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 September 30, 2010   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, 333-156308, 333-160605, 333-160606, 333-160607, 333-169558-01, 333-169559-01, 333-169560-01, and 333-169561-01

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 November 15, 2010, 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 SEPTEMBER 30, 2010

TABLE OF CONTENTS

Page

	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Statements of Operations for the nine-month periods ended September 30, 2010 and 2009 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three-month periods ended September 30, 2010 and 2009 (Unaudited)	4
	Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009 (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the nine and three- month periods ended September 30, 2010 and 2009 (Unaudited)	6
	Condensed Consolidated Statements of Changes in  Stockholder’s Equity for the nine-month periods ended September 30, 2010 and 2009 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2010 and 2009 (Unaudited)	8
	Notes to the Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Position and Results of Operations	72
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	85
Item 4.	Controls and Procedures	85

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	85
Item 1A.	Risk Factors	85
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	(Removed and Reserved)	85
Item 5.	Other Information	85
Item 6.	Exhibits	86

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 nine-month periods ended September 30,

	Unaudited
	2010		2009
Revenues
Premiums and annuity considerations	$	100,387	$	101,012
Net investment income (1)		1,333,987		2,261,645
Net derivative loss (Note 5)		(623,064)		(182,879)
Net realized investment gains (losses), excluding impairment   losses on available-for-sale securities		16,859		(8,401)
Other-than-temporary impairment losses (2)  (Note 5)		(885)		(4,834)
Fee and other income		361,524		294,902
Total revenues		1,188,808		2,461,445
Benefits and Expenses
Interest credited		308,693		292,080
Interest expense		39,517		33,981
Policyowner benefits		143,673		87,912
Amortization of deferred policy acquisition costs and value of   business and customer renewals acquired		177,434		520,068
Other operating expenses		236,347		174,940
Total benefits and expenses		905,664		1,108,981
Income from continuing operations before income tax expense		283,144		1,352,464
Income tax expense		91,088		388,593
Net income from continuing operations		192,056		963,871
Income from discontinued operations, net of tax (Note 1)		-		144,726
Net income	$	192,056	$	1,108,597

(1)Net investment income includes an increase in the market value of trading fixed maturity securities of $748.7 million and $1,893.3 million for the nine-month periods ended September 30, 2010 and 2009, respectively.

(2)The other-than-temporary impairment (“OTTI”) losses for the nine-month periods ended September 30, 2010 and 2009 represent solely credit losses.  The Company incurred no non-credit OTTI losses during the nine-month period ended September 30, 2010 and 2009, and as such, no non-credit OTTI losses were recognized in other comprehensive income for the periods.

The accompanying notes are an integral part of the 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 STATEMENTS OF OPERATIONS

(in thousands)

For the three-month periods ended September 30,

	Unaudited
	2010		2009
Revenues
Premiums and annuity considerations	$	32,145	$	35,517
Net investment income (1)		482,540		1,044,702
Net derivative loss (Note 5)		(55,899)		(346,531)
Net realized investment gains (losses), excluding impairment   losses on available-for-sale securities		520		(5,564)
Other-than-temporary impairment losses(Note 5)		-		-
Fee and other income		125,296		128,234
Total revenues		584,602		856,358
Benefits and Expenses
Interest credited		131,882		66,922
Interest expense		13,065		8,243
Policyowner benefits		27,096		(2,124)
Amortization of deferred policy acquisition costs and value of   business and customer renewals acquired		430,666		118,248
Other operating expenses		76,554		81,196
Total benefits and expenses		679,263		272,485
(Loss) income from continuing operations before income tax   (benefit) expense		(94,661)		583,873
Income tax (benefit) expense		(30,266)		114,710
Net (loss) income from continuing operations		(64,395)		469,163
Income from discontinued operations, net of tax (Note 1)		-		148,510
Net (loss) income	$	(64,395)	$	617,673

(1)Net investment income include an increase in the market value of trading fixed maturity securities of $298.8 million and $951.9 million for the three-month periods ended September 30, 2010 and 2009, respectively.

The accompanying notes are an integral part of the 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 BALANCE SHEETS

(in thousands, except per share data)

	Unaudited
ASSETS	September 30, 2010		December 31, 2009
Investments
Available-for-sale fixed maturity securities at fair value (amortized cost of $1,440,127   and $1,121,424 in 2010 and 2009, respectively) (Note 5)	$	1,558,263	$	1,175,516
Trading fixed maturity securities at fair value (amortized cost of $12,302,652 and   $12,042,961 in 2010 and 2009, respectively) (Note 5)		12,136,961		11,130,522
Mortgage loans		1,805,209		1,911,961
Derivative instruments – receivable (Note 5)		333,398		259,227
Limited partnerships		44,694		51,656
Real estate		206,892		202,277
Policy loans		710,060		722,590
Other invested assets		7,825		47,421
Short-term investments (Note 1)		15,043		1,267,311
Cash and cash equivalents		1,394,677		1,804,208
Total investments and cash		18,213,022		18,572,689
Accrued investment income		206,036		230,591
Deferred policy acquisition costs and sales inducement asset		2,193,906		2,173,642
Value of business and customer renewals acquired		145,705		168,845
Net deferred tax asset (Note 11)		390,446		549,764
Goodwill (Note 10)		7,299		7,299
Receivable for investments sold		131,374		12,611
Reinsurance receivable		2,368,431		2,350,207
Other assets		130,379		183,963
Separate account assets		25,358,400		23,326,323
Total assets	$	49,144,998	$	47,575,934
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	15,615,912	$	16,709,589
Future contract and policy benefits		856,677		815,638
Payable for investments purchased		190,753		88,131
Accrued expenses and taxes		74,160		61,903
Debt payable to affiliates		783,000		883,000
Reinsurance payable		2,240,419		2,231,764
Derivative instruments – payable (Note 5)		500,880		572,910
Other liabilities		284,551		280,224
Separate account liabilities		25,358,400		23,326,323
Total liabilities		45,904,752		44,969,482
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 2010 and 2009	$	6,437	$	6,437
Additional paid-in capital		3,927,886		3,527,677
Accumulated other comprehensive income		76,773		35,244
Accumulated deficit		(770,850)		(962,906)
Total stockholder’s equity		3,240,246		2,606,452
Total liabilities and stockholder’s equity	$	49,144,998	$	47,575,934

The accompanying notes are an integral part of the 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 COMPREHENSIVE INCOME (LOSS)

(in thousands)

For the nine-month periods ended September 30,

	Unaudited
		2010		2009
Net income	$	192,056	$	1,108,597
Other comprehensive income:
Change in unrealized holding gains on available-for-sale fixed   maturity securities, net of tax and policyholder amounts (1)		58,513		119,266
Reclassification adjustment for OTTI losses, net of tax (2)		938		-
Reclassification adjustments of net realized investment (gains)   losses into net income, net of tax (3)		(17,922)		934
Other comprehensive income		41,529		120,200
Comprehensive income	$	233,585	$	1,228,797

(1)   Net of tax expense of $(31.5) million and $(64.2) million for the nine-month periods ended September 30, 2010 and 2009, respectively.

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

(3)   Net of tax benefit (expense) of $9.7 million and $(0.5) million for the nine-month periods ended September 30, 2010 and 2009, respectively.

For the three-month periods ended September 30,

	Unaudited
		2010		2009
Net (loss) income	$	(64,395)	$	617,673
Other comprehensive income:
Change in unrealized holding gains on available-for-sale fixed   maturity securities, net of tax (4)		50,345		67,984
Reclassification adjustment for OTTI losses, net of tax (2)		834		-
Reclassification adjustments of net realized investment gains into   net income, net of tax (5)		(15,539)		(1,027)
Other comprehensive income		35,640		66,957
Comprehensive (loss) income	$	(28,755)	$	684,630

(4)   Net of tax expense of $(27.1) million and $(36.6) million for the three-month periods ended September 30, 2010 and 2009, respectively.

(5)   Net of tax benefit of $8.4 million and $0.5 million for the three-month periods ended September 30, 2010 and 2009, respectively.

The accompanying notes are an integral part of the 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 CHANGES IN STOCKHOLDER’S EQUITY

(in thousands)

For the nine-month periods ended September 30, 2010 and 2009

Unaudited

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income(1)		Retained Earnings (Accumulated Deficit)		Total Stockholder’s Equity
Balance at December 31, 2008	$	6,437	$	2,872,242	$	(129,884)	$	(1,953,540)	$	795,255
Cumulative effect of accounting   changes related to the adoption   of FASB ASC Topics 320, net   of tax(2)		-		-		(9,138)		9,138		-
Net income		-		-		-		1,108,597		1,108,597
Tax benefit from stock options		-		128		-		-		128
Capital contribution from Parent (Note 2)		-		748,652		-		-		748,652
Other comprehensive income		-		-		120,200		-		120,200
Balance at September 30, 2009	$	6,437	$	3,621,022	$	(18,822)	$	(835,805)	$	2,772,832
Balance at December 31, 2009	$	6,437	$	3,527,677	$	35,244	$	(962,906)	$	2,606,452
Net income		-		-		-		192,056		192,056
Tax benefit from stock options		-		209		-		-		209
Capital contribution from Parent (Note 2)		-		400,000		-		-		400,000
Other comprehensive income		-		-		41,529		-		41,529
Balance at September 30, 2010	$	6,437	$	3,927,886	$	76,773	$	(770,850)	$	3,240,246

(1)  As of September 30, 2010, the total amount of after tax non-credit OTTI losses recorded in the Company’s accumulated other comprehensive income was $8.0 million.

