Registration Statement No. 333-143353

811-09137

As Filed with the Securities and Exchange Commission on April 27, 2012

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-6

REGISTRATION UNDER THE SECURITIES ACT OF 1933              [ X ]

Pre-Effective Amendment No.           [  ]

Post-Effective Amendment No.  16            [ X ]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940         [ X ]

Amendment No.   99             [ X ]

Sun Life of Canada (U.S.) Variable Account I

Registrant

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

Depositor

One Sun Life Executive Park

Wellesley Hills, Massachusetts 02481

Depositor's Address

1-800-700-6554

Depositor's Telephone Number

William T. Evers

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

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

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

[ X ]  on May 1, 2012, 2011 pursuant to paragraph (b) of Rule 485.

[  ]  60 days after filing pursuant to paragraph (a)(1) of Rule 485.

[  ]  on August 10, 2011 pursuant to paragraph (a)(1) of Rule 485.

[  ]  This post-effective amendment designates a new effective date for a previously filed post-effective amendment.

PART A

Sun Executive VUL

Sun Life of Canada (U.S.) Variable Account I

A Flexible Premium Variable Universal Life Insurance Policy

Prospectus

May 1, 2012

This prospectus describes the variable universal life insurance policy (the "Policy") issued by Sun Life Assurance Company of Canada (U.S.) ("we", "us" or "Company"), a member of the Sun Life Financial group of companies, through Sun Life of Canada (U.S.) Variable Account I (the “Variable Account”), one of our separate accounts.  The Policy is being offered as an individual policy.  This prospectus contains important information You should understand before purchasing a Policy.  We use certain special terms which are defined in Appendix A.  You should read this prospectus carefully and keep it for future reference.  You may choose among a number of Sub-Accounts and a Fixed Account Option.  The Sub-Accounts in the Variable Account invest in shares of the following Funds:

ASSET ALLOCATION	LARGE CAP EQUITY
AllianceBernstein Balanced Wealth Strategy Portfolio (Class B)	American Funds Insurance Series® Growth-Income Fund (Class 2)
BlackRock Global Allocation V.I. Fund (Class III)	American Funds Insurance Series® Growth Fund (Class 2)
Fidelity® VIP Balanced Portfolio (Service Class 2)5	American Funds Insurance Series® Blue Chip Income and Growth Fund (Class 2)
Franklin Income Securities Fund (Class 2)	Columbia Variable Portfolio - Marsico 21st Century Fund (Class 2)
Franklin Templeton VIP Founding Funds Allocation Fund (Class 2)1,8	Fidelity® VIP Contrafund® Portfolio (Service Class 2)6
Invesco Van Kampen V.I. Equity and Income Fund (Series II)	Fidelity® VIP Index 500 Portfolio (Service Class 2)6
MFS® Global Tactical Allocation Portfolio (Service Class)	Goldman Sachs Structured U.S. Equity Fund (S Shares)2
MFS® Total Return Portfolio (Service Class)	Invesco Van Kampen V.I. Comstock Fund (Series II)
PIMCO Global Multi-Asset Portfolio (Administrative Class)1	Invesco V.I. Core Equity Fund (Series I)
SCSM Ibbotson Balanced Fund (Initial Class)1	MFS® Value Portfolio (Service Class)
SCSM Ibbotson Conservative Fund (Initial Class)1	Mutual Shares Securities Fund (Class 2)
SCSM Ibbotson Growth Fund (Initial Class)1	Oppenheimer Capital Appreciation Fund/VA (Service Shares)
EMERGING MARKETS BOND	Oppenheimer Main Street Fund/VA (Service Shares)2
PIMCO Emerging Markets Bond Portfolio (Administrative Class)	SCSM BlackRock Large Cap Index Fund (Initial Class)8
EMERGING MARKETS EQUITY	SCSM Davis Venture Value Fund (Initial Class)
MFS® Emerging Markets Equity Portfolio (Service Class)	SCSM Lord Abbett Growth & Income Fund (Initial Class)
HIGH YIELD BOND	SCSM WMC Large Cap Growth Fund (Initial Class)
American Funds Insurance Series® High-Income Bond Fund (Class 2)	MID CAP EQUITY
SCSM PIMCO High Yield Fund (Initial Class)	Fidelity® VIP Mid Cap Portfolio (Service Class 2)5
INFLATION-PROTECTED BOND	Invesco Van Kampen V.I. Mid Cap Value Fund (Series II)9
PIMCO Real Return Portfolio (Administrative Class)2	SCSM Goldman Sachs Mid-Cap Value Fund (Initial Class)
SCSM BlackRock Inflation Protected Bond Fund (Initial Class)	SCSM WMC Blue Chip Mid Cap Fund (Initial Class)
INTERMEDIATE TERM BOND	The Universal Institutional Funds, Inc. Mid Cap Growth Portfolio (Class II Shares)3
American Funds Insurance Series® Bond Fund (Class 2)	REAL ESTATE EQUITY
Franklin U.S. Government Fund (Class 2)2	Sun Capital Global Real Estate Fund (Initial Class)
MFS® Bond Portfolio (Service Class)	SHORT TERM BOND
MFS® Government Securities Portfolio (Service Class)	SCSM Goldman Sachs Short Duration Fund (Initial Class)
PIMCO Total Return Portfolio (Administrative Class)2	SMALL CAP EQUITY
SCSM PIMCO Total Return Fund (Initial Class)	DWS Small Cap Index VIP (Class B)8
Sun Capital Investment Grade Bond Fund® (Initial Class)	Franklin Small Cap Value Securities Fund (Class 2)
INTERNATIONAL/GLOBAL EQUITY	SCSM BlackRock Small Cap Index Fund (Initial Class)
AllianceBernstein International Value Portfolio (Class B)2	SCSM Columbia Small Cap Value Fund (Initial Class)
American Funds Insurance Series® International Fund (Class 2)	SCSM Invesco Small Cap Growth Fund (Initial Class)
American Funds Insurance Series® Global Growth Fund (Class 2)	Wanger USA2,4
American Funds Insurance Series® Global Growth and Income Fund (Class 2)	SPECIALTY/SECTOR EQUITY
Invesco V.I. International Growth Fund (Series I)	MFS® Utilities Portfolio (Service Class)
MFS® International Growth Portfolio (Service Class)	SPECIALTY/SECTOR COMMODITY
MFS® Research International Portfolio (Service Class)	PIMCO CommodityRealReturn® Strategy Portfolio (Administrative Class)
Oppenheimer Global Securities Fund/VA (Service Shares)	TARGET DATE
SCSM AllianceBernstein International Value Fund (Initial Class)	Fidelity® VIP Freedom 2015 Portfolio (Service Class 2)1,7,8
SCSM BlackRock International Index Fund (Initial Class)	Fidelity® VIP Freedom 2020 Portfolio (Service Class 2)1,7,8
Templeton Growth Securities Fund (Class 2)	Fidelity® VIP Freedom 2030 Portfolio (Service Class 2)1,7,8
INTERNATIONAL/GLOBAL SMALL/MID CAP EQUITY	MULTI SECTOR BOND
American Funds Insurance Series® Global Small Capitalization Fund (Class 2)	Franklin Strategic Income Securities Fund (Class 2)
First Eagle Overseas Variable Fund4	MONEY MARKET
	Sun Capital Money Market Fund® (Initial Class)

AllianceBernstein L.P. advises the AllianceBernstein Variable Products Series Fund, Inc. Portfolios and subadvises the SCSM AllianceBernstein International Value Fund.  Capital Research and Management Company advises the American Fund Insurance Series Funds.  BlackRock Advisors, LLC advises the BlackRock Global Allocation V.I. Fund (with BlackRock Investment Management, LLC and BlackRock International Limited serving as subadvisers).  BlackRock Financial Management, Inc. subadvises SCSM BlackRock Inflation Protected Bond Fund.  BlackRock Investment Management, LLC subadvises SCSM BlackRock Large Cap Index Fund, SCSM BlackRock Small Cap Index Fund and SCSM BlackRock International Index Fund.  Deutsche Investment Management Americas, Inc. advises the DWS Small Cap Index VIP with Northern Trust Investments, N.A. serving as subadviser.  Strategic Advisers, Inc. advises the Fidelity® VIP Freedom Portfolios.  Fidelity Management & Research Company advises the Fidelity® VIP Portfolios and advisory entities affiliated with Fidelity Management & Research Company subadvise the Fidelity® VIP Portfolios. First Eagle Investment Management, LLC advises the First Eagle Overseas Variable Fund.  Franklin Templeton Services, LLC administers the Franklin Templeton Founding Funds Allocation Fund (with the following advising the underlying portfolios of the Fund:  Franklin Advisers, Inc. advising the Franklin Income Securities Fund, Franklin Mutual Advisers, LLC advising Mutual Shares Securities Fund and Templeton Global Advisers Limited advising Templeton Growth Securities Fund).  Franklin Advisers, Inc. advises the Franklin Income Securities Fund, Franklin Strategic Income Securities Fund and Franklin U.S. Government Fund.  Franklin Mutual Advisers, LLC advises the Mutual Shares Securities Fund.  Franklin Advisory Services, LLC advises the Franklin Small Cap Value Securities Fund.  Templeton Global Advisors Limited advises Templeton Growth Securities Fund and Templeton Asset Management Limited is the subadviser.  Goldman Sachs Asset Management, L.P. advises the Goldman Sachs Structured U.S. Equity Fund and subadvises the SCSM Goldman Sachs Mid Cap Value Fund and SCSM Goldman Sachs Short Duration Fund.  Ibbotson Associates, Inc. subadvises SCSM Ibbotson Balanced Fund, SCSM Ibbotson Growth Fund and SCSM Ibbotson Conservative Fund.  Invesco Advisers, Inc. advises the Invesco Funds and advisory entities affiliated with Invesco Advisers, Inc. subadvise the Invesco Funds. Invesco Advisers, Inc. subadvises SCSM Invesco Small Cap Growth Fund.  Lord, Abbett & Co. LLC subadvises SCSM Lord Abbett Growth & Income Fund.  Massachusetts Financial Services Company, our affiliate, advises the MFS® Portfolios and subadvises the Sun Capital Global Real Estate Fund.  OppenheimerFunds, Inc. advises the Oppenheimer Fund/VAs.  Pacific Investment Management Company LLC advises the PIMCO Variable Insurance Trust Portfolios and subadvises SCSM PIMCO High Yield Fund and SCSM PIMCO Total Return Fund.  Columbia Management Investment Advisers, LLC advises the Columbia Variable Portfolio - Marsico 21st Century Fund and Marsico Capital Management, LLC is the subadviser.  Columbia Management Investment Advisers, LLC subadvises SCSM Columbia Small Cap Value Fund. Sun Capital Advisers, LLC, our affiliate, advises the Sun Capital Funds.  Davis Selected Advisers, L.P. subadvises SCSM Davis Venture Value Fund.  Wellington Management Company, LLP subadvises SCSM WMC Blue Chip Mid Cap Fund and SCSM WMC Large Cap Growth Fund.  Morgan Stanley Investment Management Inc. advises The Universal Institutional Funds, Inc. Mid Cap Growth Portfolio.  Columbia Wanger Asset Management, LP advises Wanger USA.

1These are Fund of Funds investment options and the expenses of these Funds include the Fund-level expenses of the underlying Funds as well.  These investment options may be more expensive than Funds that do not invest in other Funds.

2For Policies with Investment Start Dates on and after October 6, 2008, allocations to these investment options are not permitted.

3The Universal Institutional Funds, Inc. Portfolio uses Morgan Stanley UIF Portfolio as a marketing name.

4These Funds do not have different share classes.

5These Portfolios are in Variable Insurance Products III.

6These Portfolios are in Variable Insurance Products Fund II.

7These Portfolios are in Variable Insurance Products Fund V.

8On and after November 15, 2010, these investment options are not open to new premium or transfers.

9 Effective on or about July 15, 2012, the Invesco Van Kampen V.I. Mid Cap Value Fund will change its name to Invesco Van Kampen V.I. American Value Fund.

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

One Sun Life Executive Park

Wellesley Hills, Massachusetts 02481

(800) 700-6554

Neither the Securities and Exchange Commission nor any state securities commission has approved these securities or determined that this prospectus is accurate or complete.  Any representation to the contrary is a criminal offense.

Table of Contents

Topic Page

Risk/Benefit Summary of Policy [INSERT PAGE NUMBER]

About Who We Are [INSERT PAGE NUMBER]

The Variable Account [INSERT PAGE NUMBER]

The Funds [INSERT PAGE NUMBER]

Fees and Expenses of the Funds [INSERT PAGE NUMBER]

Potential Conflicts [INSERT PAGE NUMBER]

Our General Account [INSERT PAGE NUMBER]

About the Policy [INSERT PAGE NUMBER]

Application and Issuance [INSERT PAGE NUMBER]

Death Benefit Compliance Test [INSERT PAGE NUMBER]

Initial Premium Payment [INSERT PAGE NUMBER]

Insurable Interest Requirement [INSERT PAGE NUMBER]

Right to Return Policy Period [INSERT PAGE NUMBER]

Asset Allocation. [INSERT PAGE NUMBER]

Dollar Cost Averaging [INSERT PAGE NUMBER]

Asset Rebalancing [INSERT PAGE NUMBER]

Premium Payments [INSERT PAGE NUMBER]

General Limitations [INSERT PAGE NUMBER]

Guideline Premium Test Limitations [INSERT PAGE NUMBER]

Planned Periodic Premiums [INSERT PAGE NUMBER]

Allocation of Net Premium [INSERT PAGE NUMBER]

Modified Endowment Contract [INSERT PAGE NUMBER]

Supplemental Insurance Face Amount [INSERT PAGE NUMBER]

Death Benefit [INSERT PAGE NUMBER]

Policy Proceeds [INSERT PAGE NUMBER]

Death Benefit Options [INSERT PAGE NUMBER]

Supplemental Insurance Death Benefit [INSERT PAGE NUMBER]

Changes in the Death Benefit Option [INSERT PAGE NUMBER]

Minimum Face Amount [INSERT PAGE NUMBER]

Changes in Face Amount [INSERT PAGE NUMBER]

Increases in Face Amount [INSERT PAGE NUMBER]

Decreases in Face Amount. [INSERT PAGE NUMBER]

Account Value [INSERT PAGE NUMBER]

Account Value for Investment Options [INSERT PAGE NUMBER]

Net Investment Factor [INSERT PAGE NUMBER]

Splitting Units [INSERT PAGE NUMBER]

Account Value in the Loan Account [INSERT PAGE NUMBER]

Insufficient Value [INSERT PAGE NUMBER]

Grace Period [INSERT PAGE NUMBER]

Insured's Attained Age 121 (or 100 if 1980 CSO applies). [INSERT PAGE NUMBER]

Supplemental Benefits [INSERT PAGE NUMBER]

Charitable Giving Benefit Rider [INSERT PAGE NUMBER]

Waiver of Monthly Deductions Rider [INSERT PAGE NUMBER]

Payment of Stipulated Amount Rider [INSERT PAGE NUMBER]

Loan Lapse Protection Rider [INSERT PAGE NUMBER]

Travel Assistance Endorsement [INSERT PAGE NUMBER]

Enhancement Benefit. [INSERT PAGE NUMBER]

Transfer Privileges [INSERT PAGE NUMBER]

Short-Term Trading [INSERT PAGE NUMBER]

The Funds’ Harmful Trading Policies [INSERT PAGE NUMBER]

Accessing Your Account Value [INSERT PAGE NUMBER]

Surrender. [INSERT PAGE NUMBER]

Partial Surrenders [INSERT PAGE NUMBER]

Policy Loans [INSERT PAGE NUMBER]

Charges, Deductions and Refunds [INSERT PAGE NUMBER]

Premium Expense Load [INSERT PAGE NUMBER]

Mortality and Expense Risk Charge [INSERT PAGE NUMBER]

Monthly Expense Charge [INSERT PAGE NUMBER]

Monthly Face Amount Charge [INSERT PAGE NUMBER]

Monthly Cost of Insurance [INSERT PAGE NUMBER]

Other Charges and Expenses [INSERT PAGE NUMBER]

Directed Deductions [INSERT PAGE NUMBER]

Reduction of Charges [INSERT PAGE NUMBER]

Termination of Policy [INSERT PAGE NUMBER]

Other Policy Provisions [INSERT PAGE NUMBER]

Alteration. [INSERT PAGE NUMBER]

Assignments. [INSERT PAGE NUMBER]

Owner and Beneficiary [INSERT PAGE NUMBER]

Reports to Owners [INSERT PAGE NUMBER]

Illustrations [INSERT PAGE NUMBER]

Misstatement of Age or Sex [INSERT PAGE NUMBER]

Suicide [INSERT PAGE NUMBER]

Incontestability [INSERT PAGE NUMBER]

Addition, Deletion or Substitution of Investments [INSERT PAGE NUMBER]

Nonparticipating [INSERT PAGE NUMBER]

Modification. [INSERT PAGE NUMBER]

Entire Contract [INSERT PAGE NUMBER]

Voting Rights [INSERT PAGE NUMBER]

Distribution of Policy [INSERT PAGE NUMBER]

Federal Income Tax Considerations [INSERT PAGE NUMBER]

Our Tax Status [INSERT PAGE NUMBER]

Taxation of Policy Proceeds [INSERT PAGE NUMBER]

Withholding [INSERT PAGE NUMBER]

Tax Return Disclosure [INSERT PAGE NUMBER]

Other Information [INSERT PAGE NUMBER]

State Regulation [INSERT PAGE NUMBER]

Legal Proceedings [INSERT PAGE NUMBER]

Experts [INSERT PAGE NUMBER]

Registration Statements [INSERT PAGE NUMBER]

Financial Statements [INSERT PAGE NUMBER]

Appendix A - Glossary of Policy Terms [INSERT PAGE NUMBER]

Appendix B - Privacy Policy [INSERT PAGE NUMBER]

This prospectus does not constitute an offering in any jurisdiction where the offering would not be lawful.  You should rely only on the information contained in this prospectus or in the prospectus or Statement of Additional Information of the underlying mutual funds.  We have not authorized anyone to provide you with information that is different.

Risk/Benefit Summary of Policy

Use of Policy

The Policy provides corporations and other entities life insurance coverage on employees or other persons in whose lives they have an insurable interest.  It may be used in connection with various types of non-tax-qualified executive benefit plans.

Right to Return Period

You may return the Policy within 10 days (or a longer period if required by applicable state law) beginning when you receive the Policy and receive a refund.

Premium Payments

- Generally, You must make a minimum Initial Premium payment that will sustain the Policy for three months from its Issue Date.

- You choose the amount and timing of subsequent premium payments, within certain limits.

- We allocate your net premium payments among the Policy's Sub-Accounts and the Fixed Account according to your instructions.

CONTRACT BENEFITS

Account Value

- The Account Value equals

- premiums, plus

- investment performance of the Sub-Accounts, the Fixed Account and the Loan Account; less

- any partial surrenders and Policy charges.

Accessing Your Account Value

Cash Surrender Value is

- Account Value, less

- Policy Debt, plus

- any Enhancement Benefit.

- You may borrow from us using the Account Value as collateral.  Taking Policy loans may increase the risk of Policy lapse.

- You may surrender the Policy for its Cash Surrender Value.  Surrender of this Policy is discouraged in the early Policy Years because the Premium Expense Loads are higher in those years.

- You may make a partial surrender of only a portion of the Cash Surrender Value once per year after the Policy has been in force for one year.  Reducing the Cash Surrender Value with a partial surrender may increase the risk of Policy lapse.

A partial surrender may cause a decrease in Total Face Amount of your Policy if the Net Amount at Risk after the partial surrender exceeds the Net Amount at Risk before the partial surrender.  The Net Amount at Risk equals the Death Benefit minus your Account Value.

Death Benefit Compliance Test

- For favorable federal tax treatment, the Policy must meet one of the following standards-

- the Guideline Premium Test, or

- the Cash Value Accumulation Test.

- You choose the applicable test.  You may not change your election.

- Please see the Death Benefit Compliance Test paragraph in the About the Policy section of the prospectus for the Guideline Premium Test and Cash Value Accumulation Test definitions.

Mortality Tables

For Policies with an Investment Start Date on or before December 31, 2008, the 1980 Commissioners Standard Ordinary (“CSO”) Mortality Tables apply.  For Policies with an Investment Start Date on or after January 1, 2009, the 2001 Commissioners Standard Ordinary (“CSO”) Mortality Tables apply.

Death Benefit

Specified Face Amount is the minimum amount of life insurance in the Policy.  Supplemental Insurance Face Amount is the amount of supplemental life insurance You elect.

- You have a choice of three death benefit options-

- the Specified Face Amount (Option A); or

- the Specified Face Amount plus your Gross Cash Surrender Value (Option B); or

- the Specified Face Amount plus cumulative premiums paid (Option C).

- You may change your death benefit option on any Policy Anniversary, subject to our underwriting rules then in effect.

At any time, You may-

- increase the Specified Face Amount or Supplemental Insurance Face Amount, subject to satisfactory evidence of the Insured’s insurability; or

- decrease the Specified Face Amount or Supplemental Insurance Face Amount to a level not less than the minimum specified in the Policy.

Investment Options

- You may allocate your net premium payments among the Sub-Accounts and the Fixed Account.

- You may transfer amounts from one Sub-Account to another or to the Fixed Account, subject to any limits that we or the Funds may impose.

- You may transfer amounts from the Fixed Account, subject to our transfer rules in effect at time of transfer.

Supplemental Benefits

You may supplement the Policy with the following riders where available-

-waiver of monthly deductions

-payment of stipulated amount

-loan lapse protection

-charitable giving benefit

-travel assistance

We will deduct the cost, if any, of the rider(s) from the Policy's Account Value on a monthly basis.

CONTRACT RISKS

The Variable Account

- We have established a separate account (the "Variable Account") to fund the variable insurance benefits under your Policy.

- The assets of the Variable Account are free from our general creditor's claims.

- The Variable Account is divided into Sub-Accounts.

- Each Sub-Account invests exclusively in shares of a corresponding mutual fund.

- When You choose Sub-Accounts in the Variable Account, your benefits will fluctuate because the benefits reflect the impact of certain economic conditions on the mutual funds underlying the Sub-Accounts You have elected.  These conditions include, but are not limited to

- inflationary forces,

- changes in rates of return available from different types of investments,

- changes in employment rates and

- the presence of international conflict.

- With such Sub-Accounts, you assume all investment risk.  Investment risk is the risk of poor investment performance.

- Poor investment performance can result in a loss of all or some of your investment.

- A comprehensive discussion of the risks of such Sub-Accounts may be found in the underlying Fund's prospectus.

- It is unsuitable to purchase a life insurance policy as a short-term savings vehicle because the Premium Expense Loads are highest in the early Policy Years.  Premium Expense Loads and other insurance-related charges are appropriate to a life insurance policy and not to a short-term savings vehicle.

- Partial surrenders may only occur annually after Policy Year 1 and may not exceed the Account Value minus any outstanding Policy Debt.

What if Charges and Deductions Exceed Account Value less Policy Debt?

Your Policy may terminate if your Account Value less Policy Debt is insufficient to pay all charges and deductions then due.  If this occurs, we will send You written notice and allow you a 61 day grace period.  If You do not make a premium payment within the grace period sufficient to cover all charges and deductions due, the Policy will terminate at the end of the grace period.

Federal Tax Considerations

Purchase of, and transactions under, the Policy may have adverse or unfavorable tax consequences that you should consider.  You may wish to consult a qualified tax professional prior to purchase regarding tax treatment of death benefits and surrenders.

The following tables describe the fees and expenses that You will pay when buying, owning and surrendering the Policy.  The first table describes the expenses that You will pay at the time that You buy the Policy and at the time of each subsequent premium payment.

TRANSACTION FEES
Charge	When Charge is Deducted	Amount Deducted
Premium Expense Load1 Maximum Charge on Premium up to an including Target Premium: Maximum Charge on Premium in Excess of Target Premium:	Upon premium receipt Upon premium receipt	(as a % of premium)
			35% 5.0%
Illustration Charge	Upon fulfillment of illustration request in any Policy Year	$25.00 per illustration
Loan Lapse Protection Rider2 Maximum Charge:	On the Rider Exercise Date	(of Account Value) 3.5%

The next table describes the fees and expenses that You will pay periodically during the time You own the Policy, not including Fund fees and expenses.

PERIODIC CHARGES OTHER THAN FUND OPERATING EXPENSES
Charge	When Charge is Deducted	Amount Deducted
Cost of Insurance for Specified Face Amount3	At the beginning of each Policy Month	(per $1000 of Specified Face Amount Net Amount at Risk “SFANAR”)
Maximum Charge: Minimum Charge: Representative Owner Charge4: (male, nonsmoker, preferred, medically  underwritten, Issue Age 45, Policy Year 1)		$83.33 $0.01 $0.12
Cost of Insurance for Supplemental Insurance Face Amount3	At the beginning of each Policy Month	(per $1000 of Supplemental Insurance Face Amount Net Amount at Risk “SIFANAR”)
Maximum Charge: Minimum Charge: Representative Owner Charge4: (male, nonsmoker, preferred, medically underwritten, Issue Age 45, Policy Year 1)		$83.33 $0.01 $0.12
Mortality and Expense Risk Charge5 Maximum Charge:	Daily	(on the assets allocated to the investment options in the Variable Accounts)
				0.60%
Monthly Expense Charge Maximum Charge: Minimum Charge:	At the beginning of each Policy Month			$10.00 $5.00
Monthly Face Amount Charge Maximum Charge:	At the beginning of each Policy Month	(per $1000 of Specified Face Amount)
			$0.20
Loan Interest6	At the end of each Policy Year	(as a % of Policy Debt)
			4.0%
Flat Extra Charge7	At the beginning of each Policy Month	(per $1000 of Specified Face Amount and Supplemental Insurance Face Amount)
Maximum Charge:				$50.00

The next table describes the charges You will pay periodically during the time You own any riders attached to the Policy.

OPTIONAL CHARGES
Charge	When Charge is Deducted	Amount Deducted
Waiver of Monthly Deductions Rider8 Maximum Charge: Minimum Charge: Representative Owner Charge3: (Issue Age 45)	At the beginning of each Policy Month	(per $1000 of Specified Face Amount and Supplemental Insurance Face Amount)
		$0.19 $0.01 $0.07
Payment of Stipulated Amount Rider10 Maximum Charge: Minimum Charge: Representative Owner Charge3: (male, Issue Age 45, benefit payable to age 70)	At the beginning of each Policy Month	(per $100 of Stipulated Amount9)
		$0.79 $0.14 $0.46

The next table describes the Fund fees and expenses that You will pay periodically during the time that You own the Policy.  The table shows the minimum and maximum fees and expenses charged by any of the Funds and deducted from Fund assets.  More detail concerning each Fund's fees and expenses is contained in the prospectus for each Fund.

ANNUAL FUND OPERATING EXPENSES (deducted by each Fund on the average daily net asset value of each Fund)
Total Annual Fund Expenses (reflects management fees, distribution [and/or service](12b-1) fees and other expenses)	Minimum	Maximum
	0.35%	1.61%

1The elements making up the Premium Expense Loads are discussed on pages 24-25.  The Loads are deducted from premium received.  The Load on premium up to and including Target Premium will not exceed 35% in Policy Year 1, 12% in Policy Years 2-10 and 5% thereafter.  The Load on premium in excess of Target Premium will not exceed 5%.

2The rider charge equals the excess of 99.5% of the Account Value over the Policy Debt.  For additional detail for the Loan Lapse Protection Rider, please see page 20.

3The charge varies based on the length of time the Policy has been in force, the Insured's Issue Age, sex, rating class, and applicable mortality tables.  For Policies with an Investment Start Date on or before December 31, 2008, the 1980 Commissioners Standard Ordinary (“CSO”) Mortality Tables apply.  For Policies with an Investment Start Date on or after January 1, 2009, the 2001 Commissioners Standard Ordinary (“CSO”) Mortality Tables apply.  The charges shown may not be representative of the charge You may pay.  Please contact your financial adviser for the particular charge applicable to You.  The maximum charge possible is for an Insured male, smoker, standard, medically underwritten, Issue Age 80, Policy Year 40 (20 for 1980 CSO).  The minimum possible is for an Insured female, nonsmoker, super preferred, medically underwritten, Issue Age 20, Policy Year 1.  For substandard risk classifications, the Company reserves the right to charge up to 500% of the charges shown in the Fee Table.  Please see pages 25-26 of the prospectus for additional detail.

4It is assumed the Owner and the Insured are the same person.  Charges shown are those currently applicable.

5The Mortality and Expense Risk charge is deducted in all Policy Years.  The charge shown is an annual charge. The charge is deducted on a daily basis.

6Loan Interest is charged as a percentage of Policy Debt and is added to Policy Debt.  It is 4% in Policy Years 1-10 and 3.0% thereafter.  See page 24 for additional detail regarding Loan Interest.

7For Policies with Investment Start Dates before August 17, 2009, the maximum flat extra charge per $1000 of Specified Face Amount and Supplemental Insurance Face Amount is $20.00.

8The maximum charge possible is for an Insured, Issue Age 55.  The minimum charge possible is for an Insured, Issue Age 20.  Charges vary by Issue Age only.  The charges shown may not be representative of the charge You may pay.  Please contact your financial adviser for the particular charge applicable to You.

9To increase the variety of Stipulated Amounts electable, the charge imposed is per $100 of Stipulated Amount.

10The maximum charge possible is for an Insured male, Issue Age 55, benefit payable to age 70.  The minimum charge possible is for an Insured male, Issue Age 20, benefit payable to age 65.  Charges vary based on the Insured's Issue Age, sex and duration of payment option.  Disability rates for males are lower than females at younger ages and much higher for males than females at older ages.  The use of rates for males provides an appropriate range of rates. The charges shown may not be representative of the charge You may pay.  Please contact your financial adviser for the particular charge applicable to You.

About Who We Are

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 Virgin Islands.  We have an insurance company subsidiary that does business in New York.  Our 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.

The Variable Account

Sun Life of Canada (U.S.) Variable Account I is one of our separate accounts established in accordance with Delaware law on December 1, 1998.  The Variable Account may also be used to fund benefits payable under other life insurance policies issued by us.  We are obligated to pay all benefits payable under the Policy.

We own the assets of the Variable Account.  The income, gains or losses, realized or unrealized, from assets allocated to the Variable Account are credited to or charged against the Variable Account without regard to our other income, gains or losses.

We will at all times maintain assets in the Variable Account with a total market value at least equal to the reserves and other liabilities relating to the variable benefits under all policies participating in the Variable Account and the Variable Account is fully funded for the purpose of Federal securities laws.  The assets of the Variable Account are insulated from our general liabilities and may not be charged with our liabilities from our other business.  Our obligations for the fixed account allocations and death benefits payable under the Policy are, however, our general corporate obligations.

The Variable Account is registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust.  That registration does not involve any supervision by the SEC of the management or investment practices or policies of the Variable Account.

The Variable Account may be deregistered if registration is no longer required under applicable Federal securities laws.  We may continue, at our election, to operate the Variable Account as a unit investment trust or other form of investment company.  All determinations will be made by our Board of Directors.  In the event of any change in the registration status of the Variable Account, we will notify all policyholders and any regulatory authorities requiring notice of such change.  We may amend the Policy to reflect the change and take such other action as may be necessary and appropriate to effect the change.

The Variable Account is divided into Sub-Accounts.  Each Sub-Account invests exclusively in shares of a corresponding investment portfolio of a registered investment company (commonly known as a mutual fund).  We may in the future add new or delete existing Sub-Accounts.  The income, gains or losses, realized or unrealized, from assets allocated to each Sub-Account are credited to or charged against that Sub-Account without regard to the other income, gains or losses of the other Sub-Accounts.

The Funds

The Policy offers several mutual fund options shown on page 1.  Each Fund is a mutual fund registered under the Investment Company Act of 1940, or a separate series of shares of such a mutual fund.  More comprehensive information, including a discussion of potential risks, is found in the current prospectuses for the Funds (the “Fund Prospectuses”).  The Fund Prospectuses should be read in connection with this prospectus.  A copy of each Fund Prospectus may be obtained by calling 1-800-700-6554, or writing to Sun Life Assurance Company of Canada (U.S.), One Sun Life Executive Park, Wellesley Hills, MA 02481.

Fees and Expenses of the Funds.  Fund shares are purchased at net asset value, which reflects the deduction of investment management fees and other expenses.  The management fees are charged by each Fund's investment adviser for managing the Fund and selecting its portfolio of securities.  Other expenses can include such items as interest expense on loans and contracts with transfer agents, custodians and other companies that provide services to the Fund, and actual expenses may vary.  Because they are assessed at the Fund level, you will indirectly bear the fees and

expenses of the Funds you select.  The table presented earlier in this prospectus shows the range of fees and expenses paid by the Funds as a percentage on average daily net asset value of each Fund.  These fees and expenses are more fully described in the Fund Prospectuses.

Potential Conflicts.  We, as well as other affiliated and unaffiliated insurance companies, may also purchase shares of the Funds on behalf of other separate accounts used to fund variable benefits payable under other variable life insurance and variable annuity contracts.  As a result, it is possible, though we do not anticipate, that a material conflict may arise between the interests of our policyowners with respect to the Variable Account and those of other variable contractowners with respect to the other separate accounts that participate in the Funds.  The Funds have agreed to monitor themselves for the existence of any material conflict between the interests of variable contractowners.  In the event of such a conflict involving a Fund, we will take any steps necessary to remedy the conflict including withdrawing the assets of the Variable Account from the Fund.  If the Variable Account or another separate account withdraws its assets from a Fund for this reason, the Fund may be forced to sell its portfolio securities at disadvantageous prices which would negatively affect the investment performance of the corresponding Sub-Account.

Our General Account

Our general account consists of all of our assets other than those in our variable separate accounts.  Subject to applicable law, we have sole discretion over the investment of our general account assets.

Interests in our general account offered through the Fixed Account investment option have not been registered under the Securities Act of 1933 and our general account has not been registered as an investment company under the Investment Company Act of 1940.

An allocation of premium to the Fixed Account does not entitle you to share in the investment experience of our general account.  Instead, we guarantee that your Fixed Account allocation will accrue interest daily at an effective annual rate of at least 3%, without regard to the actual investment experience of our general account.  Interest in excess of the guaranteed rate may be applied to the amount in the Fixed Account at such increased rates and in such a manner as We may determine, based on Our expectations of future experience with respect to interest, mortality costs, persistency, expense, taxes, as well as the size, timing and frequency of deposits.

About the Policy

This prospectus describes the standard features of the Policy.  The Policy, as issued, may differ in some respects due to the insurance laws and regulations of the state where the Policy is issued.

Application and Issuance.  To apply for a Policy, You must submit an application to our Principal Office.  We will then follow underwriting procedures designed to determine the insurability of the proposed Insured.  We offer the Policy on a regular (or medical) underwriting, simplified underwriting, expanded guaranteed issue or guaranteed issue basis.  The proposed Insured generally must be less than 71 years old for a Policy to be issued.  For Policies underwritten on a medical or simplified basis, we may require that the proposed Insured undergo one or more medical examinations and that you provide us with such additional information as we may deem necessary, before an application is approved.

We will issue Policies on an expanded guaranteed issue or guaranteed issue basis with respect to certain groups of Insureds.  Policies issued on such basis must be pre-approved based on information you provide to us on a master application and on certain other underwriting requirements which all members of a proposed group of Insureds must meet.  Proposed Insureds must be acceptable risks based on our underwriting limits and standards.  We will not issue a Policy until the underwriting process has been completed to our satisfaction.  In addition, we reserve the right to reject an application that does not meet our underwriting requirements or to increase by no more than 500% the cost of insurance charges applicable to an Insured to cover the cost of the increased mortality risk borne by the Company.

Death Benefit Compliance Test.  The Policy must, at all times, satisfy one of two legal standards for it to qualify as life insurance and thus be entitled to receive favorable tax treatment under applicable federal tax law.  We will refer to these standards as the “Cash Value Accumulation Test” and the “Guideline Premium Test.”  Under both tests, the Death Benefit must effectively always equal or exceed your Account Value multiplied by a certain percentage (the “Death Benefit Percentage”).  The Death Benefit Percentages for the Guideline Premium Test vary by Attained Age, whereas those for the Cash Value Accumulation Test vary by Attained Age and sex.  The Death Benefit Percentages for the Cash Value Accumulation Test, in general, are greater than those for the Guideline Premium Test.  The Guideline Premium Test imposes limits on the amount of premium you may pay under the Policy, where the Cash Value Accumulation Test does not.  You must specify in the Policy application which of these tests will apply to the Policy.  You may not change your selection once the Policy has been issued.  In general, if your primary objective is maximum accumulation of Account Value during the initial Policy Years, then the Cash Value Accumulation Test would be the more appropriate choice.  If your primary objective is the most economically efficient method of obtaining a specified amount of coverage, then the Guideline Premium Test is generally more appropriate.  Because your choice of tests depends on complex factors and may not be changed, You should consult with a qualified tax adviser before deciding.

Initial Premium Payment.  Generally, you must make an Initial Premium payment that will sustain the Policy for three months from its Issue Date.The amount of Initial Premium is determined by the Specified Face Amount, Supplemental Insurance Face Amount, death benefit option election, death benefit compliance test election, optional rider election and risk and underwriting classification of the Insured.  Pending approval of your application, we will allocate any premium payments You make to our general account.  If your application is not approved, we will promptly return your premium payments.

Upon approval of your application, we will issue to You a Policy on the life of the Insured which will set forth your rights and our obligations.  The Issue Date is the date specified as such in the Policy, from which Policy Anniversaries, Policy Years and Policy Months are measured.  The Investment Start Date is the date the first premium is applied, which will be the later of-

- the Issue Date, or

- the date a premium is paid equal to or in excess of the specified Initial Premium.

Insurable Interest Requirement.  You must have an insurable interest in the life of the Insured up to the full amount of insurance coverage.  Otherwise, the Policy will not qualify as life insurance under applicable state insurance and federal tax law.  You should consult with a qualified adviser when determining the amount of coverage and before taking any action to increase the amount of existing coverage to ensure that You have an insurable interest for the full amount of coverage.

Right to Return Policy Period.  If You are not satisfied with the Policy, You may return it by delivering or postmarking it to our Principal Office or to the sales representative through whom You purchased the Policy within 10 days from the date of receipt (the “Right to Return Policy Period”).  If You return the Policy during the Right to Return Policy Period, the Policy will be deemed void and You will receive a refund equal to the sum of-

- the difference between any premium payments made, including fees and charges, and the amounts allocated to the Investment Options;

- the value of the amounts allocated to the Investment Options on the date the cancellation request is received by us or the sales representative through whom you purchased the Policy; and

- any fees or charges imposed on amounts allocated to the Investment Options.

If required by applicable state insurance law, however, You will receive instead a refund equal to the greater of premium payments made and premium payments made with interest at the then rate paid by the Company on comparable fixed life insurance policies, without regard to the investment experience of the Variable Account.  Unless You are entitled to receive a full refund of premium, You bear all of the investment risks with respect to the amount of any net premiums allocated to the Variable Account during the Right to Return Policy Period with respect to the Policy.

If You are entitled under applicable state law to receive a full refund during the Right to Return Policy Period, we will allocate the net premium payments to the Sun Capital Money Market Fund Sub-Account during that period beginning on the Investment Start Date.  Upon expiration of the Right to Return Policy Period, we will reallocate your Account Value and allocate future net premium payments in accordance with your instructions.

Asset Allocation.  One or more asset allocation programs may be made available in connection with the Policy, at no extra charge.  Asset allocation is the process of investing in different asset classes -- such as equity funds, fixed income funds and money market funds -- depending on your personal investment goals, tolerance for risk, and investment time horizon.  By spreading your money among a variety of asset classes, You may be able to reduce the risk and volatility of investing, although there are no guarantees, and asset allocation does not insure a profit or protect against loss in a declining market.  Currently, You may select one of the asset allocation models, each of which represents a combination of Sub-Accounts with a different level of risk.  These asset allocation models, as well as the terms and conditions of the asset allocation program, are fully described in a separate brochure.  We may add or delete such programs in the future.  If You elect an asset allocation program, we automatically rebalance your premium payments among the Sub-Accounts represented in the model You choose.  We rebalance your premium payments on a quarterly basis, without further instruction from You.  Our asset allocation programs are “static” programs.  We do not change the original percentage allocations among the Sub-Accounts that are used for rebalancing purposes in your chosen model.  We may, however, terminate the program or choose a different model. Also, the asset allocation models are reviewed and, as a result, may be substituted for new models and existing models may be terminated.  If so, the new models will be offered only to Policies issued on or after the date the new model goes into effect or to Owners who elect an asset allocation program on or after that date.  Owners of any existing asset allocation programs may make an independent decision to change their asset allocations at any time during the duration of an asset allocation model or after the asset allocation model has terminated.  If an existing model is terminated, we will rebalance your Sub-Accounts to the percentage of allocations of the terminated model, unless You advise us otherwise.  We will also allocate new premium to the percentage allocations of the terminated model unless otherwise instructed by You.  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.

Dollar Cost Averaging.  You may select, at no extra charge, a dollar cost averaging program by allocating a minimum of $5,000 to the Sun Capital Money Market Fund®.  Each month or quarter, a level amount will be transferred automatically, at no cost, to one or more Variable Sub-Accounts chosen by You, up to a maximum of twelve.  The program continues until your Account Value allocated to the program is depleted or You elect to stop the program.  The main objective of a dollar cost averaging program is to minimize the impact of short-term price fluctuations.  Since the same dollar amount is transferred to other available Variable Sub-Accounts at set intervals, dollar cost averaging allows You to purchase more Units (and, indirectly, more Fund shares) when prices are low and fewer Units (and, indirectly, fewer Fund shares) when prices are high.  Therefore, a lower average cost per Unit may be achieved over the long-term.  A dollar cost averaging program allows You to take advantage of market fluctuations.  However, it is important to understand that a dollar cost averaging program does not assure a profit or protect against loss in a declining market.

Asset Rebalancing.  Once your money has been allocated among the Sub-Accounts, the earnings may cause the percentage invested in each Sub-Account to differ from your allocation instructions.  You can direct us to automatically rebalance the Policy among your Sub-Accounts to return to your allocation percentages by selecting our asset rebalancing program.  The rebalancing will be on a calendar quarter, semi-annual or annual basis, depending on your instructions.  Rebalancing will not occur if the total Sub-Account allocations are less than $1,000.

There is no charge for asset rebalancing.  In addition, rebalancing will not be counted against any limit we may place on your number of transfers in a Policy Year.  You may not select dollar cost averaging and asset rebalancing at the same time.  We reserve the right to waive the $1,000 minimum amount for asset rebalancing.

Premium Payments

In general, You may choose the frequency and amount of any additional premium payments subject to the limits described below.  All premium payments must be made payable to Sun Life Assurance Company of Canada (U.S.) and mailed to our Principal Office.

General Limitations.  We reserve the right to limit the number of premium payments we accept on an annual basis.  No premium payment may be less than $100 without our consent, although we will accept a smaller premium payment if it is necessary to keep the Policy in force.  We reserve the right to reject a premium payment that, if accepted, would cause the Policy, at its current Death Benefit, to no longer meet the definition of “life insurance” under the Internal Revenue Code.  If You provide satisfactory evidence of insurability, we can retain the premium and increase the Death Benefit while maintaining the Policy’s “life insurance” status under the Internal Revenue Code.

Guideline Premium Test Limitations.  The Guideline Premium Test limits the amount of premium You may pay per year.  We will not accept premium payments that would, in our opinion, exceeds these limits, if You have chosen this test as the applicable Death Benefit Compliance Test, unless You have expressly directed us to do so.  We may require satisfactory evidence of insurability before we accept such a premium.  We will inform You of the applicable maximum premium limitations for the coming years in our annual report to You.  In contrast, the Cash Value Accumulation Test does not impose any additional limitations on the amount of premium You may pay.

Planned Periodic Premiums.  While You are not required to make premium payments according to a fixed schedule, You may select a planned periodic premium schedule and corresponding billing period, subject to our premium limits.  In general, the billing period must be annual, semiannual or quarterly.  We will send reminder notices for the planned periodic premium at the beginning of each billing period unless reminder notices have been suspended as described below.  You are not required, however, to pay the planned periodic premium; You may increase or decrease premium payments, subject to our limits, and You may skip a planned payment or make unscheduled payments.  You may change your planned payment schedule or the billing period, subject to our approval.  Depending on the investment performance of the Sub-Accounts You select, the planned periodic premium may not be sufficient to keep the Policy in force, and You may need to change your planned payment schedule or make additional payments in order to prevent termination of the Policy.  We reserve the right to suspend reminder notices if premiums are not being paid (except for notices in connection with the grace period).  We will notify You prior to suspending reminder notices.  We will also suspend reminder notices at your written request.

Allocation of Net Premium.  Net Premium is the amount You pay as premium minus the Premium Expense Load.  The Premium Expense Load covers State and Federal tax liabilities related to premium.  We will allocate Net Premium among the Investment Options in accordance with your allocation instructions, except during the Right to Return Policy Period as described above.  You will be required to specify initial allocation percentages at the time of application.  While there are no limitations concerning the number of Investment Options to which Net Premium may be allocated, we reserve the right to impose minimum allocation amounts, as determined by the Fund, for any or all Investment Options.

You may change the allocation of future Net Premium at any time by submitting an acceptable request to us.  An allocation change will be effective as of the date we receive your request for that change, provided that it is received on a Valuation Date before the close of the New York Stock Exchange.  If a request is received on a day that is not a Valuation Date or after the close of the New York Stock Exchange on a Valuation Date, it will become effective on the next Valuation Date.

Modified Endowment Contract.  Less favorable federal tax rules apply to life insurance policies that are defined as “Modified Endowment Contracts.”  One way the Policy could become a Modified Endowment Contract is if You pay premiums in excess of applicable tax law limitations.

We will notify You or your sales representative within one business day if we receive a premium that would, in our opinion, cause the Policy to become a Modified Endowment Contract.  We will not credit the premium unless we receive specific instructions from You to do so.  Any such premium will be held, for a period not to exceed 90 days, in a non-interest bearing account.  This premium will be refunded at the end of the 90 day period if we have not received specific instruction from You concerning the premium.

Supplemental Insurance Face Amount

The Policy may be issued with a Supplemental Insurance Face Amount which provides life insurance coverage on the life of the Insured equal to the amount of the Supplemental Insurance Death Benefit.  You will be required to specify the initial Supplemental Insurance Face Amount in the policy application.

The cost of the Supplemental Insurance Face Amount will be included in the Monthly Cost of Insurance deduction.  This deduction will cease when the Supplemental Insurance Face Amount is terminated.  The applicable guaranteed maximum Monthly Cost of Insurance Rates for the Supplemental Insurance Death Benefit are the same as those for the Base Death Benefit.

Target Premium is the amount of premium specified as such in the Policy, used to determine the Premium Expense Load. Target Premium is equal to (the Specified Face Amount divided by 1000) multiplied by the Target Premium Factor.  Total Face Amount is the sum of the Specified Face Amount and Supplemental Insurance Face Amount.

Two otherwise identical Policies with the same Total Face Amount will have different Target Premiums depending on how much of the Total Face Amount is attributable to the Specified Face Amount versus the Supplemental Insurance Face Amount.  Target Premium will be lower for the Policy which has the greater Supplemental Insurance Face Amount because the Target Premium calculation uses the Specified Face Amount not the Total Face Amount.

The Supplemental Insurance Death Benefit will terminate on the earliest of-

- our receipt of your written request for termination,

- the lapse of the Policy because of insufficient value, or

- the termination of the Policy.

Subject to our underwriting rules in effect at the time of request, You may choose to schedule increases in the Supplemental Insurance Face Amount at time of Policy application.  No further evidence of insurability needs to be provided at the time increases are scheduled to go into effect.  Further, no deterioration in the Insured’s health will negatively impact future scheduled increases.  Persons interested in scheduled increases are generally those who are matching their insurance coverage amounts to their income and anticipate annual increases in compensation.  The amounts of scheduled increases and the dates those increases take effect are shown in the Policy Specifications section of the Policy.  You must have elected death benefit option A or C to elect scheduled increases.  If You have elected scheduled increases and change from death benefit option A or C, further scheduled increases will be cancelled as of the date of your change request.  If You elect a decrease in the Specified Face Amount or the Supplemental Insurance Face Amount or change the amounts of scheduled increases or the dates those increases take effect, future scheduled increases will be cancelled as of the date of your election or change request.

Death Benefit

Policy Proceeds.  If the Policy is in force at the time of the Insured’s death and we have received Due Proof of the Insured’s death, we will pay your designated beneficiary a lump sum amount equal to-

- the amount of the Base Death Benefit, plus

- the amount of the Supplemental Insurance Death Benefit, minus

- the amount of any outstanding Policy Debt, plus

- the amount of any other supplemental benefits.

The amount of the Base Death Benefit and Supplemental Insurance Death Benefit depends upon the death benefit option in effect at the time of the Insured’s death.

Death Benefit Options.  The Policy has three death benefit options. You will be required to select one of them in the policy application.

 Option A-Specified Face Amount.  Under this option, the Base Death Benefit is the greater of-

- the Policy’s Specified Face Amount, or

- the Gross Cash Surrender Value multiplied by the applicable Death Benefit Percentage.

 Option B-Specified Face Amount Plus Gross Cash Surrender Value.  Under this option, the Base Death Benefit is the greater of-

- the Specified Face Amount plus the Gross Cash Surrender Value, or

- the Gross Cash Surrender value multiplied by the applicable Death Benefit Percentage.

 Option C-Specified Face Amount Plus Cumulative Premiums Paid.  Under this option, the Base Death Benefit is the greater of-

- the Specified Face Amount plus the sum of all premiums paid less any partial surrenders, or

- the Gross Cash Surrender Value multiplied by the applicable Death Benefit Percentage.

Option A provides a level amount of death benefit.  Option B provides a fluctuating death benefit due to the inclusion of the Gross Cash Surrender Value.  While Option B provides a different death benefit than Option A, the monthly deduction for cost of insurance charges will be higher based on the Specified Face Amount Net Amount at Risk.  Option C also provides a higher death benefit than Option A and may result in a higher monthly deduction for cost of insurance charges depending upon actual premium payments made.  Ask your sales representative for an illustration to compare costs between Option B and Option C.

Supplemental Insurance Death Benefit.   The Supplemental Insurance Death Benefit is the Total Death Benefit minus the Base Death Benefit.  For Option A, the Total Death Benefit is the greater of a) the Total Face Amount and b) the Gross Cash Surrender Value multiplied by the applicable Death Benefit Percentage.  For Option B, the Total Death Benefit is the greater of a) the Total Face Amount plus the Gross Cash Surrender Value and b) the Gross Cash Surrender Value multiplied by the applicable Death Benefit Percentage.  For Option C, the Total Death Benefit is the greater of a) the Total Face Amount plus the sum of all premiums paid less any partial surrenders and b) the Gross Cash Surrender Value multiplied by the applicable Death Benefit Percentage.   The Total Face Amount is equal to the Specified Face Amount plus the Supplemental Insurance Face Amount.

If the Insured dies while the Policy is in force, we will make a lump sum payment when we receive due proof of that death.  The Death Benefit used to determine Policy Proceeds is based on the death benefit option, the Specified Face Amount and Supplemental Insurance Face Amount and Gross Cash Surrender Value in effect on the Insured’s date of death.

You should note that the Policy may not qualify as life insurance after the Insured’s Attained Age 100, which may result in adverse tax consequences.  You should consult your tax advisor prior to continuing the Policy beyond the Insured’s Attained Age 100.

Changes in the Death Benefit Option.  You may change the death benefit option, subject to our underwriting rules in effect at the time of the change.  Requests for a change must be made in writing to us at our Principal Office.  The effective date of the change will be the Policy Anniversary on or next following the date of receipt of your request.

Minimum Face Amount.  Total Face Amount is the sum of the Specified Face Amount and Supplemental Insurance Face Amount.  In general, the Total Face Amount must be at least $100,000, of which the Specified Face Amount must be at least $10,000.  We reserve the right to waive these minimums.

Changes in Face Amount.  You may change the Specified Face Amount or Supplemental Insurance Face Amount, subject to our underwriting rules in effect at the time of the change.  You must send your request for a change to us in writing.  The Effective Date of Coverage for changes will be-

- for any increase in coverage, the Monthly Anniversary Day that falls on or next follows the date we approve the supplemental application for the increase; and

- for any decrease in coverage, the Monthly Anniversary Day that falls on or next follows the date we receive your request.

Increases in Face Amount.  An increase in the Specified Face Amount and Supplemental Insurance Face Amount is subject to our underwriting rules in effect at the time of the increase.  You may be required to submit satisfactory evidence of the Insured’s insurability.  The cost of insurance charges applicable to an increase in Specified Face Amount and Supplemental Insurance Face Amount may be higher or lower than those charged on the original sums if the Insured’s health has changed to a degree that qualifies the Insured for a different risk classification. Additional policy specification pages will be provided to show the applicable guaranteed maximum cost of insurance charges applicable to any increase.  Your financial adviser can provide an illustration to show the level of premium funding necessary to maintain coverage at the increased amounts.

Decreases in Face Amount.  The Specified Face Amount may not decrease to less than the Minimum Specified Face Amount specified in the Policy.  Similarly, a decrease in Specified Face Amount or Supplemental Insurance Face Amount may not decrease the Total Face Amount to an amount less than the Minimum Total Face Amount specified in the Policy.  A decrease in face amount will be applied-

- first, to the most recent increase, either Specified Face Amount or Supplemental Insurance Face Amount, if any, whichever is most recent.  If issued at the same time, Supplemental Insurance Face Amount first;

- second, to the next most recent increases, either Specified Face Amount or Supplemental Insurance Face Amount, if any, in reverse chronological order.  If issued at the same time, Supplemental Insurance Face Amount first;

- third, to the initial Supplemental Insurance Face Amount, if any; and

- finally, to the initial Specified Face Amount.

Account Value

Your Account Value is the sum of the amounts in each Investment Option plus the amount of the Loan Account.  We measure the amounts in the Sub-Accounts in terms of Units and Unit Values.  On any given day, the amount You have in a Sub-Account is equal to the Unit Value multiplied by the number of Units credited to You in that Sub-Account.  The Units for each Sub-Account will have different Unit Values.

Amounts allocated to a Sub-Account will be used to purchase Units of that Sub-Account.  Units are redeemed when You make partial surrenders, undertake policy loans or transfer amounts from a Sub-Account, and for payment of the Mortality and Expense Risk Charge, the Monthly Expense Charge, the Monthly Face Amount Charge and the Monthly Cost of Insurance Charge.  The number of Units of each Sub-Account purchased or redeemed is determined by dividing the dollar amount of the transaction by the Unit Value for the Sub-Account.  A Valuation Date is any day on which the New York Stock Exchange is open for business and valuation will occur at the close of the New York Stock Exchange.  The New York Stock Exchange historically closes on weekends and the following holidays:  New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.

For the first Valuation Date of each Sub-Account, the Unit Value is established by us.  The Unit Value for any subsequent Valuation Date is equal to the Unit Value for the preceding Valuation Date multiplied by the Net Investment Factor.  The Unit Value of a Sub-Account for any Valuation Date is determined as of the close of the Valuation Period ending on that Valuation Date.  TheValuation Period is the period of time from one determination of Unit Values to the next.

If accompanied by proper allocation instructions, a premium received at our Principal Office is credited to the Policy on the same date it is received unless that date is not a Valuation Date or receipt is after the close of the New York Stock Exchange on a Valuation Date. In those instances, the premium will be credited on the next Valuation Date.  If premium is to be allocated to a Sub-Account, the Unit Value of the Sub-Account will be that next determined after receipt of such premium.

The Investment Start Date is the date we apply your first premium payment, which will be the later of the Issue Date and the Business Day we approve the policy application.

Account Value for Investment Options.  The Account Value on the Investment Start Date equals-

- that portion of Net Premium received and allocated to the Investment Options, minus

- the Monthly Expense Charges and Monthly Face Amount Charges due on the Issue Date and subsequent Monthly Anniversary Days through the Investment Start Date, minus

- the Monthly Cost of Insurance deductions due from the Issue Date through the Investment Start Date.

The Account Value for Investment Options on subsequent Valuation Dates is equal to-

- the Account Value attributable to each Sub-Account on the preceding Valuation Date multiplied by that Sub-Account’s Net Investment Factor, minus

- the Daily Risk Percentage multiplied by the number of days in the Valuation Period multiplied by the Account Value in the Sub-Account, plus

- the value of the Fixed Account on the preceding Valuation Date, accrued at interest, plus

- that portion of Net Premium received and allocated to each Investment Option during the current Valuation Period, plus

- any amounts transferred by You to the investment options during the current Valuation Period, minus

- any amounts transferred by You from the investment options during the current Valuation Period, plus

- that portion of any loan repayment, including repayment of loan interest, allocated to an Investment Option during the current Valuation Period, minus

- that portion of any partial surrenders deducted from each Investment Option during the current Valuation Period, minus

- that portion of any Policy loan transferred from each Investment Option to the Loan Account during the current Valuation Period, minus

- any illustration charge assessed during the current Valuation Period, minus

- if a Monthly Anniversary Day occurs during the current Valuation Period, that portion of the Monthly Expense Charge and Monthly Face Amount Charge for the Policy Month just beginning charged to each Investment Option, minus

- if a Monthly Anniversary Day occurs during the current Valuation Period, that portion of the Monthly Cost of Insurance charged to each Investment Option.

Net Investment Factor.  The Net Investment Factor is used to measure the Sub-Account’s investment performance from one Valuation Period to the next.  This factor will be greater or less than or equal to one, corresponding to a positive or negative or to a lack of change in the Sub-Account’s investment performance for the preceding Valuation Period.  Although we do not currently take any federal, state or local taxes into account when determining the Net Investment Factor, we reserve the right to do so.  The Net Investment Factor for each Sub-Account for any Valuation Period is determined by dividing the net result of-

- the net asset value of a Fund share held in the Sub-Account determined as of the end of the Valuation Period, plus

- the amount of any dividend or other distribution declared on amounts held in the Sub-Account if the “ex-dividend date” occurs during the Valuation Period, which for some assets will not be credited with investment experience until the dividend is paid, plus or minus

- a credit or charge with respect to any taxes reserved for by us, or paid by us if not previously reserved for, during the Valuation Period which are determined by us to be attributable to the operation of the Sub-Account,

-by the net asset value of a Fund share held in the Sub-Account determined as of the end of the preceding Valuation Period.

The “ex-dividend date” is the date after which a Fund share begins trading without the dividend.

Splitting Units.  We reserve the right to split or combine the value of Units.  In effecting any such change, strict equity will be preserved and no change will have a material effect on the benefits or other provisions of the Policy.

Account Value in the Loan Account.  The Account Value in the Loan Account is zero on the Investment Start Date.

The Account Value in the Loan Account on any day after the Investment Start Date equals-

- the Account Value in the Loan Account on the preceding day credited with interest at the rate specified in the Policy as the “interest credited on Loan Account rate” of 3%, plus

- any amount transferred from any Investment Option to the Loan Account for Policy loans requested on that day; minus

- any loan repayments made on that day.

Policy loans, with interest charged at the applicable rate, is “Policy Debt”.  Policy Debt is not part of the Loan Account.  Policy Debt increases by unpaid loan interest and reduces the Policy Proceeds and the Cash Surrender Value.

Insufficient Value.  If the Account Value minus the outstanding Policy Debt is less than or equal to zero on a Valuation Date, then the Policy will terminate for no value, subject to the grace period described below.  The Policy will not lapse if the Loan Lapse Protection Rider is in effect and all conditions thereunder have been met.

Grace Period.  If, on a Valuation Date, the Policy will terminate by reason of insufficient value, we will allow a grace period.  This grace period will allow 61 calendar days from that Valuation Date for the payment of a Net Premium sufficient to cover the daily and monthly deductions due for charges under the Policy from the Account Value.  Notice of premium due will be mailed to your last known address or the last known address of any assignee of record within 30 days of that Valuation Date.  We will assume that your last known address is the address shown on the policy application (or notice of assignment), unless we have received satisfactory notice of a change in address.  If the premium due is not paid during the grace period, then the Policy will terminate without value at the end of the 61 day period without further notice.  The Policy will continue to remain in force during this grace period.  If the Policy Proceeds become payable during the grace period, they will be reduced by any overdue deductions.

Insured's Attained Age 121 (or 100 if 1980 CSO applies).  At the Insured’s Attained Age 121 (100 if 1980 CSO applies), no further premium will be accepted.  The Account Value will be determined in the same manner as it was prior to the Insured's Attained Age 121 (100 if 1980 CSO applies), except that no further deduction for Monthly Cost of Insurance, Monthly Expense Charge and Monthly Face Amount Charge will be made.

The Policy may not qualify as life insurance beyond the Insured’s Attained Age 100, which may result in adverse tax consequences.  We recommend that You receive counsel from your tax advisor.

Supplemental Benefits

The following supplemental benefits may be available in your state.  Each rider or endorsement is subject to certain limitations and termination provisions.  For additional information, please ask your sales representative.

Charitable Giving Benefit Rider.  Under this rider, when Policy Proceeds are payable, we will pay a Charitable Gift Amount to the named Charitable Beneficiary.  The Charitable Gift Amount is 1% of the Specified Face Amount and is an additional payment that does not diminish the Policy Proceeds paid to your beneficiary.  The Charitable Beneficiary may be any organization considered exempt from federal taxation under Section 501(c) of the Internal Revenue Code and is listed in Section 170(c) of the Internal Revenue Code as an authorized recipient of charitable contributions.  This rider may be elected at issue and may be discontinued at any time by making written request to the Company.  The Charitable Gift Amount and the Charitable Beneficiary in effect on the Issue Date are shown in the Policy.  There is no charge for this rider.

Waiver of Monthly Deductions Rider.  Under this rider, we will waive the monthly deductions under the Policy and any optional riders for all months for which the Insured suffers a total disability if the Insured's total disability commences while this rider is in force and continues for six months.  We will continue to waive the monthly deduction for as long as the disability continues.  Waiver of monthly deductions means the Account Value will not be reduced by any monthly deductions each Monthly Anniversary Day during the period of total disability.  We must receive due proof of the Insured’s total disability and due proof that the total disability has been continuous for six months before we will waive the monthly deductions.  At that time, we will reverse the monthly deductions which had been taken for the past months of total disability and waive all monthly deductions going forward until total disability ceases.  We may require from time to time additional proof that the disability is continuing, but not more frequently than once per year after the disability has continued for two years.  The rider charge is deducted monthly from the Account Value.  We use a Company-developed proprietary pricing table to determine the factor that corresponds with the Insured’s Issue Age and multiply this factor by each $1000 of Specified Face Amount and Supplemental Insurance Face Amount.  This rider must be elected at issue only and may be discontinued at any time by making written request to the Company.  If the rider is discontinued, the rider charge will also be discontinued.  If the Waiver of Monthly Deductions Rider is elected, the Payment of Stipulated Amount Rider cannot be elected.

