UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT 0F 1934

For the quarterly period ended March 31, 2009 Commission File Numbers: : 2-99959, 33-29851, 33-31711, 33-41858, 33-43008, 33-58853, 333-11699, 333-77041, 333-62837, 333-45923, 333-88069, 333-39306, 333-46566, 333-82816, 333-82824, 333-111636, 333-130699, 333-130703, 333-130704, 333-133684, 333-133685, 333-133686, 333-39034, 333-144903-01, 333-144908-01, 333-144911-01, 333-144912-01, 333-155716, 333-155726, 333-155791, 333-155792, 333-155793, 333-155797, 333-156303, 333-156304, and 333-156308

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

(Exact name of registrant as specified in its charter)

Delaware	04-2461439
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

One Sun Life Executive Park, Wellesley Hills, MA	02481
(Address of principal executive offices)	(Zip Code)

(781) 237-6030

(Registrant’s telephone number, including area code)

NONE

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ Yes   ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes   ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer  þ	(Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).¨ Yes  þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

Registrant has 6,437 shares of common stock outstanding on May 14, 2009, all of which are owned by Sun Life of Canada (U.S.) Holdings, Inc.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION H.

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

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

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2009

TABLE OF CONTENTS

Page

PART I  - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2009 and 2008 (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three-month periods ended March 31, 2009 and 2008 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholder’s Equity for the three-month periods ended March 31, 2009 and 2008 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2009 and 2008 (Unaudited)	7
	Notes to the Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Position and Results of Operations	55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	78
Item 4.	Controls and Procedures	78

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	78
Item 1A.	Risk Factors	78
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 3.	Defaults Upon Senior Securities	79
Item 4.	Submission of Matters to a Vote of Security Holders	79
Item 5.	Other Information	79
Item 6.	Exhibits	80

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

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

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

For the three-month periods ended March 31,

	Unaudited
	2009		2008
Revenues
Premiums and annuity considerations	$	32,540	$	29,641
Net investment income (loss) (1)		17,494		(276,267)
Net derivative income (loss) (2)		143,299		(80,200)
Net realized investment (losses) gains		(1,897)		2,734
Fee and other income		37,627		126,843
Total revenues		229,063		(197,249)
Benefits and Expenses
Interest credited		121,035		149,127
Interest expense		19,319		31,077
Policyowner benefits		92,215		70,413
Amortization of deferred policy acquisition costs and value of business and customer renewals acquired (3)		(121,890)		(272,647)
Other operating expenses		51,309		77,541
Total benefits and expenses		161,988		55,511
Income (loss) before income tax expense (benefit)		67,075		(252,760)
Income tax expense (benefit)		17,461		(93,233)
Net income (loss)	$	49,614	$	(159,527)

(1)Net investment income (loss) includes a decrease in market value of trading fixed maturity securities of $110.6 million and $594.2 million for the three-month periods ended March 31, 2009 and 2008, respectively.

(2)Net derivative income (loss) for the three-month period ended March 31, 2008 includes $166.1 million of income related to the Company’s adoption of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurement,” which is further discussed in Note 4.

(3)Amortization of deferred policy acquisition costs and value of business and customer renewals acquired for the three-month period ended March 31, 2008 includes $3.2 million of expense related to the Company’s adoption of SFAS No. 157, which is further discussed in Note 4.

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

3

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

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	Unaudited
ASSETS	March 31, 2009		December 31, 2008
Investments
Available-for-sale fixed maturities at fair value (amortized cost of $856,685 and      $782,861 in 2009 and 2008, respectively)	$	700,419	$	674,020
Trading fixed maturities at fair value (amortized cost of $14,660,014 and      $14,909,429 in 2009 and 2008, respectively)		11,401,635		11,762,146
Mortgage loans		2,050,851		2,083,003
Derivative instruments – receivable		563,679		727,103
Limited partnerships		57,158		78,289
Real estate		200,584		201,470
Policy loans		725,023		729,407
Other invested assets		30,363		211,431
Cash and cash equivalents		2,802,343		1,624,149
Total investments and cash		18,532,055		18,091,018
Accrued investment income		249,730		282,564
Deferred policy acquisition costs		3,098,811		2,862,401
Value of business and customer renewals acquired		164,074		179,825
Net deferred tax asset		849,328		856,845
Goodwill		7,299		7,299
Receivable for investments sold		4,316		7,548
Reinsurance receivable		3,285,263		3,076,615
Other assets		211,246		222,840
Separate account assets		19,876,854		20,531,724
Total assets	$	46,278,976	$	46,118,679
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	17,703,855	$	17,545,721
Future contract and policy benefits		1,039,209		1,014,688
Payable for investments purchased		166,150		363,513
Accrued expenses and taxes		91,866		118,671
Debt payable to affiliates		2,048,000		1,998,000
Reinsurance payables		2,042,537		1,650,821
Derivative instruments – payable		1,225,543		1,494,341
Other liabilities		645,799		605,945
Separate account liabilities		19,876,854		20,531,724
Total liabilities		44,839,813		45,323,424
Commitments and contingencies – Note 7
STOCKHOLDER’S EQUITY
Common stock, $1,000 par value – 10,000 shares authorized; 6,437 shares      issued and outstanding in 2009 and 2008	$	6,437	$	6,437
Additional paid-in capital		3,495,894		2,872,242
Accumulated other comprehensive loss		(159,242)		(129,884)
Accumulated deficit		(1,903,926)		(1,953,540)
Total stockholder’s equity		1,439,163		795,255
Total liabilities and stockholder’s equity	$	46,278,976	$	46,118,679

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

4

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

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

For the three-month periods ended March 31,

	Unaudited
	2009	2008
Net income (loss)	49,614	(159,527)
Other comprehensive loss:
Change in unrealized holding losses on available-for-sale securities,      net of tax and policyholder amounts (1)	(28,601)	(17,963)
Reclassification adjustments of realized investment gains into net      income (loss), net of tax (2)	(757)	(110)
Other comprehensive loss	(29,358)	(18,073)
Comprehensive income (loss)	20,256	(177,600)

(1)   Net of tax of $15.4 million and $9.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.

(2)   Net of tax of $0.4 million and $0.1 million for the three-month periods ended March 31, 2009 and 2008, respectively.

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

5

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

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

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

(in thousands)

For the three-month periods ended March 31, 2009 and 2008

Unaudited

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings (Accumulated Deficit)		Total Stockholder’s Equity
Balance at December 31, 2007	$	6,437	$	2,146,436	$	(92,403)	$	369,677	$	2,430,147
Cumulative effect of accounting   changes related to the adoption   of SFAS Nos. 158 and 159, net   of tax						88,033		(88,376)		(343)
Net loss								(159,527)		(159,527)
Tax benefit from stock options				247						247
Other comprehensive loss						(18,073)				(18,073)
Balance at March 31, 2008	$	6,437	$	2,146,683	$	(22,443)	$	121,774	$	2,252,451
Balance at December 31, 2008	$	6,437	$	2,872,242	$	(129,884)	$	(1,953,540)	$	795,255
Net income								49,614		49,614
Capital contribution from Parent				623,652						623,652
Other comprehensive loss						(29,358)				(29,358)
Balance at March 31, 2009	$	6,437	$	3,495,894	$	(159,242)	$	(1,903,926)	$	1,439,163

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

6

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

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the three-month periods ended March 31,

	Unaudited
	2009		2008
Cash Flows From Operating Activities:
Net income (loss)	$	49,614	$	(159,527)
Adjustments to reconcile net income (loss) to net cash provided by        operating activities:
Net amortization of premiums on investments		8,624		6,511
Amortization of deferred policy acquisition costs and value of     business and customer renewals acquired		(121,890)		(272,647)
Depreciation and amortization		1,750		1,539
Net (gains) losses on derivatives		(189,406)		67,492
Net realized losses (gains) on available-for-sale investments		1,897		(2,734)
Changes in fair value of trading investments		110,579		594,241
Net realized losses (gains) on trading investments		45,380		(8,071)
Undistributed income on private equity limited partnerships		(1,481)		(5,553)
Interest credited to contractholder deposits		121,035		149,127
Deferred federal income taxes		23,323		(89,481)
Changes in assets and liabilities:
Additions to deferred policy acquisition costs and value of business     and customer renewals acquired		(98,769)		(78,357)
Accrued investment income		32,834		10,564
Net change in reinsurance receivable/payable		213,683		84,352
Future contract and policy benefits		24,521		10,535
Other, net		(84,385)		(19,827)
Net cash provided by operating activities		137,309		288,164
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturities		9,715		13,647
Trading fixed maturities		213,506		579,230
Mortgage loans		62,182		161,265
Real Estate		-		-
Other invested assets		208,502		13,737
Purchases of:
Available-for-sale fixed maturities		(925)		(45,063)
Trading fixed maturities		(19,715)		(1,031,171)
Mortgage loans		(31,646)		(24,924)
Real estate		(414)		(2,259)
Other invested assets		(14,940)		(260,219)
Net change in other investments		(61,010)		233,150
Net change in policy loans		4,384		69
Net cash provided by (used in) investing activities	$	369,639	$	(362,538)

Continued on next page

7

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

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

For the three-month periods ended March 31,

	Unaudited
		2009		2008
Cash Flows From Financing Activities:
Additions to contractholder deposit funds		$	740,398	$	419,328
Withdrawals from contractholder deposit funds			(720,199)		(913,334)
Capital contribution from Parent			623,652		-
Debt proceeds			50,000		-
Other, net			(22,605)		(21,670)
Net cash provided by (used in) financing activities			671,246		(515,676)
Net change in cash and cash equivalents			1,178,194		(590,050)
Cash and cash equivalents, beginning of period			1,624,149		1,169,701
Cash and cash equivalents, end of period		$	2,802,343	$	579,651

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

8

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

GENERAL

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

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

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for stock life insurance companies and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.

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

9

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. DESCRIPTION OF BUSINESS (CONTINUED)

BASIS OF PRESENTATION (CONTINUED)

On September 6, 2006 the Company entered into an agreement with Credit and Repackaged Securities Limited Series 2006-10 Trust (the “CARS Trust”).  Through this agreement, the Company purchased a funded note, which is referenced through a credit default swap to the credit performance of a portfolio of corporate reference entities.  The Company entered into this credit structure for yield enhancement.  As the sole beneficiary of the CARS Trust, the Company is required to consolidate this trust under the requirements of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (Revised December 2003)” (“FIN 46(R)”).  As a result of the consolidation, the Company has recorded in its balance sheet a credit default swap held by the CARS Trust.  At issue, the swap had a seven year term, maturing in 2013.  Under the terms of the swap, the CARS Trust will be required to make payments to the swap counterparty upon the occurrence of a credit event, with respect to any reference entity, that is in excess of the threshold amount specified in the swap agreement.  At March 31, 2009 and December 31, 2008, the CARS Trust has not had to make any payments under the terms of the swap as the sum of all credit events has not exceeded the threshold amount.  At March 31, 2009 and December 31, 2008, the fair value of the credit default swap was $(39.1) million and $(42.1) million, respectively.  Under the terms of the credit derivative, the maximum future payments the CARS Trust could be required to make is $55.0 million.  In the event the trust was required to make any payments under the swap, the underlying assets held by the trust would be liquidated to fund the payment.  If the disposition of these assets is insufficient to fund the payment calculated, then under the terms of the agreement, the cash settlement amount would be capped at the amount of the proceeds from the sale of the underlying assets.  As of March 31, 2009 and December 31, 2008, the fair value of the assets held as collateral by the CARS Trust was $39.7 million and $42.3 million, respectively.

The Company has a greater than or equal to 20%, but less than 50%, interest in seven variable interest entities (“VIEs”) at March 31, 2009.  The Company is a creditor in four trusts and three limited liability companies.  The Company’s maximum exposure to loss related to all of these VIEs is the investments’ carrying value, which was $36.7 million and $36.5 million at March 31, 2009 and December 31, 2008, respectively.  The investments in these VIEs mature between October 2009 and November 2024.  Because the Company will not absorb a majority of the VIEs’ expected losses or receive a majority of the expected returns, the Company is not required to consolidate these VIEs, in accordance with FIN 46(R).

10

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. DESCRIPTION OF BUSINESS (CONTINUED)

BASIS OF PRESENTATION (CONTINUED)

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

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

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

USE OF ESTIMATES

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

11

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. DESCRIPTION OF BUSINESS (CONTINUED)

ACCOUNTING PRONOUNCEMENTS

New and Adopted Accounting Pronouncements

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

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”.  This statement amends and expands disclosures about an entity’s derivative and hedging activities with the intent to provide users of financial statements with an enhanced understanding of (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments,” and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged.  SFAS No. 161 encourages, but does not require comparative disclosures.  The Company adopted SFAS No. 161 on January 1, 2009.  The new disclosures are included in Note 5.

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

12

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. DESCRIPTION OF BUSINESS (CONTINUED)

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

New and Adopted Accounting Pronouncements (continued)

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

• Most of the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquired entity shall be measured at their acquisition-date fair values rather than SFAS No. 141’s requirement to allocate the cost of an acquisition to individual assets acquired and liabilities assumed based on their estimated fair values;

• Acquisition-related costs incurred by the acquirer shall be expensed in the periods in which the costs are incurred rather than included in the cost of the acquired entity;

• Goodwill shall be measured as the excess of the consideration transferred, including the fair value of any contingent consideration, plus the fair value of any noncontrolling interest in the acquired entity, over the fair values of the acquired identifiable net assets, rather than measured as the excess of the cost of the acquired entity over the estimated fair values of the acquired identifiable net assets;

• Contractual pre-acquisition contingencies are to be recognized at their acquisition date fair values and noncontractual pre-acquisition contingencies are to be recognized at their acquisition date fair values only if it is more likely than not that the contingency gives rise to an asset or liability, whereas SFAS No. 141 generally permits the deferred recognition of pre-acquisition contingencies until the recognition criteria of SFAS No. 5, “Accounting for Contingencies” are met; and

• Contingent consideration shall be recognized at the acquisition date rather than when the contingency is resolved and consideration is issued or becomes issuable.

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

13

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. DESCRIPTION OF BUSINESS (CONTINUED)

ACCOUNTING PRONOUNCEMENTS (CONTINUED)

Accounting Standards Not Yet Adopted

In April, 2009, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-4, “Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are not Orderly.”  This FSP provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased, as well as guidance on identifying circumstances that indicate a transaction is not orderly.  FSP No. FAS 157-4 also amends the disclosure requirements of SFAS No. 157 to require annual and interim disclosure of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any during the period, and definitions of each major category for equity and debt securities, as described in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”  FSP No. FAS 157-4 is effective for annual and interim reporting periods ending after June 15, 2009.  The Company is assessing the impact of adopting FSP No. FAS 157-4 on its condensed consolidated financial statements.

In April, 2009, the FASB issued FSP No. FAS 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.”  This FSP amends other-than-temporary impairment (“OTTI”) guidance to improve the presentation and disclosure of OTTI for debt securities.  More specifically, it changes how an entity assesses whether an OTTI has occurred and if so, where the OTTI is recorded.  FSP No. FAS 115-2 and 124-2 requires that management assert that it does not have the intent to sell a security and that it is more likely than not that it will not have to sell a security before it recovers its cost basis.  If the conditions above are met, only the credit component of the OTTI will be recognized in earnings and the remainder will be recognized in other comprehensive income.  The FSP also expands and increases the frequency of existing disclosures about OTTI of debt and equity securities.  FSP No. FAS 115-2 and 124-2 is effective for interim periods ending after June 15, 2009 and requires a cumulative-effect adjustment for the non-credit component of a previously recognized OTTI from retained earnings to accumulated other comprehensive income as of the beginning of the period of adoption.  The Company is assessing the impact of adopting FSP No. FAS 115-2 and 124-2 on its condensed consolidated financial statements.

In April, 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.”  This FSP requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements.  FSP No. FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009.  The Company will adopt this FSP for its fiscal quarter ending on June 30, 2009.  FSP No. FAS 107-1 and APB 28-1 only requires additional disclosures and will have no effect on the Company’s condensed consolidated financial position or results of operations.