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

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

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

(in thousands)

For the nine-month periods ended September 30,

	Unaudited
	2010		2009
Cash Flows From Operating Activities:
Net income	$	192,056	$	1,108,597
Adjustments to reconcile net income to net cash provided by operating        activities:
Net amortization of premiums on investments		19,720		7,951
Amortization of deferred policy acquisition costs and value of   business and customer renewals acquired		177,434		520,068
Depreciation and amortization		2,396		4,283
Net losses on derivatives		525,706		92,701
Net realized (gains) losses and OTTI credit losses on available-for-   sale investments		(15,974)		13,235
Net increase in fair value of trading investments		(748,723)		(1,893,261)
Net realized losses on trading investments		32,454		268,136
Undistributed loss on private equity limited partnerships		399		11,477
Interest credited to contractholder deposits		308,693		292,080
Deferred federal income taxes		136,956		324,566
Changes in assets and liabilities:
Additions to deferred policy acquisition costs, sales inducement asset   and value of business and customer renewals acquired		(191,025)		(279,827)
Accrued investment income		24,555		48,642
Net change in reinsurance receivable/payable		90,732		96,196
Future contract and policy benefits		41,039		(111,247)
Other, net		115,574		(110,508)
Adjustments related to discontinued operations		-		(4,890)
Net cash provided by operating activities		711,992		388,199
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturity securities		382,800		40,106
Trading fixed maturity securities		3,104,949		1,203,168
Mortgage loans		119,411		108,465
Other invested assets		(102,786)		(124,105)
Purchases of:
Available-for-sale fixed maturity securities		(675,547)		(337,123)
Trading fixed maturity securities		(3,460,100)		(471,133)
Mortgage loans		(29,613)		(12,059)
Real estate		(3,502)		(1,551)
Other invested assets		(47,524)		(97,923)
Net change in other investments		-		(100,476)
Net change in policy loans		12,530		9,979
Net change in short-term investments (Note 1)		1,252,268		229,662
Net cash provided by investing activities	$	552,886	$	447,010

Continued on next page

8

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 nine-month periods ended September 30,

	Unaudited
	2010		2009
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	962,790	$	2,302,067
Withdrawals from contractholder deposit funds		(2,917,432)		(2,313,659)
Repayment of debt		(100,000)		-
Debt proceeds		-		100,000
Capital contribution from Parent		400,000		748,652
Other, net		(19,767)		(44,550)
Net cash (used in) provided by financing activities		(1,674,409)		792,510
Net change in cash and cash equivalents		(409,531)		1,627,719
Cash and cash equivalents, beginning of period		1,804,208		1,024,668
Cash and cash equivalents, end of period	$	1,394,677	$	2,652,387

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

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

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”) which in turn is wholly-owned by 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 nine-month period ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  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 year ended December 31, 2009.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  As of  September 30, 2010, the Company directly or indirectly owned all of the outstanding shares or member interest of SLNY, a New York life insurance company which issues individual fixed and variable annuity contracts, group life, group disability, group dental and group stop loss insurance, and individual life insurance in New York; Independence Life and Annuity Company, a Rhode Island life insurance company that sold variable and whole life insurance products; Clarendon Insurance Agency, Inc., a registered broker-dealer; SLF Private Placement Investment Company I, LLC; Sun Parkaire Landing LLC; 7101 France Avenue Manager, LLC; Sun MetroNorth, LLC; SLNY Private Placement Investment Company I, LLC; and SL Investment DELRE Holdings 2009-1, LLC.

On December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”) to the Parent.  As a result of this transaction, Sun Life Vermont is no longer the Company’s wholly-owned subsidiary and is not included in the Company’s condensed consolidated balance sheets at September 30, 2010 and December 31, 2009, or the condensed consolidated statements of operations for the nine and three-month periods ended September 30, 2010.  In addition, Sun Life Vermont’s net income from operations for the nine and three-month periods ended September 30, 2009, respectively, and changes in cash flows from the operating activities of Sun Life Vermont for the nine-month period ended September 30, 2009 are presented as discontinued operations in the condensed consolidated statements of operations and condensed consolidated statements of cash flows.

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)

The following table provides a summary of operations of Sun Life Vermont for the nine and three-month periods ended

September 30, (in 000’s):

	Nine-month period ended		Three-month period ended
	September 30, 2009		September 30, 2009
Total revenues		$          284,217		$             288,227
Total benefits and expenses		77,395		68,487
Income before income tax    expense		206,822		219,740
Net income		$          144,726		$             148,510

Refer to Notes 1 and 2 of the consolidated financial statements included in Part II, Item 8 of the Company’s annual report on

Form 10-K for the year ended December 31, 2009 for additional information concerning this transaction.

On September 6, 2006 the Company entered into an agreement with Credit and Repackaged Securities Limited Series 2006-10 Trust (the “CARS Trust”).  Pursuant to this agreement, the Company purchased a funded note, which is referenced through a credit default swap to the credit performance of a portfolio of corporate reference entities.  The Company entered into this credit structure for yield enhancement.  As the sole beneficiary of the CARS Trust, the Company is required to consolidate this trust under Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 810, “Consolidation.” As a result of the consolidation, the Company has recorded in its condensed consolidated balance sheets a credit default swap held by the CARS Trust.  At issue, the swap had a seven-year term, maturing in 2013.  Under the terms of the swap, the CARS Trust will be required to make payments to the swap counterparty upon the occurrence of a credit event, with respect to any reference entity, that is in excess of the threshold amount specified in the swap agreement. In the event that the CARS Trust is required to make any payments under the swap, the underlying assets held by the trust would be liquidated to fund the payment.  If the disposition of these assets is insufficient to fund the payment calculated, then under the terms of the agreement, the cash settlement amount would be capped at the amount of the proceeds from the sale of the underlying assets.  During the year ended December 31, 2009, the sum of all the credit events exceeded the threshold amount and the CARS Trust made cumulative payments of $17.6 million to the swap counterparty.  As of September 30, 2010, the maximum future payments of the CARS Trust could be required to make is $37.4 million.  The fair value of the assets held as collateral by the CARS Trust was $35.9 million and $35.3 million as of September 30, 2010 and December 31, 2009, respectively.  The fair value of the credit default swap was a liability of $30.6 million and $34.3 million at September 30, 2010 and December 31, 2009, respectively.

To determine the nature of the Company's interest in a variable interest entity (“VIE”), it performs an assessment of each party’s interest in the VIE beyond any voting interest it may have.  This assessment looks to sufficiency of an equity investment at risk in terms of the entity's ability to self-finance its activities, as well as other indicators of control including the power to direct activities that impact economic performance, the obligation to absorb expected losses, and the right to receive expected returns. The Company is deemed to control a VIE when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.  If the Company determines that it is the VIE’s primary beneficiary, the VIE must be consolidated in the Company’s condensed consolidated financial statements.

The Company had a significant variable interest in four VIEs at September 30, 2010.  Of these, the Company is a creditor in three trusts and one special purpose corporation.  The Company’s maximum exposure to loss related to all of these VIEs is the investments’ carrying value, which was $8.6 million at September 30, 2010.  The investments in these VIEs mature at various dates through January 2028.  At September 31, 2010, the Company did not control these VIEs as described above and therefore the Company was not required to consolidate these VIEs in its condensed consolidated financial statements, in accordance with FASB ASC Topic 810.

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)

BASIS OF PRESENTATION (CONTINUED)

The VIEs are generally financed with equity through the establishment of a trust by a trustee.  The Company is required to consolidate the CARS Trust under FASB ASC Topic 810. The carrying amount of this VIE is included in trading fixed maturity securities 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”) including sales inducement asset (“SIA”), value of business acquired (“VOBA”), value of customer renewals acquired (“VOCRA”), liabilities for future contract and policyholder benefits, other-than-temporary impairments of investments, allowance for loan loss, valuation allowance on deferred tax assets and provision for income taxes.  Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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

Immaterial Restatement

Subsequent to the issuance of the Company’s interim condensed consolidated financial statements for the nine-month period ended September 30, 2009, the Company’s management determined certain investments with an original term to maturity of greater than three months, but less than one year were improperly classified as cash and cash equivalents.  As a result, the condensed consolidated balance sheet as of September 30, 2009 has been restated to reclassify $369.8 million from cash and cash equivalents to short-term investments.  In addition, the condensed consolidated statement of cash flows for the nine-month period ended September 30, 2009 has been restated as follows:

	As Previously
	Reported	Adjustments	As Restated
Net change in short-term investments	$                -	$    229,662	$      229,662
Net cash provided by investing activities	$      217,348	$    229,662	$      447,010
Net change in cash and cash equivalents	$   1,398,057	$    229,662	$   1,627,719
Cash and cash equivalents, beginning of period	$   1,624,149	$   (599,481)	$   1,024,668
Cash and cash equivalents, end of period	$   3,022,206	$   (369,819)	$   2,652,387

The effects of these corrections also have been reflected in the accompanying notes to the unaudited condensed consolidated financial statements, where applicable.  The short-term investments at December 31, 2009 were appropriately reported in the consolidated financial statements included in Part II, Item 8 of the Company’s annual report on Form 10-K for the year ended December 31, 2009.

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

New and Adopted Accounting Pronouncements

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

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

Ø   The valuation techniques and inputs used;

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

Ø   The activity in Level 3 fair value measurements.

Certain new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 31, 2009.  Disclosures about purchases, sales, issuances and settlements in the roll-forward of activities in Level 3 are effective for fiscal years beginning after December 15, 2010.  The Company adopted this guidance on January 1, 2010.  The enhanced disclosures required by ASU 2010-06 for the periods beginning after December 31, 2009 are included in Note 4.

On January 1, 2010, the Company adopted the provisions of FASB ASC Topic 860, “Transfers and Servicing,” which were issued in June 2009.  These provisions amend and expand disclosures about the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets.  FASB ASC Topic 860 amends previously issued derecognition accounting and disclosure guidance and eliminates the exemption from consolidation for qualifying special purpose entities (“QSPEs”); it also requires a transferor to evaluate all existing QSPEs to determine whether they must be consolidated in accordance with the provisions of FASB ASC Topic 860.  This guidance is effective for financial asset transfers occurring in fiscal years and interim periods beginning after November 15, 2009.  The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

On January 1, 2010, the Company adopted the provisions of FASB ASC Topic 810 which were issued in June 2009.  This guidance amends previously issued consolidation guidance which affects all entities currently within the scope of FASB ASC Topic 810, including QSPEs, as the concept of these entities was eliminated by FASB ASC Topic 860.  This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009.  The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

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)

New and Adopted Accounting Pronouncements (Continued)

In March 2010, the FASB issued ASU 2010-11 “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives,” which provides amendments to FASB ASC Topic 815, “Derivatives and Hedging” to clarify the embedded credit derivative scope exception included therein.  The amendments address how to determine which embedded credit derivative features are considered to be embedded derivatives that should not be analyzed for potential bifurcation and separate accounting under ASC Topic 815.  Under ASU 2010-11, only the embedded credit derivative feature created by subordination between financial instruments is not subject to the bifurcation requirements of ASC Topic 815.  However, other embedded credit derivative features would be subject to analysis for potential bifurcation even if their effects are allocated to interests in tranches of securitized financial instruments in accordance with those subordination provisions.  The following circumstances would not qualify for the scope exception and are subject to the application of ASC Topic 815 requiring the embedded derivatives to be analyzed for potential bifurcation:

Ø   An embedded derivative feature relating to another type of risk (including another type of credit risk) is present in the securitized financial instrument.

Ø   The holder of an interest in a tranche of securitized financial instruments is exposed to the possibility of being required to make potential future payments because the possibility of those future payments is not created by subordination.

Ø   The holder owns an interest in a single-tranche securitization vehicle; therefore, the subordination of one tranche to another is not relevant.

The amendments in ASU 2010-11 are effective for the first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted.  The Company adopted ASU 2010-11 on July 1, 2010 and such adoption did not have a material impact on the Company’s condensed consolidated financial statements.

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

Refer to Note 1 of the consolidated financial statements included in Part II, Item 8 of the Company’s annual report on Form 10-K for the year ended December 31, 2009 for other accounting pronouncements that the Company adopted during the year ended December 31, 2009.

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)

1. DESCRIPTION OF BUSINESS (CONTINUED)

Accounting Standards Not Yet Adopted

In October 2010, the FASB issued ASU 2010-26 “Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts – a Consensus of the FASB Emerging Issues Task Force,” which amends FASB ASC Topic 944 to modify the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts.  The amendments specify that only incremental costs of successful contract acquisition that result directly from and are essential to the contract transactions can be capitalized as deferred acquisition costs.  The incremental direct costs are those costs that would not have been incurred by the insurance entity if the contract transactions did not occur.  The amendments in ASU 2010-26 are effective for interim periods and fiscal years beginning after December 15, 2011.  The Company will adopt ASU 2010-20 on January 1, 2012 and is assessing the impact of this adoption.