Payment of Stipulated Amount Rider.  Under this rider, we will make a monthly payment of the "stipulated amount" into the Account Value when the Insured suffers a total disability, if the Insured's total disability commences while this rider is in force and continues for six months.  You elect the stipulated amount on the application.  We will continue to make a payment of that amount for as long as the disability continues but no later than the duration of the payment option elected (Insured's age 65 or 70).  Payment of the stipulated amount does not guarantee that the Account Value of the Policy will be sufficient to keep the Policy in force.  We must receive due proof of the Insured’s total disability and due proof that the total disability has been continuous for six months before we will make a payment.  At that time, we will credit the Account Value with the stipulated payment at the beginning of each month total disability continues.  We may require from time to time additional proof that the disability is continuing, but not more frequently than once per year after the disability has continued for two years.  The rider charge is deducted monthly from the Account Value.  We use a Company-developed proprietary pricing table to determine the factor that corresponds with the Insured’s Issue Age and sex and multiply this factor by each $100 of stipulated amount.  The rider charge will cease for the term the stipulated amount is being paid.  This rider must be elected at issue only and may be discontinued at any time by making written request to the Company.  If the rider is discontinued, the rider charge will also be discontinued.  If the Payment of Stipulated Amount Rider is elected, the Waiver of Monthly Deductions Rider cannot be elected.

Loan Lapse Protection Rider.  This rider is designed to protect the Policy from lapse should Policy Debt become the near equivalent of the Account Value.  Under this rider, the Policy will not terminate for insufficient value on and after the Rider Exercise Date.  The Rider Exercise Date is the earliest date on which all the following have occurred:

- the Insured is 75 or older;

- the Policy has been in force at least 15 years;

- the outstanding Policy Debt is greater than the Specified Face Amount;

- the outstanding Policy Debt equals or exceeds 96% of the Account Value;

- not more than 30% of the Policy Debt has been a result of loan activity in the 36 months immediately preceding the Rider Exercise Date;

- the sum of withdrawals made equals the sum of premiums paid; and

- we have received your request to exercise the rider.

The rider charge is an administrative charge that applies on the Rider Exercise Date and equals the excess of 99.5% of the Account Value over the Policy Debt. By way of example, if the Account Value is $1,000,000 and the Policy Debt is $970,000, the charge is $25,000 which is the difference between 99.5% of the Account Value and the Policy Debt.

On the Rider Exercise Date, after deduction of the rider charge from the Account Value, the following will occur:

- The Account Value in the Variable Sub-Accounts will be irrevocably transferred to the Fixed Account;

- The Death Benefit will be changed to equal 105% of the Account Value;

- Monthly Deductions will cease;

- No further premium will be accepted;

- Specified face amount increases and decreases will no longer be permitted; and

- All supplemental riders will terminate.

The rider automatically attaches to every Policy at issue that has elected the Guideline Premium Test and may be discontinued upon written request to the Company.

Travel Assistance Endorsement.  This endorsement permits Covered Persons to avail themselves of some or all of the following services provided by a third party we designate when the Covered Person is 100 miles or more away from home:

- Medical Consultation and Evaluation

- Hospital Admission Guarantee

- Emergency Evacuation

- Critical Care Monitoring

- Medically Supervised Repatriation

- Prescription Assistance

- Emergency Message Transmission

- Emergency Trauma Counseling

- Transportation to Join Patient

- Care for Minor Children

- Legal and Interpreter Referrals

- Return of Mortal Remains

“Covered Persons” are defined as:

(a) For a Policy which is not trust-owned, the Insured and their dependents.

(b) For a Policy which is trust-owned, the Insured and their dependents only if the trustee, in his/her sole and exclusive discretion, elects to make the Covered Services available.

There is no charge for this endorsement.  Ask your financial adviser for the brochure that provides additional detail about the endorsement.

Enhancement Benefit.  An Enhancement Benefit may be provided if you surrender the Policy and such surrender is not made pursuant to an exchange under Section 1035 of the Internal Revenue Code (or any successor provision).  The amount available for Policy loan or partial surrender will not increase by any Enhancement Benefit.  The Enhancement Benefit represents a return of a portion of the charges paid under the Policy.  When a charge is based on the Account Value, the Account Value will not include the Enhancement Benefit.  When a charge is based on the Gross Cash Surrender Value, the Gross Cash Surrender Value, as defined, includes the Enhancement Benefit.

The payment of an Enhancement Benefit is at the discretion of the Company.  On a current basis, an Enhancement Benefit is available during the Enhancement Period (the first seven Policy Years) and is calculated as follows:

- Prior to the payment of the initial Premium, the Enhancement Benefit is zero.

- Whenever a Premium Expense Load, Monthly Expense Charge or Monthly Face Amount Charge is deducted during the Enhancement Period, the Enhancement Benefit is increased by 100% of each such load or charge and is then decreased each subsequent month during the Enhancement Period.

- Whenever a Monthly Cost of Insurance charge is deducted during years 1-2 of the Enhancement Period, the Enhancement Benefit is increased by a percentage, which decreases over time, determined in accordance with the following formula:

- [(14 - M) divided by 36] multiplied by 100 where M equals the number of months elapsed since the beginning of the Enhancement Period.

- The Enhancement Benefit is zero after the end of the Enhancement Period.

The Enhancement Benefit is payable with respect to each Policy owned by the policyowner and is not contingent upon surrender of all such Policies.

Transfer Privileges

You normally may transfer all or a portion of your Account Value among Sub-Accounts and into the Fixed Account.  Transfers from the Fixed Account may not exceed the greater of the transfer percentage multiplied by the highest Fixed Account value over the transfer period and the transfer minimum.  The transfer percentage, transfer period and transfer minimum are shown in the Policy.  We will make transfers pursuant to an acceptable request to our Principal Office.  An “acceptable request” is one that is authorized by a person with proper authority, provides clear instruction to the Company, as administrator of the Variable Account, and is for a transaction that is not restricted by policies and procedures of the Variable Account or the Fund.

An acceptable transfer request will be processed as of the date our Principal Office receives your request provided that it is received on a Valuation Date before the close of the New York Stock Exchange.  If an acceptable transfer request is received on a day that is not a Valuation Date or after the close of the New York Stock Exchange on a Valuation Date, it will be processed effective on the next Valuation Date.

You may transfer a specified dollar amount or a specified percentage of the Investment Option’s value.

All transfers are subject to our consent.  We reserve the right to impose limitations on transfers, including, but not limited to-

- the minimum amount that may be transferred;

- the frequency of transfers; and

- the minimum amount that may remain in a Sub-Account following a transfer from that Sub-Account.

We reserve the right to restrict amounts transferred to the Fixed Account from the Sub-Accounts.

We will notify you in writing of the imposition of a transfer limitation.  We do not reserve any right to impose charges for transfers.  Any restrictions on transfers will apply to all policyowners in a non-discriminatory fashion.

Short-Term Trading

The Policy is not designed for short-term trading.  If You wish to employ such strategies, do not purchase a Policy.  Transfer limits and other restrictions, described below, are subject to our ability to monitor transfer activity.  Some Owners and their third party intermediaries engaging in short-term trading may employ a variety of strategies to avoid detection.  Despite our efforts to prevent short-term trading, there is no assurance that we will be able to identify such Owners or intermediaries or curtail their trading.  A failure to detect and curtail short-term trading could result in adverse consequences to Owners.  Short-term trading can increase costs for all Owners as a result of excessive portfolio transaction fees.  In addition, short-term trading can adversely affect a Fund's performance.  If large amounts of money are suddenly transferred out of a Fund, the Fund's investment adviser cannot effectively invest in accordance with the Fund's investment objectives and policies.

The Company has policies and procedures to discourage frequent transfers of Account Value.  As described above under "Transfer Privileges," the Policy includes the right to limit the frequency of transfers.

Short-term trading activities whether by an individual, a firm or a third party authorized to initiate transfer requests on behalf of Owner(s) may be subject to other restrictions as well (including transfers to and from the Fixed Account Option).  For example, we reserve the right to take actions against short-term trading which restrict your transfer privileges more narrowly than the policies described under "Transfer Privileges", such as requiring transfer requests to be submitted in writing through regular first-class U.S., mail (e.g., no overnight, priority or courier delivery allowed), and refusing any and all transfer instructions into a Fund.

If we determine that a third party acting on your behalf is engaging (alone or in combination with transfers effected by you directly) in a pattern of short-term trading, we may refuse to process certain transfers requested by such a third party.  We may also impose special restrictions on third parties that engage in reallocations of Policy values.  We may limit the frequency of the transfer and prohibit exchanges into a Fund.

Should transfer instructions provide for a redemption out of a Fund with purchase into a Fund that is restricted, the policyowner’s transfer instructions will be considered a request that is not in good order.  Therefore, neither side of the requested transaction will be honored.  We will provide You notice that the transfer instructions were not executed.

We reserve the right to waive short-term trading restrictions, where permitted by law and not adverse to the interest of the relevant underlying Fund and other of the Company’s contract owners and Owners, in certain instances such as:

- when a new broker of record is designated for the Policy;

- when necessary in our view to avoid hardship to an Owner;

- when underlying Funds are dissolved, merged or substituted.

If short-term trading results as a consequence of waiving the restrictions against short-term trading, it could expose Owners to certain risks.  The short-term trading could increase costs for all Owners as a result of excessive portfolio transaction fees.  In addition, the short-term trading 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 short-term trading policy and the permitted waivers of that policy are applied uniformly, some 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 short-term trading policy could result in an unequal treatment of short-term traders by permitting some short-term traders to engage in short-term trading while prohibiting others from doing the same.

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

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

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

Funds may differ significantly as to such matters as:  (a) the amount, format and frequency of information that the Funds request from us about transactions that our customers make; and (b) the extent and nature of any limits or restrictions that the 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 above under Short-Term Trading and under Transfer Privileges.  Also, if a 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 Fund.  For these and other reasons, we may disagree with the timing or substance of a Fund’s requests for information from us or with any transaction limits or restrictions that the Fund requests us to impose upon our customers.  If any such disagreement with respect to a Fund cannot be satisfactorily resolved, the Fund might be restricted or, subject to obtaining any required regulatory approval, replaced as an investment option.

Accessing Your Account Value

Surrender.  By written request, you may surrender the Policy for its Cash Surrender Value at any time.  The date the surrender is processed, the insurance coverage and all other benefits under the Policy will terminate.  The Cash Surrender Value is-

- the Account Value, minus

- the outstanding balance of any outstanding Policy Debt; plus

- any Enhancement Benefit.

Partial Surrenders.  You may make a partial surrender of the Policy once each Policy Year after the first Policy Year by request to our Principal Office in a form satisfactory to us.  The amount of any partial surrender may not exceed the Account Value minus any outstanding Policy Debt.  It will be payable in a lump sum.  Partial surrenders may have tax consequences.  The Total Face Amount may be reduced in connection with a partial surrender depending on the then current risk status of the Insured.  The Insured may provide evidence of insurability. The Total Face Amount will not be reduced if the Insured remains an acceptable risk under our then current underwriting standards.  If evidence is not provided or the Insured is not an acceptable risk, the Total Face Amount will be reduced to the extent necessary so that the Net Amount at Risk after the partial surrender does not exceed the Net Amount at Risk before the surrender.

You may allocate a partial surrender among the Investment Options.  If you do not specify the allocation, then we will allocate the partial surrender among the Investment Options in the same proportion that the Account Value attributable to each Investment Option bears to the total Account Value less the Loan Account immediately prior to the partial surrender.  A partial surrender will be allocated to a Sub-Account at the Unit Value of that Sub-Account next determined after receipt of the partial withdrawal request.

Policy Loans.  Using the Policy as collateral, You may request a policy loan of your Account Value, decreased by the balance of any outstanding Policy Debt on the date the policy loan is made and by the projected deductions due to the next Policy Anniversary.  We will transfer Account Value equal to the amount of the policy loan from the Investment Options to the Loan Account on the date the policy loan is made.  Amounts in the Loan Account accrue interest daily at an effective annual rate of 3%.

You may allocate the policy loan among the Investment Options.  If You do not specify the allocation, then we will allocate the policy loan among the Investment Options in the same proportion that the Account Value attributable to each Investment Option bears to the total Account Value less the Loan Account immediately prior to the policy loan.

Interest on the policy loan will accrue daily at an annual rate of 4% in Policy Years 1 through 10 and 3.0% thereafter.  This interest will be due and payable to us in arrears on each Policy Anniversary.  Any unpaid interest will be added to the principal amount as an additional policy loan and will bear interest at the same rate and in the same manner as the prior policy loan.

The Cash Surrender Value and the Policy Proceeds are reduced by the amount of any outstanding Policy Debt.

All amounts paid by You that we receive will be credited to the Policy as premium unless we have received acceptable notice that the funds are to be applied to repay a policy loan.  It is generally advantageous to repay a loan rather than to make a premium payment, because premium payments incur expense charges but loan repayments do not.  Loan repayments will first reduce the outstanding balance of the policy loan and then accrued but unpaid interest on such loans.  We will accept repayment of any policy loan at any time while the Policy is in force.  The amount of the loan repayment up to the outstanding balance of the policy loan will be transferred from the Loan Account to the Investment Options.  You may allocate the loan repayment among the Investment Options.  If You do not specify the allocation, then we will allocate the loan repayment among the Investment Options in the same proportion that the Account Value attributable to each Investment Option bears to the total Account Value minus the Loan Account immediately prior to the loan repayment.  We reserve the right to require that loan repayments, up to the amount of the loan allocated to the Fixed Account, first be allocated back to the Fixed Account.

Deferral of Payment.  We will usually pay any amount due from the Variable Account within seven days after the Valuation Date following our receipt of notice for payment or, in the case of death of the Insured, Due Proof of such death.  Payment of any amount payable from the Variable Account on death, surrender, partial surrender or policy loan may be postponed whenever-

- the New York Stock Exchange is closed, other than customary weekend and holiday closing, or trading on that exchange is otherwise restricted;

- the SEC, or other regulatory agency with jurisdiction, by order, permits postponement for the protection of policyowners; or

- an emergency exists as determined by the SEC, as a result of which disposal of securities is not reasonably practicable, or it is not reasonably practicable to determine the value of the assets of the Variable Account.

We reserve the right to defer payment of any portion of the Cash Surrender Value, policy loan or partial surrender payable from the Fixed Account for a period not exceeding six months from the date we receive your surrender or loan request.

Charges, Deductions and Refunds

Premium Expense Load.  We deduct a load from each premium payment which includes two elements.  One element covers State and Federal tax obligations.  The second element covers costs of issuing and selling the Policy, including sales commission, marketing allowance to broker-dealers, cost of printing the prospectuses and marketing materials and advertising expenses.  The costs of issuing the Policy are those that are not covered by other explicit charges, including the review of applications, processing the applications and establishing policyowner records.  To the extent the costs exceed the Premium Expense Load, the Company will use general account assets, including any profits realized from the Mortality and Expense Risk Charges and Cost of Insurance charges.  The tax element is an average of anticipated taxes and the policyowner may pay more or less than the actual tax obligations applicable to the Policy.

Currently, the Premium Expense Load for Policy Year 1 is 20% on each premium payment up to and including Target Premium, 9% in Policy Years 2-10 and 3.25% thereafter.  The Premium Expense Load on each premium payment up to and including Target Premium will not exceed 35% for Policy Year 1, 12% for Policy Years 2-10 and 5% thereafter.

For Policies with Investment Start Dates before October 3, 2011, the current Premium Expense Load for Policy Year 1 is 3.5% on each premium payment in excess of Target Premium.  For Policies with Investment Start Dates on and after October 3, 2011, the current Premium Expense Load for Policy Year 1 is 5.0% on each premium payment in excess of

Target Premium. For all Policies, the current Premium Expense Load for Policy Years 2-10 is 3.5% on each premium payment in excess of Target Premium and 3.25% thereafter.  The Premium Expense Load on each premium payment in excess of Target Premium will not exceed 5.0% in any Policy Year.

Target Premium varies based on the Specified Face Amount and the Insured’s Issue Age and sex.  We may reduce or waive the Premium Expense Load for certain group or sponsored arrangements and corporate purchasers.

Mortality and Expense Risk Charge.  We deduct a daily charge from the assets of the Variable Account for the mortality and expense risks we assume with respect to the Policy.  We may realize a profit from this charge.  This charge is based on the applicable Daily Risk Percentage, which we will from time to time determine based on our expectations of future interest, mortality experience, persistency, expenses, profit and taxes.  Expressed as an equivalent annual rate, the Daily Risk Percentage is guaranteed not to exceed 0.60% of assets.  The mortality risk we assume is that the group of lives insured under the Policies may, on average, live for shorter periods of time than we estimated.  The expense risk we assume is that our costs of issuing and administering Policies may be more than we estimated.

Monthly Expense Charge.  We deduct a flat charge at the beginning of each month for administration costs.  We will from time to time determine the applicable Monthly Expense Charge based on our expectations of future experience with respect to interest, mortality experience, persistency, expenses, profit and taxes, which will not exceed $10.00 in any Policy Month.  The Monthly Expense Charge is currently $5.00.

Monthly Face Amount Charge.  We deduct a Monthly Face Amount Charge for administration and issue costs.  The charge is based on the Specified Face Amount.  The Monthly Face Amount Charge is based on the Issue Age, sex and rating class of the Insured.  The Monthly Face Amount Charge will not exceed $0.20 per $1000 of Specified Face Amount.  The illustration provided at time of application will show your specific Monthly Face Amount Charge.

Monthly Cost of Insurance.  We deduct a Monthly Cost of Insurance charge from your Account Value to cover anticipated costs of providing insurance coverage.  We may realize a profit from this charge.

The Monthly Cost of Insurance equals the sum of (1), (2), (3) and (4) where

(1)	is the Specified Face Amount Monthly Cost of Insurance Rate (described below) multiplied by the net amount at risk divided by 1,000.  The net amount at risk equals the Base Death Benefit less the Account Value*;
(2)	is the Supplemental Insurance Face Amount Monthly Cost of Insurance Rate (described below) multiplied by the net amount at risk divided by 1,000.  The net amount at risk equals the Supplemental Insurance Death Benefit, which is the Total Death Benefit minus the Base Death Benefit*;
(3)	is the monthly rider cost for any riders which are a part of the Policy (i.e. Waiver of Monthly Deductions , Payment of Stipulated Amount;
(4)	is any Flat Extra specified in Section 1 of the Policy.

*Item (1) above is expressed algebraically as:  the Specified Face Amount Monthly Cost of Insurance rate x [Specified Face Amount Net Amount at Risk ÷ 1000].  Item (2) above is expressed algebraically as: the Supplemental Insurance Face Amount Monthly Cost of Insurance rate x [Supplemental Insurance Face Amount Net Amount at Risk ÷ 1000].

The Account Value deduction occurs first to the initial Total Face Amount and second to successive increases.

The cost of insurance deductions described above are determined separately for the initial Specified Face Amount and the Supplemental Insurance Face Amount and each increase in Specified Face Amount or Supplemental Insurance Face Amount.

The Net Amount at Risk is affected by the performance of the Sub-Accounts to which premium is allocated, the cumulative premium paid, any Policy Debt, any partial surrenders, transaction fees and periodic charges.  Monthly Cost of Insurance rates are based on the length of time the Policy has been in force, the Insured's sex (except for unisex Policies), Issue Age, Class, table rating, if any, and applicable mortality tables.  We will from time to time determine the applicable rates based on our expectations of future experience with respect to interest, mortality experience, persistency, expenses, profit and taxes.  The expenses we consider will include, but not be limited to, any additional commissions we are required to pay as a result of any additional services that a corporate purchaser specifically requests or authorizes to be provided by our agent.  Any variations will be based on uniformly applied criteria that do not discriminate unfairly against any owner.  We anticipate the cost of insurance rates for coverage under the Policy to be less than the guaranteed maximum monthly rates shown in the Policy, unless the Insured has been rated a substandard risk.  For Policies with an Investment Start Date on or before December 31, 2008, the cost of insurance rates are based on the 1980 Commissioners Standard Ordinary (“CSO”) Mortality Tables.  For Policies with an Investment Start Date on or after January 1, 2009, the cost of insurance rates are based on the 2001 Commissioners Standard Ordinary (“CSO”) Mortality Tables.  Monthly cost of insurance rates for classes of Insureds with substandard risk ratings are based on multiples of the CSO Mortality Tables described above.

Other Charges and Expenses.  We reserve the right to impose a charge for in-force illustrations, as more fully described at page 27.  We currently do not impose a charge and guarantee any charge will not exceed $25.00.  In addition, the interest charged for outstanding loans as well as the interest credited to the Loan Account is more fully described at page 24.  Lastly, a flat extra charge may apply if an Insured is a substandard risk.  A flat extra charge will not exceed $50.00 ($20.00 for Policies with Investment Start Dates before August 17, 2009) per $1000 of Specified Face Amount and Supplemental Insurance Face Amount.  It is deducted from the Account Value on a monthly basis and covers the additional mortality risks of the Insured borne by the Company.  A definition of “flat extra” is provided in the Glossary.

Directed Deductions.  You have the ability to direct from which Investment Options the Mortality and Expense Risk Charge, Monthly Expense Charge, Monthly Face Amount Charge and Monthly Cost of Insurance Charge deductions are taken.  The deductions will be allocated among the selected Investment Options in the same proportion that the Account Value attributable to each Investment Option bears to the total Account Value in all Investment Options selected.  If You do not specify the allocation, or to the extent the total Account Value in all Investment Options selected is less than the deduction, deductions will be allocated among Investment Options in the same proportion that the Account Value attributable to each Investment Option bears to the total Account Value less the Loan Account immediately prior to the deduction.

Reduction of Charges.  We reserve the right to reduce any of our charges and deductions in connection with the sale of the Policy if we expect that the sale may result in cost savings, subject to any requirements we may from time to time impose.  We may change our requirements based on experience.  We will determine the propriety and amount of any reduction.  No reduction will be unfairly discriminatory against the interests of any owner.

Termination of Policy

The Policy will terminate on the earliest of-

- the date we receive your request to surrender,

- the expiration date of the grace period due to insufficient value, or

- the date of Insured’s death.

If a reinstatement right is required by the insurance law of the state of Policy issue, the following provision applies, regardless of your Investment Start Date.  The time in which reinstatement may be requested and the amount sufficient to put the Policy in force may vary by state.  Please contact your sales representative to determine if You have a reinstatement right, the time period during which reinstatement must be elected and the amount sufficient to put the Policy in force.

Reinstatement

Before the Insured's death, we may reinstate the Policy provided that the Policy has not been surrendered and You-

-make a request for reinstatement within three years from the date of termination;

-submit satisfactory evidence of insurability to us; and

-pay an amount, as determined by us, sufficient to put the Policy in force.

An amount sufficient to put the Policy in force is:

-the monthly deductions overdue at the end of the grace period; plus

-any excess of Policy Debt over Cash Value at the end of the grace period; plus

-three times the Monthly Cost of Insurance charges applicable at the date of reinstatement; plus

-three times the Monthly Expense Charges applicable at the date of reinstatement; plus

-three times the Monthly Face Amount Charges applicable at the date of reinstatement.

Any Policy Debt at the time the Policy is terminated must be repaid at time of reinstatement or carried over to the reinstated Policy.

Other Policy Provisions

Alteration.  Our sales representatives do not have the authority to either alter or modify the Policy or to waive any of its provisions.  The only persons with this authority are our president, actuary, secretary or one of our vice presidents.

Assignments.  During the lifetime of the Insured, You may assign all or some of your rights under the Policy.  All assignments must be filed at our Principal Office and must be in a form satisfactory to us.  The assignment will then be effective as of the date You signed the form, subject to any action taken before it was recorded by us at our Principal Office.  We are not responsible for the validity or legal effect of any assignment.  Neither the Policy nor any of your rights or those of a beneficiary may be assigned or transferred without our permission.

Owner and Beneficiary.  The owner has the sole and absolute power to exercise all rights and privileges under the Policy without the consent of any other person unless you provide otherwise by written notice.  The beneficiary has no rights under the Policy until the death of the Insured.  A beneficiary is any person or entity, named in our records as the proper recipient of the Policy Proceeds.  You may change beneficiary by sending notice in a form satisfactory to us.  If there is no beneficiary living when the Insured dies, we will pay the Policy Proceeds under the Policy to you.  If you are also the Insured, the Policy Proceeds will be paid to your estate.

Reports to Owners.  We will send you a report at least once each Policy Year.  The report will show current policy values, premiums paid and deductions made since the last report.  It will also show the balance of any Policy Debt.  Additionally, confirmations of individual transactions (e.g. premium payments, allocations, transfers) in the Policy will be sent at the time of the transaction.

Illustrations.  Upon request, we will provide you with a hypothetical illustration of future Account Value and Death Benefits.  Currently, we do not charge for the illustration but reserve the right to do so.  Any fee will not exceed $25.00.

Misstatement of Age or Sex.  If the age or sex (unless a unisex Policy) of the Insured is stated incorrectly in the Policy application, the amounts payable by us will be adjusted.

     Misstatement discovered at death-The Death Benefit will be recalculated to that which would be purchased by the most recently charged Monthly Cost of Insurance rate for the correct age or sex (unless a unisex Policy).

     Misstatement discovered prior to death-The Account Value will be recalculated from the Issue Date using the Monthly Cost of Insurance rates based on the correct age or sex (unless a unisex Policy).

Suicide.  If the Insured commits suicide within two years after the Investment Start Date, We will not pay any part of the Policy Proceeds.  We will refund to You the Premiums paid, less the amount of any Policy Debt and less any Partial Surrenders.

Incontestability.  All statements made in the application or in a supplemental application are representations and not warranties.  We will rely on these statements when approving the issuance, increase in total face amount, increase in Death Benefit over premium paid, reinstatement, or change in death benefit option of the Policy.  No statement can be used by us in defense of a claim unless the statement was made in the application or in a supplemental application andwas a material misrepresentation.  In the absence of fraud, after a Policy has been in force during the lifetime of the Insured for a period of two years from its Investment Start Date, we cannot contest it except for non-payment of premiums.  However, any increase in the Total Face Amount which is effective after the Issue Date will be incontestable only after the increase has been in force during the lifetime of the Insured for two years from the effective date of coverage of the increase.  Any increase in Death Benefit over premium paid or increase in Death Benefit due to a death benefit option change will be incontestable only after such increase has been in force during the lifetime of the Insured for two years from the date of the increase.  Further, any reinstatement will be incontestable after the reinstated policy has been in force during the lifetime of the Insured for two years from the effective date of reinstatement.

Addition, Deletion or Substitution of Investments.  Shares of any or all of the Funds may not always be available for purchase by the Sub-Accounts of the Variable Account or we may decide that further investment in any such shares is no longer appropriate.  In either event, shares of other registered open-end investment companies or unit investment trusts may be substituted both for Fund shares already purchased by the Variable Account and/or as the security to be purchased in the future, provided that these substitutions have been approved by the SEC.  In addition, the investment policies of the Variable Account will not be changed without the approval of the Insurance Commissioner of the State of Delaware.   We also reserve the right to eliminate or combine existing Sub-Accounts or to transfer assets between Sub-Accounts, subject to the approval of the Securities and Exchange Commission.  In the event of any substitution or other act described above, we may make appropriate amendment to the Policy to reflect the substitution.

Nonparticipating.  The Policy does not pay dividends.  The Policy does not share in our profits or surplus earnings.

Modification.  Upon notice to You, we may modify the Policy if that modification-

- is necessary to make the Policy, the Variable Account or the Fixed Account comply with any law or regulation issued by a governmental agency to which we are subject;

- is necessary to assure continued qualification of the Policy under the Internal Revenue Code or other federal or state laws as a life insurance policy;

- is necessary to reflect a change in the operation of the Variable Account or the Sub-Accounts; or

- adds, deletes or otherwise changes Investment Options.

When required, approval of the Securities and Exchange Commission will be obtained.  We also reserve the right to modify certain provisions of the Policy as stated in those provisions.  In the event of any such modification, we may make appropriate amendment to the Policy to reflect the modification.

Entire Contract.  Your entire contract with us consists of the Policy, the application(s), any riders, any endorsements and any other attachments.  Any hypothetical illustrations prepared in connection with the Policy do not form a part of our contract with you and are intended solely to provide information about possible future performance, based solely upon data available at the time such illustrations are prepared.

Voting Rights

We will vote shares of the Funds held in the Variable Account in accordance with instructions received from policyowners having interests in the corresponding Sub-Accounts, to the extent required by law.  We will provide each policyowner who has interests in a Sub-Account with the proxy materials of the corresponding Fund, together with an appropriate form for the policyowner to submit its voting instructions to us.  We will vote shares for which we receive no timely instructions, together with shares not attributable to any Policy, in the same proportion as those shares held by the Sub-Account for which we receive instructions.  As a result of proportional voting, the instructions of a small number of policyowners could determine the outcome of a proposal subject to shareholder vote.

We will determine the number of shares for which you are entitled to provide voting instructions as of the record date established for the applicable Fund.  This number is determined by dividing your Account Value in the Sub-Account, if any, by the net asset value of one share in the corresponding Fund. We may, if required by state insurance regulators, disregard voting instructions if the instructions require shares to be voted to cause a change in the subclassification or investment objective of one or more of the Funds, or to approve or disapprove an investment advisory contract for a Fund.  In addition, we may disregard voting instructions in favor of any change in the investment policies or in any investment adviser or principal underwriter of a Fund.  Our disapproval of any such change must be reasonable and, in the case of change in investment policies or investment adviser, based on a good faith determination that the change would be contrary to state law or otherwise inappropriate in light of the objectives and purposes of the Fund.  If we disregard voting instructions, we will include a summary of and the reasons for that action in our next periodic report to policyowners.

We reserve the right to vote shares held in the Variable Account in our own right, if permitted by applicable law.

Distribution of Policy

The Policy is offered on a continuous basis.  The Policy is sold by licensed insurance agents ("Selling Agents") in those states where the Policy may be lawfully sold.  Such Selling Agents will be registered representatives of affiliated and unaffiliated broker-dealer firms ("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 the Company and our general distributor, Clarendon Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley Hills, Massachusetts  02481.  Clarendon is a wholly-owned subsidiary of the Company, is registered with the SEC under the Securities Exchange Act of 1934 and is a member of FINRA.

The Company (or its affiliates, for the purposes of this section only, collectively, "the Company"), pays the Selling Broker-Dealers compensation for sale of the Policy.  The Selling Agents who solicit sales of the Policy typically receive a portion of the compensation paid by the Company 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 Policy Owner or the Variable Account.  The Company intends to recoup this compensation through fees and charges imposed under the Policy, and from profits on payments received by the Company for providing administrative, marketing, and other support and services to the Funds.  The amount and timing of commissions the Company may pay to Selling Broker-Dealers is not expected to be more than 70% of premium paid in the first Policy Year and 20% per annum of premium paid in Policy Years two and after.  We may also pay a commission of-

- up to 0.15% per annum of Account Value for Policy Years one through twenty; and

- up to 0.10% per annum of Account Value thereafter.

We may also pay up to an additional 0.15% per annum of Account Value to broker-dealers who provide additional services specifically requested or authorized by corporate purchasers.  The Company 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, in some cases, payments to affiliates of the Company such as Sun Life Financial Distributors, Inc., 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 premium, a percentage of Account Value and/or may be a fixed dollar amount.

In addition to the compensation described above, the Company may make additional cash payments (in certain circumstances referred to as “override” compensation) or reimbursements to Selling Broker-Dealers in recognition of their marketing and distribution, transaction processing and/or administrative services support.  These payments are not offered to all Selling Broker-Dealers, and the terms of any particular agreement governing the payments may vary among Selling Broker-Dealers depending on, among other things, the level of and type of marketing and distribution support provided.  Marketing and distribution support services may include, among other services, placement of the Company's products on the Selling Broker-Dealer's preferred or recommended list, access to the Selling Broker- Dealer's registered representatives for purposes of promoting sales of the Company's products, assistance in training and education for the Selling Agents, and opportunities for the Company to participate in sales conferences and educational seminars. The payments or reimbursements may be calculated as a percentage of the particular Selling Broker-Dealers actual or expected aggregate sales of our variable policies (including the Policy) or assets held within those policies and/or may be a fixed dollar amount.  Broker-dealers receiving these additional payments may pass on some or all of the payments to the Selling Agent.  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 Policies over other variable life policies (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 Policies.

In addition to selling our variable policies (including the Policy), 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 policy 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 Selling Broker-Dealer may receive numerous forms of payments that, directly or indirectly, provide incentives to, and otherwise facilitate and encourage the offer and sale of the Policies by Selling Broker-Dealers and their registered representatives.  Such payments may be significantly greater or less in connection with the Policies than in connection with other products offered and sold by the Company or by others.  Accordingly, the payments described above may create a potential conflict of interest, as they may influence your Selling Broker-Dealer or registered representative to present a Policy 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 the Policy.

During 2009, 2010 and 2011, commissions were paid of $2,400,031, $5,761,735 and $3,918,742 respectively and Clarendon did not retain any commissions in connection with the distribution of the Policies.

Federal Income Tax Considerations

The following is a summary of our understanding of current federal income tax laws and is not intended as tax advice.  You should be aware that Congress has the power to enact legislation affecting the tax treatment of life insurance contracts which could be applied retroactively.  New judicial or administrative interpretation of federal income tax law may also affect the tax treatment of life insurance contracts. The Internal Revenue Code of 1986, as amended (the “Code”), is not in force in the Commonwealth of Puerto Rico but certain residents of Puerto Rico may be subject to the Code’s income tax provisions. Thus, this summary will apply to their Policies.  For those residents not subject to such Code provisions, (1) some references in this summary will not apply to their Policies and (2) due to IRS Rev. Rul. 2004-75, as amplified by Rev. Rul. 2004-97, we will treat Puerto Rico Policy distributions and withdrawals occurring on and after January 1, 2005 as U.S.-source income that is subject to U.S. income tax withholding and reporting.

Any person contemplating the purchase of a Policy or any transaction involving a Policy should consult a qualified tax adviser.  We do not make any representation or provide any guarantee regarding the federal, state or local tax treatment of any Policy or any transaction involving a Policy.

Our Tax Status

We are taxed as a life insurance company under Subchapter L of the Code.  Although we account for the operations of the Variable Account separately from our other operations for purposes of federal income taxation, the Variable Account currently is not separately taxable as a regulated investment company or other taxable entity.

Taxes we pay, or reserve for, that are attributable to the earnings of the Variable Account could affect the Net Investment Factor, which in turn affects your Account Value.  Under existing federal income tax law, however, the income (consisting primarily of interest, dividends and net capital gains) of the Variable Account, to the extent applied to increase reserves under the Policy, is not taxable to us.  Similarly, no state or local income taxes are currently attributable to the earnings of the Variable Account.  Therefore, we do not take any federal, state or local taxes into account when determining the Net Investment Factor.  We may take taxes into account when determining the Net Investment Factor in future years if, due to a change in law, our tax status or otherwise, such taxes are attributable to the earnings of the Variable Account.

In calculating our corporate income tax liability, we derive certain corporate income tax benefits associated with the investment of company assets, including separate account assets that are treated as company assets under applicable income tax law.  These benefits, which reduce our overall corporate income tax liability, may include dividends received deductions and foreign tax credits which can be material.  We do not pass these benefits through to the Variable Account, principally because:  (i) the great bulk of the benefits results from the dividends received deduction, which involves no reduction in the dollar amount of dividends that the Variable Account receives and (ii) under applicable income tax law, policyowners are not the owners of the assets generating the benefits.

Taxation of Policy Proceeds

Section 7702 of the Code provides certain tests for whether a policy will be treated as a “life insurance contract” for tax purposes.  Provided that the policyowner of the Policy has an insurable interest in the Insured, we believe that the Policy meets these tests, and thus should receive the same federal income tax treatment as a fixed life insurance contract.  As such, the Death Benefit under the Policy will generally be eligible for exclusion from the gross income of the beneficiary under Section 101 of the Code, and the policyowner will not be deemed to be in constructive receipt of the increases in Cash Surrender Values, including additions attributable to interest, dividends, appreciation or gains realized upon transfers among the Sub-Accounts and the Fixed Account, until actual receipt thereof.

However, You may be taxed on all of the accumulated income under the Policy on its maturity date and there can be no assurance that an election to extend the maturity date of the Policy will avoid that result.  In addition, a corporate owner may be subject to alternative minimum tax on the annual increases in Cash Surrender Values and on the portion of the Death Benefit under the Policy that exceeds its Cash Surrender Value.

To qualify as a life insurance contract under Section 7702, the Policy must satisfy certain actuarial requirements.  Section 7702 requires that actuarial calculations be based on mortality charges that meet the “reasonable mortality charge” requirements set forth in the Code, and other charges reasonably expected to be actually paid that are specified in the Policy.  The law relating to reasonableness standards for mortality and other charges is based on statutory language and certain IRS pronouncements that do not address all relevant issues.  Accordingly, although we believe that the mortality and other charges that are used in the calculations (including those used with respect to Policies issued to so-called “sub-standard risks”) meet the applicable requirements, we cannot be certain.  It is possible that future regulations will contain standards that would require us to modify the mortality and other charges used in the calculations, and we reserve the right to make any such modifications.

IRS Notice 2006-95 provides special guidance concerning the “reasonable mortality charge” requirements for certain changes made in 2009 or later to Policies with Investment Start Dates prior to 2009 based on 1980 Commissioners Standard Ordinary (CSO) Mortality Tables.  The Notice provides a safe harbor which would not require such changes to cause a pre-2009 Policy to become subject to the 2001 CSO mortality tables for purposes of Section 7702 of the Code.  If we determine that the safe harbor does not include a particular change, we will not permit You to make such change since to do so could cause your Policy to not qualify as life insurance under Section 7702.  Before requesting a change under a pre-2009 Policy, you should consult with a qualified tax advisor on the potential impact of IRS Notice 2006-95.

For a variable contract like the Policy to qualify as life insurance for federal income tax purposes, it also must comply with the investment diversification rules found in Section 817 of the Code.  We believe that the Variable Account complies with the diversification requirements prescribed by Section 1.817-5 of the Treasury Regulations.  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 in those assets, such as the ability to exercise control over the investment of the assets.  In Rev. Rul. 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.

Rev. Rul. 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 Policy and the contracts described in Rev. Rul. 2003-91 with respect to the number of investment choices and the ability to transfer among investment choices should prevent the holding in Rev. Rul. 2003-91 from applying.  Nevertheless, You should consult with a qualified tax adviser on the potential impact of the “owner control” rules of the IRS as they relate to the investment decisions and activities You may undertake with respect to the Policy.

The guidelines in Rev. Rul. 2003-91 do not address the treatment of a policyholder which is, or which is affiliated with, an investment manager.  Any investment manager or affiliate who purchases a Policy assumes the risk that it may be treated as the owner of the investments underlying the Policy under the "owner control" rules because of the investment manager's control over assets held under the Policy.  However, because the diversification rules would permit an investment manager (or its affiliate) to hold a direct investment in an investment option under the Policy, we do not believe that the application of the "owner control" rules to an investment manager (or its affiliate) should affect You.

In the future, the IRS and/or the Treasury Department may issue new rulings, interpretations or regulations on this subject.  Accordingly, we reserve the right to modify the Policy as necessary to attempt to prevent You from being considered the owner, for tax purposes, of the underlying assets.  We also reserve the right to notify You if we determine that it is no longer practicable to maintain the Policy in a manner that was designed to prevent You from being considered the owner of the assets of the Separate Account.  You bear the risk that You may be treated as the owner of Separate Account assets and taxed accordingly.

The tax consequences of distributions from, and loans taken from or secured by, a Policy depend on whether the Policy is classified as a Modified Endowment Contract under Section 7702A of the Code.  Due to the flexibility of the payment of premiums and other rights You have under the Policy, classification of the Policy as a Modified Endowment Contract will depend upon the individual operation of each Policy.  A Policy is a Modified Endowment Contract if the aggregate amount paid under the Policy at any time during the first seven Policy Years exceeds the sum of the net level premiums that would have been paid on or before such time if the Policy provided for paid up future benefits after the payment of seven level annual premiums.  If there is a reduction in benefits during the first seven Policy Years, the foregoing computation is made as if the Policy originally had been issued at the reduced benefit level.  If there is a “material change” to the Policy, the seven year testing period for Modified Endowment Contract status is restarted.  A life insurance contract received in exchange for a Modified Endowment Contract also will be treated as a Modified Endowment Contract.  We have undertaken measures to prevent payment of a premium from inadvertently causing the Policy to become a Modified Endowment Contract.  In general, You should consult a qualified tax adviser before undertaking any transaction involving the Policy to determine whether such a transaction would cause the Policy to become a Modified Endowment Contract.

If a Policy is not a Modified Endowment Contract, cash distributions from the Policy are treated first as a nontaxable return of the owner’s Investment in the Policy (as defined below) and then as a distribution of the income earned under the Policy, which is subject to ordinary income tax.  (An exception to this general rule occurs when a cash distribution is made in connection with certain reductions in the death benefit under the Policy in the first fifteen contract years.  Such a cash distribution is taxed in whole or in part as ordinary income.)  Loans from, or secured by, a Policy that is not a Modified Endowment Contract generally are treated as bona fide indebtedness, and thus are not included in the owner’s gross income.

If a Policy is a Modified Endowment Contract, distributions from the Policy are treated as ordinary income subject to ordinary income tax up to the amount equal to the excess of the Account Value (which includes unpaid policy loans) immediately before the distribution over the Investment in the Policy (as defined below).  Loans taken from, or secured by, such a Policy, as well as due but unpaid interest thereon, are taxed in the same manner as distributions from the Policy.  A 10% additional tax is imposed on the portion of any distribution from, or loan taken from or secured by, a Modified Endowment Contract that is included in income except when the distribution or loan is made on or after the owner attains age 59 1/2, is attributable to the policyowner’s becoming disabled, or is part of a series of substantially equal periodic payments for the life (or life expectancy) of the policyowner or the joint lives (or joint life expectancies ) of the policyowner and the policyowner’s Beneficiary.  These exceptions are not likely to apply where the Policy is not owned by an individual (or held in trust for an individual).  For purposes of the computations described in this paragraph, all Modified Endowment Contracts issued by us to the same policyowner during any calendar year are treated as one Modified Endowment Contract.

There are substantial limits on the deductibility of policy loan interest on a federal income tax return.  You should consult a qualified tax adviser regarding such deductions.

Upon the complete maturity, surrender or lapse of the Policy, the amount by which the sum of the Policy’s Cash Surrender Value and any unpaid Policy Debt exceeds the policyowner’s Investment in the Policy (as defined below) is treated as ordinary income subject to tax and, if the Policy is a Modified Endowment Contract, the 10% additional tax discussed above may also apply.  Any loss incurred upon surrender generally is not deductible.  Any corporation that is subject to the alternative minimum tax will also have to make a separate computation of the Investment in the Policy and the gain resulting from the maturity of the Policy, or a surrender or lapse of the Policy for purposes of that tax.

The term “Investment in the Policy” means-

- the aggregate amount of any premiums or other consideration paid for a Policy, minus

- the aggregate amount received under the Policy which is excluded from the policyowner’s gross income (other than loan amounts), plus

- the amount of any loan from, or secured by, the Policy that is a Modified Endowment Contract (as defined above) to the extent that such amount is included in the policyowner’s gross income.

The “Investment in the Policy” is increased by any unpaid Policy Debt on a Policy that is a Modified Endowment Contract in order to prevent double taxation of income.  Since the Policy Debt was treated as a taxable distribution at the time the Policy Debt was incurred, the failure to increase the “Investment in the Policy” by the Policy Debt would cause such amount to be taxed again upon a Policy surrender or lapse.

The amount realized that is taken into account in computing the gain on the complete surrender or lapse of a Policy will include any unpaid Policy Debt on a Policy that is a Modified Endowment Contract even though that amount has already been treated as a taxable distribution.

If a Policy is not a Modified Endowment Contract, then the Investment in the Policy is not affected by the receipt of a loan from, or secured by a Policy.

Whether or not the Policy is a Modified Endowment Contract, however, no payment of the principal of, or the interest due under, any loan from or secured by a Policy will affect the amount of the Investment in the Policy.

A policyowner generally will not recognize gain upon the exchange of the Policy for another life insurance policy issued by us or another insurance company, except to the extent that the policyowner receives cash in the exchange or is relieved of policy indebtedness as a result of the exchange.  In no event will the gain recognized exceed the amount by which the Policy’s Account Value (which includes unpaid policy loans) exceeds the policyowner’s Investment in the Policy.

A transfer of the Policy, a change in the policyowner, a change in the beneficiary, certain other changes to the Policy and particular uses of the Policy (including use in a so called “split-dollar” arrangement) may have tax consequences depending upon the particular circumstances and should not be undertaken prior to consulting with a qualified tax adviser.  For instance, if you transfer the Policy or designate a new policyowner in return for valuable consideration (or, in some cases, if the transferor is relieved of a liability as a result of the transfer), then the Death Benefit payable upon the death of the Insured may in certain circumstances be includible in your taxable income to the extent that the Death Benefit exceeds the prior consideration paid for the transfer and any premiums and other amounts paid later by the transferee.  Further, in such a case, if the consideration received exceeds your Investment in the Policy, the difference will be taxed to You as ordinary income.

The Code denies the income tax-free treatment of death benefits payable under an employer-owned life insurance contract unless certain notice and consent requirements are met and either (1) certain rules relating to the insured employee’s status are satisfied or (2) certain rules relating to the payment of the amount received under the contract to, or for the benefit of, certain beneficiaries or successors of the insured employee are satisfied.  These rules apply to life insurance contracts owned by corporations (including S corporations), individual sole proprietors, estates and trusts and partnerships that are engaged in a trade or business.  Any business contemplating the purchase of a Policy on the life of an employee should consult with its legal and tax advisors regarding the applicability of these Code provisions to the proposed purchase.

A tax adviser should also be consulted with respect to the Treasury’s split dollar regulations if You have purchased or are considering the purchase of a Policy for a split dollar insurance plan.  Any business contemplating the purchase of a new life insurance contract or a change in an existing contract should consult a tax adviser.  There may also be an indirect tax upon the income in the Policy or the proceeds of a Policy under the federal corporate alternative minimum tax, if the policyowner is subject to that tax.

Federal, as well as state and local, estate, inheritance and other tax consequences of ownership or receipt of Policy Proceeds will depend on your individual circumstances and those of the beneficiary.

Withholding

We will withhold and remit to the U.S. Government a part of the taxable portion of each distribution unless, prior to the distribution, the Owner provides us his or her taxpayer identification number and instructs us (in the manner prescribed) not to withhold.  The Owner may credit against his or her federal income tax liability for the year of distribution any amounts that we withhold.

Tax Return Disclosure

We believe that the purchase of a Policy is not currently subject to the income tax return disclosure requirements of Code Section 6011 and Treasury Regulation Section 1.6011-4.  However, it is your responsibility, in consultation with your tax and legal counsel and advisers, to make your own determination as to the applicability of the disclosure requirements of Code Section 6011 and Treasury Regulation Section 1.6011-4 to your federal income tax return.

Under Code Section 6111 and Temporary Treasury Regulation Section 301.6111-1T, we are required to register with the IRS any offerings or sales of Policies that are considered tax shelters.  We believe that registration would not be required under current regulations with respect to sales of the offering or sale of a Policy.

We believe that the customer list requirements of Code Section 6112 and Treasury Regulation Section 301.6112-1 are not currently applicable to such offerings and sales.

Other Information

State Regulation

We are subject to the laws of Delaware governing life insurance companies and to regulation by Delaware's Commissioner of Insurance, whose agents periodically conduct an examination of our financial condition and business operations.  We are also subject to the insurance laws and regulations of the jurisdictions in which we are authorized to do business.

We are required to file an annual statement with the insurance regulatory authority of those jurisdictions where we are authorized to do business relating to our business operations and financial condition as of December 31st of the preceding year.

Legal Proceedings

We, like other insurance companies, are involved in lawsuits, including class action lawsuits.  Although the outcome of any litigation cannot be predicted with certainty, we believe that, at the present time, there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the Variable Account, on the ability of Clarendon Insurance Agency, Inc. to perform under its principal underwriting agreement, or on our ability to meet our obligations under the Policies.

Experts

Actuarial matters concerning the Policy have been examined by Philip Johnson, FSA, MAAA, Assistant Vice President.

Registration Statements

This prospectus is part of a registration statement that has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the Policy.  It does not contain all of the information set forth in the registration statement and the exhibits filed as part of the registration statement.  You may refer to the registration statement for additional information about us, the Variable Account, the underlying Funds and the Policy.

Financial Statements

Our financial statements, provided in the Statement of Additional Information, should be considered only as bearing on our ability to meet our obligations with respect to the death benefit and our assumption of the mortality and expense risks.  They should not be considered as bearing on the investment performance of the Variable Account or shares of any Fund held in the Variable Account.  Instructions on how to obtain the Statement of Additional Information are provided on the last page of this prospectus.

Appendix A

Glossary of Policy Terms

Account Value-The sum of the amounts in each Sub-Account of the Variable Account, the Fixed Account and the amount of the Loan Account.  Account Value does not include Policy Debt.  Policy Debt, which includes the amount of loans and interest charged, is not deducted from Account Value.  It is reflected in the amounts received upon surrender or payment of Policy Proceeds.  It is also reflected in the amount of total Account Value that may be borrowed against.

Anniversary-The same day in each succeeding year as the day of the year corresponding to the Issue Date.

Attained Age-The Insured's Issue Age plus the number of completed Policy Years.

Base Death Benefit-The death benefit under the Policy, exclusive of any Supplemental Insurance Death Benefit or any other supplemental benefits.

Business Day-Any day that we are open for business.

Cash Surrender Value-The Gross Cash Surrender Value less the balance of any outstanding Policy Debt.

Class-The risk, underwriting, and substandard table rating, if any, classification of the Insured.

Daily Risk Percentage-The applicable daily rate for deduction of the mortality and expense risk charge.

Death Benefit-The sum of the Base Death Benefit and any Supplemental Insurance Death Benefit.  For purposes of calculating the Death Benefit, the Account Value will be increased by the value provided by the Enhancement Benefit.

Death Benefit Percentage-A percentage prescribed by the Internal Revenue Code to insure the death benefit provided under the Policy meets the definition of  “life insurance” under the Internal Revenue Code.

Due Proof-Such evidence as we may reasonably require in order to establish that Policy Proceeds are due and payable.  Generally, evidence will consist of the Insured’s death certificate.

Fixed Account-The portion of the Account Value funded by assets invested in our General Account.

Flat Extra-An additional charge imposed if the Insured is a substandard risk.  It is a flat dollar charge per $1000 of Specified Face Amount and any Supplemental Insurance Face Amount.

Fund-A mutual fund in which a Sub-Account invests.

General Account-The assets held by us other than those allocated to the Sub-Accounts of the Variable Account or any of our other separate accounts.

Gross Cash Surrender Value-The Account Value increased by any Enhancement Benefit.

Initial Premium-The amount necessary to put the coverage in force.  It is generally an amount sufficient to keep the Policy in force for three months.

Insured-The person on whose life the Policy is issued.

Investment Option-The Fixed Account and any of the Sub-Accounts of the Variable Account.

Investment Start Date-The date the first premium is applied, which will be the later of

- the Issue Date or

- the Business Day we approve the application for a Policy.

Issue Age-The Insured's age as of the Insured's birthday nearest the Issue Date.

Issue Date-The date specified in the Policy, from which Policy Anniversaries, Policy Years and Policy Months are measured.

Loan Account-An account established for the Policy, the value of which is the principal amount of any outstanding loan against the Policy, plus credited interest thereon.

Monthly Anniversary Day-The same day in each succeeding month as the day of the month corresponding to the Issue Date.

Monthly Cost of Insurance-A deduction made on a monthly basis for the Specified Face Amount, any Supplemental Insurance Face Amount and additional benefits provided by rider.

Monthly Expense Charge-A per Policy deduction made on a monthly basis for administration costs.

Monthly Face Amount Charge-A monthly deduction, based on the Specified Face Amount, for administration and issue costs.

Net Premium-The amount you pay as the premium minus the Premium Expense Load.

Policy-The form issued by Sun Life Assurance Company of Canada (U.S.) which evidences the insurance coverage provided and is a contract between the policyowner and the Company.

Policy Debt-The principal amount of any outstanding loans against the Policy, plus accrued but unpaid interest on such loans.

Policy Month-A one-month period commencing on the Issue Date or any Monthly Anniversary Day and ending on the next Monthly Anniversary Day.

Policy Proceeds-The amount determined in accordance with the terms of the Policy that is payable at the death of the Insured.

Policy Year-A one-year period commencing on the Issue Date or any Anniversary and ending on the next Anniversary.

Premium Expense Load-The percentage charge applied to premium.It includes two elements.  One element is for state and federal tax obligations and the other element is a sales load to cover costs related to policy issuance.

Principal Office-One Sun Life Executive Park, Wellesley Hills, Massachusetts, 02481, or such other address as We may hereafter specify to You by written notice.

SEC-Securities and Exchange Commission.

Specified Face Amount-The amount of life insurance coverage you request, as specified in the Policy.

Sub-Accounts-Sub-Accounts into which the assets of the Variable Account are divided, each of which corresponds to an investment choice available to you.

Supplemental Insurance Death Benefit-The death benefit associated with the Supplemental Insurance Face Amount.

Supplemental Insurance Face Amount-The amount of additional life insurance coverage you request as specified in the Policy.

Target Premium-An amount of premium specified as such in the Policy, used to determine our Premium Expense Load deductions.

Target Premium Factor-Factors that are approximately equal to the Seven Pay Premium factors referenced in the Internal Revenue Code.

Total Face Amount-The sum of the Specified Face Amount and Supplemental Insurance Face Amount.

Unit-A unit of measurement that we use to calculate the value of each Sub-Account.

Unit Value-The value of each Unit of assets in a Sub-Account.

Valuation Date-A day that the New York Stock Exchange is open for business.  We will determine Unit Values for each Valuation Date as of the close of the New York Stock Exchange on that Valuation Date.

Valuation Period-The period of time from one Valuation Date to the next Valuation Date.

Variable Account-Sun Life of Canada (U.S.) Variable Account I, one of our separate accounts, established for the purpose of funding variable insurance benefits payable under the Policy.

You-is the owner of the Policy.

Appendix B

PRIVACY POLICY

Introduction

At the Sun Life Financial group of companies,1 protecting your privacy is important to us.  Whether you are an existing customer or considering a relationship with us, we recognize that you have an interest in how we may collect, use and share information about you.

Sun Life Financial has a long tradition of safeguarding the privacy of its customers’ information. We understand and appreciate the trust and confidence you place in us, and we take seriously our obligation to maintain the confidentiality and security of your personal information.

We invite you to review this Privacy Policy which outlines how we use and protect that information.

Collection of Nonpublic Personal Information by Sun Life Financial

Collecting personal information from you is essential to our ability to offer you high-quality investment, retirement and insurance products.  When you apply for a product or service from us, we need to obtain information from you to determine whether we can provide it to you.  As part of that process, we may collect information about you, known as nonpublic personal information, from the following sources:

· Information we receive from you on applications or other forms, such as your name, address, social security number and date of birth;

· Information about your transactions with us, our affiliates or others, such as other life insurance policies or annuities that you may own; and

·  Information we receive from a consumer reporting agency, such as a credit report.

Limited Use and Sharing of Nonpublic Personal Information by Sun Life Financial

We use the nonpublic personal information we collect to help us provide the products and services you have requested and to maintain and service your accounts.  Once we obtain nonpublic personal information from you, we do not disclose it to any third party except as permitted or required by law.

We may share your nonpublic personal information within Sun Life Financial to help us develop innovative financial products and services and to allow our member companies to inform you about them.  The Sun Life Financial group of companies provides a wide variety of financial products and services including individual life insurance, individual fixed and variable annuities and group life, disability, dental and medical stop-loss insurance.

We also may disclose your nonpublic personal information to companies that help in conducting our business or perform services on our behalf, or to other financial institutions with which we have joint marketing agreements.  Sun Life Financial is highly selective in choosing these companies, and we require them to comply with strict standards regarding the security and confidentiality of our customers’ nonpublic personal information.  These companies may use and disclose the information provided to them only for the purpose for which it is provided, as permitted by law.

There also may be times when Sun Life Financial is required to disclose its customers’ nonpublic personal information, such as when complying with federal, state or local laws, when responding to a subpoena, or when complying with an inquiry by a governmental agency or regulator.

Our Treatment of Information About Former Customers

Our protection of your nonpublic personal information extends beyond the period of your customer relationship with us.  If your customer relationship with us ends, we will not disclose your information to nonaffiliated third parties other than as permitted or required by law.

Security of Your Nonpublic Personal Information

We maintain physical, electronic and procedural safeguards that comply with federal and state regulations to safeguard your nonpublic personal information from unauthorized use or improper access.

Employee Access to Your Nonpublic Personal Information

We restrict access to your nonpublic personal information to those employees who have a business need to know that information in order to provide products or services to you or to maintain your accounts.  Our employees are governed by a strict code of conduct and are required to maintain the confidentiality of customer information.

Questions

Questions about this Privacy Policy may be directed to SLF_US_Privacy@sunlife.com.

 

1This notice applies to all Sun Life Financial companies and branches operating in the United States other than those that have adopted their own privacy policies.  Massachusetts Financial Services Company, Professional Insurance Company and California Benefits Dental Plan have each adopted their own separate privacy policies.

The SAI includes additional information about Sun Life of Canada (U.S.) Variable Account I and is incorporated herein by reference.  The SAI and personalized illustrations of death benefits, cash surrender values and cash values are available upon request.  There is no charge for the SAI.  We currently do not charge for personalized illustrations but reserve the right to do so.  You may make inquiries about the Policy, request an SAI and request a personalized illustration by calling 1-800-700-6554.

You can review and copy the complete registration statement (including the SAI) which contains additional information about us, the Policy and the Variable Account at the SEC's Public Reference Room in Washington, D.C.  To find out more about this public service, call the Securities and Exchange Commission at 202-551-8090.  Reports and other information about the Policy and its mutual fund investment options are also available on the SEC's website (www.sec.gov), or you can receive copies of this information, for a duplication fee, by writing the Public Reference Section, Securities and Exchange Commission, 100 F Street, NE, Washington, D.C.  20549.

Securities Act of 1933 File No. 333-143353

Investment Company Act File No. 811-09137

PART B

STATEMENT OF ADDITIONAL INFORMATION

SUN EXECUTIVE

VARIABLE UNIVERSAL LIFE POLICY

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

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT I

May 1, 2012

This Statement of Additional Information (SAI) is not a prospectus but it relates to, and should be read in conjunction with, the Sun Executive VUL prospectus, dated May 1, 2012.  The prospectus is available, at no charge, by writing Sun Life Assurance Company of Canada (U.S.) ("the Company") at One Sun Life Executive Park, Wellesley Hills, MA  02481 or calling 1-800-700-6554.

TABLE OF CONTENTS

THE COMPANY AND THE VARIABLE ACCOUNT

CUSTODIAN

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

DISTRIBUTION AND UNDERWRITING OF POLICY

THE POLICY

FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT

FINANCIAL STATEMENTS OF THE COMPANY

THE COMPANY AND THE VARIABLE ACCOUNT

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 Assurance Company of Canada (U.S.). Sun Life Financial ultimately controls Sun Life Assurance Company of Canada (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.   Sun Life Assurance Company of Canada (U.S) is a stock life insurance company incorporated under the laws of Delaware on January 12, 1970.

We established Variable Account I on December 1, 1998, pursuant to a resolution of our Board of Directors.  The Variable Account is registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust.

CUSTODIAN

We are the Custodian of the assets of the Variable Account.  We will purchase Fund shares at net asset value in connection with amounts allocated to the Sub-Accounts in accordance with your instructions, and we will redeem Fund shares at net asset value for the purpose of meeting the contractual obligations of the Variable Account and paying charges relative to the Variable Account. The Variable Account will be fully funded at all times for the purposes of the Federal securities laws.

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 29, 2012, accompanying such financial statements expresses an unqualified opinion and includes an explanatory paragraph, referring to the Company changing its method of accounting and reporting for other-than-temporary impairments in 2009), and 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 Sun Life of Canada (U.S.) Variable Account I that are included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report, dated April 23, 2012, 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.

DISTRIBUTION AND UNDERWRITING OF THE POLICY

The Policy is offered on a continuous basis.  The Policy is sold by licensed insurance agents ("Selling Agents") in those states where the Policy may be lawfully sold.  Such Selling Agents will be registered representatives of affiliated and unaffiliated broker-dealer firms ("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 the Company and our general distributor, Clarendon Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.  Clarendon is a wholly-owned subsidiary of the Company, is registered with the SEC under the Securities Exchange Act of 1934 and is a member of FINRA.

The Company (or its affiliates, for the purposes of this section only, collectively, "the Company"), pays the Selling Broker-Dealers compensation for sale of the Policy.  The Selling Agents who solicit sales of the Policy typically receive a portion of the compensation paid by the Company 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 Policy Owner or the Variable Account.  The Company intends to recoup this compensation through fees and charges imposed under the Policy, and from profits on payments received by the Company for providing administrative, marketing, and other support and services to the Funds.  The amount and timing of commissions the Company may pay to Selling Broker-Dealers is not expected to be more than 70% of premium paid in the first Policy Year and 20% per annum of premium paid in Policy Years two and after.  We may also pay a commission of-

-up to 0.15% per annum of Account Value for Policy Years one through twenty; and

-up to 0.10% per annum of Account Value thereafter.

We may also pay up to an additional 0.15% per annum to broker-dealers who provide additional services specifically requested or authorized by corporate purchasers.  The Company 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, in some cases, payments to affiliates of the Company such as Sun Life Financial Distributors, Inc., 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 premium, a percentage of Account Value and/or may be a fixed dollar amount.

In addition to the compensation described above, the Company may make additional cash payments (in certain circumstances referred to as “override” compensation) or reimbursements to Selling Broker-Dealers in recognition of their marketing and distribution, transaction processing and/or administrative services support.  These payments are not offered to all Selling Broker-Dealers, and the terms of any particular agreement governing the payments may vary among Selling Broker-Dealers depending on, among other things, the level of and type of marketing and distribution support provided.  Marketing and distribution support services may include, among other services, placement of the Company's products on the Selling Broker-Dealer's preferred or recommended list, access to the Selling Broker-Dealer's registered representatives for purposes of promoting sales of the Company's products, assistance in training and education for the Selling Agents, and opportunities for the Company to participate in sales conferences and educational seminars. The payments or reimbursements may be calculated as a percentage of the particular Selling Broker-Dealers actual or expected aggregate sales of our variable policies (including the Policy) or assets held within those policies and/or may be a fixed dollar amount.  Broker-dealers receiving these additional payments may pass on some or all of the payments to the Selling Agent.  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 Policies over other variable life policies (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 Policies.

In addition to selling our variable policies (including the Policy), 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 policy 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 Selling Broker-Dealer may receive numerous forms of payments that, directly or indirectly, provide incentives to, and otherwise facilitate and encourage the offer and sale of the Policies by Selling Broker-Dealers and their registered representatives.  Such payments may be significantly greater or less in connection with the Policies than in connection with other products offered and sold by the Company or by others.  Accordingly, the payments described above may create a potential conflict of interest, as they may influence your Selling Broker-Dealer or registered representative to present a Policy 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 the Policy.