14

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES

Below is a summary of affiliated transactions for those affiliates that are not included in these financial statements.

Reinsurance Related Transactions

As more fully described in Note 6, the Company is party to several reinsurance transactions with Sun Life Assurance Company of Canada (“SLOC”) and other affiliates.

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

BarbCo 3 paid an initial ceding commission to the Company of $41.5 million and the Company recorded a funds withheld payable and related reinsurance receivable at the inception of the transaction of $247.9 million and $329.2 million, respectively.  At March 31, 2009, the funds withheld payable and reinsurance receivable related to this agreement were $251.7 million and $331.6 million, respectively.  The Company records the funds withheld payables in its condensed consolidated balance sheets as part of reinsurance payable.

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

Sun Life Vermont, a subsidiary of the Company, entered into a reinsurance agreement with SLOC, effective November 8, 2007, under which the Sun Life Vermont assumed the risks of certain UL policies issued by SLOC through December 31, 2008.  This agreement is described more fully in Note 6.

15

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Capital Transactions

During the three-month period ended March 31, 2009 and the year ended December 31, 2008, the Company received capital contributions totaling $623.7 million and $725.0 million, respectively, from the Parent.  The cash contributions were recorded as additional paid-in capital and were made to ensure the Company continues to exceed certain capital requirements, as prescribed by the NAIC.  The NAIC has established regulations that provide minimum capitalization requirements based on risk-based capital formulas for life companies.  The risk-based capital formulas for life companies establishes capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities that contain death benefits or certain living benefits.

The Company did not make any dividend payments during the three-month periods ending March 31, 2009 and 2008.

Debt Transactions

On November 8, 2007, a long-term financing arrangement was established with a financial institution (the “Lender”) that enables Sun Life Vermont to fund a portion of its obligations under the reinsurance agreement with SLOC.  Under this arrangement, at inception of the treaty, Sun Life Vermont issued a 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.  During the three-month period ended March 31, 2009, Sun Life Vermont issued a $50 million additional note to SUNAXXX.  At March 31, 2009 and December 31, 2008, the value of the Surplus Note was $1,165 million and $1,115 million, respectively.  Pursuant to an agreement between the Lender and SLC – U.S. Ops Holdings, SLC – U.S. Ops Holdings bears the ultimate obligation to repay the Lender and, as such, consolidates SUNAXXX in accordance with FIN 46(R).  Sun Life Vermont has agreed to reimburse SLC – U.S. Ops Holdings for certain costs incurred in connection with the issuance of the Surplus Note.  For the three-month periods ending March 31, 2009 and 2008, the amount of interest expense incurred by Sun Life Vermont was $7.2 million and $14.3 million, respectively.

In 2002, the Company issued two promissory notes with a combined total of $460 million to Sun Life (Hungary) Group Financing Limited Company ("Sun Life (Hungary) LLC").  The proceeds of the notes were used to purchase fixed rate government and corporate bonds.  On May 24, 2007, the Company redeemed one of the notes with a principal balance of $380 million and paid $388.7 million to Sun Life (Hungary) LLC, including $8.7 million in accrued interest.  On December 29,2008, the Company redeemed in part, $62.0 million of the $80.0 million remaining note and paid $64.3 million, including $2.3 million in accrued interest, to Sun Life (Hungary) LLC.  At March 31, 2009 and 2008, the Company had $18.0 million and $80.0 million, respectively, in promissory notes issued to Sun Life (Hungary) LLC.  The Company pays interest semi-annually to Sun Life (Hungary) LLC.  Related to these promissory notes, the Company incurred interest expense of $0.3 million and $1.1 million for the three month periods ending March 31, 2009 and 2008, respectively.

At March 31, 2009 and 2008, the Company had $565.0 million of surplus notes issued to Sun Life Financial (U.S.) Finance, Inc.  The Company expensed $10.6 million for interest on these surplus notes for the three-month periods ended March 31, 2009 and 2008, respectively.

16

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Institutional Investments Contracts

On September 12, 2006, the Company issued two floating rate funding agreements with a combined total of $900 million to Sun Life Financial Global Funding III, L.L.C. ("LLC III").  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $5.8 million to LLC III. Total interest credited for the funding agreements was $4.2 million and $11.7 million for the three-month periods ended March 31 2009 and 2008, respectively. The Company also issued a $100 million floating rate demand note payable to LLC III on September 19, 2006.  The Company expensed $0.5 million and $1.3 million for the three-month periods ended March 31, 2009 and 2008, respectively, for interest on this demand note.

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

On May 17, 2006, the Company issued a floating rate funding agreement of $900 million to Sun Life Financial Global Funding II, L.L.C. ("LLC II").  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $7.5 million to LLC II.  Total interest credited for this funding agreement was $3.9 million and $11.5 million for the three-month periods ended March 31, 2009 and 2008.  The Company also issued a $100 million floating rate demand note payable to LLC II on May 24, 2006.  The Company expensed $0.4 million and $1.3 million for the three-month periods ended March 31, 2009 and 2008, respectively.

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

On June 3, 2005 and June 29, 2005, the Company issued two floating rate funding agreements with a combined total of $900 million to Sun Life Financial Global Funding, L.L.C. ("LLC").  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $10.0 million to LLC.  Total interest credited for these funding agreements was $4.1 million and $11.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The Company also issued a $100 million floating rate demand note payable to LLC on June 10, 2005.  The Company expensed $0.5 million and $1.3 million for interest on this demand note for the three-month periods ended March 31, 2009 and 2008, respectively.

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

17

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative service agreements, rent and other

The Company and certain of its subsidiaries have administrative services agreements with SLOC which provides that SLOC will furnish, as requested, certain services and facilities on a cost-reimbursement basis. Expenses under these agreements amounted to approximately $2.0 million and $2.4 million for the three-month periods ended March 31, 2009 and 2008, respectively.

In accordance with an administrative service agreement between the Company and SLOC, the Company provides personnel and certain services to SLOC, as requested.  Reimbursements under this agreement, which are recorded as a reduction of other operating expenses, were approximately $75.6 million and $82.4 million for the three-month periods ended March 31, 2009 and 2008, respectively.

The Company has an administrative service agreement with Sun Life Information Services Canada, Inc. ("SLISC"), under which SLISC provides administrative and support services to the Company in connection with the Company’s insurance and annuity business.  Expenses under this agreement amounted to approximately $3.4 million and $4.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.

The Company has a service agreement with Sun Life Information Services Ireland Limited ("SLISIL"), under which SLISIL provides various insurance related and information systems services to the Company.  Expenses under this agreement amounted to approximately $6.1 million and $7.8 million for the three-month periods ended March 31, 2009 and 2008, respectively.

The Company has an administrative services agreement with SLC - U.S. Ops Holdings, under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which an affiliate, Massachusetts Financial Services Company (“MFS”), serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable annuity contracts issued by the Company.  Amounts received under this agreement amounted to approximately $2.7 million and $4.9 million for the three-month periods ended March 31, 2009 and 2008, respectively.

The Company has an administrative services agreement with Sun Capital Advisers LLC (“SCA”), a registered investment adviser, under which the Company provides administrative services with respect to certain open-end management investment companies for which SCA serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable contracts issued by the Company.  Amounts received under this agreement amounted to approximately $0.8 million and $0.5 million for the three-month periods ended March 31, 2009 and 2008, respectively. The Company paid $4.6 million and $4.7 million for the three-month periods ended March 31, 2009 and 2008, respectively, in investment management services fees to SCA.

18

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative service agreements, rent and other (continued)

During the three-month periods March 31, 2009 and 2008, the Company paid $9.0 million and $5.8 million, respectively, in distribution fees to Sun Life Financial Distributors, Inc. (“SLFD”).

The Company leases office space to SLOC under lease agreements with terms expiring on December 31, 2009 and options to extend the terms for each of twelve successive five-year terms at fair market rental value, not to exceed 125% of the fixed rent for the term which is then ending.  Rent received by the Company under the leases amounted to approximately $2.7 and $2.6 million for the three-month periods ended March 31, 2009 and 2008 respectively.  Rental income is reported as a component of net investment income.

During the three-month period ended March 31, 2008, the Company sold mortgages to SLOC with a book value of $129.5 million and a market value of $129.7 million and recorded a gain on the sale of $0.2 million.

The Company records a tax benefit through paid-in-capital for SLF stock options issued to employees of the Company. Related to these stock options, the Company did not record a tax benefit for the three month period ending March 31, 2009. The Company recorded a tax benefit of approximately $0.2 million for the three-month periods ended March 31, 2008.

In 2004, the employees of the Company became participants in a restricted share unit (“RSU”) plan with its indirect parent, SLF.  Under the RSU plan, participants are granted units that are equivalent to one common share of SLF stock and have a fair market value of a common share of SLF stock on the date of grant.  RSUs earn dividend equivalents in the form of additional RSUs at the same rate as the dividends on common shares of SLF stock.  The redemption value, upon vesting, is the fair market value of an equal number of common shares of SLF stock.  The Company incurred expenses of $1.5 million and $1.4 million relating to RSUs for the three-month periods ended March 31, 2009 and 2008, respectively.

In 2007, SLNY entered into a series of agreements with Sun Life and Health Insurance Company (“SLHIC”), an affiliate, through which the New York issued business of SLHIC was transferred to SLNY (the “SLHIC to SLNY asset transfer”).  As part of these agreements, SLNY received certain intangible assets totaling $31.3 million.  These included the value of distribution, VOBA, and VOCRA.  The value of distribution of $7.5 million is being amortized on a straight-line basis over its projected economic life of 25 years.  VOBA of $7.6 million is subject to amortization based upon expected premium income over the period from acquisition to the first customer renewal, generally not more than two years.  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 these intangible assets for the periods identified as follows (in 000’s):

	Value of Distribution		VOBA		VOCRA
Three-month period ended March 31, 2009	$	75	$	22	$	726
Three-month period ended March 31, 2008	$	75	$	678	$	560

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.

19

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SEGMENT INFORMATION

As described below, the Company conducts business primarily in three operating segments and maintains a Corporate Segment to provide for the capital needs of the three operating segments and to engage in other financing related activities.  Each segment is defined consistently with the way results are evaluated by the chief operating decision-maker.

Net investment income is allocated based on segmented assets, including allocated capital, by line of business.  Allocations of operating expenses among segments are made using both standard rates and actual expenses incurred.  Management evaluates the results of the operating segments on an after-tax basis.  The Company does not depend on one or a few customers, brokers or agents for a significant portion of its operations.

Wealth Management

The Wealth Management Segment markets, sells and administers funding agreements, individual and group variable annuity products, individual and group fixed annuity products and other retirement benefit products.  These contracts may contain any of a number of features including variable or fixed interest rates and equity index options and may be denominated in foreign currencies.  The Company uses derivative instruments to manage the risks inherent in the contract options.  Additionally, the Company consolidates the CARS Trust and its investments in VIEs as components of the Wealth Management Segment.

Individual Protection

The Individual Protection Segment markets, sells and administers a variety of life insurance products sold to individuals and corporate owners of life insurance. The products include whole life, universal life and variable life products.

Group Protection

The Group Protection Segment markets, sells and administers group life, group long-term disability, group short-term disability, group dental and group stop loss insurance products to small and mid-size employers in the State of New York through the Company’s subsidiary, SLNY.

Corporate

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

20

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SEGMENT INFORMATION (CONTINUED)

The following amounts pertain to the various business segments (in 000’s):

	Three-month period ended March 31, 2009
	Wealth	Individual	Group
	Management	Protection	Protection	Corporate	Totals
Total revenues	$       338,430	$     (138,769)	$         33,390	$      (3,988)	$       229,063
Total benefits and     expenses	118,985	9,841	26,891	6,271	161,988
Income (loss) before     income tax expense     (benefit)	219,445	(148,610)	6,499	(10,259)	67,075
Net income (loss)	$      147,863	$      (96,603)	$          4,224	$     (5,870)	$        49,614
	Three-month period ended March 31, 2008
	Wealth	Individual	Group
	Management	Protection	Protection	Corporate	Totals
Total revenues	$    (256,156)	$        15,982	$         24,496	$      18,429	$    (197,249)
Total benefits and     expenses	(38,949)	57,687	29,248	7,525	55,511
(Loss) income before     income tax (benefit)     expense	(217,207)	(41,705)	(4,752)	10,904	(252,760)
Net (loss) income	$    (137,711)	$       (27,074)	$          (3,089)	$        8,347	$    (159,527)

4. FAIR VALUE MEASUREMENT

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

As a result of the adoption of SFAS No. 157, the value of the Company’s embedded derivative liabilities decreased by $166.1 million during the three-month period ended March 31, 2008.  This change is primarily a result of changes to the valuation assumptions regarding policyholder behavior, primarily lapses, as well as the incorporation of risk margins and the Company’s own credit standing in the valuation of embedded derivatives.

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

21

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Financial assets and liabilities recorded at fair value in the Company’s condensed 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

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 mortgage-backed securities (“MBS”) and asset-backed securities (“ABS”), certain corporate debt, certain private equity investments and certain derivates.

Level 3

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

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

22

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. 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 March 31, 2009 (in 000’s):

	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale fixed maturities
Asset-backed and mortgage-backed securities	$	-	$	71,530	$	2,588	$	74,118
Foreign government		-		500		-		500
States and political subdivisions		-		-		-		-
U.S. Treasury and agency securities		44,430		196		-		44,626
Corporate securities		-		579,426		1,749		581,175
Total available-for-sale fixed maturities		44,430		651,652		4,337		700,419
Trading fixed maturities
Asset-backed and mortgage-backed securities		31,238		1,710,717		377,493		2,119,448
Foreign governments		-		82,908		9,450		92,358
States and political subdivisions		-		556		-		556
U.S. Treasury and agency securities		403,672		30,927		-		434,599
Corporate securities		-		8,655,817		98,857		8,754,674
Total trading fixed maturities		434,910		10,480,925		485,800		11,401,635
Derivative instruments – receivable		2,407		558,911		2,361		563,679
Other invested assets		-		-		-		-
Cash and cash equivalents		2,802,343		-		-		2,802,343
Total investments and cash		3,284,090		11,691,488		492,498		15,468,076
Other assets
Separate account assets (1) (2)		11,950,517		6,876,104		558,767		19,385,388
Total assets measured at fair value on a recurring basis	$	15,234,607	$	18,567,592	$	1,051,265	$	34,853,464

(1) Pursuant to the conditions set forth in American Institute of Certified Public Accountants (“AICPA”) Statement of Position  (‘SOP”) 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts", the value of separate account liabilities is set to equal the fair value for separate account assets.

(2) Excludes $0.5 million, primarily related to investment sales receivable, net of investment purchases payable, that are not subject to SFAS No. 157.

