    
(1,590
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
-
      
-
      
(13,745
)
    
30,786
  
Transfer for contract terminations and annuity payouts
    
(13,900
)
    
(20,999
)
    
-
      
-
  
(Decrease) increase in net assets from contract transactions
    
(13,900
)
    
(20,999
)
    
(13,745
)
    
30,786
  
                                 
(Decrease) increase in net assets
    
(24,243)
      
(11,326
)
    
(29,218
)
    
29,196
  
                                 
Net Assets:
                                
Beginning of year
    
25,717
      
37,043
      
29,233
      
37
  
End of year
  
$
1,474
    
$
25,717
    
$
15
    
$
29,233
  
                                 
         
   
Rydex Health
  
Rydex
   
Care Fund, VS (A)
  
Nova Fund15
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(15
)
  
$
(18
)
  
$
(101
)
  
$
7,116
  
Net realized gains (losses)
    
61
      
96
      
(3,509
)
    
10,315
  
Net change in unrealized appreciation/ depreciation
    
(528
)
    
38
      
8,050
      
(7,677
)
(Decrease) increase in net assets from operations
    
(482
)
    
116
      
4,440
      
9,754
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
1
      
-
      
(104,621
)
    
(539,796
)
Transfer for contract terminations and annuity payouts
    
-
      
(299
)
    
-
      
-
  
Increase (decrease) in net assets from contract transactions
    
1
      
(299
)
    
(104,621
)
    
(539,796
)
                                 
Decrease in net assets
    
(481
)
    
(183
)
    
(100,181
)
    
(530,042
)
                                 
Net Assets:
                                
Beginning of year
    
1,887
      
2,070
      
100,181
      
630,223
  
End of year
  
$
1,406
    
$
1,887
    
$
-
    
$
100,181
  

15 Fund was closed on 11/07/2008






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Rydex
  
Rydex Precious
   
OTC Fund16
  
Metals Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(23,272
)
  
$
(32,727
)
  
$
(895
)
  
$
(3,043
)
Net realized (losses) gains
    
(85,583
)
    
21,381
      
200,555
      
(23,990
)
Net change in unrealized appreciation/ depreciation
    
(651,933
)
    
310,318
      
(178,259
)
    
75,002
  
(Decrease) increase in net assets from operations
    
(760,788
)
    
298,972
      
21,401
      
47,969
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
24,880
      
9,826
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(36,034
)
    
(12,303
)
    
(543,940
)
    
285,660
  
Transfer for contract terminations and annuity payouts
    
(262,216
)
    
(159,405
)
    
(19,343
)
    
(19,482
)
(Decrease) increase in net assets from contract transactions
    
(273,370
)
    
(161,882
)
    
(563,283
)
    
266,178
  
                                 
(Decrease) increase in net assets
    
(1,034,158
)
    
137,090
      
(541,882
)
    
314,147
  
                                 
Net Assets:
                                
Beginning of year
    
1,984,073
      
1,846,983
      
541,882
      
227,735
  
End of year
  
$
949,915
    
$
1,984,073
    
$
-
    
$
541,882
  
                                 
         
   
Rydex
  
Rydex
   
Real Estate Fund
  
Retailing Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(23
)
  
$
215
    
$
(325
)
  
$
(28
)
Net change in unrealized appreciation/ depreciation
    
(6,329
)
    
1,766
      
(24,781
)
    
11,626
  
Net unrealized (losses) gains
    
(182
)
    
(5,268
)
    
12,387
      
(12,387
)
Decrease in net assets operations from operations
    
(6,534
)
    
(3,287
)
    
(12,719
)
    
(789
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
-
      
-
      
(7,018
)
    
20,526
  
Transfer for contract terminations and annuity payouts
    
(6,740
)
    
-
      
-
      
-
  
(Decrease) increase in net assets from contract transactions
    
(6,740
)
    
-
      
(7,018
)
    
20,526
  
                                 
(Decrease) increase in net assets
    
(13,274
)
    
(3,287
)
    
(19,7371
)
    
19,737
  
                                 
Net Assets:
                                
Beginning of year
    
13,274
      
16,561
      
19,737
      
-
  
End of year
  
$
-
    
$
13,274
    
$
-
    
$
19,737
  

16 Fund was closed to new investments on 11/07/2008






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Rydex
  
Rydex
   
Technology Fund
  
Transportation Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(437
)
  
$
-
    
$
(156
)
  
$
-
  
Net realized losses
    
(22,725
)
    
-
      
(32,607
)
    
-
  
Net change in unrealized appreciation/ depreciation
    
-
      
-
      
-
      
-
  
Decrease in net assets operations from operations
    
(23,162
)
    
-
      
(32,763
)
    
-
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
            
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
23,162
      
-
      
93,337
      
-
  
Transfer for contract terminations and annuity payouts
    
-
      
-
      
(60,574
)
    
-
  
Increase in net assets from contract transactions
    
23,162
      
-
      
32,763
      
-
  
                                 
Decrease in net assets
    
-
      
-
      
-
      
-
  
                                 
Net Assets:
                                
Beginning of year
    
-
      
-
      
-
      
-
  
End of year
  
$
-
    
$
-
    
$
-
    
$
-
  
                                 
         
   
Rydex
  
Rydex US Government
   
Ursa Fund
  
Money Market Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment (loss) income
  
$
(235
)
  
$
-
    
$
2,419
    
$
33,589
  
Net realized losses
    
(9,818
)
    
-
      
-
      
-
  
Net change in unrealized appreciation/ depreciation
    
-
      
-
      
-
      
-
  
(Decrease) increase in net assets from operations
    
(10,053
)
    
-
      
2,419
      
33,589
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
10,053
      
-
      
698,755
      
(171,127
)
Transfer for contract terminations and annuity payouts
    
-
      
-
      
(1,595,832
)
    
(388,431
)
Increase (decrease) in net assets from contract transactions
    
10,053
      
-
      
(897,077
)
    
(559,558
)
                                 
Decrease in net assets
    
-
      
-
      
(894,658
)
    
(525,969
)
                                 
Net Assets:
                                
Beginning of year
    
-
      
-
      
901,568
      
1,427,537
  
End of year
  
$
-
    
$
-
    
$
6,910
    
$
901,568
  




The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Rydex VT Europe
  
Rydex VT Inverse
   
Advantage Fund
  
OTC Strategy Fund19
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
-
    
$
(3
)
  
$
(133
)
  
$
(724
)
Net realized gains (losses)
    
-
      
380
      
1,179
      
(15,015
)
Net change in unrealized appreciation/ depreciation
    
(2
)
    
(403
)
    
-
      
-
  
(Decrease) increase in net assets from operations
    
(2
)
    
(26
)
    
1,046
      
(15,739
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
113,437
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(2
)
    
(4,767
)
    
(1,046
)
    
(97,698
)
Transfer for contract terminations and annuity payouts
    
-
      
-
      
-
      
-
  
(Decrease) increase in net assets from contract transactions
    
-
      
(4,767
)
    
(1,046
)
    
15,739
  
                                 
Decrease in net assets
    
(4
)
    
(4,793
)
    
-
      
-
  
                                 
Net Assets:
                                
Beginning of year
    
4
      
4,797
      
-
      
-
  
End of year
  
$
-
    
$
4
    
$
-
    
$
-
  
                                 
         
   
Rydex VT
  
Rydex
   
Government Long Bond
  
Inverse Government
   
1.2x Strategy Fund17
  
Long Bond Strategy Fund18
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income (loss)
  
$
42
    
$
677
    
$
-
    
$
(24
)
Net realized gains (losses)
    
2,694
      
(9,278
)
    
-
      
(4,020
)
Net change in unrealized appreciation/ depreciation
    
10
      
1
      
-
      
-
  
Increase (decrease) in net assets from operations
    
2,746
      
(8,600
)
    
-
      
(4,044
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(2,736
)
    
8,614
      
-
      
4,044
  
Transfer for contract terminations and annuity payouts
    
-
      
-
      
-
      
-
  
(Decrease) increase in net assets from contract transactions
    
(2,736
)
    
8,614
      
-
      
4,044
  
                                 
Increase in net assets
    
10
      
14
      
-
      
-
  
                                 
Net Assets:
                                
Beginning of year
    
23
      
9
      
-
      
-
  
End of year
  
$
33
    
$
23
    
$
-
    
$
-
  

17 Changed name from Rydex VT Government Long Bond Advantage Fund effective June 30,2007.
18 Changed name from Rydex Inverse Government Long Bond Fund effective June 30,2007.  Also Fund was closed on 11/07/2008
19 Changed name from Rydex VT Inverse OTC Fund effective June 30,2007.  Also Fund was closed on 11/07/2008




The accompanying notes are an integral part of these financial statements.



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Rydex VT
  
Rydex VT
   
Japan 1.25 x Strategy Fund20
  
Mid Cap 1.5x Strategy Fund21
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
-
    
$
(3
)
  
$
(231
)
  
$
(9
)
Net realized losses
    
-
      
(1,017
)
    
(11,898
)
    
(10,513
)
Net change in unrealized appreciation/ depreciation
    
-
      
980
      
7,970
      
2,468
  
Decrease in net assets from operations
    
-
      
(40
)
    
(4,159
)
    
(8,054
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
-
      
(4,579
)
    
(31,709
)
    
(1,833
)
Transfer for contract terminations and annuity payouts
    
-
      
-
      
-
      
-
  
Decrease in net assets from contract transactions
    
-
      
(4,579
)
    
(31,709
)
    
(1,833
)
                                 
Decrease in net assets
    
-
      
(4,619
)
    
(35,868
)
    
(9,887
)
                                 
Net Assets:
                                
Beginning of year
    
-
      
4,619
      
35,868
      
45,755
  
End of year
  
$
-
    
$
-
    
$
-
    
$
35,868
  
                                 
                                 
                                 
                                 
   
Rydex VT
  
Rydex VT
   
OTC 2x Strategy Fund22
  
S&P 500 2x Strategy Fund23
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(512
)
  
$
(2,208
)
  
$
(555
)
  
$
(1,331
)
Net realized (losses) gains
    
(30,055
)
    
2,862
      
(124,182
)
    
(89,532
)
Net change in unrealized appreciation/ depreciation
    
(5,437
)
    
133
      
3,573
      
(12,716
)
(Decrease) increase in net assets from operations
    
(36,004
)
    
787
      
(121,164
)
    
(103,579
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(65,298
)
    
42,209
      
34,385
      
215,224
  
Transfer for contract terminations and annuity payouts
    
(29,079
)
    
(42,484
)
    
(33,156
)
    
(42,528
)
(Decrease) increase in net assets from contract transactions
    
(94,377
)
    
(275
)
    
1,229
      
172,696
  
                                 
(Decrease) increase in net assets
    
(130,381
)
    
512
      
(119,935
)
    
69,117
  
                                 
Net Assets:
                                
Beginning of year
    
130,381
      
129,869
      
123,014
      
53,897
  
End of year
  
$
-
    
$
130,381
    
$
3,079
    
$
123,014
  

20
Changed name from Rydex VT Japan Advantage Fund effective June 30,2007.  Also Fund was closed on 11/07/2008.
 
21Changed name from Rydex VT Mid Cap Advantage effective June 30,2007
 
22Changed name from Rydex VT Dynamic OTC Fund effective June 30,2007
 
23Changed name from Rydex VT Dynamic S&P 500 Fund effective June 30,2007







The accompanying notes are an integral part of these financial statements.


 
 
 

K KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Rydex VT
  
Rydex VT
   
Inverse S&P 500 Strategy Fund24
  
Russell 2000 1.5x Strategy Fund25
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
-
    
$
(479
)
  
$
(108
)
  
$
(74
)
Net realized losses
    
-
      
(7,982
)
    
(14,889
)
    
(9,173
)
Net change in unrealized appreciation/ depreciation
    
-
      
-
      
(1,393
)
    
(4,151
)
Decrease in net assets operations from operations
    
-
      
(8,461
)
    
(16,390
)
    
(13,398
)
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
-
      
-
      
-
      
-
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
-
      
8,461
      
7,841
      
(21,521
)
Transfer for contract terminations and annuity payouts
    
-
      
-
      
(9,062
)
    
-
  
Increase (decrease) in net assets from contract transactions
    
-
      
8,461
      
(1,221
)
    
(21,521
)
                                 
Decrease in net assets
    
-
      
-
      
(17,611
)
    
(34,919
)
                                 
Net Assets:
                                
Beginning of year
    
-
      
-
      
21,052
      
55,971
  
End of year
  
$
-
    
$
-
    
$
3,441
    
$
21,052
  
                                 
                                 
                                 
                                 
   
SC WMC Large Cap
  
SC WMC Large Cap
   
Growth Fund I Class26
  
Growth Fund S Class27
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(376,354
)
  
$
(400,214
)
  
$
(197,198
)
  
$
(200,926
)
Net realized (losses) gains
    
(1,515,535
)
    
140,825
      
(742,431
)
    
58,937
  
Net change in unrealized appreciation/ depreciation
    
(12,598,160
)
    
755,622
      
(5,759,455
)
    
314,366
  
(Decrease) increase in net assets from operations
    
(14,490,049
)
    
496,233
      
(6,699,084
)
    
172,377
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
370,430
      
182,070
      
189,882
      
128,231
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(983,429
)
    
44,928,266
      
(354,758
)
    
19,459,720
  
Transfer for contract terminations and annuity payouts
    
(5,726,818
)
    
(9,027,309
)
    
(2,649,547
)
    
(3,051,764
)
(Decrease) increase in net assets from contract transactions
    
(6,339,817
)
    
36,083,027
      
(2,814,423
)
    
16,536,187
  
                                 
(Decrease) increase in net assets
    
(20,829,866
)
    
36,579,260
      
(9,513,507
)
    
16,708,564
  
                                 
Net Assets:
                                
Beginning of year
    
36,579,260
      
-
      
16,708,564
      
-
  
End of year
  
$
15,749,394
    
$
36,579,260
    
$
7,195,057
    
$
16,708,564
  

 
24Changed name from Rydex VT Inverse S&P 500 Fund effective June 30,2007
25
Changed name from Rydex VT Russell 2000 Advantage fund effective June 30,2007
26
New Fund effective 04/30/2007.  Also changed name from SCFI Large Cap Growth Fund - I class effective 08/01/2008.
 
27New Fund effective 04/30/2007.  Also changed name from Wanger US Smaller Companies Fund effective 10/06/2008.