In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which amends FASB ASC Topic 310 to enhance disclosures and to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables.  The amendments require an entity to provide a greater level of disaggregated information about the credit quality of the entity’s financing receivables and allowance for credit losses.  ASU 2010-20 also requires an entity to disclose credit quality indicators, the aging of past due information and the modification of its financing receivables.  The amendments in ASU 2010-20 are effective for interim and annual reporting periods beginning on or after December 15, 2010. Comparative disclosures are required for reporting periods ending after initial adoption.  The Company will adopt ASU 2010-20 on January 1, 2011 and is assessing the impact of this adoption.

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

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

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

Related-Party Reinsurance Transactions

As more fully described in Note 6, the Company and its subsidiary, SLNY, are party to several reinsurance transactions with Sun Life Assurance Company of Canada (“SLOC”) and other affiliates.  Reinsurance premiums with related parties are based on market rates.

On February 11, 2009, the Company received regulatory approval and entered into a reinsurance agreement with Sun Life Reinsurance (Barbados) No. 3 Corp (“BarbCo 3”) to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life, and private placement variable universal life policies on a combination coinsurance, coinsurance with

funds-withheld, and a modified coinsurance basis.  The reinsurance agreement covered in-force policies on the effective date and new sales through December 31, 2009.  Effective January 1, 2010, the Company and BarbCo 3 amended the reinsurance agreement.  Refer to Note 6 for further information regarding the amendments and the impact of this agreement on the Company’s condensed consolidated financial statements.

Capital Transactions

During the nine-month period ended September 30, 2010 and the year ended December 31, 2009, the Company received capital contributions totaling $400.0 million and $748.7 million, respectively, from the Parent.  The cash contributions were recorded as additional paid-in capital and were made to ensure that the Company continues to exceed certain capital requirements prescribed by the National Association of Insurance Commissioners (the “NAIC”).  The NAIC has established regulations that provide minimum capitalization requirements based on risk-based capital formulas for life insurance companies.  The risk-based capital formulas for life insurance companies establishes capital requirements relating to insurance, business, asset and interest rate risks, including equity, interest rate and expense recovery risks associated with variable annuities that contain death benefits or certain living benefits.

Effective December 31, 2009, the Company distributed all of the issued and outstanding common stock of the Sun Life Vermont in the form of a dividend to the Parent.  The Company did not declare or pay any cash dividends during the nine-month periods ending September 30, 2010 and 2009.

Debt Transactions

In 2002, the Company issued two promissory notes totaling $460.0 million to Sun Life (Hungary) Group Financing Limited Company (“Sun Life (Hungary) LLC”).  The proceeds of these 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 $380.0 million and paid $388.7 million to Sun Life (Hungary) LLC, including $8.7 million in accrued interest.  On December 29, 2008, the Company redeemed $62.0 million of the $80.0million remaining note and paid $64.3 million, including $2.3 million in accrued interest, to Sun Life (Hungary) LLC.  At September 30, 2010 and December 31, 2009, the Company had $18.0 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 $0.8 million for the three and nine-month periods ended September 30, 2010 and 2009, respectively.

At September 30, 2010 and 2009, the Company had $565.0 million of surplus notes issued to Sun Life Financial (U.S.) Finance, Inc.  The Company expensed $10.6 million and $31.9 million for interest on these surplus notes for the three and nine-month periods ended September 30, 2010 and 2009, 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 totaling $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.  These funding agreements will mature on October 6, 2013.  Total interest credited for the funding agreements was $2.0 million and $4.7 million for the three and nine-month periods ended September 30, 2010, respectively, and $2.2 million and $9.8 million for the three and nine-month periods ended September 30, 2009, respectively.  The Company also issued a $100 million floating rate demand note payable to LLC III on September 19, 2006.  The Company expensed $0.2 million and $0.5 million for the three and nine-month periods ended September 30, 2010, respectively, and $0.2 million and $1.1 million for the three and nine-month periods ended September 30, 2009, respectively, for interest on this demand note.

The Company 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.  These funding agreements will mature on July 6, 2011.  Total interest credited for these funding agreements was $1.8 million and $4.2 million for the three and nine-month periods ended September 30, 2010, respectively, and $2.0 million and $9.2 million for the three and nine-month periods ended September 30, 2009, respectively.  The Company also issued a $100 million floating rate demand note payable to LLC II on May 24, 2006. The Company expensed $0.2 million and $0.5 million for the three and nine-month periods ended September 30, 2010, respectively, and $0.2 million and $1.0 million for the three and nine-month periods ended September 30, 2009, respectively, for interest on this demand note.

The Company 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.  On July 1 and July 8, 2010, the Company paid $900.0 million and $10.0 million, respectively, to the LLC due to the maturity of these funding agreements.  Total interest credited for these funding agreements was $0.1 million and $2.9 million for the three and nine-month periods ended September 30, 2010, respectively, and $2.2 million and $9.9 million for the three and nine-month periods ended September 30, 2009, respectively.  On June 10, 2005, the Company also issued a $100.0 million floating rate demand note payable to the LLC which matured on July 6, 2010.  On August 6, 2010, the Company paid $100.1 million to LLC including $140 thousand in interest due to the maturity of the floating rate demand note.  The Company expensed $0.1 million and $0.5 million for the three and nine-month periods ended September 30, 2010, respectively, and $0.2 million and $1.1 million for the three and nine-month periods ended September 30, 2009, respectively, for interest on this demand note.

The Company entered into an interest rate swap agreement with LLC with an aggregate notional amount of $900 million that effectively converted the floating rate payment obligations under the funding agreements to fixed rate obligations.  This interest rate swap agreement was terminated on July 6, 2010 due to the maturity of the underlying floating rate funding agreements.

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

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

Effective December 31, 2009, the Company transferred all of its employees to an affiliate, Sun Life Financial (U.S.) Services Company, Inc. (“Sun Life Services”), with the exception of 28 employees who were transferred to Sun Life Financial Distributors, Inc. (“SLFD”), another affiliate.  Neither Sun Life Services nor SLFD are included in the accompanying condensed consolidated financial statements.  Concurrent with this transaction, Sun Life Services assumed the sponsorship of the Company’s retirement plans.  As a result of this transaction, the Company transferred to Sun Life Services all employee-benefits related assets and liabilities, the associated deferred tax asset, and certain property, equipment and software.  For more details on these transactions, refer to Note 3 of the consolidated financial statements included in Part II, Item 8 of the Company’s annual report on Form 10-K for the year ended December 31, 2009.

The transfer of fixed assets from the Company to Sun Life Services discussed above, along with the administrative service agreement, resulted in a sale-leaseback transaction.  The Company recorded a deposit liability for $17.1 million which represents the cost of certain of the assets transferred.  The Company will amortize the liability over the remaining useful life of the assets that have been sold, which is estimated to be seven years.  As of September 30, 2010, the remaining deposit liability was $15.0 million.

Pursuant to an administrative services agreement between the Company and Sun Life Services, Sun Life Services provides human resource services (e.g., recruiting and maintaining appropriately trained and qualified personnel and equipment necessary for the performance of actuarial, financial, legal, administrative and other operational support functions) to the Company, and the Company reimburses Sun Life Services for the cost of such services, plus, with respect to certain of those services, pays an arms-length based profit margin to be agreed upon by the parties.  Total payments under this agreement were $32.2 million and $88.0 million for the three and nine-month periods ending September 30, 2010, respectively.

Effective December 31, 2009, Sun Life Services and SLOC entered into an administrative services agreement, under which Sun Life Services provides to SLOC, as requested, personnel and certain services. Prior to December 31, 2009, the Company had an administrative services agreement with SLOC under which the Company provided personnel and certain services to SLOC, as requested.  Reimbursements under this agreement, which were recorded as a reduction of other operating expenses, were approximately $91.9 million and $243.2 million for the three and nine-month periods ended September 30, 2009, respectively.  Effective December 31, 2009, the Company no longer provides personnel services to SLOC and SLOC no longer reimburses the Company for such services.

The Company has an administrative services agreement with Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc., under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which an other affiliate, Massachusetts Financial Services Company (“MFS”), serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with the variable annuity contracts issued by the Company. Amounts received under this agreement were $3.2 million and $9.7 million for the three and nine-month periods ended September 30, 2010, respectively, and $3.2 million and $8.9 million for the three and nine-month periods ended September 30, 2009, 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 $3.3 million and $9.2 million for the three and nine-month periods ended September 30, 2010, respectively, and $2.2 million and $4.3 million for the three and nine-month periods ended September 30, 2009, respectively.

The Company paid $5.3 million and $15.8 million during the three and nine-month periods ended September 30, 2010, respectively, and $5.0 million and $13.4 million during the three and nine-month periods ended September 30, 2009, 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)

The Company paid $10.1 million and $31.8 million during the three and nine-month periods ended September 30, 2010, respectively, and $14.3 million and $35.5 million during the three and nine-month periods ended September 30, 2009, respectively, in distribution fees to SLFD.

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 businesses.  Expenses under this agreement were $4.3 million and $13.4 million for the three and nine-month periods ended September 30, 2010, respectively, and $3.7 million and $11.5 million for the three and nine-month periods ended September 30, 2009, 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 $6.0 million and $17.4 million for the three and nine-month periods ended September 30, 2010, respectively, and $2.4 million and $17.9 million for the three and nine-month periods ended September 30, 2009, respectively.

The Company leases office space to SLOC under lease agreements with terms expiring on December 31, 2014 and options to extend the terms for each of twelve successive five-year terms at fair market rental value, not to exceed 125% of the fixed rent for the term which is then ending.  Rent received by the Company under the leases amounted to approximately $3.0 million and $9.1 million for the three and nine-month periods ended September 30, 2010, respectively, and $2.2 million and $7.6 million for the three and nine-month periods ended September 30, 2009, respectively.  Rental income is reported as a component of net investment income in the Company’s condensed consolidated statements of operations.

In 2004, the employees of the Company became participants in a restricted share unit (“RSU”) plan with 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 related to RSUs of $2.0 million and $6.0 million for the three and nine-month periods ended September 30, 2010, respectively, and $2.6 million and $5.9 million for the three and nine-month periods ended September 30, 2009, respectively.

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)

2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED)

Administrative service agreements, rent and other (continued)

In 2007, SLNY entered into a series of agreements with Sun Life and Health Insurance Company (U.S.) (“SLHIC”), an affiliate, through which the New York issued business of SLHIC was transferred to SLNY.  As part of these agreements, SLNY received certain intangible assets totaling $31.3 million.  These assets included the value of distribution acquired, VOBA and VOCRA.  The value of distribution acquired of $7.5 million is being amortized on a straight-line basis over its projected economic life of 25 years.