Total commissions paid by the Variable Account to, but not retained by, Clarendon during 2009, 2010 and 2011, were approximately $7,246,434, $10,841,790 and $7,802,022, respectively.

THE POLICY

To apply for a Policy, you must submit an application to our Service Office.  We will then follow underwriting procedures designed to determine the insurability of the proposed Insured.  We offer the Policy on a regular (or medical) underwriting, simplified underwriting, expanded guaranteed issue or guaranteed issue basis.  The proposed Insured generally must be less than 71 years old for a Policy to be issued.  For Policies underwritten on a medical or simplified basis, we may require that the proposed Insured undergo one or more medical examinations and that you provide us with such additional information as we may deem necessary, before an application is approved.  We will issue Policies on an expanded guaranteed issue or guaranteed issue basis with respect to certain groups of Insureds.  Policies issued on such basis must be pre-approved based on information you provide to us on a master application and on certain other underwriting requirements which all members of a proposed group of Insureds must meet.  Proposed Insureds must be acceptable risks based on our underwriting limits and standards.  We will not issue a Policy until the underwriting process has been completed to our satisfaction.  In addition, we reserve the right to reject an application that does not meet our underwriting requirements or to increase by no more than 500% the cost of insurance charges applicable to an Insured to cover the cost of the increased mortality risk borne by the Company.  For Policies with an Investment Start Date on or before December 31, 2008, the cost of insurance rates are based on the 1980 Commissioners Standard Ordinary (“CSO”) Mortality Tables.  For Policies with an Investment Start Date on or after January 1, 2009, the cost of insurance rates are based on the 2001 Commissioners Standard Ordinary Mortality Tables.

Premium Expense Load. We deduct a load from each premium payment which includes two elements.  One element covers State and Federal tax obligations.  The second element covers costs of issuing and selling the Policy, including sales commission, marketing allowance to broker-dealers, cost of printing the prospectuses and marketing materials and advertising expenses.  The costs of issuing the Policy are those that are not covered by other explicit charges, including the review of applications, processing the applications and establishing policyowner records.  To the extent the costs exceed the Premium Expense Load, the Company will use general account assets, including any profits realized from the Mortality and Expense Risk Charges and Cost of Insurance charges.  The tax element is an average of anticipated taxes and the policyowner may pay more or less than the actual tax obligations applicable to the Policy.

Currently, the Premium Expense Load for Policy Year 1 is 20% on each premium payment up to and including Target Premium, 9% in Policy Years 2-10 and 3.25% thereafter.  The Premium Expense Load on each premium payment up to and including Target Premium will not exceed 35% for Policy Year 1, 12% for Policy Years 2-10 and 5% thereafter.

For Policies with Investment Start Dates before October 3, 2011, the current Premium Expense Load for Policy Year 1 is 3.5% on each premium payment in excess of Target Premium.  For Policies with Investment Start Dates on and after October 3, 2011, the current Premium Expense Load for Policy Year 1 is 5.0% on each premium payment in excess of Target Premium. For all Policies, the current Premium Expense Load for Policy Years 2-10 is 3.5% on each premium payment in excess of Target Premium and 3.25% thereafter.  The Premium Expense Load on each premium payment in excess of Target Premium will not exceed 5.0% in any Policy Year.

Target Premium varies based on the Total Face Amount and the Insured’s Issue Age and sex.  We may reduce or waive the Premium Expense Load for certain group or sponsored arrangements and corporate purchasers.

Reduction of Charges.  We reserve the right to reduce any of our charges and deductions in connection with the sale of the Policy if we expect that the sale may result in cost savings, subject to any requirements we may from time to time impose.  We may change our requirements based on experience.  We will determine the propriety and amount of any reduction.  No reduction will be unfairly discriminatory against the interests of any class of policyowner.

Increase in Face Amount.  You may request an increase in the Specified Face Amount or Supplemental Insurance Face Amount.  You may need to provide satisfactory evidence of the Insured's insurability.  Once requested, an increase will become effective at the next monthly anniversary day on or following our approval of your request.

If there are increases in the Specified Face Amount or Supplemental Insurance Face Amount other than increases caused by changes in the death benefit option, the cost of insurance charge is determined separately for the initial Specified Face Amount and initial Supplemental Insurance Face Amount and each increase in the Specified Face Amount and Supplemental Face Amount.  The cost of insurance charges applicable to an increase in Specified Face Amount and Supplemental Insurance Face Amount may be higher or lower than those charged on the original sums if the Insured’s health has changed to a degree that qualifies the Insured for a different risk classification.

FINANCIAL STATEMENTS

The financial statements of the Variable Account and Sun Life Assurance Company of Canada (U.S.) are included in this Statement of Additional Information.  The 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 Policies 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 Participants of Sun Life of Canada (U.S.) Variable Account I 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 Alger Growth & Income Portfolio I-2 Sub Account, Alger Mid Cap Growth Portfolio I-2 Sub Account, Alger Small Cap Growth Portfolio I-2 Sub Account, AllianceBernstein VPS Balanced Wealth Strategy Portfolio (Class B) Sub Account, AllianceBernstein VPS Global Thematic Growth Portfolio (Class B) Sub Account, AllianceBernstein VPS Growth and Income Portfolio (Class B) Sub Account, AllianceBernstein VPS International Value Portfolio (Class B) Sub Account, American Funds Insurance Series Blue Chip Income Growth Fund Class 2 Sub Account, American Funds Insurance Series Bond Fund Class 2 Sub Account, American Funds Insurance Series Global Growth Fund Class 2 Sub Account, American Funds Insurance Series Global Growth Income Fund Class 2 Sub Account, American Funds Insurance Series Growth Fund Class 2 Sub Account, American Funds Insurance Series Growth Income Fund Class 2 Sub Account, American Funds Insurance Series High Income Bond Fund Class 2 Sub Account, American Funds Insurance Series International Fund Class 2 Sub Account, American Funds Insurance Series Global Small Capitalization Fund Class 2 Sub Account, Blackrock Global Allocation V.I (Class III) Sub Account, M International Equity Fund Sub Account, M Business Opportunity Value Fund Sub Account, Columbia  Variable Portfolio - Marsico 21st Century Fund Class 2 Sub Account, Delaware VIP Smid Cap Growth Series Standard Class Sub Account, Dreyfus IP MidCap Stock Portfolio (Initial Shares) Sub Account, DWS Dreman Small Mid Cap Value VIP - Class A Sub Account, DWS Small Cap Index VIP - Class B Sub Account, Fidelity VIP Balanced Portfolio (Service Class 2) Sub Account, Fidelity VIP Contrafund Portfolio (Service Class 2) Sub Account, Fidelity VIP Contrafund Portfolio (Service Class) Sub Account, Fidelity VIP Freedom 2015 Portfolio (Service Class 2) Sub Account, Fidelity VIP Freedom 2020 Portfolio (Service Class 2) Sub Account, Fidelity VIP Freedom 2030 Portfolio (Service Class 2) Sub Account, Fidelity VIP Growth Portfolio (Service Class) Sub Account, Fidelity VIP Index 500 Portfolio (Service Class 2) Sub Account, Fidelity VIP Index 500 Portfolio (Service Class) Sub Account, Fidelity VIP Mid Cap Portfolio (Service Class 2) Sub Account, Fidelity VIP Money Market Portfolio (Service Class) Sub Account, Fidelity VIP Overseas Portfolio (Service Class) Sub Account, First Eagle Overseas Variable Fund Sub Account, Franklin Templeton VIP Founding Funds Allocation Fund (Class2) Sub Account , Franklin Templeton VIP Franklin Income Securities Fund (Class 2)  Sub Account, Franklin Templeton VIP Mutual Shares Securities Fund (Class 2)  Sub Account, Franklin Templeton VIP Franklin Small Cap Value Securities Fund (Class 2)  Sub Account, Franklin Templeton VIP Franklin Strategic Income Securities Fund (Class 2)  Sub Account, Franklin Templeton VIP Franklin U.S. Government Securities Fund (Class 2)  Sub Account, M Capital Appreciation Fund Sub Account, Goldman Sachs VIT Large Cap Value Fund I Class Sub Account, Goldman Sachs VIT Mid Cap Value Fund I Sub Account, Goldman Sachs VIT Strategic International Fund (I Shares) Sub Account, Goldman Sachs VIT Structured Small Cap Equity Fund (I Shares) Sub Account, Goldman Sachs VIT Structured U.S. Equity Fund (I Shares) Sub Account, Invesco V.I. Capital Appreciation Fund I Sub Account, Invesco V.I. Capital Development I  Sub Account, Invesco V.I. Core Equity Fund I Sub Account, Invesco V.I. International Growth Fund I Sub Account, Invesco V.I. Small Cap Equity Fund I Sub Account, Invesco Van Kampen V.I Equity and Income Fund II  Sub Account, MFS VIT II Blended Research Core Equity Portfolio I Class Sub Account, MFS VIT II Emerging Markets Equity Portfolio S Class Sub Account, MFS VIT II Government Securities Portfolio I Class Sub Account, MFS VIT II Government Securities Portfolio S Class Sub Account, MFS VIT II Growth Portfolio Sub Account, MFS VIT II High Yield Portfolio I Class Sub Account, MFS VIT II International Growth Portfolio S Class Sub Account, MFS VIT II Massachusetts Investors Growth Stock Portfolio I Class Sub Account, MFS VIT II Research International Portfolio S Class Sub Account, MFS VIT II Total Return Portfolio S Class Sub Account, MFS VIT II Utilities Portfolio I Class Sub Account, MFS VIT II Utilities Portfolio S Class Sub Account, MFS VIT II Value Portfolio S Class Sub Account, MFS VIT II International Growth Portfolio I Class Sub Account, MFS VIT II New Discovery Portfolio I Class Sub Account, MFS VIT II Total Return Portfolio I Class  Sub Account, MFS VIT II Value Portfolio I Class Sub Account, MFS VIT II Bond Portfolio S Class Sub Account, Oppenheimer Capital Appreciation Fund/VA (Non-Service Shares) Sub Account, Oppenheimer Capital Appreciation Fund/VA (Service Shares) Sub Account, Oppenheimer Global Securities Fund/VA (Service Shares) Sub Account, Oppenheimer Main Street Fund/VA (Service Shares) Sub Account, PIMCO VIT Global Multi- Asset Portfolio Admin. Class Sub Account, PIMCO VIT CommodityReal Return TM Strategy Portfolio Admin Class Sub Account, PIMCO VIT Emerging Markets Bond Portfolio Admin Class Sub Account, PIMCO VIT Real Return Portfolio Admin Class Sub Account, PIMCO VIT Total Return Portfolio Admin Class Sub Account, SC AllianceBernstein International Value Fund (Initial Class) Sub Account, SC BlackRock International Index Fund (Initial Class) Sub Account, SC BlackRock Inflation Protected Bond (Initial Class) Sub Account, SC Columbia Small Cap Value Initial Sub Account, SC Davis Venture Value Fund (Initial Class) Sub Account, Sun Capital Global Real Estate Fund (Initial Class) Sub Account, SC Goldman Sachs Mid Cap Value Fund (Initial Class) Sub Account, SC Goldman Sachs Short Duration Fund (Initial Class) Sub Account, SC Ibbotson Balanced Fund (Initial Class) Sub Account, SC Ibbotson Growth Fund (Initial Class) Sub Account, SC

Ibbotson Conservative Fund (Initial Class) Sub Account, SC Invesco Small Cap Growth Initial Sub Account, SC Lord Abbett Growth & Income Fund (Initial Class) Sub Account, SC BlackRock Large Cap Index Fund (Initial Class) Sub Account, SC BlackRock Small Cap Index Fund (Initial Class) Sub Account, SC PIMCO High Yield Fund (Initial Class)  Sub Account, SC PIMCO Total Return Bond Fund (Initial Class) Sub Account, SC WMC Blue Chip Mid Cap Fund (Initial Class) Sub Account, SC WMC Large Cap Growth Fund (Initial Class) Sub Account, Sun Capital Investment Grade Bond Fund (Initial Class) Sub Account, Sun Capital Money Market Fund (Initial Class) Sub Account, T. Rowe Price Blue Chip Growth Portfolio Sub Account, Franklin Templeton VIP Templeton Foreign Securities Fund (Class 2) Sub Account, Franklin Templeton VIP Templeton Growth Securities Fund (Class 2) Sub Account, M Large Cap Growth Fund Sub Account, Invesco Van Kampen V.I. Comstock Fund Series II Sub Account, Invesco Van Kampen V.I. Growth and Income Fund I Sub Account, Morgan Stanley UIF Mid Cap Growth Portfolio Class II Sub Account, Invesco Van Kampen V.I. Mid Cap Value Fund II Sub Account, Wanger USA Sub Account, and Invesco V.I. Dynamic Fund I of Sun Life of Canada (U.S.) Variable Account I (collectively the "Sub-Accounts"), as of December 31, 2011, and the related statements of operations and the statements of changes in net assets for each of the periods presented.  These financial statements are the responsibility of the Sponsor’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits 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, 2011, by correspondence with the mutual fund companies.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the Sub-Accounts as of December 31, 2011, and the results of their operations and the changes in their net assets for each of the periods presented in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

April 23, 2012

STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2011
Assets:	Shares	Cost	Value
Investments at fair value:
Alger Growth & Income Portfolio I-2 Sub-Account (AL2)	7,820	$       74,747	$    83,990
Alger Mid Cap Growth Portfolio I-2 Sub-Account (AL4)	48,894	513,168	570,109
Alger Small Cap Growth Portfolio I-2 Sub-Account (AL3)	762	13,244	23,646
AllianceBernstein VPS Balanced Wealth Strategy Portfolio (Class B)      Sub-Account (AVB)	20,959	221,523	226,362
AllianceBernstein VPS Global Thematic Growth Portfolio (Class B)      Sub-Account (AN2)	5,509	78,405	79,875
AllianceBernstein VPS Growth and Income Portfolio (Class B)      Sub-Account (AN3)	144,009	2,792,512	2,572,000
AllianceBernstein VPS International Value Portfolio (Class B)      Sub-Account (IVB)	6,455	84,842	73,592
American Funds Insurance Series Blue Chip Income Growth Fund Class 2      Sub-Account (308)	56,294	498,408	502,701
American Funds Insurance Series Bond Fund Class 2 Sub-Account (301)	25,278	270,000	274,770
American Funds Insurance Series Global Growth Fund Class 2 Sub-Account (304)	17,244	351,262	332,645
American Funds Insurance Series Global Growth Income Fund Class 2      Sub-Account (307)	20,865	205,114	191,750
American Funds Insurance Series Growth Fund Class 2 Sub-Account (303)	8,725	450,358	450,924
American Funds Insurance Series Growth Income Fund Class 2      Sub-Account (302)	7,710	246,680	254,954
American Funds Insurance Series High Income Bond Fund Class 2      Sub-Account (305)	110,477	1,229,377	1,151,165
American Funds Insurance Series International Fund Class 2 Sub-Account (300)	55,156	934,848	836,168
American Funds Insurance Series Global Small Capitalization Fund Class 2      Sub-Account (306)	23,859	466,159	406,558
Blackrock Global Allocation V.I (Class III) Sub-Account (9XX)	213,094	3,009,736	2,829,884
M International Equity Fund Sub-Account (MBI)	62,079	701,993	607,135
M Business Opportunity Value Fund Sub-Account (MBO)	58,744	568,843	578,041
Columbia  Variable Portfolio - Marsico 21st Century Fund Class 2      Sub-Account (MCC)	42,606	454,368	448,220
Delaware VIP Smid Cap Growth Series Standard Class Sub-Account (DGO)	26,362	439,956	611,341
Dreyfus IP MidCap Stock Portfolio (Initial Shares) Sub-Account (DMC)	200,777	2,466,681	2,642,220
DWS Dreman Small Mid Cap Value VIP - Class A Sub-Account (SCV)	185,817	1,882,389	2,110,881
DWS Small Cap Index VIP - Class B Sub-Account (SSC)	270,450	2,947,787	3,183,197
Fidelity VIP Balanced Portfolio (Service Class 2) Sub-Account (FVB)	14,135	195,761	203,967
Fidelity VIP Contrafund Portfolio (Service Class 2) Sub-Account (FL1)	60,134	1,355,812	1,361,445
Fidelity VIP Contrafund Portfolio (Service Class) Sub-Account (FL6)	267,236	6,748,742	6,133,063
Fidelity VIP Freedom 2015 Portfolio (Service Class 2) Sub-Account (F15)	29,225	269,574	302,185
Fidelity VIP Freedom 2020 Portfolio (Service Class 2) Sub-Account (F20)	20,806	211,478	211,595

The accompanying notes are an integral part of these financial statements.

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 2011
Assets (continued):	Shares	Cost	Value
Investments at fair value (continued):
Fidelity VIP Freedom 2030 Portfolio (Service Class 2) Sub-Account (F30)	21,340	$    206,800	$   206,362
Fidelity VIP Growth Portfolio (Service Class) Sub-Account (FL8)	48,753	1,740,406	1,794,597
Fidelity VIP Index 500 Portfolio (Service Class 2) Sub-Account (FIS)	63,721	7,840,922	8,171,586
Fidelity VIP Index 500 Portfolio (Service Class) Sub-Account (FL4)	94,387	12,358,839	12,175,961
Fidelity VIP Mid Cap Portfolio (Service Class 2) Sub-Account (FVM)	43,894	1,280,339	1,254,502
Fidelity VIP Money Market Portfolio (Service Class) Sub-Account (FL5)	7,331,695	7,331,695	7,331,695
Fidelity VIP Overseas Portfolio (Service Class) Sub-Account (FL7)	412,154	6,726,220	5,597,048
First Eagle Overseas Variable Fund Sub-Account (SGI)	65,049	1,770,446	1,706,247
Franklin Templeton VIP Founding Funds Allocation Fund (Class 2)      Sub-Account (S17)	17,876	126,446	135,680
Franklin Templeton VIP Franklin Income Securities Fund (Class 2)      Sub-Account (ISC)	38,260	539,892	547,877
Franklin Templeton VIP Mutual Shares Securities Fund (Class 2)      Sub-Account (FMS)	57,719	900,783	887,718
Franklin Templeton VIP Franklin Small Cap Value Securities Fund (Class 2)      Sub-Account (FVS)	84,359	1,249,685	1,310,096
Franklin Templeton VIP Franklin Strategic Income Securities Fund (Class 2)      Sub-Account (SIC)	82,843	1,035,231	1,016,482
Franklin Templeton VIP Franklin U.S. Government Securities Fund (Class 2)      Sub-Account (FGF)	4	47	48
M Capital Appreciation Fund Sub-Account (MCA)	25,111	569,894	535,607
Goldman Sachs VIT Large Cap Value Fund I Class Sub-Account (GS4)	23,351	203,850	219,262
Goldman Sachs VIT Mid Cap Value Fund I Sub-Account (GS8)	23,103	334,306	302,416
Goldman Sachs VIT Strategic International Fund (I Shares) Sub-Account (GS5)	58,299	453,018	419,753
Goldman Sachs VIT Structured Small Cap Equity Fund (I Shares)      Sub-Account (GS2)	17,409	161,099	198,464
Goldman Sachs VIT Structured U.S. Equity Fund (I Shares) Sub-Account (GS3)	288,064	2,926,120	3,111,086
Invesco V.I. Capital Appreciation Fund I Sub-Account (AI1)	32,964	797,548	706,098
Invesco V.I. Capital Development I  Sub-Account (AAH)	9,684	146,414	120,564
Invesco V.I. Core Equity Fund I Sub-Account (AI3)	34,690	851,275	926,916
Invesco V.I. International Growth Fund I Sub-Account (AI4)	240,508	6,287,524	6,342,206
Invesco V.I. Small Cap Equity Fund I Sub-Account (ASC)	9,660	151,907	158,522
Invesco Van Kampen V.I Equity and Income Fund II  Sub-Account (VKU)	21,025	283,550	286,576
MFS VIT II  Blended Research Core Equity Portfolio I Class Sub-Account (MIT)	40,298	1,185,962	1,283,901
MFS VIT II  Emerging Markets Equity Portfolio S Class Sub-Account (EM1)	109,469	1,706,891	1,493,151
MFS VIT II  Government Securities Portfolio I Class Sub-Account (GSS)	270,368	3,516,254	3,709,448
MFS VIT II  Government Securities Portfolio S Class Sub-Account (MFK)	53,683	709,593	731,160
MFS VIT II Growth Portfolio Sub-Account (EGS)	9,428	137,486	208,270

The accompanying notes are an integral part of these financial statements.

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 2011
Assets (continued):	Shares	Cost	Value
Investments at fair value (continued):
MFS VIT II High Yield Portfolio I Class Sub-Account (HYS)	864,495	$    4,948,271	$   4,875,753
MFS VIT II International Growth Portfolio S Class  Sub-Account (IG1)	63,125	771,682	694,375
MFS VIT II Massachusetts Investors Growth Stock Portfolio I Class      Sub-Account (MIS)	132,757	1,352,237	1,520,071
MFS VIT II Research International Portfolio S Class Sub-Account (RI1)	4,385	52,940	51,741
MFS VIT II Total Return Portfolio S Class Sub-Account (MFJ)	6,409	103,475	105,491
MFS VIT II Utilities Portfolio I Class Sub-Account (UTS)	77,309	1,654,639	1,727,089
MFS VIT II Utilities Portfolio S Class Sub-Account (MFE)	30,036	642,047	663,801
MFS VIT II Value Portfolio S Class Sub-Account (MV1)	115,143	1,466,238	1,441,595
MFS VIT II International Growth Portfolio I Class  Sub-Account (IGS)	51,327	608,579	568,701
MFS VIT II New Discovery Portfolio I Class  Sub-Account (NWD)	117,495	1,722,998	1,785,924
MFS VIT II Total Return Portfolio I Class  Sub-Account (TRS)	216,334	3,602,843	3,595,471
MFS VIT II Value Portfolio I Class  Sub-Account (MVS)	186,742	2,447,148	2,360,418
MFS VIT II Bond Portfolio S Class  Sub-Account (MF7)	93,729	1,077,813	1,083,504
Oppenheimer Capital Appreciation Fund/VA (Non-Service Shares)      Sub-Account (OCF)	15,200	584,687	604,218
Oppenheimer Capital Appreciation Fund/VA (Service Shares)      Sub-Account (OCA)	648	25,634	25,527
Oppenheimer Global Securities Fund/VA (Service Shares) Sub-Account (OGG)	2,748	68,445	74,763
Oppenheimer Main Street Fund/VA (Service Shares) Sub-Account (OMG)	6,238	118,760	128,067
PIMCO VIT Global Multi- Asset Portfolio Admin. Class Sub-Account (SBJ)	3,260	40,905	39,612
PIMCO VIT CommodityReal Return TM Strategy Portfolio Admin Class      Sub-Account (PCR)	75,992	639,340	547,139
PIMCO VIT Emerging Markets Bond Portfolio Admin Class Sub-Account (PMB)	307,767	4,024,445	4,201,023
PIMCO VIT Real Return Portfolio Admin Class Sub-Account (PRR)	261,568	3,397,319	3,648,876
PIMCO VIT Total Return Portfolio Admin Class Sub-Account (PTR)	904,686	10,040,104	9,969,635
SC AllianceBernstein International Value Fund (Initial Class) Sub-Account (118)	99,802	907,211	771,473
SC Black Rock International Index Fund (Initial Class) Sub-Account (SBB)	3,668	33,648	33,306
SC Blackrock Inflation Protected Bond (Initial Class) Sub-Account (115)	151,162	1,625,918	1,714,176
SC Columbia Small Cap Value Initial Sub-Account (117)	36,086	336,441	300,600
SC Davis Venture Value Fund (Initial Class) Sub-Account (SC7)	383,333	4,471,214	4,208,994
Sun Capital Global Real Estate Fund (Initial Class) Sub-Account (SC3)	364,274	4,693,903	3,551,676
SC Goldman Sachs Mid Cap Value Fund (Initial Class) Sub-Account (SGC)	427,817	3,059,338	3,704,894
SC Goldman Sachs Short Duration Fund (Initial Class) Sub-Account (SDC)	658,448	6,727,810	6,702,997
SC Ibbotson Balanced Fund (Initial Class) Sub-Account (112)	196,415	2,316,987	2,278,416

The accompanying notes are an integral part of these financial statements.

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 2011
Assets (continued):	Shares	Cost	Value
Investments at fair value (continued):
SC Ibbotson Growth Fund (Initial Class) Sub-Account (113)	152,556	$    1,786,233	$     1,632,352
SC Ibbotson Conservative Fund (Initial Class) Sub-Account (111)	480,101	5,410,179	5,506,764
SC Invesco Small Cap Growth Initial Sub-Account (116)	44,206	503,482	467,702
SC Lord Abbett Growth & Income Fund (Initial Class) Sub-Account (SLC)	370,743	2,405,216	2,395,000
SC BlackRock Large Cap Index Fund (Initial Class) Sub-Account (SCM)	19,164	152,057	158,295
SC BlackRock Small Cap Index Fund (Initial Class) Sub-Account (SCB)	183,279	2,067,648	2,276,320
SC PIMCO High Yield Fund (Initial Class)  Sub-Account (SPC)	306,204	2,875,896	2,835,451
SC PIMCO Total Return Bond Fund (Initial Class) Sub-Account (114)	401,069	4,639,713	4,568,180
SC WMC Blue Chip Mid Cap Fund (Initial Class) Sub-Account (SC5)	251,004	3,696,376	3,451,304
SC WMC Large Cap Growth Fund (Initial Class) Sub-Account (LCG)	31,166	297,961	287,970
Sun Capital Investment Grade Bond Fund (Initial Class) Sub-Account (SC2)	363,963	3,268,621	3,472,207
Sun Capital Money Market Fund (Initial Class) Sub-Account (SC1)	8,725,014	8,725,014	8,725,014
T. Rowe Price Blue Chip Growth Portfolio Sub-Account (TBC)	321,007	3,262,439	3,656,266
Franklin Templeton VIP Templeton Foreign Securities Fund (Class 2)      Sub-Account (FTI)	417,262	6,175,181	5,240,816
Franklin Templeton VIP Templeton Growth Securities Fund (Class 2)      Sub-Account (FTG)	149,413	1,909,672	1,510,562
M Large Cap Growth Fund Sub-Account (MTC)	44,601	688,678	718,073
Invesco Van Kampen V.I. Comstock Fund Series II Sub-Account (VLC)	49,492	548,594	558,269
Invesco Van Kampen V.I.  Growth and Income Fund I Sub-Account (VGI)	87,115	1,515,129	1,548,033
Morgan Stanley UIF Mid Cap Growth Portfolio Class II Sub-Account (VKM)	19,682	239,853	218,862
Invesco Van Kampen V.I.  Mid Cap Value Fund II Sub-Account (VKC)	11,945	148,553	152,058
Wanger USA Sub-Account (USC)	3,949	101,423	117,692
Total investments		207,195,146	204,620,198
Total assets
		$    207,195,146	$  204,620,198
Liabilities:
Payable to Sponsor			-
Total liabilities			-
Net Assets			$  204,620,198

The accompanying notes are an integral part of these financial statements.

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

DECEMBER 31, 2011

Net Assets:
	Units	Value
AL2	8,224	$            83,990
AL4	41,101	570,109
AL3	2,029	23,646
AVB	18,700	226,362
AN2	12,068	79,875
AN3	227,785	2,572,000
IVB	14,610	73,592
308	40,812	502,701
301	22,176	274,770
304	25,873	332,645
307	14,620	191,750
303	33,898	450,924
302	20,592	254,954
305	80,899	1,151,165
300	70,975	836,168
306	32,277	406,558
9XX	226,602	2,829,884
MBI	89,609	607,135
MBO	67,427	578,041
MCC	62,820	448,220
DGO	28,728	611,341
DMC	177,986	2,642,220
SCV	122,431	2,110,881
SSC	163,314	3,183,197
FVB	14,705	203,967
FL1	156,956	1,361,445
FL6	363,366	6,133,063
F15	30,038	302,185
F20	22,095	211,595
F30	23,156	206,362
FL8	184,803	1,794,597
FIS	902,857	8,171,586
FL4	1,061,586	12,175,961
FVM	133,711	1,254,502
FL5	590,762	7,331,695
FL7	489,433	5,597,048
SGI	160,758	1,706,247
S17	10,833	135,680
ISC	50,656	547,877
FMS	104,438	887,718
FVS	126,732	1,310,096

The accompanying notes are an integral part of these financial statements.

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

DECEMBER 31, 2011

Net Assets (continued):
	Units	Value
SIC	80,491	$ 1,016,482
FGF	4	48
MCA	51,714	535,607
GS4	19,589	219,262
GS8	18,987	302,416
GS5	48,537	419,753
GS2	11,179	198,464
GS3	292,506	3,111,086
AI1	85,152	706,098
AAH	14,642	120,564
AI3	90,780	926,916
AI4	475,419	6,342,206
ASC	15,248	158,522
VKU	22,925	286,576
MIT	111,188	1,283,901
EM1	204,158	1,493,151
GSS	208,832	3,709,448
MFK	60,481	731,160
EGS	20,022	208,270
HYS	252,678	4,875,753
IG1	54,366	694,375
MIS	155,407	1,520,071
RI1	7,150	51,741
MFJ	10,379	105,491
UTS	79,899	1,727,089
MFE	64,753	663,801
MV1	162,418	1,441,595
IGS	44,171	568,701
NWD	133,980	1,785,924
TRS	232,288	3,595,471
MVS	161,978	2,360,418
MF7	80,921	1,083,504
OCF	48,526	604,218
OCA	3,121	25,527
OGG	8,808	74,763
OMG	14,670	128,067
SBJ	3,953	39,612
PCR	57,230	547,139
PMB	174,977	4,201,023
PRR	204,769	3,648,876

The accompanying notes are an integral part of these financial statements.

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

DECEMBER 31, 2011

Net Assets (continued):
	Units	Value
PTR	576,416	$  9,969,635
118	77,979	771,473
SBB	3,666	33,306
115	136,899	1,714,176
117	23,420	300,600
SC7	353,134	4,208,994
SC3	252,387	3,551,676
SGC	360,760	3,704,894
SDC	604,985	6,702,997
112	173,491	2,278,416
113	121,604	1,632,352
111	437,524	5,506,764
116	33,493	467,702
SLC	271,541	2,395,000
SCM	11,428	158,295
SCB	162,513	2,276,320
SPC	223,767	2,835,451
114	362,962	4,568,180
SC5	225,674	3,451,304
LCG	33,149	287,970
SC2	223,012	3,472,207
SC1	809,604	8,725,014
TBC	249,032	3,656,266
FTI	261,179	5,240,816
FTG	90,650	1,510,562
MTC	81,008	718,073
VLC	62,350	558,269
VGI	108,946	1,548,033
VKM	13,271	218,862
VKC	11,149	152,058
USC	11,821	117,692
Total net assets		$   204,620,198

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011

	AL2	AL4	AL3
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              1,499	$              2,235	$                     -
Net realized and change in unrealized gains (losses):
Net realized gains (losses) on sale of investments	1,079	(61,990)	1,278
Realized gain distributions	-	-	-
Net realized gains (losses)	1,079	(61,990)	1,278
Net change in unrealized appreciation/ depreciation	2,967	11,152	(2,034)
Net realized and change in unrealized gains (losses)	4,046	(50,838)	(756)
Increase (decrease) in net assets from operations	$              5,545	$         (48,603)	$              (756)
	AVB	AN2	AN3
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              4,639	$                 375	$            30,496
Net realized and change in unrealized (losses) gains:
Net realized gains (losses) on sale of investments	764	3,364	(229,518)
Realized gain distributions	-	-	-
Net realized gains (losses)	764	3,364	(229,518)
Net change in unrealized appreciation/ depreciation	(11,909)	(30,071)	355,639
Net realized and change in unrealized (losses) gains	(11,145)	(26,707)	126,121
(Decrease) increase in net assets from operations	$           (6,506)	$         (26,332)	$          156,617

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	IVB	308	301
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              3,162	$              8,618	$              8,041
Net realized and change in unrealized (losses) gains:
Net realized gains on sale of investments	1,911	1,701	915
Realized gain distributions	-	-	-
Net realized gains	1,911	1,701	915
Net change in unrealized appreciation/ depreciation	(19,484)	(11,791)	3,284
Net realized and change in unrealized (losses) gains	(17,573)	(10,090)	4,199
(Decrease) increase in net assets from operations	$         (14,411)	$           (1,472)	$            12,240
	304	307	303
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              4,157	$              5,599	$              2,347
Net realized and change in unrealized losses:
Net realized gains on sale of investments	973	3,293	12,535
Realized gain distributions	-	-	-
Net realized gains	973	3,293	12,535
Net change in unrealized appreciation/ depreciation	(29,854)	(22,710)	(27,193)
Net realized and change in unrealized losses	(28,881)	(19,417)	(14,658)
Decrease in net assets from operations	$         (24,724)	$         (13,818)	$         (12,311)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	302	305	300
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              3,983	$           84,528	$           16,042
Net realized and change in unrealized losses:
Net realized gains (losses) on sale of investments	557	(6,625)	4,114
Realized gain distributions	-	-	-
Net realized gains (losses)	557	(6,625)	4,114
Net change in unrealized appreciation/ depreciation	(9,261)	(67,720)	(137,414)
Net realized and change in unrealized losses	(8,704)	(74,345)	(133,300)
(Decrease) increase in net assets from operations	$           (4,721)	$           10,183	$      (117,258)
	306	9XX	MBI
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              5,653	$           66,982	$           20,919
Net realized and change in unrealized losses:
Net realized gains (losses) on sale of investments	3,325	70,101	(1,048)
Realized gain distributions	-	71,197	-
Net realized gains (losses)	3,325	141,298	(1,048)
Net change in unrealized appreciation/ depreciation	(98,255)	(304,469)	(101,873)
Net realized and change in unrealized losses	(94,930)	(163,171)	(102,921)
Decrease in net assets from operations	$         (89,277)	$        (96,189)	$        (82,002)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	MBO	MCC	DGO
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$             1,741	$                     -	$              6,551
Net realized and change in unrealized (losses) gains:
Net realized gains on sale of investments	17,742	16,534	115,842
Realized gain distributions	-	-	18,749
Net realized gains	17,742	16,534	134,591
Net change in unrealized appreciation/ depreciation	(37,323)	(66,623)	(85,077)
Net realized and change in unrealized (losses) gains	(19,581)	(50,089)	49,514
(Decrease) increase in net assets from operations	$        (17,840)	$        (50,089)	$            56,065
	DMC	SCV	SSC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           15,519	$           25,639	$            23,411
Net realized and change in unrealized gains (losses):
Net realized losses on sale of investments	(193,936)	(62,978)	(255,494)
Realized gain distributions	-	-	-
Net realized losses	(193,936)	(62,978)	(255,494)
Net change in unrealized appreciation/ depreciation	203,528	(92,842)	87,851
Net realized and change in unrealized gains (losses)	9,592	(155,820)	(167,643)
Increase (decrease) in net assets from operations	$           25,111	$      (130,181)	$       (144,232)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	FVB	FL1	FL6
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              2,551	$            10,680	$            59,684
Net realized and change in unrealized losses:
Net realized gains (losses) on sale of investments	4,473	33,207	(456,041)
Realized gain distributions	474	-	-
Net realized gains (losses)	4,947	33,207	(456,041)
Net change in unrealized appreciation/ depreciation	(12,000)	(83,833)	270,596
Net realized and change in unrealized losses	(7,053)	(50,626)	(185,445)
Decrease in net assets from operations	$           (4,502)	$         (39,946)	$       (125,761)
	F15	F20	F30
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              5,704	$              4,245	$              4,005
Net realized and change in unrealized losses:
Net realized gains on sale of investments	4,651	2,043	10,835
Realized gain distributions	1,569	812	626
Net realized gains	6,220	2,855	11,461
Net change in unrealized appreciation/ depreciation	(13,127)	(5,848)	(21,775)
Net realized and change in unrealized losses	(6,907)	(2,993)	(10,314)
(Decrease) increase in net assets from operations	$           (1,203)	$              1,252	$           (6,309)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	FL8	FIS	FL4
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              4,892	$          144,953	$          233,416
Net realized and change in unrealized gains (losses):
Net realized gains (losses) on sale of investments	22,605	4,092	(202,220)
Realized gain distributions	6,543	151,184	312,876
Net realized gains	29,148	155,276	110,656
Net change in unrealized appreciation/ depreciation	(25,928)	(217,556)	(140,858)
Net realized and change in unrealized gains (losses)	3,220	(62,280)	(30,202)
Increase in net assets from operations	$              8,112	$            82,673	$          203,214
	FVM	FL5	FL7
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$                 313	$              2,498	$            90,081
Net realized and change in unrealized (losses) gains:
Net realized gains (losses) on sale of investments	44,935	-	(811,965)
Realized gain distributions	2,460	-	13,570
Net realized gains (losses)	47,395	-	(798,395)
Net change in unrealized appreciation/ depreciation	(193,664)	-	(541,914)
Net realized and change in unrealized (losses) gains	(146,269)	-	(1,340,309)
(Decrease) increase in net assets from operations	$       (145,956)	$              2,498	$    (1,250,228)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	SGI	S17	ISC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$            21,797	$                   18	$           23,369
Net realized and change in unrealized losses:
Net realized gains (losses) on sale of investments	42,904	1,123	(1,741)
Realized gain distributions	30,242	-	-
Net realized gains (losses)	73,146	1,123	(1,741)
Net change in unrealized appreciation/ depreciation	(211,530)	(2,630)	(11,118)
Net realized and change in unrealized losses	(138,384)	(1,507)	(12,859)
(Decrease) increase in net assets from operations	$       (116,587)	$           (1,489)	$           10,510
	FMS	FVS	SIC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$            26,421	$              8,218	$           44,288
Net realized and change in unrealized losses:
Net realized gains (losses) on sale of investments	41,936	42,417	(44)
Realized gain distributions	-	-	-
Net realized gains (losses)	41,936	42,417	(44)
Net change in unrealized appreciation/ depreciation	(99,655)	(93,518)	(27,267)
Net realized and change in unrealized losses	(57,719)	(51,101)	(27,311)
(Decrease) increase in net assets from operations	$         (31,298)	$         (42,883)	$           16,977

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	FGF	MCA	GS4
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$                   2	$                     -	$              2,893
Net realized and change in unrealized gains (losses):
Net realized gains on sale of investments	1	38,963	18,677
Realized gain distributions	-	61,151	-
Net realized gains	1	100,114	18,677
Net change in unrealized appreciation/ depreciation	-	(136,746)	(35,599)
Net realized and change in unrealized gains (losses)	1	(36,632)	(16,922)
Increase (decrease) in net assets from operations	$                   3	$         (36,632)	$         (14,029)
	GS8	GS5	GS2
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$            2,508	$            17,445	$              1,670
Net realized and change in unrealized (losses) gains:
Net realized losses on sale of investments	(12,107)	(141,647)	(8,199)
Realized gain distributions	-	-	-
Net realized losses	(12,107)	(141,647)	(8,199)
Net change in unrealized appreciation/ depreciation	(10,744)	40,968	12,042
Net realized and change in unrealized (losses) gains	(22,851)	(100,679)	3,843
(Decrease) increase in net assets from operations	$       (20,343)	$         (83,234)	$              5,513

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	GS3	AI1	AAH
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$            55,402	$              1,697	$                     -
Net realized and change in unrealized gains (losses):
Net realized losses on sale of investments	(290,052)	(115,906)	(729)
Realized gain distributions	-	-	-
Net realized losses	(290,052)	(115,906)	(729)
Net change in unrealized appreciation/ depreciation	380,265	29,758	(25,850)
Net realized and change in unrealized gains (losses)	90,213	(86,148)	(26,579)
Increase (decrease) in net assets from operations	$          145,615	$         (84,451)	$         (26,579)
	AI3	IV11	AI4
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              9,364	$                     -	$          113,512
Net realized and change in unrealized (losses) gains:
Net realized gains (losses) on sale of investments	30,617	59,666	(300,662)
Realized gain distributions	-	-	-
Net realized gains (losses)	30,617	59,666	(300,662)
Net change in unrealized appreciation/ depreciation	(33,199)	(43,376)	(188,012)
Net realized and change in unrealized (losses) gains	(2,582)	16,290	(488,674)
Increase (decrease) in net assets from operations	$              6,782	$            16,290	$       (375,162)

1This sub-account was closed and merged into a new sub-account during 2011 and therefore does not appear on the Statement of Assets and Liabilities as of December 31, 2011.  See note 10 for additional information around merged sub-accounts.

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	ASC	VKU	MIT
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$                     -	$              1,054	$            26,958
Net realized and change in unrealized gains (losses):
Net realized gains (losses) on sale of investments	6,346	(1,409)	(30,996)
Realized gain distributions	-	-	-
Net realized gains (losses)	6,346	(1,409)	(30,996)
Net change in unrealized appreciation/ depreciation	(3,084)	(931)	31,776
Net realized and change in unrealized gains (losses)	3,262	(2,340)	780
Increase (decrease) in net assets from operations	$              3,262	$           (1,286)	$            27,738
	EM1	GSS	MFK
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$              5,696	$          141,675	$            23,032
Net realized and change in unrealized (losses) gains:
Net realized gains on sale of investments	25,308	122,004	1,434
Realized gain distributions	67,089	1,333	232
Net realized gains	92,397	123,337	1,666
Net change in unrealized appreciation/ depreciation	(419,898)	16,513	21,648
Net realized and change in unrealized (losses) gains	(327,501)	139,850	23,314
(Decrease) increase in net assets from operations	$       (321,805)	$          281,525	$            46,346

.

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	EGS	HYS	IG1
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$                378	$         266,277	$             6,031
Net realized and change in unrealized gains (losses):
Net realized gains on sale of investments	32,476	185,004	5,013
Realized gain distributions	-	-	57,353
Net realized gains	32,476	185,004	62,366
Net change in unrealized appreciation/ depreciation	(31,131)	(287,680)	(137,887)
Net realized and change in unrealized gains (losses)	1,345	(102,676)	(75,521)
Increase (decrease) in net assets from operations	$             1,723	$         163,601	$         (69,490)
	MIS	RI1	MFJ
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$             9,383	$                809	$             1,328
Net realized and change in unrealized gains (losses):
Net realized gains on sale of investments	62,310	1,226	2,123
Realized gain distributions	-	-	-
Net realized gains	62,310	1,226	2,123
Net change in unrealized appreciation/ depreciation	(57,489)	(7,470)	(24)
Net realized and change in unrealized gains (losses)	4,821	(6,244)	2,099
Increase (decrease) in net assets from operations	$           14,204	$           (5,435)	$             3,427

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	UTS	MFE	MV1
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           58,967	$           16,100	$           12,625
Net realized and change in unrealized gains (losses):
Net realized (losses) gains on sale of investments	(34,611)	11,269	16,332
Realized gain distributions	-	-	62,374
Net realized (losses) gains	(34,611)	11,269	78,706
Net change in unrealized appreciation/ depreciation	95,079	(7,354)	(80,604)
Net realized and change in unrealized gains (losses)	60,468	3,915	(1,898)
Increase in net assets from operations	$         119,435	$           20,015	$           10,727
	IGS	NWD	TRS
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$             4,808	$                    -	$         105,541
Net realized and change in unrealized losses:
Net realized gains (losses) on sale of investments	32,039	9,556	(97,186)
Realized gain distributions	36,728	142,570	-
Net realized gains (losses)	68,767	152,126	(97,186)
Net change in unrealized appreciation/ depreciation	(119,173)	(327,982)	62,071
Net realized and change in unrealized losses	(50,406)	(175,856)	(35,115)
(Decrease) increase in net assets from operations	$         (45,598)	$      (175,856)	$           70,426

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	MVS	MF7	OCF
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           40,042	$           18,906	$             2,203
Net realized and change in unrealized (losses) gains:
Net realized (losses) gains on sale of investments	(300,263)	1,852	(3,166)
Realized gain distributions	167,016	-	-
Net realized (losses) gains	(133,247)	1,852	(3,166)
Net change in unrealized appreciation/ depreciation	100,854	3,551	(5,761)
Net realized and change in unrealized (losses) gains	(32,393)	5,403	(8,927)
Increase (decrease) in net assets from operations	$             7,649	$           24,309	$           (6,724)
	OCA	OGG	OMG
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$                  83	$                500	$                688
Net realized and change in unrealized gains (losses):
Net realized gains on sale of investments	4,003	168	431
Realized gain distributions	-	-	-
Net realized gains	4,003	168	431
Net change in unrealized appreciation/ depreciation	(2,359)	(4,294)	(1,515)
Net realized and change in unrealized gains (losses)	1,644	(4,126)	(1,084)
Increase (decrease) in net assets from operations	$             1,727	$           (3,626)	$              (396)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	SBJ	PCR	PMB
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$                  48	$           80,978	$         210,307
Net realized and change in unrealized (losses) gains:
Net realized (losses) gains on sale of investments	(32)	150	19,616
Realized gain distributions	349	-	-
Net realized gains	317	150	19,616
Net change in unrealized appreciation/ depreciation	(1,293)	(123,783)	9,824
Net realized and change in unrealized (losses) gains	(976)	(123,633)	29,440
(Decrease) increase in net assets from operations	$              (928)	$         (42,655)	$         239,747
	PRR	PTR	118
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           60,249	$         244,162	$           15,379
Net realized and change in unrealized gains (losses):
Net realized gains (losses) on sale of investments	49,918	109,190	(2,674)
Realized gain distributions	104,979	144,007	30,193
Net realized gains	154,897	253,197	27,519
Net change in unrealized appreciation/ depreciation	99,320	(171,757)	(147,699)
Net realized and change in unrealized gains (losses)	254,217	81,440	(120,180)
Increase (decrease) in net assets from operations	$         314,466	$         325,602	$       (104,801)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	SBB	115	117
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$                     -	$           29,278	$             1,315
Net realized and change in unrealized (losses) gains:
Net realized (losses) gains on sale of investments	(77)	6,081	(1,015)
Realized gain distributions	-	35,902	34,774
Net realized (losses) gains	(77)	41,983	33,759
Net change in unrealized appreciation/ depreciation	(342)	74,342	(44,740)
Net realized and change in unrealized (losses) gains	(419)	116,325	(10,981)
(Decrease) increase in net assets from operations	$              (419)	$         145,603	$           (9,666)
	SC7	SC3	SGC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           38,038	$         265,802	$           38,016
Net realized and change in unrealized (losses) gains:
Net realized gains (losses) on sale of investments	2,083	(326,437)	231,209
Realized gain distributions	183,959	-	307,683
Net realized gains (losses)	186,042	(326,437)	538,892
Net change in unrealized appreciation/ depreciation	(379,497)	(212,592)	(460,465)
Net realized and change in unrealized (losses) gains	(193,455)	(539,029)	78,427
(Decrease) increase in net assets from operations	$       (155,417)	$       (273,227)	$         116,443

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	SDC	112	113
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           77,425	$           29,019	$           27,962
Net realized and change in unrealized losses:
Net realized gains on sale of investments	27,311	26,354	3,895
Realized gain distributions	39,053	67,672	129,254
Net realized gains	66,364	94,026	133,149
Net change in unrealized appreciation/ depreciation	(109,468)	(155,688)	(224,549)
Net realized and change in unrealized losses	(43,104)	(61,662)	(91,400)
Increase (decrease) in net assets from operations	$           34,321	$         (32,643)	$         (63,438)
	111	116	SLC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           77,271	$                     -	$           15,671
Net realized and change in unrealized losses:
Net realized gains on sale of investments	38,581	1,986	134,551
Realized gain distributions	115,262	13,393	398,872
Net realized gains	153,843	15,379	533,423
Net change in unrealized appreciation/ depreciation	(175,867)	(41,296)	(686,201)
Net realized and change in unrealized losses	(22,024)	(25,917)	(152,778)
Increase (decrease) in net assets from operations	$           55,247	$         (25,917)	$       (137,107)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	SCM	SCB	SPC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$             1,482	$             9,864	$         201,258
Net realized and change in unrealized gains (losses):
Net realized gains (losses) on sale of investments	65,444	(61,108)	70,292
Realized gain distributions	18,771	-	64,850
Net realized gains (losses)	84,215	(61,108)	135,142
Net change in unrealized appreciation/ depreciation	(75,518)	(69,726)	(226,331)
Net realized and change in unrealized gains (losses)	8,697	(130,834)	(91,189)
Increase (decrease) in net assets from operations	$           10,179	$       (120,970)	$         110,069
	114	SC5	LCG
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$         101,629	$             2,163	$                817
Net realized and change in unrealized gains (losses):
Net realized gains (losses) on sale of investments	10,473	(160,882)	(1,397)
Realized gain distributions	102,475	-	-
Net realized gains (losses)	112,948	(160,882)	(1,397)
Net change in unrealized appreciation/ depreciation	(76,340)	(139,135)	(11,318)
Net realized and change in unrealized gains (losses)	36,608	(300,017)	(12,715)
Increase (decrease) in net assets from operations	$         138,237	$       (297,854)	$        (11,898)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	SC2	SC1	TBC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$         130,727	$           11,724	$                     -
Net realized and change in unrealized gains:
Net realized gains on sale of investments	4,476	-	77,380
Realized gain distributions	54,731	56	-
Net realized gains	59,207	56	77,380
Net change in unrealized appreciation/ depreciation	56,353	-	(30,874)
Net realized and change in unrealized gains	115,560	56	46,506
Increase in net assets from operations	$         246,287	$           11,780	$           46,506
	FTI	FTG	MTC
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$           98,519	$           20,008	$                     -
Net realized and change in unrealized losses:
Net realized (losses) gains on sale of investments	(78,772)	(38,250)	34,494
Realized gain distributions	-	-	-
Net realized (losses) gains	(78,772)	(38,250)	34,494
Net change in unrealized appreciation/ depreciation	(642,903)	(96,572)	(42,149)
Net realized and change in unrealized losses	(721,675)	(134,822)	(7,655)
Decrease in net assets from operations	$       (623,156)	$       (114,814)	$           (7,655)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 2011

	VLC	VGI	VKM
	Sub-Account	Sub-Account	Sub-Account
Income:
Dividend income	$             4,453	$           17,215	$                625
Net realized and change in unrealized losses:
Net realized gains (losses) on sale of investments	3,715	(15,812)	186
Realized gain distributions	-	-	105
Net realized gains (losses)	3,715	(15,812)	291
Net change in unrealized appreciation/ depreciation	(12,088)	(13,493)	(28,427)
Net realized and change in unrealized losses	(8,373)	(29,305)	(28,136)
Decrease in net assets from operations	$           (3,920)	$         (12,090)	$         (27,511)
	VKC	USC
	Sub-Account	Sub-Account
Income:
Dividend income	$             1,537	$                     -
Net realized and change in unrealized losses:
Net realized (losses) gains on sale of investments	(7,861)	1,858
Realized gain distributions	-	9,345
Net realized (losses) gains	(7,861)	11,203
Net change in unrealized appreciation/ depreciation	(6,411)	(13,781)
Net realized and change in unrealized losses	(14,272)	(2,578)
Decrease in net assets from operations	$         (12,735)	$           (2,578)

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	AL2 Sub-Account		AL4 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         1,499	$        1,297	$           2,235	$                  -
Net realized gains (losses)	1,079	77	(61,990)	(123,391)
Net change in unrealized appreciation/depreciation	2,967	9,223	11,152	241,330
Net increase (decrease) from operations	5,545	10,597	(48,603)	117,939
Contract Owner Transactions:
Purchase payments received	-	(667)	48,731	36,087
Transfers between Sub-Accounts
(including the Fixed Account), net	-	(6,139)	19,775	119,207
Withdrawals, surrenders and surrender charges	(1,464)	(24,326)	(111,312)	(34,218)
Mortality and expense risk charges	(505)	(740)	(3,875)	(4,124)
Charges for life insurance protection and
monthly administration charge	(10,416)	(12,085)	(38,435)	(40,456)
Net (decrease) increase from contract owner transactions	(12,385)	(43,957)	(85,116)	76,496
Total (decrease) increase in net assets	(6,840)	(33,360)	(133,719)	194,435
Net assets at beginning of year	90,830	124,190	703,828	509,393
Net assets at end of year	$        83,990	$       90,830	$        570,109	$       703,828

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	AL3 Sub-Account		AVB Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$           4,639	$           3,937
Net realized gains	1,278	27,814	764	376
Net change in unrealized appreciation/depreciation	(2,034)	(18,227)	(11,909)	13,559
Net (decrease) increase from operations	(756)	9,587	(6,506)	17,872
Contract Owner Transactions:
Purchase payments received	-	(2,759)	24,524	19,923
Transfers between Sub-Accounts
(including the Fixed Account), net	(216)	(3,365)	12,695	33,265
Withdrawals, surrenders and surrender charges	(396)	(61,807)	-	-
Mortality and expense risk charges	(139)	(347)	(511)	(1,738)
Charges for life insurance protection and
monthly administration charge	(1,870)	(2,942)	(19,973)	(7,646)
Net (decrease) increase from contract owner transactions	(2,621)	(71,220)	16,735	43,804
Total (decrease) increase in net assets	(3,377)	(61,633)	10,229	61,676
Net assets at beginning of year	27,023	88,656	216,133	154,457
Net assets at end of year	$        23,646	$       27,023	$        226,362	$       216,133

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	AN2 Sub-Account		AN3 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$              375	$           2,473	$         30,496	$                  -
Net realized gains (losses)	3,364	2,767	(229,518)	(196,128)
Net change in unrealized appreciation/depreciation	(30,071)	13,683	355,639	517,555
Net (decrease) increase from operations	(26,332)	18,923	156,617	321,427
Contract Owner Transactions:
Purchase payments received	4	-	248,651	310,920
Transfers between Sub-Accounts
(including the Fixed Account), net	(6,768)	(13,704)	(40,654)	(58,376)
Withdrawals, surrenders and surrender charges	(2,726)	(3)	(359,938)	(121,858)
Mortality and expense risk charges	(726)	(1,878)	(19,152)	(35,692)
Charges for life insurance protection and
monthly administration charge	(7,969)	(7,184)	(204,854)	(200,063)
Net decrease from contract owner transactions	(18,185)	(22,769)	(375,947)	(105,069)
Total (decrease) increase in net assets	(44,517)	(3,846)	(219,330)	216,358
Net assets at beginning of year	124,392	128,238	2,791,330	2,574,972
Net assets at end of year	$          79,875	$       124,392	$     2,572,000	$     2,791,330

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	IVB Sub-Account		308 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           3,162	$          2,102	$           8,618	$           3,811
Net realized gains (losses)	1,911	(837)	1,701	831
Net change in unrealized appreciation/depreciation	(19,484)	1,607	(11,791)	15,667
Net (decrease) increase from operations	(14,411)	2,872	(1,472)	20,309
Contract Owner Transactions:
Purchase payments received	9,782	16,209	89,911	91,072
Transfers between Sub-Accounts
(including the Fixed Account), net	7,244	(5,626)	65,801	257,784
Withdrawals, surrenders and surrender charges	(2,242)	(2,488)	-	-
Mortality and expense risk charges	(297)	(307)	(877)	(350)
Charges for life insurance protection and
monthly administration charge	(8,191)	(11,003)	(15,549)	(10,075)
Net increase (decrease) from contract owner transactions	6,296	(3,215)	139,286	338,431
Total (decrease) increase in net assets	(8,115)	(343)	137,814	358,740
Net assets at beginning of year	81,707	82,050	364,887	6,146
Net assets at end of year	$          73,592	$         81,707	$        502,701	$       364,887

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	301 Sub-Account		304 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           8,041	$           3,398	$           4,157	$           1,481
Net realized gains	915	1,074	973	258
Net change in unrealized appreciation/depreciation	3,284	886	(29,854)	11,103
Net increase (decrease) from operations	12,240	5,358	(24,724)	12,842
Contract Owner Transactions:
Purchase payments received	165,362	10,513	171,900	5,720
Transfers between Sub-Accounts
(including the Fixed Account), net	(4,066)	90,802	22,972	159,794
Withdrawals, surrenders and surrender charges	(1,052)	-	(417)	-
Mortality and expense risk charges	(411)	(187)	(472)	(171)
Charges for life insurance protection and
monthly administration charge	(12,789)	(5,542)	(11,374)	(4,154)
Net increase from contract owner transactions	147,044	95,586	182,609	161,189
Total increase in net assets	159,284	100,944	157,885	174,031
Net assets at beginning of year	115,486	14,542	174,760	729
Net assets at end of year	$       274,770	$       115,486	$        332,645	$       174,760

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	307 Sub-Account		303 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           5,599	$           1,913	$           2,347	$           1,604
Net realized gains (losses)	3,293	(26)	12,535	9,584
Net change in unrealized appreciation/depreciation	(22,710)	9,300	(27,193)	19,764
Net (decrease) increase from operations	(13,818)	11,187	(12,311)	30,952
Contract Owner Transactions:
Purchase payments received	79,553	5,516	287,209	101,949
Transfers between Sub-Accounts
(including the Fixed Account), net	(18,018)	125,180	(57,233)	22,336
Withdrawals, surrenders and surrender charges	(6,843)	-	(4,321)	-
Mortality and expense risk charges	(522)	(117)	(721)	(349)
Charges for life insurance protection and
monthly administration charge	(9,978)	(1,062)	(13,122)	(7,271)
Net increase from contract owner transactions	44,192	129,517	211,812	116,665
Total increase in net assets	30,374	140,704	199,501	147,617
Net assets at beginning of year	161,376	20,672	251,423	103,806
Net assets at end of year	$       191,750	$       161,376	$        450,924	$       251,423

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	302 Sub-Account		305 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           3,983	$           2,892	$         84,528	$         42,399
Net realized gains (losses)	557	382	(6,625)	31,121
Net change in unrealized appreciation/depreciation	(9,261)	16,938	(67,720)	(42,274)
Net (decrease) increase from operations	(4,721)	20,212	10,183	31,246
Contract Owner Transactions:
Purchase payments received	27,321	92,856	161,683	75,374
Transfers between Sub-Accounts
(including the Fixed Account), net	26,963	79,985	392,421	355,655
Withdrawals, surrenders and surrender charges	-	-	(8,709)	-
Mortality and expense risk charges	(474)	(252)	(1,626)	(624)
Charges for life insurance protection and
monthly administration charge	(6,202)	(4,694)	(25,809)	(12,408)
Net increase from contract owner transactions	47,608	167,895	517,960	417,997
Total increase in net assets	42,887	188,107	528,143	449,243
Net assets at beginning of year	212,067	23,960	623,022	173,779
Net assets at end of year	$       254,954	$       212,067	$     1,151,165	$       623,022

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	300 Sub-Account		306 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         16,042	$           8,252	$           5,653	$           3,755
Net realized gains	4,114	6,081	3,325	831
Net change in unrealized appreciation/depreciation	(137,414)	29,399	(98,255)	36,165
Net (decrease) increase from operations	(117,258)	43,732	(89,277)	40,751
Contract Owner Transactions:
Purchase payments received	503,823	355,726	221,468	100,995
Transfers between Sub-Accounts
(including the Fixed Account), net	(38,461)	96,838	(4,938)	113,194
Withdrawals, surrenders and surrender charges	(5,274)	(1,409)	(6,511)	-
Mortality and expense risk charges	(1,540)	(607)	(771)	(381)
Charges for life insurance protection and
monthly administration charge	(30,381)	(21,479)	(18,065)	(6,600)
Net increase from contract owner transactions	428,167	429,069	191,183	207,208
Total increase in net assets	310,909	472,801	101,906	247,959
Net assets at beginning of year	525,259	52,457	304,652	56,695
Net assets at end of year	$       836,168	$       525,259	$        406,558	$       304,652

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	9XX Sub-Account		MBI Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         66,982	$         23,597	$         20,919	$         16,056
Net realized gains (losses)	141,298	44,622	(1,048)	14,331
Net change in unrealized appreciation/depreciation	(304,469)	91,687	(101,873)	(7,165)
Net (decrease) increase from operations	(96,189)	159,906	(82,002)	23,222
Contract Owner Transactions:
Purchase payments received	701,167	415,684	140,403	134,431
Transfers between Sub-Accounts
(including the Fixed Account), net	217,831	1,372,999	122,621	138,463
Withdrawals, surrenders and surrender charges	(55,005)	(16,429)	(6,686)	(2,166)
Mortality and expense risk charges	(11,121)	(7,784)	(1,572)	(945)
Charges for life insurance protection and
monthly administration charge	(167,424)	(92,076)	(72,543)	(68,081)
Net increase from contract owner transactions	685,448	1,672,394	182,223	201,702
Total increase in net assets	589,259	1,832,300	100,221	224,924
Net assets at beginning of year	2,240,625	408,326	506,914	281,990
Net assets at end of year	$    2,829,884	$    2,240,625	$        607,135	$       506,914

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	MBO Sub-Account		MCC Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           1,741	$           2,456	$                -	$                  -
Net realized gains	17,742	19,979	16,534	6,334
Net change in unrealized appreciation/depreciation	(37,323)	14,515	(66,623)	32,283
Net (decrease) increase from operations	(17,840)	36,950	(50,089)	38,617
Contract Owner Transactions:
Purchase payments received	87,677	81,477	157,291	77,169
Transfers between Sub-Accounts
(including the Fixed Account), net	122,822	117,084	99,984	51,283
Withdrawals, surrenders and surrender charges	(10,563)	(3,868)	(23,410)	(2,859)
Mortality and expense risk charges	(1,366)	(859)	(1,500)	(796)
Charges for life insurance protection and
monthly administration charge	(54,216)	(50,277)	(31,452)	(23,785)
Net increase from contract owner transactions	144,354	143,557	200,913	101,012
Total increase in net assets	126,514	180,507	150,824	139,629
Net assets at beginning of year	451,527	271,021	297,396	157,767
Net assets at end of year	$       578,041	$       451,527	$        448,220	$        297,396

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	DGO Sub-Account		DMC Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           6,551	$                -	$         15,519	$         26,171
Net realized gains (losses)	134,591	10,636	(193,936)	(170,823)
Net change in unrealized appreciation/depreciation	(85,077)	172,376	203,528	808,888
Net increase from operations	56,065	183,012	25,111	664,236
Contract Owner Transactions:
Purchase payments received	70,187	58,612	239,612	284,075
Transfers between Sub-Accounts
(including the Fixed Account), net	(85,092)	(159,666)	(236,731)	(33,541)
Withdrawals, surrenders and surrender charges	(15,549)	(3,237)	(213,716)	(160,674)
Mortality and expense risk charges	(3,596)	(2,960)	(16,876)	(24,890)
Charges for life insurance protection and
monthly administration charge	(42,603)	(35,977)	(205,708)	(196,542)
Net decrease from contract owner transactions	(76,653)	(143,228)	(433,419)	(131,572)
Total (decrease) increase in net assets	(20,588)	39,784	(408,308)	532,664
Net assets at beginning of year	631,929	592,145	3,050,528	2,517,864
Net assets at end of year	$       611,341	$       631,929	$     2,642,220	$     3,050,528