The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Templeton Developing
  
U.S. Allocation
   
Markets Securities Fund 2
  
Portfolio
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment income
  
$
20,934
    
$
19,879
    
$
42,953
    
$
35,103
  
Net realized gains (losses)
    
439,692
      
1,488,275
      
(289,052
)
    
(86,935
)
Net change in unrealized appreciation/ depreciation
    
(2,129,468
)
    
(566,520
)
    
(1,028,163
)
    
118,200
  
(Decrease) increase in net assets from operations
    
(1,668,842
)
    
941,634
      
(1,274,262
)
    
66,368
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
16,820
      
33,330
      
30,542
      
34,726
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
35,905
      
(868,351
)
    
(194,618
)
    
(181,951
)
Transfer for contract terminations and annuity payouts
    
(418,143
)
    
(1,972,221
)
    
(1,119,202
)
    
(2,439,078
)
Decrease in net assets from contract transactions
    
(365,418
)
    
(2,807,242
)
    
(1,283,278
)
    
(2,586,303
)
                                 
Decrease in net assets
    
(2,034,260
)
    
(1,865,608
)
    
(2,557,540
)
    
(2,519,935
)
                                 
Net Assets:
                                
Beginning of year
    
3,332,450
      
5,198,058
      
4,498,808
      
7,018,743
  
End of year
  
$
1,298,190
    
$
3,332,450
    
$
1,941,268
    
$
4,498,808
  
                                 
                                 
                                 
                                 
   
Wanger International
  
Wanger International
   
Select Fund
  
Small Cap Fund
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(95,248
)
  
$
(102,514
)
  
$
(116,286
)
  
$
(194,811
)
Net realized gains
    
2,083,991
      
1,589,659
      
3,109,119
      
4,988,758
  
Net change in unrealized appreciation/ depreciation
    
(5,983,919
)
    
510,346
      
(12,774,826
)
    
(1,290,014
)
(Decrease) increase in net assets from operations
    
(3,995,176
)
    
1,997,491
      
(9,781,993
)
    
3,503,933
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
59,885
      
54,932
      
58,651
      
111,482
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(1,378,468
)
    
675,420
      
(191,199
)
    
(2,134,177
)
Transfer for contract terminations and annuity payouts
    
(2,169,652
)
    
(2,087,022
)
    
(2,819,224
)
    
(4,053,537
)
Decrease in net assets from contract transactions
    
(3,488,235
)
    
(1,356,670
)
    
(2,951,772
)
    
(6,076,232
)
                                 
(Decrease) increase in net assets
    
(7,483,411
)
    
640,821
      
(12,733,765
)
    
(2,572,299
)
                                 
Net Assets:
                                
Beginning of year
    
11,362,046
      
10,721,225
      
23,550,779
      
26,123,078
  
End of year
  
$
3,878,635
    
$
11,362,046
    
$
10,817,014
    
$
23,550,779
  






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

   
Wanger
  
Wanger USA
   
Select Fund
  
Fund28
   
2008
  
2007
  
2008
  
2007
Operations:
                                
Net investment loss
  
$
(288,097
)
  
$
(464,148
)
  
$
(566,961
)
  
$
(807,721
)
Net realized gains
    
1,823,593
      
3,343,402
      
5,199,172
      
6,402,563
  
Net change in unrealized appreciation/ depreciation
    
(11,601,856
)
    
(519,533
)
    
(20,288,014
)
    
(3,523,027
)
(Decrease) increase in net assets from operations
    
(10,066,360
)
    
2,359,721
      
(15,655,803
)
    
2,071,815
  
                                 
Contract Owner Transactions:
                                
Payments received from contract owners
    
109,068
      
138,980
      
190,921
      
191,239
  
Net transfers between Sub-Accounts and/ or Fixed Account
    
(811,924
)
    
(2,101,908
)
    
(1,495,615
)
    
(2,548,895
)
Transfer for contract terminations and annuity payouts
    
(3,230,842
)
    
(5,091,673
)
    
(5,253,742
)
    
(6,634,708
)
Decrease in net assets from contract transactions
    
(3,933,698
)
    
(7,054,601
)
    
(6,558,436
)
    
(8,992,364
)
                                 
Decrease in net assets
    
(14,000,058
)
    
(4,694,880
)
    
(22,214,239
)
    
(6,920,549
)
                                 
Net Assets:
                                
Beginning of year
    
23,537,826
      
28,232,706
      
44,008,451
      
50,929,000
  
End of year
  
$
9,537,768
    
$
23,537,826
    
$
21,794,212
    
$
44,008,451
  

28
Changed name from Wanger US Smaller Companies Fund effective 10/06/2008






The accompanying notes are an integral part of these financial statements.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2008


1. BUSINESS AND ORGANIZATION

Keyport Variable Account A (the “Variable Account”) is a separate account of Sun Life Assurance Company of Canada (U.S.) (the “Sponsor”) and was established as a funding vehicle for group and individual variable annuity contracts.  The Variable Account is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a unit investment trust existing in accordance with the regulations of the Delaware Insurance Department.

The assets of the Variable Account are divided into Sub-Accounts. Each Sub-Account is invested in shares of a specific mutual fund, or series thereof, selected by contract owners from available mutual funds (the "Funds") registered under the Investment Company Act of 1940, as amended.

Under applicable insurance law, the assets and liabilities of the Variable Account are clearly identified and distinguished from the Sponsor’s other assets and liabilities.  Assets applicable to the Variable Account are not chargeable with liabilities arising out of any other business the Sponsor may conduct.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires the Sponsor’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from these estimates.

Investment Valuation and Transactions
Investments made in mutual funds are valued at their closing net asset value each business day. Transactions are recorded on a trade date basis.  Realized gains and losses on sales of investments are on the determined basis of identified cost of the investments sold.  Dividend income and realized gain distributions are reinvested in additional fund shares and recognized on the ex-dividend date.

Transfers
Transfers between Sub-Accounts requested by contract participants are recorded in the new Sub-Account upon receipt of the redemption proceeds at the net asset value at the time of receipt.  In addition, transfers can be made between the Sub-Accounts and the Fixed Account.  The Fixed Account is part of the general account of the Sponsor in which purchase payments or contract values may be allocated or transferred.

Federal Income Tax Status
The operations of the Variable Account are part of the operations of the Sponsor and are not taxed separately. The Sponsor qualifies for the federal income tax treatment granted to life insurance companies under Subchapter L of the Internal Revenue Code (the “Code”). Under existing federal income tax law, investment income and realized gain distributions earned by the Variable Account on contract owner reserves are not taxable, and therefore, no provision has been made for federal income taxes. The Sponsor will periodically review the status of this policy in the event of changes in the tax law. A provision may be made in future years for any federal income taxes that would be attributable to the contract.

Net Assets Retained by the Sponsor
Net assets presented on the Statement of Assets and Liabilities do not include seed money retained by the Sponsor.  Seed money is invested by the Sponsor in certain Sub-Accounts that required funds to commence operations.  The total value retained by the Sponsor is presented as a separate item on the Statement of Assets and Liabilities.  Sub-Accounts which are fully retained by the Sponsor are not presented in the financial highlights.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New and Adopted Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes –an interpretation of FASB Statement No. 109” (“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”  This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN 48 is effective during the first required financial reporting period for fiscal years beginning after December 15, 2006.  The Sub-Accounts adopted FIN 48 on January 1, 2007.  The Sub-Accounts are not responsible for the payment or recording of income taxes and therefore the adoption of FIN 48 did not have an impact on the financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and expands disclosures about fair value measurements. SFAS No. 157 does not change existing guidance as to whether or not an instrument is carried at fair value.  On January 1, 2008, the Variable Account adopted SFAS No. 157 and applied the provisions of the statement prospectively to assets and liabilities measured and disclosed at fair value.

In October 2008, the FASB issued Staff Position (“FSP”) No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”. FSP No. FAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in the determination of the fair value of a financial asset when the market for that asset is not active. FSP No. FAS 157-3 was effective upon issuance and did not have an impact on the Variable Account’s financial statements.


3. RELATED PARTY TRANSACTIONS

Massachusetts Financial Services Company is the investment adviser to the MFS/Sun Life Series Trust.  Sun Capital Advisers LLC is the investment adviser to Sun Capital Advisers Trust.  Both are affiliates of the Sponsor and charge management fees at an annual rate ranging from 0.33% to 0.90% and 0.75% of the underlying funds’ average daily net assets, respectively.


4. CONTRACT CHARGES

Mortality and expense risk charges
Charges for mortality and expense risks are based on the value of the Sub-Account and are deducted from the Variable Account at the end of each valuation period to cover the risks assumed by the Sponsor. The deductions are transferred periodically to the Sponsor.  As of December 31, 2008, the deduction is at an effective annual rate of the average daily net asset value as follows:

Sub-Account
Mortality and Expense Risk
Keyport Advisor Variable Annuity
1.25%
Keyport Advisor Charter Variable Annuity
1.25%
Keyport Advisor Optima Variable Annuity
1.25%
Keyport Charter Variable Annuity
1.25%
Keyport Optima Variable Annuity
1.25%


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


4. CONTRACT CHARGES (CONTINUED)

Mortality and expense risk charges

Sub-Account
Mortality and Expense Risk
Keyport Latitude Variable Annuity
1.25%
Keyport Advisor Vista Variable Annuity
1.25%
Keyport Vista Variable Annuity
1.25%
Stein Roe Variable Annuity
0.65%
Rydex Variable Annuity
0.90%
Keyport Advisor Employee
0.35%

Administration charges
Each year on the account anniversary, an account administration fee is deducted from the Variable Account to reimburse the Sponsor for certain administrative expenses.  For Keyport Advisor Variable Annuity, Keyport Advisor Charter Variable Annuity, Keyport Advisor Optima Variable Annuity, Keyport Charter Variable Annuity, Keyport Optima Variable Annuity, and Keyport Latitude Variable Annuity the Account Fee is $36.  For Keyport Advisor Vista Variable Annuity and Keyport Vista Variable Annuity the Account Fee at an effective annual rate of 0.15% of contract value.

Distribution charge
A daily deduction from the Variable Account is made for distribution costs incurred by the Sponsor at an effective annual rate of 0.15% of average net assets for Keyport Advisor Variable Annuity, Keyport Advisor Charter Variable Annuity, Keyport Advisor Optima Variable Annuity, Keyport Charter Variable Annuity, Keyport Optima Variable Annuity, and Keyport Latitude Variable Annuity.  Keyport Advisor Vista Variable Annuity, Keyport Vista Variable Annuity, Stein Roe Variable Annuity, and Rydex Variable Annuity have no distribution charges.

Optional benefit rider charges
Optional riders are available for Keyport Advisor Charter and Keyport Advisor Optima only.  There is a yearly charge of 0.35% of the benefit base for a guaranteed income benefit rider, 0.05% of the benefit base for an enhanced death benefit (if purchased with income rider) and 0.10% of the benefit base for an enhanced death benefit (if purchased without the income rider).  The charge is deducted from the value of the Variable Account and Fixed Account held by the contract holder.

Surrender charges
The Sponsor does not deduct a sales charge from purchase payments.  However, Keyport Advisor Variable Annuity, Keyport Advisor Charter Variable Annuity, Keyport Advisor Optima Variable Annuity, Keyport Charter Variable Annuity, Keyport Optima Variable Annuity and Keyport Latitude Variable Annuity have a surrender charge (contingent deferred sales charge) based on a graded table of charges which is deducted upon contract termination from the amount surrendered.  Keyport Advisor Vista Variable Annuity, Keyport Vista Variable Annuity, Stein Roe Variable Annuity, and Rydex Variable Annuity have no surrender charges.

A deduction, when applicable, is made for premium taxes or similar state or local taxes.  It is currently the policy of the Sponsor to deduct the taxes from the Certificate Value upon full surrender (including surrender for the death benefit) or annuitization.   The Certificate Value is the sum of the Variable Account value and the Fixed Account value under the policyholder’s certificates.


5.  RESERVE FOR VARIABLE ANNUITIES

Reserve for variable annuities represents the actuarial present value of future contract benefits for those contract holders who are in the payout phase of their contract and chose the variable payout option. Annuity reserves are calculated using the 1983 Individual Annuity Mortality Table and the assumed interest rate of 3.0%, 4.0%, 5.0% or 6.0%, unless the annuitant elects otherwise, in which case the rate may vary from 3.0% to 6.0%, as regulated by the laws of the respective states.  The mortality risk is fully borne by the Sponsor and may result in additional amounts being transferred into the variable annuity account by the Sponsor to cover greater longevity of annuities than expected.  Required adjustments to the reserves are accomplished by transfers to or from the Sponsor.

 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

6.  INVESTMENT PURCHASES AND SALES

The cost of purchases and proceeds from sales of investments for the year ended December 31, 2008 were as follows:

             
   
Purchases
  
Sales
AIM VI Capital Appreciation Series I
  
$
614,096
  
$
3,182,796
AIM VI Core Equity Fund
    
791,241
    
3,300,151
AIM VI International Growth Series I
    
2,097,398
    
7,337,302
Alger American Small Capitalization Growth Portfolio
    
213,088
    
1,366,299
AllianceBernstein Balanced Shared Portfolio (B)
    
105,080
    
679,474
AllianceBernstein Global Bond Portfolio (A)
    
790,929
    
7,721,328
AllianceBernstein Global Bond Portfolio (B)
    
335,964
    
2,989,008
AllianceBernstein Global Technology Portfolio (B)
    
380,312
    
2,578,861
AllianceBernstein Growth & Income Portfolio (A)
    
376,441
    
381,811
AllianceBernstein Growth & Income Portfolio (B)
    
7,078,934
    
9,182,810
AllianceBernstein Growth Portfolio (B)
    
313,626
    
339,569
AllianceBernstein International Growth Portfolio (B)
    
1,268,363
    
2,544,664
AllianceBernstein Real Estate Investment Portfolio (A)
    
109,151
    
109,958
AllianceBernstein VPS Balanced Wealth Strategy (B)
    
535,189
    
20,853
AllianceBernstein VPS Intermediate Bond (A)
    
7,115,217
    
1,372,777
AllianceBernstein VPS Intermediate Bond (B)
    
2,772,343
    
621,466
Columbia Asset Allocation Fund, VS (A)
    
4,536,739
    
8,071,291
Columbia Asset Allocation Fund, VS (B)
    
8,339,050
    
10,090,045
Columbia Federal Securities Fund, VS (A)
    
1,211,600
    
4,908,193
Columbia Federal Securities Fund, VS (B)
    
4,939,391
    
21,842,989
Columbia High Yield Fund, VS (A)
    
235,850
    
798,025
Columbia High Yield Fund, VS (B)
    
1,502,692
    
2,899,602
Columbia International Fund, VS (A)
    
5,685,204
    
5,905,999
Columbia International Fund, VS (B)
    
793,795
    
844,967
Columbia Large Cap Growth Stock Fund, VS (A)
    
786,010
    
3,751,144
Columbia Large Cap Growth Stock Fund, VS (B)
    
667,255
    
3,988,516
Columbia Large Cap Value Fund, VS (A)
    
8,442,793
    
13,896,903
Columbia Large Cap Value Fund, VS (B)
    
4,964,273
    
7,547,737
Columbia Mid Cap Value Fund, VS (B)
    
5,194,531
    
7,090,454
Columbia Money Market Fund, VS (A)
    
29,080,381
    
33,225,729
Columbia S&P 500 Index Fund, VS (B)
    
2,316,652
    
7,898,162
Columbia Small Cap Value Fund, VS (A)
    
640,568
    
1,670,970
Columbia Small Cap Value Fund, VS (B)
    
2,404,078
    
4,460,250
Columbia Small Company Growth Fund, VS (A)
    
386,626
    
543,787
Columbia Strategic Income Fund, VS (A)
    
2,167,509
    
7,130,249
Columbia Strategic Income Fund, VS (B)
    
5,506,123
    
14,513,172
Fidelity VIP Equity Income Fund - SC2
    
3,592,246
    
10,126,341
Fidelity VIP III Dynamic Capital Appreciation Fund-SC2
    
648,925
    
977,427
Fidelity VIP III Growth Opportunities Fund - SC2
    
2,683,179
    
4,168,143
MFS Bond Series IC
    
51,172
    
488,537
MFS Growth Series IC
    
109,234
    
1,437,812
MFS Growth Series SC
    
644,852
    
1,184,563
MFS Investors Growth Stock Series SC
    
874,629
    
4,161,181
MFS Investors Trust Series SC
    
1,610,549
    
3,227,266
MFS New Discovery Series SC
    
864,064
    
1,135,425
MFS Research Series IC
    
149,119
    
2,278,862
Rydex Banking Fund
    
55,557
    
57,823
Rydex Biotechnology Fund
    
76,239
    
65,118



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


6.  INVESTMENT PURCHASES AND SALES(CONTINUED)

   
Purchases
  
Sales
Rydex Consumer Products Fund
  
$
45
  
$
16
Rydex Energy Fund
    
15,197
    
21,416
Rydex Energy Services Fund
    
948
    
14,023
Rydex Financial Services Fund, VS (A)
    
15,882
    
29,840
Rydex Health Care Fund, VS (A)
    
63
    
15
Rydex Nova Fund
    
503,416
    
608,138
Rydex OTC Fund
    
450,778
    
747,420
Rydex Precious Metals Fund
    
-
    
564,177
Rydex Real Estate Fund
    
828
    
6,839
Rydex Retailing Fund
    
37,785
    
45,034
Rydex VT S&P 500 2x Strategy Fund
    
806,582
    
805,909
Rydex Technology Fund
    
65,827
    
35,969
Rydex Transportation Fund
    
108,942
    
75,233
Rydex US Government Money Market Fund
    
1,856,933
    
2,751,591
Rydex VT OTC 2x Strategy Fund
    
843,832
    
938,720
Rydex VT Government Long Bond 1.2x Strategy Fund
    
53,959
    
56,653
  
Rydex VT Inverse OTC Strategy Fund
    
806,794
    
807,973
  
Rydex VT Inverse S&P 500 Fund
    
783,784
    
773,966
  
Rydex VT Mid Cap 1.5X Strategy Fund
    
50,667
    
82,608
  
Rydex VT Russell 2000 1.5x Strategy Fund
    
136,746
    
138,075
  
SC WMC Large Cap Growth Fund I Class
    
194,094
    
6,910,265
  
SC WMC Large Cap Growth Fund S Class
    
180,628
    
3,192,250
  
Templeton Developing Markets Securities Fund 2
    
719,618
    
575,377
  
U.S. Allocation Portfolio
    
114,264
    
1,354,589
  
Wanger International Select Fund
    
2,628,737
    
4,175,445
  
Wanger International Small Cap Fund
    
3,777,454
    
4,251,800
  
Wanger Select Fund
    
1,873,569
    
5,510,490
  
Wanger USA Fund
    
5,827,804
    
8,681,286
  

7. FAIR VALUE MEASUREMENTS

The following section applies the SFAS No. 157 fair value hierarchy and disclosure requirements to the Variable Account’s financial instruments that are carried at fair value. SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants. The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (i.e., Level 1, 2 and 3). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Variable Account has the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Level 3 inputs are unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability. SFAS No. 157 requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model, if market participants would also include such an adjustment.