VOBA of $7.6 million is subject to amortization based upon expected premium income over the period from acquisition to the first customer renewal, which is generally not more than two years. VOBA was fully amortized as of December 31, 2009. VOCRA of $16.2 million is subject to amortization based upon expected premium income over the projected life of the in-force business acquired, which is 20 years.  The Company recorded amortization and interest for these intangible assets for the periods identified as follows (in 000’s):

	Nine-month periods ended				Three-month periods ended
	September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009
Value of distribution	$	224	$	224	$	75	$	75
VOBA		-		888		-		25
VOCRA		846		779		267		710

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

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

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

Wealth Management

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

Individual Protection

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

Group Protection

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

Corporate

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

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)

3. SEGMENT INFORMATION (CONTINUED)

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

	Nine-month period ended September 30, 2010
	Wealth	Individual	Group
	Management	Protection	Protection	Corporate	Totals
Total revenues	$ 1,080,834	$   43,035	$    96,555	$   (31,616)	$ 1,188,808
Total benefits and expenses	760,992	38,563	90,982	15,127	905,664
Income (loss) before income   tax expense (benefit)	319,842	4,472	5,573	(46,743)	283,144
Net income (loss)	$    221,310	$     3,026	$      3,632	$   (35,912)	$    192,056
	Nine-month period ended September 30, 2009
	Wealth	Individual	Group
	Management	Protection	Protection	Corporate	Totals
Total revenues	$   2,308,049	$   60,321	$  104,252	$  (11,177)	$  2,461,445
Total benefits and expenses	976,677	30,340	86,051	15,913	1,108,981
Income (loss) from continuing   operations before income tax   expense (benefit)	1,331,372	29,981	18,201	(27,090)	1,352,464
Net income from continuing   operations	879,559	9,301	11,830	63,181	963,871
Income from discontinued   operations, net of tax	-	144,726	-	-	144,726
Net income	$      879,559	$ 154,027	$    11,830	$    63,181	$  1,108,597

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)

3. SEGMENT INFORMATION (CONTINUED)

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

	Three-month period ended September 30, 2010
	Wealth	Individual	Group
	Management	Protection	Protection	Corporate	Totals
Total revenues	$ 535,357	$    15,364	$         31,979	$     1,902	$    584,602
Total benefits and expenses	634,805	12,255	28,990	3,213	679,263
(Loss) income before income     tax (benefit) expense	(99,448)	3,109	2,989	(1,311)	(94,661)
Net (loss) income	$  (61,348)	$      2,055	$           1,950	$    (7,052)	$    (64,395)
	Three-month period ended September 30, 2009
	Wealth	Individual	Group
	Management	Protection	Protection	Corporate	Totals
Total revenues	$   790,579	$     28,794	$   35,073	$      1,912	$   856,358
Total benefits and expenses	243,062	(2,765)	30,335	1,853	272,485
Income from continuing    operations before income tax    expense	547,517	31,559	4,738	59	583,873
Net income from continuing    operations	367,050	13,943	3,079	85,091	469,163
Income from discontinued     operations, net of tax	-	148,510	-	-	148,510
Net income	$    367,050	$   162,453	$     3,079	$    85,091	$   617,673

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

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

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

On April 1, 2009, the FASB issued additional guidance on estimating fair value when the volume and level of activity for the asset or liability have significantly decreased, as well as guidance on identifying circumstances that indicate a transaction is not orderly.  The Company reviewed its pricing sources and methodologies and has concluded that its various pricing sources and methodologies are in compliance with this guidance.  During the nine-month period ended September 30, 2010, there were no changes to these valuation techniques and the related inputs.

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)

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, and

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

The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government securities not backed by the full faith and credit of the Government, municipal bonds, structured notes and certain mortgage-backed securities (“MBS”), asset-backed securities (“ABS”), collateralized mortgage obligations (“CMO”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), certain corporate debt, certain private equity investments and certain derivatives, including derivatives embedded in reinsurance contracts.

Level 3

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

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

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

The following table presents the Company's categories for its assets measured at fair value on a recurring basis as of September 30, 2010 (in 000’s):

	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale fixed maturity securities:
Asset-backed securities	$	-	$	708	$	16	$	724
Residential mortgage-backed securities		-		37,938		-		37,938
Commercial mortgage-backed securities		-		13,104		1,438		14,542
Foreign government & agency securities		-		569		-		569
U.S. states and political subdivisions securities		-		224		-		224
U.S. treasury and agency securities		382,587		-		-		382,587
Corporate securities		-		1,111,037		10,642		1,121,679
Total available-for-sale fixed maturity securities		382,587		1,163,580		12,096		1,558,263
Trading fixed maturity securities:
Asset-backed securities		-		370,668		59,618		430,286
Residential mortgage-backed securities		-		933,986		67,573		1,001,559
Commercial mortgage-backed securities		-		713,442		63,165		776,607
Foreign government & agency securities		-		163,607		14,273		177,880
U.S. states and political subdivisions securities		-		650		-		650
U.S. treasury and agency securities		707,352		9,419		-		716,771
Corporate securities		-		8,947,213		85,995		9,033,208
Total trading fixed maturity securities		707,352		11,138,985		290,624		12,136,961
Derivative instruments - receivable:
Interest rate contracts		-		244,647		-		244,647
Foreign currency contracts		-		40,891		-		40,891
Equity contracts		15,945		20,173		5,405		41,523
Futures contracts		6,337		-		-		6,337
Total derivative instruments - receivable		22,282		305,711		5,405		333,398
Other invested assets		1,326		-		1,312		2,638
Short-term investments		15,043		-		-		15,043
Cash and cash equivalents		1,394,677		-		-		1,394,677
Total investments and cash		2,523,267		12,608,276		309,437		15,440,980
Separate account assets:
Mutual fund investments		20,464,824		30,164		-		20,494,988
Equity investments		177,697		246		15		177,958
Fixed income investments		306,960		5,620,036		175,085		6,102,081
Alternative investments		11,822		79,947		271,821		363,590
Other investments		5,141		-		-		5,141
Total separate account assets (1) (2)		20,966,444		5,730,393		446,921		27,143,758
Total assets measured at fair value on a recurring basis	$	23,489,711	$	18,338,669	$	756,358	$	42,584,738

(1) Pursuant to the conditions set forth in FASB ASC Topic 944, the value of separate account liabilities is set to equal the fair value of the separate account assets.

(2) Excludes $1,785.4 million, primarily related to investment purchases payable, net of investment sales receivable, that are not subject to FASB ASC Topic 820.

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 presents the Company's categories for its liabilities measured at fair value on a recurring basis as of September 30, 2010 (in 000’s):

	Level 1		Level 2		Level 3		Total
Liabilities
Other policy liabilities:
Guaranteed minimum withdrawal benefit liability	$	-	$	-	$	519,708	$	519,708
Guaranteed minimum accumulation benefit liability		-		-		173,597		173,597
Derivatives embedded in reinsurance contracts		-		78,808		-		78,808
Fixed index annuities		-		-		128,201		128,201
Total other policy liabilities		-		78,808		821,506		900,314
Derivative instruments – payable:
Interest rate contracts		-		467,340		-		467,340
Foreign currency contracts		-		1,957		-		1,957
Credit contracts		-		-		30,633		30,633
Futures contracts		950		-		-		950
Total derivative instruments – payable		950		469,297		30,633		500,880
Other liabilities:
Bank overdrafts		40,061		-		-		40,061
Total liabilities measured at fair value on a recurring basis	$	41,011	$	548,105	$	852,139	$	1,441,255

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 presents the Company's categories for its assets measured at fair value on a recurring basis as of December 31, 2009 (in 000’s):

	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale fixed maturity securities:
Asset-backed securities	$	-	$	952	$	37	$	989
Residential mortgage-backed securities		-		47,701		-		47,701
Commercial mortgage-backed securities		-		14,150		1,930		16,080
Foreign government & agency securities		-		760		-		760
U.S. treasury and agency securities		39,131		-		-		39,131
Corporate securities		-		1,062,919		7,936		1,070,855
Total available-for-sale fixed maturity securities		39,131		1,126,482		9,903		1,175,516
Trading fixed maturity securities:
Asset-backed securities		-		355,613		111,650		467,263
Residential mortgage-backed securities		-		886,340		154,551		1,040,891
Commercial mortgage-backed securities		-		624,845		14,084		638,929
Foreign government & agency securities		-		67,925		15,323		83,248
U.S. treasury and agency securities		503,123		34,407		-		537,530
Corporate securities		-		8,254,775		107,886		8,362,661
Total trading fixed maturity securities		503,123		10,223,905		403,494		11,130,522
Derivative instruments - receivable		14,922		235,484		8,821		259,227
Other invested assets		20,242		206		-		20,448
Short-term investments		1,267,311		-		-		1,267,311
Cash and cash equivalents		1,804,208		-		-		1,804,208
Total investments and cash		3,648,937		11,586,077		422,218		15,657,232
Other assets
Separate account assets (1) (2)		18,045,908		5,233,602		547,841		23,827,351
Total assets measured at fair value on a recurring basis	$	21,694,845	$	16,819,679	$	970,059	$	39,484,583

(1) Pursuant to the conditions set forth in FASB ASC Topic 944, the value of separate account liabilities is set to equal the fair value of the separate account assets.

(2)Excludes $501.0 million, primarily related to investment purchases payable, net of investment sales receivable, that are not subject to FASB ASC Topic 820.

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 presents the Company's categories for its liabilities measured at fair value on a recurring basis as of December 31, 2009 (in 000’s):

	Level 1		Level 2		Level 3		Total
Liabilities
Other policy liabilities:
Guaranteed minimum withdrawal benefit liability	$	-	$	-	$	168,786	$	168,786
Guaranteed minimum accumulation benefit liability		-		-		81,669		81,669
Derivatives embedded in reinsurance contracts		-		15,035		-		15,035
Fixed index annuities		-		-		140,966		140,966
Total other policy liabilities		-		15,035		391,421		406,456
Derivative instruments – payable		5,256		533,305		34,349		572,910
Other liabilities:
Bank overdrafts		60,037		-		-		60,037
Total liabilities measured at fair value on a recurring basis	$	65,293	$	548,340	$	425,770	$	1,039,403

Assets Measured at Fair Value on a Nonrecurring Basis

The following table presents the Company’s categories for its assets measured at fair value on a nonrecurring basis as of December 31, 2009:

	Level 1		Level 2		Level 3		Total Fair Value		Total Gains (Losses)
Asset
VOCRA	$	-	$	-	$	5,766	$	5,766	$	(2,600)

At December 31, 2009, the Company determined that the VOCRA asset was impaired and recorded an impairment charge of $2.6 million.  The impairment charge was allocated to the Group Protection Segment.  The fair value of VOCRA was calculated as the sum of the undiscounted cash flows the Company expects to realize, based on the segment’s anticipated long-term profit margins.

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 methods and assumptions that the Company uses in determining the estimated fair value of its financial instruments that are measured at fair value on a recurring basis are summarized below:

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

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

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

Derivative instruments - receivables and payables: The fair values of swaps are based on current settlement values, dealer quotes and market prices.  Fair values for options and futures are also based on dealer quotes and market prices.  The Company uses credit valuation adjustments (“CVAs”) to properly reflect the component of fair value of certain derivative instruments that arise from default risk.  CVAs are based on a methodology that primarily uses published credit default swap spreads as a key input in determining an implied level of expected loss over the total life of the derivative contract.  When this information is not available, the Company also may utilize credit spreads implied from published bond yields or published cumulative default experience data adjusted for current trends. CVAs may be calculated based on the credit risk of counterparties for asset positions or the Company's own credit risk for liability positions.  The CVAs also take into account contractual factors designed to reduce the Company’s credit exposure to each counterparty, such as collateral and legal rights of offset.