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SCV Sub-Account		SSC Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$       25,639	$       28,130	$         23,411	$         24,217
Net realized losses	(62,978)	(307,168)	(255,494)	(161,321)
Net change in unrealized appreciation/depreciation	(92,842)	764,946	87,851	1,089,983
Net (decrease) increase from operations	(130,181)	485,908	(144,232)	952,879
Contract Owner Transactions:
Purchase payments received	181,723	153,972	92,298	495,621
Transfers between Sub-Accounts
(including the Fixed Account), net	(221,113)	(84,912)	(1,002,475)	(45,738)
Withdrawals, surrenders and surrender charges	(67,707)	(100,956)	(186,945)	(122,525)
Mortality and expense risk charges	(13,635)	(16,743)	(22,339)	(31,738)
Charges for life insurance protection and
monthly administration charge	(118,498)	(120,961)	(215,088)	(273,671)
Net (decrease) increase from contract owner transactions	(239,230)	(169,600)	(1,334,549)	21,949
Total (decrease) increase in net assets	(369,411)	316,308	(1,478,781)	974,828
Net assets at beginning of year	2,480,292	2,163,984	4,661,978	3,687,150
Net assets at end of year	$   2,110,881	$   2,480,292	$     3,183,197	$    4,661,978

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FVB Sub-Account		FL1 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           2,551	$           1,774	$         10,680	$           7,301
Net realized gains	4,947	7,264	33,207	34,098
Net change in unrealized appreciation/depreciation	(12,000)	8,586	(83,833)	56,531
Net (decrease) increase from operations	(4,502)	17,624	(39,946)	97,930
Contract Owner Transactions:
Purchase payments received	66,341	16,064	529,360	251,467
Transfers between Sub-Accounts
(including the Fixed Account), net	27,380	28,848	143,062	229,817
Withdrawals, surrenders and surrender charges	(1,960)	(14,667)	(10,998)	(18,044)
Mortality and expense risk charges	(650)	(445)	(3,099)	(1,378)
Charges for life insurance protection and
monthly administration charge	(12,494)	(9,827)	(96,377)	(58,330)
Net increase from contract owner transactions	78,617	19,973	561,948	403,532
Total increase in net assets	74,115	37,597	522,002	501,462
Net assets at beginning of year	129,852	92,255	839,443	337,981
Net assets at end of year	$       203,967	$       129,852	$     1,361,445	$       839,443

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FL6 Sub-Account		F15 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$       59,684	$       72,948	$         5,704	$           4,921
Net realized (losses) gains	(456,041)	(358,615)	6,220	6,158
Net change in unrealized appreciation/depreciation	270,596	1,364,856	(13,127)	16,431
Net (decrease) increase from operations	(125,761)	1,079,189	(1,203)	27,510
Contract Owner Transactions:
Purchase payments received	407,456	480,486	59,319	52,968
Transfers between Sub-Accounts
(including the Fixed Account), net	(447,235)	(175,404)	(1,351)	9,667
Withdrawals, surrenders and surrender charges	(539,938)	(124,132)	-	-
Mortality and expense risk charges	(40,370)	(61,283)	(567)	(437)
Charges for life insurance protection and
monthly administration charge	(395,542)	(416,714)	(19,358)	(17,439)
Net (decrease) increase from contract owner transactions	(1,015,629)	(297,047)	38,043	44,759
Total (decrease) increase in net assets	(1,141,390)	782,142	36,840	72,269
Net assets at beginning of year	7,274,453	6,492,311	265,345	193,076
Net assets at end of year	$   6,133,063	$   7,274,453	$      302,185	$       265,345

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	F20 Sub-Account		F30 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           4,245	$           3,025	$           4,005	$           3,440
Net realized gains	2,855	14,643	11,461	32,122
Net change in unrealized appreciation/depreciation	(5,848)	675	(21,775)	(9,954)
Net increase (decrease) from operations	1,252	18,343	(6,309)	25,608
Contract Owner Transactions:
Purchase payments received	72,228	62,180	35,685	31,418
Transfers between Sub-Accounts
(including the Fixed Account), net	-	9,665	(43)	27,901
Withdrawals, surrenders and surrender charges	-	-	(17,769)	-
Mortality and expense risk charges	(394)	(247)	(551)	(413)
Charges for life insurance protection and
monthly administration charge	(22,471)	(22,656)	(11,452)	(8,948)
Net increase from contract owner transactions	49,363	48,942	5,870	49,958
Total increase (decrease) in net assets	50,615	67,285	(439)	75,566
Net assets at beginning of year	160,980	93,695	206,801	131,235
Net assets at end of year	$       211,595	$       160,980	$        206,362	$       206,801

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FL8 Sub-Account		FIS Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$       4,892	$           2,934	$       144,953	$         97,086
Net realized gains (losses)	29,148	(27,459)	155,276	(30,945)
Net change in unrealized appreciation/depreciation	(25,928)	402,210	(217,556)	507,524
Net increase from operations	8,112	377,685	82,673	573,665
Contract Owner Transactions:
Purchase payments received	80,942	102,785	1,080,857	1,390,871
Transfers between Sub-Accounts
(including the Fixed Account), net	48,225	(139,044)	1,064,663	3,332,403
Withdrawals, surrenders and surrender charges	(118,579)	(51,693)	(16,445)	(2,944)
Mortality and expense risk charges	(11,906)	(16,239)	(17,794)	(7,071)
Charges for life insurance protection and
monthly administration charge	(103,408)	(100,997)	(225,607)	(126,596)
Net (decrease) increase from contract owner transactions	(104,726)	(205,188)	1,885,674	4,586,663
Total (decrease) increase in net assets	(96,614)	172,497	1,968,347	5,160,328
Net assets at beginning of year	1,891,211	1,718,714	6,203,239	1,042,911
Net assets at end of year	$   1,794,597	$    1,891,211	$     8,171,586	$    6,203,239

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FL4 Sub-Account		FVM Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$     233,416	$     231,509	$              313	$           1,146
Net realized gains	110,656	102,956	47,395	23,827
Net change in unrealized appreciation/depreciation	(140,858)	1,432,991	(193,664)	132,023
Net increase (decrease) from operations	203,214	1,767,456	(145,956)	156,996
Contract Owner Transactions:
Purchase payments received	1,179,833	1,255,566	313,845	248,557
Transfers between Sub-Accounts
(including the Fixed Account), net	(1,197,120)	4,567	198,236	472,926
Withdrawals, surrenders and surrender charges	(397,148)	(839,962)	(103,599)	(523)
Mortality and expense risk charges	(81,820)	(112,583)	(3,166)	(1,688)
Charges for life insurance protection and
monthly administration charge	(965,000)	(939,091)	(63,313)	(35,750)
Net (decrease) increase from contract owner transactions	(1,461,255)	(631,503)	342,003	683,522
Total (decrease) increase in net assets	(1,258,041)	1,135,953	196,047	840,518
Net assets at beginning of year	13,434,002	12,298,049	1,058,455	217,937
Net assets at end of year	$ 12,175,961	$ 13,434,002	$     1,254,502	$     1,058,455

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FL5 Sub-Account		FL7 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         2,498	$           7,152	$        90,081	$         92,415
Net realized gains (losses)	-	5,300	(798,395)	(218,767)
Net change in unrealized appreciation/depreciation	-	-	(541,914)	1,019,993
Net increase (decrease) from operations	2,498	12,452	(1,250,228)	893,641
Contract Owner Transactions:
Purchase payments received	964,020	1,079,411	626,607	723,853
Transfers between Sub-Accounts
(including the Fixed Account), net	1,693,116	(1,085,900)	(714,150)	134,680
Withdrawals, surrenders and surrender charges	(2,821,199)	(388,087)	(241,115)	(346,681)
Mortality and expense risk charges	(57,701)	(122,866)	(48,342)	(62,349)
Charges for life insurance protection and
monthly administration charge	(838,415)	(850,507)	(443,428)	(436,949)
Net (decrease) increase from contract owner transactions	(1,060,179)	(1,367,949)	(820,428)	12,554
Total (decrease) increase in net assets	(1,057,681)	(1,355,497)	(2,070,656)	906,195
Net assets at beginning of year	8,389,376	9,744,873	7,667,704	6,761,509
Net assets at end of year	$   7,331,695	$    8,389,376	$    5,597,048	$    7,667,704

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SGI Sub-Account		S17 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         21,797	$         20,739	$                18	$           2,444
Net realized gains (losses)	73,146	(2,749)	1,123	659
Net change in unrealized appreciation/depreciation	(211,530)	139,133	(2,630)	6,890
Net (decrease) increase from operations	(116,587)	157,123	(1,489)	9,993
Contract Owner Transactions:
Purchase payments received	455,279	264,308	23,983	24,500
Transfers between Sub-Accounts
(including the Fixed Account), net	93,581	725,706	(1,690)	418
Withdrawals, surrenders and surrender charges	(16,810)	(16,453)	(12)	(8)
Mortality and expense risk charges	(3,873)	(1,807)	(325)	(261)
Charges for life insurance protection and
monthly administration charge	(94,852)	(44,555)	(4,740)	(3,574)
Net increase from contract owner transactions	433,325	927,199	17,216	21,075
Total increase in net assets	316,738	1,084,322	15,727	31,068
Net assets at beginning of year	1,389,509	305,187	119,953	88,885
Net assets at end of year	$    1,706,247	$    1,389,509	$        135,680	$       119,953

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	ISC Sub-Account		FMS Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         23,369	$         11,027	$         26,421	$           9,108
Net realized (losses) gains	(1,741)	(1,147)	41,936	13,117
Net change in unrealized appreciation/depreciation	(11,118)	18,352	(99,655)	44,230
Net increase (decrease) from operations	10,510	28,232	(31,298)	66,455
Contract Owner Transactions:
Purchase payments received	148,738	18,884	377,837	72,744
Transfers between Sub-Accounts
(including the Fixed Account), net	94,111	229,762	(161,419)	294,423
Withdrawals, surrenders and surrender charges	396	(915)	(22,811)	(1,811)
Mortality and expense risk charges	(671)	(354)	(2,817)	(1,660)
Charges for life insurance protection and
monthly administration charge	(27,702)	(11,528)	(55,597)	(31,920)
Net increase from contract owner transactions	214,872	235,849	135,193	331,776
Total increase in net assets	225,382	264,081	103,895	398,231
Net assets at beginning of year	322,495	58,414	783,823	385,592
Net assets at end of year	$       547,877	$       322,495	$       887,718	$       783,823

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FVS Sub-Account		SIC Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           8,218	$           5,783	$         44,288	$           9,012
Net realized gains (losses)	42,417	28,059	(44)	3,059
Net change in unrealized appreciation/depreciation	(93,518)	118,146	(27,267)	7,101
Net (decrease) increase from operations	(42,883)	151,988	16,977	19,172
Contract Owner Transactions:
Purchase payments received	287,248	106,645	297,157	229,474
Transfers between Sub-Accounts
(including the Fixed Account), net	151,683	464,579	271,194	234,660
Withdrawals, surrenders and surrender charges	(6,993)	(8,406)	(23,389)	(911)
Mortality and expense risk charges	(2,581)	(1,408)	(1,729)	(536)
Charges for life insurance protection and
monthly administration charge	(63,586)	(40,056)	(38,143)	(16,830)
Net increase from contract owner transactions	365,771	521,354	505,090	445,857
Total increase in net assets	322,888	673,342	522,067	465,029
Net assets at beginning of year	987,208	313,866	494,415	29,386
Net assets at end of year	$    1,310,096	$       987,208	$     1,016,482	$        494,415

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FGF Sub-Account		MCA Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                2	$                  2	$                  -	$              584
Net realized gains	1	1	100,114	38,859
Net change in unrealized appreciation/depreciation	-	-	(136,746)	46,260
Net increase (decrease) from operations	3	3	(36,632)	85,703
Contract Owner Transactions:
Purchase payments received	11	11	62,423	117,047
Transfers between Sub-Accounts
(including the Fixed Account), net	-	-	87,033	96,206
Withdrawals, surrenders and surrender charges	(1)	-	(18,841)	(10,394)
Mortality and expense risk charges	-	-	(1,611)	(974)
Charges for life insurance protection and
monthly administration charge	(16)	(18)	(55,283)	(37,686)
Net (decrease) increase from contract owner transactions	(6)	(7)	73,721	164,199
Total (decrease) increase in net assets	(3)	(4)	37,089	249,902
Net assets at beginning of year	51	55	498,518	248,616
Net assets at end of year	$               48	$                51	$        535,607	$        498,518

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	GS4 Sub-Account		GS8 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         2,893	$         1,832	$           2,508	$           2,394
Net realized gains (losses)	18,677	(18,762)	(12,107)	(23,316)
Net change in unrealized appreciation/depreciation	(35,599)	43,179	(10,744)	102,743
Net (decrease) increase from operations	(14,029)	26,249	(20,343)	81,821
Contract Owner Transactions:
Purchase payments received	13,382	11,192	23	(427)
Transfers between Sub-Accounts
(including the Fixed Account), net	1,284	10,324	(20,972)	(20,053)
Withdrawals, surrenders and surrender charges	(11,322)	(526)	(25,313)	(16,910)
Mortality and expense risk charges	(638)	(1,195)	(2,273)	(2,504)
Charges for life insurance protection and
monthly administration charge	(9,619)	(13,399)	(16,228)	(18,878)
Net (decrease) increase from contract owner transactions	(6,913)	6,396	(64,763)	(58,772)
Total (decrease) increase in net assets	(20,942)	32,645	(85,106)	23,049
Net assets at beginning of year	240,204	207,559	387,522	364,473
Net assets at end of year	$      219,262	$      240,204	$        302,416	$        387,522

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	GS5 Sub-Account		GS2 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         17,445	$           9,264	$           1,670	$           1,178
Net realized losses	(141,647)	(72,613)	(8,199)	(29,760)
Net change in unrealized appreciation/depreciation	40,968	126,299	12,042	88,130
Net (decrease) increase from operations	(83,234)	62,950	5,513	59,548
Contract Owner Transactions:
Purchase payments received	26,026	35,502	11,361	13,325
Transfers between Sub-Accounts
(including the Fixed Account), net	(21,674)	(20,961)	(19,013)	(18,729)
Withdrawals, surrenders and surrender charges	(89,063)	(23,433)	(25,520)	(6,607)
Mortality and expense risk charges	(2,323)	(3,300)	(795)	(1,156)
Charges for life insurance protection and
monthly administration charge	(46,264)	(48,924)	(13,267)	(15,231)
Net decrease from contract owner transactions	(133,298)	(61,116)	(47,234)	(28,398)
Total (decrease) increase in net assets	(216,532)	1,834	(41,721)	31,150
Net assets at beginning of year	636,285	634,451	240,185	209,035
Net assets at end of year	$       419,753	$       636,285	$        198,464	$       240,185

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	GS3 Sub-Account		AI1 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         55,402	$         46,743	$           1,697	$         10,253
Net realized losses	(290,052)	(237,922)	(115,906)	(84,287)
Net change in unrealized appreciation/depreciation	380,265	599,847	29,758	271,304
Net increase (decrease) from operations	145,615	408,668	(84,451)	197,270
Contract Owner Transactions:
Purchase payments received	201,201	230,310	60,274	61,612
Transfers between Sub-Accounts
(including the Fixed Account), net	(164,470)	(51,806)	(462,182)	(143,310)
Withdrawals, surrenders and surrender charges	(218,493)	(134,014)	(19,246)	(47,042)
Mortality and expense risk charges	(20,700)	(31,894)	(8,908)	(15,883)
Charges for life insurance protection and
monthly administration charge	(172,855)	(169,266)	(114,816)	(131,220)
Net decrease from contract owner transactions	(375,317)	(156,670)	(544,878)	(275,843)
Total (decrease) increase in net assets	(229,702)	251,998	(629,329)	(78,573)
Net assets at beginning of year	3,340,788	3,088,790	1,335,427	1,414,000
Net assets at end of year	$    3,111,086	$    3,340,788	$        706,098	$     1,335,427

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	AAH Sub-Account		AI3 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$           9,364	$           9,349
Net realized (losses) gains	(729)	-	30,617	10,678
Net change in unrealized appreciation/depreciation	(25,850)	-	(33,199)	68,852
Net (decrease) increase from operations	(26,579)	-	6,782	88,879
Contract Owner Transactions:
Purchase payments received	(4)	-	89,570	30,723
Transfers between Sub-Accounts
(including the Fixed Account), net	150,888	-	(54,589)	(43,162)
Withdrawals, surrenders and surrender charges	(579)	-	(59,376)	(32,321)
Mortality and expense risk charges	(611)	-	(5,219)	(8,931)
Charges for life insurance protection and
monthly administration charge	(2,551)	-	(61,964)	(61,681)
Net increase (decrease) from contract owner transactions	147,143	-	(91,578)	(115,372)
Total increase (decrease) in net assets	120,564	-	(84,796)	(26,493)
Net assets at beginning of year	-	-	1,011,712	1,038,205
Net assets at end of year	$        120,564	$                   -	$        926,916	$    1,011,712

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	IV1 Sub-Account		AI4 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$       113,512	$       164,388
Net realized gains (losses)	59,666	20,266	(300,662)	(81,534)
Net change in unrealized appreciation/depreciation	(43,376)	10,003	(188,012)	739,621
Net increase (decrease) from operations	16,290	30,269	(375,162)	822,475
Contract Owner Transactions:
Purchase payments received	-	(2,488)	448,130	1,135,269
Transfers between Sub-Accounts
(including the Fixed Account), net	(151,449)	(13,903)	(514,307)	(750,898)
Withdrawals, surrenders and surrender charges	(3)	(54,746)	(480,460)	(184,780)
Mortality and expense risk charges	(284)	(1,567)	(40,669)	(66,928)
Charges for life insurance protection and
monthly administration charge	(1,620)	(6,436)	(381,089)	(415,344)
Net decrease from contract owner transactions	(153,356)	(79,140)	(968,395)	(282,681)
Total (decrease) increase in net assets	(137,066)	(48,871)	(1,343,557)	539,794
Net assets at beginning of year	137,066	185,937	7,685,763	7,145,969
Net assets at end of year	$                   -	$       137,066	$     6,342,206	$     7,685,763

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	ASC Sub-Account		VKU Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$          1,054	$           728
Net realized gains (losses)	6,346	(6,117)	(1,409)	260
Net change in unrealized appreciation/depreciation	(3,084)	56,105	(931)	3,347
Net increase (decrease) from operations	3,262	49,988	(1,286)	4,335
Contract Owner Transactions:
Purchase payments received	-	-	162,307	15,480
Transfers between Sub-Accounts
(including the Fixed Account), net	(2,380)	(17,538)	100,886	3,317
Withdrawals, surrenders and surrender charges	(51,929)	(506)	(10,985)	-
Mortality and expense risk charges	(1,282)	(3,627)	(202)	(153)
Charges for life insurance protection and
monthly administration charge	(10,028)	(8,120)	(6,465)	(987)
Net (decrease) increase from contract owner transactions	(65,619)	(29,791)	245,541	17,657
Total (decrease) increase in net assets	(62,357)	20,197	244,255	21,992
Net assets at beginning of year	220,879	200,682	42,321	20,329
Net assets at end of year	$      158,522	$       220,879	$      286,576	$        42,321

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	MIT Sub-Account		EM1 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$       26,958	$         21,804	$           5,696	$           6,778
Net realized (losses) gains	(30,996)	(18,562)	92,397	112,490
Net change in unrealized appreciation/depreciation	31,776	182,068	(419,898)	73,211
Net increase (decrease) from operations	27,738	185,310	(321,805)	192,479
Contract Owner Transactions:
Purchase payments received	113,216	121,233	361,416	511,552
Transfers between Sub-Accounts
(including the Fixed Account), net	(97,908)	55,016	154,144	5,514
Withdrawals, surrenders and surrender charges	(81,961)	(54,813)	(24,361)	(11,440)
Mortality and expense risk charges	(7,839)	(17,756)	(3,389)	(2,137)
Charges for life insurance protection and
monthly administration charge	(97,869)	(94,015)	(70,132)	(50,284)
Net (decrease) increase from contract owner transactions	(172,361)	9,665	417,678	453,205
Total (decrease) increase in net assets	(144,623)	194,975	95,873	645,684
Net assets at beginning of year	1,428,524	1,233,549	1,397,278	751,594
Net assets at end of year	$   1,283,901	$    1,428,524	$     1,493,151	$    1,397,278

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	GSS Sub-Account		MFK Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$     141,675	$     167,357	$       23,032	$           2,448
Net realized gains	123,337	59,719	1,666	276
Net change in unrealized appreciation/depreciation	16,513	(3,663)	21,648	504
Net increase from operations	281,525	223,413	46,346	3,229
Contract Owner Transactions:
Purchase payments received	159,056	273,468	81,490	96,242
Transfers between Sub-Accounts
(including the Fixed Account), net	(691,581)	(113,609)	465,176	26,030
Withdrawals, surrenders and surrender charges	(266,021)	(251,914)	(7,205)	-
Mortality and expense risk charges	(22,796)	(40,899)	(1,472)	(368)
Charges for life insurance protection and
monthly administration charge	(339,063)	(401,546)	(28,169)	(8,281)
Net (decrease) increase from contract owner transactions	(1,160,405)	(534,500)	509,820	113,623
Total (decrease) increase in net assets	(878,880)	(311,087)	556,166	116,852
Net assets at beginning of year	4,588,328	4,899,415	174,994	58,143
Net assets at end of year	$   3,709,448	$   4,588,328	$      731,160	$       174,994

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	EGS Sub-Account		HYS Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$            378	$              225	$       266,277	$       246,695
Net realized gains (losses)	32,476	12,781	185,004	(187,643)
Net change in unrealized appreciation/depreciation	(31,131)	25,583	(287,680)	273,729
Net increase from operations	1,723	38,589	163,601	332,781
Contract Owner Transactions:
Purchase payments received	(1)	37	185,833	186,099
Transfers between Sub-Accounts
(including the Fixed Account), net	(2,525)	(3,065)	328,801	2,100,159
Withdrawals, surrenders and surrender charges	(46,169)	(1,388)	(148,927)	(87,782)
Mortality and expense risk charges	(1,485)	(3,112)	(22,201)	(33,916)
Charges for life insurance protection and
monthly administration charge	(23,164)	(25,372)	(409,806)	(266,938)
Net (decrease) increase from contract owner transactions	(73,344)	(32,900)	(66,300)	1,897,622
Total (decrease) increase in net assets	(71,621)	5,689	97,301	2,230,403
Net assets at beginning of year	279,891	274,202	4,778,452	2,548,049
Net assets at end of year	$      208,270	$       279,891	$     4,875,753	$    4,778,452

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	IG1 Sub-Account		MIS Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$        6,031	$            522	$         9,383	$           4,911
Net realized gains	62,366	4,800	62,310	29,700
Net change in unrealized appreciation/depreciation	(137,887)	59,226	(57,489)	151,081
Net (decrease) increase from operations	(69,490)	64,548	14,204	185,692
Contract Owner Transactions:
Purchase payments received	165,551	105,988	122,413	128,703
Transfers between Sub-Accounts
(including the Fixed Account), net	41,497	408,064	(111,215)	11,605
Withdrawals, surrenders and surrender charges	(11,096)	-	(85,930)	(50,891)
Mortality and expense risk charges	(1,728)	(884)	(8,533)	(14,004)
Charges for life insurance protection and
monthly administration charge	(30,016)	(18,380)	(101,267)	(101,887)
Net increase (decrease) from contract owner transactions	164,208	494,788	(184,532)	(26,474)
Total increase (decrease) in net assets	94,718	559,336	(170,328)	159,218
Net assets at beginning of year	599,657	40,322	1,690,399	1,531,181
Net assets at end of year	$      694,375	$      599,657	$   1,520,071	$    1,690,399

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	RI1 Sub-Account		MFJ Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$              809	$              287	$           1,328	$              722
Net realized gains	1,226	269	2,123	1,001
Net change in unrealized appreciation/depreciation	(7,470)	3,831	(24)	1,467
Net (decrease) increase from operations	(5,435)	4,387	3,427	3,190
Contract Owner Transactions:
Purchase payments received	12,806	12,441	52,377	19,009
Transfers between Sub-Accounts
(including the Fixed Account), net	8,438	3,303	12,782	9,588
Withdrawals, surrenders and surrender charges	(412)	-	(3)	(8,519)
Mortality and expense risk charges	(191)	(129)	(327)	(111)
Charges for life insurance protection and
monthly administration charge	(3,887)	(2,841)	(8,745)	(4,279)
Net increase from contract owner transactions	16,754	12,774	56,084	15,688
Total increase in net assets	11,319	17,161	59,511	18,878
Net assets at beginning of year	40,422	23,261	45,980	27,102
Net assets at end of year	$         51,741	$         40,422	$        105,491	$          45,980

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	UTS Sub-Account		MFE Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         58,967	$         50,417	$         16,100	$          5,607
Net realized (losses) gains	(34,611)	(36,342)	11,269	14,094
Net change in unrealized appreciation/depreciation	95,079	190,726	(7,354)	19,287
Net increase from operations	119,435	204,801	20,015	38,988
Contract Owner Transactions:
Purchase payments received	115,495	113,919	46,904	22,520
Transfers between Sub-Accounts
(including the Fixed Account), net	97,829	(55,874)	340,534	258,835
Withdrawals, surrenders and surrender charges	(183,151)	(73,361)	1,870	(59,333)
Mortality and expense risk charges	(7,905)	(12,359)	(961)	(349)
Charges for life insurance protection and
monthly administration charge	(119,732)	(128,716)	(31,414)	(23,076)
Net (decrease) increase from contract owner transactions	(97,464)	(156,391)	356,933	198,597
Total increase in net assets	21,971	48,410	376,948	237,585
Net assets at beginning of year	1,705,118	1,656,708	286,853	49,268
Net assets at end of year	$    1,727,089	$    1,705,118	$        663,801	$       286,853

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	MV1 Sub-Account		IGS Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         12,625	$           3,601	$           4,808	$           2,987
Net realized gains	78,706	10,841	68,767	44,671
Net change in unrealized appreciation/depreciation	(80,604)	33,493	(119,173)	35,388
Net increase (decrease) from operations	10,727	47,935	(45,598)	83,046
Contract Owner Transactions:
Purchase payments received	263,003	225,285	35,442	13,645
Transfers between Sub-Accounts
(including the Fixed Account), net	590,701	151,755	87,907	196,948
Withdrawals, surrenders and surrender charges	(26,219)	(2,900)	-	-
Mortality and expense risk charges	(3,033)	(1,190)	(2,759)	(2,751)
Charges for life insurance protection and
monthly administration charge	(60,883)	(33,871)	(17,413)	(18,065)
Net increase from contract owner transactions	763,569	339,079	103,177	189,777
Total increase in net assets	774,296	387,014	57,579	272,823
Net assets at beginning of year	667,299	280,285	511,122	238,299
Net assets at end of year	$    1,441,595	$       667,299	$        568,701	$       511,122

.

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	NWD Sub-Account		TRS Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$       105,541	$       103,890
Net realized gains (losses)	152,126	(15,148)	(97,186)	(121,815)
Net change in unrealized appreciation/depreciation	(327,982)	445,698	62,071	395,189
Net (decrease) increase from operations	(175,856)	430,550	70,426	377,264
Contract Owner Transactions:
Purchase payments received	121,579	129,658	263,041	282,677
Transfers between Sub-Accounts
(including the Fixed Account), net	362,368	25,144	(251,652)	(17,731)
Withdrawals, surrenders and surrender charges	(62,230)	(52,148)	(191,665)	(279,753)
Mortality and expense risk charges	(8,460)	(13,146)	(21,269)	(31,500)
Charges for life insurance protection and
monthly administration charge	(125,248)	(112,093)	(266,640)	(283,435)
Net increase (decrease) from contract owner transactions	288,009	(22,585)	(468,185)	(329,742)
Total increase (decrease) in net assets	112,153	407,965	(397,759)	47,522
Net assets at beginning of year	1,673,771	1,265,806	3,993,230	3,945,708
Net assets at end of year	$   1,785,924	$   1,673,771	$     3,595,471	$    3,993,230

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	MVS Sub-Account		MF7 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         40,042	$       37,431	$         18,906	$           9,963
Net realized (losses) gains	(133,247)	(206,740)	1,852	11,353
Net change in unrealized appreciation/depreciation	100,854	445,951	3,551	(1,018)
Net increase from operations	7,649	276,642	24,309	20,298
Contract Owner Transactions:
Purchase payments received	117,863	137,691	88,789	468,701
Transfers between Sub-Accounts
(including the Fixed Account), net	(64,650)	57,216	695,157	(183,880)
Withdrawals, surrenders and surrender charges	(214,007)	(15,519)	(765)	-
Mortality and expense risk charges	(15,112)	(19,590)	(1,227)	(672)
Charges for life insurance protection and
monthly administration charge	(170,960)	(160,827)	(41,072)	(15,045)
Net (decrease) increase from contract owner transactions	(346,866)	(1,029)	740,882	269,104
Total (decrease) increase in net assets	(339,217)	275,613	765,191	289,402
Net assets at beginning of year	2,699,635	2,424,022	318,313	28,911
Net assets at end of year	$    2,360,418	$   2,699,635	$     1,083,504	$       318,313

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	OCF Sub-Account		OCA Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           2,203	$            969	$              83	$                  -
Net realized (losses) gains	(3,166)	(18,995)	4,003	6,104
Net change in unrealized appreciation/depreciation	(5,761)	69,085	(2,359)	(3,769)
Net (decrease) increase from operations	(6,724)	51,059	1,727	2,335
Contract Owner Transactions:
Purchase payments received	65,598	63,399	4,665	51,723
Transfers between Sub-Accounts
(including the Fixed Account), net	(7,173)	20,509	(50,526)	9,948
Withdrawals, surrenders and surrender charges	(2,579)	(30,505)	-	(9,799)
Mortality and expense risk charges	(3,964)	(3,965)	(333)	(161)
Charges for life insurance protection and
monthly administration charge	(47,996)	(45,093)	(4,605)	(4,545)
Net increase (decrease) from contract owner transactions	3,886	4,345	(50,799)	47,166
Total (decrease) increase in net assets	(2,838)	55,404	(49,072)	49,501
Net assets at beginning of year	607,056	551,652	74,599	25,098
Net assets at end of year	$       604,218	$      607,056	$        25,527	$         74,599

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	OGG Sub-Account		OMG Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$              500	$              169	$              688	$              872
Net realized gains (losses)	168	91	431	(70)
Net change in unrealized appreciation/depreciation	(4,294)	6,722	(1,515)	15,411
Net (decrease) increase from operations	(3,626)	6,982	(396)	16,213
Contract Owner Transactions:
Purchase payments received	32,575	4,393	14,696	15,196
Transfers between Sub-Accounts
(including the Fixed Account), net	(6)	26,232	(184)	(159)
Withdrawals, surrenders and surrender charges	(420)	(1,534)	(35)	(1,010)
Mortality and expense risk charges	(191)	(132)	(355)	(307)
Charges for life insurance protection and
monthly administration charge	(1,621)	(1,058)	(6,703)	(6,198)
Net increase from contract owner transactions	30,337	27,901	7,419	7,522
Total increase in net assets	26,711	34,883	7,023	23,735
Net assets at beginning of year	48,052	13,169	121,044	97,309
Net assets at end of year	$         74,763	$         48,052	$        128,067	$        121,044

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SBJ Sub-Account		PCR Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                48	$                -	$         80,978	$         74,382
Net realized gains (losses)	317	-	150	(43,535)
Net change in unrealized appreciation/depreciation	(1,293)	-	(123,783)	71,243
Net (decrease) increase from operations	(928)	-	(42,655)	102,090
Contract Owner Transactions:
Purchase payments received	5,086	-	93,999	175,880
Transfers between Sub-Accounts
(including the Fixed Account), net	36,238	-	96,539	(121,957)
Withdrawals, surrenders and surrender charges	-	-	(2,094)	(1,476)
Mortality and expense risk charges	(18)	-	(1,515)	(1,105)
Charges for life insurance protection and
monthly administration charge	(766)	-	(46,700)	(40,197)
Net increase from contract owner transactions	40,540	-	140,229	11,145
Total increase in net assets	39,612	-	97,574	113,235
Net assets at beginning of year	-	-	449,565	336,330
Net assets at end of year	$         39,612	$                   -	$        547,139	$       449,565

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	PMB Sub-Account		PRR Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$       210,307	$       168,382	$         60,249	$         35,031
Net realized gains	19,616	2,189	154,897	38,443
Net change in unrealized appreciation/depreciation	9,824	208,551	99,320	114,318
Net increase from operations	239,747	379,122	314,466	187,792
Contract Owner Transactions:
Purchase payments received	476,550	448,379	421,098	233,255
Transfers between Sub-Accounts
(including the Fixed Account), net	229,694	193,881	834,141	61,692
Withdrawals, surrenders and surrender charges	(193,701)	(116,117)	(135,247)	(47,953)
Mortality and expense risk charges	(18,451)	(27,763)	(15,690)	(23,457)
Charges for life insurance protection and
monthly administration charge	(286,777)	(258,238)	(239,506)	(200,118)
Net increase from contract owner transactions	207,315	240,142	864,796	23,419
Total increase in net assets	447,062	619,264	1,179,262	211,211
Net assets at beginning of year	3,753,961	3,134,697	2,469,614	2,258,403
Net assets at end of year	$     4,201,023	$     3,753,961	$     3,648,876	$     2,469,614

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	PTR Sub-Account		118 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$     244,162	$     236,652	$         15,379	$                  3
Net realized gains	253,197	776,780	27,519	5,224
Net change in unrealized appreciation/depreciation	(171,757)	(190,837)	(147,699)	5,593
Net increase (decrease) from operations	325,602	822,595	(104,801)	10,820
Contract Owner Transactions:
Purchase payments received	1,405,461	728,300	24,081	12,563
Transfers between Sub-Accounts
(including the Fixed Account), net	511,078	(620,778)	250,844	596,099
Withdrawals, surrenders and surrender charges	(443,846)	(296,420)	2,950	(24,777)
Mortality and expense risk charges	(48,590)	(66,770)	(1,445)	(338)
Charges for life insurance protection and
monthly administration charge	(661,479)	(762,281)	(19,488)	(8,538)
Net increase (decrease) from contract owner transactions	762,624	(1,017,949)	256,942	575,009
Total increase (decrease) in net assets	1,088,226	(195,354)	152,141	585,829
Net assets at beginning of year	8,881,409	9,076,763	619,332	33,503
Net assets at end of year	$   9,969,635	$   8,881,409	$        771,473	$       619,332

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SBB Sub-Account		115 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$         29,278	$         12,501
Net realized (losses) gains	(77)	-	41,983	41,199
Net change in unrealized appreciation/depreciation	(342)	-	74,342	(2,851)
Net (decrease) increase from operations	(419)	-	145,603	50,849
Contract Owner Transactions:
Purchase payments received	862	-	361,308	492,308
Transfers between Sub-Accounts
(including the Fixed Account), net	33,210	-	290,313	(45,362)
Withdrawals, surrenders and surrender charges	-	-	(11,578)	(1,368)
Mortality and expense risk charges	(7)	-	(3,925)	(3,221)
Charges for life insurance protection and
monthly administration charge	(340)	-	(72,780)	(53,734)
Net increase from contract owner transactions	33,725	-	563,338	388,623
Total increase in net assets	33,306	-	708,941	439,472
Net assets at beginning of year	-	-	1,005,235	565,763
Net assets at end of year	$         33,306	$                   -	$     1,714,176	$    1,005,235

.

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	117 Sub-Account		SC7 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           1,315	$                -	$         38,038	$         18,868
Net realized gains	33,759	7,264	186,042	1,748
Net change in unrealized appreciation/depreciation	(44,740)	7,792	(379,497)	483,413
Net (decrease) increase from operations	(9,666)	15,056	(155,417)	504,029
Contract Owner Transactions:
Purchase payments received	58,331	90,220	336,396	326,118
Transfers between Sub-Accounts
(including the Fixed Account), net	101,765	31,068	123,400	121,076
Withdrawals, surrenders and surrender charges	(1,725)	(68)	(173,741)	(108,486)
Mortality and expense risk charges	(629)	(203)	(26,632)	(32,580)
Charges for life insurance protection and
monthly administration charge	(7,221)	(4,008)	(233,426)	(231,957)
Net increase from contract owner transactions	150,521	117,009	25,997	74,171
Total increase (decrease) in net assets	140,855	132,065	(129,420)	578,200
Net assets at beginning of year	159,745	27,680	4,338,414	3,760,214
Net assets at end of year	$       300,600	$       159,745	$     4,208,994	$     4,338,414

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SC3 Sub-Account			SGC Sub-Account
	December 31,	December 31,		December 31,	December 31,
	2011		2010	2011	2010
Operations:
Net investment income	$       265,802		$   402,767	$         38,016	$                 -
Net realized (losses) gains	(326,437)		(234,142)	538,892	269,221
Net change in unrealized appreciation/depreciation	(212,592)		312,105	(460,465)	383,961
Net (decrease) increase from operations	(273,227)		480,730	116,443	653,182
Contract Owner Transactions:
Purchase payments received	320,550		371,910	270,301	299,233
Transfers between Sub-Accounts
(including the Fixed Account), net	202,807		366,977	71,040	(149,641)
Withdrawals, surrenders and surrender charges	(155,476)		(124,764)	(110,071)	(168,966)
Mortality and expense risk charges	(18,976)		(23,802)	(11,551)	(20,076)
Charges for life insurance protection and
monthly administration charge	(196,502)		(186,687)	(198,364)	(191,347)
Net increase (decrease) from contract owner transactions	152,403		403,634	21,355	(230,797)
Total (decrease) increase in net assets	(120,824)		884,364	137,798	422,385
Net assets at beginning of year	3,672,500		2,788,136	3,567,096	3,144,711
Net assets at end of year	$     3,551,676		$ 3,672,500	$     3,704,894	$   3,567,096

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SDC Sub-Account		112 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         77,425	$         97,525	$         29,019	$         15,514
Net realized gains	66,364	23,219	94,026	39,269
Net change in unrealized appreciation/depreciation	(109,468)	31,900	(155,688)	90,440
Net increase (decrease) from operations	34,321	152,644	(32,643)	145,223
Contract Owner Transactions:
Purchase payments received	1,250,976	620,236	659,183	667,151
Transfers between Sub-Accounts
(including the Fixed Account), net	(254,853)	452,926	149,754	582,174
Withdrawals, surrenders and surrender charges	(474,687)	(351,607)	(50,936)	(23,513)
Mortality and expense risk charges	(36,224)	(58,880)	(5,853)	(3,337)
Charges for life insurance protection and
monthly administration charge	(418,410)	(435,540)	(128,292)	(66,540)
Net increase from contract owner transactions	66,802	227,135	623,856	1,155,935
Total increase in net assets	101,123	379,779	591,213	1,301,158
Net assets at beginning of year	6,601,874	6,222,095	1,687,203	386,045
Net assets at end of year	$     6,702,997	$    6,601,874	$     2,278,416	$     1,687,203

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	113 Sub-Account		111 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         27,962	$           9,969	$         77,271	$         33,787
Net realized gains	133,149	35,059	153,843	39,811
Net change in unrealized appreciation/depreciation	(224,549)	49,030	(175,867)	182,098
Net (decrease) increase from operations	(63,438)	94,058	55,247	255,696
Contract Owner Transactions:
Purchase payments received	634,603	282,176	564,530	422,842
Transfers between Sub-Accounts
(including the Fixed Account), net	94,113	575,336	307,949	2,993,150
Withdrawals, surrenders and surrender charges	(25,797)	-	(226,649)	(90,908)
Mortality and expense risk charges	(5,230)	(2,801)	(14,950)	(54,804)
Charges for life insurance protection and
monthly administration charge	(124,814)	(61,359)	(232,271)	(126,554)
Net increase from contract owner transactions	572,875	793,352	398,609	3,143,726
Total increase in net assets	509,437	887,410	453,856	3,399,422
Net assets at beginning of year	1,122,915	235,505	5,052,908	1,653,486
Net assets at end of year	$    1,632,352	$    1,122,915	$     5,506,764	$    5,052,908

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	116 Sub-Account		SLC Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$       15,671	$                  -
Net realized gains	15,379	4,897	533,423	210,694
Net change in unrealized appreciation/depreciation	(41,296)	4,552	(686,201)	203,238
Net (decrease) increase from operations	(25,917)	9,449	(137,107)	413,932
Contract Owner Transactions:
Purchase payments received	126,455	6,473	213,337	240,466
Transfers between Sub-Accounts
(including the Fixed Account), net	346,192	45,126	(105,638)	(36,826)
Withdrawals, surrenders and surrender charges	(25,919)	(6,055)	(88,408)	(90,059)
Mortality and expense risk charges	(1,228)	(86)	(9,902)	(11,532)
Charges for life insurance protection and
monthly administration charge	(20,713)	(3,001)	(182,119)	(188,333)
Net increase (decrease) from contract owner transactions	424,787	42,457	(172,730)	(86,284)
Total increase (decrease) in net assets	398,870	51,906	(309,837)	327,648
Net assets at beginning of year	68,832	16,926	2,704,837	2,377,189
Net assets at end of year	$      467,702	$        68,832	$   2,395,000	$    2,704,837

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SCM Sub-Account		SCB Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$           1,482	$                -	$          9,864	$            7,115
Net realized gains (losses)	84,215	(20,761)	(61,108)	(76,157)
Net change in unrealized appreciation/depreciation	(75,518)	80,807	(69,726)	496,160
Net increase (decrease) from operations	10,179	60,046	(120,970)	427,118
Contract Owner Transactions:
Purchase payments received	8,636	30,272	318,197	196,738
Transfers between Sub-Accounts
(including the Fixed Account), net	(175,957)	(38,403)	391,340	(171,779)
Withdrawals, surrenders and surrender charges	(38,827)	(12,979)	(305,404)	(88,631)
Mortality and expense risk charges	(1,470)	(2,385)	(12,118)	(15,228)
Charges for life insurance protection and
monthly administration charge	(12,933)	(21,532)	(181,820)	(142,338)
Net (decrease) increase from contract owner transactions	(220,551)	(45,027)	210,195	(221,238)
Total (decrease) increase in net assets	(210,372)	15,019	89,225	205,880
Net assets at beginning of year	368,667	353,648	2,187,095	1,981,215
Net assets at end of year	$       158,295	$      368,667	$    2,276,320	$      2,187,095

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SPC Sub-Account		114 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$     201,258	$       219,154	$     101,629	$         36,750
Net realized gains	135,142	336,675	112,948	44,924
Net change in unrealized appreciation/depreciation	(226,331)	(231,979)	(76,340)	(2,937)
Net increase from operations	110,069	323,850	138,237	78,737
Contract Owner Transactions:
Purchase payments received	339,578	389,015	1,287,923	845,715
Transfers between Sub-Accounts
(including the Fixed Account), net	(74,495)	(857,310)	954,751	1,423,266
Withdrawals, surrenders and surrender charges	(154,431)	(110,928)	(64,988)	(250,983)
Mortality and expense risk charges	(9,892)	(14,148)	(10,974)	(5,080)
Charges for life insurance protection and
monthly administration charge	(160,551)	(170,809)	(274,663)	(154,244)
Net (decrease) increase from contract owner transactions	(59,791)	(764,180)	1,892,049	1,858,674
Total increase (decrease) in net assets	50,278	(440,330)	2,030,286	1,937,411
Net assets at beginning of year	2,785,173	3,225,503	2,537,894	600,483
Net assets at end of year	$   2,835,451	$    2,785,173	$   4,568,180	$    2,537,894

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SC5 Sub-Account		LCG Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	201011
Operations:
Net investment income	$         2,163	$         1,802	$              817	$              655
Net realized losses	(160,882)	(248,763)	(1,397)	(10,506)
Net change in unrealized appreciation/depreciation	(139,135)	966,741	(11,318)	52,618
Net (decrease) increase from operations	(297,854)	719,780	(11,898)	42,767
Contract Owner Transactions:
Purchase payments received	393,898	351,391	36,729	15,104
Transfers between Sub-Accounts
(including the Fixed Account), net	(33,203)	132,737	43,508	(1,417)
Withdrawals, surrenders and surrender charges	(300,450)	(110,493)	(19,498)	(3,960)
Mortality and expense risk charges	(17,033)	(23,215)	(1,108)	(1,343)
Charges for life insurance protection and
monthly administration charge	(208,512)	(208,631)	(27,316)	(25,658)
Net (decrease) increase from contract owner transactions	(165,300)	141,789	32,315	(17,274)
Total (decrease) increase in net assets	(463,154)	861,569	20,417	25,493
Net assets at beginning of year	3,914,458	3,052,889	267,553	242,060
Net assets at end of year	$   3,451,304	$   3,914,458	$        287,970	$       267,553

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	SC2 Sub-Account		SC1 Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$       130,727	$     133,628	$       11,724	$         15,297
Net realized gains	59,207	4,360	56	-
Net change in unrealized appreciation/depreciation	56,353	141,997	-	-
Net increase from operations	246,287	279,985	11,780	15,297
Contract Owner Transactions:
Purchase payments received	192,281	313,017	8,635,462	25,685,033
Transfers between Sub-Accounts
(including the Fixed Account), net	(379,043)	(5,805)	(5,808,957)	(25,088,587)
Withdrawals, surrenders and surrender charges	(166,495)	(35,087)	(477,800)	(364,408)
Mortality and expense risk charges	(17,997)	(34,478)	(23,157)	(31,436)
Charges for life insurance protection and
monthly administration charge	(261,307)	(277,839)	(811,392)	(847,257)
Net (decrease) increase from contract owner transactions	(632,561)	(40,192)	1,514,156	(646,655)
Total (decrease) increase in net assets	(386,274)	239,793	1,525,936	(631,358)
Net assets at beginning of year	3,858,481	3,618,688	7,199,078	7,830,436
Net assets at end of year	$    3,472,207	$   3,858,481	$   8,725,014	$    7,199,078

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	TBC Sub-Account		FTI Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$                -	$                -	$         98,519	$       95,948
Net realized gains (losses)	77,380	13,786	(78,772)	(64,483)
Net change in unrealized appreciation/depreciation	(30,874)	485,970	(642,903)	386,100
Net increase (decrease) from operations	46,506	499,756	(623,156)	417,565
Contract Owner Transactions:
Purchase payments received	284,063	291,618	446,745	407,971
Transfers between Sub-Accounts
(including the Fixed Account), net	336,701	(97,770)	628,748	(75,804)
Withdrawals, surrenders and surrender charges	(180,799)	(186,350)	(218,286)	(251,120)
Mortality and expense risk charges	(21,259)	(30,803)	(32,512)	(41,241)
Charges for life insurance protection and
monthly administration charge	(241,363)	(200,439)	(360,098)	(319,664)
Net increase (decrease) from contract owner transactions	177,343	(223,744)	464,597	(279,858)
Total increase (decrease) in net assets	223,849	276,012	(158,559)	137,707
Net assets at beginning of year	3,432,417	3,156,405	5,399,375	5,261,668
Net assets at end of year	$    3,656,266	$    3,432,417	$     5,240,816	$   5,399,375

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	FTG Sub-Account		MTC Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$       20,008	$       19,825	$                -	$           1,031
Net realized (losses) gains	(38,250)	(95,308)	34,494	35,339
Net change in unrealized appreciation/depreciation	(96,572)	179,205	(42,149)	31,315
Net (decrease) increase from operations	(114,814)	103,722	(7,655)	67,685
Contract Owner Transactions:
Purchase payments received	137,815	127,089	101,184	118,629
Transfers between Sub-Accounts
(including the Fixed Account), net	88,399	(45,019)	255,897	87,965
Withdrawals, surrenders and surrender charges	(24,302)	(44,818)	(14,817)	(5,631)
Mortality and expense risk charges	(10,710)	(14,759)	(1,531)	(649)
Charges for life insurance protection and
monthly administration charge	(99,877)	(100,734)	(77,451)	(52,919)
Net increase (decrease) from contract owner transactions	91,325	(78,241)	263,282	147,395
Total (decrease) increase in net assets	(23,489)	25,481	255,627	215,080
Net assets at beginning of year	1,534,051	1,508,570	462,446	247,366
Net assets at end of year	$    1,510,562	$   1,534,051	$      718,073	$        462,446

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	VLC Sub-Account		VGI Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$         4,453	$                23	$       17,215	$              906
Net realized gains (losses)	3,715	2,463	(15,812)	(37,618)
Net change in unrealized appreciation/depreciation	(12,088)	20,936	(13,493)	146,182
Net (decrease) increase from operations	(3,920)	23,422	(12,090)	109,470
Contract Owner Transactions:
Purchase payments received	50,598	70,124	102,675	92,711
Transfers between Sub-Accounts
(including the Fixed Account), net	285,971	46,552	515,213	(7,429)
Withdrawals, surrenders and surrender charges	5,888	(37,078)	(2,169)	(35,004)
Mortality and expense risk charges	(904)	(223)	-	(3,087)
Charges for life insurance protection and
monthly administration charge	(26,434)	(6,708)	(60,485)	(47,771)
Net increase (decrease) from contract owner transactions	315,119	72,667	555,234	(580)
Total increase in net assets	311,199	96,089	543,144	108,890
Net assets at beginning of year	247,070	150,981	1,004,889	895,999
Net assets at end of year	$      558,269	$       247,070	$   1,548,033	$     1,004,889

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	VKM Sub-Account		VKC Sub-Account
	December 31,	December 31,	December 31,	December 31,
	2011	2010	2011	2010
Operations:
Net investment income	$              625	$                -	$           1,537	$              267
Net realized gains (losses)	291	4,720	(7,861)	1,486
Net change in unrealized appreciation/depreciation	(28,427)	6,231	(6,411)	7,588
Net (decrease) increase from operations	(27,511)	10,951	(12,735)	9,341
Contract Owner Transactions:
Purchase payments received	78,073	70,087	164,417	5,186
Transfers between Sub-Accounts
(including the Fixed Account), net	68,587	27,315	(45,275)	29,234
Withdrawals, surrenders and surrender charges	(6,328)	-	(12,258)	-
Mortality and expense risk charges	(614)	(200)	(537)	(301)
Charges for life insurance protection and
monthly administration charge	(11,723)	(3,739)	(10,909)	(2,987)
Net increase from contract owner transactions	127,995	93,463	95,438	31,132
Total increase in net assets	100,484	104,414	82,703	40,473
Net assets at beginning of year	118,378	13,963	69,355	28,882
Net assets at end of year	$       218,862	$       118,378	$        152,058	$          69,355

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	USC Sub-Account
	December 31,	December 31,
	2011	2010
Operations:
Net investment income	$                -	$                -
Net realized gains	11,203	979
Net change in unrealized appreciation/depreciation	(13,781)	16,573
Net (decrease) increase from operations	(2,578)	17,552
Contract Owner Transactions:
Purchase payments received	21,418	21,781
Transfers between Sub-Accounts
(including the Fixed Account), net	(424)	(508)
Withdrawals, surrenders and surrender charges	(24)	(689)
Mortality and expense risk charges	(288)	(215)
Charges for life insurance protection and
monthly administration charge	(3,485)	(3,228)
Net increase from contract owner transactions	17,197	17,141
Total increase in net assets	14,619	34,693
Net assets at beginning of year	103,073	68,380
Net assets at end of year	$       117,692	$       103,073

The accompanying notes are an integral part of these financial statements.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2011

1. BUSINESS AND ORGANIZATION

Sun Life of Canada (U.S.) Variable Account I (the “VariableAccount”) is a separate account of Sun Life Assurance Company of Canada (U.S.) (the “Sponsor”) and was established on August 25, 1999 as a funding vehicle for the variable portion of Futurity VUL contracts, Futurity Protector VUL contracts, Futurity Protector II VUL contracts,  Futurity Accumulator VUL contracts, Futurity Accumulator II VUL contracts, Futurity Survivorship VUL contracts, Futurity Survivorship II VUL contracts, Sun Executive VUL contracts, Sun Prime VUL contracts, Sun Protector VUL contracts, Sun Prime Survivorship VUL contracts and certain other individual variable universal life insurance contracts (the “Contracts”) issued by the Sponsor. The Variable Account is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a unit investment trust existing in accordance with the regulations of the Delaware Insurance Department.

The assets of the Variable Account are divided into “Sub-Accounts”. Each Sub-Account is invested in shares of a specific mutual fund (collectively the “Funds”), or series thereof, registered under the Investment Company Act of 1940, as amended.  The contract owners of the Variable Account direct the deposits into the Sub-Accounts of the Variable Account.

Under applicable insurance law, the assets and liabilities of the Variable Account are clearly identified and distinguished from the Sponsor’s other assets and liabilities.  Assets applicable to the Variable Account are not chargeable with liabilities arising out of any other business the Sponsor may conduct.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires the Sponsor’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from these estimates.

Investment Valuation and Transactions

Investments made in mutual funds are carried at fair value and are valued at their closing net asset value as determined by the respective mutual fund, which in turn value their investments at fair value, as of December 31, 2011.  Transactions are recorded on a trade date basis.  Realized gains and losses on sales of investments are determined on the first in, first out basis.  Dividend income and realized gain distributions are reinvested in additional fund shares and recognized on the ex-dividend date.

Units

The number of units credited is determined by dividing the dollar amount allocated to a Sub-Account by the unit value for that Sub-Account for the period during which the purchase payment was received.  The unit value for each Sub-Account is established at $10.00 for the first period of that Sub-Account and is subsequently measured based on the performance of the investments and the contract charges selected by the contract holder, as discussed in note 4.

Purchase Payments

Upon issuance of new contracts, the initial purchase payment is credited to the contract in the form of units.  All subsequent purchase payments are applied using the unit values for the period during which the purchase payment is received.

Transfers

Transfers between Sub-Accounts requested by contract owners are recorded in the new Sub-Account upon receipt of the redemption proceeds at the net asset value at the time of receipt.  In addition, transfers can be made between the Sub-Accounts and the “Fixed Account”.  The Fixed Account is part of the general account of the Sponsor in which purchase payments or contract values may be allocated or transferred.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Contract Loans

Contract holders are permitted to borrow against the cash value of their accounts.  The loan proceeds are deducted from the Variable Account and recorded in the Sponsor’s general account as an asset.  Contract loan activity is reflected in the withdrawals, surrenders and surrender charges line on the Statement of Changes in Net Assets.

Federal Income Taxes

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.  In the event of a change in applicable tax law, the Sponsor will review this policy and if necessary a charge may be made in future years.

Accounting for Uncertain Tax Provisions

Management evaluates whether or not there are uncertain tax positions that require financial statement recognition and has determined that no reserves for uncertain tax positions are required at December 31, 2011. The 2007 through 2010 tax years generally remain subject to examination by U.S. federal and most state tax authorities.

Subsequent events

Management has evaluated events subsequent to December 31, 2011 and through the issuance date of the Variable Account’s financial statements, noting there are no subsequent events requiring accounting or disclosure.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the period. The most significant estimate is the fair value measurements of investments.  Actual results could vary from the amounts derived from management's estimates.

New and Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements,” which provides amendments to FASB Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and Disclosures” that will provide more robust disclosures about the following:

Ø   The different classes of assets and liabilities measured at fair value;

Ø   The valuation techniques and inputs used;

Ø   The transfers between Levels 1, 2, and 3; and

Ø   The activity in Level 3 fair value measurements.

On January 1, 2010 the Variable Account adopted the provisions of ASU No. 2010-06 which require new disclosures and clarifications of existing disclosures, which are effective for interim and annual reporting periods beginning after December 31, 2009. The adoption of this guidance did not have a material impact on the Variable Account’s financial statements.  Effective January 1, 2011, the Variable Account adopted the provisions of the standards relating to disclosures about purchases, sales, issuances and settlements in the roll-forward of activities in Level 3.  The adoption of this guidance did not have a material impact on the Variable Account’s financial statements.  The required disclosures are included in note 7 of the Variable Account’s Financial Statements.

Accounting Pronouncements Not Yet Adopted

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.  Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements,

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounting Pronouncements Not Yet Adopted (continued)

while other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  Many of the requirements in this update are not meant to result in a change in application of the requirements of Topic 820, but to improve upon an entities consistency in application across jurisdictions to ensure that U.S. GAAP and International Financial Reporting Standards (“IFRS”) fair value measurement and disclosure requirements are described in the same way.  The amendments in ASU 2011-04 are effective, on a retrospective basis, for fiscal years and

interim periods within those fiscal years beginning after December 15, 2011.  The Company will adopt ASU 2011-04 on January 1, 2012 and does not expect its requirements to significantly impact the Variable Account’s consolidated financial statements.

3. RELATED PARTY TRANSACTIONS

Massachusetts Financial Services Company and Sun Capital Advisers LLC, affiliates of the Sponsor, are investment advisers to certain of the Funds and charge management fees at an annual rate ranging from 0.55% to 1.05% and 0.13% to 1.05% of the Funds’ average daily net assets, respectively.  For additional related party transactions, see note 4.

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 contract’s account value, through the redemption of fund units for the mortality and expense risks assumed by the Sponsor. For the Sun Executive Product this charge is deducted daily over the duration of the policy, and is guaranteed not to exceed an annual rate of 0.60% of the Variable Account assets. For the Single Life (Futurity Variable Universal Life “VUL”, Protector VUL, Protector II VUL, Accumulator VUL, Accumulator II VUL, Sun Prime VUL and Sun Protector VUL) and Survivorship Products (Survivorship VUL, Survivorship II VUL and Sun Prime Survivorship VUL) the charge is deducted monthly with the maximum deduction not exceeding an annual rate of 0.75% of the Variable Account assets over a range of five to 15 policy years, depending on the product purchased. Thereafter, the effective annual rates range from  0.10% to 0.20% for the Single Life Products, and 0.20% to 0.36% for the Survivorship Products.

Administration charges

An account administration fee (“Account Fee”) is deducted from the participant’s account to reimburse the Sponsor for certain administrative expenses and issuances costs.  For the Sun Executive Product, the monthly expense charge of $5 to $10 is deducted over the duration of the policy, combined with a monthly charge based on the specified face amount of the policy. The monthly charge for the Single Life Products ranges from $8 to $10 for all policy years, combined with a monthly face amount charge for the first 5 to 20 policy years following policy issue, or each specified face amount increase, depending on the product purchased.  For the Futurity Survivorship II Product, the monthly expense charge is deducted for the first 10 policy years, and for the first 10 policy years following the effective date of each specified face amount increase. The charge is based on the specified face amount or increase thereof, times a rate determined by the age, sex and rating class of each insured. For the Sun Prime Survivorship Product, the monthly expense charge is $10 for all policy years, combined with a monthly face amount charge for the first 10 policy years, and for the first 10 policy years following the effective date of each specified face amount increase. The charge is based on the specified face amount or increase thereof, times a rate determined by the age, sex and rating class of each insured.

Sales charges

Certain charges are deducted from the premium before it is allocated by Sub-Account.  For the Sun Executive Product the charge on premiums up to and including Target Premium will not exceed 35% in Policy Year 1, 12% in Policy Years 2-10 and 5% thereafter.  The charge on premium in excess of Target Premium will not exceed 5%.  The current charge for the Single Life Products can range from 5.25% to 15.00% of premium payments, depending on the product and riders purchased. For the Futurity Survivorship and Futurity Survivorship II Product, the charge is 6% of premiums, and is guaranteed not to exceed 8%. For the Sun Prime Survivorship Product, the charge is 18.50% of premiums, and is guaranteed not to exceed 25%.

4. CONTRACT CHARGES (CONTINUED)

Charges for Life Insurance Protection

On the monthly anniversary of the contract, the cost of insurance is deducted from each Sub-Account through a redemption of units to cover the anticipated cost of providing life insurance. The charge is based on the length of time a policy has been in force and other factors, including issue age, sex and rating class of the insured, and will not exceed the guaranteed maximum monthly cost of insurance rates based on the applicable Commissioner’s Standard Ordinary Smoker and Nonsmoker Mortality Tables.

Surrender charges

A surrender charge (contingent deferred sales charge) may be deducted to cover certain expenses relating to the sale of the contract if the contract holder requests a full withdrawal prior to reaching the pay-out phase.  The surrender charge is based on certain factors, including the specified face amount, the insured’s age, sex and rating class. For the Futurity Survivorship Product, the surrender charge period will generally end after 15 policy years from the date of policy issue, or 15 policy years from the effective date of each specified face amount increase. For the Single Life Products, depending on the product purchased, the surrender charge can apply to the first 9 to 15 policy years following the date of policy issue, or the respective policy years from the effective date of each specified face amount increase. The Sun Executive Product and Sun Prime Survivorship Product do not currently impose such surrender charges. Surrender charges when deducted are retained by the Sponsor.

Premium Taxes

A deduction, when applicable, is made for premium taxes or similar state or local taxes.  It is currently the policy of the Sponsor to deduct the taxes from the premium payment.