23

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. 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 March 31, 2009 (in 000’s):

	Level 1		Level 2		Level 3		Total
Liabilities
Other policy liabilities
Guaranteed minimum withdrawal benefit liability	$	-	$	-	$	377,589	$	377,589
Guaranteed minimum accumulation benefit liability		-		-		326,105		326,105
Derivatives embedded in reinsurance contracts		-		(25,968)		-		(25,968)
Fixed index annuities		-		-		90,055		90,055
Total other policy liabilities		-		(25,968)		793,749		767,781
Derivative instruments – payable		9,614		1,176,786		39,143		1,225,543
Other liabilities
Bank overdrafts		64,929		-		-		64,929
Total liabilities measured at fair value on a recurring basis	$	74,543	$	1,150,818	$	832,892	$	2,058,253

24

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table presents the Company's categories for its assets measured at fair value on a recurring basis as of December 31, 2008 (in 000’s):

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

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

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

25

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table presents the Company's categories for its liabilities measured at fair value on a recurring basis as of December 31, 2008 (000’s):

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

26

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table shows a reconciliation of the beginning and ending balances for assets which are categorized as Level 3 for the three-month period ended March 31, 2009 (in 000’s):

Assets	Beginning balance	Total realized and unrealized gains (losses)		Purchases, issuances, and settlements (net)	Transfers in and/or (out) of level 3 (2)	Ending balance	Change in unrealized gains (losses) included in earnings relating to instruments still held at the reporting date
		Included in earnings	Included in other comprehensive income
Available-for-sale fixed maturities
Asset-backed and mortgage-backed securities	$     4,466	$      (46)	$(489)	$            -	$      (1,343)	$     2,588	$               -
Foreign government	-	-	-	-	-	-	-
States and political subdivisions	-	-	-	-	-	-	-
U.S. Treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	7,888	123	(131)	(162)	(5,969)	1,749	-
Total available-for-sale fixed maturities	12,354	77	(620)	(162)	(7,312)	4,337	-
Trading fixed maturities
Asset-backed and mortgage-backed securities	462,253	(49,017)	-	(8,335)	(27,408)	377,493	(1,488)
Foreign governments	9,200	250	-	-	-	9,450	250
States and political subdivisions	-	-	-	-	-	-	-
U.S. Treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	134,505	15,311	-	(3,121)	(47,838)	98,857	4,234
Total trading fixed maturities	605,958	(33,456)	-	(11,456)	(75,246)	485,800	2,996
Derivative instruments – receivable	2,668	(328)	-	21	-	2,361	(328)
Other invested assets	-	-	-	-	-	-	-
Cash and cash equivalents	-	-	-	-	-	-	-
Total investments and cash	620,980	(33,707)	(620)	(11,597)	(82,558)	492,498	2,688
Other assets
Separate account assets (1)	801,873	5,836	-	(60,598)	(188,344)	558,767	25,428
Total assets measured at fair value on a recurring basis	$ 1,422,853	$  (27,871)	$               (620)	$       (72,195)	$   (270,902)	$1,051,265	$         28,096

(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 three-month period ended March 31, 2009 are primarily attributable to changes in the observability of inputs used to price the securities.

27

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table shows a reconciliation of the beginning and ending balances for liabilities which are categorized as Level 3 for the three-month period ended March 31, 2009 (in 000’s):

Liabilities	Beginning balance	Total realized and unrealized (gains) losses		Purchases, issuances, and settlements (net)	Transfers in and/or (out) of level 3	Ending balance	Change in unrealized (gains) losses included in earnings relating to instruments still held at the reporting date
		Included in earnings	Included in other comprehensive income
Other policy liabilities
Guaranteed minimum withdrawal benefit     liability	$   335,612	$   30,956	$                 -	$        11,021	$             -	$   377,589	$        34,571
Guaranteed minimum accumulation  benefit     liability	358,604	(37,081)	-	4,582	-	326,105	(34,033)
Derivatives embedded in reinsurance contracts	-	-	-	-	-	-	-
Fixed index annuities	106,619	(9,910)	-	(6,654)	-	90,055	(14,970)
Total other policy liabilities	800,835	(16,035)	-	8,949	-	793,749	(14,432)
Derivative instruments – payable	42,066	(2,923)	-	-	-	39,143	(2,923)
Total liabilities measured at fair value on a recurring basis	$  842,901	$   (18,958)	$               -	$         8,949	$              -	$  832,892	$        (17,355)

28

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table shows a reconciliation of the beginning and ending balances for assets which are categorized as Level 3 for the three-month period ended March 31, 2008 (in 000’s):

Assets	Beginning balance	Total realized and unrealized gains (losses)		Purchases, issuances, and settlements (net)	Transfers in and/or (out) of level 3 (2)	Ending balance	Change in unrealized gains (losses) included in earnings relating to instruments still held at the reporting date
		Included in earnings	Included in other comprehensive income
Available-for-sale fixed maturities
Asset-backed and mortgage-backed        securities	$       4,330	$        (123)	$           (260)	$                     -	$              -	$    3,947	$                          -
Foreign government	-	-	-	-	-	-	-
States and political subdivisions	-	-	-	-	-	-	-
U.S. Treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	9,039	120	(701)	(309)	2,062	10,211	-
Total available-for-sale fixed maturities	13,369	(3)	(961)	(309)	2,062	14,158	-
Trading fixed maturities
Asset-backed and mortgage-backed        securities	1,085,287	(207,056)	-	(228)	32,429	910,432	(206,600)
Foreign governments	63,331	(1,453)	-	229	-	62,107	(1,453)
States and political subdivisions	-	-	-	-	-	-	-
U.S. Treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	134,446	(15,892)	-	4,529	113,964	237,047	(14,875)
Total trading fixed maturities	1,283,064	(224,401)	-	4,530	146,393	1,209,586	(222,928)
Derivative instruments – receivable	24,073	5,927	-	-	-	30,000	5,927
Other invested assets	-	-	-	-	-	-	-
Cash and cash equivalents	-	-	-	-	-	-	-
Total investments and cash	1,320,506	(218,477)	(961)	4,221	148,455	1,253,744	(217,001)
Other assets
Separate account assets (1)	1,752,495	(15,088)	-	(161,839)	(384,250)	1,191,318	(23,409)
Total assets measured at fair value on a recurring basis	$ 3,073,001	$ (233,565)	$            (961)	$      (157,618)	$   (235,795)	$2,445,062	$         (240,410)

(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 three-month period ended March 31, 2008 are primarily attributable to changes in the observability of inputs used to price the securities.

29

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The following table shows a reconciliation of the beginning and ending balances for liabilities which are categorized as Level 3 for the three-month period ended March 31, 2008 (in 000’s):

Liabilities	Beginning balance	Total realized and unrealized gains (losses)		Purchases, issuances, and settlements (net)	Transfers in and/or (out) of level 3	Ending balance	Change in unrealized gains (losses) included in earnings relating to instruments still held at the reporting date
		Included in earnings	Included in other comprehensive income
Other policy liabilities
Guaranteed minimum withdrawal      benefit liability	$    10,151	$    14,881	$                  -	$              5,853	$             -	$   30,885	$               14,901
Guaranteed minimum accumulation      benefit liability	22,649	38,264	-	5,955	-	66,868	38,298
Derivatives embedded in reinsurance contracts	-	-	-	-	-	-	-
Fixed index annuities	392,017	(147,543)	-	1,245	-	245,719	(132,357)
Total other policy liabilities	424,817	(94,398)	-	13,053	-	343,472	(79,158)
Derivative instruments – payable	11,627	16,327	-	-	-	27,954	16,327
Total liabilities measured at fair value on     a recurring basis	$  436,444	$  (78,071)	$                   -	$             13,053	$             -	$ 371,426	$              (62,831)

30

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. FAIR VALUE MEASUREMENT (CONTINUED)

The FV Option

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

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

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

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

31

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses derivative financial instruments primarily for risk management purposes to hedge against specific interest rate risk, foreign currency exchange rates, equity market conditions, and to alter exposure arising from mismatches between assets and liabilities.  Derivative instruments are recorded in the condensed consolidated balance sheets at fair value and are presented as assets or liabilities as determined by calculating the gross position by legal entity, taking into account income accruals and cash collateral held.

The Company does not employ hedge accounting.  The Company believes that its derivatives provide economic hedges and the cost of formally documenting hedge effectiveness in accordance with the provisions of SFAS No.133 is not justified.  As a result, all changes in the fair value of derivatives are recorded in the current period operations as a component of net derivative income.

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

Swap Agreements

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

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

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

32

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Swap Agreements (continued)

On September 6, 2006 the Company entered into an agreement with the CARS Trust.  Through this agreement, the Company purchased a funded note, which is referenced through a credit default swap, as the seller of credit protection, to the credit performance of a portfolio of corporate reference entities.  The Company entered into this credit structure for yield enhancement.  As the sole beneficiary of the CARS Trust, the Company is required to consolidate this trust under the requirements of FIN 46(R).  As a result of the consolidation, the Company has recorded in its balance sheet a credit default swap held by the CARS Trust.   At issue, the swap had a seven year term, maturing in 2013.  Under the terms of the swap, the CARS Trust will be required to make payments to the swap counterparty upon the occurrence of a credit event, with respect to any reference entity, that is in excess of the threshold amount specified in the swap agreement.  At March 31, 2009 and December 31, 2008, the CARS Trust has not had to make any payments under the terms of the swap as the sum of all credit events has not exceeded the threshold amount.  At March 31, 2009 and December 31, 2008, the fair value of the credit default swap was $(39.1) million and $(42.1) million, respectively.  Under the terms of the credit derivative, the maximum future payments the CARS Trust could be required to make is $55.0 million.  In the event the trust was required to make any payments under the swap, the underlying assets held by the trust would be liquidated to fund the payment.  If the disposition of these assets is insufficient to fund the payment calculated, then under the terms of the agreement, the cash settlement amount would be capped at the amount of the proceeds from the sale of the underlying assets.  As of March 31, 2009 and December 31, 2008, the fair value of the assets held as collateral by the CARS Trust was $39.7 million and $42.3 million, respectively.

Swaptions

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

Futures

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

Call/Put Options

The Company utilizes over-the-counter (“OTC”) put options and exchange traded futures 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.  The Company also purchases OTC call options on major indices to economically hedge its obligation under certain fixed annuity contracts, as well as enhance income on the underlying assets.

33

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Embedded Derivatives

The Company issues annuity contracts and enters into reinsurance agreements that contain a derivative instrument that is embedded in the contract.  Upon issuing the contract, the embedded derivative is separated from the host contract (annuity contract or reinsurance agreement) and is carried at fair value.  See Note 9 for further information regarding derivatives embedded in annuity contracts; see Note 6 for further information regarding derivatives embedded in reinsurance contracts.

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

	As of December 31, 2008		As of March 31, 2009
	Number of Contracts	Principal Notional (in 000’s)	Number of Contracts	Principal Notional (in 000’s)
Interest rate swaps	218	$     14,036,100	198	$     12,809,600
Currency swaps	14	408,773	14	408,773
Credit default swaps	1	55,000	1	55,000
Equity swaps	2	4,908	2	4,908
Currency forwards	-	-	-	-
Swaptions	5	1,150,000	5	1,150,000
Futures	927	1,991,840	(9,456)	1,340,750
Index call options	8,081	1,166,148	7,200	1,078,958
Index put options	5,500	591,385	4,930	477,861
Total	14,748	$     19,404,154	2,894	$     17,325,850

34

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

The following is a summary of the Company’s derivative asset and liability positions by primary risk exposure as of March 31, 2009 (in 000’s).  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 condensed consolidated balance sheet.  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 condensed consolidated balance sheet.

	As of March 31, 2009
	Asset Derivatives		Liability Derivatives
		Fair Value (a)		Fair Value (a)
Interest rate contracts		$     413,170		$     1,174,381
Foreign currency contracts		46,210		2,405
Equity contracts		101,892		-
Credit contracts		-		39,143
Futures (b)		2,407		9,614
Embedded derivatives (c)		147,010		914,791
Total		$     710,689		$     2,140,334

(a)   Amounts are presented without consideration of master netting agreements and collateral.

(b)   Futures include both interest rate and equity price risks.

(c)   Embedded derivatives expose the Company to a combination of credit, interest rate and equity price risks.

The following is a summary of the Company’s realized and unrealized gains and losses by derivative type for the three-month period ended March 31, 2009 (in 000’s).  All realized and unrealized derivative gains and losses are recorded in net derivative income (loss) in the Company’s condensed consolidated statement of operations.

	For the Period Ended March 31, 2009
	Gain (Loss) Recognized in Income
Interest rate contracts	$     110,630
Foreign currency contracts	4,662
Equity contracts	7,706
Credit contracts	2,923
Futures	38,250
Embedded derivatives	(20,872)
Total	$     143,299

35

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

Concentration of Credit Risk

Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract.  With derivative instruments, the Company is primarily exposed to credit risk through its counterparty relationships.  The Company primarily manages credit risk through policies which address the quality of counterparties, contractual requirements for transacting with counterparties and collateral support agreements, and limitations on counterparty concentrations. Exposures by counterparty are monitored closely, as well as counterparty credit ratings.  All contracts are held with counterparties rated A or higher.  As of March 31, 2009, the Company’s liability positions were to a total of 16 counterparties, of which the largest single unaffiliated counterparty payable had credit exposure of $(118.9) million.

The Company’s asset positions were to a total of 21 counterparties, of which the largest single unaffiliated counterparty receivable had credit exposure of $81.2 million.

Credit-related Contingent Features

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

Credit-related triggers include failure to pay or deliver on an obligation past certain grace periods, bankruptcy, or the downgrade of credit ratings to below a stipulated level.  These apply to both the Company and its counterparty.  The aggregate value of all derivative instruments with credit risk-related contingent features that are in a liability position on March 31, 2009 is approximately $2.1 billion.

In the event of an early termination, the Company might be required to accelerate payments to counterparties, up to the current value of its liability positions, offset by the value of previously pledged collateral. If an early termination is triggered on March 31, 2009, the Company would be expected to settle a net obligation of approximately $1.7 billion.

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

At March 31, 2009, the Company has collateral of $385.5 million pledged to counterparties, including a combination of cash and US Treasury securities and other collateral. The Company is holding cash collateral posted by counterparties of $160.9 million.

36

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. REINSURANCE

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

Wealth Management Segment

The Wealth Management Segment manages a closed block of single premium whole life ("SPWL") insurance policies, a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of the SPWL product in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of $1.5 billion and $1.6 billion as of March 31, 2009 and December 31, 2008, respectively.  This entire block of business is reinsured on a funds withheld basis with SLOC, an affiliate.

Related to this agreement, the Company held the following assets and liabilities (in thousands) at:

	March 31,		December 31,
	2009		2008
Assets Reinsurance receivable	$	1,559,711	$	1,560,946
Other assets		-		38,998
Liabilities Contractholder deposit funds and other policy liabilities		1,413,158		1,428,331
Reinsurance payable		1,515,372		1,509,989

The funds withheld assets are comprised of trading bonds and mortgages that the Company manages.  The significant decline in the value of the funds withheld assets during the year ended December 31, 2008 increased the value of an embedded derivative which has been separated from the host reinsurance contract and recorded at fair value in the Company’s condensed consolidated balance sheet.  The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $130.2 million and $130.6 million at March 31, 2009 and December 31, 2008, respectively.  The Company records the embedded derivative in its condensed consolidated balance sheets as part of contractholder deposit funds and other policy liabilities.  The change in value of this embedded derivative decreased derivative income by $0.4 million for the three-month period ended March 31, 2009.  Reinsurance payable includes a funds withheld liability of $1,515.4 million and $1,510.0 million at March 31, 2009 and December 31, 2008, respectively.

By reinsuring the SPWL product, the Company reduced net investment income by $27.2 million and $21.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The Company also reduced interest credited by $19.0 million and $18.8 million for the three-month periods ended March 31, 2009 and 2008, respectively. In addition, the Company increased net investment income relating to an experience rate refund under the reinsurance agreement by $0.7 million and $1.6 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The liability for the SPWL policies is included in contractholder deposit funds and other policy liabilities.

37

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. REINSURANCE (CONTINUED)

Individual Protection Segment

The following are the Company’s significant reinsurance agreements that impact the Individual Protection Segment:

On February 11, 2009, the Company received regulatory approval and entered into a reinsurance agreement with BarbCo 3, an affiliate, to cede all of the risks associated with certain in-force corporate and bank owned variable universal life, and private placement variable universal life policies on a combination coinsurance, coinsurance with funds withheld and a modified coinsurance basis.  Future new business will also be ceded under this agreement.

At the inception of the transaction, BarbCo 3 paid an initial ceding commission to the Company of $41.5 million and the Company recorded a reinsurance payable and related reinsurance receivable of $370.7 million and 329.2 million, respectively.  The reinsurance payable included a funds withheld liability of $247.9 million and a deferred gain of $122.8 million.