Other invested assets:  This financial instrument primarily consists of equity securities for which the fair value is based on quoted market prices.

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

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

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)

Fair Value Hierarchy (continued)

Other policy liabilities:  The fair values of S&P 500 Index and other equity-linked embedded derivatives are produced using standard derivative valuation techniques.  Guaranteed minimum accumulation benefit (“GMAB”) or guaranteed minimum withdrawal benefit (“GMWB”) are considered to be derivatives under FASB ASC Topic 815 and are included in contractholder deposit funds and other policy liabilities in the Company’s condensed consolidated balance sheets.  Consistent with the provisions of FASB ASC Topic 820, the Company incorporates risk margins and the Company’s own credit standing, as well as changes in assumptions regarding policyholder behavior, in the calculation of the fair value of embedded derivatives.

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

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)

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 nine-month period ended September 30, 2010 (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 maturity securities:
Asset-backed securities	$         37	$       (31)	$               10	$                     -	$                    -	$              16	$                       -
Residential mortgage-backed securities	-	-	-	-	-	-	-
Commercial mortgage-backed securities	1,930	(371)	(121)	-	-	1,438	-
Foreign government & agency securities	-	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	7,936	(17)	1,217	1,940	(434)	10,642	-
Total available-for-sale fixed maturity        securities	9,903	(419)	1,106	1,940	(434)	12,096	-
Trading fixed maturity securities:
Asset-backed securities	111,650	15,020	-	(36,320)	(30,732)	59,618	17,186
Residential mortgage-backed securities	154,551	3,739	-	(9,211)	(81,506)	67,573	9,017
Commercial mortgage-backed     securities	14,084	2,175	-	47,602	(696)	63,165	3,439
Foreign government & agency     securities	15,323	(1,050)	-	-	-	14,273	140
U.S. states and political subdivisions     securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	107,886	5,716	-	(6,243)	(21,364)	85,995	5,565
Total trading fixed maturity securities	403,494	25,600	-	(4,172)	(134,298)	290,624	35,347
Derivative instruments – receivable:
Interest rate contracts	-	-	-	-	-	-	-
Foreign currency contracts	-	-	-	-	-	-	-
Equity contracts	8,821	(1,509)	-	(1,907)	-	5,405	(1,509)
Futures contracts	-	-	-	-	-	-	-
Total derivative instruments– receivable	8,821	(1,509)	-	(1,907)	-	5,405	(1,509)
Other invested assets	-	(174)	-	1,486	-	1,312	(174)
Short-term investments	-	-	-	-	-	-	-
Cash and cash equivalents	-	-	-	-	-	-	-
Total investments and cash	422,218	23,498	1,106	(2,653)	(134,732)	309,437	33,664
Separate account assets:
Mutual fund investments	-	-	-	-	-	-	-
Equity investments	7	8	-	-	-	15	8
Fixed income investments	276,530	6,240	-	(9,135)	(98,550)	175,085	2,560
Alternative investments	267,196	(565)	-	21,824	(16,634)	271,821	(1,270)
Other investments	4,108	-	-	-	(4,108)	-	-
Total separate account assets (1)	547,841	5,683	-	12,689	(119,292)	446,921	1,298
Total assets measured at fair value on      a recurring basis	$970,059	$    29,181	$         1,106	$           10,036	$      (254,024)	$       756,358	$             34,962

(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 nine-month period ended September 30, 2010 are primarily attributable to changes in the observability of inputs used to price the securities.

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)

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 nine-month period ended September 30, 2010 (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	$168,786	$   245,325	$               -	$         105,597	$               -	$ 519,708	$     249,721
Guaranteed minimum accumulation    benefit liability	81,669	74,640	-	17,288	-	173,597	76,218
Derivatives embedded in reinsurance    contracts	-	-	-	-	-	-	-
Fixed index annuities	140,966	(17,026)	-	4,261	-	128,201	10,886
Total other policy liabilities	391,421	302,939	-	127,146	-	821,506	336,825
Derivative instruments – payable:
Interest rate contracts	-	-	-	-	-	-	-
Foreign currency contracts	-	-	-	-	-	-	-
Credit contracts	34,349	(3,716)	-	-	-	30,633	(3,716)
Futures contracts	-	-	-	-	-	-	-
Total derivative instruments– payable	34,349	(3,716)	-	-	-	30,633	(3,716)
Other liabilities:
Bank overdrafts	-		-	-	-	-	-
Total liabilities measured at fair value on a recurring basis	$425,770	$   299,223	$               -	$         127,146	$               -	$ 852,139	$     333,109

Gains and losses related to Level 3 assets and liabilities, included in the Company’s condensed consolidated statements of operations for the nine-month period ended September 30, 2010, are reported as follows (in 000’s):

		Total gains (losses) included in earnings		Change in unrealized gains (losses) related to assets and liabilities still held  at the reporting date
Net investment income	$	25,426	$	35,173
Net derivative loss		(300,732)		(334,618)
Net realized investment losses, excluding impairment    losses on available-for-sale securities		(419)		-
Net losses	$	(275,725)	$	(299,445)

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)

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 nine-month period ended September 30, 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 maturity securities:
Asset-backed securities	$              -	$          (41)	$               11	$               -	$              76	$          46	$               -
Collateralized mortgage obligations	3,046	-	-	-	(3,046)	-	-
Commercial mortgage-backed securities	1,420	(265)	(881)	-	1,627	1,901	-
Foreign government & agency securities	-	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	7,888	17	1,719	(207)	(1,277)	8,140	-
Total available-for-sale fixed maturity securities	12,354	(289)	849	(207)	(2,620)	10,087	-
Trading fixed maturity securities:
Asset-backed securities	145,267	32,497	-	(197)	(51,226)	126,341	65,755
Collateralized mortgage obligations	116,572	(6,009)	-	(4,414)	63,895	170,044	58,548
Commercial mortgage - backed securities	200,414	45,631	-	(254)	15,435	261,226	129,428
Foreign government & agency securities	9,200	170	-	-	6,160	15,530	1,296
U.S. states and political subdivisions securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	134,505	25,165	-	1,125	(34,716)	126,079	24,612
Total trading fixed maturity securities	605,958	97,454	-	(3,740)	(452)	699,220	279,639
Derivative instruments – receivable	2,668	375	-	2,323	-	5,366	2,312
Other invested assets	-	-	-	-	-	-	-
Cash and cash equivalents	-	-	-	-	-	-	-
Total investments and cash	620,980	97,540	849	(1,624)	(3,072)	714,673	281,951
Other assets
Separate account assets (1)	801,873	28,392	-	(83,632)	(103,697)	642,936	127,542
Total assets measured at fair value on a recurring basis	$1,422,853	$   125,932	$             849	$     (85,256)	$    (106,769)	$1,357,609	$       409,493

(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 nine-month period ended September 30, 2009 are primarily attributable to changes in the observability of inputs used to price the securities.

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)

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 nine-month period ended September 30, 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	$   (60,464)	$             -	$    48,260	$       -	$ 323,408	$    (49,589)
Guaranteed minimum accumulation      benefit liability	358,604	(193,195)	-	15,855	-	181,264	(185,607)
Derivatives embedded in reinsurance      contracts	-	-	-	-	-	-	-
Fixed index annuities	106,619	10,028	-	14,602	-	131,249	13,626
Total other policy liabilities	800,835	(243,631)	-	78,717	-	635,921	(221,570)
Derivative instruments – payable	42,066	5,864	-	-	-	47,930	5,864
Total liabilities measured at fair value on     a recurring basis	$   842,901	$ (237,767)	$             -	$     78,717	$       -	$ 683,851	$  (215,706)

Gains and losses related to Level 3 assets and liabilities, included in the Company’s condensed consolidated statements of operations for the nine-month period ended September 30, 2009, are reported as follows (in 000’s):

		Total gains (losses) included in earnings		Change in unrealized gains (losses) related to assets and liabilities still held at the reporting date
Net investment income	$	97,454	$	279,639
Net derivative income		238,142		218,018
Net realized investment losses, excluding impairment losses on available-for-sale securities		(289)		-
Net gains	$	335,307	$	497,657

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)

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 September 30, 2010 (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	Ending balance	Change in total gains (losses) included in earnings relating to instruments still held at the reporting date
		Included in earnings	Included in other comprehensive income
Available-for-sale fixed maturity securities:
Asset-backed securities	$        22	$             -	$               (6)	$                      -	$                  -	$               16	$                      -
Residential mortgage-backed securities	-	-	-	-	-	-	-
Commercial mortgage-backed securities	1,371	-	67	-	-	1,438	-
Foreign government & agency securities	-	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	678	(1,998)	3,169	1,998	6,795	10,642	-
Total available-for-sale fixed maturity securities	2,071	(1,998)	3,230	1,998	6,795	12,096	-
Trading fixed maturity securities:
Asset-backed securities	47,668	7,533	-	(746)	5,163	59,618	6,787
Residential mortgage-backed securities	98,323	1,540	-	(3,897)	(28,393)	67,573	(2,358)
Commercial mortgage-backed securities	62,793	1,376	-	(1,004)	-	63,165	372
Foreign government & agency securities	14,638	(365)	-	-	-	14,273	(365)
U.S. states and political subdivisions securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	48,551	2,204	-	1,808	33,432	85,995	4,012
Total trading fixed maturity securities	271,973	12,288	-	(3,839)	10,202	290,624	8,448
Derivative instruments – receivable:
Interest rate contracts	-	-	-	-	-	-	-
Foreign currency contracts	-	-	-	-	-	-	-
Equity contracts	1,723	887	-	2,795	-	5,405	887
Futures contracts	-	-	-	-	-	-	-
Total derivative instruments– receivable	1,723	887	-	2,795	-	5,405	887
Other invested assets	1,614	(302)	-	-	-	1,312	(302)
Short-term investments	-	-	-	-	-	-	-
Cash and cash equivalents	-	-	-	-	-	-	-
Total investments and cash	277,381	10,875	3,230	954	16,997	309,437	9,033
Separate account assets:
Mutual fund investments	-	-	-	-	-	-	-
Equity investments	197	(182)	-	-	-	15	(182)
Fixed income investments	92,963	2,020	-	83,648	(3,546)	175,085	1,160
Alternative investments	269,757	1,913	-	9,738	(9,587)	271,821	1,662
Other investments	-	-	-	-	-	-	-
Total separate account assets (1)	362,917	3,751	-	93,386	(13,133)	446,921	2,640
Total assets measured at fair value on a recurring basis	$640,298	$    14,626	$        3,230	$              94,340	$         3,864	$     756,358	$                 12,277

(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.