5. INVESTMENT PURCHASES AND SALES

The cost of purchases and proceeds from sales of investments for the year ended December 31, 2011 were as follows:

	Purchases		Sales
AL2	$	1,499	$	12,385
AL4		67,251		150,132
AL3		-		2,621
AVB		41,824		20,450
AN2		376		18,186
AN3		257,855		603,306
IVB		26,300		16,842
308		162,196		14,292
301		171,929		16,844
304		197,025		10,259
307		107,928		58,137
303		330,702		116,543
302		57,180		5,589
305		973,821		371,333
300		550,671		106,462
306		251,742		54,906
9XX		1,516,989		693,362
MBI		332,774		129,632
MBO		280,609		134,514
MCC		265,750		64,837
DGO		196,278		247,631
DMC		297,661		715,561
SCV		220,846		434,437
SSC		169,601		1,480,739
FVB		98,413		16,771
FL1		868,614		295,986
FL6		488,837		1,444,782
F15		63,270		17,954
F20		76,876		22,456
F30		38,852		28,351
FL8		256,986		350,277
FIS		2,410,888		229,077
FL4		1,433,006		2,347,969
FVM		506,832		162,058
FL5		4,718,006		5,775,687
FL7		859,510		1,576,287
SGI		719,394		234,030
S17		24,067		6,833

5. INVESTMENT PURCHASES AND SALES (CONTINUED)

	Purchases		Sales
ISC	$	276,284	$	38,043
FMS		518,821		357,207
FVS		556,759		182,770
SIC		614,472		65,094
FGF		13		17
MCA		255,240		120,368
GS4		77,748		81,768
GS8		2,511		64,766
GS5		95,660		211,513
GS2		41,539		87,103
GS3		512,908		832,823
AI1		96,038		639,219
AAH		151,244		4,101
AI3		100,517		182,731
IV1		-		153,356
AI4		1,453,893		2,308,776
ASC		-		65,619
VKU		266,808		20,213
MIT		265,720		411,123
EM1		759,631		269,168
GSS		586,746		1,604,143
MFK		601,556		68,472
EGS		2,654		75,620
HYS		2,641,420		2,441,443
IG1		277,585		49,993
MIS		182,458		357,607
RI1		21,893		4,330
MFJ		547,700		490,288
UTS		285,727		324,224
MFE		491,364		118,331
MV1		927,214		88,646
IGS		420,797		276,084
NWD		747,561		316,982
TRS		326,639		689,238
MVS		552,695		692,503
MF7		794,471		34,683
OCF		84,840		78,751
OCA		4,286		55,002
OGG		32,879		2,042
OMG		14,260		6,153
SBJ		41,640		703
PCR		329,294		108,087
PMB		1,111,364		693,742
PRR		1,468,483		438,459
PTR		2,605,081		1,454,288
118		333,918		31,404

5. INVESTMENT PURCHASES AND SALES (CONTINUED)

	Purchases		Sales
SBB	$	34,037	$	312
115		723,951		95,433
117		195,573		8,963
SC7		859,326		611,332
SC3		772,071		353,866
SGC		983,507		616,453
SDC		1,908,517		1,725,237
112		1,077,885		357,338
113		945,860		215,769
111		1,047,024		455,882
116		594,698		156,518
SLC		679,747		437,934
SCM		28,078		228,376
SCB		899,309		679,250
SPC		1,142,153		935,836
114		2,644,447		548,294
SC5		515,963		679,100
LCG		81,317		48,185
SC2		528,984		976,087
SC1		11,534,750		10,008,814
TBC		798,873		621,530
FTI		1,286,264		723,148
FTG		273,670		162,337
MTC		418,801		155,519
VLC		368,780		49,208
VGI		707,060		134,611
VKM		220,547		91,822
VKC		291,191		194,216
USC		32,123		5,581

6. CHANGES IN UNITS OUTSTANDING

The changes in units outstanding for the year ended December 31, 2011 were as follows:

			Net (Decrease) Increase
	Units Issued	Units Redeemed
AL2	-	(1,111)	(1,111)
AL4	4,380	(9,822)	(5,442)
AL3	-	(200)	(200)
AVB	3,091	(1,701)	1,390
AN2	1	(2,328)	(2,327)
AN3	22,763	(57,180)	(34,417)
IVB	4,167	(2,626)	1,541
308	12,807	(1,351)	11,456
301	13,818	(1,531)	12,287
304	14,394	(906)	13,488
307	5,244	(2,331)	2,913
303	21,433	(5,627)	15,806
302	4,309	(530)	3,779
305	38,806	(2,531)	36,275
300	38,378	(5,763)	32,615
306	14,737	(2,016)	12,721
9XX	72,045	(18,313)	53,732
MBI	35,995	(11,058)	24,937
MBO	24,677	(7,754)	16,923
MCC	33,536	(7,347)	26,189
DGO	3,097	(6,479)	(3,382)
DMC	15,704	(44,073)	(28,369)
SCV	9,609	(22,259)	(12,650)
SSC	5,161	(79,784)	(74,623)
FVB	6,795	(1,095)	5,700
FL1	75,236	(12,360)	62,876
FL6	22,477	(78,504)	(56,027)
F15	5,922	(2,124)	3,798
F20	8,039	(2,545)	5,494
F30	3,696	(3,088)	608
FL8	12,637	(22,883)	(10,246)
FIS	233,531	(28,283)	205,248
FL4	106,292	(237,937)	(131,645)
FVM	49,619	(16,480)	33,139
FL5	213,831	(299,148)	(85,317)
FL7	50,036	(115,548)	(65,512)
SGI	48,237	(10,154)	38,083
S17	1,952	(551)	1,401
ISC	22,749	(2,621)	20,128
FMS	36,844	(23,661)	13,183
FVS	41,792	(6,966)	34,826
SIC	45,385	(5,052)	40,333

6. CHANGES IN UNITS OUTSTANDING (CONTINUED)

	Units		Net Increase (Decrease)
	Issued	Units Redeemed
FGF	-	-	-
MCA	14,309	(7,251)	7,058
GS4	550	(799)	(249)
GS8	1	(3,788)	(3,787)
GS5	2,645	(15,817)	(13,172)
GS2	590	(2,960)	(2,370)
GS3	18,942	(54,166)	(35,224)
AI1	6,940	(68,941)	(62,001)
AAH	15,014	(372)	14,642
AI3	6,768	(13,688)	(6,920)
IV1	-	(12,664)	(12,664)
AI4	17,501	(55,215)	(37,714)
ASC	-	(5,845)	(5,845)
VKU	21,001	(1,409)	19,592
MIT	10,071	(25,310)	(15,239)
EM1	60,333	(11,454)	48,879
GSS	9,311	(77,060)	(67,749)
MFK	48,227	(3,251)	44,976
EGS	-	(6,406)	(6,406)
HYS	39,534	(44,620)	(5,086)
IG1	15,930	(3,296)	12,634
MIS	12,645	(31,558)	(18,913)
RI1	2,766	(585)	2,181
MFJ	6,715	(935)	5,780
UTS	8,840	(12,861)	(4,021)
MFE	37,837	(2,979)	34,858
MV1	97,777	(10,323)	87,454
IGS	10,486	(1,716)	8,770
NWD	37,065	(15,027)	22,038
TRS	815	(30,672)	(29,857)
MVS	7,892	(31,075)	(23,183)
MF7	58,884	(3,235)	55,649
OCF	4,990	(4,658)	332
OCA	538	(6,397)	(5,859)
OGG	3,899	(268)	3,631
OMG	1,678	(831)	847
SBJ	4,030	(77)	3,953
PCR	18,697	(4,937)	13,760
PMB	65,686	(46,404)	19,282
PRR	72,663	(22,602)	50,061
PTR	114,426	(68,894)	45,532
118	27,313	(1,787)	25,526
SBB	3,704	(38)	3,666
115	54,435	(7,375)	47,060
117	12,508	(748)	11,760
SC7	112,371	(106,017)	6,354

6. CHANGES IN UNITS OUTSTANDING (CONTINUED)

	Units Issued	Units Redeemed	Net Increase (Decrease)
SC3	101,808	(72,183)	29,625
SGC	65,007	(60,940)	4,067
SDC	111,133	(105,201)	5,932
112	61,013	(13,984)	47,029
113	52,189	(11,172)	41,017
111	70,743	(38,435)	32,308
116	31,829	(3,223)	28,606
SLC	20,359	(36,843)	(16,484)
SCM	601	(15,940)	(15,339)
SCB	63,411	(44,634)	18,777
SPC	26,102	(30,698)	(4,596)
114	182,597	(28,589)	154,008
SC5	(16,335)	23,806	7,471
LCG	9,575	(5,730)	3,845
SC2	11,744	(50,312)	(38,568)
SC1	857,199	(707,014)	150,185
TBC	40,982	(29,274)	11,708
FTI	47,861	(27,186)	20,675
FTG	12,427	(7,410)	5,017
MTC	39,679	(10,423)	29,256
VLC	37,743	(2,405)	35,338
VGI	44,085	(4,470)	39,615
VKM	7,572	(964)	6,608
VKC	10,338	(4,337)	6,001
USC	2,279	(449)	1,830

The changes in units outstanding for the year ended December 31, 2010 were as follows:

			Net (Decrease) Increase
	Units Issued	Units Redeemed
AL2	(75)	(4,839)	(4,914)
AL4	12,849	(6,520)	6,329
AL3	(214)	(5,303)	(5,517)
AVB	4,453	(786)	3,667
AN2	-	(3,202)	(3,202)
AN3	31,498	(42,143)	(10,645)
IVB	3,117	(3,735)	(618)
308	29,687	(887)	28,800
301	9,076	(513)	8,563
304	12,658	(331)	12,327
307	10,122	(91)	10,031
306	15,610	(509)	15,101
303	9,829	(603)	9,226
302	15,129	(433)	14,696

6. CHANGES IN UNITS OUTSTANDING (CONTINUED)

	Units Issued	Units Redeemed	Net Increase (Decrease)
305	31,247	(945)	30,302
300	36,127	(1,875)	34,252
9XX	147,905	(9,616)	138,289
MCC	17,639	(3,768)	13,871
DGO	3,645	(12,551)	(8,906)
DMC	21,843	(31,960)	(10,117)
SCV	9,016	(18,947)	(9,931)
SSC	253,625	(242,393)	11,232
FVB	3,321	(1,844)	1,477
FL1	59,387	(9,594)	49,793
FL6	30,530	(49,404)	(18,874)
F15	6,584	(1,879)	4,705
F20	8,153	(2,599)	5,554
F30	7,083	(1,118)	5,965
FL8	12,474	(37,376)	(24,902)
FIS	579,816	(16,770)	563,046
FL4	123,200	(184,940)	(61,740)
FVM	78,055	(4,107)	73,948
FL5	86,996	(197,247)	(110,251)
FL7	136,912	(134,910)	2,002
SGI	96,704	(6,136)	90,568
S17	2,043	(315)	1,728
ISC	25,616	(1,318)	24,298
FVS	59,648	(5,207)	54,441
SIC	39,048	(1,538)	37,510
FGF	2	(3)	(1)
FMS	45,747	(4,409)	41,338
FTI	19,752	(33,301)	(13,549)
FTG	7,738	(12,502)	(4,764)
GS4	2,745	(1,929)	816
GS8	(29)	(3,975)	(4,004)
GS5	3,311	(9,010)	(5,699)
GS2	803	(2,514)	(1,711)
GSE	-	(2,674)	(2,674)
GS3	20,453	(34,366)	(13,913)
AI1	7,571	(41,469)	(33,898)
AI3	2,817	(13,395)	(10,578)
IV1	(271)	(8,337)	(8,608)
AI4	92,928	(116,067)	(23,139)
ASC	-	(3,170)	(3,170)
VLC	12,707	(4,793)	7,914
VKU	1,638	(99)	1,539
VGI	38,910	(39,153)	(243)
VKC	2,802	(268)	2,534
MBO	24,038	(6,659)	17,379

6. CHANGES IN UNITS OUTSTANDING (CONTINUED)

	Units Issued	Units Redeemed	Net Increase (Decrease)
MCA	21,263	(4,891)	16,372
MBI	36,581	(9,543)	27,038
MTC	24,787	(7,103)	17,684
MIT	(8,581)	7,897	(684)
MF7	39,593	(16,861)	22,732
EM1	59,505	(7,349)	52,156
GSS	16,841	(49,757)	(32,916)
MFK	10,893	(771)	10,122
EGS	4	(3,573)	(3,569)
HYS	118,740	(20,184)	98,556
IGS	18,216	(1,801)	16,415
IG1	40,008	(1,499)	38,509
MIS	27,151	(32,274)	(5,123)
NWD	23,984	(27,483)	(3,499)
RI1	2,237	(422)	1,815
TRS	17,856	(38,685)	(20,829)
MFJ	2,964	(1,338)	1,626
UTS	6,171	(14,643)	(8,472)
MFE	34,089	(10,027)	24,062
MVS	36,782	(36,976)	(194)
MV1	44,416	(4,472)	39,944
VKM	5,860	(237)	5,623
OCF	5,311	(5,036)	275
OCA	7,431	(1,748)	5,683
OGG	3,880	(345)	3,535
OMG	1,925	(972)	953
PCR	46,949	(43,974)	2,975
PMB	52,054	(32,591)	19,463
PRR	11,009	(10,135)	874
PTR	39,501	(94,711)	(55,210)
OP3	-	(11,312)	(11,312)
OP4	-	(139)	(139)
OP2	-	(1,315)	(1,315)
118	52,381	(2,896)	49,485
115	46,385	(9,769)	36,616
SCM	2,085	(5,187)	(3,102)
SCB	15,451	(32,826)	(17,375)
117	9,537	(336)	9,201
SC7	89,811	(74,915)	14,896
SGC	36,166	(64,060)	(27,894)
SDC	99,520	(78,456)	21,064
112	101,554	(7,591)	93,963
111	281,934	(22,471)	259,463
113	66,310	(4,961)	61,349
116	4,096	(726)	3,370

6. CHANGES IN UNITS OUTSTANDING (CONTINUED)

	Units	Units	Net (Decrease) Increase
	Issued	Redeemed
SLC	23,761	(32,287)	(8,526)
SPC	36,835	(109,193)	(72,358)
114	190,061	(34,369)	155,692
SC5	80,823	(57,152)	23,671
LCG	1,913	(4,101)	(2,188)
SC3	118,864	(53,932)	64,932
SC2	5,062	(5,712)	(650)
SC1	2,444,359	(2,505,899)	(61,540)
TBC	21,758	(38,452)	(16,694)
USC	2,305	(491)	1,814

7.  FAIR VALUE MEASUREMENTS

The Sub-Accounts’ investments are carried at fair value.  Fair Value is an exit price, representing the amount that would be received from a sale of an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, US GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value (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. Topic 820 requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model, if market participants would also include such an adjustment.

The Variable Account has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three level hierarchy described above.  If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

As of December 31, 2011, the inputs used to price the Funds are observable and represent Level 1 assets under the Topic 820 hierarchy levels. There were no Level 2 or 3 investments in the Variable Account during the year ended December 31, 2011. As of December 31, 2011, the Level 1 assets held by the Sub-Accounts was $204.6 million.  There were no transfers between Level 1 and Level 2 during the period.

8. FINANCIAL HIGHLIGHTS

The summary of units outstanding, unit value (some of which may be rounded), net assets, investment income ratios, 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
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
AL2
2011	8,224	$ 9.4503	to	$ 12.0932	$ 83,990	1.71%	5.91%	to	6.51%
2010	9,335	8.9170	to	11.4186	90,830	1.38	11.62	to	12.27
2009	14,249	7.9823	to	10.2303	124,190	2.56	31.40	to	32.17
2008	16,534	6.0694	to	7.7854	109,864	2.10	(39.82)	to	(39.47)
2007	23,752	10.0773	to	12.9374	268,405	0.78	9.49	to	10.13
AL4
2011	41,101	13.8697			570,109	0.34	(8.27)
2010	46,543	15.1209			703,828	-	19.38
2009	40,214	12.6660			509,393	-	51.70
2008	32,237	8.3491			269,149	0.17	(58.36)
2007	31,471	20.0484			630,937	-	31.56
AL3
2011	2,029	10.7782	to	15.7653	23,646	-	(3.73)	to	(3.18)
2010	2,229	11.1881	to	16.2836	27,023	-	24.56	to	25.29
2009	7,746	8.9741	to	12.9964	88,656	-	44.66	to	45.51
2008	8,945	6.1983	to	8.9318	71,178	-	(46.91)	to	(46.60)
2007	10,379	11.6659	to	16.7264	154,544	-	16.56	to	17.24
AVB
2011	18,700	11.9139	to	12.1075	226,362	2.10	(3.54)	to	(3.06)
2010	17,310	12.3508	to	12.4892	216,133	2.37	9.75	to	24.89
2009	13,643	11.2538	to	11.3233	154,457	0.01	12.54	to	13.23
AN2
2011	12,068	6.6183			79,875	0.34	(23.41)
2010	14,395	8.6410			124,392	2.08	18.58
2009	17,597	7.2870			128,238	-	53.14
2008	19,728	4.7584			93,876	-	(47.46)
2007	21,491	9.0574			194,661	-	19.89
AN3
2011	227,785	11.2967			2,572,000	1.10	6.07
2010	262,202	10.6502			2,791,330	-	12.80
2009	272,847	9.4418			2,574,972	3.58	20.35
2008	285,829	7.8453			2,242,424	1.75	(40.69)
2007	296,128	13.2284			3,917,305	1.16	4.86
IVB
2011	14,610	5.0375			73,592	4.14	(19.44)
2010	13,069	6.2528			81,707	2.79	4.30
2009	13,687	5.9951			82,050	1.20	34.36
2008	12,457	4.4620			55,584	0.12	(53.28)	to	(46.24)
2007	18	9.5509			168	-	0.89

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
308
2011	40,812	$ 12.3172			$ 502,701	2.05%	(0.90)%
2010	29,356	12.4293			364,887	2.14	12.33
2009	556	11.0654			6,146	3.65	10.65
301
2011	22,176	12.3903			274,770	3.89	6.10
2010	9,889	11.6776			115,486	3.88	6.44
2009	1,326	10.9707			14,542	5.71	9.71
304
2011	25,873	12.8566			332,645	1.68	(8.89)
2010	12,385	14.1104			174,760	1.79	11.75
2009	58	12.6273			729	2.42	26.27
307
2011	14,620	13.1158			191,750	2.48	(4.85)
2010	11,707	13.7846			161,376	3.40	11.78
2009	1,676	12.3316			20,672	8.27	23.32
303
2011	33,898	13.3024			450,924	0.68	(4.28)
2010	18,092	13.8967			251,423	0.95	18.68
2009	8,866	11.7094			103,806	1.45	17.09
302
2011	20,592	12.3829			254,954	1.68	(1.83)
2010	16,813	12.6137			212,067	2.32	11.43
2009	2,117	11.3203			23,960	5.64	13.20
305
2011	80,899	14.2296			1,151,165	10.50	1.92
2010	44,624	13.9616			623,022	13.07	15.07
2009	14,322	12.1330			173,779	9.82	21.33
300
2011	70,975	11.7810			836,168	2.16	(13.96)
2010	38,360	13.6930			525,259	3.11	7.23
2009	4,108	12.7694			52,457	2.25	43.07
2008	1,967	8.9252			17,559	7.63	10.66
306
2011	32,277	12.5960			406,558	1.39	(19.14)
2010	19,556	15.5782			304,652	2.05	22.41
2009	4,455	12.7259			56,695	0.34	27.26
9XX
2011	226,602	12.2592	to	12.4907	2,829,884	2.53	(4.18)	to	(3.64)
2010	172,870	12.7945	to	12.9626	2,240,625	1.96	9.12	to	28.19
2009	34,581	11.7250	to	11.8099	408,326	2.84	18.10	to	20.92
2008	361	9.7535	to	9.7669	3,524	1.79	5.67	to	7.97

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
MBI
2011	89,609	$ 6.7754			$ 607,135	3.67%	(13.56)%
2010	64,672	7.8383			506,914	4.44	4.61
2009	37,634	7.4931			281,990	3.70	25.28
2008	18,575	5.9811			111,098	10.34	(39.84)
2007	17	9.9425			167	-	(0.58)
MBO
2011	67,427	8.5728			578,041	0.35	(4.11)
2010	50,504	8.9405			451,527	0.74	9.27
2009	33,125	8.1817			271,021	0.66	24.58
2008	13,111	6.5674			86,107	0.04	(35.63)
MCC
2011	62,820	7.1351			448,220	-	(12.11)
2010	36,631	8.1186			297,396	-	17.12
2009	22,760	6.9316			157,767	-	26.80
2008	7,261	5.4666			39,695	-	(40.25)	to	(6.17)
2007	17	9.7207			167	-	0.21
DGO
2011	28,728	21.2807			611,341	1.05	8.13
2010	32,110	19.6807			631,929	-	36.32
2009	41,016	14.4372			592,145	-	45.41
2008	21,467	9.9289			213,145	-	(40.55)
2007	8,594	16.7006			143,521	-	12.96
DMC
2011	177,986	14.2417	to	14.8685	2,642,220	0.51	(0.17)	to	0.39
2010	206,355	14.2662	to	14.8101	3,050,528	0.98	26.36	to	27.10
2009	216,472	11.2904	to	11.6526	2,517,864	1.41	34.72	to	35.51
2008	232,360	8.3806	to	8.5992	1,994,538	0.94	(40.77)	to	(40.42)
2007	224,645	14.1488	to	14.4327	3,236,982	0.43	0.90	to	1.50
SCV
2011	122,431	17.2961			2,110,881	1.08	(6.08)
2010	135,081	18.4156			2,480,292	1.27	23.07
2009	145,012	14.9638			2,163,984	2.05	29.70
2008	164,139	11.5368			1,893,647	1.64	(33.42)
2007	155,065	17.3273			2,686,861	0.83	3.06
SSC
2011	163,314	9.6446	to	21.6633	3,183,197	0.59	(4.58)
2010	237,937	10.1071	to	22.7021	4,661,978	0.60	1.07	to	26.11
2009	226,705	8.0147	to	18.0024	3,687,150	1.57	(19.85)	to	26.27
2008	218,757	6.3473	to	14.2570	2,930,274	1.29	(34.33)	to	(28.11)
2007	185,951	21.7084			4,036,707	0.57	(2.16)

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
FVB
2011	14,705	$ 13.6666	to	$ 13.8888	$ 203,967	1.69%	(7.49)%	to	(3.83)%
2010	9,005	14.2812	to	14.4412	129,852	1.62	17.17	to	17.76
2009	7,528	12.1884	to	12.2637	92,255	3.10	22.64	to	38.32
2008	749	8.8556	to	8.8661	6,636	1.12	3.28	to	5.36
FL1
2011	156,956	8.6738			1,361,445	0.93	(2.78)
2010	94,080	8.9222			839,443	1.54	16.93
2009	44,287	7.6306			337,981	2.08	35.47
2008	8,754	5.6328			49,310	1.40	(39.34)	to	(39.00)
FL6
2011	363,366	16.9527			6,133,063	0.89	(2.64)
2010	419,393	17.4119			7,274,453	1.12	17.11
2009	438,267	14.8682			6,492,311	1.26	35.66
2008	514,253	10.9595			5,635,977	0.94	(42.61)
2007	495,829	19.0976			9,469,137	0.91	17.51
F15
2011	30,038	10.0599			302,185	1.99	(0.52)
2010	26,240	10.1121			265,345	2.26	12.79
2009	21,535	9.6972			193,076	4.34	(10.34)
F20
2011	22,095	9.5768			211,595	2.47	(1.24)
2010	16,601	9.6972			160,980	2.71	14.33
2009	11,047	8.4819			93,695	4.92	28.55
2008	4,652	6.5983			30,694	7.93	(29.35)	to	(14.69)
F30
2011	23,156	8.9119			206,362	1.89	(2.83)
2010	22,548	9.1714			206,801	2.22	15.89
2009	16,583	7.9139			131,235	2.24	(20.86)	to	31.18
2008	11,181	6.0329			67,457	4.50	(25.20)	to	(9.69)
FL8
2011	184,803	9.6898			1,794,597	0.25	0.14
2010	195,049	9.6762			1,891,211	0.17	24.06
2009	219,951	7.7999			1,718,714	0.32	28.15
2008	259,518	6.0866			1,579,581	0.75	(47.23)
2007	256,969	11.5349			2,964,187	0.58	26.87
FIS
2011	902,857	9.0508			8,171,586	1.94	1.78
2010	697,609	8.8922			6,203,239	2.83	14.73
2009	134,563	7.7507			1,042,911	3.12	(22.49)	to	26.30
2008	78,300	6.1367			480,503	3.30	(27.99)	to	(26.26)

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
FL4
2011	1,061,586	$ 11.5253			$ 12,175,961	1.75%	1.93%
2010	1,193,231	11.3072			13,434,002	1.92	14.91
2009	1,254,971	9.8400			12,298,049	2.62	26.48
2008	1,168,094	7.7796			9,087,324	2.16	(37.07)
2007	1,173,459	12.3616			14,505,847	3.50	5.34
FVM
2011	133,711	9.3822			1,254,502	0.03	(10.85)
2010	100,572	10.5243			1,058,455	0.19	28.57
2009	26,624	8.1856			217,937	0.60	39.75
2008	13,697	5.8573			80,225	0.59	(38.21)	to	1.45
FL5
2011	590,762	12.4248			7,331,695	0.03	0.03
2010	676,079	12.4214			8,389,376	0.08	0.14
2009	786,330	12.4036			9,744,873	0.63	0.62
2008	818,161	12.3273			10,085,719	2.87	2.92
2007	831,604	11.9776			9,960,649	4.96	5.11
FL7
2011	489,433	11.4445			5,597,048	1.24	(17.23)
2010	554,945	13.8263			7,667,704	1.37	12.99
2009	552,943	12.2366			6,761,509	2.15	26.44
2008	543,229	9.6779			5,257,309	2.98	(43.86)
2007	418,763	17.2402			7,219,555	3.17	17.21
SGI
2011	160,758	10.6137			1,706,247	1.31	(6.29)
2010	122,675	11.3266			1,389,509	2.80	19.17
2009	32,107	9.5047			305,187	0.81	20.25
2008	11,590	7.9038			91,602	2.05	(20.54)	to	7.56
S17
2011	10,833	12.5251			135,680	0.01	(1.54)
2010	9,432	12.5563	to	12.7212	119,953	2.60	9.61	to	27.21
2009	7,704	11.4552	to	11.5381	88,885	7.03	14.55	to	30.25
2008	-	8.8584			-	9.01	5.67
ISC
2011	50,656	10.8157			547,877	5.57	2.38
2010	30,528	10.5639			322,495	5.84	12.67
2009	6,230	9.3758			58,414	8.34	(6.24)	to	35.59
2008	3,457	6.9146			23,906	5.26	(29.66)
2007	3,224	9.8296			31,688	-	(1.70)

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
FMS
2011	104,438	$ 8.4999			$ 887,718	2.60%	(1.04)%
2010	91,255	8.5894			783,823	1.62	11.19
2009	49,917	7.7247			385,592	1.85	26.05
2008	40,432	6.1284			247,779	0.08	(28.46)	to	4.25
FVS
2011	126,732	10.3374			1,310,096	0.68	(3.76)
2010	91,906	10.7413			987,208	0.87	28.22
2009	37,465	8.3771			313,866	1.66	29.16
2008	33,311	6.4860			216,052	0.38	(33.02)	to	(32.80)
2007	1,119	9.6829			10,830	-	(3.17)	to	1.00
SIC
2011	80,491	12.6286			1,016,482	5.87	2.57
2010	40,158	12.3117			494,415	4.27	10.91
2009	2,648	11.1002			29,386	5.29	11.00	to	25.75
2008	21	8.8273			183	-		-
FGF
2011	4	12.5585			48	3.92	5.68
2010	4	11.8835			51	3.60	5.28
2009	5	11.2872			55	3.80	3.09
2008	5	10.9484			51	-	5.01
MCA
2011	51,714	10.3568			535,607	-	(7.22)
2010	44,656	11.1630			498,518	0.19	27.00
2009	28,284	8.7895			248,616	0.05	48.61
2008	14,931	5.9146			88,312	-	(39.15)
2007	19	10.2029			194	-	2.03
GS4
2011	19,589	10.8769	to	11.4803	219,262	1.19	(7.58)	to	(7.51)
2010	19,838	11.7685	to	12.4128	240,204	0.84	10.55	to	10.64
2009	19,022	10.6454	to	11.2187	207,559	1.46	17.63	to	17.73
2008	31,950	9.0499	to	9.5292	296,626	1.62	(34.90)	to	(34.85)
2007	41,513	13.9025	to	14.6262	587,235	1.84	0.90	to	0.99
GS8
2011	18,987	15.3115	to	15.9853	302,416	0.70	(6.90)	to	(6.38)
2010	22,774	16.4470	to	17.0738	387,522	0.68	24.27	to	25.00
2009	26,778	13.2345	to	13.6591	364,473	1.68	32.38	to	33.15
2008	39,338	9.9976	to	10.2582	399,609	0.86	(37.42)	to	(37.05)
2007	55,785	15.9755	to	16.2960	901,399	0.70	2.60	to	3.20

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
GS5
2011	48,537	$ 8.2033	to	$ 9.4249	$ 419,753	2.99%	(15.53)%	to	(15.47)%
2010	61,709	9.7046	to	11.1574	636,285	1.53	9.72	to	9.81
2009	67,408	8.8373	to	10.1689	634,451	1.68	27.94	to	28.05
2008	94,587	6.9016	to	7.9484	707,392	2.96	(46.27)	to	(46.23)
2007	97,648	12.8348	to	14.7941	1,358,564	1.33	7.25	to	7.34
GS2
2011	11,179	17.5575	to	17.9120	198,464	0.73	0.11	to	0.17
2010	13,549	17.5269	to	17.8929	240,185	0.56	29.36	to	29.47
2009	15,260	13.5372	to	13.8317	209,035	1.08	26.93	to	27.04
2008	20,846	10.6559	to	10.8970	224,991	0.67	(34.41)	to	(34.35)
2007	21,273	16.2320	to	16.6135	350,385	0.39	(16.97)	to	(16.90)
GS3
2011	292,506	9.6928	to	10.7884	3,111,086	1.71	3.46	to	4.05
2010	327,730	9.3624	to	10.3689	3,340,788	1.53	12.19	to	12.84
2009	341,643	8.3384	to	9.1889	3,088,790	2.02	20.44	to	21.15
2008	398,331	6.9174	to	7.5850	2,951,756	1.77	(37.37)	to	(37.00)
2007	318,747	11.0350	to	12.0395	3,740,205	1.35	(2.20)	to	(1.63)
AI1
2011	85,152	6.7917	to	8.4665	706,098	0.15	(8.43)	to	(7.91)
2010	147,153	7.4119	to	9.2459	1,335,427	0.78	14.82	to	15.49
2009	181,051	6.4500	to	8.0528	1,414,000	0.62	20.37	to	21.08
2008	215,953	5.3537	to	6.6898	1,390,983	-	(42.83)	to	(42.49)
2007	257,402	9.3564	to	11.7014	2,882,836	-	11.36	to	12.01
AAH
2011	14,642	8.2341	to	8.2341	120,564	-	(17.66)	to	(17.66)
AI3
2011	90,780	9.6071	to	12.1764	926,916	0.94	(0.63)	to	(0.06)
2010	97,700	9.6131	to	12.1841	1,011,712	0.97	8.92	to	9.56
2009	108,278	8.7747	to	11.1214	1,038,205	1.85	(12.25)	to	28.30
2008	117,454	6.8393	to	8.6685	898,682	2.50	(30.55)	to	(1.23)
2007	104,529	10.0665	to	12.4085	1,196,749	1.09	7.48	to	8.12
IV1
2011	-	-			-	-	11.98
2010	12,664	10.8231			137,066	-	23.82
2009	21,272	8.7408			185,937	-	42.44
2008	23,954	6.1364			146,994	-	(48.08)
2007	26,669	11.8182			315,184	-	12.19

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
AI4
2011	475,419	$ 8.1125	to	$ 16.8620	$ 6,342,206	1.59%	(7.27)%	to	(6.74)%
2010	513,133	8.6989	to	18.0808	7,685,763	2.32	12.21	to	12.86
2009	536,272	7.7075	to	16.0202	7,145,969	1.49	34.45	to	35.24
2008	561,397	5.6990	to	11.8456	5,823,084	0.59	(40.73)	to	(32.10)
2007	440,852	9.5589	to	19.8683	8,522,862	0.46	(0.32)	to	14.72
ASC
2011	15,248	10.3956			158,522	-	(0.73)
2010	21,093	10.4716			220,879	-	28.54
2009	24,263	8.1467			200,682	0.17	21.29
2008	28,622	6.7168			192,246	-	(31.31)
2007	33,240	9.7784			325,036	0.04	(2.22)
VKU
2011	22,925	12.4770	to	12.5317	286,576	0.95	(1.30)	to	25.32
2010	3,333	12.6413	to	12.6968	42,321	2.08	12.03	to	26.97
2009	1,794	11.3333			20,329	-	13.33
MIT
2011	111,188	10.9812	to	11.8804	1,283,901	1.89	1.40	to	1.97
2010	126,427	10.8299	to	11.6506	1,428,524	1.81	15.79	to	16.46
2009	127,111	9.3535	to	10.0037	1,233,549	2.23	24.53	to	25.26
2008	166,813	7.5110	to	7.9865	1,300,722	1.51	(35.33)	to	(34.95)
2007	155,066	11.6145	to	12.2773	1,858,350	1.12	5.33	to	5.95
EM1
2011	204,158	7.3135			1,493,151	0.36	(18.72)
2010	155,279	8.9983			1,397,278	0.68	23.47
2009	103,123	7.2881			751,594	1.75	68.13
2008	54,247	4.3349			235,156	0.03	(55.47)	to	(50.79)
2007	14	9.6745			139	-	0.12
GSS
2011	208,832	17.6963	to	18.9136	3,709,448	3.51	6.79	to	7.40
2010	276,581	16.4771	to	17.7103	4,588,328	3.53	4.14	to	4.75
2009	309,497	15.7297	to	17.0060	4,899,415	5.04	3.89	to	4.49
2008	343,412	15.0533	to	16.3700	5,206,939	5.24	7.91	to	8.55
2007	320,778	13.8681	to	15.1698	4,493,721	4.80	6.55	to	7.18
MFK
2011	60,481	12.0889			731,160	4.40	7.11
2010	15,505	11.2864			174,994	2.54	4.49
2009	5,383	10.8010			58,143	4.93	8.01
EGS
2011	20,022	7.3965	to	10.9284	208,270	0.15	(1.01)	to	(0.45)
2010	26,428	7.4671	to	10.9780	279,891	0.09	15.14	to	15.81
2009	29,997	6.4798	to	9.4973	274,202	0.28	36.93	to	37.74
2008	34,499	4.7281	to	6.9357	230,099	0.24	(37.70)	to	(37.33)
2007	46,721	7.5825	to	11.1325	496,799	-	20.54	to	21.25

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
HYS
2011	252,678	$ 17.9290	to	$ 19.3827	$ 4,875,753	5.80%	3.55%	to	4.13%
2010	257,764	17.3030	to	18.6131	4,778,452	7.65	14.86	to	15.53
2009	159,208	15.0516	to	16.1108	2,548,049	9.45	49.48	to	50.36
2008	165,713	10.0606	to	10.7151	1,764,149	9.08	(30.07)	to	(29.66)
2007	166,361	14.3752	to	15.2339	2,516,512	6.82	1.33	to	1.93
IG1
2011	54,366	12.7724			694,375	0.92	(11.11)
2010	41,732	14.3691			599,657	0.16	14.86	to	43.69
2009	3,223	12.5096			40,322	0.05	25.10
MIS
2011	155,407	8.3847	to	10.1545	1,520,071	0.58	0.23	to	0.79
2010	174,320	8.3601	to	10.0744	1,690,399	0.32	12.49	to	13.15
2009	179,443	7.4252	to	8.9034	1,531,181	0.85	39.32	to	40.14
2008	162,098	5.3250	to	6.3533	1,003,025	0.62	(37.58)	to	(37.22)
2007	161,651	8.5240	to	10.1301	1,599,524	0.37	10.88	to	11.53
RI1
2011	7,150	7.2374			51,741	1.78	(11.06)
2010	4,969	8.1373			40,422	0.98	(18.63)	to	10.34
2009	3,154	7.3750			23,261	1.75	30.50
2008	551	5.6513			3,115	-	(30.26)	to	(27.04)
MFJ
2011	10,379	10.1647			105,491	1.00	1.66
2010	4,599	9.9991			45,980	2.23	(0.01)	to	9.69
2009	2,973	9.1158			27,102	0.80	(8.84)	to	17.81
2008	68	7.7380			524	-	(17.07)
UTS
2011	79,899	21.0293	to	25.3599	1,727,089	3.45	6.52	to	7.12
2010	83,920	19.6313	to	23.8084	1,705,118	3.19	13.24	to	13.90
2009	92,392	17.2354	to	21.0250	1,656,708	4.91	32.60	to	33.37
2008	108,103	12.9227	to	15.8563	1,458,781	1.86	(37.43)	to	(37.06)
2007	99,503	20.5326	to	25.3420	2,140,821	1.29	27.83	to	28.58
MFE
2011	64,753	10.2515			663,801	3.56	6.84
2010	29,895	9.5953			286,853	2.83	(4.05)	to	13.60
2009	5,833	8.4464			49,268	5.11	33.10	to	33.10
2008	4,607	6.3461			29,235	0.81	(38.33)	to	(35.20)
MV1
2011	162,418	8.8757			1,441,595	1.30	(0.29)
2010	74,964	8.9013			667,299	1.01	11.22
2009	35,020	8.0030			280,285	1.44	20.30
2008	21,670	6.6526			144,165	0.26	(32.87)
2007	39	9.9097			389	-	0.76

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
IGS
2011	44,171	$ 12.6403	to	$ 12.8791	$ 568,701	0.95%	(11.40)%	to	(10.89)%
2010	35,401	14.2663	to	14.4537	511,122	0.73	15.16	to	42.93
2009	18,986	12.5510	to	12.5510	238,299	0.62	25.51	to	25.51
NWD
2011	133,980	13.0891	to	19.3280	1,785,924	-	(10.88)	to	(10.37)
2010	111,942	14.6037	to	21.6870	1,673,771	-	35.79	to	36.58
2009	115,441	10.6921	to	15.9710	1,265,806	-	62.01	to	62.96
2008	141,555	6.5611	to	9.8578	947,939	-	(39.93)	to	(39.57)
2007	148,834	10.8576	to	16.4093	1,656,055	-	1.96	to	2.56
TRS
2011	232,288	15.0067	to	17.1322	3,595,471	2.68	1.35	to	1.93
2010	262,145	14.7232	to	16.8923	3,993,230	2.68	9.33	to	9.97
2009	282,974	13.3889	to	15.4383	3,945,708	3.67	33.89	to	54.38
2008	335,954	11.3378	to	13.1385	3,970,374	3.36	(22.01)	to	(21.55)
2007	356,492	14.4521	to	16.8316	5,414,571	2.86	3.71	to	4.32
MVS
2011	161,978	14.0038	to	14.6201	2,360,418	1.55	(0.56)	to	-
2010	185,161	14.0833	to	14.6201	2,699,635	1.47	10.86	to	11.51
2009	185,355	12.7038	to	13.1113	2,424,022	1.77	19.89	to	27.04
2008	178,412	10.6448	to	10.8813	1,939,141	1.79	(32.98)	to	(32.64)
2007	192,230	15.8369	to	16.1546	3,095,541	1.62	7.29	to	7.92
MF7
2011	80,921	13.3896			1,083,504	3.97	6.30
2010	25,272	12.5956			318,313	3.28	10.67
2009	2,540	11.3812			28,911	2.67	13.81	to	27.66
2008	757	8.9152			6,747	-	1.46	to	3.43
OCF
2011	48,526	12.4528			604,218	0.35	(1.15)
2010	48,194	12.5976			607,056	0.18	9.42
2009	47,919	11.5134			551,652	0.32	44.52
2008	52,370	7.9668			417,219	0.15	(45.52)
2007	53,717	14.6226			785,478	0.22	14.15
OCA
2011	3,121	8.1953			25,527	0.16	(1.37)
2010	8,980	8.3095			74,599	-	9.14
2009	3,297	7.6134			25,098	0.01	44.15
2008	1,738	5.2815			9,181	-	(40.57)	to	(39.38)
OGG
2011	8,808	8.4916			74,763	0.95	(8.53)
2010	5,177	9.2831			48,052	0.59	(7.17)	to	15.70
2009	1,642	8.0233			13,169	2.01	39.35	to	39.35
2008	1,629	5.7574			9,381	-	(38.19)	to	(31.84)

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
OMG
2011	14,670	$ 8.7297			$ 128,067	0.55%	(0.31)%
2010	13,823	8.7572			121,044	0.84	15.82
2009	12,870	7.5607			97,309	1.50	27.99
2008	11,169	5.9071			65,977	-	(37.25)	to	(35.31)
SBJ
2011	3,953	10.0170	to	10.2312	39,612	0.26	0.17	to	2.31
PCR
2011	57,230	9.5603			547,139	14.30	(7.56)
2010	43,470	10.3420			449,565	16.55	24.52
2009	40,495	8.3053			336,330	7.29	41.53
2008	16,415	5.8682			96,327	9.09	(56.00)	to	(43.79)
2007	13	10.4400			141	-	3.29
PMB
2011	174,977	13.3036	to	29.3634	4,201,023	5.31	6.33
2010	155,695	12.5115	to	27.6151	3,753,961	4.91	12.17
2009	136,232	11.1541	to	24.6192	3,134,697	6.03	30.59
2008	144,423	8.5415	to	18.8526	2,633,743	6.50	(17.50)	to	(14.60)
2007	125,761	10.0012	to	22.0744	2,775,923	5.76	0.81	to	5.82
PRR
2011	204,769	13.6585	to	18.1368	3,648,876	2.06	11.68
2010	154,708	12.2301	to	16.2401	2,469,614	1.45	8.11
2009	153,834	11.3126	to	15.0218	2,258,403	3.04	18.39
2008	177,641	9.5551	to	12.6880	2,191,030	3.55	(11.50)	to	(7.05)
2007	142,419	13.6509			1,944,155	4.65	10.67
PTR
2011	576,416	13.6961	to	17.5060	9,969,635	2.63	3.61
2010	530,884	13.2187	to	16.8958	8,881,409	2.42	8.12
2009	586,094	12.2264	to	15.6274	9,076,763	5.15	14.07
2008	475,641	10.7181	to	13.6996	6,465,315	4.46	(0.46)	to	4.80
2007	461,754	10.2271	to	13.0720	6,030,162	4.75	2.27	to	8.76
118
2011	77,979	9.7106	to	9.8941	771,473	2.38	(16.68)	to	(16.21)
2010	52,453	11.6551	to	11.8082	619,332	0.00	4.62	to	16.55
2009	2,968	11.2870			33,503	3.08	12.87	to	29.71
2008	334	8.7018			2,910	0.50	10.38
SBB
2011	3,666	9.0862			33,306	-	(9.14)

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
115
2011	136,899	$ 12.2909	to	$ 12.5230	$ 1,714,176	2.21%	11.29%	to	11.92%
2010	89,839	11.0441	to	11.1892	1,005,235	1.31	5.25	to	10.44
2009	53,223	10.5659	to	10.6312	565,763	2.08	5.66	to	8.74
2008	2,271	9.7771			22,206	0.10	3.77
117
2011	23,420	12.5999	to	12.8379	300,600	0.65	(6.85)	to	(6.32)
2010	11,660	13.5522	to	13.7041	159,745	-	21.02	to	35.26
2009	2,459	11.1984	to	11.2676	27,680	1.38	11.98	to	12.68
SC7
2011	353,134	8.5814	to	12.6636	4,208,994	0.88	(3.77)
2010	346,780	8.9175	to	13.1597	4,338,414	0.49	12.92
2009	331,884	7.8970	to	11.6536	3,760,214	0.43	29.39
2008	365,246	6.1031	to	9.0064	3,260,273	0.82	(37.81)	to	5.84
2007	332,271	9.8131	to	14.4812	4,786,741	0.59	(1.87)	to	4.23
SC3
2011	252,387	7.0278	to	25.4954	3,551,676	7.12	(8.11)	to	(7.59)
2010	222,762	7.6052	to	27.7467	3,672,500	12.76	14.61	to	15.28
2009	157,830	6.5971	to	24.2097	2,788,136	3.90	29.33	to	30.09
2008	159,542	5.0713	to	18.7196	2,194,245	2.37	(51.32)	to	(44.73)
2007	131,107	9.1751	to	34.0673	3,694,994	1.51	(13.64)	to	(5.30)
SGC
2011	360,760	10.2226	to	11.0105	3,704,894	1.05	2.47
2010	356,693	9.9760	to	10.7449	3,567,096	-	22.13
2009	384,587	8.1685	to	8.7981	3,144,711	1.30	(18.31)	to	25.68
2008	15,420	6.4993			100,219	1.46	(38.11)	to	11.18
SDC
2011	604,985	10.8570	to	11.0956	6,702,997	1.18	(0.04)	to	0.53
2010	599,053	10.8615	to	11.0376	6,601,874	1.50	1.82	to	2.41
2009	577,989	10.6676	to	10.7775	6,222,095	1.93	3.78	to	7.77
2008	2,839	10.3799			29,469	0.60	1.93
112
2011	173,491	12.9042	to	13.1478	2,278,416	1.42	(2.11)	to	(1.56)
2010	126,462	13.1828	to	13.3559	1,687,203	1.56	11.53	to	33.56
2009	32,499	11.8200	to	11.9056	386,045	0.31	18.20	to	23.91
2008	1,082	9.6081			10,396	-	4.13

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
113
2011	121,604	$ 13.1779	to	$ 13.4267	$ 1,632,352	1.91%	(4.21)%	to	(3.66)%
2010	80,587	13.7567	to	13.9373	1,122,915	1.52	13.14	to	13.80
2009	19,238	12.1592	to	12.2472	235,505	0.32	21.59	to	27.17
2008	4,948	9.6308			47,656	-	3.02
111
2011	437,524	12.3570	to	12.5903	5,506,764	1.43	(0.59)	to	0.97
2010	405,216	12.4697			5,052,908	1.34	9.92
2009	145,753	11.3444			1,653,486	0.64	13.44	to	19.37
2008	48	9.5036			455	-	0.99
116
2011	33,493	13.7075	to	13.9664	467,702	-	(10.54)	to	(0.92)
2010	4,887	13.9392	to	14.0954	68,832	-	25.45	to	26.08
2009	1,517	11.1114	to	11.1801	16,926	-	11.11	to	11.80
SLC
2011	271,541	8.7955	to	10.1221	2,395,000	0.61	(6.15)
2010	288,025	9.3719	to	10.7854	2,704,837	-	17.19
2009	296,551	7.9975	to	9.2036	2,377,189	0.73	(20.03)	to	17.85
2008	1,042	6.7863			7,068	1.05	(21.30)
SCM
2011	11,428	12.6757	to	14.1198	158,295	0.59	1.08	to	1.58
2010	26,767	12.5406	to	13.9000	368,667	-	16.18	to	16.76
2009	29,869	10.7941	to	11.9048	353,648	1.11	7.94	to	21.09
2008	12,694	8.9572	to	9.8317	122,624	0.73	(42.65)
2007	10,939	15.6196			170,868	0.64	(5.44)
SCB
2011	162,513	9.5907	to	15.8657	2,276,320	0.43	(5.41)	to	(4.87)
2010	143,736	10.0819	to	16.6783	2,187,095	0.36	23.74	to	24.46
2009	161,111	8.1003	to	13.4002	1,981,215	0.06	35.97	to	36.77
2008	135,755	5.9228	to	9.7980	1,291,060	0.28	(38.35)	to	(33.31)
2007	124,288	9.5511	to	15.8003	1,928,511	-	(4.49)	to	(1.44)
SPC
2011	223,767	12.5553	to	13.1245	2,835,451	7.31	4.28
2010	228,363	12.0400	to	12.5857	2,785,173	7.48	12.70
2009	300,721	10.6827	to	11.1670	3,225,503	8.46	6.83	to	30.76
2008	956	8.1699			7,809	1.36	1.01	to	2.11

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
114
2011	362,962	$ 12.3616	to	$ 12.5960	$ 4,568,180	2.72%	3.11%	to	3.70%
2010	208,954	11.9884	to	12.1468	2,537,894	2.29	7.01	to	19.88
2009	53,262	11.2246	to	11.2948	600,483	2.59	8.90	to	12.95
2008	20,188	10.3576	to	10.3718	209,120	0.25	4.37	to	4.66
SC5
2011	225,674	9.3434	to	27.5608	3,451,304	0.06	(8.31)	to	(7.78)
2010	218,203	10.1321	to	30.0571	3,914,458	0.06	22.45	to	23.17
2009	194,532	8.2261	to	24.5456	3,052,889	0.03	29.32	to	30.07
2008	203,317	6.3241	to	18.9809	2,457,769	0.17	(36.24)	to	(34.18)
2007	211,467	9.7501	to	29.4359	4,158,497	1.15	1.99	to	15.41
LCG
2011	33,149	8.6400	to	8.9036	287,970	0.30	(5.07)	to	(4.53)
2010	29,304	9.0502	to	9.3263	267,553	0.28	18.80	to	19.50
2009	31,492	7.5736	to	7.8046	242,060	0.20	36.43	to	37.23
2008	40,258	5.5189	to	5.6872	226,668	-	(44.45)	to	7.21
2007	33,156	9.8768	to	10.1781	335,032	-	(1.23)	to	1.78
SC2
2011	223,012	12.2286	to	18.3020	3,472,207	3.64	6.47	to	7.07
2010	261,580	11.4212	to	17.1906	3,858,481	3.53	7.06	to	7.69
2009	262,230	10.6059	to	16.0569	3,618,688	4.55	20.34	to	21.05
2008	303,829	8.7619	to	13.3428	3,517,654	5.64	(13.61)	to	(12.10)
2007	271,065	10.0132	to	15.3380	3,916,563	5.18	0.52	to	3.76
SC1
2011	809,604	10.3602	to	12.3157	8,725,014	0.14	(0.42)	to	0.15
2010	659,419	10.3449	to	12.3673	7,199,078	0.19	(0.39)	to	0.19
2009	720,959	10.3253	to	12.4161	7,830,436	0.24	(0.34)	to	0.25
2008	419,707	10.2998	to	12.4581	4,636,358	2.07	0.46	to	1.97
2007	151,263	12.0005	to	12.2553	1,844,568	4.77	4.26	to	4.35
TBC
2011	249,032	14.6748			3,656,266	-	1.52
2010	237,324	14.4558			3,432,417	-	16.39
2009	254,018	12.4201			3,156,405	-	42.18
2008	305,007	8.7353			2,664,319	0.11	(42.51)
2007	252,657	15.1935			3,838,750	0.46	12.74
FTI
2011	261,179	20.1009			5,240,816	1.74	(10.63)
2010	240,504	22.4927			5,399,375	1.90	8.41
2009	254,053	20.7486			5,261,668	3.23	37.04
2008	266,601	15.1403			4,036,407	2.32	(40.38)
2007	274,235	25.3936			6,963,811	1.94	15.46

8. FINANCIAL HIGHLIGHTS (CONTINUED)

	At December 31					For the year ended December 31
						Investment
		Unit Value			Net	Income	Total Return
	Units	lowest to highest			Assets	Ratio1	lowest to highest2
FTG
2011	90,650	$ 11.0608	to	$ 16.7091	$ 1,510,562	1.27%	(14.64)%	to	(6.97)%
2010	85,633	11.9804	to	17.9619	1,534,051	1.38	6.86	to	7.39
2009	90,397	11.2113	to	16.7253	1,508,570	3.21	12.11	to	31.10
2008	92,701	8.6044	to	12.7573	1,182,499	1.83	1.61
2007	98,456	22.1185			2,177,683	1.40	2.35
MTC
2011	81,008	8.8642			718,073	-	(0.80)
2010	51,752	8.9358			462,446	0.34	23.06
2009	34,068	7.2611			247,366	0.56	37.40
2008	17,816	5.2845			94,145	0.02	(48.97)
2007	27	10.3561			278	-	3.56
VLC
2011	62,350	8.9538			558,269	1.14	(2.11)
2010	27,012	9.1465			247,070	0.02	15.70
2009	19,098	7.9057			150,981	6.15	(20.94)	to	28.41
2008	100	6.1568			617	-	(26.34)
VGI
2011	108,946	14.2200			1,548,033	1.42	(2.01)
2010	69,331	14.5115			1,004,889	0.10	12.51
2009	69,574	12.8977			895,999	4.08	24.37
2008	60,531	10.3707			627,746	2.04	(32.03)
2007	63,142	15.2588			963,477	1.45	2.80
VKM
2011	13,271	16.4916			218,862	0.27	(7.17)
2010	6,663	17.7663			118,378	-	32.27	to	77.66
2009	1,040	13.4320			13,963	-	34.32
VKC
2011	11,149	13.4388	to	13.6573	152,058	0.80	0.33	to	0.83
2010	5,148	13.3952	to	13.5453	69,355	0.64	21.57	to	35.45
2009	2,614	11.0182	to	11.0863	28,882	0.36	10.86	to	38.47
2008	111	7.9572			885	-	(3.97)
USC
2011	11,821	9.9541			117,692	-	(3.49)
2010	9,991	10.3144			103,073	-	23.35
2009	8,177	8.3618			68,380	-	42.23
2008	5,890	5.8791			34,625	-	(39.61)	to	(35.97)

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 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.

8. FINANCIAL HIGHLIGHTS (CONTINUED)

2 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.

9. TAX DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Code, a variable annuity contract, other than a pension plan contract, is not treated as an annuity contract for federal tax purposes for any period in which the investments of the segregated asset account on which the contract is based are not adequately diversified.  The Code provides that the “adequately diversified” requirement may be met if the underlying investments satisfy either a statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of Treasury.  The Sponsor believes that the Variable Account satisfies the current requirements of the regulations, and it intends that the Variable Account will continue to meet such requirements.

10. SUMMARY OF FUND CHANGES

There were no sub-accounts held by the contract owners of the Variable Account that had a name change during the current year.

A summary of the sub-accounts closed and merged into new sub-accounts held by the contract owners of the Variable Account during the past two years, is as follows:

Sub Account	Fund Name	Sub Account	Fund Name Merged To	Effective Date
IV1	Invesco V.I. Dynamic Fund I	AAH	Invesco V.I. Capital Development (Series  I)	May 2, 2011
OP2	Premier VIT OPCap Mid Cap Portfolio	SC1	Sun Capital Money Market Fund (Initial Class)	May 3, 2010
OP3	Premier VIT NACM Small Cap Portfolio	SC1	Sun Capital Money Market Fund (Initial Class)	May 3, 2010
OP4	Premier VIT OPCap Managed Portfolio	SC1	Sun Capital Money Market Fund (Initial Class)	May 3, 2010

A summary of the commencement dates related to sub-accounts held by the contract owners of the Variable Account (if commenced within the past five years) related to sub-accounts held, is as follows:

Sub-Account	Commencement of Operations
AAH	May 2, 2011
SBB1 SBJ1	November 15, 2010
F20, F30, FGF, FIS, FL1, FMS, FVM, MF7, MFE, MFJ, OCA, OGG, OMG, SGI, SIC, RI1, USC, VLC	November 3, 2008
3012 , 3022 , 3032 , 3042 ,  3052 ,  3062 , 3072 , 3082	November 1, 2008
111, 112, 113, 114, 115, 118, 300, 9XX, FVB, S17, VKC	October 6, 2008
SDC, SGC, SLC, SPC	May 1, 2008
AVB2, MFK2, VKU2 , VKM2	March 10, 2008
EM1, FVS, ISC, IVB, MBI, MCA, MCC, MTC, MV1, PCR, MBO3	November 16, 2007
1162 , 1172, IGS2	October 6, 2007
ASC, LCG	April 26, 2007
IG12	March 5, 2007

10. SUMMARY OF FUND CHANGES (CONTINUED)

1 First activity in Sub-Account 2011

2 First activity in Sub-Account 2009

3 First activity in Sub-Account 2008

A summary of the commencement dates related to sub-accounts held by the contract owners of the Variable Account (if commenced within the past five years) related to sub-accounts held, is as follows:

Sub-Account(s)	Year of First Activity
F15	2009

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

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

Wellesley Hills, Massachusetts

We have audited the accompanying consolidated balance sheets of Sun Life Financial Assurance Company of Canada (U.S.) and subsidiaries (the "Company") as of December 31, 2011 and 2010, 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, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the 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 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, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting and reporting for other-than-temporary impairments as required by accounting guidance adopted in 2009.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

March 29, 2012

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,

	2011		2010		2009
Revenues:
Premiums and annuity considerations (Note 8)	$	137,420	$	136,175	$	134,246
Net investment income (1)  (Note 7)		727,628		1,390,210		2,582,307
Net derivative loss (Note 4)		(988,070)		(149,290)		(39,902)
Net realized investment gains (losses), excluding impairment losses on available-for-sale securities (Note 6)		39,578		26,951		(36,675)
Other-than-temporary impairment losses (2)  (Note 4)		(71)		(885)		(4,834)
Fee and other income (Note 8)		608,411		511,027		385,836
Total revenues		524,896		1,914,188		3,020,978
Benefits and expenses:
Interest credited (Note 8)		424,208		401,848		385,768
Interest expense		47,170		51,789		39,780
Policyowner benefits (Note 8)		134,412		239,794		110,439
Amortization of deferred policy acquisition costs and value of business and customer renewals acquired		(247,401)		697,102		1,024,661
Other operating expenses (Note 8)		350,325		318,170		248,156
Total benefits and expenses		708,714		1,708,703		1,808,804
(Loss) income from continuing operations before income tax (benefit) expense		(183,818)		205,485		1,212,174
Income tax (benefit) expense (Note 10)		(80,701)		71,211		335,649
Net (loss) income from continuing operations		(103,117)		134,274		876,525
Income from discontinued operations, net of tax
(Note 2)		-		-		104,971
Net (loss) income	$	(103,117)	$	134,274	$	981,496

(1) Net investment income includes an increase in market value of trading investments of $186.6 million, $674.2 million and $2,086.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.

(2) The $0.1 million, $0.9 million and $4.8 million other-than-temporary impairment (“OTTI”) losses for years ended December 31, 2011, 2010 and 2009, respectively, represent solely credit losses.  The Company incurred no non-credit OTTI losses during the years ended December 31, 2011, 2010 and 2009 as such, no non-credit OTTI losses were recognized in other comprehensive income for these periods.

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, 2011		December 31, 2010
Investments
Available-for-sale fixed maturity securities, at fair value (amortized cost of $1,339,960 and $1,422,951 in 2011 and 2010, respectively) (Note 4)	$	1,402,525	$	1,495,923
Trading fixed maturity securities, at fair value (amortized cost of $10,336,058 and $11,710,416 in 2011 and 2010, respectively) (Note 4)		10,280,536		11,467,118
Mortgage loans (Note 4)		1,457,356		1,737,528
Derivative instruments – receivable (Note 4)		422,404		198,064
Limited partnerships		34,088		41,622
Real estate (Note 4)		223,814		214,665
Policy loans		603,371		717,408
Other invested assets		37,075		27,456
Short-term investments		105,895		832,739
Cash and cash equivalents		872,064		736,323
Total investments and cash		15,439,128		17,468,846
Accrued investment income		169,761		188,786
Deferred policy acquisition costs and sales inducement asset (Note 13)		2,206,886		1,682,559
Value of business and customer renewals acquired (Note 14)		106,087		134,985
Net deferred tax asset (Note 10)		448,376		394,297
Goodwill (Note 1)		7,299		7,299
Receivable for investments sold		5,092		5,328
Reinsurance receivable		2,237,806		2,347,086
Other assets (Note 1)		119,325		125,529
Separate account assets (Note 1)		27,483,790		26,880,421
Total assets	$	48,223,550	$	49,235,136
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	13,626,525	$	14,593,228
Future contract and policy benefits		910,032		849,514
Payable for investments purchased		730		44,827
Accrued expenses and taxes		49,867		52,628
Debt payable to affiliates (Note 3)		683,000		783,000
Reinsurance payable		2,100,124		2,231,835
Derivative instruments – payable (Note 4)		287,074		362,023
Other liabilities		339,641		285,056
Separate account liabilities		27,483,790		26,880,421
Total liabilities		45,480,783		46,082,532
Commitments and contingencies (Note 20)
STOCKHOLDER’S EQUITY
Common stock, $1,000 par value – 10,000 shares authorized; 6,437 shares issued and outstanding in 2011 and 2010		6,437		6,437
Additional paid-in capital		3,629,228		3,928,246
Accumulated other comprehensive income (Note 19)		38,851		46,553
Accumulated deficit		(931,749)		(828,632)
Total stockholder’s equity		2,742,767		3,152,604
Total liabilities and stockholder’s equity	$	48,223,550	$	49,235,136

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 (LOSS) INCOME

(in thousands)

For the Years Ended December 31,

		2011		2010		2009
Net (loss) income	$	(103,117)	$	134,274	$	981,496
Other comprehensive (loss) income:
Change in unrealized holding gains on available- for- sale securities, net of tax (1)		33,493		34,459		113,278
Reclassification adjustment for OTTI losses, net of tax (2)		1,111		938		202
Change in pension and other postretirement plan adjustments, net of tax (3)		-		-		10,231
Reclassification adjustments of net realized investment losses into net income (gains) losses (4)		(42,306)		(24,088)		3,117
Other comprehensive (loss) income		(7,702)		11,309		126,828
Comprehensive (loss) income	$	(110,819)	$	145,583	$	1,108,324

(1) Net of tax (expense) of $(18.0) million, $(18.6) million and $(60.1) million for the years ended December 31, 2011, 2010 and 2009, respectively.

(2) Represents an adjustment to OTTI losses due to the sale of other-than-temporarily impaired available-for-sale fixed maturity securities.

(3) Net of tax (expense) of $(5.5) million for the year ended December 31, 2009.

(4) Net of tax benefits (expense) of $22.8 million, $13.0 million and $(1.7) million for the years ended December 31, 2011, 2010 and 2009, 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 CHANGES IN STOCKHOLDER’S EQUITY

(in thousands)

For the Years Ended December 31,

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income (1)		Accumulated Deficit		Total Stockholder’s Equity
Balance at December 31, 2008	$	6,437	$	2,872,242	$	(129,884)	$	(1,953,540)	$	795,255
Cumulative effect of accounting changes related to the adoption of FASB ASC Topic 320, net of tax (2)		-		-		(9,138)		9,138		-
Net income		-		-		-		981,496		981,496
Tax benefit from stock options		-		185		-		-		185
Capital contribution from Parent		-		748,652		-		-		748,652
Net liabilities transferred to affiliate (Note 3)		-		1,467		47,438		-		48,905
Dividend to Parent (Notes 1 and 2)		-		(94,869)		-		-		(94,869)
Other comprehensive income		-		-		126,828		-		126,828
Balance at December 31, 2009		6,437		3,527,677		35,244		(962,906)		2,606,452
Net income		-		-		-		134,274		134,274
Tax benefit from stock options		-		569		-		-		569
Capital contribution from Parent		-		400,000		-		-		400,000
Other comprehensive income		-		-		11,309		-		11,309
Balance at December 31, 2010		6,437		3,928,246		46,553		(828,632)		3,152,604
Net loss		-		-		-		(103,117)		(103,117)
Tax benefit from stock options		-		982		-		-		982
Return of capital to Parent (Note 3)		-		(300,000)		-		-		(300,000)
Other comprehensive loss		-		-		(7,702)		-		(7,702)
Balance at December 31, 2011	$	6,437	$	3,629,228	$	38,851	$	(931,749)	$	2,742,767

(1) As of December 31, 2011, the total amount of after tax non-credit OTTI losses recorded in the Company’s accumulated other comprehensive income was $6.9 million.

(2) Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 320, “Investments-Debt and Equity Securities.”

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended December 31,

		2011		2010		2009
Cash Flows From Operating Activities:
Net (loss) income from operations	$	(103,117)	$	134,274	$	981,496
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net amortization (accretion) of premiums on investments		47,608		30,562		(689)
Amortization of deferred policy acquisition costs, and value of business and customer renewals acquired		(247,401)		697,102		1,024,661
Depreciation and amortization		10,012		5,683		5,535
Net loss (gain) on derivatives		960,978		41,483		(96,041)
Net realized (gains) losses and OTTI credit losses on available-for- sale investments		(39,507)		(26,066)		41,509
Net increase in fair value of trading investments		(186,566)		(674,223)		(2,086,740)
Net realized losses on trading investments		94,640		67,277		367,337
Undistributed (income) loss on private equity limited partnerships		(2,883)		2,339		9,207
Interest credited to contractholder deposits		424,208		401,848		385,768
Goodwill impairment		-		-		-
Deferred federal income taxes		(49,932)		149,377		295,608
Changes in assets and liabilities:
Additions to deferred policy acquisition costs, sales inducement asset and value of business and customer renewals acquired		(225,114)		(184,995)		(346,900)
Accrued investment income		19,025		41,805		36,736
Net change in reinsurance receivable/payable		69,511		129,907		209,637
Future contract and policy benefits		60,518		33,876		(125,992)
Other, net		(32,132)		17,031		(243,369)
Adjustments related to discontinued operations		-		-		(288,018)
Net cash provided by operating activities		799,848		867,280		169,745
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturity securities		708,951		498,087		113,478
Trading fixed maturity securities		3,136,456		4,170,750		2,097,054
Mortgage loans		253,599		249,283		143,493
Real estate		812		-		-
Other invested assets (1)		115,650		(315,643)		(207,548)
Purchases of:
Available-for-sale fixed maturity securities		(561,142)		(771,747)		(347,139)
Trading fixed maturity securities		(1,948,459)		(3,946,548)		(867,310)
Mortgage loans		(15,045)		(101,668)		(17,518)
Real estate		(4,739)		(4,874)		(4,702)
Other invested assets (2)		(71,270)		(64,998)		(106,277)
Net change in other investments		-		-		(183,512)
Net change in policy loans		6,879		5,182		6,817
Net change in short-term investments		726,844		434,572		(722,821)
Net cash provided by (used in) investing activities	$	2,348,536	$	152,396	$	(95,985)

Continued on next page

(1) Includes $95.1 million, $(371.9) million and $(345.2) million related to settlements of derivative instruments during the years ended December 31, 2011, 2010 and 2009, respectively.