In compliance with SFAS No. 157, the Variable Account has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three level hierarchy described above.  If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


7. FAIR VALUE MEASUREMENTS (CONTINUED)

The adoption did not have a material impact on the results of the Variable Account. As of December 31, 2008, the Funds of the Variable Account are identical to public mutual funds, but are only available to the contract holders of the Variable Account.  The inputs used to price the Funds are observable and are identical to mutual funds readily tradable in public markets and represent Level 1 assets under the SFAS No. 157 hierarchy levels. There were no Level 2 or 3 investments in the Variable Account.

The following table presents the Variable Account's categories for its assets measured at fair value on a recurring basis as of December 31, 2008:

 
Level 1
  
Level 2
  
Level 3
  
Total
Assets
                  
Investment in the Funds
$
551,304,883
  
 $                    -
  
$
-
  
$ 551,304,883
Total assets measured at fair value on a recurring basis
$
551,304,883
  
 $                    -
  
$
-
  
$ 551,304,883

8. FINANCIAL HIGHLIGHTS

The summary of units outstanding, unit values (some of which may be rounded), net assets, investment income ratio, expense ratios (excluding expenses of the underlying funds) and the total return, for each of the five years in the period ended December 31, is as follows:

     
At December 31
  
For the year ended December 31
     
Unit Fair Value
      
Investment
    
Expense Ratio
  
Total Return
 
Units
  
lowest to highest
  
Net Assets
  
Income Ratio1
    
lowest to highest2
  
lowest to highest3
AIM VI Capital Appreciation Series I
2008
766,141
  
$
7.426
to
$
7.607
$
5,703,607
  
-
%
  
1.24
%
to
1.39
%
  
(43.29
) %
to
(43.21
) %
2007
1,000,060
    
13.094
to
  
13.393
  
13,133,244
  
-
    
1.24
  
to
1.39
    
10.46
  
to
10.62
  
2006
1,295,604
    
11.854
to
  
12.107
  
15,400,097
  
0.06
    
1.24
  
to
1.39
    
4.84
  
to
4.99
  
2005
1,371,125
    
11.308
to
  
11.531
  
15,545,675
  
0.06
    
1.24
  
to
1.39
    
7.34
  
to
7.50
  
2004
1,644,791
    
10.535
to
  
10.727
  
17,374,279
  
-
    
1.24
  
to
1.39
    
5.15
  
to
5.31
  
                                                 
AIM VI Core Equity Fund
2008
993,825
    
7.943
to
  
7.975
  
7,896,557
  
1.99
    
1.24
  
to
1.39
    
(31.11
)
to
(31.01
)
2007
1,242,558
    
11.530
to
  
11.559
  
14,329,861
  
1.01
    
1.24
  
to
1.39
    
6.62
  
to
6.78
  
2006 7
1,588,466
    
7.882
to
  
9.260
  
17,180,328
  
0.81
    
1.24
  
to
1.39
    
5.10
  
to
5.15
  
                                                 
AIM VI Growth Series I (Merged with AIM VI Capital Appreciation Series I)
2008
-
    
-
to
  
-
  
-
  
-
    
-
  
to
-
    
-
  
to
-
  
2007
-
    
-
to
  
-
  
-
  
-
    
1.24
  
to
1.39
    
-
  
to
-
  
2006
-
    
8.573
to
  
8.662
  
-
  
-
    
1.24
  
to
1.39
    
6.76
  
to
6.81
  
2005
191,975
    
8.030
to
  
8.110
  
1,544,894
  
-
    
1.24
  
to
1.39
    
6.00
  
to
6.16
  
2004
265,891
    
7.576
to
  
7.639
  
2,019,073
  
-
    
1.24
  
to
1.39
    
6.73
  
to
6.89
  
                                                 
AIM VI International Growth Series I
2008
1,561,996
    
7.812
to
  
10.594
  
16,249,104
  
0.50
    
1.24
  
to
1.39
    
(41.21
)
to
(41.12
)
2007
1,926,668
    
13.268
to
  
18.019
  
34,048,917
  
0.38
    
1.24
  
to
1.39
    
13.13
  
to
13.30
  
2006
2,378,499
    
11.711
to
  
15.928
  
37,115,125
  
1.00
    
1.24
  
to
1.39
    
26.47
  
to
26.66
  
2005
2,696,977
    
9.246
to
  
12.595
  
33,188,740
  
0.66
    
1.24
  
to
1.39
    
16.30
  
to
16.48
  
2004
3,042,123
    
7.938
to
  
10.829
  
32,123,515
  
0.65
    
1.24
  
to
1.39
    
22.29
  
to
22.47
  


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

     
At December 31
  
For the year ended December 31
     
Unit Fair Value
      
Investment
    
Expense Ratio
  
Total Return
 
Units
  
lowest to highest
  
Net Assets
  
Income Ratio1
    
lowest to highest2
  
lowest to highest3
AIM VI Premier Equity Fund Series I (Merged with AIM VI Core Equity Fund)
2008
-
  
$
-
to
$
-
$
-
  
-
%
  
-
%
to
-
%
  
-
%
to
-
%
2007
-
    
-
to
  
-
  
-
  
-
    
1.24
  
to
1.39
    
-
  
to
-
  
2006
-
    
7.882
to
  
9.259
  
-
  
1.04
    
1.24
  
to
1.39
    
5.10
  
to
5.15
  
2005
2,425,456
    
7.500
to
  
8.810
  
18,318,368
  
0.79
    
1.24
  
to
1.39
    
4.20
  
to
4.36
  
2004
3,003,442
    
7.197
to
  
8.455
  
21,766,966
  
0.44
    
1.24
  
to
1.39
    
4.31
  
to
4.46
  
                                                 
Alger American Growth Portfolio (Merged with SC FI Large Cap Growth Fund I Class )
2008
-
    
-
to
  
-
  
-
  
-
    
-
  
to
-
    
-
  
to
-
  
2007
-
    
19.455
to
  
21.280
  
-
  
-
    
0.35
  
to
1.39
    
7.20
  
to
7.57
  
2006
1,361,545
    
18.148
to
  
19.783
  
24,756,325
  
0.13
    
0.35
  
to
1.39
    
3.70
  
to
4.78
  
2005
1,922,772
    
17.500
to
  
18.880
  
33,705,466
  
0.24
    
0.35
  
to
1.39
    
10.49
  
to
11.64
  
2004
2,483,790
    
15.838
to
  
16.911
  
39,400,571
  
-
    
0.35
  
to
1.39
    
4.04
  
to
5.13
  
                                                 
Alger American Small Capitalization Growth Portfolio (Formerly Alger American Small Capitalization Portfolio)
2008
337,289
    
8.732
to
  
10.353
  
2,948,018
  
-
    
0.35
  
to
1.39
    
(47.34
)
to
(46.79
)
2007
424,803
    
16.583
to
  
19.456
  
7,050,852
  
-
    
0.35
  
to
1.39
    
15.61
  
to
16.83
  
2006
643,911
    
14.343
to
  
16.654
  
9,242,528
  
-
    
0.35
  
to
1.39
    
18.36
  
to
19.60
  
2005
894,352
    
12.118
to
  
13.925
  
10,844,934
  
-
    
0.35
  
to
1.39
    
15.27
  
to
16.47
  
2004
1,138,962
    
10.512
to
  
11.955
  
11,979,656
  
-
    
0.35
  
to
1.39
    
14.36
  
to
16.16
  
                                                 
AllianceBernstein Balanced Shared Portfolio (Formerly AllianceBernstein Total Return Portfolio (B))
2008
-
    
10.552
to
  
10.662
  
-
  
4.68
    
1.24
  
to
1.39
    
(16.43
)
to
(16.33
)
2007
60,881
    
12.627
to
  
12.744
  
769,776
  
2.38
    
1.24
  
to
1.39
    
1.33
  
to
1.48
  
2006
113,980
    
12.461
to
  
12.558
  
1,422,310
  
2.23
    
1.24
  
to
1.39
    
10.03
  
to
10.19
  
2005
142,686
    
11.325
to
  
11.397
  
1,618,096
  
2.31
    
1.24
  
to
1.39
    
2.18
  
to
2.33
  
2004
162,196
    
11.084
to
  
11.137
  
1,800,614
  
2.27
    
1.24
  
to
1.39
    
7.29
  
to
7.45
  
                                                 
AllianceBernstein Global Bond Portfolio (A)
2008
-
    
15.006
to
  
16.780
  
-
  
10.41
    
0.35
  
to
1.39
    
4.94
  
to
5.29
  
2007
506,520
    
14.300
to
  
15.937
  
7,284,062
  
3.21
    
0.35
  
to
1.39
    
8.82
  
to
9.96
  
2006
680,561
    
13.141
to
  
14.493
  
8,988,046
  
1.65
    
0.35
  
to
1.39
    
3.52
  
to
4.60
  
2005
990,824
    
12.694
to
  
13.856
  
12,630,978
  
9.24
    
0.35
  
to
1.39
    
(8.93
)
to
(7.98
)
2004
1,235,671
    
13.938
to
  
15.057
  
17,280,263
  
5.73
    
0.35
  
to
1.39
    
8.11
  
to
9.25
  
                                                 
AllianceBernstein Global Bond Portfolio (B)
2008
-
    
14.616
to
  
14.811
  
-
  
10.14
    
1.24
  
to
1.39
    
4.83
  
to
4.88
  
2007
198,855
    
13.943
to
  
14.121
  
2,781,730
  
2.95
    
1.24
  
to
1.39
    
8.62
  
to
8.78
  
2006
274,151
    
12.836
to
  
12.981
  
3,528,310
  
1.35
    
1.24
  
to
1.39
    
3.20
  
to
3.36
  
2005
347,183
    
12.438
to
  
12.560
  
4,329,099
  
8.96
    
1.24
  
to
1.39
    
(9.13
)
to
(9.00)
  
2004
383,109
    
13.689
to
  
13.802
  
5,257,162
  
5.58
    
1.24
  
to
1.39
    
7.82
  
to
7.98
  
                                                 
AllianceBernstein Global Technology Portfolio (B) (Formerly AllianceBernstein Technology Portfolio (B))
2008
911,304
    
4.536
to
  
17.682
  
4,360,362
  
-
    
1.24
  
to
1.39
    
(48.19
)
to
-
  
2007
1,210,284
    
8.757
to
  
17.682
  
11,176,689
  
-
    
1.24
  
to
1.39
    
18.24
  
to
18.41
  
2006
1,524,791
    
7.406
to
  
7.949
  
11,909,372
  
-
    
1.24
  
to
1.39
    
6.89
  
to
7.05
  
2005
1,845,923
    
6.929
to
  
7.437
  
13,487,399
  
-
    
1.24
  
to
1.39
    
2.22
  
to
2.37
  
2004
2,198,138
    
6.779
to
  
7.204
  
15,710,648
  
-
    
1.24
  
to
1.39
    
3.63
  
to
3.79
  




 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

   
At December 31
  
For the year ended December 31
                                   
Investment
                            
           
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
   
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
AllianceBernstein Growth Portfolio (B)
                      
2008
    
53,667
    
$
7.494
to
  
$
7.575
    
$
403,527
      
-
%
    
1.24
%
 to
1.39
%
    
(43.39
)%
to
(43.31
)%
2007
    
58,336
      
13.238
to
    
13.361
      
774,720
      
-
      
1.24
  
to
1.39
      
11.10
  
to
11.27
  
2006
    
69,102
      
11.916
to
    
12.009
      
825,869
      
-
      
1.24
  
to
1.39
      
(2.60
)
to
(2.46)
  
2005
    
92,630
      
12.234
to
    
12.311
      
1,135,695
      
-
      
1.24
  
to
1.39
      
10.10
  
to
10.26
  
2004
    
106,044
      
11.112
to
    
11.165
      
1,181,281
      
-
      
1.24
  
to
1.39
      
12.94
  
to
13.11
  
                                                                     
AllianceBernstein Growth & Income Portfolio (A)
                                      
2008
    
113,188
      
10.666
to
    
10.666
      
1,207,237
      
2.11
      
1.39
  
to
1.39
      
(41.43
)
to
(41.43
)
2007
    
135,621
      
18.210
to
    
18.210
      
2,469,628
      
1.43
      
1.39
  
to
1.39
      
3.66
  
to
3.66
  
2006
    
183,419
      
17.567
to
    
17.567
      
3,222,127
      
1.43
      
1.39
  
to
1.39
      
15.67
  
to
15.67
  
2005
    
228,823
      
15.187
to
    
15.187
      
3,475,143
      
1.52
      
1.39
  
to
1.39
      
3.42
  
to
3.42
  
2004
    
294,155
      
14.684
to
    
14.684
      
4,319,489
      
0.95
      
1.39
  
to
1.39
      
9.92
  
to
9.92
  
                                                                     
AllianceBernstein Growth & Income Portfolio (B)
                                    
2008
    
1,990,891
      
7.973
to
    
12.749
      
16,612,074
      
1.86
      
1.24
  
to
1.39
      
(41.52
)
to
-
  
2007
    
2,659,499
      
12.749
to
    
14.446
      
37,946,873
      
1.21
      
1.24
  
to
1.39
      
-
  
to
3.56
  
2006
    
3,182,751
      
12.749
to
    
13.950
      
43,920,143
      
1.16
      
1.24
  
to
1.39
      
9.56
  
to
15.55
  
2005
    
3,802,765
      
11.428
to
    
12.073
      
45,481,963
      
1.27
      
1.24
  
to
1.39
      
3.16
  
to
3.31
  
2004
    
4,147,840
      
11.078
to
    
11.686
      
48,087,708
      
0.74
      
1.24
  
to
1.39
      
9.68
  
to
9.85
  
                                                                     
AllianceBernstein International Growth Portfolio (B) (Formerly AllianceBernstein Worldwide Privatization Portfolio (B))
  
2008
    
299,030
      
9.545
to
    
9.668
      
2,856,645
      
-
      
1.24
  
to
1.39
      
(49.67
)
to
(49.60
)
2007
    
400,181
      
18.966
to
    
19.182
      
7,595,038
      
1.31
      
1.24
  
to
1.39
      
16.14
  
to
16.32
  
2006
    
388,804
      
16.330
to
    
16.490
      
6,351,257
      
0.70
      
1.24
  
to
1.39
      
24.95
  
to
25.14
  
2005
    
462,461
      
13.069
to
    
13.178
      
6,045,588
      
0.32
      
1.24
  
to
1.39
      
18.89
  
to
19.07
  
2004
    
270,729
      
10.992
to
    
11.067
      
2,978,413
      
0.10
      
1.24
  
to
1.39
      
22.26
  
to
22.44
  
                                                                     
AllianceBernstein  International Research Growth Portfolio (B) (Merged with AllianceBernstein International Growth Portfolio)
  
2008
    
-
      
-
to
    
-
      
-
      
-
      
-
  
to
-
      
-
  
to
-
  
2007
    
-
      
23.262
to
    
23.476
      
-
      
0.93
      
1.24
  
to
1.39
      
24.16
  
to
24.34
  
2006
    
53,891
      
18.735
to
    
18.881
      
1,011,715
      
0.24
      
1.24
  
to
1.39
      
24.44
  
to
24.63
  
2005
    
57,938
      
15.055
to
    
15.150
      
874,069
      
0.33
      
1.24
  
to
1.39
      
17.15
  
to
17.32
  
2004
    
40,807
      
12.851
to
    
12.913
      
525,053
      
0.19
      
1.24
  
to
1.39
      
15.78
  
to
15.95
  
                                                                     
AllianceBernstein  Large Cap Growth Portfolio (A) (Merged with SC FI Large Cap Growth Fund I Class)
2008
    