Related to this agreement, the Company held the following assets and liabilities (in thousands) at:

	March 31,
	2009
Assets Reinsurance receivable	$	331,598
Liabilities Contractholder deposit funds and other policy liabilities		342,921
Reinsurance payable		374,411

Reinsurance payable includes a funds withheld liability of $251.7 million and deferred gain of $122.7 million at March 31, 2009.  The funds withheld assets are comprised of trading bonds being managed by the Company.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $3.3 million at March 31, 2009 and resulted in derivative income of $3.3 million for the three-month period ended March 31, 2009.  In addition, the reinsurance agreement has decreased revenues and expenses by approximately $8.1 million and $9.3 million, respectively, for the three-month period ended March 31, 2009.

38

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. REINSURANCE (CONTINUED)

Individual Protection Segment (continued)

The Company, through Sun Life Vermont, entered into a reinsurance agreement with SLOC effective November 8, 2007.  Pursuant to this reinsurance agreement, Sun Life Vermont will fund AXXX reserves, attributable to certain UL policies sold by SLOC through its United States branch (the "Branch").  Sun Life Vermont reinsures, on a coinsurance basis, a 100% quota share of SLOC's risk on the UL policies covered under the reinsurance agreement.  Sun Life Vermont's obligations will be secured in part through a reinsurance trust and in part on a funds-withheld basis.  Related to this agreement, Sun Life Vermont held the following assets and liabilities at (in thousands):

	March 31,		December 31,
	2009		2008
Assets Reinsurance receivable for funds withheld	$	923,258	$	1,105,722
Reinsurance receivable – other		26,737		19,686
Liabilities Contractholder deposit funds and other policy liabilities		862,956		813,387
Future contract and policy benefits		66,690		73,058
Other liabilities		-		12,004

At March 31, 2009, the funds withheld assets of $923.3 million are comprised of bonds, mortgages and derivatives and are held in a separate trust account for the protection of policyholders and claimants of the Branch.  The assets of the trust are managed by SLOC with all of the investment returns, net of expenses, inuring to the Company.  The funds withheld asset is reported as reinsurance receivable.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $121.0 million and a $91.8 million at March 31, 2009 and December 31, 2008, respectively.  The change in value of this embedded derivative decreased derivative income by $29.2 million and $15.9 million for the three month period ended March 31, 2009 and 2008, respectively.  The Company records embedded derivative as part of contractholder deposit funds and other policy liabilities.

In addition, the reinsurance agreement has (decreased) increased revenues by approximately $(129.2) million and $25.2 million for the three-month periods ended March 31, 2009 and 2008, respectively, and (decreased) increased expenses by $(11.7) million and $14.0 million for the three-month period ended March 31, 2009 and 2008, respectively.

39

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. REINSURANCE (CONTINUED)

Individual Protection Segment (continued)

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

	March 31,		December 31,
	2009		2008
Assets Reinsurance receivables	$	90,506	$	77,628
Other assets		-		2,676
Liabilities Contractholder deposit funds and other policy liabilities		64,298		63,210
Future contract and policy benefits		4,509		3,162
Reinsurance payable		148,998		140,832
Other liabilities		-		1,057

Reinsurance payable includes a funds withheld liability of $98.7 million and $89.4 million at March 31, 2009 and December 31, 2008, respectively; and a deferred gain of $49.8 million and $51.4 million at March 31, 2009 and December 31, 2008, respectively.  The funds withheld assets comprised of trading fixed maturity securities and mortgage loans being managed by SLNY.  The coinsurance treaty with funds withheld gives rise to an embedded derivative requiring that it be separated from the host reinsurance contract.  The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $13.5 million and $12.0 million at March 31, 2009 and December 31, 2008, respectively.  The change in the value of this embedded derivative resulted in derivative income of $1.5 million and $0.5 million for the three-month periods ended March 31, 2009 and 2008, respectively.

In addition, the reinsurance agreement between SLOC and SLNY has decreased revenues by approximately $2.3 million and $5.3 million for the three-month periods ended March 31, 2009 and 2008, respectively, and decreased benefits and expenses by approximately $5.3 million and $2.3 million for the three-month periods ended March 31, 2009 and 2008, respectively.

The Company has other agreements with SLOC and several unrelated companies, which provide for reinsurance of portions of the net-amount-at-risk under certain individual variable universal life, individual private placement variable universal life, bank owned life insurance (“BOLI”), and corporate owned life insurance (“COLI”) policies. These amounts are reinsured on either a monthly renewable term, a yearly renewable term or a modified coinsurance basis.  These other agreements have decreased revenues by approximately $42.3 million and $32.6 million for the three-month periods ended March 31, 2009 and 2008, respectively, and decreased expenses by approximately $30.0 million and $24.6 million for the three-month periods ended March 31, 2009 and 2008, respectively.

40

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. REINSURANCE (CONTINUED)

Group Protection Segment

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

The Company, through its subsidiary, SLNY, has an agreement, effective May 31, 2007, to assume the net risks of SLHIC’s New York issued contracts.  At March 31, 2009, SLNY held policyholder liabilities related to this contract of $31.8 million.  In addition, the reinsurance agreement has increased revenues by approximately $14.0 million and $13.3 million for the three-month periods ended March 31, 2009 and 2008, respectively, and benefits and expenses by approximately $10.7 million and $12.6 million for the three-month periods ended March 31, 2009 and 2008, respectively.

7. COMMITMENTS AND CONTINGENT LIABILITIES

Regulation and Regulatory Developments

Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments.  Part of the assessments paid by the Company pursuant to these laws may be used as credits for a portion of the associated premium taxes.

Litigation, Income Taxes and Other Matters

In Revenue Ruling 2007-61, issued on September 25, 2007, the Internal Revenue Service (“IRS”) announced its intention to issue regulations with respect to certain computational aspects of the dividends-received-deduction (the “DRD”) on separate account assets held in connection with variable annuity contracts.  Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54, issued on August 16, 2007, that purported to change accepted industry and IRS interpretations of the statutes governing computational questions impacting the DRD.  New DRD regulations that the IRS proposes for issuance on this matter will be subject to public comment, at which time the insurance industry and other interested parties will have the opportunity to raise comments and questions about the content, scope and application of new regulations.  The timing, substance, and effective date of the new regulations are unknown, but they could result in the elimination of some or all of the separate account DRD tax benefit that the Company ultimately receives.  For the three-month periods ended March 31, 2009 and 2008, the Company recorded benefit of $4.1 million and $3.0 million, respectively, related to the separate account DRD.

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

Indemnities

In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, underwriting and agency agreements, information technology agreements, distribution agreements and service agreements.  The Company has also agreed to indemnify its directors and certain of its officers and employees in accordance with the Company’s by-laws.  The Company believes any potential liability under these agreements is neither probable nor estimatable. Therefore, the Company has not recorded any associated liability.

41

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.  RETIREMENT PLANS

Prior to December 31, 2008, the Company sponsored three non-contributory defined benefit pension plans for its employees and certain affiliated employees.  These plans were the staff qualified pension plan (“staff pension plan”), the agents’ qualified pension plan (“agents’ pension plan”) and the staff nonqualified pension plan (“UBF plan”) (collectively, the “Pension Plans”).  Expenses are allocated to participating companies based in a manner consistent with the allocation of employee compensation expenses.

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

The Company sponsors a postretirement benefit plan for its employees and certain affiliated employees providing certain health, dental and life insurance benefits for retired employees and dependents (the “Other Benefit Plan”).  Expenses are allocated to participating companies based on the number of participants.

The following table sets forth the components of the Company’s net periodic pension cost for the three-month periods ended March 31 (in 000’s):

	2009		2008
	Pension Plans	Other Benefit Plan	Pension Plans	Other Benefit Plan
Components of net periodic benefit cost:
Service cost	$                     649	$                 438	$ 880	$ 404
Interest cost	4,358	805	4,154	833
Expected return on plan assets	(3,702)	-	(5,743)	-
Amortization of transition obligation asset	(523)	-	(523)	-
Amortization of prior service cost	84	(132)	84	(132)
Recognized net actuarial loss (gain)	696	95	(198)	229
Net periodic cost (benefit)	1,562	1,206	$              (1,346)	$1,334
The Company’s share of net periodic benefit cost (benefit)	$                 1,562	$                949	$ (1,346)	$ 1,160

42

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.  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 March 31, 2009 (in 000’s, except age data):

Benefit Type	Account Balance	Net Amount at Risk 1	Average Attained Age
Minimum death	12,030,300	5,029,011	67.4
Minimum income	173,697	139,006	60.9
Minimum accumulation and withdrawal	5,078,752	1,113,715	63.8

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2008:

Benefit Type	Account Balance	Net Amount at Risk 1	Average Attained Age
Minimum Death	$          12,627,787	$           4,398,559	66.7
Minimum Income	$               189,863	$              130,177	60.8
Minimum Accumulation or Withdrawal	$            4,961,237	$              857,764	63.0

1   Net amount at risk represents the difference between guaranteed benefits and account balance.

The following roll-forward summarizes the change in reserve for the Company’s guaranteed minimum death and income benefits at March 31, 2009 (in 000’s):

	Guaranteed Minimum Death Benefit	Guaranteed Minimum Income Benefit	Total
Balance at December 31, 2008	$             201,648	$            18,773	$          220,421
Benefit ratio change / Assumption changes	48,727	5,201	53,928
Incurred guaranteed benefits	10,436	1,146	11,582
Paid guaranteed benefits	(36,172)	(963)	(37,135)
Interest	4,058	340	4,398
Balance at March 31, 2009	$            228,697	$           24,497	$         253,194

43

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.  LIABILITIES FOR CONTRACT GUARANTEES (CONTINUED)

The following roll-forward summarizes the change in reserve for the Company’s guaranteed minimum death and income benefits at March 31, 2008 (in 000’s):

	Guaranteed Minimum Death Benefit	Guaranteed Minimum Income Benefit	Total
Balance at December 31, 2007	$                39,673	$              4,817	$            44,490
Benefit ratio change / Assumption changes	25,315	(534)	24,781
Incurred guaranteed benefits	1,347	234	1,581
Paid guaranteed benefits	(10,599)	(242)	(10,841)
Interest	940	86	1,026
Balance at March 31, 2008	$                56,676	$              4,361	$            61,037

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 guarantees are developed using models and stochastic scenarios that are also used in the development of estimated expected future gross profits.  Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based upon factors such as eligibility conditions and the annuitant’s attained age.

The liability for guarantees is re-evaluated regularly, and adjustments are made to the liability balance through a charge or credit to policyholder benefits.

Guaranteed minimum accumulation benefits (“GMABs”) and withdrawal benefits (“GMWBs”) are considered to be derivatives under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and are recorded at fair value through earnings.  Consistent with the provisions of SFAS No. 157, effective January 1, 2008, the Company began incorporating actively-managed volatility adjustments, a credit standing adjustment, and a behavior risk margin in its calculation of the embedded derivative.  The net balance of GMABs and GMWBs constituted a liability in the amount of $703.7 million and $694.2 million at March 31, 2009 and December 31, 2008, respectively.  The Company records GMAB and GMWB reserves in its condensed consolidated balance sheets as part of contractholder deposit funds and other policy liabilities.

44

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. GOODWILL

Goodwill represents the intangible asset related to the transfer of goodwill to SLNY, based on the SLHIC to SLNY asset transfer, effective May 31, 2007.  Goodwill is allocated to the Group Protection Segment.  In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill is tested for impairment on an annual basis.  The Company will complete the required impairment tests of goodwill and indefinite-lived intangible assets during the second quarter of 2009.

No events occurred during the current quarter that would require an interim impairment test of the goodwill.

11. SECURITIES LENDING

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

As of March 31, 2009 and December 31, 2008, the fair value of the loaned securities was approximately $68.6 million and $175.0 million, respectively, and was included in fixed maturities, available-for-sale, and cash and cash equivalents in the Company’s condensed consolidated balance sheets.  The Company recorded cash collateral relating to the securities lending program in the amount of $122.5 million and $183.5 million as of March 31, 2009 and December 31, 2008, respectively, all of which was re-invested in certain cash instruments and other available-for-sale securities.  As of December 31, 2008, the Company recorded the collateral investments at fair value in the condensed consolidated balance sheet in other invested assets.  At March 31, 2009, the Company recorded the collateral investments at fair value in the condensed consolidated balance sheets in available-for-sale securities and cash and cash equivalent.  The fair value of the collateral investments at March 31, 2009 and December 31, 2008 was $119.8 million and $179.9 million, respectively.

The Company earns income from the reinvestment of the cash collateral.  The Company recorded before-tax income from securities lending transactions, net of lending fees, of $0.4 million and $0.9 million for the three-month periods ended March 31, 2009 and 2008, respectively, which was included in net investment income.

45

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. INCOME TAXES

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

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

The Company’s net deferred tax asset is comprised of gross deferred tax assets, gross deferred tax liabilities and a valuation allowance.  The gross deferred tax assets are primarily related to unrealized investment security losses, policyholder reserves, and a net operating loss (“NOL”) carryforward, which, if unutilized, will expire in 2023.  The Company’s net deferred tax asset was $849.3 million and $856.8 million at March 31, 2009 and December 31, 2009, respectively.

The Company has established a valuation allowance for deferred tax assets that do not meet the more likely than not realization criteria.  The valuation allowance was $79.7 million and $79.9 million at March 31, 2009 and December 31, 2008, respectively, and related to certain deferred tax assets that arose from investment losses.  The Company believes that it is more likely than not that the deferred tax assets related to the remaining unrealized investment losses will be realized due to the Company’s intent and ability to hold the related investment securities to recovery of value.

13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The following Condensed Consolidating financial statements are provided in compliance with Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”) and in accordance with SEC Rule 12h-5.

The Company’s wholly-owned subsidiary, SLNY, sells, among other products, combination fixed and variable annuity contracts (the “contracts”) in the State of New York.  The 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 relieves SLNY of its obligation to file annual, quarterly, and current reports with the SEC on Form 10-K, Form 10-Q, and Form 8-K.

46

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

In the following presentation of Condensed Consolidating financial statements, the term "SLUS as Parent" is used to denote the Company as a stand alone entity, isolated from its subsidiaries, and the term "Other Subs" is used to denote the Company's other subsidiaries, with the exception of SLNY.  All Condensed Consolidating financial statements are presented in thousands.

Condensed Consolidating Statements of Operations

For the three-month period ended March 31, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Revenues
Premiums and annuity considerations	$	1,513	$	31,027	$	-	$	-	$	32,540
Net investment income (loss) (1)		125,567		16,796		(124,869)		-		17,494
Net derivative income (loss)		129,250		596		13,453		-		143,299
Net realized investment (losses) gains		(1.946)		(1)		50		-		(1,897)
Fee and other income		76,114		(987)		(37,500)		-		37,627
Total revenues		330,498		47,431		(148,866)		-		229,063
Benefits and Expenses
Interest credited		100,107		12,212		8,716		-		121,035
Interest expense		11,278		802		7,239		-		19,319
Policyowner benefits		82,554		19,088		(9,427)		-		92,215
Amortization of DAC, VOBA and VOCRA		(96,718)		(10,706)		(14,466)		-		(121,890)
Other operating expenses		36,358		9,802		5,149		-		51,309
Total benefits and expenses		133,579		31,198		(2,789)		-		161,988
Income (loss) before income tax expense (benefit)		196,919		16,233		(146,077)		-		67,075
Income tax expense (benefit)		68,394		3,958		(54,891)				17,461
Equity in the net loss of subsidiaries		(78,911)		-		-		78,911		-
Net income (loss)	$	49,614	$	12,275	$	(91,186)	$	78,911	$	49,614

 (1)SLUS’, SLNY’s and Other Subs’ net investment income (loss) includes a decrease in market value of trading fixed maturity securities of $28.7 million, $1.2 million and $80.7 million, respectively, for the three-month period ended March 31, 2009.