(2) Includes $(62.0) million, $(62.0) million and $(92.1) million related to acquisitions of derivative instruments during the years ended December 31, 2011, 2010 and 2009, 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 CASH FLOWS

(in thousands)

For the Years Ended December 31,

		2011		2010		2009
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	1,029,870	$	1,217,014	$	2,795,939
Withdrawals from contractholder deposit funds		(3,631,161)		(3,606,335)		(3,011,499)
Repayment of debt		(100,000)		(100,000)		-
Debt proceeds		-		-		200,000
Capital contribution from Parent		-		400,000		748,652
Return of capital to Parent		(300,000)		-		-
Other, net		(11,352)		1,760		(27,312)
Net cash (used in) provided by financing activities		(3,012,643)		(2,087,561)		705,780
Net change in cash and cash equivalents		135,741		(1,067,885)		779,540
Cash and cash equivalents, beginning of year		736,323		1,804,208		1,024,668
Cash and cash equivalents, end of year	$	872,064	$	736,323	$	1,804,208
Supplemental Cash Flow Information:
Interest paid	$	44,272	$	45,389	$	47,151
Income taxes (refunded) paid	$	(21,041)	$	(107,063)	$	21,144

Supplemental schedule of non-cash investing and financing activities

The Company exchanged $111.8 million of fixed maturity securities and converted $16.0 million of fixed maturity securities to equity securities during the year ended December 31, 2011.  Equity securities are reported in the Company’s balance sheets as part of other invested assets.  Mortgage foreclosures resulted in a reclassification of $9.0 million from mortgage loans to real estate during the year-ended December 31, 2011.  Refer to Note 8 for details of a $107.2 million non-cash adjustment to policy loans during the year ended December 31, 2011.

On December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of the Company’s wholly-owned subsidiary, Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”), to the Company’s sole shareholder, Sun Life of Canada (U.S.) Holdings, Inc. (the “Parent”).  This dividend is discussed more fully in Note 2.  As a result of the dividend, the Company’s total assets decreased by $2,658.1 million and total liabilities decreased by $2,563.2 million in a non-cash transaction.

The 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, 2011, 2010 and 2009

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

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

The Company and its subsidiaries offer a variety of wealth accumulation products, protection products and institutional investment contracts.  These products include individual and group fixed and variable annuities, individual and group variable life insurance, individual universal life insurance, group life, group disability, group dental and group stop loss insurance and funding agreements.  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.

On December 12, 2011, SLF announced the completion of a major strategic review of its businesses.  As a result of this strategic review, SLF announced that it would close its domestic U.S. variable annuity and individual life products to new sales effective December 30, 2011.  The decision to discontinue sales in these lines of business is based on unfavorable product economics which, due to ongoing shifts in capital markets and regulatory requirements, no longer enhance shareholder value.  This decision reflects SLF’s intensified focus on reducing volatility and improving the return on shareholders’ equity by shifting capital to businesses with superior growth, risk and return characteristics.

Existing legal, business and contractual requirements call for the Company to, among other things, continue accepting limited applications for (1) certain private placement variable annuities until mid-2012, and (2) new employees of corporate-owned life insurance (“COLI”) customers.  Subject to these and other existing obligations, the Company has ceased writing all other COLI new business effective January 31, 2012 and all other individual life and annuities new business effective December 30, 2011.

The decision to stop selling variable annuity and individual life products in the U.S. will not impact existing customers and their policies.  The Company will continue to provide quality service to its policyholders, while focusing on the profitability, capital efficiency and risk management of its in-force business.  The Company will continue to earn revenue and to provide policyholder benefits on its in-force business.

Of the one-time restructuring costs on a pre-tax basis associated with the discontinuation of these products lines in the U.S., $12.7 million was allocated to the Company.  The restructuring costs related primarily to employee severance and other employee benefits, which are expected to be paid in the form of future cash expenditures, as well as other costs.

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, 2011, the Company directly or indirectly owned all of the outstanding shares of SLNY, which issues individual fixed and variable annuity contracts, group life, group disability, group dental and stop loss insurance, and individual life insurance in New York; Independence Life and Annuity Company (“ILAC”), a Rhode Island life insurance company that sold variable and whole life insurance products; Clarendon Insurance Agency, Inc., a registered broker-dealer; SLF Private Placement Investment Company I, LLC; 7101 France Avenue Manager, LLC; Sun MetroNorth, LLC; SLNY Private Placement Investment Company I, LLC; and SL Investment DELRE Holdings 2009-1, LLC.

The Company’s consolidated financial statements also include a variable interest entity (“VIE”) that the Company is required to consolidate.  Refer to Note 4 for further information about VIEs.

All inter-company transactions and balances between the Company and its subsidiaries have been eliminated in consolidation.

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, 2011, 2010 and 2009

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

BASIS OF PRESENTATION (CONTINUED)

On December 30, 2009, Sun Life Vermont, which was a subsidiary of the Company at the time, paid a $100.0 million cash dividend to the Company.  On December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of Sun Life Vermont to the Parent.  As a result of this transaction, Sun Life Vermont is no longer the Company’s wholly-owned subsidiary.  At December 31, 2009, Sun Life Vermont’s total assets and liabilities were $2,658.1 million and $2,563.2 million, respectively.  Sun Life Vermont’s net income for the year ended December 31, 2009 was $105.0 million.  As a result of this dividend transaction, the net income and changes in cash flows from the operating activities of Sun Life Vermont for the year ended December 31, 2009 are presented as discontinued operations in these consolidated financial statements.

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”) including sales inducement asset (“SIA”), value of business acquired (“VOBA”), value of customer renewals acquired (“VOCRA”), liabilities for future contract and policyholder benefits, unearned revenue reserves, accruals, other-than-temporary impairments of investments, allowance for loan loss, valuation allowance on deferred tax assets and provision for income taxes.  Actual results could differ from those estimates.

OUT-OF-PERIOD ADJUSTMENTS

During the year ended December 31, 2011, upon settlement of certain note obligations, the Company recognized $35.4 million of adjustments to contract liabilities that were not previously recorded.  These adjustments should have been recorded during prior years.  Prior periods have not been adjusted as the previously unrecognized amounts were not deemed to be material under Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements.”

FINANCIAL INSTRUMENTS

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

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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

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, 2011, 2010 and 2009

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

INVESTMENTS

Fixed Maturity Securities

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

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

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

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

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

INVESTMENTS (continued)

Fixed Maturity Securities (continued)

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between knowledgeable, unrelated willing parties using inputs, including estimates and assumptions, a market participant would utilize.  The Company performs a monthly analysis on the prices received from third parties to assess if the prices represent a reasonable estimate of the fair value.  In addition, on the quarterly basis, the Company performs quantitative and qualitative analysis that includes back testing of recent trades, review of key assumptions such as spreads, duration, and 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 own testing.

Please refer to Note 5 of the Company’s consolidated financial statements for further discussion of the Company’s fair value measurements.

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

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

Please refer to Note 4 of the Company’s consolidated financial statements for further discussion of the Company’s recognition and disclosure of OTTI loss.

The Company discontinues the accrual of income on its holdings for issuers that are in default.  The Company’s net investment income would have increased by $2.1 million and $4.6 million for the year ended December 31, 2011 and 2010, respectively, if these holdings were performing.  As of December 31, 2011 and 2010, the fair market value of holdings for issuers in default was $19.6 million and $53.9 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, 2011, 2010 and 2009

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

INVESTMENTS (CONTINUED)

Mortgage Loans and Real Estate

Mortgage loans are stated at unpaid principal balances, net of provisions for estimated losses.  Mortgage loans acquired at a premium or discount are carried at amortized cost using the effective interest rate method, net of provisions for estimated losses.  Purchases and sales of mortgage loans are recognized or derecognized in the Company’s balance sheet on the loans’ trade dates, which are the dates that the Company commits to purchase or sell the loan.  Transaction costs on mortgage loans are capitalized on initial recognition and are recognized in the Company’s statement of operations using the effective interest method.  Mortgage loans, which primarily include commercial first mortgages, are diversified by property type and geographic area throughout the United States.  Mortgage loans are collateralized by the related properties and generally are no more than 75% of the property’s value at the time that the original loan is made.  The Company regularly assesses the value of the collateral.

A mortgage loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan. When a mortgage loan is classified as impaired, allowances for credit losses are established to adjust the carrying value of the loan to its net recoverable amount. The allowance for credit losses are estimated using the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, if the loan is collateral dependent.  A specific allowance for loan loss is established for an impaired loan if the present value of expected cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral less cost to sell, is less than the recorded amount of the loan.  The full extent of impairment in the mortgage portfolio cannot be assessed solely by reviewing these loans individually.  A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions.  While management believes that it uses the best information available to establish the loan loss allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them.

Interest income is recognized on impaired mortgage loans when the collection of contractually specified future cash flows is probable, in which case cash receipts are recorded in accordance with the effective interest rate method.  Interest income is not recognized on impaired mortgage loans and these mortgage loans are placed on non-accrual status when the collection of contractually specified future cash flows is not probable, in which case cash receipts are applied, firstly against the carrying value of the loan, then against the provision, and then to income.  The accrual of interest resumes when the collection of contractually specified future cash flows becomes probable based on certain facts and circumstances.

Changes in allowances for losses and write-off of specific mortgages are recorded as net realized gain or loss in the Company’s statements of operations.  Once the conditions causing impairment improve and future payments are reasonably assured, allowances are reduced and the mortgages are no longer classified as impaired.  However, the mortgage loan continues to be classified as impaired if the original terms of the contract have been restructured, resulting in the Company providing an economic concession to the borrower.

If the conditions causing impairment do not improve and future payments remain unassured, the Company typically derecognizes the asset through disposition or foreclosure.  Uncollectible collateral-dependent loans are written off through allowances for losses at the time of disposition or foreclosure.

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 depreciated cost.  Depreciation of buildings and improvements is calculated using the straight-line method over the estimated useful life of the asset.  Real estate investments held for sale are primarily acquired through foreclosure of mortgage loans for which the carrying amount is established as the fair value less cost to sell at the foreclosure date.  Real estate investments held- for-sale are measured at the lower of their carrying amount or fair value less costs to sell.  Real estate investments are diversified by property type and geographic area throughout the United States.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

INVESTMENTS (CONTINUED)

Derivative instruments

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

Policy loans and other

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

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

Realized gains and losses

Realized gains and losses on the sales of investments are recognized in operations at the date of sale and are determined using the average cost method.  Changes in the provision for estimated losses on mortgage loans and real estate are included in net realized investment gains and losses.

Investment income

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

The Company manages assets related to certain funds-withheld reinsurance agreements.  These assets are primarily comprised of fixed maturity securities, mortgage loans, policy loans, equity securities, derivative instruments, related accrued income and cash and cash equivalents and are accounted for consistent with the policies described above.  Investment income on assets within funds-withheld reinsurance portfolios is included as a component of net investment income in the Company’s consolidated statements of operations.

Please refer to Note 7 of the Company’s consolidated financial statements for further discussion of the Company’s net investment income.

DEFERRED POLICY ACQUISITION COSTS AND SALES INDUCMENT ASSET

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

SIA represents amounts that are credited to policyholder account balances related to the enhanced or bonus crediting rates that the Company offers on certain of its annuity products.  The costs associated with offering the enhanced or bonus crediting rates are capitalized and amortized over the expected life of the related contracts in proportion to the estimated gross profits.

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, 2011, 2010 and 2009

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

DEFERRED POLICY ACQUISITION COSTS AND SALES INDUCMENT ASSET (CONTINUED)

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 and are updated on a more frequent basis if required.  Changes in any of the assumptions that serve to increase or decrease the estimated future gross profits will cause the amortization of DAC to decrease or increase, respectively, in the current period.  Assumptions affecting the computation of estimated future gross profits include, but are not limited to, recent investment and policyholder experience, expectations of future performance and policyholder behavior, changes in interest rates, capital market growth rates, and account maintenance expense.

DAC amortization is reviewed regularly and adjusted retrospectively through the current period operations when the Company calculates the actual profits or losses and revises its estimate of future gross profits to be realized from deposit-type contracts, including realized and unrealized gains and losses from investments.  The Company also tests its DAC asset and SIA for loss recognition on a quarterly basis.  The test is performed by comparing the GAAP liability, net of DAC and SIA, to the present value of future expected gross profits or gross premium reserves.  The Company’s DAC asset and SIA at December 31, 2011 and 2010 failed the loss recognition test for certain annuity products and the Company, therefore, wrote down DAC asset and the SIA by $21.0 million and $126.0 million during the years ended December 31, 2011 and 2010, respectively.  Please refer to Note 13 of the Company’s consolidated financial statements for the Company’s DAC asset and SIA roll-forward.

The DAC asset under GAAP cannot exceed accumulated deferrals, plus interest.  At December 31, 2009, the Company reached the cap for its DAC asset and SIA related to certain fixed and fixed index annuity products and reported the DAC asset for these products at historical accumulated deferrals with interest.  At December 31, 2010, the Company’s SIA related to certain fixed and fixed index annuity remained at historical accumulated deferral with interest.  However, the Company’s DAC related to certain fixed annuities was below the cap and regular amortization was recorded during the year.  At December 31, 2011, the Company’s DAC asset and SIA were below the cap and regular amortization was recorded during the year.

Although recovery of DAC and the SIA 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 and SIA considered recoverable could be reduced in the near term, however, if the future estimates of gross profits are reduced.

VALUE OF BUSINESS AND CUSTOMER RENEWALS ACQUIRED

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

VOCRA represents a portion of the assets that were transferred to SLNY under the SLHIC to SLNY asset transfer.  VOCRA is the actuarially determined present value of projected future profits arising from the existing in-force business at May 31, 2007 to the next policy renewal date.  This amount is amortized in proportion to the projected premium income over the period from the first renewal date to the end of the projected life of the policies.  The Company tests its VOCRA asset for impairment on an annual basis.  During the year ended December 31, 2009, the Company determined that its VOCRA asset was impaired and recorded an impairment charge of $2.6 million.  Please refer to Note 14 of the Company’s consolidated financial statements for the Company’s combined VOBA and VOCRA roll-forward.

Although recovery of VOBA is not assured, the Company believes it is more likely than not that all of these costs will be recovered from future profits.  The amount of VOBA and VOCRA considered recoverable could be reduced in the near term, however, 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, 2011, 2010 and 2009

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

OTHER ASSETS

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

Prior to December 31, 2009, the Company’s other asset also included property, equipment, leasehold improvements and capitalized software costs.  As described in Note 3, effective December 31, 2009, the Company transferred certain property, equipment, leasehold improvements and capitalized software costs to Sun Life Financial (U.S.) Services Company, Inc. (“Sun Life Services”), an affiliate.  Depreciation and amortization expenses related to these assets were $1.3 million for year ended December 31, 2009.

POLICY LIABILITIES AND ACCRUALS

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

POLICY LIABILITIES AND ACCRUALS (continued)

Policy reserves for annuity contracts include liabilities held for group pension and payout annuity payments and liabilities held for product guarantees on variable annuity products, such as guaranteed minimum death benefits (“GMDB”).  Reserves for pension and payout annuity contracts are calculated using the best-estimate interest and decrement assumptions.  The Company periodically reviews its policies for loss recognition based upon management’s best estimates.  During the year ended December 31, 2011 and 2010, the Company recorded $49.3 million and $29.2 million, respectively, of adjustments to reserves related to loss recognition.

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

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

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

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

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

INCOME TAXES

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

Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.  Valuation allowances on deferred tax assets are estimated based upon the Company’s assessment of the realizability of such amounts.  Please refer to Note 10 of the Company’s consolidated financial statements for further discussion of the Company’s income taxes.

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, 2011, 2010 and 2009

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 UL-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 UL-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.

SEPARATE ACCOUNTS

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

Ø The fees that the Company receives, which are assessed periodically and recognized as revenue when assessed; and

Ø The activity related to the GMDB, GMIB, guaranteed minimum accumulation benefit (“GMAB”) and guaranteed minimum withdrawal benefit (“GMWB”), which is reflected in the Company’s consolidated financial statements.

Ø The dividends-received-deduction (“DRD”) which is included in the Company’s income tax (benefit) expense, is calculated based upon the separate account assets held in connection with variable annuity contracts.

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, 2011, 2010 and 2009

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

ACCOUNTING PRONOUNCEMENTS

New and Adopted Accounting Pronouncements

In April 2011, the FASB issued Accounting Standard Update (“ASU”) 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” which clarifies when a loan modification or restructuring is considered a troubled debt restructuring (“TDR”).  In evaluating whether a restructuring constitutes a TDR a creditor must use judgment to determine whether the following exist:

1. The borrower is experiencing financial difficulties, and

2. The lender has granted a concession to the borrower.

ASU 2011-02 amends FASB ASC Topic 310 “Receivables,” to include financial difficulty indicators (such as debtor default, debtor bankruptcy or concerns about the future as a going concern) that the lender should consider in determining whether a borrower is experiencing financial difficulties.  The amendments also clarify that a borrower could be experiencing financial difficulties even though the borrower is not currently in payment default but default is probable in the foreseeable future.

ASU 2011-02 provides guidance on whether the lender has granted a concession to the borrower and notes that:

· A borrower’s inability to access funds at a market rate for a new loan with similar risk characteristics as the modified loan indicates that the modification was executed at a below-market rate and therefore may indicate that a concession was granted.

· A temporary or permanent increase in the contractual interest rate as a result of restructuring does not preclude the restructuring from being considered a concession because the rate may still be below market.

· A restructuring that results in an insignificant delay in contractual cash flow is not considered to be a concession.

The amendments in ASU 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011.  These amendments are to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption.  The Company adopted ASU 2011-2 on July 1, 2011 and the TDR disclosure requirements are included in Note 4 of these consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805):  Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force).”  The amendments of ASU 2010-29 provide guidance to clarify the acquisition date that should be used for reporting the pro forma financial information disclosures when comparative financial statements are presented.  ASU 2010-29 requires a public entity that presents comparative financial statements to disclose revenue and earnings of the combined entity as if the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period.  The amendments also require the supplemental proforma disclosure to include a description of the nature and amount of material, nonrecurring pro forma adjustments that are directly related to the business combination. The Company adopted ASU 2010-29 on January 1, 2011 and will apply this guidance to future business combinations.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

New and Adopted Accounting Pronouncements (Continued)

In December 2010, the FASB issued ASU 2010-28 “Intangibles–Goodwill and Other (Topic 350):  When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force).”  The amendments of ASU 2010-28 require reporting units with zero or negative carrying amounts to perform Step 2 of goodwill impairment test if it is more likely than not that a goodwill impairment exists and to consider adverse qualitative factors when performing the impairment test.  The Company adopted ASU 2010-28 on January 1, 2011, and the adoption did not have a significant impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which amends FASB ASC Topic 310 to enhance disclosures and to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables.  The amendments require an entity to provide a greater level of disaggregated information about the credit quality of the entity’s financing receivables and allowance for credit losses.  ASU 2010-20 also requires an entity to disclose credit quality indicators, the aging of past due information and the modification of its financing receivables.  The amendments in ASU 2010-20 that relate to disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010.  However, the disclosure about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Comparative disclosures are required for reporting periods ending after initial adoption.  The Company adopted ASU 2010-20 on December 31, 2010.  The enhanced disclosures required by ASU 2010-20 are included in Note 4 of the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU 2010-18, “Receivables (Topic 310):  Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset–a consensus of the FASB Emerging Issues Task Force,” which amends FASB ASC Topic 310.  The amendments were made to eliminate diversity in practice in accounting for loans that undergo troubled debt restructuring for those loans that have been included in a pool of loans.  Under ASU 2010-18, debt modifications that were made for distressed loans included in a pool of loans do not trigger the criteria needed to allow for such loans to be accounted for separately outside of the pool.  Upon initial adoption, an entity may make a one-time election to terminate accounting for loans as a pool.  The election may be made on a pool-by-pool basis and does not prevent the entity from using pool accounting for loans that will be acquired in the future.  The amendments in ASU 2010-18 are effective for the first fiscal quarter ending on or after July 15, 2010.  Early adoption is permitted.  The Company adopted ASU 2010-18 on September 30, 2010 and such adoption did not have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU 2010-15, “Financial Services–Insurance (Topic 944):  How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments–a consensus of the FASB Emerging Issues Task Force,” to provide guidance regarding accounting for investment funds determined to be VIEs.  Under this guidance, an insurance entity would not be required to consolidate a voting-interest investment fund when it holds the majority of the voting interests of the fund through its separate accounts.  In addition, an insurance entity would not consider the interests held through separate accounts for the benefit of policyholders in the insurer’s evaluation of its controlling interest in a VIE, unless the separate account contract holder is a related party.  The guidance is effective, on a retrospective basis, for fiscal years and interim periods within those fiscal years, beginning after December 15, 2010.  The Company adopted ASU 2010-15 on January 1, 2011 and the adoption did not have a significant impact on the Company’s consolidated financial statements.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

New and Adopted Accounting Pronouncements (Continued)

In March 2010, the FASB issued ASU 2010-11, “Derivatives and Hedging (Topic 815):  Scope Exception Related to Embedded Credit Derivatives,” which provides amendments to FASB ASC Topic 815, “Derivatives and Hedging,” to clarify the embedded credit derivative scope exception included therein.  The amendments address how to determine which embedded credit derivative features are considered to be embedded derivatives that should not be analyzed for potential bifurcation and separate accounting under ASC Topic 815.  Under ASU 2010-11, only the embedded credit derivative feature created by subordination between financial instruments is not subject to the bifurcation requirements of ASC Topic 815.  However, other embedded credit derivative features would be subject to analysis for potential bifurcation even if their effects are allocated to interests in tranches of securitized financial instruments in accordance with those subordination provisions.  The following circumstances would not qualify for the scope exception and are subject to the application of ASC Topic 815 requiring the embedded derivatives to be analyzed for potential bifurcation:

Ø An embedded derivative feature relating to another type of risk (including another type of credit risk) is present in the securitized financial instrument.

Ø The holder of an interest in a tranche of securitized financial instruments is exposed to the possibility of being required to make potential future payments because the possibility of those future payments is not created by subordination.

Ø The holder owns an interest in a single-tranche securitization vehicle; therefore, the subordination of one tranche to another is not relevant.

The amendments in ASU 2010-11 are effective for the first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted.  The Company adopted ASU 2010-11 on July 1, 2010 and such adoption did not have a material impact on the Company’s consolidated financial statements.

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855):  Amendments to Certain Recognition and Disclosure Requirements” which removes the requirement for U.S. Securities and Exchange Commission (“SEC”) filers to disclose the date through which subsequent events have been evaluated.  ASU No. 2010-09 is effective upon issuance.  Events that have occurred subsequent to December 31, 2011 have been evaluated by the Company’s management in accordance with ASU 2010-09.

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

Ø The different classes of assets and liabilities measured at fair value;

Ø The valuation techniques and inputs used;

Ø The transfers between Levels 1, 2, and 3; and

Ø The activity in Level 3 fair value measurements.

Certain new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 31, 2009.  Disclosures about purchases, sales, issuances and settlements in the roll-forward of activities in Level 3 are effective for fiscal years beginning after December 15, 2010.  The Company adopted ASU 2010-06 on January 1, 2010.  The enhanced disclosures required by ASU 2010-06 for the periods beginning after December 31, 2009 are included in Note 5 of the Company’s consolidated financial statements.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

New and Adopted Accounting Pronouncements (continued)

On January 1, 2010, the Company adopted the provisions of FASB ASC Topic 860, “Transfers and Servicing,” which were issued in June 2009.  These provisions amend and expand disclosures about the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets.  FASB ASC Topic 860 amends previously issued derecognition accounting and disclosure guidance and eliminates the exemption from consolidation for qualifying special purpose entities (“QSPEs”); it also requires a transferor to evaluate all existing QSPEs to determine whether they must be consolidated in accordance with the provisions of FASB ASC Topic 860.  This guidance is effective for financial asset transfers occurring in fiscal years and interim periods beginning after November 15, 2009.  The adoption did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2010, the Company adopted the provisions of FASB ASC Topic 810, “Consolidation,” which were issued in June 2009.  This guidance amends previously issued consolidation guidance which affects all entities currently within the scope of FASB ASC Topic 810, including QSPEs, as the concept of these entities was eliminated by FASB ASC Topic 860.  This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009.  The adoption did not have a material impact on the Company’s consolidated financial statements.

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

Accounting Standards Not Yet Adopted

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220):  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which allows for the deferral of certain presentation requirements about reclassifications of items out of accumulated other income originally included in ASU 2011-05, “Comprehensive Income (Topic 220):  Presentation of Comprehensive Income.”  The amendments are being made to allow FASB time to reconsider it requirements of entities to present on the face of their financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.  The amendments are effective at the same time as the amendments in ASU 2011-05 so that entities will not be required to comply with the presentation requirements in ASU 2011-05 that ASU 2011-12 is deferring.  All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements.  The amendments in ASU 2011-12 are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company will adopt ASU 2011-12 on March 31, 2012 and does not expect its requirements to significantly impact the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210):  Disclosures about Offsetting Assets and Liabilities,” which requires an entity to disclose information about offsetting assets and liabilities and related arrangements included in its financial statements.  Offsetting (netting) assets and liabilities is an important aspect of presentation in financial statements.  The differences in the offsetting requirements in GAAP and International Financial Reporting Standards (“IFRS”) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with GAAP and in the amounts presented in those statements prepared in accordance with IFRS for certain institutions.  This difference reduces the comparability of statements of financial position.  As a result, users of financial statements requested that the differences should be addressed expeditiously.  In response to those requests, the FASB and the International Accounting Standards Board are issuing joint requirements that will enhance current disclosures.  Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.  This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements.  The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of IFRS.  The amendments in ASU 2011-11 are effective, on a retrospective basis, for fiscal years and interim periods within those fiscal years beginning after December 31, 2012.  The Company will adopt ASU 2011-11 on March 31, 2013 and is accessing the impact of this adoption.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220):  Presentation of Comprehensive Income,” which revises the manner in which entities present comprehensive income in their financial statements. The amendments in ASU 2011-05 require entities to present components of comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements.  Under the two-statement approach, the first statement (i.e., the statement of net income) must present total net income and its components followed consecutively by the statement of comprehensive income which should include total other comprehensive income and its components.  Under either method, entities must display adjustments for items that are classified from other comprehensive income to net income in both statements of net income and comprehensive income.  ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  The amendments in ASU 2011-05 are effective, on a retrospective basis, for fiscal years and interim periods within those fiscal years beginning after December 15, 2011.  The Company will adopt ASU 2011-05 on March 31, 2012 and does not expect its requirements to significantly impact the Company’s consolidated financial statements.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

Accounting Standards Not Yet Adopted (continued)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and IFRSs,” which changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements.  Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements, while other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  Many of the requirements in this update are not meant to result in a change in application of the requirements of FASB ASC Topic 820, “Fair Value Measurement,” but to improve upon an entity’s consistency in application across jurisdictions to ensure that GAAP and IFRS fair value measurement and disclosure requirements are described in the same way.  The amendments in ASU 2011-04 are effective, on a retrospective basis, for fiscal years and interim periods within those fiscal years beginning after December 15, 2011.  The Company will adopt ASU 2011-04 on January 1, 2012 and does not expect its requirements to significantly impact the Company’s consolidated financial statements.

In October 2010, the FASB issued ASU 2010-26, “Financial Services–Insurance (Topic 944):  Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (a consensus of the FASB Emerging Issues Task Force),” which amends FASB ASC Topic 944, “Financial Services–Insurance,” to modify the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts.  The amendments specify that only incremental costs of successful contract acquisition that result directly from and are essential to the contract transactions can be capitalized as deferred acquisition costs.  The incremental direct costs are those costs that would not have been incurred by the insurance entity if the contract transactions did not occur.  The amendments in ASU 2010-26 are effective for interim periods and fiscal years beginning after December 15, 2011.  The Company will adopt ASU 2010-20 on January 1, 2012 and does not expect the adoption of ASU 2010-20 to have a significant impact on its consolidated financial statements.

2. MERGERS, ACQUISITIONS AND DISPOSITIONS

On December 31, 2009, the Company paid a dividend of all of Sun Life Vermont’s issued and outstanding common stock, and net assets totaling $94.9 million to the Parent.  As a result of this transaction, Sun Life Vermont is no longer the Company’s wholly-owned subsidiary.  The following table represents a summary of the results of operations for Sun Life Vermont which are included in discontinued operations:

	Year ended December 31, 2009
Total revenue	$	191,965
Total benefits and expenses		46,304
Income before income tax expense		145,661
Income tax expense		40,690
Net income	$	104,971

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES

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

Reinsurance Related Transactions

As more fully described in Note 8 to the Company’s consolidated financial statements, the Company and its subsidiary, SLNY, are party to several reinsurance transactions with Sun Life Assurance Company of Canada (“SLOC”) and other affiliates.  Reinsurance premiums with related parties are based on market rates.

On February 11, 2009, the Company received regulatory approval and entered into a reinsurance agreement with Sun Life Reinsurance (Barbados) No. 3 Corp (“BarbCo 3”) an affiliate, to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life, and private placement variable universal life policies on a combination coinsurance, coinsurance with funds-withheld, and a modified coinsurance basis.  The reinsurance agreement covered in-force policies on the effective date and new sales through December 31, 2009.  Effective January 1, 2010, the Company and BarbCo 3 amended the reinsurance agreement.  Refer to Note 8 for additional information regarding the amendment and the impact of this agreement on the Company’s consolidated financial statements.

Capital Transactions

The Company did not receive any capital contribution from the Parent during the year ended December 31, 2011.  During the year ended December 31, 2010, the Company received capital contributions totaling $400.0 million from the Parent.  The cash contributions were recorded as additional paid-in capital and were made to ensure that the Company continues to exceed certain regulatory capital requirements established by the National Association of Insurance Commissioners (“NAIC”).  The NAIC has established standards for minimum capitalization requirements based on risk-based capital formulas for life insurance companies.  The risk-based capital formulas for life insurance companies establish capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities that contain death benefits or certain living benefits.

Effective December 31, 2009, the Company distributed all of Sun Life Vermont’s issued and outstanding common stock and net assets totaling $94.9 million in the form of a dividend to the Parent.  The Company paid a return of capital of $300.0 million to the Parent during the year ended December 31, 2011.  The Company did not declare or pay any cash dividends or return of capital to the Parent during the year ended December 31, 2010 or 2009.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Debt Transactions

On November 8, 2007, a long-term financing arrangement was established with a financial institution (the “Lender”) that enables Sun Life Vermont, a subsidiary of the Company prior to December 31, 2009, to fund a portion of its obligations under its reinsurance agreement with SLOC.  Under this arrangement, at inception of the agreement, Sun Life Vermont issued an initial floating rate surplus note of $1 billion (the “Surplus Note”) to a special-purpose entity, Structured Asset Repackage Company, 2007- SUNAXXX LLC (“SUNAXXX”), affiliated with the Lender.  Pursuant to this arrangement, Sun Life Vermont exercised its option to issue additional Surplus Notes of $200.0 million and $115.0 million in 2009 and 2008, respectively, to SUNAXXX.  At December 31, 2009, the value of the Surplus Note was $1.3 billion.  Pursuant to an agreement between the Lender and the Company’s indirect parent, Sun Life Assurance Company of Canada – U.S. Operations Holdings, Inc. (“SLC - U.S. Ops Holdings”), U.S. Ops Holdings bears the ultimate obligation to repay the Lender and, as such, consolidates SUNAXXX in accordance with FASB ASC Topic 810.  Sun Life Vermont agreed to reimburse U.S. Ops Holdings for certain costs incurred in connection with the issuance of the Surplus Note.  Sun Life Vermont incurred interest expense of $21.7 million for the year ended December 31, 2009, which is included in the Company’s consolidated statements of operations as a component of income from discontinued operations, net of tax.

At December 31, 2011 and 2010, the Company had an $18.0 million promissory note that was initially issued to Sun Life (Hungary) Group Financing Limited Company (“Sun Life (Hungary) LLC”), an affiliate, for which the Company pays interest semi-annually.  On June 2, 2011, Sun Life (Hungary) LLC sold the $18.0 of promissory note to SLOC.  With the exception of the change in lenders, this transaction did not have any impact on the terms of the promissory note.  Effective June 2, 2011, the Company began paying the related interest to SLOC.  Related to this note, the Company incurred interest expense of $1.0 million for each of the years ended December 31, 2011, 2010 and 2009.

At December 31, 2011 and 2010, the Company had $565.0 million of surplus notes payable to Sun Life Financial (U.S.) Finance, Inc., an affiliate.  The Company expensed $42.6 million for interest on these surplus notes for each of the years ended December 31, 2011, 2010 and 2009.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Institutional Investments Contracts

On September 12, 2006, the Company issued two floating rate funding agreements totaling $900.0 million to Sun Life Financial Global Funding III, L.L.C. (“LLC III”), an affiliate, which will mature on October 6, 2013.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $5.8 million to LLC III.  On December 1, 2011, the Company paid $5.8 million to LLC III due to the maturity of the funding agreement issued to LLC III.  Total interest credited for these funding agreements was $5.9 million, $6.2 million, and $11.2 million for the years ended December 31, 2011, 2010 and 2009, respectively.  The Company also issued a $100.0 million floating rate demand note payable to LLC III on September 19, 2006.  The Company expensed $0.7 million, $0.7 million, and $1.3 million for the years ended December 31, 2011, 2010 and 2009, respectively, for interest on this demand note.

The Company has an interest rate swap agreement with LLC III with an aggregate notional amount of $900.0 million that effectively converts the floating rate payment obligations under the funding agreements to fixed rate obligations.

On May 17, 2006, the Company issued a floating rate funding agreement of $900.0 million to Sun Life Financial Global Funding II, L.L.C. (“LLC II”), an affiliate.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $7.5 million to LLC II.  On July 1 and July 19, 2011, the Company paid $901.3 million and $7.5 million, respectively, to LLC II due to the maturity of the funding agreements that the Company issued to LLC II.  The payments included $1.3 million in accrued interest.   Total interest credited for these funding agreements was $2.6 million, $5.4 million, and $10.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company also issued a $100.0 million floating rate demand note payable to LLC II on May 24, 2006.  On July 19, 2011, the Company paid off the $100.0 million demand note that was due to LLC II.  The Company expensed $0.3 million, $0.6 million, and $1.2 million for the years ended December 31, 2011, 2010 and 2009, respectively, for interest on this demand note.

The Company also had an interest rate swap agreement with LLC II with an aggregate notional amount of $900.0 million that effectively converted the floating rate payment obligations under the funding agreements to fixed rate obligations.  This interest swap agreement expired on July 6, 2011 due to the maturity of the underlying floating rate funding agreement with LLC II.

On June 3, 2005 and June 29, 2005, the Company issued two floating rate funding agreements totaling $900 million to Sun Life Financial Global Funding, L.L.C. (“LLC”), an affiliate.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $10 million to LLC.  On July 1 and July 8, 2010, the Company paid $900.0 million and $10.0 million, respectively, to the LLC due to the maturity of these funding agreements.  Total interest credited for these funding agreements was $2.9 million and $11.3 million for the years ended December 31, 2010 and 2009, respectively.  On August 6, 2010, the Company paid $100.1 million to LLC, including $0.1 million in interest due to settle a $100.0 million floating rate demand note payable.  The Company expensed $0.5 million and $1.3 million for the years ended December 31, 2010 and 2009, respectively, for interest on this demand note.

The Company had an interest rate swap agreement with LLC with an aggregate notional amount of $900.0 million that effectively converts the floating rate payment obligations under the funding agreements to fixed rate obligations.  The related $900.0 million interest rate swap agreement expired on July 6, 2010 due to the maturity of the underlying floating rate funding agreements with LLC.

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

The following table lists the details of notes due to affiliates at December 31, 2011:

Payees	Type	Rate	Maturity		Principal		Interest Expense
Sun Life Financial (U.S.) Finance, Inc.	Surplus	8.625%	11/06/2027	$	250,000	$	21,563
Sun Life Financial (U.S.) Finance, Inc.	Surplus	6.150%	12/15/2027		150,000		9,225
Sun Life Financial (U.S.) Finance, Inc.	Surplus	7.250%	12/15/2015		150,000		10,875
Sun Life Financial (U.S.) Finance, Inc.	Surplus	6.125%	12/15/2015		7,500		459
Sun Life Financial (U.S.) Finance, Inc.	Surplus	6.150%	12/15/2027		7,500		461
Sun Life Assurance Company of Canada	Promissory	5.710%	06/30/2012		18,000		1,028
Sun Life Financial Global Funding III, L.L.C.	Demand	LIBOR + 0.35%	10/06/2013		100,000		664
				$	683,000	$	44,275

The following table lists the details of notes due to affiliates at December 31, 2010:

Payees	Type	Rate	Maturity		Principal		Interest Expense
Sun Life Financial (U.S.) Finance, Inc.	Surplus	8.625%	11/06/2027	$	250,000	$	21,563
Sun Life Financial (U.S.) Finance, Inc.	Surplus	6.150%	12/15/2027		150,000		9,225
Sun Life Financial (U.S.) Finance, Inc.	Surplus	7.250%	12/15/2015		150,000		10,875
Sun Life Financial (U.S.) Finance, Inc.	Surplus	6.125%	12/15/2015		7,500		459
Sun Life Financial (U.S.) Finance, Inc.	Surplus	6.150%	12/15/2027		7,500		461
Sun Life (Hungary) Group Financing Limited Company	Promissory	5.710%	06/30/2012		18,000		1,028
Sun Life Financial Global Funding II, L.L.C.	Demand	LIBOR + 0.26%	07/06/2011		100,000		611
Sun Life Financial Global Funding III, L.L.C.	Demand	LIBOR + 0.35%	10/06/2013		100,000		703
				$	783,000	$	44,925

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, 2011, 2010 and 2009

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative Service Agreements, Rent and Other

Effective December 31, 2009, the Company transferred all of its employees to Sun Life Services with the exception of 28 employees who were transferred to Sun Life Financial Distributors, Inc. (“SLFD”), another affiliate.  The tax benefit associated with SLF stock options that had been granted to employees of the Company prior to the employee transfer, is recognized by the Company in stockholder’s equity when these options vest.   Neither Sun Life Services nor SLFD are included in the accompanying consolidated financial statements.  Concurrent with this transaction, Sun Life Services assumed the sponsorship of the Company’s retirement plans, as discussed in Note 9 to the Company’s consolidated financial statements.  As a result of this transaction, the Company transferred to Sun Life Services the plan assets and liabilities, the associated deferred tax asset, and certain property, equipment and software, as summarized in the following table:

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

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

Pursuant to an administrative services agreement between the Company and Sun Life Services which was effective December 31, 2009, Sun Life Services provides human resources services (e.g., recruiting and maintaining appropriately trained and qualified personnel and equipment necessary for the performance of actuarial, financial, legal, administrative and other operational support functions) to the Company.  The Company reimburses Sun Life Services for the cost of such services, plus, with respect to certain of those services, pays an arms-length based profit margin to be agreed upon by the parties.  Total payments under this agreement were $110.0 million and $117.6 million for the years ended December 31, 2011 and 2010, respectively.

As discussed in Note 1, SLF made the decision to close its domestic U.S. variable annuity and individual life products to new sales after completing a major strategic review of its businesses.  As a result of this decision and the related severance of certain Sun Life Services’ employees, Sun Life Services allocated $12.2 million in expenses to the Company, which is a portion of the related restructuring costs on a pre-tax basis.  The costs allocated to the Company represent primarily employee severance and other employee benefits of $10.2 million, as well as other costs of $2.0 million.

As described in Note 9, the Company participates in a pension plan and other retirement plans sponsored by Sun Life Services.

The transfer of fixed assets from the Company to Sun Life Services discussed above, along with the administrative services agreement, resulted in a sale-leaseback transaction.  The Company recorded a deposit liability for $17.1 million which represents the cost of certain of the assets transferred.  The Company will amortize the liability over the remaining useful life of the transferred assets, which was estimated to be seven years.  As of December 31, 2011, the remaining deposit liability was $11.4 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, 2011, 2010 and 2009

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative Service Agreements, Rent and Other (continued)

Effective December 31, 2009, Sun Life Services and SLOC entered into an administrative services agreement under which Sun Life Services provides to SLOC, as requested, personnel and certain services.  Prior to December 31, 2009, the Company had an administrative services agreement with SLOC under which the Company provided personnel and certain services to SLOC, as requested.  Pursuant to the agreement with SLOC, the Company recorded reimbursements of $336.0 million for the year ended December 31, 2009, as a reduction to other operating expenses.  Effective December 31, 2009, the Company no longer provides personnel services to SLOC and SLOC no longer reimburses the Company for such services.

The Company continues to provide certain services to SLOC under an administrative services agreement.  Pursuant to this agreement, the Company recorded reimbursements of $99.3 million and $99.1 million for the years ended December 31, 2011 and 2010, respectively.

The Company has administrative services agreements with SLOC under which SLOC provides, as requested, certain services on a cost-reimbursement basis.  Pursuant to the agreements with SLOC, the Company recorded expenses of $14.5 million, $13.0 million and $8.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has an administrative services agreement with Sun Life Information Services Canada, Inc. (“SLISC”), under which SLISC provides administrative and support services to the Company in connection with the Company’s insurance and annuity businesses.  Expenses under this agreement amounted to approximately $19.3 million, $18.0 million and $15.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.  In addition, SLISC allocated $0.1 million of severance costs to the Company.  These severance costs relate to the decision to discontinue the Company’s variable annuity and individual life products.

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 $22.6 million, $23.5 million and $24.2 million for the years ended December 31, 2011, 2010 and 2009, respectively.  In addition, SLISIL allocated $0.4 million of severance costs to the Company.  These severance costs relate to the decision to discontinue the Company’s variable annuity and individual life products.

The Company has an administrative services agreement with SLC – U.S. Ops Holdings, under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which an affiliate, Massachusetts Financial Services Company (“MFS”), serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable annuity contracts issued by the Company.  Amounts received under this agreement were approximately $12.7 million, $13.0 million and $8.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has an administrative services agreement with Sun Capital Advisers LLC (“SCA”), an affiliate and 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 $16.6 million, $13.0 million and $4.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.  The Company paid $20.6 million, $21.4 million and $18.2 million for the years ended December 31, 2011, 2010 and 2009, respectively, in investment management services fees to SCA.

The Company paid distribution fees to SLFD of $38.7 million, $41.4 million and $45.4 million, during the years ended December 31, 2011, 2010 and 2009, respectively.

The Company leases office space to SLOC under lease agreements with terms expiring on December 31, 2014 and options to extend the terms for each of twelve successive five-year terms at fair market rental value, not to exceed 125% of the fixed rent for the term which is then ending.  Rent received by the Company under the leases amounted to approximately $12.1 million, $12.1 million and $10.1 million for the years ended December 31, 2011, 2010 and 2009, respectively.  Rental income is reported as a component of net investment income on the Company’s consolidated statements 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, 2011, 2010 and 2009

3. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative service agreements, rent and other (continued)

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

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

During the year ended December 31, 2010, the Company sold mortgage loans to SLOC with a book value of $85.6 million and a fair market value of $93.4 million and recognized a pre-tax gain of $7.8 million as a result.  During the year ended December 31, 2010, the Company also purchased $52.2 million of mortgage loans from SLOC at fair value.  The Company did not purchase or sell any mortgage loans from SLOC during the years ended December 31, 2011 and 2009.

SLNY has a series of agreements with SLHIC, through which substantially all of the New York issued business of SLHIC was transferred to SLNY.  As part of these agreements, SLNY received certain intangible assets totaling $31.3 million.  These assets included the value of distribution acquired, VOBA, and VOCRA.  The value of distribution acquired of $7.5 million is being amortized on a straight-line basis over its projected economic life of 25 years.  The amortization expense for the value of distribution acquired was $0.3 million for each of the years ended December 31, 2011, 2010 and 2009.

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

	2011		2010		2009
VOBA	$	-	$	-	$	913
VOCRA	$	1,022	$	1,327	$	4,063

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

The Company settles with its affiliates payments related to the administrative service agreements, rent and other on a monthly basis.  At December 31, 2011 and 2010, the Company’s net receivable due from affiliated companies was $21.4 million and $32.5 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, 2011, 2010 and 2009

4. INVESTMENTS

FIXED MATURITY SECURITIES

The amortized cost and fair value of fixed maturity securities held at December 31, 2011 were as follows:

Available-for-sale fixed maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Temporary Losses		OTTI Losses (1)		Fair Value
Non-corporate securities:
Asset-backed securities	$	55	$	-	$	-	$	-	$	55
Residential mortgage-backed securities		24,340		2,203		-		-		26,543
Commercial mortgage-backed securities		9,643		286		(1,017)		-		8,912
U.S. states and political subdivision securities		214		7		-		-		221
U.S. treasury and agency securities		375,751		6,818		-		-		382,569
Total non-corporate securities		410,003		9,314		(1,017)		-		418,300
Corporate securities		929,957		79,479		(14,616)		(10,595)		984,225
Total available-for-sale fixed maturity securities	$	1,339,960	$	88,793	$	(15,633)	$	(10,595)	$	1,402,525

Trading fixed maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Non-corporate securities:
Asset-backed securities	$	423,464	$	7,951	$	(139,163)	$	292,252
Residential mortgage-backed securities		868,588		13,857		(169,250)		713,195
Commercial mortgage-backed securities		785,912		32,750		(135,644)		683,018
Foreign government & agency securities		97,404		19,194		-		116,598
U.S. states and political subdivision securities		486		41		-		527
U.S. treasury and agency securities		323,298		13,705		(49)		336,954
Total non-corporate securities		2,499,152		87,498		(444,106)		2,142,544
Corporate securities		7,836,906		436,622		(135,536)		8,137,992
Total trading fixed maturity securities	$	10,336,058	$	524,120	$	(579,642)	$	10,280,536

(1) Represents the pre-tax non-credit OTTI loss recorded as a component of accumulated other comprehensive income (“AOCI”) for assets still held at the reporting date.  Recoveries of $9.3 million are shown within gross unrealized gains and the remainder as gross unrealized temporary losses.

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

FIXED MATURITY SECURITIES (CONTINUED)

The amortized cost and fair value of fixed maturity securities held at December 31, 2010 were as follows:

Available-for-sale fixed maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Temporary Losses		OTTI Losses (1)		Fair Value
Non-corporate securities:
Asset-backed securities	$	694	$	27	$	(6)	$	-	$	715
Residential mortgage-backed securities		32,263		2,351		-		-		34,614
Commercial mortgage-backed securities		15,952		522		(1,424)		-		15,050
Foreign government & agency securities		506		57		-		-		563
U.S. states and political subdivision securities		217		-		(3)		-		214
U.S. treasury and agency securities		371,704		4,500		(971)		-		375,233
Total non-corporate securities		421,336		7,457		(2,404)		-		426,389
Corporate securities		1,001,615		82,490		(2,267)		(12,304)		1,069,534
Total available-for-sale fixed maturity securities	$	1,422,951	$	89,947	$	(4,671)	$	(12,304)	$	1,495,923
Trading fixed maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-corporate securities:
Asset-backed securities	$	544,106	$	10,104	$	(142,230)	$	411,980
Residential mortgage-backed securities		1,184,184		17,259		(278,650)		922,793
Commercial mortgage-backed securities		917,650		42,368		(140,823)		819,195
Foreign government & agency securities		122,537		8,239		-		130,776
U.S. states and political subdivision securities		605		8		-		613
U.S. treasury and agency securities		745,460		3,037		(878)		747,619
Total non-corporate securities		3,514,542		81,015		(562,581)		3,032,976
Corporate securities		8,195,874		368,893		(130,625)		8,434,142
Total trading fixed maturity securities	$	11,710,416	$	449,908	$	(693,206)	$	11,467,118

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

FIXED MATURITY SECURITIES (CONTINUED)

The amortized cost and estimated fair value by maturity periods for fixed maturity securities held at December 31, 2011 are shown below.  Actual maturities may differ from contractual maturities on structured securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized Cost		Fair Value
Maturities of available-for-sale fixed securities:
	Due in one year or less	$	211,945	$	212,744
	Due after one year through five years		438,320		455,056
	Due after five years through ten years		137,332		141,194
	Due after ten years		518,325		558,021
	Subtotal – Maturities of available-for-sale fixed securities		1,305,922		1,367,015
ABS, RMBS and CMBS securities (1)			34,038		35,510
	Total available-for-sale fixed securities	$	1,339,960	$	1,402,525
Maturities of trading fixed securities:
	Due in one year or less	$	652,353	$	662,374
	Due after one year through five years		4,163,381		4,328,570
	Due after five years through ten years		1,858,860		1,982,358
	Due after ten years		1,583,500		1,618,769
	Subtotal – Maturities of trading fixed securities		8,258,094		8,592,071
ABS, RMBS and CMBS securities (1)			2,077,964		1,688,465
	Total trading fixed securities	$	10,336,058	$	10,280,536

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

Gross gains of $119.3 million, $172.6 million and $50.0 million and gross losses of $51.3 million, $40.9 million and $57.5 million were realized on fixed maturity securities for the years ended December 31, 2011, 2010 and 2009, respectively.

Fixed maturity securities with an amortized cost of approximately $11.8 million and $12.3 million at December 31, 2011 and 2010, respectively, were on deposit with federal and state governmental authorities, as required by law.

As of December 31, 2011 and 2010, 92.3% and 92.4%, respectively, of the Company's fixed maturity securities were investment grade.  Investment grade securities are those that are rated "BBB" or better by a nationally recognized statistical rating organization.  Securities that are not rated by a nationally recognized statistical rating organization are assigned ratings based on the Company's internally prepared credit evaluations.

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

FIXED MATURITY SECURITIES (CONTINUED)

Unrealized Losses

The following table shows the fair value and gross unrealized losses, which includes temporary unrealized losses and the portion of non-credit OTTI losses recognized in AOCI, of the Company’s available-for-sale fixed maturity investments, aggregated by investment category and length of time that the individual securities had been in an unrealized loss position at December 31, 2011.

	Less Than Twelve Months				Twelve Months Or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Non-corporate securities:
Asset-backed securities	$	-	$	-	$	-	$	-	$	-	$	-
Residential mortgage-backed securities		12		-		21		-		33		-
Commercial mortgage-backed securities		447		(50)		2,131		(967)		2,578		(1,017)
U.S. states and political subdivision securities		-		-		-		-		-		-
U.S. treasury and agency securities		-		-		-		-		-		-
Total non-corporate securities		459		(50)		2,152		(967)		2,611		(1,017)
Corporate securities		120,623		(8,049)		38,498		(7,831)		159,121		(15,880)
Total	$	121,082	$	(8,099)	$	40,650	$	(8,798)	$	161,732	$	(16,897)

The following table shows the fair value and gross unrealized losses, which includes temporary unrealized losses and the portion of non-credit OTTI losses recognized in AOCI, of the Company’s available-for-sale fixed maturity investments, aggregated by investment category and length of time that the individual securities had been in an unrealized loss position at December 31, 2010.

	Less Than Twelve Months				Twelve Months Or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Non-corporate securities:
Asset-backed securities	$	-	$	-	$	11	$	(6)	$	11	$	(6)
Residential mortgage-backed securities		26		-		-		-		26		-
Commercial mortgage-backed securities		-		-		2,534		(1,424)		2,534		(1,424)
Foreign government & agency securities		-		-		-		-		-		-
U.S. states and political subdivision securities		214		(3)		-		-		214		(3)
U.S. treasury and agency securities		23,636		(971)		-		-		23,636		(971)
Total non-corporate securities		23,876		(974)		2,545		(1,430)		26,421		(2,404)
Corporate securities		187,916		(5,211)		91,154		(9,360)		279,070		(14,571)
Total	$	211,792	$	(6,185)	$	93,699	$	(10,790)	$	305,491	$	(16,975)

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

UNREALIZED LOSSES (CONTINUED)

The following table provides the number of securities of the Company’s available-for-sale fixed maturity securities with gross unrealized losses and a portion of non-credit OTTI losses recognized in AOCI aggregated by investment category, at December 31, 2011 (not in thousands):

	Number of Securities Less Than Twelve Months	Number of Securities Twelve Months or More	Total Number of Securities
Non-corporate securities:
Asset-backed securities	-	-	-
Residential mortgage-backed securities	3	1	4
Commercial mortgage-backed securities	1	4	5
Foreign government & agency securities	-	-	-
U.S. states and political subdivisions securities	-	-	-
U.S. treasury and agency securities	-	-	-
Total non-corporate securities	4	5	9
Corporate securities	33	15	48
Total	37	20	57

The following table provides the number of securities of the Company’s available-for-sale fixed maturity securities with gross unrealized losses and a portion of non-credit OTTI losses recognized in AOCI aggregated by investment category, at December 31, 2010 (not in thousands):

	Number of Securities Less Than Twelve Months	Number of Securities Twelve Months or More	Total Number of Securities
Non-corporate securities:
Asset-backed securities	-	1	1
Residential mortgage-backed securities	1	-	1
Commercial mortgage-backed securities	-	5	5
Foreign government & agency securities	-	-	-
U.S. states and political subdivisions securities	1	-	1
U.S. treasury and agency securities	2	-	2
Total non-corporate securities	4	6	10
Corporate securities	72	35	107
Total	76	41	117

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

OTHER-THAN-TEMPORARY IMPAIRMENT

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

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

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

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

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

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

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

OTHER-THAN-TEMPORARY IMPAIRMENT (CONTINUED)

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

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

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

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

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

OTHER-THAN-TEMPORARY IMPAIRMENT (CONTINUED)

The Company recorded credit OTTI losses in its consolidated statement of operations totaling $0.1 million and $0.9 million for the years ended December 31, 2011 and 2010, respectively on its available-for-sale fixed maturity securities.  The $0.1 million OTTI credit loss recorded during the year ended December 31, 2011 was concentrated in structured securities issued by sponsored securitization vehicles.  This impairment was driven primarily by the adverse financial condition of the issuer.  The $0.9 million OTTI credit loss recorded during the year ended December 31, 2010 was concentrated in corporate debt of a foreign issuer.  This impairment was driven primarily by the adverse financial conditions of the issuer.

The following tables roll forward the amount of credit losses recognized in earnings on debt securities, for which a portion of the OTTI also was recognized in other comprehensive income:

		Year ended December 31, 2011
Beginning balance, at January 1, 2011	$	5,847
Add: Credit losses on OTTI not previously recognized		71
Less: Credit losses on securities sold		(5,756)
Other		3,341
Ending balance, at December 31, 2011	$	3,503
		Year ended December 31, 2010
Beginning balance, at January 1, 2010	$	9,148
Add: Credit losses on OTTI not previously recognized		885
Less: Credit losses on securities sold		(2,528)
Less: Increases in cash flows expected on previously
impaired securities		(1,658)
Ending balance, at December 31, 2010	$	5,847

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

Variable Interest Entities

The Company is involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral manager and as an investor through normal investment activities or as a means of accessing capital.  A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities.

The Company performs ongoing qualitative assessments of its VIEs under FASB ASC Topic 810, to determine whether it has a controlling financial interest in the VIE and, therefore, is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.  The Company consolidates the VIE in its consolidated financial statements if it determines that it is the VIEs primary beneficiary.

Consolidated VIEs

At December 31, 2011, the Company had an interest in one significant VIE, Credit and Repackaged Securities Limited Series 2006-10 Trust (the“CARS Trust”), for which consolidation is required under FASB ASC Topic 810.

The Company has an agreement with the CARS Trust.  Pursuant to this agreement, the Company purchased a funded note from the CARS Trust which, through a credit default swap entered into by the CARS Trust, is exposed to the credit performance of a portfolio of corporate reference entities.  The Company entered into this agreement for yield enhancement related to the fee earned on the credit default swap which adds to the return earned on the funded note.

The CARS Trust is a structured investment vehicle for which the Company provides investment management services and holds securities issued by the trust.  Creditors have no recourse against the Company in the event of default by the CARS Trust, nor does the Company have any implied or unfunded commitments to the CARS Trust.  The Company's financial or other support provided to the CARS Trust is limited to its investment management services and original investment.  The following table presents the carrying value of assets and liabilities and the maximum exposure to loss relating to the CARS Trust.

		December 31, 2011		December 31, 2010
Assets	$	20,077	$	36,324
Liabilities		17,723		27,341
Maximum exposure to loss		20,928		37,400

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

Consolidated VIEs (continued)

As the sole beneficiary of the CARS Trust, while having a controlling financial interest in the investment vehicle, the Company is required to consolidate the entity under FASB ASC Topic 810.  As a result of the consolidation, the Company has recorded in its consolidated balance sheets, investment grade corporate debt securities and 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.  In the event that the CARS Trust is 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.  Under the credit default swap, the CARS Trust made a payment of $16.5 million during the twelve-month period ended December 31, 2011; no payment was made during the year ended December 31, 2010.  As of December 31, 2011, the cumulative payments that the CARS Trust has made under the credit default swap is $34.1 million, leaving $20.9 million as the maximum future payments that it could be required to make.  The carrying amount of the assets in this VIE is included in trading fixed maturity securities and the carrying amount of the liabilities in this VIE is included in the derivative instruments-payable in the Company’s consolidated balance sheets.

Non-Consolidated VIEs

At December 31, 2011, other than the CARS Trust, the Company had no interest in VIEs for which consolidation is required under FASB ASC Topic 810.

In addition, through normal investment activities, the Company makes passive investments in various issues by VIEs.  These investments are included in trading and available-for-sale fixed maturity securities, limited partnerships and other invested assets in the Company's consolidated financial statements.  The Company has not provided financial or other support with respect to these investments other than its original investments.  For these investments, the Company has determined it is not the primary beneficiary due to the size of its investment relative to other issues, the level of credit subordination which reduces its obligation to absorb losses or its right to receive benefits, and/or its inability to direct the activities that most significantly impact the economic performance of the VIEs.  The Company's maximum exposure to loss on these investments is limited to the amount of its investment.

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE

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

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

			December 31,
			2011		2010
Total mortgage loans		$	1,457,356	$	1,737,528
Real estate:
	Held for production of income		223,814		214,665
Total real estate		$	223,814	$	214,665
Total mortgage loans and real estate		$	1,681,170	$	1,952,193

Accumulated depreciation on real estate was $50.9 million and $45.6 million at December 31, 2011 and 2010, 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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

A loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan.  The allowance for credit losses is estimated using the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, if the loan is collateral dependent.  A specific allowance for loan loss is established for an impaired loan if the present value of expected cash flows discounted at the loan’s effective interest rate, or the fair value of the loan collateral, less cost to sell, is less than the recorded amount of the loan.  A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions.  While management believes that it uses the best information available to establish the allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them.

Delinquency status is determined based upon the occurrence of a missed contract payment.  The following table set forth an age analysis of past due loans in the Company’s mortgage loan portfolio at December 31.

			Gross Carrying Value
		2011		2010
Past due:
	Between 30 and 59 days	$	4,075	$	16,607
	Between 60 and 89 days		5,043		12,333
	90 days or more		14,403		19,310
Total past due			23,521		48,250
Current (1)			1,490,236		1,743,060
Balance, at December 31		$	1,513,757	$	1,791,310
Past due 90 days or more and still accruing interest		$	-	$	-

The Company’s allowance for mortgage loan losses at December 31 was as follow:

	Allowance for Loan Loss
		2011		2010
General allowance	$	17,767	$	23,662
Specific allowance		38,634		30,120
Total	$	56,401	$	53,782

(1) Included in the $1,490.2 million and $1,743.1 million of the Company’s mortgage loans in current status at December 31, 2011 and 2010, were $153.1 million and $165.6 million, respectively, of mortgage loans that are impaired, but not past due.

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

The Company individually evaluates all its mortgage loans for impairment and records a specific provision for those deemed impaired.  The Company also collectively evaluates most of its mortgage loans (excluding those for which a specific allowance was recorded) for impairment.  At December 31, 2011, the Company individually and collectively evaluated loans with a gross carrying value of $1,513.8 million and $1,396.1 million, respectively.  At December 31, 2010, the Company individually and collectively evaluated loans with a gross carrying value of $1,791.3 million and $1,706.0 million, respectively.

The credit quality indicator for the Company’s mortgage loans is an internal risk rated measure based on the borrowers’ ability to pay and the value of the underlying collateral.  The internal risk rating is related to an increasing likelihood of loss, with a low quality rating representing the category in which a loss is first expected.  The following table shows the gross carrying value of the Company’s mortgage loans disaggregated by credit quality indicator at December 31:

	2011		2010
Insured	$	-	$	-
High		263,398		394,288
Standard		416,847		544,243
Satisfactory		354,359		333,086
Low quality		479,153		519,693
Total	$	1,513,757	$	1,791,310

The following tables show the gross carrying value of impaired mortgage loans and related allowances at:

	December 31, 2011
		With no allowance recorded		With an allowance recorded		Total
Gross carrying value	$	53,922	$	117,701	$	171,623
Unpaid principal balance		55,380		122,806		178,186
Related allowance		-		38,634		38,634
Average recorded investment		95,694		95,408		191,102
Interest income recognized	$	4,563	$	-	$	4,563
	December 31, 2010
		With no allowance recorded		With an allowance recorded		Total
Gross carrying value	$	119,323	$	85,281	$	204,604
Unpaid principal balance		120,417		88,625		209,042
Related allowance		-		30,120		30,120
Average recorded investment		113,701		86,575		200,276
Interest income recognized	$	5,899	$	-	$	5,899

Included in the $171.6 million and $204.6 million of impaired mortgage loans at December 31, 2011 and 2010, were $53.9 million and $119.3 million, respectively, of impaired loans that did not have an allowance for loan loss because the fair value of the collateral or the expected future cash flows exceeded the carrying value of the loans.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

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

	2011		2010		2009
Average investment	$	191,102	$	200,276	$	121,500
Interest income	$	4,563	$	5,899	$	897
Cash receipts on interest	$	4,069	$	5,899	$	897

The gross carrying value of the Company’s mortgage loans on nonaccrual status was $138.9 million and $114.7 million at December 31, 2011 and 2010, respectively.