-
      
-
to
    
-
      
-
      
-
      
-
  
to
-
      
-
  
to
-
  
2007
    
-
      
11.121
to
    
18.970
      
-
      
-
      
0.35
  
to
1.39
      
4.36
  
to
4.72
  
2006
    
1,480,043
      
10.656
to
    
18.115
      
25,189,489
      
-
      
0.35
  
to
1.39
      
(1.82
)
to
(0.79
)
2005
    
2,117,947
      
10.853
to
    
18.260
      
36,787,035
      
-
      
0.35
  
to
1.39
      
13.56
  
to
14.74
  
2004
    
2,963,832
      
9.557
to
    
15.914
      
45,388,257
      
-
      
0.35
  
to
1.39
      
7.12
  
to
8.24
  
                                                                     
AllianceBernstein Large Cap Growth Portfolio (B) (Merged with SC FI Large Cap Growth Fund S Class)
2008
    
-
      
-
to
    
-
      
-
      
-
      
-
  
to
-
      
-
  
to
-
  
2007
    
-
      
6.518
to
    
8.003
      
-
      
-
      
1.24
  
to
1.39
      
(12.75
)
to
4.32
  
2006
    
2,833,704
      
7.471
to
    
7.675
      
21,435,884
      
-
      
1.24
  
to
1.39
      
(2.01
)
to
(2.01
)
2005
    
3,362,166
      
7.624
to
    
7.833
      
25,954,639
      
-
      
1.24
  
to
1.39
      
13.26
  
to
13.43
  
2004
    
4,205,397
      
6.731
to
    
6.916
      
28,661,909
      
-
      
1.24
  
to
1.39
      
6.84
  
to
7.01
  




 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

   
At December 31
  
For the year ended December 31
                                   
Investment
                            
           
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
   
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
AllianceBernstein Real Estate Investment Portfolio (A)
                      
2008
    
13,539
    
$
16.817
to
  
$
16.817
    
$
227,675
      
1.78
%
    
1.39
%
 to
1.39
%
    
(36.58
)%
to
(36.58
)%
2007
    
17,567
      
26.516
to
    
26.516
      
465,804
      
1.46
      
1.39
  
to
1.39
      
(15.72
)
to
(15.72
)
2006
    
26,192
      
31.461
to
    
31.461
      
824,040
      
1.92
      
1.39
  
to
1.39
      
33.37
  
to
33.37
  
2005
    
32,299
      
23.590
to
    
23.590
      
761,923
      
3.33
      
1.39
  
to
1.39
      
10.13
  
to
10.13
  
2004
    
47,685
      
21.420
to
    
21.420
      
1,021,411
      
2.27
      
1.39
  
to
1.39
      
33.75
  
to
33.75
  
                                                                     
AllianceBernstein VPS Balanced Wealth Strategy (B)
                                      
2008
4
  
51,240
      
8.223
to
    
8.223
      
423,690
      
-
      
1.24
    
1.39
      
(17.77
)
  
(17.77
)
                                                                     
AllianceBernstein VPS Intermediate Bond (A)
                                    
2008
5
  
573,799
      
9.319
to
    
9.386
      
5,348,638
      
-
      
0.35
    
1.39
      
(6.81
)
  
(6.14
)
                                                                     
AllianceBernstein VPS Intermediate Bond (B)
  
2008
5
  
216,165
      
9.297
to
    
9.307
      
2,010,151
      
-
      
1.24
    
1.39
      
(7.03
)
  
(6.93
)
                                                                     
Columbia Asset Allocation Fund, VS (A) (Formerly Liberty Asset Allocation Fund VS (A))
  
2008
    
761,747
      
9.446
to
    
27.043
      
19,630,136
      
3.26
      
0.35
  
to
1.39
      
(29.32
)
to
(28.57
)
2007
    
994,764
      
13.265
to
    
38.202
      
36,233,728
      
2.71
      
0.35
  
to
1.39
      
7.66
  
to
8.79
  
2006
    
1,382,239
      
12.230
to
    
35.431
      
46,850,010
      
2.34
      
0.35
  
to
1.39
      
10.25
  
to
11.40
  
2005
    
1,960,282
      
11.011
to
    
32.090
      
60,318,796
      
2.66
      
0.35
  
to
1.39
      
5.06
  
to
6.16
  
2004
    
2,449,676
      
10.403
to
    
48.967
      
71,902,225
      
2.39
      
0.35
  
to
1.39
      
8.47
  
to
9.60
  
                                                                     
Columbia Asset Allocation Fund, VS (B) (Formerly Liberty Asset Allocation Fund VS (B))
2008
    
914,332
      
10.140
to
    
26.648
      
22,163,437
      
3.17
      
1.24
  
to
1.39
      
(29.44
)
to
(29.33
)
2007
    
1,128,976
      
14.371
to
    
37.710
      
38,840,639
      
2.67
      
1.24
  
to
1.39
      
7.54
  
to
7.70
  
2006
    
1,368,372
      
13.363
to
    
35.012
      
43,501,641
      
2.34
      
1.24
  
to
1.39
      
10.07
  
to
10.23
  
2005
    
1,642,697
      
12.141
to
    
31.762
      
46,644,475
      
2.47
      
1.24
  
to
1.39
      
4.94
  
to
5.09
  
2004
    
1,870,567
      
11.570
to
    
30.223
      
50,467,897
      
2.25
      
1.24
  
to
1.39
      
8.28
  
to
8.45
  
                                                                     
Columbia Federal Securities Fund, VS (A) (Formerly Liberty Federal Securities Fund VS (A))
2008
    
500,536
      
16.059
to
    
29.870
      
14,194,100
      
6.10
      
0.35
  
to
1.39
      
6.59
  
to
7.71
  
2007
    
664,438
      
14.954
to
    
27.981
      
17,669,845
      
5.75
      
0.35
  
to
1.39
      
4.71
  
to
5.81
  
2006
    
911,454
      
14.174
to
    
26.681
      
23,123,984
      
5.25
      
0.35
  
to
1.39
      
2.29
  
to
3.36
  
2005
    
1,329,782
      
13.755
to
    
26.046
      
32,958,991
      
5.95
      
0.35
  
to
1.39
      
1.17
  
to
2.22
  
2004
    
1,773,235
      
13.496
to
    
26.262
      
43,403,828
      
5.24
      
0.35
  
to
1.39
      
2.71
  
to
3.78
  
                                                                     
Columbia Federal Securities Fund, VS (B) (Formerly Liberty Federal Securities Fund VS (B))
2008
    
1,541,417
      
27.563
to
    
29.240
      
42,618,567
      
5.98
      
1.24
  
to
1.39
      
6.32
  
to
6.48
  
2007
    
2,267,147
      
25.925
to
    
27.461
      
58,936,195
      
5.69
      
1.24
  
to
1.39
      
4.50
  
to
4.66
  
2006
    
2,600,889
      
24.808
to
    
26.238
      
64,710,572
      
5.35
      
1.24
  
to
1.39
      
1.96
  
to
2.12
  
2005
    
2,942,077
      
24.331
to
    
25.695
      
71,800,914
      
5.46
      
1.24
  
to
1.39
      
1.02
  
to
1.17
  
2004
    
3,293,398
      
24.085
to
    
25.398
      
79,587,267
      
4.82
      
1.24
  
to
1.39
      
2.48
  
to
2.64
  
                                                                     
Columbia High Yield Fund, VS (A) (Formerly Columbia High Yield Fund II, VS (A))
2008
    
187,544
      
7.951
to
    
8.111
      
1,491,703
      
10.36
      
0.65
  
to
1.39
      
(25.82
)
to
(25.26
)
2007
    
262,833
      
10.719
to
    
10.853
      
2,818,179
      
4.71
      
0.65
  
to
1.39
      
0.43
  
to
1.18
  
2006
    
378,830
      
9.888
to
    
10.757
      
4,043,974
      
7.43
      
0.65
  
to
1.39
      
0.68
  
to
0.92
  
2005
    
525,660
      
9.822
to
    
10.659
      
5,168,013
      
-
      
0.65
  
to
1.39
      
1.10
  
to
1.85
  
2004
    
671,908
      
9.715
to
    
10.465
      
6,547,176
      
5.29
      
0.65
  
to
1.39
      
5.53
  
to
6.32
  




 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
  
                         
Investment
                          
       
Unit Fair Value
    
Net
  
Income
    
Expense Ratio
    
Total Return
  
 
Units
    
lowest to highest
    
Assets
  
Ratio 1
    
lowest to highest2
    
lowest to highest3
  
Columbia High Yield Fund, VS (B) (Formerly Columbia High Yield Fund II, VS (B))
2008
775,916
  
$
7.944
to
  
$
7.976
  
$
6,166,464
  
10.34
%
  
1.24
%
to
1.39
%
  
(25.80
)%
to
(25.69
)%
2007
1,003,610
    
10.707
to
    
10.734
    
10,747,844
  
5.05
    
1.24
  
to
1.39
    
0.29
  
to
0.44
  
2006
1,241,102
    
9.845
to
    
10.686
    
13,250,678
  
4.18
    
1.24
  
to
1.39
    
0.70
  
to
8.23
  
2005
1,672,228
    
9.777
to
    
9.873
    
16,364,803
  
-
    
1.24
  
to
1.39
    
1.00
  
to
1.15
  
2004
2,016,436
    
9.680
to
    
9.762
    
19,538,391
  
5.32
    
1.24
  
to
1.39
    
5.58
  
to
5.74
  
                                                     
Columbia International Fund, VS (A)
2008
1,273,177
    
9.132
to
    
12.609
    
11,725,792
  
2.97
    
0.35
  
to
1.39
    
(45.60
)
to
(45.03
)
2007
1,609,936
    
16.786
to
    
23.005
    
27,227,453
  
2.80
    
0.35
  
to
1.39
    
6.29
  
to
7.41
  
2006
2,257,043
    
15.792
to
    
21.482
    
35,872,393
  
1.36
    
0.35
  
to
1.39
    
23.44
  
to
24.73
  
2005
3,037,073
    
12.793
to
    
17.274
    
39,112,207
  
-
    
0.35
  
to
1.39
    
11.60
  
to
12.76
  
2004
3,987,162
    
11.463
to
    
15.364
    
45,991,784
  
1.15
    
0.35
  
to
1.39
    
12.16
  
to
13.33
  
                                                     
Columbia International Fund, VS (B)
2008
143,429
    
11.945
to
    
12.048
    
1,716,897
  
2.69
    
1.24
  
to
1.39
    
(45.78
)
to
(45.70
)
2007
183,305
    
22.031
to
    
22.188
    
4,046,278
  
2.53
    
1.24
  
to
1.39
    
5.69
  
to
5.85
  
2006
270,514
    
20.845
to
    
20.962
    
5,646,510
  
1.24
    
1.24
  
to
1.39
    
23.32
  
to
23.50
  
2005
327,628
    
16.904
to
    
16.973
    
5,543,450
  
-
    
1.24
  
to
1.39
    
11.08
  
to
11.25
  
2004
401,033
    
15.217
to
    
15.257
    
6,106,415
  
0.96
    
1.24
  
to
1.39
    
11.91
  
to
12.08
  
                                                     
Columbia Large Cap Growth Stock Fund, VS (A) (Formerly SteinRoe Growth Stock Fund VS (A))
2008
341,288
    
4.428
to
    
25.746
    
8,062,323
  
0.25
    
0.35
  
to
1.39
    
(41.26
)
to
(40.64
)
2007
432,631
    
7.482
to
    
43.764
    
17,044,341
  
0.37
    
0.35
  
to
1.39
    
14.16
  
to
15.36
  
2006
628,682
    
6.505
to
    
38.277
    
22,206,251
  
0.34
    
0.35
  
to
1.39
    
8.72
  
to
9.85
  
2005
890,447
    
5.940
to
    
35.156
    
28,907,133
  
0.65
    
0.35
  
to
1.39
    
3.30
  
to
4.38
  
2004
1,234,209
    
5.707
to
    
33.981
    
38,367,529
  
0.16
    
0.35
  
to
1.39
    
(3.31
)
to
(2.29
)
                                                     
Columbia Large Cap Growth Stock Fund, VS (B) (Formerly SteinRoe Growth Stock Fund VS (B))
2008
257,275
    
6.019
to
    
25.344
    
5,977,654
  
0.08
    
1.24
  
to
1.39
    
(41.36
)
to
(41.27
)
2007
354,320
    
10.265
to
    
43.155
    
13,980,637
  
0.25
    
1.24
  
to
1.39
    
13.97
  
to
14.14
  
2006
423,168
    
9.007
to
    
37.809
    
14,339,849
  
0.19
    
1.24
  
to
1.39
    
8.61
  
to
8.77
  
2005
490,910
    
8.293
to
    
34.761
    
14,972,235
  
0.40
    
1.24
  
to
1.39
    
3.05
  
to
3.21
  
2004
604,018
    
8.048
to
    
33.681
    
17,738,961
  
-
    
1.24
  
to
1.39
    
(3.50
)
to
(3.36
)
                                                     
Columbia Large Cap Value Fund, VS (A) (Formerly Liberty Growth & Income Fund, VS (A))
2008
1,360,258
    
8.643
to
    
24.934
    
28,735,875
  
2.40
    
0.35
  
to
1.39
    
(37.95
)
to
(37.29
)
2007
1,804,173
    
13.825
to
    
39.762
    
61,352,376
  
1.40
    
0.35
  
to
1.39
    
1.31
  
to
2.37
  
2006
2,560,018
    
13.544
to
    
38.839
    
85,742,272
  
1.28
    
0.35
  
to
1.39
    
16.53
  
to
17.74
  
2005
3,658,223
    
11.537
to
    
32.986
    
105,281,602
  
-
    
0.35
  
to
1.39
    
4.92
  
to
6.01
  
2004
4,758,220
    
10.915
to
    
31.115
    
130,472,664
  
1.73
    
0.35
  
to
1.39
    
12.19
  
to
13.36
  
                                                     
Columbia Large Cap Value Fund, VS (B) (Formerly Liberty Growth & Income Fund, VS (B))
2008
667,944
    
9.215
to
    
21.416
    
13,365,662
  
2.13
    
1.24
  
to
1.39
    
(38.09
)
to
(37.99
)
2007
873,557
    
14.884
to
    
34.537
    
28,995,120
  
1.25
    
1.24
  
to
1.39
    
1.07
  
to
1.22
  
2006
1,079,267
    
14.727
to
    
34.122
    
35,338,280
  
1.13
    
1.24
  
to
1.39
    
16.23
  
to
16.40
  
2005
1,238,143
    
12.671
to
    
29.314
    
34,823,989
  
-
    
1.24
  
to
1.39
    
4.74
  
to
4.90
  
2004
1,395,486
    
12.097
to
    
27.946
    
37,327,648
  
1.54
    
1.24
  
to
1.39
    
11.89
  
to
12.06
  









 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
  
                 
Investment
                
     
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
  
 
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
  
Columbia Mid Cap Value Fund, VS (B) (Formerly Liberty Select Value Fund, VS (B))
                        
2008
1,379,916
$
10.197
to
$    10.328
$
14,078,638
  
1.11
%
1.24
%
to
1.39
%
(43.91
)%
to
(43.83
)%
2007
1,740,949
  
18.179
to
18.386
  
31,665,215
  
0.67
  
1.24
  
to
1.39
  
6.08
  
to
6.24
  
2006
2,052,718
  
17.138
to
17.306
  
35,194,954
  
0.50
  
1.24
  
to
1.39
  
15.30
  
to
15.48
  
2005
2,367,547
  
14.863
to
14.987
  
35,205,422
  
-
  
1.24
  
to
1.39
  
10.53
  
to
10.70
  
2004
2,609,259
  
13.447
to
13.539
  
35,101,572
  
0.28
  
1.24
  
to
1.39
  
13.72
  
to
13.89
  
                                         
Columbia Money Market Fund, VS (A) (Formerly Liberty Money Market Fund VS (A))
2008
5,475,836
  
12.181
to
19.226
  
93,197,553
  
2.55
  
-
  
to
1.39
  
1.16
  
to
2.58
  
2007
5,791,656
  
12.041
to
18.743
  
97,342,901
  
4.90
  
0.35
  
to
1.39
  
3.55
  
to
5.02
  
2006
7,186,191
  
11.628
to
17.848
  
116,027,363
  
4.60
  
0.35
  
to
1.39
  
3.28
  
to
4.72
  
2005
8,566,370
  
11.193
to
17.043
  
133,974,900
  
2.78
  
-
  
to
1.39
  
1.40
  
to
2.81
  
2004
8,215,045
  
10.406
to
16.577
  
126,381,296
  
0.87
  
-
  
to
1.39
  
(0.52
)
to
0.88
  
                                         
Columbia Small Cap Value Fund, VS (A) (Formerly Colonial Small Cap Value Fund, VS (A))
2008
172,250
  