47

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Operations

For the three-month period ended March 31, 2008

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Revenues
Premiums and annuity considerations	$	4,699	$	24,942	$	-	$	-	$	29,641
Net investment (loss) income (1)		(271,760)		(16,614)		12,107		-		(276,267)
Net derivative loss (2)		(43,750)		(2,606)		(33,844)		-		(80,200)
Net realized investment gains		2,725		-		9		-		2,734
Fee and other income		105,329		5,158		16,356		-		126,843
Total revenues		(202,757)		10,880		(5,372)		-		(197,249)
Benefits and Expenses
Interest credited		130,091		11,484		7,552		-		149,127
Interest expense		16,717		40		14,320		-		31,077
Policyowner benefits		43,261		21,518		5,634		-		70,413
Amortization of DAC, VOBA and VOCRA (3)		(250,525)		(19,160)		(2,962)		-		(272,647)
Other operating expenses		55,228		14,534		7,779		-		77,541
Total benefits and expenses		(5,228)		28,416		32,323		-		55,511
Loss before income tax benefit		(197,529)		(17,536)		(37,695)		-		(252,760)
Income tax benefit		(73,748)		(6,248)		(13,237)		-		(93,233)
Equity in the net loss of subsidiaries		(35,746)		-		-		35,746		-
Net loss	$	(159,527)	$	(11,288)	$	(24,458)	$	35,746	$	(159,527)

(1)SLUS’, SLNY’s and Other Subs’ net investment (loss) income includes a decrease in market value of trading fixed maturity securities of $514.2 million, $36.5 million and $43.5 million, respectively, for the three-month period ended March 31, 2008.

(2)SLUS’ and SLNY’s net derivative loss for the three-month period ended March 31, 2008 includes $165.8 million and $0.3 million, respectively, of income related to the Company’s adoption of SFAS No. 157, which is further discussed in Note 4.

(3)SLUS’ and SLNY’s amortization of DAC, VOBA, and VOCRA for the three-month period ended March 31, 2008 includes $3.0 million and $0.2 million, respectively, of expenses related to the Company’s adoption of SFAS No. 157, which is further discussed in Note 4.

48

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Balance Sheets at March 31, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
ASSETS
Investments
Available-for-sale fixed maturities at fair value	$	511,519	$	139,697	$	49,203	$	-	$	700,419
Trading fixed maturities at fair value		9,404,389		958,609		1,038,637		-		11,401,635
Investment in subsidiaries		409,451		-		-		(409,451)		-
Mortgage loans		1,876,069		169,249		5,533		-		2,050,851
Derivative instruments – receivable		563,679		-		-		-		563,679
Limited partnerships		57,158		-		-		-		57,158
Real estate		156,717		-		43,867		-		200,584
Policy loans		700,837		153		24,033		-		725,023
Other invested assets		30,318		45		-		-		30,363
Cash and cash equivalents		2,202,612		310,282		289,449		-		2.802,343
Total investments and cash		15,912,749		1,578,035		1,450,722		(409,451)		18,532,055
Accrued investment income		218,285		14,032		17,413		-		249,730
Deferred policy acquisition costs		2,745,299		254,437		99,075		-		3,098,811
Value of business and customer renewals acquired		154,080		9,994		-		-		164,074
Net deferred tax asset		850,128		21,576		-		(22,376)		849,328
Goodwill		-		7,299		-		-		7,299
Receivable for investments sold		3,530		489		297		-		4,316
Reinsurance receivable		2,241,075		98,812		945,376		-		3,285,263
Other assets		181,731		27,691		1,824		-		211,246
Separate account assets		19,184,837		651,670		40,347		-		19,876,854
Total assets	$	41,491,714	$	2,664,035	$	2,555,054	$	(431,827)	$	46,278,976
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	15,407,158		1,400,929		895,768		-		17,703,855
Future contract and policy benefits		876,973		95,119		67,117		-		1,039,209
Payable for investments purchased		166,101		36		13		-		166,150
Accrued expenses and taxes		50,066		(15,752)		57,552		-		91,866
Net deferred income tax liability		-		-		22,376		(22,376)		-
Debt payable to affiliates		883,000		-		1,165,000		-		2,048,000
Reinsurance payable		1,892,733		149,804		-		-		2,042,537
Derivative instruments – payable		1,104,284		-		121,259		-		1,225,543
Other liabilities		487,399		48,636		109,764		-		645,799
Separate account liabilities		19,184,837		651,670		40,347		-		19,876,854
Total liabilities		40,052,551		2,330,442		2,479,196		(22,376)		44,839,813
STOCKHOLDER’S EQUITY
Common stock	$	6,437	$	2,100	$	2,542	$	(4,642)	$	6,437
Additional paid-in capital		3,495,894		389,963		255,300		(645,263)		3,495,894
Accumulated other comprehensive loss		(159,242)		(27,343)		(3,924)		31,267		(159,242)
Retained earnings		(1,903,926)		(31,127)		(178,060)		209,187		(1,903,926)
Total stockholder’s equity		1,439,163		333,593		75,858		(409,451)		1,439,163
Total liabilities and stockholder’s equity	$	41,491,714	$	2,664,035	$	2,555,054	$	(431,827)	$	46,278,976

49

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Balance Sheets at December 31, 2008

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
ASSETS
Investments
Available-for-sale fixed maturities at fair value	$	476,180	$	148,124	$	49,716	$	-	$	674,020
Trading fixed maturities at fair value		9,639,477		988,809		1,133,860		-		11,762,146
Investment in subsidiaries		450,444		-		-		(450,444)		-
Mortgage loans		1,911,114		171,889		-		-		2,083,003
Derivative instruments – receivable		727,103		-		-		-		727,103
Limited partnerships		78,289		-		-		-		78,289
Real estate		157,403		-		44,067		-		201,470
Policy loans		704,548		156		24,703		-		729,407
Other invested assets		206,902		4,529		-		-		211,431
Cash and cash equivalents		1,202,336		377,958		43,855		-		1,624,149
Total investments and cash		15,553,796		1,691,465		1,296,201		(450,444)		18,091,018
Accrued investment income		250,170		15,226		17,168		-		282,564
Deferred policy acquisition costs		2,555,042		233,401		73,958		-		2,862,401
Value of business and customer renewals acquired		169,083		10,742		-		-		179,825
Net deferred tax asset		910,344		22,627		-		(76,126)		856,845
Goodwill		-		7,299		-		-		7,299
Receivable for investments sold		6,743		430		375		-		7,548
Reinsurance receivable		1,872,687		82,976		1,120,952		-		3,076,615
Other assets		200,218		20,835		1,787		-		222,840
Separate account assets		19,797,280		690,524		43,920		-		20,531,724
Total assets	$	41,315,363	$	2,775,525	$	2,554,361	$	(526,570)	$	46,118,679
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	15,351,097	$	1,348,109	$	846,515	$	-	$	17,545,721
Future contract and policy benefits		847,228		93,975		73,485		-		1,014,688
Payable for investments purchased		212,788		150,160		565		-		363,513
Accrued expenses and taxes		81,362		(21,325)		58,634		-		118,671
Deferred tax liability		-		-		76,126		(76,126)		-
Debt payable to affiliates		883,000		-		1,115,000		-		1,998,000
Reinsurance payable		1,509,989		140,832		-		-		1,650,821
Derivative instruments – payable		1,327,126		-		167,215		-		1,494,341
Other liabilities		510,238		44,597		51,110		-		605,945
Separate account liabilities		19,797,280		690,524		43,920		-		20,531,724
Total liabilities		40,520,108		2,446,872		2,432,570		(76,126)		45,323,424
STOCKHOLDER’S EQUITY
Common stock	$	6,437	$	2,100	$	2,542	$	(4,642)	$	6,437
Additional paid-in capital		2,872,242		389,963		209,749		(599,712)		2,872,242
Accumulated other comprehensive loss		(129,884)		(20,008)		(3,626)		23,634		(129,884)
Accumulated deficit		(1,953,540)		(43,402)		(86,874)		130,276		(1,953,540)
Total stockholder’s equity		795,255		328,653		121,791		(450,444)		795,255
Total liabilities and stockholder’s equity	$	41,315,363	$	2,775,525	$	2,554,361	$	(526,570)	$	46,118,679

50

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flow

For the three-month period ended March 31, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Operating Activities:
Net income (loss)	$	49,614	$	12,275	$	(91,186)	$	78,911	$	49,614
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net amortization of premiums on investments		8,934		146		(456)		-		8,624
Amortization of DAC, VOBA and VOCRA		(96,718)		(10,706)		(14,466)		-		(121,890)
Depreciation and amortization		1,457		78		215		-		1,750
Net losses on derivatives		(172,068)		(596)		(16,742)		-		(189,406)
Net realized gains (losses) on available-for-sale investments		1,946		1		(50)		-		1,897
Changes in fair value of trading investments		28,698		1,182		80,699		-		110,579
Net realized losses on trading investments		44,848		49		483		-		45,380
Undistributed loss in private equity limited partnerships		(1,481)		-		-		-		(1,481)
Interest credited to contractholder deposits		100,107		12,212		8,716		-		121,035
Equity in net (income) loss of Subsidiaries		78,911						(78,911)		-
Deferred federal income taxes		71,915		4,999		(53,591)		-		23,323
Equity in net income of subsidiaries		-		-		-		-		-
Changes in assets and liabilities:
Additions to DAC, VOBA and VOCRA		(78,536)		(9,581)		(10,652)		-		(98,769)
Accrued investment loss (income)		31,885		1,194		(245)		-		32,834
Net reinsurance receivable/payable		44,162		(6,055)		175,576		-		213,683
Future contract and policy benefits		29,745		1,144		(6,368)		-		24,521
Other, net		(704)		(141,216)		57,535		-		(84,385)
Net cash provided by (used in) operating activities	$	142,715	$	(134,874)	$	129,468	$	-	$	137,309
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturities		9,570		60		85		-		9,715
Trading fixed maturities		170,164		28,748		14,594		-		213,506
Mortgage loans		59,542		2,640		-		-		62,182
Other invested assets		206,907		1,595		-		-		208,502
Purchases of:								-
Available-for-sale fixed maturities		(925)		-		-		-		(925)
Trading fixed maturities		(19,163)		-		(552)		-		(19,715)
Mortgage loans		(26,113)		-		(5,533)		-		(31,646)
Real estate		(399)		-		(15)		-		(414)
Other invested assets		(14,925)		(15)		-		-		(14,940)
Net change in other investments		(59,107)		(1,903)		-		-		(61,010)
Net change in policy loans		3,711		3		670		-		4,384
Net cash provided by investing activities	$	329,262	$	31,128	$	9,249	$	-	$	369,639

Continued on next page

51

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flow (continued)

For the three-month period ended March 31, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	620,364	$	106,564	$	13,470	$	-	$	740,398
Withdrawals from contractholder deposit funds		(651,886)		(66,169)		(2,144)		-		(720,199)
Additional capital contributed to subsidiaries		(45,551)		-		-		45,551		-
Capital contribution from Parent		623,652		-		45,551		(45,551)		623,652
Debt proceeds		-		-		50,000		-		50,000
Other, net		(18,280)		(4,325)		-		-		(22,605)
								-
Net cash provided by financing activities		528,299		36,070		106,877		-		671,246
Net change in cash and cash equivalents		1,000,276		(67,676)		245,594		-		1,178,194
Cash and cash equivalents, beginning of period		1,202,336		377,958		43,885		-		1,624,149
Cash and cash equivalents, end of period	$	2,202,612	$	310,282	$	289,449	$	-	$	2,802,343

52

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flow

For the three-month period ended March 31, 2008

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Operating Activities:
Net loss	$	(159,527)	$	(11,288)	$	(24,458)	$	35,746	$	(159,527)
Adjustments to reconcile net loss to net cash     provided by (used in) operating activities:
Net amortization of premiums on investments		6,354		621		(464)		-		6,511
Amortization of DAC, VOBA and VOCRA		(250,525)		(19,160)		(2,962)		-		(272,647)
Depreciation and amortization		1,312		76		151		-		1,539
Net losses on derivatives		31,141		2,605		33,746		-		67,492
Net realized gains on available-for-sale investments		(2,725)		-		(9)		-		(2,734)
Changes in fair value of trading investments		514,267		36,501		43,473		-		594,241
Net realized (gains) losses on trading investments		(5,100)		18		(2,989)				(8,071)
Undistributed income in private equity limited    partnerships		(5,553)		-		-		-		(5,553)
Interest credited to contractholder deposits		130,091		11,484		7,552		-		149,127
Deferred federal income taxes		(80,694)		(6,788)		(1,999)		-		(89,481)
Equity in net loss of subsidiaries		35,746		-		-		(35,746)		-
Changes in assets and liabilities:
Additions to DAC, VOBA and VOCRA		(55,898)		(1,728)		(20,731)		-		(78,357)
Accrued investment loss (income)		21,284		(249)		(10,471)		-		10,564
Net reinsurance receivable/payable		100,477		55,998		(72,123)		-		84,352
Future contract and policy benefits		6,441		1,805		2,289		-		10,535
Other, net		(37,485)		(2,511)		20,169		-		(19,827)
Net cash provided by (used in) operating activities		249,606		67,384		(28,826)		-		288,164
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturities		11,407		994		1,246		-		13,647
Trading fixed maturities		428,438		46,454		104,338		-		579,230
Mortgage loans		158,626		2,627		12		-		161,265
Other invested assets		13,737		-		-		-		13,737
Purchases of:
Available-for-sale fixed maturities		(9,347)		(3,036)		(32,680)		-		(45,063)
Trading fixed maturities		(294,419)		(69,316)		(667,436)		-		(1,031,171)
Mortgage loans		(16,024)		(3,400)		(5,500)		-		(24,924)
Real estate		(2,132)		-		(127)		-		(2,259)
Other invested assets		(270,734)		10,515		-		-		(260,219)
Net change in other investments		243,665		(10,515)		-		-		233,150
Net change in policy loans		(448)		3		514		-		69
Net cash provided by (used in) investing activities	$	262,769	$	(25,674)	$	(599,633)	$	-	$	(362,538)

Continued on next page

53

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

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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flow (continued)

For the three-month period ended March 31, 2008

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	350,703	$	43,505	$	25,120	$	-	$	419,328
Withdrawals from contractholder deposit funds		(814,575)		(97,146)		(1,613)		-		(913,334)
Other, net		(16,656)		(5,014)		-		-		(21,670)
Net cash (used in) provided by financing activities		(480,528)		(58,655)		23,507		-		(515,676)
Net change in cash and cash equivalents		31,847		(16,945)		(604,952)		-		(590,050)
Cash and cash equivalents, beginning of period		415,494		65,901		688,306		-		1,169,701
Cash and cash equivalents, end of period	$	447,341	$	48,956	$	83,354	$	-	$	579,651

14. SUBSEQUENT EVENTS

Capital Contribution

On May 14, 2009, the Company received an additional capital cash contribution of $125.0 million from the Parent.

54

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

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

Item 2. Management’s Discussion and Analysis of Financial Position and Results of Operations.

Pursuant to General Instruction H(2)(a) of Form 10-Q, the registrant, Sun Life Assurance Company of Canada (U.S.) (“the Company”), elects to omit the Management’s Discussion and Analysis of Financial Position and Results of Operations.  Below is an analysis of the Company’s results of operations that explains material changes in the Condensed Consolidated Statements of Income between the three-month periods ended March 31, 2009 and March 31, 2008.

CAUTIONARY STATEMENT

This quarterly report on Form 10-Q may include forward-looking statements by the Company under the Private Securities Litigation Reform Act of 1995. These statements are not matters of historical fact; they relate to such topics as future product sales, volume growth, market share, market and interest rate risk and financial goals. It is important to understand that these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those that the statements anticipate, including but not limited to those set forth in Part I, Item IA, Risk Factors, in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008.

CRITICAL ACCOUNTING POLICIES

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

The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability: deferred policy acquisition costs ("DAC"), the value of business acquired (“VOBA”), the value of customer renewals acquired (“VOCRA”), derivative instruments, the fair value of financial instruments, policy liabilities and accruals, other-than-temporary impairments of investments, goodwill and income taxes.  In developing these estimates, management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements. For discussion of the Company’s critical accounting estimates, please refer to Management’s Discussion and Analysis of Financial Position and Result of Operations in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.

55

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

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

RESULTS OF OPERATIONS

Three-month period ended March 31, 2009 compared to the three-month period ended March 31, 2008:

Net Income

The Company’s net income (loss) was $49.6 million and $(159.5) million for the three-month periods ended March 31, 2009 and 2008, respectively.  Income (loss) before income taxes was $67.1 million and $(252.8) million for the three-month periods ended March 31, 2009 and 2008, respectively.  The significant changes are described below.