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

		2011		2010		2009
Balance at January 1	$	53,782	$	42,782	$	3,000
Provision for allowance		34,641		26,742		40,050
Charge-offs		(19,790)		(6,892)		-
Recoveries		(12,232)		(8,850)		(268)
Balance at December 31	$	56,401	$	53,782	$	42,782

Troubled Debt Restructurings

The Company may modify the terms of a loan by adjusting the interest rate, extending the maturity date or both.  The Company evaluates each restructuring of debt and considers it a TDR if, for economic or legal reasons related to the debtor's financial difficulties, it grants a concession to the borrower that it would not otherwise consider.  Specifically, the Company's evaluation of each restructuring includes an assessment of the indicators of impairment to determine if the debtor is exhibiting financial difficulties and an assessment of market lending activity to determine if the debtor can obtain funds from other sources at market interest rates at or near those for nontroubled debts.  Those restructurings where financial difficulties are present and alternative sources of funding are not available or prohibitively expensive to the borrower are considered TDR.

Upon adoption of the amendments in ASU 2011-02, the Company reassessed all restructured loans that occurred on or after January 1, 2011, the beginning of its fiscal year, for identification as TDRs.  Adoption of the ASU 2011-02 had no impact on the number of restructured loans that are considered TDRs.

All TDRs identified by the Company are commercial mortgage loans modified by granting concessions to borrowers where, as a result of the restructuring, the Company does not expect to collect all amounts due, including interest accrued at the original contract rate.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

Troubled Debt Restructuring (continued)

Modifications are factored into the determination of the allowance for credit losses by including adjustments to the outstanding recorded investment.  The financial effect of a TDR is not recognized when the Company expects to collect cash flows at, or above, the original contract rate.  For the year ended December 31, 2011, no financial effect from TDRs was recognized.  The following table provides information about the Company’s loans that were modified and how they were modified as a TDR during the year ended:

	December 31, 2011
	No. (1)	Pre-modification recorded investment		Post- modification recorded investment
Adjusted interest rate	1	$	2,834	$	2,834
Extended maturity date	1		8,970		8,970
Combined rate and maturity	5		15,368		15,368
Total	7	$	27,172	$	27,172

(1) Represents the number of contracts that were modified and considered as TDR. The number of contracts is not in thousands.

Defaults are factored into the determination of the allowance for credit losses by indicating that, as a result of the default, the Company does not expect to collect all amounts due per the modified terms.  The following table shows the number and value of TDRs within the previous twelve months for which there was a payment default during the year ended (the number of contracts is not in thousands):

	December 31, 2011
Number of contracts		1
Recorded investment amount	$	2,053

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

MORTGAGE LOANS AND REAL ESTATE (CONTINUED)

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

	2011		2010
Property Type:
Office building	$	499,405	$	599,930
Retail		684,051		748,345
Industrial/warehouse		207,820		242,413
Apartment		46,226		54,364
Other		300,069		360,923
Allowance for loan losses		(56,401)		(53,782)
Total	$	1,681,170	$	1,952,193

	2011		2010
Geographic region:
California	$	77,879	$	85,853
Florida		193,068		200,056
Georgia		62,802		69,173
Massachusetts		103,983		112,128
Missouri		48,325		52,218
New York		201,835		247,154
Ohio		104,074		125,454
Pennsylvania		80,641		98,251
Texas		265,705		303,336
Washington		52,718		65,708
Other (1)		546,541		646,644
Allowance for loan losses		(56,401)		(53,782)
Total	$	1,681,170	$	1,952,193

(1)Includes the states in which the value of the Company’s mortgage loans and real estate investments was below $50.0 million at December 31, 2011 and 2010, respectively.

At December 31, 2011, scheduled mortgage loan maturities were as follows:

2012	$	60,993
2013		106,420
2014		145,960
2015		173,654
2016		223,720
Thereafter		764,376
General allowance		(17,767)
Total	$	1,457,356

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.

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

LEVERAGED LEASES AND LIMITED PARTNERSHIPS

The Company was 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.  The master lessee had the option to purchase the equipment at the expiration of the lease term.  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 Company did not have the ability to direct the activities that most significantly impact the economic performance of the VIE, nor did it have the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.  Therefore, the Company did not consolidate this trust in its consolidated financial statements.  The balance of the purchase price was furnished by third-party long-term debt financing, collateralized by the equipment, and was non-recourse to the Company.  The leveraged lease investment was included as a part of other invested assets in the Company’s consolidated balance sheet at December 31, 2009.

On June 1, 2010, the master lessee elected to exercise a fixed price purchase option to purchase the equipment and the Company received $22.6 million in cash for its investment in the VIE and realized a $3.4 million gain in its consolidated statement of operations.

The Company had no leveraged lease investments at December 31, 2011 and 2010.

The Company had outstanding commitments to fund limited partnerships of approximately $11.8 million and $12.6 million at December 31, 2011 and 2010, 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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

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

Credit enhancement, such as collateral, is used to improve the credit risk of longer-term derivative contracts.

It is common, and the Company’s preferred practice, for the parties to execute a Credit Support Annex (“CSA”) in conjunction with the International Swaps and Derivatives Association Master Agreement. Under a CSA, collateral is exchanged between the parties to mitigate the market contingent counterparty risk inherent in outstanding positions.

The primary types of derivatives held by the Company include interest rate and foreign currency swap agreements, swaptions, futures, listed and over-the counter (“OTC”) equity options, foreign currency forwards and embedded derivatives, as described below.

Interest Rate and Foreign Currency Swap Agreements

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

Interest rate swaps are generally used to manage the sensitivity of the duration gap between assets and liabilities to interest rate changes or to manage the exposure to product guarantees sensitive to movements in equity market and interest rate levels related to life insurance contracts, fixed index annuities and variable annuities.

Foreign currency swaps are utilized as an economic hedge against changes in foreign currencies associated with certain non-U.S. dollar denominated cash flows.

The Company has an agreement with the CARS Trust whereby the Company is the sole beneficiary of the CARS Trust.  Please refer to Note 4 of the Company’s consolidated financial statements for additional information regarding the CARS Trust.

Swaptions

The Company utilizes payer swaptions to hedge exposure to interest rate risk, typically on product guarantees.  Swaptions give the buyer the option to enter into an interest rate swap per the terms of the original swaption agreement.  A premium is paid on settlement date and no further cash transactions occur until the positions settle or expire.  At expiration, the swaption either cash settles for value, settles into an interest rate swap, or expires worthless per the terms of the original swaption agreement.  At December 31, 2011, the Company did not have any position in swaptions.

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Futures

Equity, interest rate and foreign exchange futures contracts, both long and short, are entered into for purposes of hedging liabilities on fixed index and variable annuity products containing guaranteed minimum death benefit and guaranteed minimum living benefit features, with cash flows based on changes in equity indices, interest rates or foreign exchange rates.  On the trade date, an initial cash margin is deposited as required by the relevant stock exchange.  Cash is subsequently exchanged daily to settle the variation margin or daily fluctuations in the underlying index.

Listed and OTC Equity Options

In addition to short futures, the Company also utilizes listed put options on major indices to hedge against stock market exposure inherent in the guaranteed minimum death benefit and living benefit features of the Company's variable annuities.  Listed options are traded on the stock exchange similar to futures.  Unlike futures, however, an up-front premium is paid to or received from the counterparty, instead of depositing an initial cash margin with the Exchange.  The Company also purchases listed and OTC call options on major indices to economically hedge its obligations under certain fixed annuity contracts, as well as enhance income on the underlying assets.  On the trade date, an initial cash margin is exchanged for listed options.  Daily cash is exchanged to settle the daily variation margin.

Foreign Currency Forwards

A foreign currency forward is an agreement between two parties to buy and sell currencies at the current market rate, for settlement at a specified future date.  Foreign currency forwards are utilized as an economic hedge against changes in foreign currencies associated with certain non-U.S. dollar denominated cash flows.

The following is a summary of the Company’s derivative positions (excluding embedded derivatives) at:

	December 31, 2011			December 31, 2010
	Number of Contracts (2)		Principal Notional	Number of Contracts (2)		Principal Notional
Interest rate contracts	78	$	5,496,000	71	$	5,793,500
Foreign currency contracts	16		69,507	43		393,609
Equity contracts	11,216		1,949,878	13,704		2,373,741
Credit contracts	1		20,928	1		37,400
Futures contracts (1)	(34,187)		4,747,764	(25,699)		2,918,839
Total		$	12,284,077		$	11,517,089

(1) Futures contracts include interest rate, equity price and foreign currency exchange risks. The negative amount represents the Company’s net short position including (45,084) contracts and (33,683) contracts in short position and 10,897 contracts and 7,984 contracts in long position at December 31, 2011 and 2010, respectively.

(2) Not 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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

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

	At December 31, 2011				At December 31, 2010
	Asset Derivatives Fair Value (a)		Liability Derivatives Fair Value (a)		Asset Derivatives Fair Value (a)		Liability Derivatives Fair Value (a)
Interest rate contracts	$	362,753	$	257,719	$	97,060	$	329,214
Foreign currency contracts		577		3,422		32,504		3,878
Equity contracts		46,944		-		59,397		-
Credit contracts		-		17,723		-		27,341
Futures contracts		12,130		8,210		9,103		1,590
Total derivative instruments		422,404		287,074		198,064		362,023
Embedded derivatives (b)		-		1,516,277		2,896		178,069
Total	$	422,404	$	1,803,351	$	200,960	$	540,092

(a) Amounts are presented without consideration of cross-transaction netting and collateral.

(b) Embedded derivatives expose the Company to a combination of credit, interest rate and equity price risks.

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

		2011		2010		2009
Interest rate contracts	$	270,885	$	(122,712)	$	143,402
Foreign currency contracts		(50,493)		(16,206)		(12,116)
Equity contracts		(58,110)		(26,734)		(71,865)
Credit contracts		9,619		7,008		(9,855)
Futures contracts		122,649		(217,428)		(328,595)
Embedded derivatives		(1,282,620)		226,782		239,127
Net derivative loss from continuing operations	$	(988,070)	$	(149,290)	$	(39,902)
Net derivative income from discontinued operations	$	-	$	-	$	216,956

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, 2011, 2010 and 2009

4. INVESTMENTS (CONTINUED)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Concentration of Credit Risk

Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract.  With derivative instruments, the Company is primarily exposed to credit risk through its counterparty relationships.  The Company primarily manages credit risk through policies which address the quality of counterparties, contractual requirements for transacting with counterparties and collateral support agreements, and limitations on counterparty concentrations.  Exposures by counterparty and counterparty credit ratings are monitored closely.  All of the contracts are held with counterparties rated A- or higher.  As of December 31, 2011, the Company’s liability positions were linked to a total of 5 affiliated and unaffiliated counterparties, of which the largest single unaffiliated counterparty payable, net of collateral, had credit exposure of $17.7 million to the Company.  As of December 31, 2011, the Company’s asset positions were linked to a total of 11 affiliated and unaffiliated counterparties, of which the largest single unaffiliated counterparty receivable, net of collateral, had credit exposure of $3.9 million.

Credit-related Contingent Features

All derivative transactions are covered under standardized contractual agreements with counterparties, all of which include credit-related contingent features. These standardized agreements include language related to the failure to pay or deliver on an obligation, bankruptcy and additional termination events, such as a credit rating falling below a stipulated level . These triggers generally result in early terminations after a grace period.

Certain counterparty relationships also may include supplementary agreements with additional triggers related to credit downgrades of the Company or its counterparty.  If the Company’s credit rating were to fall below the stipulated level, this could result in a reduction of minimum thresholds in collateral agreements or full overnight collateralization.  These impacts can frequently be mitigated, however, through re-negotiation of contractual terms.

The aggregate value of all derivative instruments with credit risk-related contingent features that were in a liability position at December 31, 2011 and 2010 was $287.1 million and $362.0 million, respectively.  At December 31, 2011, the Company was fully collateralized, substantially mitigating credit risk.

In the event of an early termination, the Company might be required to accelerate payments to counterparties, up to the current value of its net liability positions, after considering the impacts of netting at default.  If payments cannot be exchanged simultaneously at early termination, funds also will be held in escrow to facilitate settlement.  If an early termination was triggered on December 31, 2011, the Company would be expected to settle a net obligation of $79.1 million.

If counterparties are unable to meet accelerated payment obligations, the Company may also be exposed to uncollectible net asset positions, after considering the impact of netting at default.

At December 31, 2011, the Company pledged $289.6 million in U.S. Treasury securities as collateral to counterparties.  At December 31, 2011, counterparties pledged to the Company $245.1 million in collateral comprised of cash and U.S. Treasury securities.

Embedded Derivatives

The Company performs a quarterly analysis of its new contracts, agreements and financial instruments for embedded derivatives.  No embedded derivatives required bifurcation from financial assets.  However, the Company issues certain annuity contracts and enters into reinsurance agreements that contain derivatives embedded in the contract.  Upon issuing the contract, the embedded derivative is separated from the host contract (annuity contract or reinsurance agreement) and is carried at fair value.  Please refer to Note 8 of the Company’s consolidated financial statements for further information regarding derivatives embedded in reinsurance contracts; refer to Note 12 for further information regarding derivatives embedded in annuity contracts.

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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT

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

On April 1, 2009, the FASB issued additional guidance on estimating fair value when the volume and level of activity for the asset or liability have significantly decreased, as well as guidance on identifying circumstances indicating that a transaction is not orderly.  The Company reviewed its pricing sources and methodologies and has concluded that its various pricing sources and methodologies are in compliance with this guidance.  During the year ended December 31, 2011, there were no changes to these valuation techniques and the related inputs.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

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

Level 1

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

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

Level 2

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

Level 2 inputs include the following:

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

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

c) Inputs other than quoted market prices that are observable, and

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

The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government securities not backed by the full faith and credit of the Government, municipal bonds, structured notes and certain ABS including collateralized debt obligations, RMBS, CMBS, certain corporate debt, certain private equity investments and certain derivatives, including derivatives embedded in reinsurance contracts.

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 assumptions about what a market participant would use in pricing the asset or liability.

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

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy

The following table presents the Company’s categories for its assets measured at fair value on a recurring basis as of December 31, 2011:

		Level 1		Level 2		Level 3		Total
Assets
Available-for-sale fixed maturity securities:
	Asset-backed securities	$	-	$	55	$	-	$	55
	Residential mortgage-backed securities		-		26,543		-		26,543
	Commercial mortgage-backed securities		-		6,781		2,131		8,912
	Foreign government & agency securities		-		-		-		-
	U.S. states and political subdivision securities		-		221		-		221
	U.S. treasury and agency securities		382,569		-		-		382,569
	Corporate securities		-		977,356		6,869		984,225
Total available-for-sale fixed maturity securities			382,569		1,010,956		9,000		1,402,525
Trading fixed maturity securities:
	Asset-backed securities		-		215,343		76,909		292,252
	Residential mortgage-backed securities		-		593,066		120,129		713,195
	Commercial mortgage-backed securities		-		619,180		63,838		683,018
	Foreign government & agency securities		-		96,205		20,393		116,598
	U.S. states and political subdivision securities		-		527		-		527
	U.S. treasury and agency securities		327,827		7,199		1,928		336,954
	Corporate securities		-		8,062,279		75,713		8,137,992
Total trading fixed maturity securities			327,827		9,593,799		358,910		10,280,536
Derivative instruments - receivable:
	Interest rate contracts		-		362,753		-		362,753
	Foreign currency contracts		-		577		-		577
	Equity contracts		24,499		17,252		5,193		46,944
	Futures contracts		12,130		-		-		12,130
Total derivative instruments - receivable			36,629		380,582		5,193		422,404
Other invested assets (1)			1,896		21,621		9,252		32,769
Short-term investments			105,895		-		-		105,895
Cash and cash equivalents			872,064		-		-		872,064
Total investments and cash			1,726,880		11,006,958		382,355		13,116,193
Separate account assets:
	Mutual fund investments		21,668,110		-		-		21,668,110
	Equity investments		-		-		-		-
	Fixed income investments		785,438		5,236,487		16,012		6,037,937
	Alternative investments		4,122		62,989		360,463		427,574
	Other investments		(1,328)		-		-		(1,328)
Total separate account assets (2) (3)			22,456,342		5,299,476		376,475		28,132,293
Total assets measured at fair value on a recurring basis		$	24,183,222	$	16,306,434	$	758,830	$	41,248,486

(1)   Excludes $4.3 million of other invested assets that are not subject to FASB ASC Topic 820.

(2)  Pursuant to the conditions set forth in FASB ASC Topic 944, the value of separate account liabilities is set to equal the fair value of the separate account assets.

(3)  Excludes $648.5 million, primarily related to investment purchases payable, net of investment sales receivable, that are not subject to FASB ASC Topic 820.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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, 2011:

		Level 1		Level 2		Level 3		Total
Liabilities
Other policy liabilities:
	Guaranteed minimum withdrawal benefit liability	$	-	$	-	$	1,071,126	$	1,071,126
	Guaranteed minimum accumulation benefit liability		-		-		215,598		215,598
	Derivatives embedded in reinsurance contracts		-		107,965		5,193		113,158
	Derivatives embedded in fixed index annuities		-		-		116,395		116,395
Total other policy liabilities (1)			-		107,965		1,408,312		1,516,277
Derivative instruments – payable:
	Interest rate contracts		-		257,719		-		257,719
	Foreign currency contracts		-		3,422		-		3,422
	Credit contracts		-		-		17,723		17,723
	Futures contracts		8,210		-		-		8,210
Total derivative instruments – payable			8,210		261,141		17,723		287,074
Other liabilities:
	Bank overdrafts (2)		48,893		-		-		48,893
Total liabilities measured at fair value on a recurring basis		$	57,103	$	369,106	$	1,426,035	$	1,852,244

(1) The balances are included within the contractholder deposits funds and other policy liabilities in the Company’s consolidated balance sheets.

(2) Bank overdrafts are included within other liabilities in the Company’s consolidated balance sheet.

Assets Measured at Fair Value on a Nonrecurring Basis

The following table presents the Company’s categories for its assets measured at fair value on a nonrecurring basis at December 31, 2011:

		Level 1		Level 2		Level 3		Total		Total Loss
Asset
Mortgage loans	$	-	$	-	$	79,067	$	79,067	$	(38,634)

At December 31, 2011, the Company determined that certain mortgage loans were impaired and as a practical expedient, measured the impairment using the fair value of the related collateral.  The fair value of the collateral was based on real estate valuations.

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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table presents the Company’s categories for its assets measured at fair value on a recurring basis as of December 31, 2010:

		Level 1		Level 2		Level 3		Total
Assets
Available-for-sale fixed maturity securities:
	Asset-backed securities	$	-	$	704	$	11	$	715
	Residential mortgage-backed securities		-		34,614		-		34,614
	Commercial mortgage-backed securities		-		13,003		2,047		15,050
	Foreign government & agency securities		-		563		-		563
	U.S. states and political subdivision securities		-		214		-		214
	U.S. treasury and agency securities		375,233		-		-		375,233
	Corporate securities		-		1,068,399		1,135		1,069,534
Total available-for-sale fixed maturity securities			375,233		1,117,497		3,193		1,495,923
Trading fixed maturity securities:
	Asset-backed securities		-		321,129		90,851		411,980
	Residential mortgage-backed securities		-		834,074		88,719		922,793
	Commercial mortgage-backed securities		-		737,024		82,171		819,195
	Foreign government & agency securities		-		116,986		13,790		130,776
	U.S. states and political subdivision securities		-		613		-		613
	U.S. treasury and agency securities		737,936		8,582		1,101		747,619
	Corporate securities		-		8,301,586		132,556		8,434,142
Total trading fixed maturity securities			737,936		10,319,994		409,188		11,467,118
Derivative instruments - receivable:
	Interest rate contracts		-		97,060		-		97,060
	Foreign currency contracts		-		32,504		-		32,504
	Equity contracts		14,873		30,739		13,785		59,397
	Futures contracts		9,103		-		-		9,103
Total derivative instruments - receivable			23,976		160,303		13,785		198,064
Other invested assets (1)			2,890		11,120		8,343		22,353
Short-term investments			832,739		-		-		832,739
Cash and cash equivalents			736,323		-		-		736,323
Total investments and cash			2,709,097		11,608,914		434,509		14,752,520
Separate account assets:
	Mutual fund investments		21,892,209		30,517		-		21,922,726
	Equity investments		188,216		277		-		188,493
	Fixed income investments		317,713		5,812,900		56,323		6,186,936
	Alternative investments		24,094		78,164		293,254		395,512
	Other investments		900		-		-		900
Total separate account assets (2) (3)			22,423,132		5,921,858		349,577		28,694,567
Total assets measured at fair value on a recurring basis		$	25,132,229	$	17,530,772	$	784,086	$	43,447,087

(1) Excludes $5.1 million of other invested assets that are not subject to FASB ASC Topic 820.

(2) Pursuant to the conditions set forth in FASB ASC Topic 944, the value of separate account liabilities is set to equal the fair value of the separate account assets.

(3) Excludes $1,814.1 million, primarily related to investment purchases payable, net of investment sales receivable, that are not subject to FASB ASC Topic 820.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

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, 2010:

		Level 1		Level 2		Level 3		Total
Liabilities
Other policy liabilities:
	Guaranteed minimum withdrawal benefit liability	$	-	$	-	$	2,245	$	2,245
	Guaranteed minimum accumulation benefit liability		-		-		49		49
	Derivatives embedded in reinsurance contracts		-		41,272		-		41,272
	Derivatives embedded in fixed index annuities		-		-		131,608		131,608
Total other policy liabilities (1)			-		41,272		133,902		175,174
Derivative instruments – payable:
	Interest rate contracts		-		329,214		-		329,214
	Foreign currency contracts		-		3,878		-		3,878
	Credit contracts		-		-		27,341		27,341
	Futures contracts		1,590		-		-		1,590
Total derivative instruments – payable			1,590		333,092		27,341		362,023
Other liabilities:
	Bank overdrafts (2)		61,227		-		-		61,227
Total liabilities measured at fair value on a recurring basis		$	62,817	$	374,364	$	161,243	$	598,424

(1) The balances are included within the contractholder deposits funds and other policy liabilities in the Company’s consolidated balance sheets.

(2) Bank overdrafts are included within other liabilities in the Company’s consolidated balance sheet.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The methods and assumptions that the Company uses in determining the estimated fair value of its financial instruments that are measured at fair value on a recurring basis are summarized below:

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

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

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

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.

Derivative instruments - receivables and payables:  The fair values of swaps are based on current settlement values, dealer quotes and market prices.  Fair values for options and futures are also based on dealer quotes and market prices.  The Company uses credit valuation adjustments (“CVAs”) to properly reflect the component of fair value of certain derivative instruments that arise from default risk.  CVAs are based on a methodology that primarily uses published credit default swap spreads as a key input in determining an implied level of expected loss over the total life of the derivative contract.  When this information is not available, the Company also may utilize credit spreads implied from published bond yields or published cumulative default experience data adjusted for current trends.  CVAs may be calculated based on the credit risk of counterparties for asset positions or the Company's own credit risk for liability positions.  The CVAs also take into account contractual factors designed to reduce the Company’s credit exposure to each counterparty, such as collateral and legal rights of offset.

Other invested assets:  This financial instrument primarily consists of equity securities.  The fair value of the Company’s equity securities is first based on quoted market prices.  Similar to fixed maturity securities, the Company uses pricing services and broker quotes to price the equity securities for which the quoted market price is not available.

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

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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

Other policy liabilities:  The fair values of S&P 500 Index and other equity-linked embedded derivatives are produced using standard derivative valuation techniques.  GMAB and GMWB are considered to be derivatives under FASB ASC Topic 815 and are included in contractholder deposit funds and other policy liabilities in the Company’s consolidated balance sheets.  Consistent with the provisions of FASB ASC Topic 820, the Company incorporates risk margins and the Company’s own credit standing, as well as changes in assumptions regarding policyholder behavior, in the calculation of the fair value of embedded derivatives.

Other liabilities:  This financial instrument consists of bank overdraft balances which are due to issued checks and transmitted wires that were not cashed and processed in the Company’s bank accounts at the end of the reporting period.  Similar to cash, the carrying value for other liabilities approximates fair value due to the 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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for assets which are categorized as Level 3 for the

 year ended December 31, 2011:

			Total realized and unrealized gains (losses)
Assets		Beginning balance	Included in earnings	Included in OCI	Purchases	Sales	Issuances	Settlements	Transfers into  level 3	Transfers out of level 3	Ending balance	Change in unrealized gains (losses) (2)
Available-for-sale fixed maturity securities:
	Asset-backed securities	$ 11	$ (16)	$ 5	$ -	$ -	$ -	$ -	$ -	$ -	$ -	$ -
	Residential mortgage-backed securities	-	-	-	-	-	-	-	-	-	-	-
	Commercial mortgage-backed securities	2,047	(362)	446	-	-	-	-	-	-	2,131	-
	Foreign government & agency securities	-	-	-	-	-	-	-	-	-	-	-
	U.S. states and political subdivision securities	-	-	-	-	-	-	-	-	-	-	-
	U.S. treasury and agency securities	-	-	-	-	-	-	-	-	-	-	-
	Corporate securities	1,135	1,636	(1,653)	-	-	-	-	6,360	(609)	6,869	-
Total available-for-sale fixed maturity securities		3,193	1,258	(1,202)	-	-	-	-	6,360	(609)	9,000	-
Trading fixed maturity securities:
	Asset-backed securities	90,851	(4,497)	-	-	-	-	(5,534)	14,639	(18,550)	76,909	(2,925)
	Residential mortgage-backed securities	88,719	3,586	-	-	-	-	(44,230)	99,785	(27,731)	120,129	16,101
	Commercial mortgage-backed securities	82,171	(1,391)	-	-	-	-	(21,896)	4,954	-	63,838	168
	Foreign government & agency securities	13,790	6,603	-	-	-	-	-	-	-	20,393	8,292
	U.S. states and political subdivision securities	-	-	-	-	-	-	-	-	-	-	-
	U.S. treasury and agency securities	1,101	47	-	-	-	-	(431)	2,312	(1,101)	1,928	42
	Corporate securities	132,556	3,602	-	-	(7,984)	-	(9,419)	32,343	(75,385)	75,713	588
Total trading fixed maturity securities		409,188	7,950	-	-	(7,984)	-	(81,510)	154,033	(122,767)	358,910	22,266
Derivative instruments – receivable:
	Interest rate contracts	-	-	-	-	-	-	-	-	-	-	-
	Foreign currency contracts	-	-	-	-	-	-	-	-	-	-	-
	Equity contracts	13,785	(4,102)	-	9,295	-	-	(13,785)	-	-	5,193	(4,102)
	Futures contracts	-	-	-	-	-	-	-	-	-	-	-
Total derivative instruments– receivable		13,785	(4,102)	-	9,295	-	-	(13,785)	-	-	5,193	(4,102)
Other invested assets		8,343	(4)	-	8,859	(296)	-	-	-	(7,650)	9,252	196
Short-term investments		-	-	-	-	-	-	-	-	-	-	-
Cash and cash equivalents		-	-	-	-	-	-	-	-	-	-	-
Total investments and cash		434,509	5,102	(1,202)	18,154	(8,280)	-	(95,295)	160,393	(131,026)	382,355	18,360
Separate account assets:
	Mutual fund investments	-	-	-	-	-	-	-	-	-	-	-
	Equity investments	-	-	-	-	(49)	-	-	49	-	-	-
	Fixed income investments	56,323	(432)	-	523,188	(530,132)	-	(7,327)	8,096	(33,704)	16,012	(515)
	Alternative investments	293,254	411	-	207,717	(124,666)	-	(19,453)	3,200	-	360,463	(5,874)
	Other investments	-	-	-	-	-	-	-	-	-	-	-
Total separate account assets (1)		349,577	(21)	-	730,905	(654,847)	-	(26,780)	11,345	(33,704)	376,475	(6,389)
Total assets measured at fair value on
a recurring basis		$ 784,086	$ 5,081	$ (1,202)	$ 749,059	$ (663,127)	$ -	$ (122,075)	$ 171,738	$ (164,730)	$ 758,830	$ 11,971

(1) The realized/unrealized gains and 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) Included in earnings relating to instruments still held at the reporting date.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for liabilities which are categorized as Level 3 for the

 year ended December 31, 2011:

			Total realized and unrealized (gains) losses
Liabilities		Beginning balance	Included in earnings	Included in OCI	Purchases	Sales	Issuances	Settlements	Transfers into  level 3	Transfers out of level 3	Ending balance	Change in unrealized (gains) losses (2)
Other policy liabilities:
	Guaranteed minimum withdrawal benefit liability	$ 2,245	$ 1,068,881	$ -	$ -	$ -	$ -	$ -	$ -	$ -	$1,071,126	$ 930,740
	Guaranteed minimum accumulation benefit liability	49	215,549	-	-	-	-	-	-	-	215,598	182,268
	Derivatives embedded in reinsurance contracts	-	(5,923)	-	29,753	-	-	(18,637)	-	-	5,193	(5,923)
	Derivatives embedded in fixed index annuities	131,608	(15,213)	-	-	-	-	-	-	-	116,395	69,921
Total other policy liabilities (1)		133,902	1,263,294	-	29,753	-	-	(18,637)	-	-	1,408,312	1,177,006
Derivative instruments – payable:
	Interest rate contracts	-	-	-	-	-	-	-	-	-	-	-
	Foreign currency contracts	-	-	-	-	-	-	-	-	-	-	-
	Credit contracts	27,341	(9,618)	-	-	-	-	-	-	-	17,723	(9,619)
	Futures contracts	-	-	-	-	-	-	-	-	-	-	-
Total derivative instruments – payable		27,341	(9,618)	-	-	-	-	-	-	-	17,723	(9,619)
Other liabilities:
	Bank overdrafts	-	-	-	-	-	-	-	-	-	-	-
Total liabilities measured at fair value on a recurring basis		$ 161,243	$ 1,253,676	$ -	$ 29,753	$ -	$ -	$ (18,637)	$ -	$ -	$1,426,035	$ 1,167,387

(1) The balances are included within the contractholder deposits funds and other policy liabilities in the Company’s consolidated balance sheets.

(2) Included in earnings relating to instruments still held at the reporting date.

Gains and losses related to Level 3 assets and liabilities, included in the Company’s consolidated statements of operations for the

 year ended December 31, 2011, are reported as follows:

	Total gains (losses) included in earnings		Change in unrealized gains (losses) related to assets and liabilities still held  at the reporting date
Net investment income	$	7,946	$	22,462
Net derivative loss		(1,257,778)		(1,171,489)
Net realized investment gains, excluding impairment losses on available-for-sale securities		1,258		-
Net losses	$	(1,248,574)	$	(1,149,027)

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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for assets which are categorized as Level 3 for the year ended December 31, 2010:

			Total realized and unrealized gains (losses)
Assets		Beginning balance	Included in earnings	Included in other comprehensive income	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
Available-for-sale fixed maturity  securities:
	Asset-backed securities	$ 37	$ (40)	$ 14	$ -	$ -	$ 11	$ -
	Residential mortgage-backed securities	-	-	-	-	-	-	-
	Commercial mortgage-backed
	securities	1,930	(472)	589	-	-	2,047	-
	Foreign government & agency
	securities	-	-	-	-	-	-	-
	U.S. states and political subdivision	-	-	-	-	-	-	-
	securities	-	-	-	-	-	-	-
	U.S. treasury and agency securities				-
	Corporate securities	7,936	(23)	53	(6,831)	-	1,135	-
Total available-for-sale fixed maturity securities		9,903	(535)	656	(6,831)	-	3,193	-
Trading fixed maturity securities:
	Asset-backed securities	111,650	26,351	-	(38,060)	(9,090)	90,851	28,061
	Residential mortgage-backed securities	154,551	11,159	-	(34,087)	(42,904)	88,719	24,255
	Commercial mortgage-backed
	securities	14,084	1,833	-	66,950	(696)	82,171	3,334
	Foreign government & agency
	securities	15,323	(1,533)	-	-	-	13,790	65
	U.S. states and political subdivision
	securities	-	-	-	-	-	-	-
	U.S. treasury and agency securities	-	(13)	-	(232)	1,346	1,101	21
	Corporate securities	107,886	4,805	-	(11,997)	31,862	132,556	5,111
Total trading fixed maturity securities		403,494	42,602	-	(17,426)	(19,482)	409,188	60,847
Derivative instruments – receivable:
	Interest rate contracts	-	-	-	-	-	-	-
	Foreign currency contracts	-	-	-	-	-	-	-
	Equity contracts	8,821	-	-	4,964	-	13,785	-
	Futures contracts	-	-	-	-	-	-	-
Total derivative instruments– receivable		8,821	-	-	4,964	-	13,785	-
Other invested assets		-	(50)	900	7,493	-	8,343	(50)
Short-term investments		-	-	-	-	-	-	-
Cash and cash equivalents		-	-	-	-	-	-	-
Total investments and cash		422,218	42,017	1,556	(11,800)	(19,482)	434,509	60,797
Separate account assets:
	Mutual fund investments	-	-	-	-	-	-	-
	Equity investments	7	-	-	(7)	-	-	-
	Fixed income investments	276,530	(11,998)	-	(91,989)	(116,220)	56,323	(4,607)
	Alternative investments	267,196	12,671	-	30,021	(16,634)	293,254	12,341
	Other investments	4,108	-	-	-	(4,108)	-	-
	Total separate account assets (1)	547,841	673	-	(61,975)	(136,962)	349,577	7,734
Total assets measured at fair value on
a recurring basis		$ 970,059	$ 42,690	$ 1,556	$ (73,775)	$ (156,444)	$ 784,086	$ 68,531

(1) The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities which results in a net zero impact on net income for the Company.

(2) Transfers in and/or (out) of Level 3 during the year ended December 31, 2010 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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

The following table shows a reconciliation of the beginning and ending balances for liabilities which are categorized as Level 3 for the year ended December 31, 2010:

			Total realized and unrealized  (gains) losses
Liabilities		Beginning balance	Included in earnings		Included in other comprehensive income		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
Other policy liabilities:
	Guaranteed minimum withdrawal benefit liability	$ 168,786		$ (319,563)		$ -	$ 153,022	$ -	$ 2,245	$ (314,652)
	Guaranteed minimum accumulation benefit liability	81,669		(104,831)		-	23,211	-	49	(103,091)
	Derivatives embedded in reinsurance contracts	-		-		-	-	-	-	-
	Derivatives embedded in fixed index annuities	140,966		(13,153)		-	3,795	-	131,608	20,397
Total other policy liabilities (1)		391,421		(437,547)		-	180,028	-	133,902	(397,346)
Derivative instruments – payable:
	Interest rate contracts	-		-		-	-	-	-	-
	Foreign currency contracts	-		-		-	-	-	-	-
	Credit contracts	34,349		(7,008)		-	-	-	27,341	(7,008)
	Futures contracts	-		-		-	-	-	-	-
Total derivative instruments – payable		34,349		(7,008)		-	-	-	27,341	(7,008)
Other liabilities:
	Bank overdrafts	-		-		-	-	-	-	-
Total liabilities measured at fair value on a recurring basis		$ 425,770		$ (444,555)		$ -	$ 180,028	$ -	$ 161,243	$ (404,354)

(1) The balances are included within the contractholder deposit funds and other policy liabilities in the Company consolidated balance sheets.

Gains and losses related to Level 3 assets and liabilities, included in the Company’s consolidated statements of operations for the year ended December 31, 2010, are reported as follows:

		Total gains (losses) included in earnings		Change in unrealized gains related to assets and liabilities still held  at the reporting date
Net investment income	$	42,552	$	60,797
Net derivative gains		444,555		404,354
Net realized investment losses, excluding impairment
losses on available-for-sale securities		(535)		-
Net gains	$	486,572	$	465,151

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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

The Company determines transfers between levels based on the fair value of each security as of the beginning of the reporting period.

During the year ended December 31, 2011, the Company transferred the following assets into (out of) Levels 1, 2 and 3:

		Level 1 Transfers				Level 2 Transfers				Level 3 Transfers
		Into		(Out of)		Into		(Out of)		Into		(Out of)
Assets
Available-for-sale fixed maturity securities:
	Asset-backed securities	$	-	$	-	$	-	$	-	$	-	$	-
	Residential mortgage-backed securities		-		-		-		-		-		-
	Commercial mortgage-backed securities		-		-		-		-		-		-
	Foreign government & agency securities		-		-		-		-		-		-
	U.S. states and political subdivision securities		-		-		-		-		-		-
	U.S. treasury and agency securities		-		-		-		-		-		-
	Corporate securities		-		-		609		(6,360)		6,360		(609)
Total available-for-sale fixed maturity securities			-		-		609		(6,360)		6,360		(609)
Trading fixed maturity securities:
	Asset-backed securities		-		-		18,550		(14,639)		14,639		(18,550)
	Residential mortgage-backed securities		-		-		27,731		(99,785)		99,785		(27,731)
	Commercial mortgage-backed securities		-		-		-		(4,954)		4,954		-
	Foreign government & agency securities		-		-		-		-		-		-
	U.S. states and political subdivision securities		-		-		-		-		-		-
	U.S. treasury and agency securities		-		(2,312)		1,101		-		2,312		(1,101)
	Corporate securities		-		-		75,385		(32,343)		32,343		(75,385)
Total trading fixed maturity securities			-		(2,312)		122,767		(151,721)		154,033		(122,767)
Derivative instruments- receivable:
	Interest rate contracts		-		-		-		-		-		-
	Foreign currency contracts		-		-		-		-		-		-
	Equity contracts		-		-		-		-		-		-
	Credit contracts		-		-		-		-		-		-
	Futures		-		-		-		-		-		-
Total derivative instruments-receivable			-		-		-		-		-		-
Other invested assets			-		-		7,650		-		-		(7,650)
Short-term investments			-		-		-		-		-		-
Cash and cash equivalents			-		-		-		-		-		-
Total investments and cash			-		(2,312)		131,026		(158,081)		160,393		(131,026)
Separate account assets:
	Mutual fund investments		-		-		-		-		-		-
	Equity investments		-		-		-		(49)		49		-
	Fixed income investments		-		-		33,704		(8,096)		8,096		(33,704)
	Alternative investments		-		-		-		(3,200)		3,200		-
	Other investments		-		-		-		-		-		-
Total separate account assets			-		-		33,704		(11,345)		11,345		(33,704)
Total assets measured at fair value on a
recurring basis		$	-	$	(2,312)	$	164,730	$	(169,426)	$	171,738	$	(164,730)

The Company did not change the categorization of its financial instruments during the year ended December 31, 2011.  The transfers into (out of) Level 2 and Level 3 were primarily due to changes in the level of observability of inputs used to price these 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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

The Company determines transfers between levels based on the fair value of each security as of the beginning of the reporting period.

During the year ended December 31, 2010, the Company transferred the following assets into (out of) Levels 1, 2 and 3:

			Level 1 Transfers				Level 2 Transfers				Level 3 Transfers
			Into		(Out of)		Into		(Out of)		Into		(Out of)
Assets
Available-for-sale fixed maturity securities:
	Asset-backed securities	$	-	$	-	$	-	$	-	$	-	$	-
	Residential mortgage-backed securities		-		-		-		-		-		-
	Commercial mortgage-backed securities		-		-		-		-		-		-
	Foreign government & agency securities		-		-		-		-		-		-
	U.S. states and political subdivision securities		-		-		-		-		-		-
	U.S. treasury and agency securities		-		-		-		-		-		-
	Corporate securities		-		-		-		-		-		-
Total available-for-sale fixed maturity securities			-		-		-		-		-		-
Trading fixed maturity securities:
	Asset-backed securities		-		-		44,458		(35,368)		35,368		(44,458)
	Residential mortgage-backed securities		-		-		79,192		(36,288)		36,288		(79,192)
	Commercial mortgage-backed securities		-		-		696		-		-		(696)
	Foreign government & agency securities		-		-		-		-		-		-
	U.S. states and political subdivision securities		-		-		-		-		-		-
	U.S. treasury and agency securities		-		(1,346)		-		-		1,346		-
	Corporate securities		-		-		32,579		(64,441)		64,441		(32,579)
Total trading fixed maturity securities			-		(1,346)		156,925		(136,097)		137,443		(156,925)
Derivative instruments- receivable:
	Interest rate contracts		-		-		-		-		-		-
	Foreign currency contracts		-		-		-		-		-		-
	Equity contracts		-		-		-		-		-		-
	Credit contracts		-		-		-		-		-		-
	Futures contracts		-		-		-		-		-		-
Total derivative instruments-receivable			-		-		-		-		-		-
Separate account assets:
	Mutual fund investments		-		-		-		-		-		-
	Equity investments		-		-		-		-		-		-
	Fixed income investments		-		-		116,220		-		-		(116,220)
	Alternative investments		14,221		-		2,968		(555)		555		(17,189)
	Other investments		4,108		-		-		-		-		(4,108)
Total separate account assets			18,329		-		119,188		(555)		555		(137,517)
Total assets measured at fair value on a
recurring basis		$	18,329	$	(1,346)	$	276,113	$	(136,652)	$	137,998	$	(294,442)

The Company did not change the categorization of its financial instruments during the year ended December 31, 2010.  The transfers into (out of) Level 2 and Level 3 were primarily due to changes in the level of observability of inputs used to price these 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, 2011, 2010 and 2009

5. FAIR VALUE MEASUREMENT (CONTINUED)

Financial Instruments Not Considered at Fair Value

FASB ASC Topic 825 requires disclosure of the fair value of certain financial instruments including those that are not carried at fair value. FASB ASC Topic 825 also 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 value and estimated fair value of the Company’s financial instruments that are not carried at fair value at:

			December 31, 2011			December 31, 2010
		Carrying		Estimated		Carrying		Estimated
		Amount		Fair Value		Amount		Fair Value
Financial assets:
	Mortgage loans	$	1,457,356	$	1,588,473	$	1,737,528	$	1,811,567
	Policy loans	$	603,371	$	651,876	$	717,408	$	859,668
Financial liabilities:
	Contractholder deposit funds and other policy liabilities	$	9,503,446	$	9,183,946	$	11,944,058	$	11,490,525
	Debt payable to affiliates	$	683,000	$	683,503	$	783,000	$	783,000

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

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

Mortgage loans:  The fair values of mortgage 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.

Policy loans:  The fair value of policy loans is determined by estimating future policy loan cash flows and discounting the cash flows at a current market interest rate.

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 (e.g., 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.

Debt payable to affiliates:  The fair value of notes payable and other borrowings is based on future cash flows discounted at the stated interest rate, considering all appropriate terms of the related agreements.  Due to certain provisions included in such agreements, whereby the issuer of most of the notes has the ability to call the notes at par with appropriate approvals, the fair value is equal to par value.  The note, whose issuer does not have the ability to call at par, is reported at fair value.

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, 2011, 2010 and 2009

6. NET REALIZED INVESTMENT GAINS (LOSSES)

The Company’s net realized investment gains (losses) on available-for-sale fixed maturity securities and other investments, excluding OTTI losses, consisted of the following for the years ended December 31:

	2011		2010		2009
Fixed maturity securities	$	62,361	$	34,409	$	2,912
Mortgage loans		(25,573)		(10,327)		(43,148)
Real estate		(24)		2		-
Other invested assets		(136)		(170)		1,289
Sales of previously impaired assets		2,950		3,037		2,272
Net realized investment gains (losses) from   continuing operations	$	39,578	$	26,951	$	(36,675)
Net realized investment gains from discontinued     operations	$	-	$	-	$	-

7. NET INVESTMENT INCOME

The Company’s net investment income consisted of the following for the years ended December 31:

		2011		2010		2009
Trading fixed maturity securities:
	Interest and other income	$	613,479	$	713,960	$	822,599
	Change in fair value and net realized gains		91,919		606,946		1,736,975
Mortgage loans			91,920		108,555		121,531
Real estate			8,455		8,645		7,735
Policy loans			(88,548)		45,054		44,862
Income ceded under funds withheld reinsurance			25,213		(75,643)		(139,168)
Other			5,916		4,150		3,948
Gross investment income			748,354		1,411,667		2,598,482
Less: Investment expenses			20,726		21,457		16,175
Net investment income from continuing operations		$	727,628	$	1,390,210	$	2,582,307
Net investment loss from discontinued operations		$	-	$	-	$	(24,956)

Ceded investment income on funds-withheld reinsurance portfolios is included as a component of net investment income and is accounted for consistent with the policies discussed in Note 1 of the Company’s consolidated financial statements.  Net investment income ceded and interest earned on policy loans during the year ended December 31, 2011 were decreased by a $113.3 million prior-year adjustment related to the interest rate on policy loans.  Refer to the Wealth Management section in Note 8 to the Company’s consolidated financial statements for further discussion of this adjustment.  The ceded investment income relates to the funds-withheld reinsurance agreements between the Company and certain affiliates, which is further discussed in Note 8 to the Company’s consolidated financial statements.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

8. REINSURANCE

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

The effects of the Company’s reinsurance agreements in the consolidated statements of operations were as follows:

		For the Years Ended December 31,
		2011		2010		2009
Revenues:
Premiums and annuity considerations:
	Direct	$	109,569	$	94,869	$	86,671
	Assumed		36,169		47,616		52,856
	Ceded		(8,318)		(6,310)		(5,281)
Net premiums and annuity considerations from continuing operations		$	137,420	$	136,175	$	134,246
Net premiums and annuity considerations related to discontinued operations		$	-	$	-	$	-
Net investment income:
	Direct	$	702,415	$	1,465,853	$	2,721,475
	Assumed		-		-		-
	Ceded (1)		25,213		(75,643)		(139,168)
Net investment income from continuing operations		$	727,628	$	1,390,210	$	2,582,307
Net investment loss related to discontinued operations		$	-	$	-	$	(24,956)
Fee and other income:
	Direct	$	743,866	$	676,670	$	581,868
	Assumed		10		-		-
	Ceded		(135,465)		(165,643)		(196,032)
Net fee and other income from continuing operations		$	608,411	$	511,027	$	385,836
Net fee and other income related to discontinued operations		$	-	$	-	$	(49,947)

(1)  Investment income earned (direct) and ceded during the year ended December 31, 2011 includes a decrease of $113.3 million due to an interest rate adjustment.  This adjustment did not have any impact on net investment income.  Refer to the Wealth Management section of this Note 8 for further details.

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, 2011, 2010 and 2009

8. REINSURANCE (CONTINUED)

		For the Years Ended December 31,
		2011		2010		2009
Benefits and expenses:
Interest credited:
	Direct	$	386,809	$	491,090	$	472,275
	Assumed		6,260		6,879		7,801
	Ceded (2)		31,139		(96,121)		(94,308)
Net interest credited from continuing operations		$	424,208	$	401,848	$	385,768
Net interest credited related to discontinued operations		$	-	$	-	$	34,216
Policyowner benefits:
	Direct	$	236,232	$	409,907	$	265,021
	Assumed		22,915		26,189		38,313
	Ceded		(124,735)		(196,302)		(192,895)
Net policyowner benefits from continuing operations		$	134,412	$	239,794	$	110,439
Net policyowner benefits related to discontinued operations		$	-	$	-	$	13,267
Other operating expenses:
	Direct	$	355,928	$	333,850	$	282,502
	Assumed		3,314		5,079		6,129
	Ceded		(8,917)		(20,759)		(40,475)
Net other operating expenses from continuing operations		$	350,325	$	318,170	$	248,156
Net other operating expenses related to discontinued operations		$	-	$	-	$	10,436

(2) Interest credited ceded during the year ended December 31, 2011 includes a $113.3 million interest rate adjustment decreasing ceded interest credited.  Refer to the Wealth Management section of this Note 8 for further details.

A brief discussion of the Company’s significant reinsurance agreements by business segment follows.  Refer to Note 16 for additional information regarding the Company’s business 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, 2011, 2010 and 2009

8. REINSURANCE (CONTINUED)

Wealth Management Segment

The Wealth Management segment manages a closed block of SPWLinsurance policies, a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of the SPWL product in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of $1.3 billion and $1.5 billion at December 31, 2011 and 2010, respectively.  This entire block of business is reinsured on a funds-withheld coinsurance basis with SLOC, an affiliate.  Pursuant to this agreement, the Company held the following assets and liabilities at December 31:

	2011		2010
Assets
Reinsurance receivables	$	1,312,989	$	1,466,247
Liabilities
Contractholder deposit funds and other policy liabilities		1,342,628		1,478,459
Future contract and policy benefits		2,160		1,823
Reinsurance payable	$	1,410,748	$	1,555,336

The funds-withheld assets of $1.4 billion and $1.6 billion at December 31, 2011 and  2010, respectively, are comprised of fixed maturity securities, mortgage loans, policy loans, derivative instruments, and cash and cash equivalents that are managed by the Company.  The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $31.8 million and $14.0 million at December 31, 2011 and 2010, respectively.  The change in the fair value of this embedded derivative decreased derivative income by $17.8 million, $24.6 million, and $120.0 million for the years ended December 31, 2011, 2010 and 2009, respectively.

By reinsuring the SPWL product, the Company increased (decreased) net investment income by $48.5 million, $(49.9) million and $(126.6) million for the years ended December 31, 2011, 2010 and 2009, respectively.  The Company also increased (decreased) interest credited by $55.4 million, $(71.5) million and $(73.9) million for the years ended December 31, 2011, 2010 and 2009, respectively.

The net investment income ceded for the year ended December 31, 2011 was decreased by $113.3 million due to an interest rate adjustment processed during the year.  The interest credited ceded for year ended December 31, 2011 was decreased by $113.3 million due to policy reinstatements and interest rate adjustments processed during the year.  The adjustment was recorded to correct the Company’s prior year policy loan balances that were overstated by $113.3 million due to inaccurate interest rates applied to certain SPWL policies’ loan balances.  The adjustment did not have any impact on the interest credited and net investment income, net of reinsurances, reported in the Company’s consolidated statement of operations due to the 100% funds-withheld reinsurance agreement with SLOC noted above.  The adjustment also resulted in a $113.3 million decrease in policy loans, contractholder deposit funds and other policy liabilities, reinsurance receivable, and reinsurance payable in the Company’s consolidated balance sheet at December 31, 2011.

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, 2011, 2010 and 2009

8. REINSURANCE (CONTINUED)

Individual Protection Segment

The following are the Company’s significant reinsurance agreements that impact the Individual Protection segment.

On February 11, 2009, the Company received regulatory approval and entered into a reinsurance agreement with BarbCo 3, an affiliate, to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life and private placement variable universal life policies on a combination coinsurance, coinsurance with funds-withheld and a modified coinsurance basis.

Effective January 1, 2010, the Company and BarbCo 3 amended the agreement to include coverage of certain corporate and bank-owned variable universal life and private placement variable universal life insurance cases sold between December 31, 2009 and March 31, 2010, inclusive.  Reinsurance coverage continued for all cases sold prior to April 1, 2010.  However, cases sold on or after April 1, 2010 have not been reinsured.  This amendment also enabled the Company to discontinue reinsuring a portion of the covered business that was previously reinsured on a modified coinsurance basis, effective April 1, 2010.  The discontinuance of the business reinsured on a modified coinsurance basis did not have a material impact on the Company’s consolidated financial statements.

At the inception of the transaction, BarbCo 3 paid an initial ceding commission to the Company of $41.5 million and the Company recorded a reinsurance payable and related reinsurance receivable of $370.7 million and $329.2 million, respectively.  The reinsurance payable included a funds-withheld liability of $247.9 million and a deferred gain of $122.8 million.  Pursuant to this agreement, the Company held the following assets and liabilities at:

	December 31,		December 31,
	2011		2010
Assets
Reinsurance receivable	$	451,397	$	419,684
Liabilities
Contractholder deposit funds and other policy liabilities		507,606		465,035
Reinsurance payable	$	429,914	$	432,160

Reinsurance payable includes a funds-withheld liability of $324.3 million and $326.9 million at December 31, 2011 and 2010, respectively, and a deferred gain of $105.6 million and $105.3 million at December 31, 2011 and 2010, respectively.  The funds-withheld assets are managed by the Company and comprised of fixed maturity securities, policy loans, equity securities, cash and cash equivalents and related accrued income, totaling $332.5 million and $357.2 million at December 31, 2011 and 2010, respectively.  The funds-withheld coinsurance agreement gives rise to an embedded derivative which is required to be separated from the host reinsurance contract.  At December 31, 2011 and 2010, the fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $34.1 million and $24.1 million, respectively.

The change in fair value of the embedded derivative (decreased) increased derivative income by $(10.0) million and $2.2 million for the years ended December 31, 2011 and 2010, respectively.  In addition, during the years ended December 31, 2011 and 2010, the reinsurance agreement reduced revenues by $53.2 million and $24.3 million, respectively, and decreased expenses by $31.3 million and $56.2 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, 2011, 2010 and 2009

8. REINSURANCE (CONTINUED)

Individual Protection Segment (continued)

The Company’s subsidiary, SLNY, has a funds-withheld reinsurance agreement with SLOC under which SLOC funds a portion of the statutory reserves (“AXXX reserves”) required by New York Regulation 147, which is substantially similar to Actuarial Guideline 38, as adopted by the NAIC, 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.  Pursuant to this agreement, SLNY held the following assets and liabilities at December 31:

	2011		2010
Assets
Reinsurance receivable	$	159,649	$	133,088
Liabilities
Contractholder deposit funds and other policy liabilities		142,146		104,795
Future contract and policy benefits		33,138		21,662
Reinsurance payable	$	238,180	$	225,387

Reinsurance payable includes a funds-withheld liability of $194.3 million and $172.8 million at December 31, 2011 and 2010, respectively, and a deferred gain of $43.7 million and $52.6 million at December 31, 2011 and 2010, respectively.  The funds-withheld assets are managed by the Company and are comprised of trading fixed maturity securities, policy loans, equity securities, mortgage loans and related accrued income, totaling $191.2 million and $176.7 million at December 31, 2011 and 2010, respectively.  The coinsurance agreement with funds-withheld gives rise to an embedded derivative which is required to be separated from the host reinsurance contract.  The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $31.2 million and $3.2 million at December 31, 2011 and 2010, respectively.

The change in the fair value of this embedded derivative decreased derivative income by $28.1 million, $3.9 million and $11.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.  In addition, the activities related to the reinsurance agreement have decreased revenues by $48.8 million, $31.0 million and $29.0 million, and decreased expenses by $26.8 million, $28.0 million and $20.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has other reinsurance agreements with SLOC and several unrelated companies, which provide reinsurance for portions of the net-amount-at-risk under certain individual variable universal life, individual private placement variable universal life, bank owned life insurance (“BOLI”) and corporate owned life insurance (“COLI”) policies.  These amounts are reinsured on a monthly renewable term, a yearly renewable term or a modified coinsurance basis.  These other agreements decreased revenues by approximately $91.7 million, $134.7 million and $173.9 million and reduced expenses by approximately $79.9 million, $140.1 million and $168.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Group Protection Segment

SLNY has several agreements with unrelated companies whereby the unrelated companies reinsure the mortality and morbidity risks of certain of SLNY’s group contracts.

SLNY also has a reinsurance agreement, effective May 31, 2007, to assume the net risks of SLHIC’s New York issued contracts.  At December 31, 2011 and 2010, SLNY held policyholder liabilities of $25.7 million and $28.6 million, respectively, related to this agreement.  In addition, the reinsurance agreement increased revenues by $36.2 million, $47.6 million and $52.9 million for the years ended December 31, 2011, 2010 and 2009, respectively, and increased expenses by $26.2 million, $31.2 million and $44.3 million for the years ended December 31, 2011, 2010 and 2009, 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, 2011, 2010 and 2009

9.  RETIREMENT PLANS

Effective December 31, 2009, the Company transferred all of its employees to an affiliate, Sun Life Services, with the exception of 28 employees who were transferred to SLFD, another affiliate.  As a result of this transaction, the Company transferred pension and other employee benefit liabilities, accumulated other comprehensive income related to pension and other postretirement plans, and cash to Sun Life Services.  Concurrent with this transaction, Sun Life Services became the sponsor of the retirement plans described below.  The employee transfer did not materially change the provisions of the related retirement plans.  The annual cost of these benefits to the Company is allocated and charged to the Company in a manner consistent with the allocation of employee compensation expenses.

Prior to the December 31, 2009 employee transfer, the Company sponsored two non-contributory defined benefit pension plans for its employees and certain affiliated employees.  These plans were the staff qualified pension plan (“staff pension plan”) and the staff nonqualified pension plan (“UBF plan”) (collectively, the “Pension Plans”).  Expenses were allocated to participating companies based in a manner consistent with the allocation of employee compensation expenses.  The Company's funding policies for the staff pension plan was to contribute amounts which at least satisfy the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”).  Most pension plan assets consist of separate accounts of SLOC or other insurance company contracts.

Prior to the December 31, 2009 employee transfer, the Company sponsored a postretirement benefit plan for its employees and certain affiliated employees providing certain health, dental and life insurance benefits for retired employees and dependents (the “Other Post-Retirement Benefit Plan”).  Expenses were allocated to participating companies based on the number of participants.  Substantially all employees of the participating companies may become eligible for these benefits if they reach normal retirement age while working for the Company, or retire early upon satisfying an alternate age plus service condition.  Life insurance benefits are generally set at a fixed amount.

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, 2011, 2010 and 2009

9. RETIREMENT PLANS (CONTINUED)

The following tables set forth the change in the Pension Plans’ and the Other Post-Retirement Benefit Plan’s projected benefit obligations and assets, as well as information on the plans’ funded status at December 31, 2009:

		Pension Plans		Other Post Retirement Benefit Plan
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	270,902	$	49,112
Effect of eliminating early measurement date		-		-
Service cost		2,597		1,754
Interest cost		17,434		3,218
Actuarial loss		17,861		2,344
Benefits paid		(11,066)		(2,095)
Plan amendments		-		(803)
Federal subsidy		-		121
Transfer to Sun Life Services		(297,728)		(53,651)
Projected benefit obligation at end of year	$	-	$	-

		Pension Plans		Other Post Retirement Benefit Plan
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	195,511	$	-
Effect of eliminating early measurement date		-		-
Employer contributions		6,500		2,095
Other		1,547		-
Actual return on plan assets		49,375		-
Benefits paid		(11,066)		(2,095)
Transfer to Sun Life Services		(241,867)		-
Fair value of plan assets at end of year	$	-	$	-

		Pension Plans		Other Post Retirement Benefit Plan
Information on the funded status of the plan:
Funded status	$	-	$	-
Accrued benefit cost	$	-	$	-

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, 2011, 2010 and 2009

9. 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 the Other Post-Retirement Benefit Plan for the year ended December 31:

	Pension Plans		Other Post Retirement Benefit Plan
	2009		2009
Components of net periodic cost (benefit):
Service cost	$	2,597	$	1,754
Interest cost		17,434		3,218
Expected return on plan assets		(15,111)		-
Amortization of transition obligation asset		(2,093)		-
Amortization of prior service cost (benefit)		337		(529)
Recognized net actuarial loss		2,782		382
Net periodic cost	$	5,946	$	4,825
Company's share of net periodic cost	$	5,946	$	3,926

For the year ended December 31, 2011, Sun Life Services allocated costs to the Company of $1.2 million and $4.4 million for the Pension Plans and Other Post-Retirement Benefit Plan, respectively.  For the year ended December 31, 2010, Sun Life Services allocated costs to the Company of $3.1 million and $4.4 million for the Pension Plans and Other Post-Retirement Benefit Plan, respectively.

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

	Pension Plans		Other Post Retirement Benefit Plan
	2009		2009
Net actuarial (gain) loss arising during the year	$	(16,402)	$	2,344
Net actuarial (loss) gain recognized during the year		(2,782)		(382)
Prior service cost arising during the year		-		(803)
Prior service cost recognized during the year		(337)		529
Transition asset recognized during the year		2,093		-
Transition asset arising during the year		-		-
Total recognized in AOCI		(17,428)		1,688
Tax effect		6,100		(591)
Total recognized in AOCI, net of tax	$	(11,328)	$	1,097
Total recognized in net periodic (benefit) cost and      other comprehensive (loss) income, net of tax	$	(7,463)	$	3,648

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, 2011, 2010 and 2009

9. RETIREMENT PLANS (CONTINUED)

Effective December 31, 2009, the Company transferred to Sun Life Services the following AOCI related to the Pension Plans and the Other Post-Retirement Benefit Plan:

	Pension Plans		Other Post  Retirement Benefit Plan		Total
Transfer of actuarial loss to affiliate	$	(67,343)	$	(7,525)	$	(74,868)
Transfer of prior service (cost)/credit to affiliate		(3,772)		4,164		392
Transfer of transition asset to affiliate		1,495		-		1,495
Total AOCI transferred to affiliate		(69,620)		(3,361)		(72,981)
Tax effect		24,367		1,176		25,543
Total AOCI, net of tax, transferred to affiliate	$	(45,253)	$	(2,185)	$	(47,438)

Assumptions

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

	Pension Plans	Other Post Retirement Benefit Plan
	2009	2009
Discount rate	6.10%	6.10%
Rate of compensation increase	3.75%	n/a

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

	Pension Plans	Other Post Retirement Benefit Plan
	2009	2009
Discount rate	6.50%	6.50%
Expected long term return on plan assets	7.75%	n/a
Rate of compensation increase	3.75%	n/a

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

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, 2011, 2010 and 2009

9. RETIREMENT PLANS (CONTINUED)

Cash Flow

The Company contributed $6.5 million and $1.5 million to the staff pension plan and the UBF plan in 2009, respectively.

Savings and Investment Plan

Effective December 31, 2009, Sun Life Services sponsors a savings plan that qualifies under Section 401(k) of the Internal Revenue Code (the“401(k) Plan”) and in which substantially all employees of at least age 21 at date of hire are eligible to participate.  Prior to December 31, 2009, the Company sponsored the 401(k) Plan.  Employee contributions, up to specified amounts, are matched by Sun Life Services under the 401(k) Plan.

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

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

For RIA participants who were at least age 40 on January 1, 2006 and whose age plus service on January 1, 2006 equaled or exceeded 45, the Company contributed to the RIA from January 1, 2006 through December 31, 2009, and Sun Life Services contributes to the RIA from January 1, 2010 through December 31, 2015, a percentage of the participant’s eligible compensation determined under the following chart based on the participant’s age and service on January 1, 2006.

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

The amount of the 2009 employer contributions under the 401(k) Plan for the Company and its affiliates was $25.2 million.  Amounts are allocated to affiliates based upon their respective employees’ contributions.  The Company’s portion of the expense was $14.2 million for the year ended December 31, 2009.  For the years ended December 31, 2011 and 2010, Sun Life Services allocated $16.3 million and $17.4 million to the Company, 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, 2011, 2010 and 2009

10. FEDERAL INCOME TAXES

The Company accounts for current and deferred income taxes in the manner prescribed by FASB ASC Topic 740.  A summary of the components of income tax (benefit) expense in the consolidated statements of operations for the years ended December 31 is as follows:

	2011		2010		2009
Income tax (benefit) expense:
Current	$	(30,769)	$	(78,166)	$	40,092
Deferred		(49,932)		149,377		295,557
Total income tax (benefit) expense related to
continuing operations	$	(80,701)	$	71,211	$	335,649
Total income tax expense related to
discontinued operations	$	-	$	-	$	40,690

Federal income taxes attributable to the Company’s consolidated operations are different from the amounts determined by multiplying income before federal income taxes by the expected federal income tax rate of 35%.  The following is a summary of the differences between the expected income tax (benefit) expense at the prescribed U.S. federal statutory income tax rate and the total amount of income tax (benefit) expense that the Company has recorded.