14.686
to
14.899
  
2,537,482
  
0.71
  
1.24
  
to
1.39
  
(29.02
)
to
(28.91
)
2007
247,765
  
20.690
to
20.958
  
5,140,860
  
0.43
  
1.24
  
to
1.39
  
(3.71
)
to
(3.57
)
2006
366,911
  
21.488
to
21.733
  
7,900,514
  
0.51
  
1.24
  
to
1.39
  
17.92
  
to
18.10
  
2005
474,277
  
18.222
to
18.403
  
8,659,404
  
-
  
0.65
  
to
1.39
  
4.18
  
to
4.34
  
2004
583,290
  
17.491
to
17.638
  
10,220,825
  
0.49
  
0.65
  
to
1.39
  
21.01
  
to
21.19
  
                                         
Columbia Small Cap Value Fund, VS (B) (Formerly Colonial Small Cap Value Fund, VS (B))
2008
466,981
  
14.541
to
14.751
  
6,798,418
  
0.46
  
1.24
  
to
1.39
  
(29.15
)
to
(29.04
)
2007
648,492
  
20.524
to
20.790
  
13,323,300
  
0.26
  
1.24
  
to
1.39
  
(3.93
)
to
(3.79
)
2006
847,524
  
21.364
to
21.608
  
18,121,796
  
0.33
  
1.24
  
to
1.39
  
17.72
  
to
17.89
  
2005
991,327
  
18.148
to
18.328
  
18,006,053
  
-
  
1.24
  
to
1.39
  
4.02
  
to
4.17
  
2004
1,135,581
  
17.448
to
17.594
  
19,828,593
  
0.33
  
1.24
  
to
1.39
  
20.81
  
to
20.99
  
                                         
Columbia Small Company Growth Fund VS (A) (Formerly Liberty Small Company Growth Fund VS (A))
2008
62,448
  
9.023
to
26.818
  
1,592,231
  
-
  
0.35
  
to
1.39
  
(41.65
)
to
(41.03
)
2007
74,020
  
15.463
to
45.889
  
3,236,154
  
-
  
0.35
  
to
1.39
  
11.88
  
to
13.06
  
2006
104,739
  
13.820
to
40.953
  
4,115,136
  
-
  
0.35
  
to
1.39
  
10.85
  
to
12.01
  
2005
162,744
  
12.467
to
36.889
  
5,829,102
  
-
  
0.35
  
to
1.39
  
1.30
  
to
2.35
  
2004
231,682
  
12.308
to
36.363
  
8,207,238
  
-
  
0.35
  
to
1.39
  
9.94
  
to
11.09
  
                                         
Columbia Strategic Income Fund, VS (A) (Formerly Colonial Strategic Income Fund, VS (A))
2008
968,707
  
14.098
to
22.795
  
19,069,963
  
8.41
  
0.35
  
to
1.39
  
(8.97
)
to
(8.02
)
2007
1,284,541
  
15.488
to
24.783
  
27,802,772
  
7.74
  
0.35
  
to
1.39
  
4.60
  
to
5.69
  
2006
1,750,784
  
14.808
to
23.447
  
36,215,918
  
9.63
  
0.35
  
to
1.39
  
5.59
  
to
6.69
  
2005
2,589,859
  
14.024
to
21.977
  
50,757,201
  
-
  
0.35
  
to
1.39
  
0.21
  
to
1.25
  
2004
3,359,897
  
13.995
to
21.705
  
65,625,701
  
7.56
  
0.35
  
to
1.39
  
8.64
  
to
9.78
  
                                         
Columbia Strategic Income Fund, VS (B) (Formerly Colonial Strategic Income Fund, VS (B))
2008
1,341,252
  
13.845
to
19.735
  
25,721,082
  
8.30
  
1.24
  
to
1.39
  
(9.08
)
to
(8.94
)
2007
1,909,961
  
15.227
to
21.673
  
40,252,900
  
7.82
  
1.24
  
to
1.39
  
4.28
  
to
4.44
  
2006
2,116,104
  
14.602
to
20.752
  
42,740,666
  
10.05
  
1.24
  
to
1.39
  
5.37
  
to
5.53
  
2005
2,360,977
  
13.858
to
19.665
  
45,297,775
  
-
  
1.24
  
to
1.39
  
0.01
  
to
0.16
  
2004
2,484,658
  
13.856
to
19.633
  
47,634,325
  
7.98
  
1.24
  
to
1.39
  
8.33
  
to
8.50
  








 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

   
At December 31
  
For the year ended December 31
                                   
Investment
                            
           
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
   
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
Columbia S&P 500 Index Fund, VS (B) (Formerly Liberty S&P 500 Index Fund, VS (B))
                      
2008
    
3,021,662
    
$
5.995
to
  
$
6.073
    
$
18,128,786
      
1.84
%
    
1.24
%
 to
1.39
%
    
(38.27
) %
to
(38.18
) %
2007
    
3,690,746
      
9.713
to
    
9.823
      
35,869,904
      
1.22
      
1.24
  
to
1.39
      
3.42
  
to
3.57
  
2006
    
4,113,887
      
9.392
to
    
9.484
      
38,659,141
      
1.28
      
1.24
  
to
1.39
      
13.44
  
to
13.61
  
2005
    
4,930,583
      
8.279
to
    
8.348
      
40,840,330
      
-
      
1.24
  
to
1.39
      
2.78
  
to
2.94
  
2004
    
5,250,083
      
8.055
to
    
8.110
      
42,307,778
      
1.30
      
1.24
  
to
1.39
      
8.59
  
to
8.75
  
                                                                     
Fidelity VIP Equity Income Fund - SC2
                                      
2008
    
2,304,337
      
8.016
to
    
8.119
      
18,488,676
      
2.01
      
1.24
  
to
1.39
      
(43.61
)
to
(43.52
)
2007
    
2,874,699
      
14.215
to
    
14.376
      
40,896,352
      
1.50
      
1.24
  
to
1.39
      
(0.13
)
to
0.02
  
2006
    
3,325,969
      
14.234
to
    
14.373
      
47,375,874
      
2.99
      
1.24
  
to
1.39
      
18.28
  
to
18.45
  
2005
    
3,643,228
      
12.034
to
    
12.134
      
43,870,477
      
1.45
      
1.24
  
to
1.39
      
4.12
  
to
4.27
  
2004
    
3,754,165
      
11.558
to
    
11.637
      
43,418,765
      
1.39
      
1.24
  
to
1.39
      
9.69
  
to
9.86
  
                                                                     
Fidelity VIP III Dynamic Capital Appreciation Fund-SC2
                                    
2008
    
136,337
      
7.787
to
    
8.518
      
1,161,191
      
0.44
      
1.24
  
to
1.39
      
(42.16
)
to
(42.07
)
2007
    
168,851
      
13.442
to
    
14.727
      
2,485,003
      
0.10
      
1.24
  
to
1.39
      
5.25
  
to
5.41
  
2006
    
207,189
      
12.753
to
    
13.993
      
2,896,507
      
0.25
      
1.24
  
to
1.39
      
12.25
  
to
12.41
  
2005
    
150,280
      
11.345
to
    
12.466
      
1,869,379
      
-
      
1.24
  
to
1.39
      
19.01
  
to
19.19
  
2004
    
106,203
      
9.518
to
    
10.474
      
1,107,711
      
-
      
1.24
  
to
1.39
      
(0.12
)
to
0.03
  
                                                                     
Fidelity VIP III Growth Opportunities Fund - SC2
                                      
2008
    
1,630,322
      
4.324
to
    
4.380
      
7,053,932
      
0.13
      
1.24
  
to
1.39
      
(55.76
)
to
(55.69
)
2007
    
1,731,081
      
9.774
to
    
9.885
      
16,930,399
      
-
      
1.24
  
to
1.39
      
21.20
  
to
21.38
  
2006
    
2,092,554
      
8.064
to
    
8.144
      
16,885,699
      
0.48
      
1.24
  
to
1.39
      
3.67
  
to
3.83
  
2005
    
2,265,072
      
7.779
to
    
7.844
      
17,631,071
      
0.67
      
1.24
  
to
1.39
      
7.18
  
to
7.34
  
2004
    
2,437,441
      
7.258
to
    
7.307
      
17,699,605
      
0.33
      
1.24
  
to
1.39
      
5.41
  
to
5.57
  
                                                                     
MFS Bond Series IC
                                                        
2008
    
93,254
      
14.134
to
    
14.134
      
1,318,045
      
2.96
      
1.39
  
to
1.39
      
(3.72
)
to
(3.72
)
2007
    
125,418
      
14.680
to
    
14.680
      
1,841,101
      
3.18
      
1.39
  
to
1.39
      
2.76
  
to
2.76
  
2006
    
148,834
      
14.285
to
    
14.285
      
2,126,149
      
4.28
      
1.39
  
to
1.39
      
2.61
  
to
2.61
  
2005
    
169,713
      
13.921
to
    
13.921
      
2,362,659
      
5.23
      
1.39
  
to
1.39
      
0.12
  
to
0.12
  
2004
    
233,078
      
13.905
to
    
13.905
      
3,241,035
      
6.08
      
1.39
  
to
1.39
      
4.60
  
to
4.60
  
                                                                     
MFS Growth Series IC (Formerly MFS Emerging Growth Series IC)
                              
2008
    
275,891
      
8.302
to
    
13.260
      
3,040,156
      
0.24
      
0.35
  
to
1.39
      
(38.29
)
to
(37.64
)
2007
    
359,979
      
13.452
to
    
21.262
      
6,420,199
      
-
      
0.35
  
to
1.39
      
19.49
  
to
20.75
  
2006
    
516,673
      
11.257
to
    
17.609
      
7,718,489
      
-
      
0.35
  
to
1.39
      
6.41
  
to
7.52
  
2005
    
724,412
      
10.580
to
    
16.378
      
10,178,489
      
-
      
0.35
  
to
1.39
      
7.69
  
to
8.81
  
2004
    
981,602
      
9.824
to
    
15.052
      
12,817,064
      
-
      
0.35
  
to
1.39
      
11.40
  
to
12.56
  
                                                                     
MFS Growth Series SC (Formerly MFS Emerging Growth Series SC)
                              
2008
    
231,373
      
8.153
to
    
11.061
      
2,508,940
      
-
      
1.24
  
to
1.39
      
(38.41
)
to
(38.32
)
2007
    
264,373
      
13.238
to
    
17.933
      
4,654,443
      
-
      
1.24
  
to
1.39
      
19.20
  
to
19.38
  
2006
    
333,189
      
11.106
to
    
15.022
      
4,922,552
      
-
      
1.24
  
to
1.39
      
6.13
  
to
6.29
  
2005
    
367,398
      
10.464
to
    
14.134
      
5,113,323
      
-
      
1.24
  
to
1.39
      
7.42
  
to
7.58
  
2004
    
456,401
      
9.741
to
    
13.137
      
5,914,440
      
-
      
1.24
  
to
1.39
      
11.16
  
to
11.33
  



 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

   
At December 31
  
For the year ended December 31
                                   
Investment
                            
           
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
   
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
MFS Investors Growth Stock Series SC
                      
2008
    
1,253,523
    
$
4.470
to
  
$
4.527
    
$
5,605,237
      
0.31
%
    
1.24
%
to
1.39
%
    
(37.85
) %
to
(37.76
) %
2007
    
1,861,012
      
7.192
to
    
7.274
      
13,389,898
      
0.09
      
1.24
  
to
1.39
      
9.48
  
to
9.65
  
2006
    
2,098,150
      
6.569
to
    
6.634
      
13,788,286
      
-
      
1.24
  
to
1.39
      
5.83
  
to
5.98
  
2005
    
2,362,160
      
6.208
to
    
6.259
      
14,669,265
      
0.15
      
1.24
  
to
1.39
      
2.79
  
to
2.94
  
2004
    
2,571,131
      
6.039
to
    
6.080
      
15,533,303
      
-
      
1.24
  
to
1.39
      
7.48
  
to
7.64
  
                                                                     
MFS Investors Trust Series SC
                                      
2008
    
1,113,734
      
6.868
to
    
6.956
      
7,653,139
      
0.55
      
1.24
  
to
1.39
      
(34.18
)
to
(34.08
)
2007
    
1,378,653
      
10.434
to
    
10.552
      
14,392,215
      
0.61
      
1.24
  
to
1.39
      
8.51
  
to
8.67
  
2006
    
1,690,285
      
9.616
to
    
9.711
      
16,262,742
      
0.26
      
1.24
  
to
1.39
      
11.14
  
to
11.31
  
2005
    
1,929,386
      
8.652
to
    
8.724
      
16,701,714
      
0.32
      
1.24
  
to
1.39
      
5.55
  
to
5.71
  
2004
    
1,990,443
      
8.197
to
    
8.253
      
16,323,512
      
0.44
      
1.24
  
to
1.39
      
9.59
  
to
9.75
  
                                                                     
MFS New Discovery Series SC
                                    
2008
    
373,332
      
5.473
to
    
5.543
      
2,043,745
      
-
      
1.24
  
to
1.39
      
(40.36
)
to
(40.27
)
2007
    
500,965
      
9.176
to
    
9.280
      
4,598,263
      
-
      
1.24
  
to
1.39
      
0.83
  
to
0.98
  
2006
    
686,283
      
9.101
to
    
9.190
      
6,247,295
      
-
      
1.24
  
to
1.39
      
11.37
  
to
11.54
  
2005
    
781,811
      
8.171
to
    
8.239
      
6,390,248
      
-
      
1.24
  
to
1.39
      
3.58
  
to
3.74
  
2004
    
948,910
      
7.888
to
    
7.942
      
7,487,676
      
-
      
1.24
  
to
1.39
      
4.74
  
to
4.90
  
                                                                     
MFS Research Series IC
                                      
2008
    
534,350
      
8.231
to
    
11.992
      
5,836,815
      
0.56
      
0.35
  
to
1.39
      
(36.97
)
to
(36.31
)
2007
    
674,627
      
13.060
to
    
18.828
      
11,693,134
      
0.73
      
0.35
  
to
1.39
      
11.63
  
to
12.81
  
2006
    
908,302
      
11.699
to
    
16.691
      
14,102,176
      
0.54
      
0.35
  
to
1.39
      
8.96
  
to
10.09
  
2005
    
1,263,205
      
10.738
to
    
15.161
      
18,007,788
      
0.49
      
0.35
  
to
1.39
      
6.32
  
to
7.42
  
2004
    
1,604,746
      
10.010
to
    
14.113
      
21,520,625
      
1.10
      
0.35
  
to
1.39
      
14.25
  
to
15.44
  
                                                                     
Rydex Banking Fund
                                                        
2008
    
-
      
16.241
to
    
16.241
      
-
      
0.09
      
0.90
  
to
0.90
      
(41.69
)
to
(41.69
)
2007
    
1,029
      
27.853
to
    
27.853
      
28,657
      
23.18
      
0.90
  
to
0.90
      
(27.73
)
to
(27.73
)
2006
    
-
      
38.543
to
    
38.543
      
-
      
-
      
0.90
  
to
0.90
      
10.26
  
to
10.26
  
2005
    
973
      
34.958
to
    
34.958
      
34,012
      
7.59
      
0.90
  
to
0.90
      
(3.63
)
to
(3.63
)
2004
    
1,952
      
36.275
to
    
36.275
      
70,810
      
0.58
      
0.90
  
to
0.90
      
13.71
  
to
13.71
  
                                                                     
Rydex Basic Materials Fund
                              
2008
    
-
      
-
to
    
-
      
-
      
-
      
-
  
to
-
      
-
  
to
-
  
2007
    
-
      
55.000
to
    
55.000
      
-
      
-
      
0.90
  
to
0.90
      
32.76
  
to
32.76
  
2006
    
-
      
41.427
to
    
41.427
      
-
      
-
      
0.90
  
to
0.90
      
21.21
  
to
21.21
  
2005
    
1,074
      
34.179
to
    
34.179
      
36,699
      
-
      
0.90
  
to
0.90
      
3.11
  
to
3.11
  
2004
    
1
      
33.147
to
    
33.147
      
47
      
0.15
      
0.90
  
to
0.90
      
19.75
  
to
19.75
  
                                                                     
Rydex Biotechnology Fund
                              
2008
    
-
      
-
to
    
-
      
-
      
-
      
-
  
to
-
      
-
  
to
-
  
2007
    
-
      
21.633
to
    
21.633
      
-
      
-
      
0.90
  
to
0.90
      
3.47
  
to
3.47
  
2006
    
-
      
20.908
to
    
20.908
      
-
      
-
      
0.90
  
to
0.90
      
(4.18
)
to
(4.18
)
2005
    
-
      
21.821
to
    
21.821
      
-
      
-
      
0.90
  
to
0.90
      
9.68
  
to
9.68
  
2004
    
-
      
19.894
to
    
19.894
      
-
      
-
      
0.90
  
to
0.90
      
0.19
  
to
0.19
  








 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
  
                 
Investment
                
     
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
  
 
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
  
Rydex Consumer Products Fund
2008
50
$
31.581
to
$    31.581
$
1,570
  
0.17
%
0.90
%
to
0.90
%
(24.08
)%
to
(24.08
)%
2007
50
  
41.596
to
41.596
  
2,068
  
1.67
  
0.90
  
to
0.90
  
10.08
  
to
10.08
  
2006
57
  
37.786
to
37.786
  
2,165
  
0.07
  
0.90
  
to
0.90
  
16.38
  
to
16.38
  
2005
555
  
32.467
to
32.467
  
18,007
  
5.33
  
0.90
  
to
0.90
  
(1.28
)
to
(1.28
)
2004
414
  
32.889
to
32.889
  
13,611
  
0.00
  
0.90
  
to
0.90
  
12.29
  
to
12.29
  
                                         
Rydex Electronics Fund
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
  
2007
-
  
15.516
to
15.516
  
-
  
-
  
0.90
  
to
0.90
  
(3.37
)
to
(3.37
)
2006
-
  
16.057
to
16.057
  
-
  
-
  
0.90
  
to
0.90
  
1.57
  
to
1.57
  
2005
-
  
15.808
to
15.808
  
-
  
-
  
0.90
  
to
0.90
  
2.95
  
to
2.95
  
2004
342
  
15.355
to
15.355
  
5,253
  
-
  
0.90
  
to
0.90
  
(22.68
)
to
(22.68
)
                                         