REVENUES

Total revenues were $229.1 million and $(197.2) million for the three-month periods ended March 31, 2009 and 2008, respectively. The increase of $426.3 million was primarily due to the following:

Premium and annuity considerations - were $32.5 million and $29.6 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $2.9 million increase was primarily attributable to a $5.6 million increase in group disability premiums and $3.6 million increase in group stop loss premiums offset by $3.3 million decrease in group health premiums and $3.2 million decrease in annuity considerations.

Net investment income (loss) - was $17.5 million and $(276.3) million for the three-month periods ended March 31, 2009 and 2008, respectively.  Investment income, excluding the mark to market of the trading portfolio, partnership income, and assumed and ceded investment income, was $217.6 million and $299.9 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The decrease of $82.2 million during 2009, as compared to 2008, was the result of a lower average investment yield which decreased investment income by $82.8 million, offset by an increase in average invested assets, which increased investment income by $0.6 million.

Investment loss related to changes in the market value of securities in the trading portfolio and changes in the value of partnership investments was $108.2 million and $587.8 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The change in the market value of the trading portfolio was primarily related to improvement in the market conditions in the three-month period ended March 31, 2009 as compared to the three-month period ended March 2008.  Credit spreads were flat in the three-month period ended March 31, 2009, as compared to widening credit spreads that were greater than the overall decrease in risk free rates during the three-month period ended March 31, 2008.

Investment income on funds withheld reinsurance portfolios is included as a component of net investment income.

The increase in investment income was offset by $95.3 million decrease in assumed investment income and an $8.3 million increase in ceded investment income under funds withheld reinsurance agreements during three-month period ended March 31, 2009, as compared to the three-month period ended March 31, 2008.  The assumed investment income relates to the funds withheld reinsurance agreement between Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”), a subsidiary of the Company, and Sun Life Assurance Company of Canada (“SLOC”), an affiliate.  The change in ceded investment income primarily relates to the funds withheld reinsurance agreement between the Company and SLOC for single premium whole life (“SPWL”) policies.

Net derivative income (loss) - was $143.3 million and $(80.2) million for the three-month periods ended March 31, 2009 and 2008, respectively.  Derivative income primarily represent fair value changes of interest rate swaps resulting from decreasing interest rates and the net interest received or paid on swap agreements.  Generally, as interest rates decline, the market value of the Company's interest rate swaps decreases.  This is due to the fact that in most instances the Company is paying a fixed interest rate and receiving a floating rate on the swaps.

56

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

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

RESULTS OF OPERATIONS (CONTINUED)

Derivative income for the three-month periods ended March 31, 2009 and 2008 includes an increase (decrease) of $144.0 million and $(199.2) million , respectively, related to increase (decrease) in the fair value of interest rate swap agreements as a result of change in the applicable interest rate.  The change in derivative income in the three-month period ended March 31, 2009 as compared to the three-month period ended March 31, 2008 was also due to a $143.7 million increase related to change in the fair value of call options and futures.

The net (loss) income on embedded derivative liabilities for the three-month periods ended March 31, 2009 and 2008, was ($20.9) million and $225.6 million, respectively.  The income on embedded derivative for the three-month ended March 31, 2008 included $166.1 million related to the decrease in the value of embedded derivative liabilities, upon the Company’s adoption of SFAS No. 157 on January 1, 2008.

All derivatives are recognized on the balance sheet at fair value.  Net interest received or paid on swap agreements and changes in the fair value of derivatives are reported in current period operations as a component of net derivative income (loss).  The Company believes that these derivatives provide economic hedges and the cost of formally documenting the effectiveness of the fair value of the hedged items in accordance with the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is not justified at this time.

The Company issues annuity contracts and certain funding agreements that contain a derivative instrument that is embedded in the contract.  Upon issuing the contract, the embedded derivative is separated from the host contract (annuity contract or funding agreement) and is carried at fair value. The Company also purchases call options and futures on the Standard & Poor’s 500 Composite Stock Price Index ("S&P 500 Index") ("S&P", "S&P 500", and "Standard & Poor’s" are trademarks of The McGraw Hill Companies, Inc. and have been licensed for use by the Company) and other major indices to economically hedge its obligations under certain fixed index annuity contracts.  Certain funding agreement contracts are highly-individualized and typically involve the issuance of foreign currency denominated contracts backed by cross currency swaps or equity-linked cross currency swaps.  The combination of these swaps with interest rate swaps allows the Company to lock in U.S. dollar fixed rate payments for the life of the funding agreement.

As a component of its investment strategy and to reduce its exposure to interest rate risk, the Company utilizes interest rate swap agreements.  Interest rate swap agreements are agreements to exchange with a counterparty interest rate payments of differing character (e.g., fixed-rate payments exchanged for floating-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. The Company also utilizes equity and interest rate derivatives to hedge against stock market exposure inherent in the guaranteed minimum living and death benefit features of the Company's variable annuities.

Net derivative income (loss) consisted of the following (in 000’s):

	Three-month periods ended March 31,
	2009	2008
Net expense on swap agreements	$                (23,261)	(6,257)
Change in fair value of swap agreements    (interest rate, currency, and equity)	144,029	(199,218)
Change in fair value of options, futures and    embedded derivatives	22,531	125,275
Total derivative income (loss)	$               143,299	(80,200)

57

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

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

RESULTS OF OPERATIONS (CONTINUED)

Net realized investment (losses) gains - were $(1.9) million and $2.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The Company did not incur any write-downs of available-for-sale fixed maturity securities related to other-than-temporary impairments during the three-month periods ended March 31, 2009 and 2008.

Fees and other income – were $37.6 million and $126.8 million for the three-month periods ended March 31, 2009 and 2008, respectively.  Fees and other income consist primarily of mortality and expense charges, rider fees, surrender charges and other income.  Mortality and expense charges and rider fees are based on the market values of the assets in the separate accounts supporting the contract.  Mortality and expense charges and rider fees combined were $62.9 million and $79.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.  Variable product fees represented 1.25% and 1.31% of the average variable annuity separate account balances for the three-month periods ended March 31, 2009 and 2008, respectively.  Average separate account assets were $20.2 billion and $24.4 billion for the three-month periods ended March 31, 2009 and 2008, respectively.

Surrender charges represent revenues earned on the early withdrawal of fixed, fixed index, variable annuity, individual universal life (“UL”) and variable universal life ("VUL") policyholder balances.  Surrender charges on fixed, fixed index and variable annuities, UL and VUL surrenders generally are assessed at declining rates applied to policyholder surrenders during the first four to ten years of the contract.  Total surrender charges were $7.1 million and $5.2 million for the three-month periods ended March 31, 2009 and 2008, respectively.

Other income represents fees charged for the cost of insurance, investment advisory services, asset participation fees and administrative service fees. Other (loss) income was $(32.4) million and $41.9 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The negative income during the three-month period ended March 31, 2009 was primarily due to increased unearned revenue liabilities during the period.  The decline in actual gross profits in 2009 as compared to 2008 resulted in an increase to unearned revenue liabilities for fees associated with no-lapse guarantees, which was recorded as a reduction in fee income for the three-month period ended March 31, 2009.  These fees are recognized in proportion to the emergence of actual profits.

BENEFITS AND EXPENSES

Total benefits and expenses were $162.0 million and $55.5 million for the three-month periods ended March 31, 2009 and 2008, respectively. The increase of $106.5 million was primarily due to the following:

Interest credited - to policyholders was $121.0 million and $149.1 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The decrease of $28.1 million was the result of a lower average crediting rate, decreasing interest credited by $22.6 million, coupled with lower average policyholder balances, which decreased interest credited by $5.5 million.

Interest expense - was $19.3 million and $31.1 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $11.8 million decrease in interest expense was primarily due to decrease in interest on the Company’s promissory and demand notes which was attributable to lower LIBOR during 2009 as compared to 2008.

Policyholder benefits - were $92.2 million and $70.4 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $21.8 million increase in 2009 compared to 2008 was primarily due to a $21.5 million increase in death benefits and $2.2 million increase in surrender benefits and annuity payments partially offset by a $1.3 million decrease in reserves and a $0.9 million decrease in health benefits.

Other operating expenses - were $51.3 million and $77.5 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $26.2 million decrease in 2009 compared to 2008 was primarily due to a $17.8 million decrease in commission expense and a $7.1 million decrease in other operating expenses and premium tax.

58

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

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

RESULTS OF OPERATIONS (CONTINUED)

Amortization of DAC - relates to the costs of acquiring new business, which vary with and are primarily related to the production of new business.  Such acquisition costs include commissions, costs of policy issuance and underwriting and selling expenses. Amortization expense was $(137.6) million and $(221.7) million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $84.1 million increase in amortization expense during the three-month period ended March 31, 2009, as compared with the three-month period ended March 31, 2008, was related to a $248.7 million increase in current period amortization expense and interest on the DAC asset, offset by $164.6 million decrease in expense, related to changes in estimated gross profits.

The $248.7 million increase in current period amortization expense and interest was primarily due to improvement in actual gross profits in 2009 relative to 2008 which was mostly related to changes in the fair value of fixed maturity investments during the periods.  The Company tests its DAC asset for future recoverability, and has determined that this asset is not impaired at March 31, 2009.

The $164.6 million decrease related to a $64.0 million decrease in 2009 compared to $100.6 million increase in 2008 which resulted from updates to profitability projections due to actual changes in policies in-force.  These updates reflect a decrease in actual fund growth as compared to original estimates primarily related to variable annuity products.

The Company tests its DAC asset for loss recognition on a quarterly basis.  The test is performed by comparing the GAAP net liability to the future expected gross profits; an adjustment is required if the current GAAP net liability is lower than the future expected gross profits.  Amortization expense for the three-month period ended March 31, 2009 includes an expense of $12.3 million due to loss recognition testing.  The Company did not have expenses related to loss recognition testing for the three-month period ended March 31, 2008.

Amortization of VOBA and VOCRA - relates to the actuarially-determined value of in-force business at the date that the Company acquired Keyport Life Insurance Company (i.e. November 1, 2001) and at May 31, 2007, the effective date that the Company entered into a series of agreement with Sun Life and Health Insurance Company (U.S.) (“SLHIC”), an affiliate, in which the subsidiary of the Company, Sun Life Insurance and Annuity Company of New York ("SLNY") has agreed to assume direct responsibility for all sales and administration of existing and new business issued in New York (collectively the “SLHIC to SLNY asset transfer”).  This amount is amortized in proportion to the projected emergence of profits or premium income over the estimated lives of the contracts.  Amortization was $15.8 million and $(50.9) million for the three-month periods ended March 31, 2009 and 2008, respectively.

During the three-month period ended March 31, 2008, VOBA amortization included a decrease of $18.7 million due to adjustments related to change in estimated future gross profits.

During the three-month period ended March 31, 2009, VOBA amortization increased by $17.3 million due to improvement in actual gross profits in 2009 relative to 2008, which primarily related to changes in the fair value of fixed maturity investments during the periods.  The Company tests its VOBA asset for future recoverability, and has determined that this asset is not impaired at March 31, 2009.

59

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

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

RESULTS OF OPERATIONS (CONTINUED)

Income tax expense (benefit)- was $17.5 million and $(93.2) million for the three-month periods ended March 31, 2009 and March 31, 2008, respectively.  The effective tax rates for the same periods were 26.0% and 36.9% respectively.  The effective tax rates differ from the U.S. federal statutory tax rate of 35% primarily due to tax benefits from the separate account dividends received deduction and tax credits.  The difference in the effective tax rates for the two periods relates primarily to the fact that the tax benefits referenced above typically serve to reduce the effective tax rate below the prescribed statutory rate, however in periods such as the first quarter of 2008 where a pre-tax loss was incurred, these same benefits serve to increase the recorded tax benefit and by default the effective tax rate.

Results of Operations by Segment

The Company’s net income (loss) from operations reflects the operations of its four business segments: Wealth Management, Individual Protection, Group Protection and Corporate.

The following provides a summary of net income (loss) from operations by segment.

Wealth Management Segment

The Wealth Management Segment sells a full range of retirement-oriented insurance products that provide fixed, indexed or variable returns to policyholders.  Annuities are insurance products designed to offer individuals protection against the risk of outliving their financial assets during retirement.  Annuities offer a tax-deferred means of accumulating savings for retirement needs and provide a source of income in the payout period.  The Company earns spread income from fixed and indexed annuities; variable annuities primarily produce fee income.  This segment also markets funding agreements to both related and unrelated third parties.

The segment’s principal products are described below:

Variable Annuities - Variable annuities offer a selection of underlying investment alternatives that may satisfy a variety of policyholder risk/return objectives.  Under a variable annuity, the policyholder has the opportunity to select separate account investment options (consisting of underlying mutual funds), which pass the investment risk directly to the policyholder in return for the potential of higher returns.  Variable annuities also include guaranteed fixed interest options and benefits.  The Company has several different variable annuity products that offer various separate account investment choices, depending on the product, and guaranteed fixed interest options.

Fixed Annuities - Fixed annuity products are primarily single premium deferred annuities ("SPDAs").  An SPDA policyholder typically makes a single premium payment at the time of issuance.  The Company obligates itself to credit interest to the policyholder's account at a rate that is guaranteed for an initial term and is reset annually thereafter, subject to a guaranteed minimum rate.

Fixed Index Annuities- Fixed index annuities credit interest to the policyholder using a formula based upon the positive change in value of a specified equity index.  The Company’s fixed index annuity products calculate interest earnings using the S&P 500 Index. The Company’s fixed index products also provide a guarantee of principal (less withdrawals) at the end of the term or surrender charge period.

60

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

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

RESULTS OF OPERATIONS (CONTINUED)

Wealth Management Segment (continued)

Institutional Investment Contracts- Institutional investment contracts are funding agreements issued to institutional investors or to entities that in turn issue promissory notes to unrelated third parties.  These contracts may contain any of a number of features including variable or fixed interest rates and fixed index options, and may be denominated in foreign currencies.

The Company uses derivative instruments to manage the risks inherent in the contract options of many of these products.

In 1997, the Company discontinued the marketing of group pension products in the United States.  Although these products are not currently sold in the U.S., there continues to be a block of U.S. group retirement business in-force.  A significant portion of these pension contracts are non-surrenderable, resulting in limited liquidity exposure to the Company.

In September 2006, the Company issued two floating rate funding agreements totaling $900 million to Sun Life Financial Global Funding III, L.L.C. (“LLC III”), an affiliate, due 2013.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $5.8 million to LLC III. Total interest credited for these funding agreements was $4.2 million and $11.7 million for the three-month periods ended March 31, 2009 and 2008, respectively. The Company also issued a $100 million floating rate demand note payable to LLC III on September 19, 2006.  The Company expensed $0.5 million and $1.3 million for interest on this demand note for the three-month periods ended March 31, 2009 and 2008, respectively.

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

On May 17, 2006, the Company issued a floating rate funding agreement of $900 million to Sun Life Financial Global Funding II, L.L.C. (“LLC II”), an affiliate, due 2011.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $7.5 million to LLC II.  Total interest credited for this funding agreement was $3.9 million and $11.5 million for the three-month periods ended March 31, 2009 and 2008, respectively. The Company also issued a $100 million floating rate demand note payable to LLC II on May 24, 2006.  The Company expensed $0.4 million and $1.3 million for interest on this demand note for the three-month periods ended March 31, 2009 and 2008, respectively.

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

In June 2005, the Company issued two floating rate funding agreements of $900 million to Sun Life Financial Global Funding, L.L.C. ("LLC"), an affiliate, due 2010.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $10 million to LLC.  Total interest credited for these funding agreements was $4.1 million and $11.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The Company also issued a $100 million floating rate demand note payable to LLC on June 10, 2005.  The Company expensed $0.5 million and $1.3 million for interest on this demand note for the three-month periods ended March 31, 2009 and 2008, respectively.