		2011		2010		2009
Expected federal income tax expense	$	(64,336)	$	71,920	$	424,261
Low income housing tax credits		(1,885)		(2,028)		(3,880)
Separate account dividends received deduction		(14,702)		(14,702)		(16,232)
Prior year adjustments/settlements		(968)		5,243		1,320
Valuation allowance-capital losses		-		-		(69,670)
Goodwill impairment		2,450		11,559		-
Adjustments to tax contingency reserves		-		305		1,605
Other items		(1,265)		(1,358)		(1,949)
Federal income tax (benefit) expense		(80,706)		70,939		335,455
State income tax expense		5		272		194
Total income tax (benefit) expense related to
continuing operations	$	(80,701)	$	71,211	$	335,649
Total income tax expense related to
discontinued operations	$	-	$	-	$	40,690

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, 2011, 2010 and 2009

10. FEDERAL INCOME TAXES (CONTINUED)

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

		2011		2010
Deferred tax assets:
Actuarial liabilities	$	689,286	$	155,285
Tax loss carryforwards		251,591		347,172
Investments, net		79,417		188,110
Goodwill and other impairments		34,573		47,303
Other		15,897		74,218
Gross deferred tax assets		1,070,764		812,088
Valuation allowance		-		-
Total deferred tax assets		1,070,764		812,088
Deferred tax liabilities:
Deferred policy acquisition costs		(622,388)		(417,791)
Total deferred tax liabilities		(622,388)		(417,791)
Net deferred tax asset	$	448,376	$	394,297

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 net deferred tax asset at December 31, 2011 and 2010 was comprised of gross deferred tax assets and gross deferred tax liabilities.  The gross deferred tax asset was primarily related to unrealized investment security losses, actuarial liabilities and net operating loss (“NOL”) carryforwards, as well as a capital loss carryforward generated in 2009.  At December 31, 2011, the Company had $698.9 million of NOL carryforwards and $20.0 million of capital loss carryforward.  At December 31, 2010, the Company had $958.2 million of NOL carryforwards and $33.7 million of capital loss carryforward.  If not utilized, the NOL carryforwards will begin to expire in 2023 and the capital loss carryforward will expire in 2014.  The Company’s net deferred tax asset was $448.4 million and $394.3 million at December 31, 2011 and 2010, 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, 2011, 2010 and 2009

10. FEDERAL INCOME TAXES (CONTINUED)

The Company performs the required recoverability (realizability) test in terms of its ability to realize its recorded net deferred tax asset.  In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.  In projecting future taxable income and sources of capital gains, the Company utilizes historical and current operating results and incorporates assumptions including the amount of future federal and state pre-tax operating income, the reversal of temporary differences, and the implementation of prudent and feasible tax planning strategies.

During the year ended December 31, 2011, no valuation allowance was recorded against the deferred tax asset for investment losses.  The Company believes that it is more likely than not that the deferred tax asset related to impairment losses will be realized due to tax planning strategies related to certain mortgage-backed securities, the Company’s intent and ability to hold the related investment securities to maturity, and other tax planning strategies.  For the remaining unrealized losses, the Company believes that it is more likely than not that the related deferred tax asset will be realized due to the Company’s intent and ability to hold the related investment securities to recovery of amortized cost.

FASB ASC Topic 740 establishes a comprehensive reporting model which addresses how a business entity should recognize, measure, present and disclose uncertain tax positions that the entity has taken or plans to take on a tax return.

The liability for unrecognized tax benefits (“UTBs”) related to permanent and temporary tax adjustments, exclusive of interest, was $32.9 million, $31.2 million and $42.0 million at December 31, 2011, 2010 and 2009, respectively.  Of the $32.9 million, $1.6 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.

The net increase (decreases) in the tax liability for UTBs of $1.7 million, $(10.8) million and $(8.7) million in the years ended December 31, 2011, 2010 and 2009, respectively, resulted from the following:

	2011		2010		2009
Balance at January 1	$	31,217	$	41,989	$	50,679
Gross increases related to tax positions in prior years		13,855		23,214		7,950
Gross decreases related to tax positions in prior years		(4,472)		(16,170)		(16,640)
Settlements		(7,659)		(20,187)		-
Close of tax examinations/statutes of limitations		-		2,371		-
Balance at December 31	$	32,941	$	31,217	$	41,989

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, 2011, 2010 and 2009

10. FEDERAL INCOME TAXES (CONTINUED)

The Company has elected to recognize interest and penalties accrued related to UTBs in interest expense (income).  During the years ended December 31, 2011, 2010 and 2009, the Company recognized $2.6 million, $6.4 million and $(9.0) million, respectively, in gross interest expense (income) related to UTBs.  The Company had approximately $9.2 million and $6.6 million of interest accrued at December 31, 2011 and 2010, respectively.  During 2010, the Company settled interest assessments of $4.6 million with the Internal Revenue Service (the “IRS”) for the 2001 and 2002 tax years.  The Company did not accrue any penalties.

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

The Company files federal income tax returns and income tax returns in various state and local jurisdictions.  With few exceptions, the Company is no longer subject to examinations by the tax authorities in these jurisdictions for tax years before 2003.  In August 2006, the IRS issued a Revenue Agent’s Report for the Company’s 2001 and 2002 tax years.  The Company disagreed with some of the proposed adjustments, filed a protest, and the case was assigned to the Appeals division of the IRS (“Appeals”).  A settlement was reached and formally approved by the Company on January 11, 2010.   The effects of the settlement are in line with previous expectations and had no material impact on the Company’s consolidated financial statements.

On August 4, 2011, the IRS held an Opening Conference with the Company for the audit of the tax years 2007-2009.  The Company is in the process of responding to the IRS requests for information. The Company also provided a disclosure letter to the IRS on September 21, 2011, informing the IRS of potential issues in the tax years under audit.

On January 6, 2011, the IRS issued a Revenue Agent’s Report for the Company for tax years 2005 and 2006.  The Company disagrees with some of the issues and is in the process of filing a protest.  While the final outcome of the appeal and ongoing tax examinations is not determinable, the Company has adequate liabilities accrued and does not believe that any adjustments would be material to its financial position.

In October 2008, the IRS issued a Revenue Agent’s Report for the Company’s tax years 2003 and 2004.  The Company disagreed with some of the adjustments and filed a protest, which was assigned to Appeals in 2009.  On May 27, 2010, the IRS held an opening conference for the 2003 and 2004 Appeals.  The Company is involved in discussions with the IRS to reach a resolution.

The Company will file a consolidated federal income tax return with SLC – U.S. Ops Holdings for the  year ended December 31, 2011, as the Company did for the years ended December 31, 2010 and 2009.

Effective December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of Sun Life Vermont to the Parent.  Sun Life Vermont continues to be included in the consolidated federal income tax return of the Parent after 2009.

The Company makes or receives payments under certain tax sharing agreements with SLC – U.S. Ops Holdings.  Under these agreements, such payments are determined based upon 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.  Under the terms of the tax sharing agreements, deferred tax assets for tax attributes are realized by the Company when the tax attributes are utilized by the consolidated group.  The Company received income tax refunds of $21.0 million and $107.1 million in 2011 and 2010, respectively, and made income tax payments of $21.1 million in 2009.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

11. 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 and its subsidiaries’ group life, group disability insurance, group dental and group stop loss products is summarized below:

			2011		2010		2009
Balance at January 1		$	76,181	$	72,953	$	71,316
Less: reinsurance recoverable			(7,316)		(5,710)		(5,347)
Net balance at January 1			68,865		67,243		65,969
Incurred related to:
	Current year		73,573		83,384		86,905
	Prior years		468		(1,823)		(5,817)
Total incurred			74,041		81,561		81,088
Paid losses related to:
	Current year		(46,861)		(54,312)		(58,598)
	Prior years		(22,618)		(25,627)		(21,216)
Total paid			(69,479)		(79,939)		(79,814)
Balance at December 31			80,594		76,181		72,953
Less: reinsurance recoverable			(7,167)		(7,316)		(5,710)
Net balance at December 31		$	73,427	$	68,865	$	67,243

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 expenses increased (decreased) by $0.5 million, $(1.8) million and $(5.8) million, during the years ended December 31, 2011, 2010 and 2009, 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, 2011, 2010 and 2009

12. LIABILITIES FOR CONTRACT GUARANTEES

The Company offers various guarantees to certain policyholders, including a return of no less than (a) total deposits made on the contract, adjusted for any customer withdrawals, (b) total deposits made on the contract, adjusted for any customer withdrawals, plus a minimum return, or (c) the highest contract value on a specified anniversary date, minus any customer withdrawals following the contract anniversary.  These guarantees include benefits that are payable in the event of death, upon annuitization, or at specified dates during the accumulation period of an annuity.

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2011:

Benefit Type	Account Balance		Net Amount at Risk (1)		Average Attained Age
Minimum death	$	20,437,429	$	2,074,633	66.1
Minimum income	$	134,076	$	64,600	63.0
Minimum accumulation or withdrawal	$	13,633,969	$	841,197	63.7

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2010:

Benefit Type	Account Balance		Net Amount at Risk (1)		Average Attained Age
Minimum death	$	20,061,043	$	1,742,139	66.0
Minimum income	$	179,878	$	59,322	62.2
Minimum accumulation or withdrawal	$	12,233,731	$	152,571	63.2

(1)Net amount at risk represents the excess of the guaranteed benefits over account balance for contracts that have an account value less than the guarantee.

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, 2011, 2010 and 2009

12. LIABILITIES FOR CONTRACT GUARANTEES (CONTINUED)

The following roll-forward summarizes the change in reserve for the Company’s GMDBs and GMIBs for the year ended December 31, 2011:

		Guaranteed Minimum Death Benefit		Guaranteed Minimum Income Benefit		Total
Balance at January 1, 2011		$	123,605	$	14,630	$	138,235
Benefit Ratio Change /
	Assumption Changes		23,491		4,443		27,934
Incurred guaranteed benefits			27,116		1,257		28,373
Paid guaranteed benefits			(39,513)		(1,155)		(40,668)
Interest			9,072		916		9,988
Balance at December 31, 2011		$	143,771	$	20,091	$	163,862

The following roll-forward summarizes the change in reserve for the Company’s GMDBs and GMIBs for the year ended December 31, 2010:

		Guaranteed Minimum Death Benefit		Guaranteed Minimum Income Benefit		Total
Balance at January 1, 2010		$	96,267	$	10,058	$	106,325
Benefit Ratio Change /
	Assumption Changes		28,724		6,519		35,243
Incurred guaranteed benefits			28,481		1,434		29,915
Paid guaranteed benefits			(37,767)		(4,207)		(41,974)
Interest			7,900		826		8,726
Balance at December 31, 2010		$	123,605	$	14,630	$	138,235

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 a projection model and stochastic scenarios.  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-calculated and adjusted regularly.  Changes to the liability balance are recorded as a charge or credit to policyowner 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, 2011, 2010 and 2009

12. LIABILITIES FOR CONTRACT GUARANTEES (CONTINUED)

GMABs and GMWBs are considered to be derivatives under FASB ASC Topic 815 and are recorded at fair value through earnings.  The Company records GMAB and GMWB assets or liabilities in its consolidated balance sheets as part of contractholder deposit funds and other policy liabilities.  The net balance of GMABs and GMWBs constituted a liability in the amount of $1,286.8 million and $2.3 million at December 31, 2011 and 2010, respectively.  The Company includes the following unobservable inputs in its calculation of the embedded derivative:

Actively-Managed Volatility Adjustments – This component incorporates the basis differential between the observable implied volatilities for each index and the actively-managed funds underlying the variable annuity product.  The adjustment is based upon 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 upon the published credit spread for A-rated corporate bonds, which have ratings that are equivalent 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.

13. DEFERRED POLICY ACQUISITION COSTS AND SALES INDUCEMENT ASSET

The following roll-forward summarizes the change in DAC asset and SIA for the years ended December 31:

		2011		2010
Balance at January 1	$	1,682,559	$	2,173,642
Acquisition costs deferred		244,659		241,182
Amortized to expense during the year  (1)		279,668		(732,265)
Balance at December 31	$	2,206,886	$	1,682,559

(1) Includes interest, unlocking and loss recognition.

Refer to Note 1 of the Company’s consolidated financial statements for information regarding the deferral and amortization methodologies related to DAC asset and SIA.  The Company tested its DAC asset and SIA for future recoverability and determined that the assets were not impaired at December 31, 2011.

During the year ended December 31, 2011, the Company recorded a negative amortization increasing its DAC asset and SIA by $770.2 million.  The negative amortization related to a decrease in actual gross profit which was due to a $1.3 billion increase in the fair value of GMAB and GMWB liabilities related to certain variable annuity products.  The increase in DAC asset and SIA was offset by an unlocking adjustment decreasing DAC asset and SIA by $575.2 million.  The unlocking adjustment recorded in 2011 was due to the total present value of the gross profit for the largest cohort of the Company’s fixed annuities, which was negative at December 31, 2011 resulting in decrease in DAC asset and SIA.

The Company wrote down DAC asset and SIA by $21.0 million and $126.0 million as a result of loss recognition related to certain annuity products for the years ended December 31, 2011 and 2010, respectively.  Of the $21.0 million charge for loss recognition in 2011, $18.3 million related to DAC and was reported as amortization of DAC.  The remaining $2.7 million related to SIA and was reported as a component of interest credited in the Company’s consolidated statement of operations.  Of the $126.0 million charge for loss recognition in 2010, $117.7 million related to DAC and was reported as amortization of DAC.  The remaining $8.3 million related to SIA and was reported as a component of interest credited in the Company’s consolidated statement 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, 2011, 2010 and 2009

14. VALUE OF BUSINESS AND CUSTOMER RENEWALS ACQUIRED

The following roll-forward summarizes the change in VOBA and VOCRA for the years ended December 31:

	2011		2010
Balance at January 1	$	134,985	$	168,845
Amortized to expense during the year		(28,898)		(33,860)
Balance at December 31	$	106,087	$	134,985

Refer to Note 1 of the Company’s consolidated financial statements for information regarding the amortization methodologies related to VOBA and VOCRA.  The Company tested its VOBA and VOCRA assets for future recoverability and determined that the assets were not impaired at December 31, 2011.

The Company tested the VOCRA asset for impairment in the fourth quarter of 2009 and determined that the fair value was lower than its carrying value.  Accordingly, the Company decreased the carrying value of VOCRA and recorded an impairment charge of $2.6 million for the year ended December 31, 2009.  The impairment charge is included in amortization expense in the consolidated statements of operations and is allocated in the Group Protection segment.

15. CONSOLIDATING FINANCIAL INFORMATION

The following consolidating financial statements are provided in compliance with Regulation S-X of the SEC and in accordance with SEC Rule 12h-5.

The products of the Company’s wholly-owned subsidiary, SLNY, include, 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 fixed investment option period related to Contracts currently in-force or sold on or after that date.  The guarantee relieved 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 standalone 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, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations

For the Year Ended December 31, 2011

		SLUS as Parent	SLNY		Other Subs		Eliminations & Reclassification		Consolidated Company
Revenues
Premiums and annuity considerations	$	20,524	$	116,896	$	-	$	-	$	137,420
Net investment income (1)		608,647		115,412		3,569		-		727,628
Net derivative loss		(873,518)		(114,552)		-		-		(988,070)
Net realized investment gains (losses), excluding impairment losses on available-for- sale securities		35,284		5,328		(1,034)		-		39,578
Other-than-temporary impairment losses (2)		(71)		-		-		-		(71)
Fee and other income		565,075		42,276		13,889		(12,829)		608,411
Total revenues		355,941		165,360		16,424		(12,829)		524,896
Benefits and Expenses
Interest credited		370,024		53,074		1,110		-		424,208
Interest expense		47,170		-		-		-		47,170
Policyowner benefits		66,426		67,733		253		-		134,412
Amortization of DAC, VOBA and VOCRA		(214,767)		(32,634)		-		-		(247,401)
Other operating expenses		298,518		51,234		13,402		(12,829)		350,325
Total benefits and expenses		567,371		139,407		14,765		(12,829)		708,714
(Loss) income before income tax (benefit) expense		(211,430)		25,953		1,659		-		(183,818)
Income tax (benefit) expense		(89,089)		7,947		441		-		(80,701)
Equity in the net income of subsidiaries		19,224		-		-		(19,224)		-
Net (loss) income	$	(103,117)	$	18,006	$	1,218	$	(19,224)	$	(103,117)

(1) SLUS as Parent’s and SLNY’s net investment income includes an increase in market value of trading investments of $152.4 million and $34.2 million, respectively, for the year ended December 31, 2011.  Other Subs’ net investment income does not include trading investments.

(2) SLUS as Parent’s and SLNY’s OTTI losses for the year ended December 31, 2011 represent impairments related to credit loss.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations

For the Year Ended December 31, 2010

	SLUS as Parent		SLNY		Other Subs		Eliminations & Reclassification		Consolidated Company
Revenues
Premiums and annuity considerations	$	16,680	$	119,495	$	-	$	-	$	136,175
Net investment income (1)		1,269,106		118,138		2,966		-		1,390,210
Net derivative (loss) income		(161,975)		12,685		-		-		(149,290)
Net realized investment gains (losses), excluding impairment losses on available-for-sale securites		26,848		827		(724)		-		26,951
Other-than-temporary impairment losses (2)		(735)		(150)		-		-		(885)
Fee and other income		481,606		19,433		9,988		-		511,027
Total revenues		1,631,530		270,428		12,230		-		1,914,188
Benefits and Expenses
Interest credited		342,977		57,924		947		-		401,848
Interest expense		51,334		455		-		-		51,789
Policyowner benefits		161,979		77,590		225		-		239,794
Amortization of DAC, VOBA and VOCRA		606,896		90,206		-		-		697,102
Other operating expenses		268,798		39,938		9,434		-		318,170
Total benefits and expenses		1,431,984		266,113		10,606		-		1,708,703
Income before income tax expense		199,546		4,315		1,624		-		205,485
Income tax expense		69,993		643		575		-		71,211
Equity in the net income of subsidiaries		4,721		-		-		(4,721)		-
Net income	$	134,274	$	3,672	$	1,049	$	(4,721)	$	134,274

(1) SLUS as Parent’s and SLNY’s net investment income includes an increase in market value of trading investments of $640.2 million, and $34.0 million, respectively, for the year ended December 31, 2010.  Other Subs’ net investment income does not include trading investments.

(2) SLUS as Parent’s and SLNY’s OTTI losses for the year ended December 31, 2010 represent impairments related to credit loss.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Operations

For the Year Ended December 31, 2009

	SLUS as Parent		SLNY		Other Subs		Eliminations & Reclassification		Consolidated Company
Revenues
Premiums and annuity considerations	$	14,374	$	119,872	$	-	$	-	$	134,246
Net investment income (1)		2,345,022		233,216		4,069		-		2,582,307
Net derivative (loss) income		(62,600)		22,698		-		-		(39,902)
Net realized investment losses, excluding impairment losses on available-for-sale securites		(30,129)		(2,815)		(3,731)		-		(36,675)
Other-than-temporary impairment losses (2)		(4,450)		(181)		(203)		-		(4,834)
Fee and other income		375,570		5,103		5,163		-		385,836
Total revenues		2,637,787		377,893		5,298		-		3,020,978
Benefits and Expenses
Interest credited		336,754		47,855		1,159		-		385,768
Interest expense		39,035		745		-		-		39,780
Policyowner benefits		36,409		78,231		(4,201)		-		110,439
Amortization of DAC, VOBA and VOCRA		917,129		107,532		-		-		1,024,661
Other operating expenses		201,205		42,368		4,583		-		248,156
Total benefits and expenses		1,530,532		276,731		1,541		-		1,808,804
Income before income tax expense		1,107,255		101,162		3,757		-		1,212,174
Income tax expense		305,150		29,650		849		-		335,649
Equity in the net income of subsidiaries		179,391		-		-		(179,391)		-
Net income from continuing operations		981,496		71,512		2,908		(179,391)		876,525
Income from discontinued operations, net of tax		-		-		104,971		-		104,971
Net income	$	981,496	$	71,512	$	107,879	$	(179,391)	$	981,496

(1) SLUS as Parent’s, SLNY’s and Other Subs’ net investment income includes an increase in market value of trading investments of $1,913.3 million, $173.4 million and $0.0 million, respectively, for the year ended December 31, 2009.

(2) SLUS as Parent’s, SLNY’s and Other Subs’ OTTI losses for the year ended December 31, 2009 represent impairments related to credit loss.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Balance Sheets at December 31, 2011

	SLUS as  Parent		SLNY		Other Subs		Eliminations & Reclassifications		Consolidated Company
ASSETS
Investments
Available-for-sale fixed maturity securities, at fair value	$	1,092,686	$	239,776	$	70,063	$	-	$	1,402,525
Trading fixed maturity securities, at fair value		8,633,690		1,646,846		-		-		10,280,536
Mortgage loans		1,269,140		153,987		34,229		-		1,457,356
Derivative instruments – receivable		422,404		-		-		-		422,404
Limited partnerships		34,088		-		-		-		34,088
Real estate		192,166		-		31,648		-		223,814
Policy loans		582,080		1,116		20,175		-		603,371
Other invested assets		32,735		4,340		-		-		37,075
Short-term investments		104,895		1,000		-		-		105,895
Cash and cash equivalents		793,146		63,168		15,750		-		872,064
Investment in subsidiaries		592,180		-		-		(592,180)		-
Total investments and cash		13,749,210		2,110,233		171,865		(592,180)		15,439,128
Accrued investment income		146,021		21,994		1,746		-		169,761
Deferred policy acquisition costs and sales inducement asset		2,038,342		168,544		-		-		2,206,886
Value of business and customer renewals acquired		102,670		3,417		-		-		106,087
Net deferred tax asset		437,558		7,391		3,427		-		448,376
Goodwill		-		7,299		-		-		7,299
Receivable for investments sold		4,589		503		-		-		5,092
Reinsurance receivable		2,061,777		175,928		101		-		2,237,806
Other assets		90,384		28,103		1,194		(356)		119,325
Separate account assets		26,082,352		1,365,026		36,412		-		27,483,790
Total assets	$	44,712,903	$	3,888,438	$	214,745	$	(592,536)	$	48,223,550
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	11,981,712	$	1,620,152	$	24,661	$	-	$	13,626,525
Future contract and policy benefits		775,812		133,924		296		-		910,032
Payable for investments purchased		690		40		-		-		730
Accrued expenses and taxes		41,202		8,594		427		(356)		49,867
Debt payable to affiliates		683,000		-		-		-		683,000
Reinsurance payable		1,848,776		251,311		37		-		2,100,124
Derivative instruments – payable		287,074		-		-		-		287,074
Other liabilities		269,518		55,279		14,844		-		339,641
Separate account liabilities		26,082,352		1,365,026		36,412		-		27,483,790
Total liabilities		41,970,136		3,434,326		76,677		(356)		45,480,783
STOCKHOLDER’S EQUITY
Common stock	$	6,437	$	2,100	$	2,542	$	(4,642)	$	6,437
Additional paid-in capital		3,629,228		389,963		113,397		(503,360)		3,629,228
Accumulated other comprehensive income		38,851		9,655		3,446		(13,101)		38,851
(Accumulated deficit) retained earnings		(931,749)		52,394		18,683		(71,077)		(931,749)
Total stockholder’s equity		2,742,767		454,112		138,068		(592,180)		2,742,767
Total liabilities and stockholder’s equity	$	44,712,903	$	3,888,438	$	214,745	$	(592,536)	$	48,223,550

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, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Balance Sheets at December 31, 2010

	SLUS as Parent		SLNY		Other Subs		Eliminations & Reclassification		Consolidated Company
ASSETS
Investments
Available-for-sale fixed maturity securities, at fair value	$	1,193,875	$	246,944	$	55,104	$	-	$	1,495,923
Trading fixed maturity securities, at fair value		9,911,284		1,555,834		-		-		11,467,118
Mortgage loans		1,531,545		176,518		29,465		-		1,737,528
Derivative instruments – receivable		198,064		-		-		-		198,064
Limited partnerships		41,622		-		-		-		41,622
Real estate		161,800		-		52,865		-		214,665
Policy loans		695,607		1,217		20,584		-		717,408
Other invested assets		19,588		7,868		-		-		27,456
Short-term investments		813,745		18,994		-		-		832,739
Cash and cash equivalents		647,579		72,978		15,766		-		736,323
Investment in subsidiaries		559,344		-		-		(559,344)		-
Total investments and cash		15,774,053		2,080,353		173,784		(559,344)		17,468,846
Accrued investment income		165,841		21,130		1,815		-		188,786
Deferred policy acquisition costs and sales inducement asset		1,571,768		110,791		-		-		1,682,559
Value of business and customer renewals acquired		130,546		4,439		-		-		134,985
Net deferred tax asset		378,078		12,057		4,162		-		394,297
Goodwill		-		7,299		-		-		7,299
Receivable for investments sold		5,166		162		-		-		5,328
Reinsurance receivable		2,184,487		162,522		77		-		2,347,086
Other assets		93,755		31,729		2,918		(2,873)		125,529
Separate account assets		25,573,382		1,265,464		41,575		-		26,880,421
Total assets	$	45,877,076	$	3,695,946	$	224,331	$	(562,217)	$	49,235,136
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	12,991,306	$	1,577,556	$	24,366	$	-	$	14,593,228
Future contract and policy benefits		732,368		116,946		200		-		849,514
Payable for investments purchased		44,723		104		-		-		44,827
Accrued expenses and taxes		49,224		4,612		1,665		(2,873)		52,628
Debt payable to affiliates		783,000		-		-		-		783,000
Reinsurance payable		1,995,083		236,718		34		-		2,231,835
Derivative instruments – payable		362,023		-		-		-		362,023
Other liabilities		193,363		66,118		25,575		-		285,056
Separate account liabilities		25,573,382		1,265,464		41,575		-		26,880,421
Total liabilities		42,724,472		3,267,518		93,415		(2,873)		46,082,532
STOCKHOLDER’S EQUITY
Common stock		6,437		2,100		2,542		(4,642)		6,437
Additional paid-in capital		3,928,246		389,963		108,450		(498,413)		3,928,246
Accumulated other comprehensive income		46,553		1,977		1,707		(3,684)		46,553
(Accumulated deficit) retained earnings		(828,632)		34,388		18,217		(52,605)		(828,632)
Total stockholder’s equity		3,152,604		428,428		130,916		(559,344)		3,152,604
Total liabilities and stockholder’s equity	$	45,877,076	$	3,695,946	$	224,331	$	(562,217)	$	49,235,136

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, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2011

	SLUS as Parent		SLNY			Other  Subs			Eliminations & Reclassification			Consolidated Company
Cash Flows From Operating Activities:
Net (loss) income	$	(103,117)		$	18,006		$	1,218		$	(19,224)		$	(103,117)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Net amortization of premiums on investments		39,398			7,170			1,040			-			47,608
Amortization of DAC, VOBA and VOCRA		(214,767)			(32,634)			-			-			(247,401)
Depreciation and amortization		8,860			311			841			-			10,012
Net losses on derivatives		846,426			114,552			-			-			960,978
Net realized (gains) losses and OTTI credit losses on available-for-sale investments		(35,213)			(5,328)			1,034			-			(39,507)
Net increase in fair value of trading investments		(152,403)			(34,163)			-			-			(186,566)
Net realized losses (gains) on trading investments		100,143			(5,503)			-			-			94,640
Undistributed income on private equity limited partnerships		(2,883)			-			-			-			(2,883)
Interest credited to contractholder deposits		370,024			53,074			1,110			-			424,208
Deferred federal income taxes		(50,262)			532			(202)			-			(49,932)
Equity in net income of subsidiaries		(19,224)			-			-			19,224			-
Changes in assets and liabilities:
Additions to DAC, SIA, VOBA and VOCRA		(206,151)			(18,963)			-			-			(225,114)
Accrued investment income		19,820			(864)			69			-			19,025
Net change in reinsurance receivable/payable		63,424			6,108			(21)			-			69,511
Future contract and policy benefits		43,444			16,978			96			-			60,518
Other, net		(20,765)			338			(11,705)			-			(32,132)
Net cash provided by (used in) operating activities		686,754			119,614			(6,520)			-			799,848
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturity securities		575,842			107,561			25,548			-			708,951
Trading fixed maturity securities		2,803,484			332,972			-			-			3,136,456
Mortgage loans		222,227			23,303			8,069			-			253,599
Real estate		745			2,313			67			(2,313)			812
Other invested assets		112,679			2,971			-			-			115,650
Purchases of:
Available-for-sale fixed maturity securities		(443,343)			(82,300)			(35,499)			-			(561,142)
Trading fixed maturity securities		(1,558,387)			(390,072)			-			-			(1,948,459)
Mortgage loans		(10,363)			(3,750)			(932)			-			(15,045)
Real estate		(5,415)			-			(1,637)			2,313			(4,739)
Other invested assets		(70,295)			(975)			-			-			(71,270)
Net change in policy loans		6,369			101			409			-			6,879
Net change in short-term investments		708,850			17,994			-			-			726,844
Net cash provided by investing activities	$	2,342,393		$	10,118		$	(3,975)		$	-		$	2,348,536

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, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flows (continued)

For the Year Ended December 31, 2011

	SLUS as Parent		SLNY		Other  Subs		Eliminations & Reclassification		Consolidated Company
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	915,078	$	114,792	$	-	$	-	$	1,029,870
Withdrawals from contractholder deposit funds		(3,385,603)		(244,743)		(815)		-		(3,631,161)
Repayment of debt		(100,000)		-		-		-		(100,000)
Capital contribution to subsidiaries		(11,114)		-		-		11,114		-
Return of capital from subsidiaries		-		-		-		-		-
Capital contribution from SLUS as Parent		-		-		11,114		(11,114)		-
Return of capital to Parent		(300,000)		-		-		-		(300,000)
Return of capital to SLUS as Parent		-		-		-		-		-
Other, net		(1,941)		(9,591)		180		-		(11,352)
Net cash (used in) provided by financing activities		(2,883,580)		(139,542)		10,479		-		(3,012,643)
Net change in cash and cash equivalents		145,567		(9,810)		(16)		-		135,741
Cash and cash equivalents, beginning of period		647,579		72,978		15,766		-		736,323
Cash and cash equivalents, end of period	$	793,146	$	63,168	$	15,750	$	-	$	872,064

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, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2010

		SLUS as Parent	SLNY		Other  Subs		Eliminations & Reclassification		Consolidated Company
Cash Flows From Operating Activities:
Net income	$	134,274	$	3,672	$	1,049	$	(4,721)	$	134,274
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums on investments		24,690		4,787		1,085		-		30,562
Amortization of DAC, VOBA and VOCRA		606,896		90,206		-		-		697,102
Depreciation and amortization		4,418		312		953		-		5,683
Net loss (gain) on derivatives		54,168		(12,685)		-		-		41,483
Net realized (gains) losses and OTTI credit losses on available-for-sale investments		(26,113)		(677)		724		-		(26,066)
Net increase in fair value of trading investments		(640,222)		(34,001)		-		-		(674,223)
Net realized losses (gains) on trading investments		80,910		(13,633)		-		-		67,277
Undistributed loss on private equity limited partnerships		2,339		-		-		-		2,339
Interest credited to contractholder deposits		342,977		57,924		947		-		401,848
Deferred federal income taxes		158,398		(8,928)		(93)		-		149,377
Equity in net income of subsidiaries		(4,721)		-		-		4,721		-
Changes in assets and liabilities:
Additions to DAC, SIA, VOBA and VOCRA		(167,199)		(17,796)		-		-		(184,995)
Accrued investment income		45,884		(4,079)		-		-		41,805
Net change in reinsurance receivable/payable		124,563		5,328		16		-		129,907
Future contract and policy benefits		16,192		17,691		(7)		-		33,876
Other, net		(24,455)		42,324		(838)		-		17,031
Net cash provided by operating activities		732,999		130,445		3,836		-		867,280
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturity securities		402,623		79,623		15,841		-		498,087
Trading fixed maturity securities		3,395,725		775,025		-		-		4,170,750
Mortgage loans		263,612		13,107		3,050		(30,486)		249,283
Real estate		-		1,000		2,010		(3,010)		-
Other invested assets		(317,388)		1,244		501		-		(315,643)
Purchases of:
Available-for-sale fixed maturity securities		(602,891)		(152,468)		(16,388)		-		(771,747)
Trading fixed maturity securities		(3,060,145)		(886,403)		-		-		(3,946,548)
Mortgage loans		(66,252)		(34,190)		(31,712)		30,486		(101,668)
Real estate		(6,818)		-		(1,066)		3,010		(4,874)
Other invested assets		(63,798)		(1,200)		-		-		(64,998)
Net change in policy loans		5,367		(947)		762		-		5,182
Net change in short-term investments		394,575		39,997		-		-		434,572
Net cash provided by (used in) investing activities	$	344,610	$	(165,212)	$	(27,002)	$	-	$	152,396

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, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flows (continued)

For the Year Ended December 31, 2010

	SLUS as Parent		SLNY		Other  Subs		Eliminations & Reclassification		Consolidated Company
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	1,043,300	$	173,714	$	-	$	-	$	1,217,014
Withdrawals from contractholder deposit funds		(3,354,527)		(248,878)		(2,930)		-		(3,606,335)
Repayment of debt		(100,000)		-		-		-		(100,000)
Capital contribution to subsidiaries		(30,041)		-		-		30,041		-
Capital contribution from Parent		400,000		-		30,041		(30,041)		400,000
Other, net		(5,753)		7,587		(74)		-		1,760
Net cash (used in) provided by financing activities		(2,047,021)		(67,577)		27,037		-		(2,087,561)
Net change in cash and cash equivalents		(969,412)		(102,344)		3,871		-		(1,067,885)
Cash and cash equivalents, beginning of period		1,616,991		175,322		11,895		-		1,804,208
Cash and cash equivalents, end of period	$	647,579	$	72,978	$	15,766	$	-	$	736,323

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, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2009

	SLUS as Parent		SLNY		Other  Subs		Eliminations & Reclassification		Consolidated Company
Cash Flows From Operating Activities:
Net income from operations	$	981,496	$	71,512	$	107,879	$	(179,391)	$	981,496
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net (accretion) amortization of premiums on investments		(203)		(605)		119		-		(689)
Amortization of DAC, VOBA and VOCRA		917,129		107,532		-		-		1,024,661
Depreciation and amortization		4,355		337		843		-		5,535
Net gain on derivatives		(73,343)		(22,698)		-		-		(96,041)
Net realized losses and OTTI credit losses on available-for-sale investments		34,579		2,996		3,934		-		41,509
Net increase in fair value of trading investments		(1,913,351)		(173,389)		-		-		(2,086,740)
Net realized losses on trading investments		357,470		9,867		-		-		367,337
Undistributed loss on private equity limited partnerships		9,207		-		-		-		9,207
Interest credited to contractholder deposits		336,754		47,855		1,159		-		385,768
Equity in net income of subsidiaries		(179,391)		-		-		179,391		-
Deferred federal income taxes		290,478		6,256		(1,126)		-		295,608
Changes in assets and liabilities:
Additions to DAC, SIA, VOBA and VOCRA		(301,255)		(45,645)		-		-		(346,900)
Accrued investment income		38,445		(1,825)		116		-		36,736
Net change in reinsurance receivable/payable		195,092		19,060		(4,515)		-		209,637
Future contract and policy benefits		(131,052)		5,280		(220)		-		(125,992)
Dividends received from subsidiaries		100,000		-		-		(100,000)		-
Other, net		(90,229)		(153,878)		738		-		(243,369)
Adjustment related to discontinued operations		-		-		(288,018)		-		(288,018)
Net cash provided by (used in) operating activities		576,181		(127,345)		(179,091)		(100,000)		169,745
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturity securities		86,619		21,303		5,556		-		113,478
Trading fixed maturity securities		1,673,886		333,236		98,233		(8,301)		2,097,054
Mortgage loans		149,414		12,456		15		(18,392)		143,493
Real estate		-		-		-		-		-
Other invested assets		(209,135)		1,587		-		-		(207,548)
Purchases of:
Available-for-sale fixed maturity securities		(342,313)		(4,515)		(311)		-		(347,139)
Trading fixed maturity securities		(226,389)		(587,134)		(62,088)		8,301		(867,310)
Mortgage loans		(12,602)		(4,875)		(18,433)		18,392		(17,518)
Real estate		(3,819)		-		(883)		-		(4,702)
Other invested assets		(106,277)		-		-		-		(106,277)
Net change in other investments		(178,590)		(4,922)		-		-		(183,512)
Net change in policy loans		3,574		(114)		3,357		-		6,817
Net change in short-term investments		(739,502)		56,978		(40,297)		-		(722,821)
Net cash provided by (used in) investing activities	$	94,866	$	(176,000)	$	(14,851)	$	-	$	(95,985)

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

15. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Consolidating Statements of Cash Flows (continued)

For the Year Ended December 31, 2009

	SLUS as Parent		SLNY		Other  Subs		Eliminations & Reclassification		Consolidated Company
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	2,298,455	$	473,137	$	24,347	$	-	$	2,795,939
Withdrawals from contractholder deposit funds		(2,752,493)		(252,351)		(6,655)		-		(3,011,499)
Capital contribution to subsidiaries		(58,910)		-		-		58,910		-
Debt proceeds		-		-		200,000		-		200,000
Capital contribution from parent		748,652		-		58,910		(58,910)		748,652
Dividends paid to SLUS as Parent		-		-		(100,000)		100,000		-
Other, net		(23,278)		(4,108)		74		-		(27,312)
Net cash provided by financing activities		212,426		216,678		176,676		100,000		705,780
Net change in cash and cash equivalents		883,473		(86,667)		(17,266)		-		779,540
Cash and cash equivalents, beginning of period		733,518		261,989		29,161		-		1,024,668
Cash and cash equivalents, end of period	$	1,616,991	$	175,322	$	11,895	$	-	$	1,804,208

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

16. 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 includes 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.  In addition, the Company consolidates certain VIEs as a component of the Wealth Management segment.  Refer to Note 4 for further discussion of the VIE that is consolidated in the Company’s consolidated financial statements.  Effective January 1, 2010, the Company discontinued the sales of certain of its fixed and fixed index annuity products.  Effective December 30, 2011, the Company discontinued new sales of its variable annuity products.  Refer to Note 1 for further details.

Individual Protection

The Individual Protection segment includes a variety of life insurance products sold to individuals and corporate owners of life insurance.  The products include whole life, UL and variable life products.  The Company discontinued the sales of its individual life products and its corporate-owned life insurance effective December 30, 2011 and January 31, 2012, respectively.  Refer to Note 1 for further details.

Group Protection

The Group Protection segment includes 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 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, 2011, 2010 and 2009

16. SEGMENT INFORMATION (CONTINUED)

The following amounts pertain to the Company’s four segments:

Year ended December 31, 2011
	Wealth		Individual		Group
	Management		Protection		Protection		Corporate		Totals
Total revenues	$	312,953	$	78,961	$	124,677	$	8,305	$	524,896
Total benefits and expenses		491,572		89,404		106,912		20,826		708,714
(Loss) income before income
tax (benefit) expense		(178,619)		(10,443)		17,765		(12,521)		(183,818)
Net (loss) income	$	(98,818)	$	(6,558)	$	11,579	$	(9,320)	$	(103,117)
Separate account assets	$	20,221,425	$	7,262,365	$	-	$	-	$	27,483,790
General account assets		17,688,786		2,278,730		182,603		589,641		20,739,760
Total assets	$	37,910,211	$	9,541,095	$	182,603	$	589,641	$	48,223,550
Year ended December 31, 2010
	Wealth		Individual		Group
	Management		Protection		Protection		Corporate		Totals
Total revenues	$	1,760,979	$	66,425	$	127,104	$	(40,320)	$	1,914,188
Total benefits and expenses		1,514,754		68,585		106,346		19,018		1,708,703
Income (loss) before income
tax expense (benefit)		246,225		(2,160)		20,758		(59,338)		205,485
Net income (loss)	$	162,975	$	(1,204)	$	13,508	$	(41,005)	$	134,274
Separate account assets	$	19,685,774	$	7,194,647	$	-	$	-	$	26,880,421
General account assets		19,453,702		2,067,064		181,482		652,467		22,354,715
Total assets	$	39,139,476	$	9,261,711	$	181,482	$	652,467	$	49,235,136

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, 2011, 2010 and 2009

16. SEGMENT INFORMATION (CONTINUED)

Year ended December 31, 2009
	Wealth		Individual		Group
	Management		Protection		Protection		Corporate		Totals
Total revenues	$	2,823,029	$	71,718	$	135,242	$	(9,011)	$	3,020,978
Total benefits and expenses		1,623,582		40,477		119,134		25,611		1,808,804
Income (loss) from continuing
operations before income tax
expense (benefit)		1,199,447		31,241		16,108		(34,622)		1,212,174
Net income from continuing
operations		798,360		10,155		10,470		57,540		876,525
Income from discontinued
operations, net of tax		-		104,971		-		-		104,971
Net income	$	798,360	$	115,126	$	10,470	$	57,540	$	981,496
Separate account assets	$	16,396,394	$	6,929,928	$	-	$	-	$	23,326,323
General account assets		21,323,702		1,997,532		172,648		755,730		24,249,612
Total assets	$	37,720,096	$	8,927,460	$	172,648	$	755,730	$	47,575,935

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, 2011, 2010 and 2009

17.  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.  As of December 31, 2009, the Company received permission from the Commissioner of Insurance of the State of Delaware to admit the equity value of its subsidiary, ILAC, without requiring audited financial statements because ILAC is not required to prepare audited financial statements under Rhode Island’s Annual Financial Reporting regulation.

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 and deferred income taxes are calculated differently.  The Company’s statutory financials are not prepared on a consolidated basis.

At December 31, the Company and its insurance subsidiaries’ combined statutory capital and surplus and net loss were as follows:

		Unaudited for the Years Ended December 31,
	2011		2010		2009
Statutory capital and surplus	$	1,315,270	$	2,234,153	$	2,037,661
Statutory net loss	$	(507,715)	$	(77,503)	$	(23,879)

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, 2011, 2010 and 2009

18. DIVIDEND RESTRICTIONS

The Company’s and its insurance company subsidiaries’ ability to pay dividends is subject to certain statutory restrictions.  The states in which the Company and its insurance company subsidiaries are domiciled have enacted laws governing the payment of dividends to stockholders by domestic insurers.

Pursuant to Delaware's statute, the maximum amount of dividends and other distributions that a domestic insurer may pay in any twelve-month period without prior approval of the Delaware Commissioner of Insurance is limited to the greater of (i) ten percent of its statutory surplus as of the preceding December 31, or (ii) the individual company's statutory net gain from operations for the preceding calendar year.  Any dividends to be paid by an insurer from a source other than statutory surplus, whether or not in excess of the aforementioned threshold, would also require the prior approval of the Delaware Commissioner of Insurance.  The Company is not permitted to pay dividends in 2012 without prior approval from the Delaware Commissioner of Insurance.

In 2011, after receiving prior approval from the Delaware Commissioner of Insurance, the Company paid a $300.0 million return of capital to the Parent.  In 2010 and 2009, the Company did not pay any cash dividends to the Parent.  However in 2009, with regulatory approval, the Company distributed Sun Life Vermont’s net assets and issued and outstanding common stock, totaling $94.9 million in the form of a dividend to the Parent, with regulatory approval.

New York law permits a domestic stock life insurance company to distribute a dividend to its shareholders without prior notice to the New York Superintendent of Financial Services, 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 $1.9 million in 2012 without prior approval from the superintendent.  No dividends were paid by SLNY during 2011, 2010 or 2009.

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.  ILAC is permitted to pay dividends up to a maximum of $2.1 million in 2012 without prior approval from the Rhode Island Superintendent of Insurance.  No dividends were paid by ILAC during 2011, 2010 or 2009.

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

(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

For the Years Ended December 31, 2011, 2010 and 2009

19. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income as of December 31, were as follows:

	2011		2010		2009
Net unrealized gains on available-for-sale securities (1)	$	70,367	$	83,926	$	67,970
Non-credit OTTI losses on available-for-sale fixed maturity securities		(10,595)		(12,304)		(13,748)
Deferred income tax expense		(20,921)		(25,069)		(18,978)
Accumulated other comprehensive income	$	38,851	$	46,553	$	35,244

(1)  Net of unrealized losses that were temporarily impaired.

20. COMMITMENTS AND CONTINGENCIES

Guaranty Funds

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 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.  In addition, 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.  During the twelve month-period ended December 31, 2011, the Company recorded a $9.3 million accrual for guaranteed fund assessments.

Income Taxes

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.  On May 30, 2010, the IRS issued an Industry Director Directive which makes clear that IRS interpretations prior to Revenue Ruling 2007-54 should be followed until new regulations are issued.  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, 2011 and 2010, the Company recorded benefits of $14.8 million and $11.5 million, respectively, related to the separate account DRD.  The amounts recorded for the year ended December 31, 2010 included an adjustment of $3.2 million to reflect a reduced run rate of separate account DRD benefits following the filing of the 2009 tax return.

Litigation

The Company and its subsidiaries are parties to threatened or pending legal proceedings, including ordinary routine litigation incidental to their business, both as a defendant and as a plaintiff.  While it is not possible to predict the resolution of these proceedings, management believes, based upon currently available information, that the ultimate resolution of these matters will not be materially adverse to the Company's financial position, results of operations or 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, 2011, 2010 and 2009

20. 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, 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 certain facilities under operating leases with terms of up to five years.  As of December 31, 2011, minimum future lease payments under such leases were as follow:

2012	$	506
2013		516
2014		516
2015		516
2016		551
Thereafter		2,327
Total	$	4,932

The Company was party to a guarantee agreement under which the Company guaranteed the lease payment obligations of SLFD.  The lease agreement was terminated and the Company was not required to pay or accrue any of the lease termination costs.

Total rental expense for the years ended December 31, 2011, 2010 and 2009 was $7.0 million, $7.2 million and $6.9 million, respectively.

21. SUBSEQUENT EVENTS

During the first quarter of 2012, the Company and its wholly-owned subsidiary, SLNY, received all necessary insurance regulatory approvals to amend the fixed investment option period in their combination fixed and variable annuity contracts and other contracts to remove any negative market value adjustment (“MVA”) that can decrease the amount of the withdrawal proceeds.  (Refer to Note 15 for additional information concerning the MVA and the fixed investment option period).  The Company and SLNY filed amendments to the necessary registration statements to include the contract amendments and to remove from registration any fixed investment options that remained unsold.  The SEC declared the associated amended registration statements effective on March 22, 2012.  As a result of the foregoing, the fixed investment option period in the contracts is no longer considered a “security” under the Securities Act of 1933, and the Company subsequently filed Forms 15 on March 23, 2012 to provide notice of suspension of its duty to file reports under Section 15(d) of the Securities Exchange Act of 1934.  No other changes were made to the contracts, and all other terms and conditions of the contracts remain unchanged.  The MVA amendment described above did not have a material impact on the Company’s financial position.

PART C

ITEM 26.  EXHIBITS

A. Resolution of the Board of Directors of Sun Life Assurance Company of Canada (U.S.), dated October 29, 1998, authorizing the establishment of Sun Life of Canada (U.S.) Variable Account I (Incorporated herein by reference to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form S-6, File No. 333-68601, filed with the Securities and Exchange Commission on December 9, 1998.)

B. None.

C. (1) Principal Underwriting Agreement (Incorporated herein by reference to Post-Effective Amendment No. 11 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-100829, filed with the Securities and Exchange Commission on April 30, 2009.)

(2) Amendment One to the Principal Underwriting Agreement (Incorporated herein by reference to Post-Effective Amendment No. 11 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-100829, filed with the Securities and Exchange Commission on April 30, 2009.)

(3) Amendment Two to Principal Underwriting Agreement. (Incorporated herein by reference to Post-Effective Amendment No. 12 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-100829, filed with the Securities and Exchange Commission on April 27, 2010.)

(4) Amendment Three to Principal Underwriting Agreement. (Incorporated herein by reference to Post-Effective Amendment No. 12 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-100829, filed with the Securities and Exchange Commission on April 27, 2010.)

(5) Sales Operations and General Agent Agreement.  (Incorporated herein by reference to Post-Effective Amendment No. 22 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form N-6, File No. 333-65048, filed with the Securities and Exchange Commission on April 27, 2012.)

D. (1)  Flexible Premium Combination Fixed and Variable Life Insurance Policy  (Incorporated by reference to Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(2)  Charitable Giving Benefit Rider (Incorporated herein by reference to Pre-Effective Amendment No. 2 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on September 19, 2007.)

(3)  Payment of Stipulated Amount Rider (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form S-6, File No. 333-68601, filed with the Securities and Exchange Commission on April 27, 1999.)

(4)  Waiver of Monthly Deductions Rider (Incorporated herein by reference to Pre-Effective Amendment No. 2 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on September 19, 2007.)

(5)  Travel Assistance Endorsement (Incorporated herein by reference to Pre-Effective Amendment No. 2 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on September 19, 2007.)

(6)  Loan Lapse Protection Rider (Incorporated herein by reference to Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-144628, filed with the Securities and Exchange Commission on July 17, 2007.)

(7)  Scheduled Increases Endorsement. (Incorporated herein by reference to Post-Effective Amendment No. 7 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 20, 2009.)

E. (1)  Application for Flexible Premium Combination Fixed and Variable Life Insurance Policy (Incorporated by reference to Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(2)  Application for Flexible Premium Combination Fixed and Variable Life Insurance Policy   (Incorporated by reference to Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(3)   Application for Flexible Premium Combination Fixed and Variable Life Insurance Policy

(Incorporated by reference to Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(4)   Application for Flexible Premium Combination Fixed and Variable Life Insurance Policy

(Incorporated by reference to Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(5)   Consent Form  (Incorporated by reference to Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(6)  Scheduled Increases Application. (Incorporated herein by reference to Post-Effective Amendment No. 7 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-143353, filed with the Securities and Exchange Commission on May 20, 2009.)

F. (1)  Certificate of Incorporation of Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Depositor's Form 10-K, File No. 333-82824, filed with the Securities and Exchange Commission on March 29, 2004.)

(2)  Bylaws of the Depositor, as amended March 19, 2004 (Incorporated herein by reference to the Depositor's Form 10-K, File No. 333-82824, filed with the Securities and Exchange Commission on March 29, 2004.)

G. Specimen Reinsurance Contract.  (Incorporated herein by reference to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-100829, filed with the Securities and Exchange Commission on October 30, 2002.)

H.           (1)      Participation Agreement, dated February 17, 1998, by and among AIM Variable Insurance Funds, Inc., AIM Distributors, Inc., Sun Life Assurance Company of Canada (U.S.), and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, Exhibit 8d, File No. 333-82957, filed with the Securities and Exchange Commission on February 3, 2000.)

(2)      Amended and Restated Participation Agreement, dated December 13, 2004, by and among Sun Capital Advisers Trust, Sun Capital Advisers, Inc., Sun Life Insurance and Annuity Company of New York and Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to Post-Effective Amendment No. 8 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, Exhibit 8e, File No. 333-83516, filed with the Securities and Exchange Commission on April 29, 2005.)

(3)      Amended and Restated Participation Agreement, dated September 1, 2004, by and among Sun Life Assurance Company of Canada (U.S.), Variable Insurance Products Fund and Fidelity Distributors Corporation (Incorporated herein by reference to Post-Effective Amendment No. 8 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, Exhibit 8g, File No. 333-83516, filed with the Securities and Exchange Commission on April 28, 2005.)

(4)      Participation Agreement, dated May 1, 2001, by and among Sun Life Assurance Company of Canada (U.S.), Clarendon Insurance Agency, Inc., Alliance Capital Management L.P. and Alliance Fund Distributors, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 10 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, Exhibit 8k, File No. 333-82957, filed with the Securities and Exchange Commission on April 23, 2004.)

(5)      Participation Agreement, dated September 16, 2002, by and among the Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., Sun Life Insurance and Annuity Company of New York and Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to the Registration Statement of KBL Variable Account A on Form N-4, Exhibit 8g, File No. 333-102278, filed with the Securities and Exchange Commission on December 31, 2002.)

(6)      Participation Agreement, dated February 17, 1998, by and among Goldman Sachs Variable Insurance Trust, Goldman, Sachs & Co., and Sun Life Assurance Company of Canada (U.S.) (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, Exhibit 8b, File No. 033-41628, filed with the Securities and Exchange Commission on April 26, 1999.)

(7)     Amended and Restated Participation Agreement, dated November 6, 2002, by and among MFS/Sun Life Series Trust, Sun Life Insurance and Annuity Company of New York, Sun Life Assurance Company of Canada (U.S.), and Massachusetts Financial Services Company (Incorporated herein by reference to Post-Effective Amendment No. 3 to the Registration Statement of Sun Life (N.Y.) Variable Account C on Form N-4, Exhibit 8a, File No. 333-107983, filed with the Securities and Exchange Commission on May 28, 2004.)

(8)      Participation Agreement, dated July 15, 2002, by and among Sun Life Assurance Company of Canada (U.S.), Deutsche Asset Management VIT Funds and Deutsche Asset Management, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 2 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form S-6, Exhibit 8o, File No. 333-65048, filed with the Securities and Exchange Commission on July 3, 2002.)

(9) Participation Agreement, dated September 30, 2002, by and among Sun Life Assurance Company of Canada (U.S.), Sun Life Insurance and Annuity Company of New York, First Eagle Sogen Variable Funds, Inc. and Arnhold and S. Bleichroeder, Inc. (Incorporated herein by reference to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, Exhibit H9, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(10) Participation Agreement, dated September 12, 2002, by and among Sun Life Assurance Company of Canada (U.S.), Sun Life Insurance and Annuity Company of New York, PIMCO Variable Insurance Trust and PIMCO Funds Distributors LLC. (Incorporated herein by reference to Post-Effective Amendment No. 3 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, Exhibit H10, File No. 333-59662, filed with the Securities and Exchange Commission on February 26, 2003.)

(11)    Participation Agreement, dated December 1, 2004, by and among Wanger Advisors Trust, Columbia Funds Distributor, Inc., Sun Life Assurance Company of Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.  (Incorporated herein by reference to the Registration Statement of Sun Life (N.Y.) Variable Account J on Form N-6, Exhibit H20, File No. 333-136435, filed with the Securities and Exchange Commission on August 9, 2006.)

(12)    Participation Agreement, dated May 1, 2004, by and among Sun Life Assurance Company of Canada (U.S.), The Universal Institutional Funds, Inc., Morgan Stanley & Co. Incorporated and Morgan Stanley Investment Management Inc. (Incorporated herein by reference to Post-Effective Amendment 5 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form N-6, File No. 333-111688, filed with the Securities and Exchange Commission on April 27, 2007.)

(13)                 Participation Agreement, dated August 6, 2004, by and among Sun Life Insurance and Annuity Company of New York, Van Kampen Life Investments Trust, Van Kampen Funds Inc., Van Kampen Asset Management. (Incorporated herein by reference to Post-Effective Amendment No. 4 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, Exhibit H16, File No. 333-100831, filed with the Securities and Exchange Commission on April 29, 2005.)

(14) Participation Agreement, dated December 31, 2002, by and among Oppenheimer Variable Account Funds, OppenheimerFunds, Inc. and Sun Life Assurance Company of Canada (U.S.) (Incorporated herein by reference to Post-Effective Amendment No. 4 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, Exhibit H17, File No. 333-100831, filed with the Securities and Exchange Commission on April 29, 2005.)

(15)   Restated Participation Agreement, dated April 1, 2007, by and among Sun Life Assurance Company of Canada (U.S.), Sun Life Insurance and Annuity Company of New York, Independence Life and Annuity Company, Columbia Funds Variable Insurance Trust I, Columbia Management Advisors, LLC and Columbia Management Distributors, Inc. (Incorporated herein by reference to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, Exhibit H15, File No. 333-143353, filed with the Securities and Exchange Commission on May 30, 2007.)

(16)   Participation Agreement, dated May 13, 2004, by and among Sun Life Assurance Company of Canada (U.S.), Merrill Lynch Variable Series Funds, Inc., Merrill Lynch Investment Managers, L.P. and FAM Distributors, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 2 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form N-6, File No. 333-111688, filed with the Securities and Exchange Commission on December 30, 2005.)

(17) Participation Agreement, dated October 1, 2008, by and among Sun Life Assurance Company of Canada (U.S.), Sun Life Insurance and Annuity Company of New York, American Funds Insurance Series and Capital Research and Management Company.  (Incorporated by reference to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form N-6, File No. 111688, filed with the Securities and Exchange Commission on September 22, 2008.)

I. Third Party Administration Agreement between Andesa TPA, Inc. and Sun Life Assurance Company of Canada. (Incorporated herein by reference to Post-Effective Amendment No. 4 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form N-6, File No. 333-65048, filed with the Securities and Exchange Commission on October 1, 2002.)

J.           (1) Powers of Attorney.

(2) Resolution of the Board of Directors of the Depositor dated March 27, 2012, authorizing the use of Powers of Attorney for Officer signatures. (Incorporated herein by reference to Post-Effective Amendment No. 44 to the Registration Statement on Form N-4, File No. 333-83516, filed with the Securities and Exchange Commission on April 27, 2012.)

K. Legal Opinion.

L.           None.

M.           None.

N.           Consent of Independent Registered Public Accounting Firm.

O.           None.

P.           None.

Q.           None.

ITEM 27.  DIRECTORS AND OFFICERS OF THE DEPOSITOR

Name and Principal Business Address Positions and Offices With Depositor

Thomas A. Bogart Sun Life Assurance Company of Canada 150 King Street West Toronto, ON  M5H 1J9	Director
Larry R. Madge Sun Life Assurance Company of Canada (U.S.) One Sun Life Executive Park Wellesley Hills, MA  02481	Director and Senior Vice President and Chief Financial Officer and Treasurer
Scott M. Davis Sun Life Assurance Company of Canada (U.S.) One Sun Life Executive Park Wellesley Hills, MA  02481	Director and Senior Vice President and General Counsel
Westley V. Thompson Sun Life Assurance Company of Canada (U.S.) One Sun Life Executive Park Wellesley Hills, MA 02481	Chairman and Director and President, SLF U.S.
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
Fred M. Tavan Sun Life Assurance Company of Canada  (U.S.) One Sun Life Executive Park Wellesley Hills, MA  02481	Vice President and Chief Actuary
Kerri A. Ansello Sun Life Assurance Company of Canada (U.S.) One Sun Life Executive Park Wellesley Hills, MA 02481	Senior Counsel and Secretary
Sean N. Woodroffe Sun Life Assurance Company of Canada (U.S.) One Sun Life Executive Park Wellesley Hills, MA 02481	Vice President, Human Resources
David J. Healy Sun Life Assurance Company of Canada (U.S.) One Sun Life Executive Park Wellesley Hills, MA 02481	Senior Vice President, Sun Life Financial U.S. Operations
Kenneth A. McCullum Sun Life Assurance Company of Canada (U.S.) One Sun Life Executive Park Wellesley Hills, MA 02481	Senior Vice President and General Manager, Life and Annuities, Inforce Management and Director
Stephen C. Peacher Sun Life Assurance Company of Canada 150 King Street West Toronto, Ontario, Canada M5H 1J9	Executive Vice President and Chief Investment Officer
Colm J. Freyne Sun Life Assurance Company of Canada 150 King Street West Toronto, ON  M5H 1J9	Director

ITEM 28.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR THE 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 organization chart of Sun Life Financial is incorporated by reference to Post-Effective Amendment No. 44 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-83516, filed April 27, 2012.

None of the companies listed in such organization chart 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 29.  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.) provides for the indemnification of directors, officers and employees of Sun Life Assurance Company of Canada (U.S.).  Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Sun Life Assurance Company of Canada (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, 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 30.  PRINCIPAL UNDERWRITERS

(a) 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, K and L, Keyport Variable Account A, KMA Variable Account, Keyport Variable Account I, KBL Variable Account A, KBL Variable Annuity Account and Sun Life (N.Y.) Variable Accounts A, B, C, D and N.

(b)

Name and Principal	Position and Offices
Business Address*	with Underwriter
Kenneth A. McCullum	President and Director
Scott M. Davis	Director
Larry R. Madge	Director
Paul Finnegan	Anti-Money Laundering Compliance Officer
Michael S. Bloom	Assistant Secretary
Kathleen T. Baron	Chief Compliance Officer
William T. Evers	Assistant Vice President and Senior Counsel
Jane F. Jette	Financial/Operations Principal and Treasurer
Michelle A. Greco	Senior Counsel
Jie Cheng Kerri R. Ansello Maryellen Percuoco	Tax Assistant Vice President Secretary Assistant Secretary

* 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 31.  LOCATION OF ACCOUNTS AND RECORDS

Accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are maintained, in whole or in part, by Sun Life Assurance Company of Canada (U.S.) at its offices at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481 or at the offices of Clarendon Insurance Agency, Inc., at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

ITEM 32.  MANAGEMENT SERVICES

Not applicable.

ITEM 33.  FEE REPRESENTATION

Sun Life Assurance Company of Canada (U.S.)("Sun Life of Canada (U.S.)") hereby represents that the aggregate fees and charges under the Policy are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Sun Life of Canada (U.S.).

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 of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to the Registration Statement and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf, in the Town of Wellesley Hills, and Commonwealth of Massachusetts on this 27th day of April, 2012.

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT I

(Registrant)

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

(Depositor)

By: _/s/ Westley V. Thompson*_______________

Westley V. Thompson

President, SLF U.S.

Attest:	__/s/ Susan J. Lazzo__________________
	Susan J. Lazzo
	Assistant Vice President & Senior Counsel
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities with the Depositor, Sun Life Assurance Company of Canada (U.S.),  and on the dates indicated.

SIGNATURE	TITLE	DATE
/s/ Westley V. Thompson*	Chairman and Director and President, SLF U.S.	April 27, 2012
Westley V. Thompson	(Principal Executive Officer)
/s/ Larry R. Madge*	Director and Senior Vice President and	April 27, 2012
Larry R. Madge	Chief Financial Officer and Treasurer
	(Principal Financial Officer)
/s/ Vincent A. Montiverdi*	Vice President and Controller	April 27, 2012
Vincent A. Montiverdi	(Principal Accounting Officer)

*By: /s/ Susan J. Lazzo	Attorney-in-Fact for:	April 27, 2012
Susan J. Lazzo
	Kenneth A. McCullum, Director
	Scott M. Davis, Director
	Thomas A. Bogart, Director Colm J. Freyne, Director

*Susan J. Lazzo 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. 44 to the Registration Statement on Form N-4, File No. 333-83516, filed on April 27, 2012.  Powers of attorney are included herein as Exhibit J(1).

EXHIBIT INDEX

J(1)	Powers of Attorney
K	Legal Opinion
N	Consent of Independent Registered Public Accounting Firm Representation of Counsel Pursuant to Rule 485(b)