Rydex Energy Fund
2008
44
  
37.409
to
37.409
  
1,652
  
-
  
0.90
  
to
0.90
  
(46.52
)
to
(46.52
)
2007
229
  
69.947
to
69.947
  
16,032
  
-
  
0.90
  
to
0.90
  
32.02
  
to
32.02
  
2006
236
  
52.982
to
52.982
  
12,499
  
-
  
0.90
  
to
0.90
  
10.93
  
to
10.93
  
2005
951
  
47.761
to
47.761
  
45,410
  
0.06
  
0.90
  
to
0.90
  
37.31
  
to
37.31
  
2004
6,663
  
34.784
to
34.784
  
231,748
  
0.00
  
0.90
  
to
0.90
  
31.09
  
to
31.09
  
                                         
Rydex Energy Services Fund
2008
49
  
30.206
to
30.206
  
1,474
  
-
  
0.90
  
to
0.90
  
(57.98
)
to
(57.98
)
2007
358
  
71.890
to
71.890
  
25,717
  
-
  
0.90
  
to
0.90
  
35.87
  
to
35.87
  
2006
700
  
52.911
to
52.911
  
37,043
  
-
  
0.90
  
to
0.90
  
9.99
  
to
9.99
  
2005
1,447
  
48.104
to
48.104
  
69,584
  
-
  
0.90
  
to
0.90
  
46.98
  
to
46.98
  
2004
100,761
  
32.728
to
32.728
  
3,297,751
  
-
  
0.90
  
to
0.90
  
32.54
  
to
32.54
  
                                         
Rydex Financial Services Fund, VS (A)
2008
1
  
15.371
to
15.371
  
15
  
-
  
0.90
  
to
0.90
  
(48.51
)
to
(48.51
)
2007
979
  
-
to
29.851
  
29,233
  
15.71
  
0.90
  
to
1.39
  
(19.53
)
to
-
  
2006
1
  
37.097
to
37.097
  
37
  
0.01
  
0.90
  
to
1.39
  
15.69
  
to
15.69
  
2005
557
  
32.065
to
32.065
  
17,863
  
0.88
  
0.90
  
to
1.39
  
2.46
  
to
2.46
  
2004
1,197
  
31.296
to
31.296
  
37,458
  
0.40
  
0.90
  
to
1.39
  
16.07
  
to
16.07
  
                                         
Rydex Health Care Fund, VS (A)
2008
58
  
24.150
to
24.150
  
1,406
  
-
  
0.90
  
to
0.90
  
(25.53
)
to
(25.53
)
2007
58
  
32.430
to
32.430
  
1,887
  
-
  
0.90
  
to
1.39
  
5.07
  
to
5.07
  
2006
67
  
30.864
to
30.864
  
2,070
  
-
  
0.90
  
to
1.39
  
4.18
  
to
4.18
  
2005
1,870
  
29.626
to
29.626
  
55,398
  
-
  
0.90
  
to
1.39
  
9.66
  
to
9.66
  
2004
33
  
27.016
to
27.016
  
900
  
-
  
0.90
  
to
1.39
  
5.27
  
to
5.27
  
                                         
Rydex Internet Fund
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
  
2007
-
  
28.283
to
28.283
  
-
  
-
  
0.90
  
to
0.90
  
9.40
  
to
9.40
  
2006
-
  
25.853
to
25.853
  
-
  
-
  
0.90
  
to
0.90
  
8.73
  
to
8.73
  
2005
-
  
23.779
to
23.779
  
-
  
-
  
0.90
  
to
0.90
  
(2.25
)
to
(2.25
)
2004
3,434
  
24.327
to
24.327
  
83,541
  
-
  
0.90
  
to
0.90
  
14.84
  
to
14.84
  










 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
  
                 
Investment
                      
     
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
  
 
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
  
Rydex Nova Fund
                                        
2008
-
$
8.074
to
$            8.074
$
-
  
-
%
0.90
%
to
0.90
%
(57.13)
%
to
(57.13)
%
2007
5,319
  
18.835
to
18.835
  
100,181
  
8.30
  
0.90
  
to
1.39
  
0.22
  
to
0.22
  
2006
33,534
  
18.794
to
18.794
  
630,223
  
2.64
  
0.90
  
to
1.39
  
18.21
  
to
18.21
  
2005
20,521
  
15.898
to
15.898
  
326,254
  
0.07
  
0.90
  
to
1.39
  
3.04
  
to
3.04
  
2004
60,684
  
15.429
to
15.429
  
936,294
  
0.01
  
0.90
  
to
1.39
  
13.60
  
to
13.60
  
                                         
Rydex OTC Fund
                                        
2008
394,652
  
2.404
to
2.435
  
949,915
  
0.15
  
0.90
  
to
1.39
  
(78.92)
  
to
(42.72)
  
2007
472,266
  
4.197
to
11.556
  
1,984,073
  
0.07
  
0.90
  
to
1.39
  
16.19
  
to
16.77
  
2006
510,859
  
3.612
to
9.896
  
1,846,983
  
-
  
0.90
  
to
1.39
  
4.32
  
to
4.83
  
2005
638,955
  
3.463
to
9.440
  
2,429,063
  
-
  
0.90
  
to
1.39
  
(0.28)
  
to
0.21
  
2004
832,923
  
3.473
to
9.420
  
3,634,718
  
-
  
0.90
  
to
1.39
  
7.83
  
to
8.37
  
                                         
Rydex Precious Metals Fund
                                        
2008
-
  
48.022
to
48.022
  
-
  
-
  
0.90
  
to
0.90
  
(39.12)
  
to
(39.12)
  
2007
6,870
  
78.874
to
78.874
  
541,882
  
-
  
0.90
  
to
0.90
  
18.48
  
to
18.48
  
2006
3,421
  
66.571
to
66.571
  
227,735
  
-
  
0.90
  
to
0.90
  
20.35
  
to
20.35
  
2005
8,307
  
55.315
to
55.315
  
459,487
  
-
  
0.90
  
to
0.90
  
19.81
  
to
19.81
  
2004
17,826
  
46.168
to
46.168
  
822,994
  
-
  
0.90
  
to
0.90
  
(14.98)
  
to
(14.98)
  
                                         
Rydex Real Estate Fund
                                        
2008
-
  
24.639
to
24.639
  
-
  
0.68
  
0.90
  
to
0.90
  
(42.16)
  
to
(42.16)
  
2007
312
  
42.602
to
42.602
  
13,274
  
2.26
  
0.90
  
to
0.90
  
(19.84)
  
to
(19.84)
  
2006
312
  
53.149
to
53.149
  
16,561
  
1.53
  
0.90
  
to
0.90
  
29.56
  
to
29.56
  
2005
312
  
41.022
to
41.022
  
12,782
  
0.38
  
0.90
  
to
0.90
  
6.19
  
to
6.19
  
2004
13,999
  
38.629
to
38.629
  
540,784
  
1.68
  
0.90
  
to
0.90
  
28.39
  
to
28.39
  
                                         
Rydex Retailing Fund
                                        
2008
-
  
18.525
to
18.525
  
-
  
-
  
0.90
  
to
0.90
  
(33.55)
  
to
(33.55)
  
2007
708
  
27.878
to
27.878
  
19,737
  
0.00
  
0.90
  
to
0.90
  
(13.39)
  
to
(13.39)
  
2006
-
  
32.186
to
32.186
  
-
  
-
  
0.90
  
to
0.90
  
9.10
  
to
9.10
  
2005
-
  
29.502
to
29.502
  
-
  
-
  
0.90
  
to
0.90
  
4.54
  
to
4.54
  
2004
1,943
  
28.221
to
28.221
  
54,845
  
-
  
0.90
  
to
0.90
  
9.08
  
to
9.08
  
                                         
Rydex Technology Fund
                                        
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
  
2007
-
  
26.522
to
26.522
  
-
  
-
  
0.90
  
to
0.90
  
9.39
  
to
9.39
  
2006
-
  
24.245
to
24.245
  
-
  
-
  
0.90
  
to
0.90
  
4.95
  
to
4.95
  
2005
-
  
23.102
to
23.102
  
-
  
-
  
0.90
  
to
0.90
  
2.19
  
to
2.19
  
2004
5,758
  
22.606
to
22.606
  
130,176
  
-
  
0.90
  
to
0.90
  
0.25
  
to
0.25
  
                                         
Rydex Telecommunications Fund
      
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
  
2007
-
  
28.029
to
28.029
  
-
  
-
  
0.90
  
to
0.90
  
8.25
  
to
8.25
  
2006
-
  
25.893
to
25.893
  
-
  
-
  
0.90
  
to
0.90
  
18.45
  
to
18.45
  
2005
2,470
  
21.860
to
21.860
  
54,004
  
-
  
0.90
  
to
0.90
  
0.26
  
to
0.26
  
2004
24,972
  
21.803
to
21.803
  
544,454
  
-
  
0.90
  
to
0.90
  
11.67
  
to
11.67
  





 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

 
At December 31
  
For the year ended December 31
                 
Investment
                        
     
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
  
 
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
  
Rydex Transportation Fund
    
2008
-
  
$         -
to
$            -
$
-
  
-
%
-
%
to
-
%
-
%
to
-
%
  
2007
-
  
31.339
to
31.339
  
-
  
-
  
0.90
  
to
0.90
  
(9.57)
  
to
(9.57)
    
2006
-
  
34.657
to
34.657
  
-
  
-
  
0.90
  
to
0.90
  
6.43
  
to
6.43
    
2005
-
  
32.563
to
32.563
  
-
  
-
  
0.90
  
to
0.90
  
7.52
  
to
7.52
    
2004
1,143
  
30.287
to
30.287
  
34,620
  
-
  
0.90
  
to
0.90
  
21.89
  
to
21.89
    
                                           
Rydex US Government Money Market Fund
                    
2008
250
  
27.621
to
27.621
  
6,910
  
1.20
  
0.90
  
to
0.90
  
0.24
  
to
0.24
    
2007
32,717
  
27.556
to
27.556
  
901,568
  
3.86
  
0.90
  
to
0.90
  
2.96
  
to
2.96
    
2006
53,338
  
26.764
to
26.764
  
1,427,537
  
3.58
  
0.90
  
to
0.90
  
2.89
  
to
2.89
    
2005
72,522
  
26.012
to
26.012
  
1,886,435
  
1.67
  
0.90
  
to
0.90
  
1.10
  
to
1.10
    
2004
969,059
  
25.728
to
25.728
  
24,932,035
  
0.30
  
0.90
  
to
0.90
  
(0.66)
  
to
(0.66)
    
                                           
Rydex Utilities Fund
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
    
2007
-
  
35.657
to
35.657
  
-
  
-
  
0.90
  
to
0.90
  
11.85
  
to
11.85
    
2006
-
  
31.879
to
31.879
  
-
  
-
  
0.90
  
to
0.90
  
19.89
  
to
19.89
    
2005
-
  
26.591
to
26.591
  
-
  
0.12
  
0.90
  
to
0.90
  
9.58
  
to
9.58
    
2004
21,099
  
24.266
to
24.266
  
511,986
  
0.55
  
0.90
  
to
0.90
  
16.26
  
to
16.26
    
                                           
Rydex VT OTC 2x Strategy Fund (Formerly Rydex VT Dynamic OTC Fund)
    
2008
-
  
8.958
to
8.958
  
-
  
-
  
0.90
  
to
0.90
  
(74.45)
  
to
(74.45)
    
2007
3,719
  
35.060
to
35.060
  
130,381
  
0.07
  
0.90
  
to
0.90
  
27.05
  
to
27.05
    
2006
4,706
  
27.595
to
27.595
  
129,869
  
0.06
  
0.90
  
to
0.90
  
3.93
  
to
3.93
    
2005
42,338
  
26.552
to
26.552
  
1,124,150
  
-
  
0.90
  
to
0.90
  
(3.89)
  
to
(3.89)
    
2004
96,596
  
27.628
to
27.628
  
2,668,707
  
1.16
  
0.90
  
to
0.90
  
13.19
  
to
13.19
    
                                           
Rydex VT S&P 500 2x Strategy Fund (Formerly Rydex VT Dynamic S&P 500 Fund)
    
2008
279
  
11.030
to
11.030
  
3,079
  
-
  
0.90
  
to
0.90
  
(68.27)
  
to
(68.27)
  
2007
3,538
  
34.765
to
34.765
  
123,014
  
0.30
  
0.90
  
to
0.90
  
(0.29)
  
to
(0.29)
  
2006
1,546
  
34.866
to
34.866
  
53,897
  
0.37
  
0.90
  
to
0.90
  
22.60
  
to
22.60
  
2005
35,588
  
28.439
to
28.439
  
1,012,074
  
0.08
  
0.90
  
to
0.90
  
2.46
  
to
2.46
  
2004
66,761
  
27.755
to
27.755
  
1,852,938
  
-
  
0.90
  
to
0.90
  
15.85
  
to
15.85
  
                                         
Rydex VT Europe Advantage Fund (Formerly Rydex Large Cap Europe Fund)
    
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
    
2007
-
  
44.623
to
44.623
  
4
  
0.04
  
0.90
  
to
0.90
  
12.05
  
to
12.05
    
2006
120
  
39.825
to
39.825
  
4,797
  
1.05
  
0.90
  
to
0.90
  
28.36
  
to
28.36
    
2005
737
  
31.026
to
31.026
  
22,878
  
0.29
  
0.90
  
to
0.90
  
5.41
  
to
5.41
    
2004
3,108
  
29.434
to
29.434
  
91,479
  
22.95
  
0.90
  
to
0.90
  
15.11
  
to
15.11
    
                                           
Rydex VT Government Long Bond 1.2x Strategy Fund (Formerly Rydex VT Government Long Bond Advantage Fund)
    
2008
1
  
54.729
to
54.729
  
33
  
3.54
  
0.90
  
to
0.90
  
43.55
  
to
43.55
  
2007
1
  
38.125
to
38.125
  
23
  
3.66
  
0.90
  
to
0.90
  
8.79
  
to
8.79
  
2006
-
  
35.045
to
35.045
  
9
  
3.66
  
0.90
  
to
0.90
  
(4.01)
  
to
(4.01)
  
2005
1,218
  
36.509
to
36.509
  
44,462
  
3.73
  
0.90
  
to
0.90
  
6.76
  
to
6.76
  
2004
1
  
34.197
to
34.197
  
34
  
3.55
  
0.90
  
to
0.90
  
7.46
  
to
7.46
  













 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

                                         
 