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

61

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

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

RESULTS OF OPERATIONS (CONTINUED)

Wealth Management Segment (continued)

Other - The Wealth Management Segment currently manages a closed block of SPWL insurance policies a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of the SPWL product in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of $1.5 billion and $1.6 billion as of March 31, 2009 and December 31, 2008, respectively.  This entire block of business is reinsured on a funds withheld basis with SLOC, an affiliate.

The Company has reinsured the SPWL block to SLOC on a funds withheld, coinsurance basis.  Under this reinsurance agreement, the Company reduced net investment income by $27.2 million and $21.7 million, and interest credited by $19.0 million and $18.8 million for the three-month periods ended March 31, 2009 and 2008, respectively. In addition, the Company also increased net investment income, relating to an experience rating refund under the reinsurance agreement, by $0.7 million and $1.6 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The liability for the SPWL policies is included in contractholder deposit funds and other policy liabilities.

The fair value of the embedded derivative reduced contractholder deposit funds and other policy liabilities by $130.6 million at December 31, 2008.  The change in the embedded derivative resulted in a $0.4 million decrease in derivative income during the three-month period ended March 31, 2009.

The Company markets its annuity products through an affiliated wholesale distribution organization, Sun Life Financial Distributors, Inc., and through a variety of unaffiliated retail and wholesale organizations, including securities brokers, financial institutions, insurance agents and financial advisers.

On September 6, 2006, the Company entered into an agreement with Credit and Repackaged Securities Limited Series 2006-10 Trust (the "CARS Trust"), whereby the Company is the sole beneficiary of the CARS Trust.  As of March 31, 2009 total assets and liabilities of the CARS Trust were $58.8 million and $62.2 million, respectively. As the sole beneficiary of the CARS Trust, the Company is required to consolidate this trust under the requirements of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (Revised December 2003).”  Accordingly, the assets and liabilities of the CARS Trust are included in the Company’s condensed consolidated financial statements. As of March 31, 2009, the Company recorded in its condensed consolidated balance sheets $39.7 million of trading fixed maturities, $19.1 million of deferred tax asset and $39.1 million of liabilities relating to a total return swap.  As of December 31, 2008, the Company recorded in its condensed consolidated balance sheets $42.3 million of trading fixed maturities, $19.2 million of deferred tax asset, $0.7 million of accrued investment income, $42.1 million relating to a credit default swap liability and $0.7 million of other liabilities.

62

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

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

RESULTS OF OPERATIONS (CONTINUED)

Wealth Management Segment (continued)

The following is a Statement of Operations for the Wealth Management Segment for the three-month periods ended March 31, (in 000’s):

	2009		2008
Revenues
Premiums and annuity considerations	$	1,667	$	4,931
Net investment income (loss)	141,444		(307,532)
Net derivative income (loss)	126,395		(48,456)
Net realized investment (losses) gains	(2,680)		2,512
Fee and other income	71,604		92,389
Total revenues	338,430		(256,156)
Benefits and Expenses
Interest credited	111,480		135,924
Interest expense	8,091		11,505
Policyowner benefits	83,687		42,382
Amortization of deferred policy acquisition    costs and value of business and customer    renewals acquired	(110,368)		(266,340)
Other operating expenses	26,095		37,580
Total benefits and expenses	118,985		(38,949)
Income (loss) before income tax expense (benefit)	219,445		(217,207)
Income tax expense (benefit)	71,582		(79,496)
Net income (loss)	$	147,863	$	(137,711)

Income (loss) before income tax expense (benefit) increased by $436.7 million during the three-month period ended March 31, 2009 as compared to the three-month period ended March 31, 2008.  The significant changes are described below.

63

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

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

RESULTS OF OPERATIONS (CONTINUED)

Wealth Management Segment (continued)

REVENUES

Total revenues were $338.4 million and $(256.2) million for the three-month periods ended March 31, 2009 and 2008, respectively.  The increase of $594.6 million was primarily due to the following:

Net investment income (loss) - was $141.4 million and $(307.5) million for the three-month periods ended March 31, 2009 and 2008, respectively.  Investment income, excluding the mark to market of the trading portfolio and ceded investment income, was $202.8 million and $259.6 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The decrease of $56.8 million during 2009, as compared to 2008, was the result of a lower average investment yield which decreased investment income by $58.7 million, offset by an increase in average invested assets of $1.9 million.

Investment loss related to changes in the market value of securities in the trading portfolio was $30.7 million and $544.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The increase in market value of the trading portfolio was primarily due to improvement in the market conditions in the three-month period ended March 31, 2009 as compared to the three-month period ended March 31, 2008.  Credit spreads were flat in the three-month period ended March 31, 2009 as compared to widening credit spreads that are greater than the overall decrease in risk free rates during the three-month period ended March 31, 2008.

The increase in investment income was offset by an $8.3 million increase in ceded investment income under funds withheld reinsurance agreements during the three-month period ended 2009 as compared to the three-month period ended 2008.  The change in ceded investment income was primarily due to the reinsurance of the SPWL policies to SLOC.

64

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

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

RESULTS OF OPERATIONS (CONTINUED)

Wealth Management Segment (continued)

Net derivative income (loss) - was $126.4 million and $(48.5) million for the three-month periods ended March 31, 2009 and 2008, respectively.  Derivative income for the three-month periods ended March 31, 2009 and 2008 includes an increase (decrease) of $99.3 million and $(183.9) million , respectively, related to increase (decrease) in the fair value of interest rate swap agreements as a result of change in the applicable interest rate, and changes in currency exchange rates.  The change in derivative income in the three-month period ended March 31, 2009 as compared to the three-month period ended March 31, 2008 was also due to a $143.0 million increase related to change in the fair value of call options and futures.

The increase in derivative income was offset by a $237.5 million decrease in income related to embedded derivatives and a $14.0 million decrease in swap income.  The income related to embedded derivatives for the three-month ended March 31, 2008 included $166.1 million related to the adoption of SFAS No. 157 on January 1, 2008.

Net derivative income (loss) for the Wealth Management Segment for the three-month periods ended March 31 consisted of the following (in 000’s):

	2009	2008
Net expense on swap agreements	$                 (19,814)	$                   (5,863)
Change in fair value of swap agreements    (interest rate, currency, and equity)	99,326	(183,949)
Change in fair value of options, futures and    embedded derivatives	46,882	141,356
Total derivative income (loss)	$                 126,394	$               (48,456)

Net realized investment (loss) gains- were $(2.7) million and $2.5 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The Company did not incur any write-downs of available-for-sale fixed maturity securities for other-than-temporary impairments during the three-month periods ended March 31, 2009 and 2008, respectively.

Fees and other income – were $71.6 million and $92.4 million for the three-month period ended March 31, 2009 and 2008, respectively.  Fees and other income consist primarily of mortality and expense charges, rider fees, surrender charges, and other income.  Mortality and expense charges and rider fees are based on the market values of the assets in the separate accounts supporting the contracts.  Mortality and expense charges and rider fees combined were $51.7 million and $69.5 million for the three-month periods ended March 31, 2009 and 2008, respectively.  Variable product fees represented 1.75% and 1.57% of the average variable annuity separate account balances at March 31, 2009 and 2008, respectively.  Average separate account assets were $11.8 billion and $16.9 billion for the three-month periods ended March 31, 2009 and 2008, respectively.

Surrender charges represent revenues earned on the early withdrawal of fixed, fixed index and variable annuity policyholder balances.  Surrender charges on fixed, fixed index and variable annuity surrenders generally are assessed at declining rates applied to policyholder surrenders during the first four to ten years of the contract.  Total surrender charges were $7.1million and $5.2 million for the three-month periods ended March 31, 2009 and 2008, respectively.

Other income primarily represents fees charged for administrative services fee, investment advisory services and asset participation fees.  Other income was $12.8 million and $17.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.

65

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

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

RESULTS OF OPERATIONS (CONTINUED)

Wealth Management Segment (continued)

BENEFITS AND EXPENSES

Total benefits and expenses were $119.0 million and $(38.9) million for the three-month periods ended March 31, 2009 and 2008, respectively.  The increase of $157.9 million was primarily due to the following:

Interest credited - to policyholders was $111.5 million and $135.9 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The decrease of $24.4 million was the result of lower average interest credited rate which decreased interest credited by $19.0 million and a decrease in average policyholder balances which decreased interest credited by $5.4 million.

Interest expense - was $8.1 million and $11.5 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $3.4 million decrease was primarily due decrease in interest related to the floating rate demand notes which was primarily due to a decrease in LIBOR during 2009 as compared to 2008 and the payment of promissory notes to Sun Life (Hungary) LLC on December 29, 2008.

Policyholder benefits - were $83.7 million and $42.4 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $41.3 million increase in 2009 compared to 2008 was primarily due to a $23.4 million increase in death benefits paid, a $16.0 million increase in reserves and a $1.7 million increase in surrender benefit and annuity payments.  The increase in reserves was mainly attributable to reserves for guaranteed minimum death benefits (“GMDB”) on variable annuity products.  The increase in GMDB represents an increase in the difference between guaranteed benefits and variable annuity account values. Variable annuity account value declines are driven primarily by declines in equity markets.

Amortization of DAC - relates to the amortization of costs of acquiring new business, which vary with and are primarily related to the production of new business.  Such acquisition costs include commissions, costs of policy issuance and underwriting and selling expenses. Amortization expense was $(125.4) million and $(214.2) million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $88.8 million increase in amortization expense during the three-month period ended March 31, 2009, as compared with the three-month period ended March 31, 2008, was related to a $262.1 million increase in current period amortization expense and interest on the DAC asset, offset by $173.3 million decrease in expense, related to changes in estimated gross profits.

The $262.1 million increase in current period amortization expense and interest is primarily due to improvement in actual gross profits in 2009 relative to 2008 which was mostly related to changes in the fair value of fixed maturity investments during the periods.  The Company tests its DAC asset for future recoverability, and has determined that this asset is not impaired at March 31, 2009.

66

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

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

RESULTS OF OPERATIONS (CONTINUED)

Wealth Management Segment (continued)

For the three-month period ended March 31, 2009, DAC amortization expense included a decrease of $66.5 million resulting from updates to the calculation of historical profitability related to certain products.  These updates were primarily due to the impact of unfavorable market changes on living benefit embedded derivatives, which resulted in an adjustment to the DAC asset.  For the three-month period ended March 31, 2008, adjustments related to updates to profitability, primarily due to the impact of unfavorable market changes which decreased the present value of estimated gross profits, increased DAC amortization expense by $106.8 million.

The Company tests its DAC asset for loss recognition on a quarterly basis.  The test is performed by comparing the GAAP net liability to the future expected gross profits; an adjustment is required if the current GAAP net liability is lower than the future expected gross profits.  Amortization expense for the three-month period ended March 31, 2009 includes an expense of $12.3 million due to loss recognition testing.  The Company did not have expenses related to loss recognition testing for the three-month period ended March 31, 2008.

Amortization of VOBA - was $15.0 million and $(52.1) million for the three-month periods ended March 31, 2009 and 2008, respectively.  During the three-month period ended March 31, 2008, VOBA amortization included a decrease of $18.7 million due to adjustments related to change in estimated future gross profits.

During the three-month period ended March 31, 2009, VOBA amortization increased by $17.3 million due to improvement in actual gross profits in 2009 relative to 2008, which primarily related to changes in the fair value of fixed maturity investments during the periods.  The Company tests its VOBA asset for future recoverability, and has determined that this asset is not impaired at March 31, 2009.

Operating expenses -were $26.1 million and $37.6 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The decrease of $11.5 million was primarily due to decrease in commission expense and other operating expenses.

Income tax expense (benefit) - was $71.6 million and $(79.5) million for the three-month periods ended March 31, 2009 and March 31, 2008, respectively.  The effective tax rates for the same periods were 32.6% and 36.6% respectively.  The effective tax rates differ from the U.S. federal statutory tax rate of 35% primarily due to tax benefits from the separate account dividends received deduction and tax credits.  The difference in the effective tax rates for the two periods relates primarily to the fact that the tax benefits referenced above typically serve to reduce the effective tax rate below the prescribed statutory rate, however in periods such as the first quarter of 2008 where a pre-tax loss was incurred, these same benefits serve to increase the recorded tax benefit and by default the effective tax rate.

67

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

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

RESULTS OF OPERATIONS (CONTINUED)

Individual Protection Segment

The Individual Protection Segment markets UL and variable life insurance products, including VUL products marketed to individuals, corporate-owned life insurance ("COLI") and BOLI.  UL products allow for flexible premiums and feature an investment return to policyholders at a specified rate declared by the Company.  VUL products allow for flexible premiums and variable rates of investment return; the policyholder directs how the cash value is invested and bears the investment risk.

The following provides a summary of the operations for the Individual Protection Segment for the three-month periods ended March 31 (in 000’s):

	2009	2008
Total revenues	$         (138,769)	$              15,982
Total benefits and expenses	9,841	57,687
Loss before income tax benefit	(148,610)	(41,705)
Net loss	$          (96,603)	$             (27,074)

Total revenues were $(138.8) million and $16.0 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $154.8 million decrease in revenues in 2009 as compared to 2008, was primarily due to a $137.6 million decrease in net investment income and a $68.2 million decrease in fee income offset by a $51.6 million increase in derivative income.  The decrease in net investment income was primarily attributed to a $95.5 million decrease in assumed investment income related to the funds withheld reinsurance agreement between Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”), a subsidiary of the Company and SLOC, and a $32.6 million decrease in the fair value of securities in the trading portfolio.  The decline in actual gross profits in 2009 as compared to 2008 resulted in an increase to unearned revenue liabilities for fees associated with no-lapse guarantees, which was recorded as a reduction in fee income for the three-month period ended March 31, 2009.  These fees are recognized in proportion to the emergence of actual profits.  The increase in derivative income was primarily due to market value gain on swap agreements.

Total expenses were $9.8 million and $57.7 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $47.9 million decrease was primarily due to a $16.4 million decrease in policyholder benefits related to change in reserves and decrease in death benefits, a $15.4 million decrease in other operating expenses related to decrease in commission expense, a $7.6 million decrease in interest expense, a $4.7 million decrease in DAC amortization and a $3.7 million decrease in interest credited.  The decrease in reserves and commission expense was due primarily to the discontinued sale, beginning January 1, 2009, of certain UL policies for which Sun Life Vermont assumed the risk from SLOC.

68

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

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

RESULTS OF OPERATIONS (CONTINUED)

Group Protection Segment

The Group Protection Segment markets and administers group life insurance, group stop loss insurance, group dental, group short-term and group long-term disability insurance products primarily to small and mid-size employers.  This segment operates only in the state of New York through SLNY.  Effective May 31, 2007, the Company completed the SLHIC to SLNY asset transfer and entered into a series of agreements with SLHIC in which SLNY has agreed to assume direct responsibility for all sales and administration of existing and new business issued in New York.

The following provides a summary of operations for the Group Protection Segment for the three-month periods ended March 31 (in 000’s):

	2009	2008
Total revenues	$              33,390	$               24,496
Total benefits and expenses	26,891	29,248
Income (loss) before income tax expense (benefit)	6,499	(4,752)
Net income (loss)	$               4,224	$               (3,089)

The Group Protection Segment had pretax income (loss) of $6.5 million and $(4.8) million for the three-month periods ended March 31, 2009 and 2008, respectively. Total revenues for the three-month period ended March 31, 2009 increased by $8.9 million in comparison to the three-month period ended March 31, 2008 due primarily to $6.2 million increase in premiums and $2.7 million increase in net investment income.  The increase in premiums relates to group disability and group stop loss premiums.  The increase in net investment income was primarily attributable to the change in fair value of securities in the trading portfolio.

Total benefits and expenses in 2009 decreased by $2.4 million in comparison with 2008 due to a $3.5 million decrease in reserves, a $0.9 million decrease in health benefits and a $0.5 million decrease in VOBA amortization, which was partially offset by a $1.3 million increase in death benefit paid and a $1.1 million increase in other operating expenses.