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)

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 September 30, 2010 (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	$ 618,029	$(140,238)	$               -	$     41,917	$               -	$ 519,708	$     (137,957)
Guaranteed minimum accumulation      benefit liability	231,911	(64,087)	-	5,773	-	173,597	(63,318)
Derivatives embedded in reinsurance      contracts	-	-	-	-	-	-	-
Fixed index annuities	118,287	10,100	-	(186)	-	128,201	18,052
Total other policy liabilities	968,227	(194,225)		47,504	-	821,506	(183,223)
Derivative instruments – payable:
Interest rate contracts	-	-	-	-	-	-	-
Foreign currency contracts	-	-	-	-	-	-	-
Credit contracts	33,726	(3,093)	-	-	-	30,633	(3,093)
Futures contracts	-	-	-	-	-	-	-
Total derivative instruments– payable	33,726	(3,093)	-	-	-	30,633	(3,093)
Other liabilities:
Bank overdrafts	-	-	-	-	-	-	-
Total liabilities measured at fair value on a       recurring basis	$1,001,953	$(197,318)	$               -	$     47,504	$               -	$ 852,139	$     (186,316)

Gains and losses related to Level 3 assets and liabilities, included in the Company’s condensed consolidated statements of operations for the three-month period ended September 30, 2010, are reported as follows (in 000’s):

		Total gains (losses) included in earnings		Change in unrealized gains (losses) related to assets and liabilities still held  at the reporting date
Net investment income	$	11,986	$	8,146
Net derivative income		198,205		187,203
Net realized investment losses, excluding impairment     losses on available-for-sale securities		(1,998)		-
Net gains	$	208,193	$	195,349

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)

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 September 30, 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 maturity securities:
Asset-backed securities	$            -	$     (13)	$     4	$     -	$     55	$     46	$     -
Collateralized mortgage obligations	2,643	-	-	-	(2,643)	-	-
Commercial mortgage-backed securities	55	(308)	(434)	-	2,588	1,901	-
Foreign government & agency securities	-	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	10,025	120	1,425	(207)	(3,223)	8,140	-
Total available-for-sale fixed maturity securities	12,723	(201)	995	(207)	(3,223)	10,087	-
Trading fixed maturity securities:
Asset-backed and mortgage- backed  securities	149,165	13,964	-	(256)	(36,532)	126,341	34,206
Collateralized mortgage obligations	140,533	8,663	-	(4,415)	25,263	170,044	45,930
Commercial mortgage-backed securities	205,597	40,625	-	(254)	15,258	261,226	61,909
Foreign government & agency securities	9,400	167	-	-	5,963	15,530	548
U.S. states and political subdivisions securities	-	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-	-
Corporate securities	117,385	16,625	-	1,184	(9,115)	126,079	10,318
Total trading fixed maturity securities	622,080	80,044	-	(3,741)	837	699,220	152,911
Derivative instruments – receivable	3,099	680	-	1,587	-	5,366	1,962
Other invested assets	-	-	-	-	-	-	-
Cash and cash equivalents	-	-	-	-	-	-	-
Total investments and cash	637,902	80,523	995	(2,361)	(2,386)	714,673	154,873
Other assets
Separate account assets (1)	720,926	147	-	(62,387)	(15,750)	642,936	2,535
Total assets measured at fair value on a recurring basis	$1,358,828	$ 80,670	$     995	$     (64,748)	$  (18,136)	$1,357,609	$      157,408

(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 September 30, 2009 are primarily attributable to changes in the observability of inputs used to price the securities.

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)

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 September 30, 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	$  280,489	$  21,784	$        -	$   21,135	$        -	$ 323,408	$    25,327
Guaranteed minimum accumulation   benefit liability	197,789	(22,488)	-	5,963	-	181,264	(20,539)
Derivatives embedded in reinsurance   contracts	-	-	-	-	-	-	-
Fixed index annuities	102,791	11,179	-	17,279	-	131,249	17,708
Total other policy liabilities	581,069	10,475	-	44,377	-	635,921	22,496
Derivative instruments – payable	46,196	1,734	-	-	-	47,930	1,734
Total liabilities measured at fair value on     a recurring basis	$  627,265	$  12,209	$        -	44,377	$        -	$ 683,851	$   24,230

Gains and losses related to Level 3 assets and liabilities, included in the Company’s condensed consolidated statements of operations for the three-month period ended September 30, 2009, are reported as follows (in 000’s):

		Total gains (losses) included in earnings		Change in unrealized gains (losses) related to assets and liabilities still held  at the reporting date
Net investment income	$	80,044	$	152,911
Net derivative loss		(11,529)		(22,268)
Net realized investment losses, excluding     impairment losses on available-for-sale securities		(201)		-
Net gains	$	68,314	$	130,643

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)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The Company determines transfers between levels based on the fair value of each security as of the beginning of the reporting period.

During the nine-month period ended September 30, 2010, the Company transferred the following assets into (out of) Levels 1, 2 and 3:

	Level 1 Transfers		Level 2 Transfers		Level 3 Transfers
	Into	(Out of)	Into	(Out of)	Into	(Out of)
Assets
Available-for-sale fixed maturity securities:
Asset-backed securities	$              -	$             -	$             -	$             -	$             -	$                 -
Residential mortgage-backed securities	-	-	-	-	-	-
Commercial mortgage-backed securities	-	-	-	-	-	-
Foreign government & agency securities	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-
Corporate securities	-	-	434	-	-	(434)
Total available-for-sale fixed maturity securities	-	-	434	-	-	(434)
Trading fixed maturity securities:
Asset-backed securities	-	-	45,553	(14,821)	14,821	(45,553)
Residential mortgage-backed securities	-	-	106,147	(24,641)	24,641	(106,147)
Commercial mortgage-backed securities	-	-	696	-	-	(696)
Foreign government & agency securities	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-
U.S. treasury and agency securities	-	(1,346)	1,346	-	-	-
Corporate securities	-	-	47,741	(26,377)	26,377	(47,741)
Total trading fixed maturity securities	-	(1,346)	201,483	(65,839)	65,839	(200,137)
Derivative instruments – receivable:
Interest rate contracts	-	-	-	-	-	-
Foreign currency contracts	-	-	-	-	-	-
Equity contracts	-	-	-	-	-	-
Futures contracts	-	-	-	-	-	-
Total derivative instruments – receivable	-	-	-	-	-	-
Separate account assets:
Mutual fund investments	-	-	-	-	-	-
Equity investments	5,372	-	-	(5,372)	-	-
Fixed income investments	-	(39)	17,229	(556)	556	(17,190)
Alternative investments	-	-	98,550	-	-	(98,550)
Other investments	4,108	-	-	-	-	(4,108)
Total separate account assets	9,480	(39)	115,779	(5,928)	556	(119,848)
Total assets measured at fair value on a recurring basis	$      9,480	$        (1,385)	$  317,696	$  (71,767)	$    66,395	$    (320,419)

The Company did not change the categorization of its financial instruments during the nine-month period ended September 30, 2010.  The transfers into (out of) Level 2 and Level 3 were primarily due to changes in the level of observability of inputs used to price these securities.

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)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value Hierarchy (continued)

The Company determines transfers between levels based on the fair value of each security as of the beginning of the reporting period.

During the three-month period ended September 30, 2010, the Company transferred the following assets into (out of) Levels 1, 2 and 3:

	Level 1 Transfers		Level 2 Transfers		Level 3 Transfers
	Into	(Out of)	Into	(Out of)	Into	(Out of)
Assets
Available-for-sale fixed maturity securities:
Asset-backed securities	$                   -	$               -	$             -	$             -	$             -	$             -
Residential mortgage-backed securities	-	-	-	-	-	-
Commercial mortgage-backed securities	-	-	-	-	-	-
Foreign government & agency securities	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-
Corporate securities	-	-	-	(6,795)	6,795	-
Total available-for-sale fixed maturity securities	-	-	-	(6,795)	6,795	-
Trading fixed maturity securities:
Asset-backed securities	-	-	5,911	(11,074)	11,074	(5,911)
Residential mortgage-backed securities	-	-	50,118	(21,725)	21,725	(50,118)
Commercial mortgage-backed securities	-	-	-	-	-	-
Foreign government & agency securities	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-
U.S. treasury and agency securities	-	(1,250)	1,250	-	-	-
Corporate securities	-	-	-	(33,432)	33,432	-
Total trading fixed maturity securities	-	(1,250)	57,279	(66,231)	66,231	(56,029)
Derivative instruments – receivable:
Interest rate contracts	-	-	-	-	-	-
Foreign currency contracts	-	-	-	-	-	-
Equity contracts	-	-	-	-	-	-
Futures contracts	-	-	-	-	-	-
Total derivative instruments – receivable	-	-	-	-	-	-
Separate account assets:
Mutual fund investments	-	-	-	-	-	-
Equity investments	-	-	-	-	-	-
Fixed income investments	9,899	-	3,546	(9,899)	-	(3,546)
Alternative investments	10,144	-	-	(557)	557	(10,144)
Other investments	-	-	-	-	-	-
Total separate account assets	20,043	-	3,546	(10,456)	557	(13,690)
Total assets measured at fair value on a recurring basis	$         20,043	$      (1,250)	$   60,825	$  (83,482)	$       73,583	$    (69,719)

The Company did not change the categorization of its financial instruments during the three-month period ended September 30, 2010.  The transfers into (out of) Level 2 and Level 3 were primarily due to changes in the level of observability of inputs used to price these securities.

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)

4. FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value of Financial Instruments

FASB ASC Topic 825 “Financial Instruments” requires disclosure of the fair value of certain financial instruments including those that are not carried at fair value. FASB ASC Topic 825 also excludes certain insurance liabilities and other non-financial instruments from its disclosure requirements.  The fair value amounts presented herein do not include the expected interest margin (interest earnings over interest credited) to be earned in the future on investment-type products or other intangible items.  Accordingly, the aggregate fair value amounts presented herein do not necessarily represent the underlying value to the Company.  Likewise, care should be exercised in deriving conclusions about the Company's business or financial condition based on the fair value information presented herein.

The following table presents the Company’s financial instruments whose carrying amounts and estimated fair values  may differ (in 000’s) at:

		September 30, 2010		December 31, 2009
		Carrying	Estimated	Carrying	Estimated
		Amount	Fair Value	Amount	Fair Value
Financial assets:
	Mortgage loans	$   1,805,209	$    1,951,815	$     1,911,961	$       1,937,199
	Policy loans	$      710,060	$       913,022	$        722,590	$          837,029
Financial liabilities:
	Contractholder deposit funds and other    policy liabilities	$ 13,284,955	$  12,503,520	$   14,104,892	$     13,745,774
	Debt payable to affiliates	$      783,000	$       783,000	$        883,000	$          883,000

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

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

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

Policy loans:  The fair value of policy loans is determined by estimating future policy loan cash flows and discounting the cash flows at a current market interest rate.

Contractholder deposit funds and other policy liabilities: The fair values of the Company’s general account insurance reserves and contractholder deposits under investment-type contracts (e.g., insurance, annuity and pension contracts that do not involve mortality or morbidity risks) are estimated using discounted cash flow analyses or surrender values based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for all contracts being valued. Those contracts that are deemed to have short-term guarantees have a carrying amount equal to the estimated market value.  The fair values of other deposits with future maturity dates are estimated using discounted cash flows.