At December 31
  
For the year ended December 31
  
                 
Investment
                      
     
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
  
 
Units
  
lowest to highest
  
Assets
  
Ratio 1
  
lowest to highest2
  
lowest to highest3
  
Rydex VT Inverse Government Long Bond Strategy Fund (Formerly Rydex VT Inverse Government Long Bond Fund)
2008
-
$
16.463
to
$16.463
$
-
  
-
%
0.90
%
to
0.90
%
(24.83)
%
to
(24.83)
%
2007
-
  
21.902
to
21.902
  
-
  
-
  
0.90
  
to
0.90
  
(5.37)
  
to
(5.37)
  
2006
-
  
23.145
to
23.145
  
-
  
2.97
  
0.90
  
to
0.90
  
7.14
  
to
7.14
  
2005
10,812
  
21.601
to
21.601
  
233,561
  
-
  
0.90
  
to
0.90
  
(6.08)
  
to
(6.08)
  
2004
15,453
  
23.000
to
23.000
  
355,430
  
-
  
0.90
  
to
0.90
  
(11.46)
  
to
(11.46)
  
                                         
Rydex VT Inverse OTC Strategy Fund (Formerly Rydex VT Inverse OTC Fund)
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
  
2007
-
  
16.458
to
16.458
  
-
  
-
  
0.90
  
to
0.90
  
(12.08)
  
to
(12.08)
  
2006
-
  
18.719
to
18.719
  
-
  
-
  
0.90
  
to
0.90
  
(2.28)
  
to
(2.28)
  
2005
15,640
  
19.156
to
19.156
  
299,585
  
-
  
0.90
  
to
0.90
  
0.37
  
to
0.37
  
2004
309,703
  
19.085
to
19.085
  
5,910,676
  
-
  
0.90
  
to
0.90
  
(12.62)
  
to
(12.62)
  
                                         
Rydex VT Inverse S&P 500 Strategy Fund (Formerly Rydex VT Inverse S&P 500 Fund)
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
  
2007
-
  
239.483
to
239.483
  
-
  
-
  
0.90
  
to
0.90
  
899.31
  
to
899.31
  
2006
-
  
23.965
to
23.965
  
-
  
-
  
0.90
  
to
0.90
  
(8.33)
  
to
(8.33)
  
2005
6,355
  
26.142
to
26.142
  
166,141
  
-
  
0.90
  
to
0.90
  
(1.65)
  
to
(1.65)
  
2004
8,452
  
26.581
to
26.581
  
224,652
  
-
  
0.90
  
to
0.90
  
(11.01)
  
to
(11.01)
  
                                         
Rydex VT Japan 1.25x Strategy Fund (Formerly Rydex VT Japan Advantage Fund)
2008
-
  
-
to
-
  
-
  
-
  
-
  
to
-
  
-
  
to
-
  
2007
-
  
33.557
to
33.557
  
-
  
-
  
0.90
  
to
0.90
  
(12.03)
  
to
(12.03)
  
2006
121
  
38.145
to
38.145
  
4,619
  
0.92
  
0.90
  
to
0.90
  
4.20
  
to
4.20
  
2005
649
  
36.607
to
36.607
  
23,765
  
-
  
0.90
  
to
0.90
  
19.28
  
to
19.28
  
2004
1,017
  
30.691
to
30.691
  
31,219
  
-
  
0.90
  
to
0.90
  
9.34
  
to
9.34
  
                                         
Rydex VT Mid Cap 1.5x Strategy Fund (Formerly Rydex VT Mid Cap Advantage Fund )
2008
-
  
15.804
to
15.804
  
-
  
-
  
0.90
  
to
0.90
  
(60.37)
  
to
(60.37)
  
2007
899
  
39.878
to
39.878
  
35,868
  
0.87
  
0.90
  
to
0.90
  
2.67
  
to
2.67
  
2006
1,178
  
38.842
to
38.842
  
45,755
  
0.49
  
0.90
  
to
0.90
  
9.48
  
to
9.48
  
2005
126
  
35.479
to
35.479
  
4,486
  
-
  
0.90
  
to
0.90
  
13.05
  
to
13.05
  
2004
6,901
  
31.382
to
31.382
  
216,566
  
-
  
0.90
  
to
0.90
  
21.05
  
to
21.05
  
                                         
Rydex VT Russell 2000 1.5x Strategy Fund (Formerly Rydex VT Russell 2000 Advantage Fund)
2008
201
  
17.131
to
17.131
  
3,441
  
0.27
  
0.90
  
to
0.90
  
(51.80)
  
to
(51.80)
  
2007
592
  
35.543
to
35.543
  
21,052
  
0.76
  
0.90
  
to
0.90
  
(7.58)
  
to
(7.58)
  
2006
1,455
  
38.456
to
38.456
  
55,971
  
0.32
  
0.90
  
to
0.90
  
19.77
  
to
19.77
  
2005
137
  
32.107
to
32.107
  
4,410
  
2.11
  
0.90
  
to
0.90
  
2.99
  
to
2.99
  
2004
24,279
  
31.174
to
31.174
  
756,887
  
-
  
0.90
  
to
0.90
  
24.08
  
to
24.08
  
                                         
SC WMC Large Cap Growth Fund I Class (Formerly SC FI Large Cap Growth Fund I Class)
2008
2,817,869
  
5.587
to
5.686
  
15,749,394
  
0.01
  
0.35
  
to
1.39
  
(44.90)
  
to
(44.32)
  
2007 6
3,606,816
  
10.140
to
10.212
  
36,579,260
  
-
  
0.35
  
to
1.39
  
1.40
  
to
2.12
  
                                         
SC WMC Large Cap Growth Fund S Class (Formerly SC FI Large Cap Growth Fund S Class)
2008
1,294,023
  
5.559
to
5.573
  
7,195,057
  
0.01
  
1.24
  
to
1.39
  
(45.07)
  
to
(44.99)
  
2007 6
1,650,714
  
10.121
to
10.132
  
16,708,564
  
-
  
1.24
  
to
1.39
  
1.21
  
to
1.32
  












 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

                                         
 
At December 31
  
For the year ended December 31
  
                 
Investment
                      
     
Unit Fair Value
  
Net
  
Income
  
Expense Ratio
  
Total Return
  
 
Units
  
lowest to highest
  
Assets
  
Ratio1
  
lowest to highest2
  
lowest to highest3
  
Templeton Developing Markets Securities Fund 2
                              
2008
118,207
$
10.975
to
$    11.132
$
1,298,190
  
2.75
%
1.24
%
to
1.39
%
(53.36)
%
to
(53.29)
%
2007
141,510
  
23.532
to
23.834
  
3,332,450
  
2.36
  
1.24
  
to
1.39
  
27.00
  
to
27.19
  
2006
280,414
  
18.530
to
18.739
  
5,198,058
  
1.12
  
1.24
  
to
1.39
  
26.33
  
to
26.51
  
2005
312,993
  
14.668
to
14.812
  
4,592,522
  
1.28
  
1.24
  
to
1.39
  
25.67
  
to
25.86
  
2004
246,583
  
11.672
to
11.768
  
2,879,949
  
1.84
  
1.24
  
to
1.39
  
22.99
  
to
23.17
  
                                         
U.S. Allocation Portfolio (Formerly UBS Global AM Tactical Allocation)
                          
2008
282,453
  
6.676
to
7.218
  
1,941,268
  
2.93
  
1.24
  
to
1.39
  
(36.23)
  
to
(36.13)
  
2007
417,731
  
10.469
to
11.301
  
4,498,808
  
2.21
  
1.24
  
to
1.39
  
0.49
  
to
0.64
  
2006
656,391
  
10.418
to
11.230
  
7,018,743
  
2.52
  
1.24
  
to
1.39
  
9.47
  
to
9.63
  
2005
948,186
  
9.518
to
10.243
  
9,269,680
  
1.40
  
1.24
  
to
1.39
  
5.13
  
to
5.29
  
2004
1,228,753
  
9.053
to
9.729
  
11,448,298
  
0.73
  
1.24
  
to
1.39
  
8.85
  
to
9.01
  
                                         
Wanger International Select Fund
                                  
2008
381,446
  
10.163
to
10.289
  
3,878,635
  
0.41
  
1.24
  
to
1.39
  
(45.12)
  
to
(45.04)
  
2007
613,299
  
18.518
to
18.719
  
11,362,046
  
0.77
  
1.24
  
to
1.39
  
20.09
  
to
20.27
  
2006
694,967
  
15.419
to
15.564
  
10,721,225
  
0.27
  
0.65
  
to
1.39
  
34.13
  
to
34.33
  
2005
694,436
  
11.496
to
11.586
  
7,987,070
  
1.94
  
0.65
  
to
1.39
  
14.83
  
to
15.00
  
2004
601,634
  
10.012
to
10.075
  
6,026,514
  
0.31
  
0.65
  
to
1.39
  
22.62
  
to
22.80
  
                                         
Wanger International Small Cap Fund
                                  
2008
974,017
  
11.101
to
11.239
  
10,817,014
  
1.01
  
1.24
  
to
1.39
  
(46.36)
  
to
(46.28)
  
2007
1,137,620
  
20.694
to
20.919
  
23,550,779
  
0.91
  
1.24
  
to
1.39
  
14.70
  
to
14.87
  
2006
1,447,433
  
18.040
to
18.211
  
26,123,078
  
0.58
  
0.65
  
to
1.39
  
35.27
  
to
35.47
  
2005
1,693,216
  
13.338
to
13.442
  
22,590,786
  
1.04
  
0.65
  
to
1.39
  
19.85
  
to
20.03
  
2004
1,780,849
  
11.128
to
11.199
  
19,824,267
  
0.69
  
0.65
  
to
1.39
  
28.47
  
to
28.66
  
                                         
Wanger Select Fund
                                      
2008
885,180
  
10.769
to
11.262
  
9,537,768
  
-
  
0.65
  
to
1.39
  
(49.77)
  
to
(49.39)
  
2007
1,097,369
  
21.439
to
22.254
  
23,537,826
  
-
  
0.65
  
to
1.39
  
7.87
  
to
8.68
  
2006
1,420,045
  
19.874
to
20.476
  
28,232,706
  
0.38
  
0.65
  
to
1.39
  
18.05
  
to
18.93
  
2005
1,588,305
  
16.835
to
17.217
  
26,749,193
  
-
  
0.65
  
to
1.39
  
8.97
  
to
9.78
  
2004
1,705,354
  
15.450
to
15.684
  
26,355,290
  
-
  
0.65
  
to
1.39
  
17.65
  
to
18.53
  
                                         
Wanger USA Fund (Formerly Wanger US Smaller Companies Fund)
                          
2008
1,928,302
  
11.297
to
12.060
  
21,794,212
  
-
  
0.65
  
to
1.39
  
(40.52)
  
to
(40.08)
  
2007
2,316,040
  
18.994
to
20.126
  
44,008,451
  
-
  
0.65
  
to
1.39
  
3.93
  
to
4.70
  
2006
2,785,624
  
18.276
to
19.222
  
50,929,000
  
0.23
  
0.65
  
to
1.39
  
6.39
  
to
7.18
  
2005
3,193,098
  
17.179
to
17.934
  
54,872,559
  
-
  
0.65
  
to
1.39
  
9.72
  
to
10.54
  
2004
3,563,295
  
15.657
to
16.225
  
55,809,659
  
-
  
0.65
  
to
1.39
  
16.69
  
to
17.57
  


1 Represents the dividends, excluding distributions of capital gains, received by the Sub-Account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. The ratio excludes those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the Sub-Account is affected by the timing of the declaration of dividends by the underlying fund in which the Sub-Accounts invest.





 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


8. FINANCIAL HIGHLIGHTS (CONTINUED)

2 Ratio represents the annualized contract expenses of the Sub-Account, consisting primarily of mortality and expense charges. The ratio includes only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded.

3 Ratio represents the total return for the year indicated and reflects a deduction only for expenses assessed through the daily unit value calculation.  The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in reduction in the total return presented.  Investment options with a date notation indicate the effective date of that investment option in the Variable Account.  The total return is calculated for the year indicated or from the effective date through the end of the reporting period.

4 For the period September 26, 2008 (commencement of operations) through December 31, 2008.

5 For the period April 25, 2008 (commencement of operations) through December 31, 2008.

6 For the period April 30, 2007 (commencement of operations) through December 31, 2007.

7 For the period May 1, 2006 (commencement of operations) through December 31, 2006.

9. CHANGES IN UNITS

The changes in units outstanding for the year ended December 31, 2008 were as follows:

   
 
Units Issued
  
Units
Redeemed
  
Net (Decrease)
Increase
AIM VI Capital Appreciation Series I
  
62,873
  
296,792
  
(233,919)
AIM VI Core Equity Fund
  
59,858
  
308,591
  
(248,733)
AIM VI International Growth Series I
  
136,601
  
501,274
  
(364,673)
Alger American Small Capitalization Growth Portfolio
  
13,767
  
101,281
  
(87,514)
AllianceBernstein Balanced Shared Portfolio (B)
  
1,717
  
62,598
  
(60,881)
AllianceBernstein Global Bond Portfolio (A)
  
2,656
  
509,176
  
(506,520)
AllianceBernstein Global Bond Portfolio (B)
  
4,012
  
202,867
  
(198,855)
AllianceBernstein Global Technology Portfolio (B)
  
55,744
  
354,724
  
(298,980)
AllianceBernstein Growth & Income Portfolio (A)
  
1,977
  
24,409
  
(22,432)
AllianceBernstein Growth & Income Portfolio (B)
  
124,422
  
793,030
  
(668,608)
AllianceBernstein Growth Portfolio (B)
  
35,680
  
40,349
  
(4,669)
AllianceBernstein International Growth Portfolio (B)
  
78,576
  
179,727
  
(101,151)
AllianceBernstein Real Estate Investment Portfolio (A)
  
292
  
4,320
  
(4,028)
AllianceBernstein VPS Balanced Wealth Strategy (B)
  
53,590
  
2,350
  
51,240
AllianceBernstein VPS Intermediate Bond (A)
  
713,108
  
139,309
  
573,799
AllianceBernstein VPS Intermediate Bond (B)
  
277,598
  
61,433
  
216,165
Columbia Asset Allocation Fund, VS (A)
  
12,369
  
245,386
  
(233,017)
Columbia Asset Allocation Fund, VS (B)
  
112,442
  
327,086
  
(214,644)
Columbia Federal Securities Fund, VS (A)
  
9,374
  
173,275
  
(163,901)
Columbia Federal Securities Fund, VS (B)
  
70,881
  
796,611
  
(725,730)
Columbia High Yield Fund, VS (A)
  
898
  
76,187
  
(75,289)
Columbia High Yield Fund, VS (B)
  
61,918
  
289,613
  
(227,695)
Columbia International Fund, VS (A)
  
76,994
  
413,754
  
(336,760)
Columbia International Fund, VS (B)
  
5,625
  
45,501
  
(39,876)
Columbia Large Cap Growth Stock Fund, VS (A)
  
26,459
  
117,802
  
(91,343)
Columbia Large Cap Growth Stock Fund, VS (B)
  
21,916
  
118,961
  
(97,045)
Columbia Large Cap Value Fund, VS (A)
  
29,188
  
473,103
  
(443,915)
Columbia Large Cap Value Fund, VS (B)
  
61,356
  
266,969
  
(205,613)
Columbia Mid Cap Value Fund, VS (B)
  
94,943
  
455,976
  
(361,033)
Columbia Money Market Fund, VS (A)
  
1,617,032
  
1,932,852
  
(315,820)


 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))


9. CHANGES IN UNITS (CONTINUED)

   
 
Units Issued
  
Units
Redeemed
  
Net (Decrease)
Increase
Columbia S&P 500 Index Fund, VS (B)
  
262,707
  
931,791
  
(669,084)
Columbia Small Cap Value Fund, VS (A)
  
9,959
  
85,474
  
(75,515)
Columbia Small Cap Value Fund, VS (B)
  
58,098
  
239,610
  
(181,512)
Columbia Small Company Growth Fund, VS (A)
  
2,552
  
14,124
  
(11,572)
Columbia Strategic Income Fund, VS (A)
  
7,341
  
323,175
  
(315,834)
Columbia Strategic Income Fund, VS (B)
  