69

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

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

RESULTS OF OPERATIONS (CONTINUED)

Corporate Segment

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

The following provides a summary of operations for the Corporate Segment for the three-month periods ended

March 31 (in 000’s):

	2009	2008
Total revenues	$               (3,987)	$              18,429
Total benefits and expenses	6,272	7,525
(Loss) income before income tax     (benefit) expense	(10,259)	10,904
Net (loss) income	$             (5,870)	$                8,347

The Corporate Segment had pretax (loss) income of $(10.3) million and $10.9 million for the three-month periods ended March 31, 2009 and 2008, respectively.  The $21.2 decrease was primarily attributable to a $20.3 million decrease in net investment income and a $3.0 million decrease in derivative income offset by a $1.1 million increase in net realized gains on the sale of investments.  The decrease in investment income was primarily due to lower earnings related to the limited partnership investments.

70

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

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

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

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including fixed maturity securities.  The Company evaluates and monitors each financial instrument regularly to minimize potential losses.

At March 31, 2009, the Company held $18.5 billion in invested assets and cash.  Of this balance, $12.1 billion was invested in fixed-maturity securities designated as either available-for-sale ($700.4 million) or trading ($11.4 billion).  Of the $700.4 million of available-for-sale fixed maturities, securities with a fair value of $542.0 million were in an unrealized loss position totaling $168.2 million.  At March 31, 2009, 32% of available-for-sale securities in an unrealized loss position, based on fair value, were securities with fair value to amortized cost percentages of greater than or equal to 90%.  The total unrealized loss position for such securities was $6.0 million.

In the available-for-sale fixed maturity portfolio, securities with a fair value of $28.7 million, representing 0.16% of the total invested asset balance, were comprised of below-investment-grade or not-rated securities.  Of the total of the securities that were below-investment-grade or not-rated at March 31, 2009, securities with a fair value of $13.2 million, representing 0.07% of the total invested asset balance, were in an unrealized loss position that totaled $2.7 million.  At March 31, 2009, 67% of these securities in an unrealized loss position, based on fair value, were securities with fair value to amortized cost percentages of greater than or equal to 90%.

The Company’s portfolio monitoring process is designed to identify securities that may be other-than-temporarily impaired.  The Company has a Credit Committee comprised of professionals from the investment and accounting functions which meets at least quarterly to review individual issues or issuers that may be of concern.  Securities included in this monitoring process include those that are designated as available-for-sale at the balance sheet date, as well as continued monitoring of those designated as available-for-sale securities that were in an unrealized loss position at December 31, 2007, prior to the Company’s adoption of the fair value option under SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities.”  The process involves a quarterly screening of all impaired securities, with particular attention paid to identify those securities whose fair value to amortized cost percentages have been less than 80% for an extended period of time.  Additionally, the Company screens all sales transactions which generated realized losses in excess of $1.5 million and 10% of amortized cost in order to identify identical securities or issuers which the Company continues to hold.  Discrete credit events, such as a ratings downgrade, are also used to identify securities that may be other-than-temporarily impaired.  The securities identified are then evaluated based on issuer-specific facts and circumstances, such as the issuer’s ability to meet current and future interest and principal payments, an evaluation of the issuer’s financial position and its near term recovery prospects, difficulties being experienced by an issuer’s parent or affiliate, and management’s assessment of the outlook for the issuer’s sector.  Based on this evaluation, issues or issuers are considered for inclusion on one of the Company’s following credit lists:

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

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

71

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

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

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

“Impaired List”- Management has concluded that the fair value will not increase enough to recover the Company’s amortized cost and an other-than-temporary-impairment charge is recorded to income or the security is sold and a realized loss is recorded as a charge to income.  Impairments are classified as either credit-related or interest-related.  The Company categorizes impairments as credit-related if there are current concerns regarding the issuers’ ability to pay all principal and interest amounts due, according to the contractual terms of the security or if the decline in fair value of the security is driven by issuer-specific credit events.  The Company characterizes impairments as interest-related if the depression in fair value of the security was due to changes in interest rates or general credit spread widening and for which the Company has determined it no longer has the intent or ability to hold a security until recovery to amortized cost.

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

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

72

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

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

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

Unrealized Losses

The following table shows the fair value and gross unrealized losses of the Company’s available-for-sale fixed maturity investments, which were deemed to be temporarily impaired, aggregated by investment category, industry sector and length of time that the individual securities had been in an unrealized loss position at March 31, 2009.

(in thousands)	Less Than Twelve Months		Twelve Months Or More		Total
Corporate Securities	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
Basic Industry	$       4,941	$             (800)	$         3,547	$     (2,332)	$      8,488	$     (3,132)
Capital Goods	9,335	(512)	10,988	(7,537)	20,323	(8,049)
Communications	38,028	(6,989)	44,380	(6,092)	82,408	(13,081)
Consumer Cyclical	13,448	(3,529)	21,742	(10,414)	35,190	(13,943)
Consumer Noncyclical	15,460	(326)	18,888	(2,018)	34,348	(2,344)
Energy	26,887	(7,251)	8,946	(2,691)	35,833	(9,942)
Finance	102,098	(15,424)	127,688	(83,228)	229,786	(98,652)
Industrial Other	3,647	(342)	435	(61)	4,082	(403)
Technology	434	(30)	4,526	(1,737)	4,960	(1,767)
Transportation	19,372	(989)	50,586	(11,000)	69,958	(11,989)
Utilities
Total Corporate	233,650	(36,192)	291,726	(127,110)	525,376	(163,302)
Non-Corporate
Asset Backed Securities
Collateralized Mortgage Obligations	627	(354)	14,585	(4,464)	15,212	(4,818)
Mortgage Backed Securities	763	(6)	-	-	763	(6)
U.S. Treasury & Agency Securities	-	-	196	(26)	196	(26)
Foreign government & Agency Securities	500	(10)	-	-	500	(10)
Total Non-Corporate	1,890	(370)	14,781	(4,490)	16,671	(4,860)
Grand Total	$   235,540	$        (36,562)	$     306,507	$ (131,600)	$   542,047	$ (168,162)

73

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

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

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

Unrealized Losses (continued)

The Company’s available-for-sale fixed maturity gross unrealized position increased $40 million as of March 31, 2009, as compared to December 31, 2008 mainly related to the financial sector, as explained below.  In 2008, the economy officially entered a recession; the housing market continued to plunge; the federal government took an unprecedented role in bailing out the banking, brokerage, and insurance industries and creating programs to foster lending; the Federal Reserve cut rates to all time lows; interest rates plunged; and credit sectors recorded their worst results ever, as only Treasury securities performed well.  Although these trends generally continued in the first quarter of 2009, spread product showed some bounce, spurred in part by continued federal government monetary and fiscal stimulus plans, as well as additional programs to address the problem of toxic assets on bank balance sheets and the poor flow of credit.  Nevertheless, financial sectors overall (bank, brokers, finance companies, insurance) continued to be the weakest performers.

The sectors in the Company’s portfolio that recognized the largest unrealized losses were finance, consumer cyclical and communication securities.  As of March 31, 2009, there were 123 securities accounting for unrealized losses of $98.6 million in the finance sector.   Of these unrealized losses, 98.9% were related to investment grade issues (rated AAA through BBB-).  As of March 31, 2009, there were 27 consumer cyclical securities accounting for unrealized losses of $13.9 million. Of the losses, 89.0% were related to investment grade issues (rated AAA through BBB-).  As of March 31, 2009, there were 41 communication sector securities accounting for unrealized losses of $13.0 million. Of the losses, 99.4% were related to investment grade issues (rated AAA through BBB-).  All securities held at March 31, 2009 were subject to the Company’s portfolio monitoring process.

The Company has exposure to sub-prime and Alt-A residential mortgage-backed securities.  Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles.  Alt-A mortgage lending is the origination of residential mortgage loans to customers who have credit ratings above sub-prime, but do not conform to government-sponsored standards.  The combination of these two categories of securities is considered below prime.  The Company is not an originator of residential mortgages.  The slowing U.S. housing market and relaxed underwriting standards of some originators of below-prime loans has recently led to higher delinquency and loss rates especially within the 2006 and 2007 vintage years.  Ninety percent of these below-prime investments, based upon fair value, held by the Company were either issued before 2006 or have an AAA rating.  At March 31, 2009, the Company had exposure to residential sub-prime and Alt-A mortgages of $133.7 million and $109.5 million, respectively, representing approximately 1.3% of the Company's total invested assets.

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

74

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

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

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

Unrealized Losses (continued)

The table below provides the detail of the seven largest unrealized losses by CUSIP in the Company’s available-for-sale fixed maturity portfolio at March 31, 2009.  Management does not consider any of these unrealized losses to be material to the Company’s financial position at March 31, 2009.  Management's reasons for concluding that the fair value will increase enough to recover the Company’s amortized cost of these securities follow the table.

($ thousands)

Issue/Sector	Amortized Cost	Fair Value	Unrealized Loss
A. Finance	$             9,000	$           3,015	$              (5,985)
B. Finance	7,951	2,399	(5,552)
C. Finance	9,144	4,729	(4,415)
D. Finance	10,130	5,768	(4,362)
E. Finance	6,345	2,046	(4,299)
F. Finance	7,248	3,104	(4,144)
G. Finance	7,200	3,081	(4,119)

For all of the securities discussed below, based on the Company’s credit analysis, management does not believe that it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the investment.  Because the Company had and continues to have the intent and ability to hold these securities until recovery of fair value, which may be maturity, it did not consider these investments to be other-than-temporarily impaired at March 31, 2009.

Issue A remains one of the strongest financial institutions in the world, with a particularly strong franchise in the UK.  However, like its peers, this institution reported write-downs in collateralized debt obligations leveraged loans and an increase in credit losses related to consumer and commercial loans.  The institution remains well capitalized and remains profitable in spite of the global turmoil.  It is an investment grade security with a credit rating of A+.

Issue B is a leading provider of financial guaranty and credit enhancement products.  The company has been negatively impacted by weaker confidence in the industry and rising mortgage related losses. The company maintains a strong market position, solid capital and adequate liquidity.  The company remains an investment grade security with a credit rating of A.

Issue C is one of the largest consumer and corporate focused banks with global operations spanning over 100 countries.  Given its significant legacy securities portfolio and the onset of a very significant and steep decline in housing prices led the firm to incur significant write-downs.  The firm has taken very significant steps to right-size its operations and ensures it emerges from this crisis in as a stronger more focused firm. The firm has an investment grade rating with a credit rating of A.

Issue D is a global investment banking firm that specializes on middle market companies.  The company has been negatively impacted by the current difficult environment in investment banking and high yield trading.  The company remains investment grade as its ratings are supported by its strong capital and liquidity position. The company has a S&P rating of BBB.

75

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

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

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

Unrealized Losses (continued)

Issue E is one of the nation’s leading consumer lending operations with a focus on credit cards.  The company’s operating performance has declined because of weakness in the consumer and housing markets. The company maintains solid investment grade ratings with strong capital and solid liquidity.  The company has a S&P rating of BB+.

Issue F is one of the nation’s largest banks with an unrivalled deposit franchise. It has very broad distribution and leading franchise in key consumer segments.  Through recent acquisitions it has now has a key franchise in wealth management and access to very cheap deposits. The company was profitable throughout 2008 and has a credit rating of A.

Issue G is one of the largest insurance companies in the world and is diversified across Life, P&C and other financial businesses. The company’s recent results were negatively impacted by asset impairments, mark to market charges and restructuring charges. The company has a credit rating of A and has adequate capital and liquidity.

As of March 31, 2009, the remaining securities in an unrealized loss position have losses of less than $4.0 million per CUSIP and were subject to the same quantitative and qualitative credit analysis as the aforementioned securities. The Company expects these investments to continue to perform in accordance with their original contractual terms and the company has the intent and ability to hold these investments until recovery of the fair value up to the cost of these securities, which may be maturity.

Realized Losses

During the three-month period ended March 31, 2009, the Company’s realized losses related to available-for-sale securities were insignificant.

76

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

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

CAPITAL MANAGEMENT & LIQUIDITY RISK

The Company ensures that adequate capital is maintained to support the risk associated with its businesses.  The approach to managing capital has been developed to ensure that an appropriate balance is maintained between the internal assessment of capital required and the requirements of regulators and rating agencies. During the three-month period ended March 31, 2009, the Company received capital contributions totaling $623.7 million from Sun Life of Canada (U.S.) Holdings, Inc. (the “Parent”) to ensure the Company continues to exceed certain capital requirements, as prescribed by National Association of Insurance Commissioners (“NAIC”).  The NAIC has established regulations that provide minimum capitalization requirements based on risk-based capital formulas for life companies, which establishes capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities that contain death benefits or certain living benefits.  Furthermore, declining equity markets may result in an increase in required capital for regulatory purposes.

Liquidity risk is the risk that the Company will not be able to fund all cash outflow commitments as they fall due.  The Company generally maintains a conservative liquidity position that exceeds all the liabilities payable on demand.  The Company’s asset-liability management allows it to maintain its financial position by ensuring that sufficient liquid assets are available to cover its potential funding requirements.  The Company invests in various types of assets with a view of matching them with its liabilities of various durations.  To strengthen its liquidity further, the Company actively manages and monitors its capital and asset levels, the diversification and credit quality of its investments and cash forecasts and actual amounts against established targets.  The Company also maintains liquidity contingency plans for the management of liquidity in the event of a liquidity crisis.

Through effective cash management and capital planning, the Company ensures that it is sufficiently funded and maintains adequate liquidity to meet its obligations.  At March 31, 2009, the Company, through its operational cash flows and various sources of liquidity (e.g., capital contributions from the Parent) has sufficient liquidity to meet all of its obligations.

77

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Omitted pursuant to Instruction H(2)(c) of Form 10-Q.

Item 4. Controls and Procedures.

Management's Report on Internal Control over Financial Reporting

The Company's management, including the Company's principal executive officer and principal financial officer, have evaluated the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based on this evaluation, management concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2009 due to the material weakness in internal control over financial reporting identified in Item 9A(T) of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008.

Status of Remediation of Material Weakness

Management is in the process of remediating the material weakness in the Company’s processes related to the implementation and subsequent recording of certain reinsurance transactions with affiliated companies, pursuant to the remediation plan described in Item 9A(T) of the Company’s annual report on Form 10-K for the year ended December 31, 2008.  During the quarter ended March 31, 2009, management implemented additional controls relating to the recording of embedded derivatives and financial accounting for the Company’s reinsurance agreements.  Further improvements, however, are required before management can consider the material weakness fully remediated.

In response to the material weaknesses described above, management performed additional detailed procedures and analysis and other post-closing procedures during the preparation of the Company’s condensed consolidated financial statements, and concluded that the Company’s condensed consolidated financial statements contained in this report present fairly the Company’s financial position, results of operations, and cash flows for the periods covered thereby in all material respects in accordance with GAAP.

Changes in Internal Control over Financial Reporting

Except as discussed above, there has been no change in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company and its subsidiaries are parties to 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 on the information currently available to it, that the ultimate resolution of these matters will not be material to the Company's financial position, results of operations or cash flows.

Item 1A. Risk Factors.

For discussion of the Company's risk factors, see Part I, Item IA, Risk Factors, in the Company's annual report on Form 10-K for the year ended December 31, 2008.

78

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

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Omitted pursuant to Instruction H(2)(b) of Form 10-Q.

Item 3. Defaults Upon Senior Securities.

Omitted pursuant to Instruction H(2)(b) of Form 10-Q.

Item 4. Submission of Matters to a Vote of Security Holders.

Omitted pursuant to Instruction H(2)(b) of Form 10-Q.

Item 5. Other Information.

(a)  None.

(b)  Not applicable.

79

Item 6. Exhibits.

Index to exhibits:

Exhibit No.

31.1	Certification pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

(Registrant)

May 14, 2009	/s/ Westley V. Thompson
Date	Westley V. Thompson, President, SLF U.S.
	(principal executive officer)

May 14, 2009	/s/ Ronald H. Friesen
Date	Ronald H. Friesen , Senior Vice President and Chief Financial Officer
	(principal financial officer)

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