Debt payable to affiliates: The fair value of notes payable and other borrowings is based on future cash flows discounted at the stated interest rate, considering all appropriate terms of the related agreements. Due to certain provisions included in such agreements, such as the issuers’ ability to call each note at par with appropriate approvals, the fair value is equal to par value.

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)

5. INVESTMENTS

Fixed Maturity Securities

The amortized cost and fair value of fixed maturity securities at September 30, 2010, were as follows (in 000’s):

Available-for-sale fixed maturity securities	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Temporary Losses	OTTI Losses (1)	Fair Value
Non-corporate securities:
Asset-backed securities	$            706	$              27	$           (9)	$           -	$           724
Residential mortgage-backed securities	35,536	2,403	(1)	-	37,938
Commercial mortgage-backed securities	16,110	625	(2,193)	-	14,542
Foreign government & agency securities	507	62	-	-	569
U.S. states and political subdivisions securities	217	7	-	-	224
U.S. treasury and agency securities	371,840	10,747	-	-	382,587
Total non-corporate securities	424,916	13,871	(2,203)	-	436,584
Corporate securities	1,015,211	118,569	203	(12,304)	1,121,679
Total available-for-sale fixed maturity securities	$  1,440,127	$     132,440	$    (2,000)	$ (12,304)	$ 1,558,263
Trading fixed maturity securities	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
Non-corporate securities:
Asset-backed securities	$     573,096	$         7,716	$      (150,526)	$    430,286
Residential mortgage-backed securities	1,314,699	18,239	(331,379)	1,001,559
Commercial mortgage-backed securities	931,481	38,608	(193,482)	776,607
Foreign government & agency securities	162,973	14,907	-	177,880
U.S. states and political subdivisions securities	606	44	-	650
U.S. treasury and agency securities	711,306	5,465	-	716,771
Total non-corporate securities	3,694,161	84,979	(675,387)	3,103,753
Corporate securities	8,608,491	551,757	(127,040)	9,033,208
Total trading fixed maturity securities	$12,302,652	$     636,736	$      (802,427)	$12,136,961

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

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)

5. INVESTMENTS (CONTINUED)

Fixed Maturity Securities (Continued)

The amortized cost and fair value of fixed maturity securities at December 31, 2009, were as follows (in 000’s):

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

(1)  Represents the before tax non-credit OTTI loss recorded as a component of AOCI for assets still held at the reporting date.

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)

5. INVESTMENTS (CONTINUED)

Fixed Maturity Securities (Continued)

The amortized cost and estimated fair value by maturity periods for fixed maturity securities held at September 30, 2010 are shown below (in 000’s).  Actual maturities may differ from contractual maturities on structured securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized Cost	Fair Value
Maturities of available-for-sale fixed securities:
	Due in one year or less	$           36,047	$          37,012
	Due after one year through five years	667,252	729,350
	Due after five years through ten years	82,566	96,147
	Due after ten years	601,911	642,550
Subtotal – Maturities of available-for-sale fixed securities		1,387,776	1,505,059
ABS, RMBS and CMBS securities(1)		52,351	53,204
Total available-for-sale fixed securities		$      1,440,127	$     1,558,263
Maturities of trading fixed securities:
	Due in one year or less	$      1,509,448	$       1,524,037
	Due after one year through five years	4,337,385	4,556,522
	Due after five years through ten years	2,195,674	2,388,610
	Due after ten years	1,440,869	1,459,340
	Subtotal – Maturities of trading fixed securities	9,483,376	9,928,509
ABS, RMBS and CMBS securities(1)		2,819,276	2,208,452
	Total trading fixed securities	$    12,302,652	$     12,136,961

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

Gross gains of $123.5 million and gross losses of $32.0 million were realized on the sale of fixed maturity securities for the nine-month period ended September 30, 2010.

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)

5. INVESTMENTS (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 includes temporary unrealized losses and the portion of non-credit OTTI losses recognized in AOCI.  These fair value and gross unrealized losses are aggregated by investment category and length of time that the individual securities have been in an unrealized loss position at September 30, 2010 (in 000’s).

	Less Than Twelve Months		Twelve Months Or More		Total
	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
Non-corporate securities:
Asset-backed securities	$            -	$            -	$         16	$           (9)	$        16	$              (9)
Residential mortgage-backed securities	27	(1)	-	-	27	(1)
Commercial mortgage-backed securities	-	-	4,625	(2,193)	4,625	(2,193)
Foreign government & agency securities	-	-	-	-	-	-
U.S. states and political subdivisions securities	-	-	-	-	-	-
U.S. treasury and agency securities	-	-	-	-	-	-
Total non-corporate securities	27	(1)	4,641	(2,202)	4,668	(2,203)
Corporate securities	18,982	(466)	131,390	(11,635)	150,372	(12,101)
Total	$      19,009	$          (467)	$    136,031	$  (13,837)	$155,040	$     (14,304)

The following table shows the fair value and gross unrealized losses of the Company’s available-for-sale fixed maturity investments, which were deemed to be temporarily impaired, aggregated by investment category and length of time that the individual securities have been in an unrealized loss position at December 31, 2009 (in 000’s).

	Less Than Twelve Months		Twelve Months Or More		Total
	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
Non-corporate securities:
Asset-backed securities	$              -	$              -	$            37	$          (19)	$       37	$       (19)
Commercial mortgage-backed securities	499	(1)	6,597	(2,599)	7,096	(2,600)
Foreign government & agency securities	-	-	212	(7)	212	(7)
U.S. treasury and agency securities	16,942	(88)	-	-	16,942	(88)
Total non-corporate securities	17,441	(89)	6,846	(2,625)	24,287	(2,714)
Corporate securities	83,967	(6,208)	183,430	(26,533)	267,397	(32,741)
Total	$   101,408	$     (6,297)	$   190,276	$    (29,158)	$ 291,684	$   (35,455)

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)

5. INVESTMENTS (CONTINUED)

Other-Than-Temporary Impairment

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

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

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

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

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

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

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)

5. INVESTMENTS (CONTINUED)

Other-Than-Temporary Impairment (continued)

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

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

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

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

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

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)

5. INVESTMENTS (CONTINUED)

Other-Than-Temporary Impairment (continued)

The Company recorded credit OTTI losses in its condensed consolidated statement of operations totaling $0.9 million for the nine-month period ended September 30, 2010 for OTTI on its available-for-sale fixed maturity securities.  The $0.9 million credit loss OTTI recorded during the nine-month period ended September 30, 2010 was concentrated in corporate debt of a foreign issuer. These impairments were driven primarily by the adverse financial condition of the issuer.

The following tables roll forward the amount of credit losses recognized in earnings on debt securities, for which a portion of the OTTI also was recognized in other comprehensive income (in 000’s):

		Nine-month Period Ended September 30, 2010
Beginning balance, at January 1, 2010	$	9,148
Add: Credit losses remaining in accumulated deficit related    to the adoption of FASB ASC Topic 320		-
Add: Credit losses on OTTI not previously recognized		885
Less: Credit losses on securities sold		(2,528)
Less: Credit losses on securities impaired due to intent to   sell
Add: Credit losses on previously impaired securities
Less: Increases in cash flows expected on previously    impaired securities		(1,543)
Ending balance, at September 30, 2010	$	5,962

		Six-month Period Ended September 30, 2009
Beginning balance, at April 1, 2009	$	-
Add: Credit losses remaining in accumulated deficit related    to the adoption of FASB ASC Topic 320		27,805
Add: Credit losses on OTTI not previously recognized		4,834
Less: Credit losses on securities sold		(5,031)
Less: Credit losses on securities impaired due to intent to    sell		-
Add: Credit losses on previously impaired securities		-
Less: Increases in cash flows expected on previously    impaired securities		(686)
Ending balance, at September 30, 2009	$	26,922

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)

5. INVESTMENTS (CONTINUED)

Leveraged Leases

The Company was an owner participant in a trust that is a lessor in a leveraged lease agreement entered into on October 21, 1994, under which equipment having an estimated economic life of 25-40 years was originally leased through a VIE for a term of 9.78 years.  The master lessee had the option to purchase the equipment at the expiration of the lease term.  The Company's equity investment in this VIE represented 8.33% of the partnership that provided 22.9% of the purchase price of the equipment.  The Company did not have the ability to direct the activities that most significantly impact the economic performance of the VIE, nor the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Therefore, the Company did not consolidate this trust in its condensed consolidated financial statements.  The balance of the purchase price was furnished by third-party long-term debt financing, collateralized by the equipment, and was non-recourse to the Company.  The leveraged lease investment was included as a part of other invested assets in the Company’s condensed consolidated balance sheets.

On June 1, 2010, the master lessee elected to exercise a fixed price purchase option to purchase the equipment and the Company received $22.9 million in cash for its investment in the VIE and realized a $3.4 million gain in its condensed consolidated statement of operations.

Derivative Instruments and Hedging Activities

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

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

Credit enhancement such as collateral is used to improve the credit risk of longer term derivative contracts.

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

Swap Agreements

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

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

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

On September 6, 2006, the Company entered into an agreement with the CARS Trust.  Refer to Note 1 for additional information on the CARS Trust.

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)

5. INVESTMENTS (CONTINUED)

Derivative Instruments and Hedging Activities (continued)

Swaptions

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

Futures

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

Call/Put Options

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

Embedded Derivatives

The Company performs a quarterly analysis of its new contracts, agreements and financial instruments for embedded derivatives.  No embedded derivatives required bifurcation from financial assets.  However, the Company issues certain annuity contracts and enters into reinsurance agreements that contain derivatives embedded in the contract.  Upon issuing the contract, the embedded derivative is separated from the host contract (annuity contract or reinsurance agreement) and is carried at fair value.  Refer to Note 6 for further information regarding derivatives embedded in reinsurance contracts; refer also to Note 9 for further information regarding derivatives embedded in annuity contracts.

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

	At September 30, 2010				At December 31, 2009
	Number of		Principal        Notional		Number of		Principal                   Notional
		Contracts		Contracts		Contracts		Contracts
Interest rate swaps		69		$           5,980,000		102		$      8,883,000
Currency swaps		13		355,419		10		351,740
Credit default swaps		1		37,400		1		55,000
Equity swaps		-		-		2		4,908
Swaptions		1		350,000		5		1,150,000
Futures (1)		(25,294)		3,330,823		(13,811)		2,378,216
Index call options		8,288		1,532,376		7,345		1,313,381
Index put options		4,400		502,128		7,100		682,499
Total				$         12,088,146				$    14,818,744

(1)  Amount represents the Company’s short position

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)

5. INVESTMENTS (CONTINUED)

Derivative Instruments and Hedging Activities (continued)

With the exception of embedded derivatives, all derivatives are carried at fair value in derivative instruments – receivable or derivative instruments – payable in the Company’s condensed consolidated balance sheets.  Embedded derivatives related to reinsurance agreements and annuity contracts are carried at fair value in contractholder deposit funds and other policy liabilities in the Company’s condensed consolidated balance sheets.  The following is a summary of the Company’s derivative asset and liability positions by primary risk exposure (in 000’s).