121,614
  
690,323
  
(568,709)
Fidelity VIP Equity Income Fund - SC2
  
287,036
  
857,398
  
(570,362)
Fidelity VIP III Dynamic Capital Appreciation Fund-SC2
  
48,408
  
80,922
  
(32,514)
Fidelity VIP III Growth Opportunities Fund - SC2
  
455,633
  
556,392
  
(100,759)
MFS Bond Series IC
  
261
  
32,425
  
(32,164)
MFS Growth Series IC
  
7,164
  
91,252
  
(84,088)
MFS Growth Series SC
  
46,107
  
79,107
  
(33,000)
MFS Investors Growth Stock Series SC
  
69,085
  
676,575
  
(607,490)
MFS Investors Trust Series SC
  
83,381
  
348,299
  
(264,918)
MFS New Discovery Series SC
  
18,042
  
145,675
  
(127,633)
MFS Research Series IC
  
7,359
  
147,636
  
(140,277)
Rydex Banking Fund
  
2,318
  
3,347
  
(1,029)
Rydex Biotechnology Fund
  
3,666
  
3,666
  
-
Rydex Energy Fund
  
181
  
366
  
(185)
Rydex Energy Services Fund
  
-
  
309
  
(309)
Rydex Financial Services Fund, VS (A)
  
577
  
1,555
  
(978)
Rydex Nova Fund
  
30,861
  
36,180
  
(5,319)
Rydex OTC Fund
  
60,674
  
138,288
  
(77,614)
Rydex Precious Metals Fund
  
-
  
6,870
  
(6,870)
Rydex Real Estate Fund
  
-
  
312
  
(312)
Rydex Retailing Fund
  
1,450
  
2,158
  
(708)
Rydex Technology Fund
  
2,522
  
2,522
  
-
Rydex Transportation Fund
  
3,339
  
3,339
  
-
Rydex US Government Money Market Fund
  
66,915
  
99,382
  
(32,467)
Rydex VT OTC 2x Strategy Fund
  
30,814
  
34,533
  
(3,719)
Rydex VT S&P 500 2x Strategy Fund
  
29,021
  
32,280
  
(3,259)
Rydex VT Government Long Bond 1.2x Strategy Fund
  
1,435
  
1,435
  
-
Rydex VT Inverse OTC Strategy Fund
  
44,453
  
44,453
  
-
Rydex VT Inverse S&P 500 Fund
  
3,025
  
3,025
  
-
Rydex VT Mid Cap 1.5x Strategy Fund
  
1,363
  
2,262
  
(899)
Rydex VT Russell 2000 1.5x Strategy Fund
  
4,366
  
4,757
  
(391)
SC WMC Large Cap Growth Fund I Class
  
36,578
  
825,526
  
(788,948)
SC WMC Large Cap Growth Fund S Class
  
29,475
  
386,167
  
(356,692)
Templeton Developing Markets Securities Fund 2
  
10,579
  
33,882
  
(23,303)
U.S. Allocation Portfolio
  
2,642
  
137,920
  
(135,278)
Wanger International Select Fund
  
40,383
  
272,236
  
(231,853)
  
Wanger International Small Cap Fund
  
77,240
  
240,843
  
(163,603)
  
Wanger Select Fund
  
86,059
  
298,248
  
(212,189)
  
Wanger USA Fund
  
126,064
  
513,802
  
(387,738)
  





 
 
 

KEYPORT VARIABLE ACCOUNT A
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))



10. TAX DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Code, a variable 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 which allows the contract owner to avoid current taxation of both current and built-up earnings of the contract. The Sponsor believes that the Variable Account satisfies the current requirements of the regulations, and it intends that the Variable Account will continue to meet such requirements.


11. SUBSEQUENT EVENTS

In April 2009, UBS Series Trust U.S. Allocation Portfolio Sub-Account liquidated the remaining investments held in the Sub-Account.  Also in April 2009, Rydex Variable Trust issued reverse share splits for all Rydex Variable Trust Sub-Accounts.  Shares in each fund will be reduced and the price per share of the fund will be increased by a pre-determined ratio.




 
 
 




PART C




 
 
 

Item 24. Financial Statements and Exhibits

 
(a)
Financial Statements:
   
Included in Part B:
   
Keyport Variable Account A:
   
Statement of Assets and Liabilities - December 31, 2008
   
Statement of Operations for the years ended December 31, 2008 and 2007
   
Statement of Changes in Net Assets for the years ended December 31, 2008 and 2007
   
Notes to Financial Statements
   
Report of Independent Registered Public Accounting Firm.
   
Sun Life Assurance Company of Canada (U.S.):
   
Consolidated Statement of Income, Years Ended December 31, 2008, 2007 and 2006;
   
Consolidated Balance Sheets, December 31, 2008 and 2007;
   
Consolidated Statements of Comprehensive Income, Years Ended December 31, 2008, 2007 and 2006;
   
Consolidated Statements of Stockholder's Equity, Years Ended December 31, 2008, 2007 and 2006;
   
Consolidated Statements of Cash Flows, Years Ended December 31, 2008, 2007 and 2006;
   
Notes to Consolidated Financial Statement; and
   
Report of Independent Registered Public Accounting Firm.

 
(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)(i)
Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc.
     
###
(3)(b)(ii)
Amendment to Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc.
     
*
(3)(c)(i)
Specimen Sales Operations and General Agent Agreement
     
*
(3)(c)(ii)
Specimen Broker-Dealer Supervisory and Service Agreement
     
*
(3)(c)(iii)
Specimen Registered Representatives Agent Agreement
     
@@@
(4)(a)
Specimen Group Variable Annuity Contract of Sun Life Assurance Company of Canada (U.S.)
     
@@@
(4)(b)
Specimen Variable Annuity Certificate of Sun Life Assurance Company of Canada (U.S.)
     
@@
(4)(c)
Specimen Tax-Sheltered Annuity Endorsement
     
@@
(4)(d)
Specimen Individual Retirement Annuity Endorsement
     
@@
(4)(e)
Specimen Corporate/Keogh 401(a) Plan Endorsement
     
@@@
(4)(f)
Specimen Individual Variable Annuity Contract of Sun Life Assurance Company of Canada (U.S.)
     
@@@
(4)(g)
Specimen Group Exchange Program Endorsement
     
@@@
(4)(h)
Specimen Individual Exchange Program Endorsement
     
@@@
(4)(i)
Specimen Name Change Endorsement
     
@@@
(5)(a)
Specimen Application for a Group Variable Annuity Contract
     
@@@
(5)(b)
Specimen Application for a Group Variable Annuity Certificate
     
@
(6)(a)
Articles of Incorporation of Sun Life Assurance Company of Canada (U.S.)
     
@
(6)(b)
By-Laws, as amended March 19, 2004, of Sun Life Assurance Company of Canada (U.S.)
     
 
(7)
Not applicable
     
@@
(8)(a)
Form of Participation Agreement
     
**
(8)(b)
Participation Agreement Among MFS Variable Insurance Trust, Sun Life Assurance Company of Canada (U.S.), and Massachusetts Financial Services Corp.
     
@@@
(8)(b)(i)
Amendment to Participation Agreement
     
**
(8)(c)
Participation Agreement Among The Alger American Fund, Sun Life Assurance Company of Canada (U.S.), and Fred Alger and Company, Incorporated
     
@@@
(8)(c)(i)
Amendment to Participation Agreement
     
***
(8)(d)
Participation Agreement By and Among Sun Life Assurance Company of Canada (U.S.), Clarendon Insurance Agency, Inc., Alliance Capital Management L.P., and Alliance Fund Distributors, Inc.
     
@@@
(8)(d)(i)
Amendment to Participation Agreement
     
@@@
(8)(e)
Participation Agreement Among Liberty Variable Investment Trust, Liberty Funds Distributor, Inc., and Sun Life Assurance Company of Canada (U.S.)
     
@@@
(8)(e)(i)
Amendment to Participation Agreement
     
@@@
(8)(f)
Participation Agreement Among SteinRoe Variable Investment Trust, Liberty Funds Distributor, Inc., and Sun Life Assurance Company of Canada (U.S.)
     
@@@
(8)(f)(i)
Amendment to Participation Agreement
     
@@@
(9)
Opinion and Consent of Counsel
     
 
(10)(a)
Consent of Independent Registered Public Accounting Firm (Filed herewith)
     
 
(10)(b)
Representation of Counsel pursuant to Rule 485(b) (Filed herewith)
     
##
(11)
Financial Statement Schedules I and VI
     
 
(12)
Not applicable
     
#
(13)
Chart of Affiliations
     
 
(14)(a)
Powers of Attorney (Filed herewith)
     
##
(14)(b)
Resolution of the Board of Directors of the depositor dated March 26, 2008, authorizing the use of powers of attorney for Officer signatures

*
Incorporated herein by reference to 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.
   
**
Incorporated herein by reference to Post-Effective Amendment No. 13 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 33-41628) filed on or about April 23, 1999.
   
***
Incorporated herein by reference to Post-Effective Amendment No. 7 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-82957) filed on or about July 27, 2001.
   
@
Incorporated herein by reference to the Depositor's Annual Report on Form 10-K (File No. 333-82824) filed on or about March 29, 2004.
   
@@
Incorporated herein 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 herein by reference to the Registration Statement of Keyport Variable Account A on Form N-4 (File No. 333-114126) filed on or about April 1, 2004.
   
#
Incorporated herein by reference to Post-Effective Amendment No. 32 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83516) filed on or about February 27, 2009.
   
##
Incorporated herein by reference to the Depositor's Form 10-K Annual Report for the fiscal year ended December 31, 2008, filed on March 30, 2009.
   
###
Incorporated herein by reference to Post-Effective Amendment No. 16 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83364) filed on or about April 27, 2009.

Item 25. Directors and Officers of the Depositor.

Name and Principal
Business Address*
Positions and Offices
With Depositor

Jon A. Boscia
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Director and Chairman
Scott M. Davis
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA  02481
Senior Vice President and General Counsel and
Director
Ronald H. Friesen
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA  02481
Senior Vice President and Chief Financial Officer
and Treasurer and Director
Richard P. McKenney
Sun Life Assurance Company of Canada
150 King Street West
Toronto, Ontario Canada  M5H 1J9
Director
Terrence J. Mullen
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA  02481
Director
Westley V. Thompson
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
President, SLF U.S., and Director
James M.A. Anderson
Sun Life Assurance Company of Canada
150 King Street West
Toronto, Ontario Canada M5H 1J9
Executive Vice President and Chief Investment
Officer
Michael S. Bloom
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Assistant Vice President and Senior Counsel and
Secretary
Priscilla S. Brown
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and Head of U.S. Marketing
Keith Gubbay
Sun Life Assurance Company of Canada  (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA  02481
Senior Vice President and Chief Actuary
Maura E. Slattery Machold
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Vice President, Human Resources
Janet Whitehouse
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA  02481
Senior Vice President and General Manager,
Individual Life Insurance
John R. Wright
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Executive Vice President, Sun Life Financial U.S.
Operations

Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.

No person is directly or indirectly controlled by the Registrant. The Registrant is a separate account of Sun Life Assurance Company of Canada (U.S.), which is ultimately controlled by Sun Life Financial.

The chart for the affiliations of the Depositor is incorporated by reference to Post-Effective Amendment No. 32 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83516) filed on or about February 27, 2009. .

None of the companies listed in such Exhibit 13 is a subsidiary of the Registrant; therefore, the only financial statements being filed are those of Sun Life Assurance Company of Canada (U.S.).

Item 27. Number of Contract Owners.

As of March 31, 2009, there were 1,507 qualified and 1,995 non-qualified contract owners.

Item 28. Indemnification.

Pursuant to Section 145 of the Delaware Corporation Law, Article 8 of the By-laws of Sun Life Assurance Company of Canada (U.S.) ("Sun Life (U.S.)"), as amended March 19, 2004 (a copy of which was filed as Exhibit 3.2 to Depositor’s Form 10-K, File No. 333-82824, filed on March 29, 2004) provides for the indemnification of directors, officers and employees of Sun Life (U.S.). Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of Sun Life (U.S.) pursuant to the certificate of incorporation, by -laws, or otherwise, Sun Life (U.S.) has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Sun Life (U.S.) of expenses incurred or paid by a director, officer, or controlling person of Sun Life (U.S.) in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Sun Life (U.S.) will submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act, unless in the opinion of their counsel the matter has been settled by controlling precedent, and will be governed by the final adjudication of such issue.

Item 29. Principal Underwriters.

Clarendon Insurance Agency, Inc., which is a wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.), acts as general distributor for the Registrant, Sun Life of Canada (U.S.) Variable Accounts C, D, E, F, G, I and K, KMA Variable Account, Keyport Variable Account I, KBL Variable Account A, KBL Variable Annuity Account, Sun Life (N.Y.) Variable Accounts A, B, C, D, J, and N, and Money Market Variable Account, High Yield Variable Account, Capital Appreciation Variable Account, Government Securities Variable Account, World Governments Variable Account, and Total Return Variable Account.

The directors and officers of Clarendon Insurance Agency, Inc. are:

(b)
Name and Principal
Position and Offices
 
Business Address*
with Underwriter
     
 
James J. Cahill
President
 
Scott M. Davis
Director
 
Ronald H. Friesen
Director
 
Michael S. Bloom
Secretary
 
Ann B. Teixeira
Assistant Vice President, Compliance
 
Kathleen T. Baron
Chief Compliance Officer
 
Michael L. Gentile
Vice President
 
William T. Evers
Assistant Vice President and Senior Counsel
 
Jane F. Jette
Financial/Operations Principal and Treasurer
 
Alyssa Gair
Assistant Secretary
 
Michelle D'Albero
Counsel

* The principal business address of all directors and officers of the principal underwriter is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

(c) Inapplicable.

Item 30. Location of Accounts and Records.

Sun Life Assurance Company of Canada (U.S.), 112 Worcester Street, Wellesley Hills, Massachusetts 02481.

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

The Registrant hereby undertakes:

(a)
To file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity Contracts may be accepted;
   
(b)
To include either (1) as part of any application to purchase a Contract offered by the prospectus, a space that an Applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the Applicant can remove to send for a Statement of Additional Information;
   
(c)
To deliver any Statement of Additional Information and any financial statements required to be made available under SEC Form N-4 promptly upon written or oral request.
   
(d)
Representation with respect to Section 26(f)(2)(A) of the Investment Company Act of 1940: Sun Life Assurance Company of Canada (U.S.) represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company.
   
 
The Registrant is relying on the no-action letter issued by the Division of Investment Management of the Securities and Exchange Commission to American Council of Life Insurance, Ref. No. IP-6-88, dated November 28, 1988, the requirements for which have been complied with by the Registrant.


 
 
 

SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf, in the Town of Wellesley Hills and State of Massachusetts, on this 27th day of April, 2009.

     
Keyport Variable Account A
     
(Registrant)
       
     
Sun Life Assurance Company of Canada (U.S.)
     
(Depositor)
       
       
   
By:
/s/ Westley V. Thompson*
     
Westley V. Thompson
     
President, SLF U.S.
       
*By:
/s/ Sandra M. DaDalt
    
 
Sandra M. DaDalt
    
 
Assistant Vice President
    
 
and Senior Counsel
    

As required by the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

SIGNATURE
TITLE
DATE
     
     
/s/ Westley V. Thompson*
President, SLF U.S. and Director
April 27, 2009
Westley V. Thompson
(Principal Executive Officer)
  
     
     
/s/ Ronald H. Friesen*
Senior Vice President and Chief Financial Officer
April 27, 2009
Ronald H. Friesen
and Treasurer and Director
  
 
(Principal Financial Officer)
  
     
     
/s/ Douglas C. Miller*
Vice President and Controller
April 27, 2009
Douglas C. Miller
(Principal Accounting Officer)
  
     
     
*By: /s/ Sandra M. DaDalt
Attorney-in-Fact for:
April 27, 2009
Sandra M. DaDalt
Jon A. Boscia, Director
  
 
Scott M. Davis, Director
  
 
Richard P. McKenney, Director
  
 
Terrence J. Mullen, Director
  

* Sandra M. DaDalt has signed this document on the indicated date on behalf of the above Directors and Officers for the Depositor pursuant to powers or attorney duly executed by such persons and a resolution of the Board of Directors authorizing use of powers of attorney for Officer signatures. Resolution of the Board of Directors is incorporated herein by reference to Post-Effective Amendment No. 32 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-83516, filed on or about February 27, 2009. Powers of attorney are included herein as Exhibit 14(a).


 
 
 


EXHIBIT INDEX


Item
  
   
(10)(a)
Consent of Independent Registered Public Accounting Firm
   
(10)(b)
Representation of Counsel pursuant to Rule 485(b)
   
(14)(a)
Powers of Attorney