	At September 30, 2010				At December 31, 2009
	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
		Fair Value (a)		Fair Value (a)		Fair Value (a)		Fair Value (a)
Interest rate contracts		$          244,647		$          467,340		$   130,178		$   532,401
Foreign currency contracts		40,891		1,957		56,032		905
Equity contracts		41,523		-		58,692		-
Credit contracts		-		30,633		-		34,349
Futures contracts (b)		6,337		950		14,325		5,255
Total derivative instruments		333,398		500,880		259,227		572,910
Embedded derivatives (c)		-		900,314		11,308		417,764
Total		$          333,398		$     1,401,194		$   270,535		$   990,674

(a)   Amounts are presented without consideration of cross-transaction netting and collateral.

(b)   Futures contracts include interest rate, equity price and foreign currency exchange risks.

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

All realized and unrealized derivative gains and losses are recorded in net derivative (loss) income included in the Company’s condensed consolidated statements of operations.  The following is a summary of the Company’s realized and unrealized gains and losses by derivative type (in 000’s):

	For the nine-month period ended September 30,		For the three-month period ended September 30,
	2010	2009	2010	2009
Interest rate contracts	$   (96,191)	$  132,861	$ (17,522)	$    (39,973)
Foreign currency contracts	(7,480)	(7,580)	(2,055)	(5,371)
Equity contracts	(32,856)	(58,355)	(18,844)	(16,867)
Credit contracts	3,716	(5,864)	3,093	(1,734)
Futures contracts	(9,531)	(246,742)	(149,933)	(142,847)
Embedded derivatives	(480,722)	2,801	129,362	(139,739)
Net derivative loss from continuing     operations	(623,064)	(182,879)	(55,899)	(346,531)
Net derivative income from     discontinued operations	$              -	$  180,023	$             -	$      42,085

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)

5. INVESTMENTS (CONTINUED)

Derivative Instruments and Hedging Activities (continued)

Concentration of Credit Risk

Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract.  With derivative instruments, the Company is primarily exposed to credit risk through its counterparty relationships.  The Company primarily manages credit risk through policies which address the quality of counterparties, contractual requirements for transacting with counterparties and collateral support agreements, and limitations on counterparty concentrations.  Exposures by counterparty and counterparty credit ratings are monitored closely.  All of the contracts are held with counterparties rated A or higher.  As of September 30, 2010, the Company’s liability positions were linked to a total of 15 counterparties, of which the largest single unaffiliated counterparty payable, net of collateral, had credit exposure of $11.3 million to the Company.  As of September 30, 2010, the Company’s asset positions were linked to a total of 18 counterparties, of which the largest single unaffiliated counterparty receivable, net of collateral, had credit exposure of $7.0 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 also may include supplementary agreements with such tailored terms as additional triggers for early terminations, acceptable practices related to cross-transaction netting and minimum thresholds for determining collateral.

Credit-related triggers include failure to pay or deliver on an obligation past certain grace periods, bankruptcy or the downgrade of credit ratings to below a stipulated level.  These triggers apply to both the Company and its counterparty.  The aggregate value of all derivative instruments with credit risk-related contingent features that were in a liability position at September 30, 2010 was approximately $500.9 million.

In the event of an early termination, the Company might be required to accelerate payments to counterparties, up to the current value of its liability positions, offset by the value of previously pledged collateral and cross-transaction netting.  If payments cannot be exchanged simultaneously at early termination, funds also will be held in escrow to facilitate settlement.  If an early termination was triggered on September 30, 2010, the Company would be expected to settle a net obligation of approximately $10.8 million.

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

At September 30, 2010, the Company pledged $278.1 million in U.S. Treasury securities as collateral to counterparties.  At September 30, 2010, counterparties had pledged $121.4 million in collateral to the Company, comprised of cash and U.S. Treasury securities.

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)

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 at both September 30, 2010 and December 31, 2009.  This entire block of business is reinsured on a funds-withheld, coinsurance basis with SLOC, an affiliate.

The Company received regulatory approval on May 20, 2010 to amend the reinsurance agreement between the Company and SLOC, effective January 1, 2010.  The amended agreement contains a loss carryforward provision which mitigates the impact of temporary experience losses on the experience refund between the Company and SLOC.

Pursuant to this reinsurance agreement, the Company held the following assets and liabilities (in 000’s) at:

	September 30,		December 31,
	2010		2009
Assets Reinsurance receivable	$	1,472,486	$	1,540,697
Liabilities Contractholder deposit funds and other policy liabilities		1,506,118		1,493,145
Future contract and policy benefits		2,104		2,104
Reinsurance payable		1,555,985		1,603,711

The funds-withheld assets of $1.6 billion and $1.5 billion at September 30, 2010 and December 31, 2009, respectively, are comprised of bonds, mortgage loans, policy loans, derivative instruments, and cash and cash equivalents that are managed by the Company.  The funds-withheld coinsurance agreement gives rise to an embedded derivative which is required to be separated from the host reinsurance contract.  The change in value of this embedded derivative decreased derivative income by $22.5 million and $46.4 million for the three and nine-month periods ended September 30, 2010, respectively, and by $58.9 million and $116.8 million for the three and nine-month periods ended September 30, 2009, respectively.

By reinsuring the SPWL product, the Company reduced net investment income by $22.8 million and $25.4 million for the three and nine-month periods ended September 30, 2010, respectively, and by $20.0 million and $89.0 million for the three and nine-month periods ended September 30, 2009, respectively.  The Company also reduced interest credited by $17.7 million and $53.1 million for the three and nine-month periods ended September 30, 2010, respectively, and by $18.5 million and $56.1 million for the three and nine-month periods ended September 30, 2009, respectively.

54

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.  The reinsurance agreement covered in-force policies on the effective date and new sales through December 31, 2009.

Effective January 1, 2010, the Company and BarbCo 3 amended the agreement to include coverage of certain corporate and bank-owned variable universal life and private placement variable universal life insurance cases sold between December 31, 2009 and March 31, 2010, inclusive.  Reinsurance coverage continued for all cases sold prior to April 1, 2010.  However, cases sold on or after April 1, 2010 have not been reinsured.  This amendment also enabled the Company to discontinue reinsuring a portion of the covered business that was previously reinsured on a modified coinsurance basis, effective April 1, 2010.  The discontinuance of the business reinsured on a modified coinsurance basis did not have a material impact on the Company’s condensed consolidated financial statements.

At the inception of the transaction, BarbCo 3 paid an initial ceding commission to the Company of $41.5 million and the Company recorded a reinsurance payable and related reinsurance receivable of $370.7 million and $329.2 million, respectively.  The reinsurance payable included a funds-withheld liability of $247.9 million and a deferred gain of $122.8 million.  Pursuant to this agreement, the Company held the following assets and liabilities (in 000’s) at:

	September 30,		December 31,
	2010		2009
Assets Reinsurance receivable	$	422,275	$	422,486
Liabilities Contractholder deposit funds and other policy liabilities		469,560		466,899
Reinsurance payable		434,147		430,528

At September 30, 2010 and December 31, 2009, reinsurance payable includes a funds-withheld liability of $325.3 million and $307.8 million, respectively, and a deferred gain of $108.8 million and $118.9 million, respectively.  The funds-withheld assets are comprised of bonds, policy loans, and cash and cash equivalents that are managed by the Company.  The funds-withheld coinsurance agreement gives rise to an embedded derivative which is required to be separated from the host reinsurance contract.  At September 30, 2010 and December 31, 2009, the fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $30.5 million and $26.3 million, respectively.

The change in fair value of the embedded derivative reduced derivative income by $1.0 million and $4.2 million for the three and nine-month periods ended September 30, 2010, respectively, and by $14.1 million and $25.7 million for the three and nine-month periods ended September 30, 2009, respectively.  During the three and nine-month periods ended September 30, 2010, the reinsurance agreement reduced revenues by $6.2 million and $22.5 million, respectively, and decreased expenses by $18.8 million and $41.5 million, respectively.  During the three and nine-month periods ended September 30, 2009, the reinsurance agreement reduced revenues by $18.5 million and $44.5 million, respectively, and decreased expenses by $13.9 million and $28.4 million, respectively.

55

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’s subsidiary, SLNY, entered into a reinsurance agreement with SLOC pursuant to which SLOC funds a portion of the statutory reserves (“AXXX reserves”) required by New York Regulation 147, which is substantially similar to Actuarial Guideline 38 as adopted by the NAIC, attributable to certain 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.  New business on the December 31, 2007 in-force policies and policies issued after December 31, 2007 also are reinsured under this agreement.  Pursuant to this agreement, SLNY held the following assets and liabilities at (in 000’s):

	September 30,		December 31,
	2010		2009
Assets Reinsurance receivable	$	149,465	$	103,802
Liabilities Contractholder deposit funds and other policy liabilities		114,015		84,606
Future contract and policy benefits		21,118		10,518
Reinsurance payable		223,552		182,000

Reinsurance payable includes a funds-withheld liability of $175.6 million and $128.4 million at September 30, 2010 and December 31, 2009, respectively; and a deferred gain of $47.6 million and $50.3 million at September 30, 2010 and December 31, 2009, respectively.  The funds-withheld assets comprised of trading fixed maturity securities and mortgage loans are managed by the Company.  The funds-withheld coinsurance agreement gives rise to an embedded derivative which is required to be separated from the host reinsurance contract.  The fair value of the embedded derivative increased (decreased) contractholder deposit funds and other policy liabilities by $12.6 million and $(0.7) million at September 30, 2010 and December 31, 2009, respectively.  The change in fair value of this embedded derivative decreased derivative income by $4.4 million and $13.3 million for the three and nine-month periods ended September 30, 2010, respectively, and $7.1 million and $11.2 million for the three and nine-month periods ended September 30, 2009, respectively.

The reinsurance agreement between SLOC and SLNY decreased revenues by approximately $11.9 million and $32.1 million for the three and nine-month periods ended September 30, 2010, respectively, and $12.0 million and $23.7 million for the three and nine-month periods ended September 30, 2009, respectively.  This agreement also decreased benefits and expenses by approximately $13.3 million and $27.1 million for the three and nine-month periods ended September 30, 2010, respectively, and $7.2 million and $16.4 million for the three and nine-month periods ended September 30, 2009, respectively.

The Company has other reinsurance agreements with SLOC and several unrelated companies, which provide reinsurance for portions of the net-amount-at-risk under certain individual variable universal life, individual private placement variable universal life, bank owned life insurance (“BOLI”) and corporate-owned life insurance (“COLI”) policies.  These amounts are reinsured on a monthly renewable term, a yearly renewable term or a modified coinsurance basis.  These other agreements have decreased revenues by approximately $26.8 million and $107.1 million for the three and nine-month periods ended September 30, 2010, respectively, and $37.2 million and $119.8 million for the three and nine-month periods ended September 30, 2009, respectively. These agreements also have decreased expenses by approximately $26.3 million and $107.6 million for the three and nine-month periods ended September 30, 2010, respectively, and $58.1 million and $120.0 million for the three and nine-month periods ended September 30, 2009, respectively.

56

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

SLNY has several agreements with unrelated companies whereby the unrelated companies reinsure the mortality and morbidity risks of certain of the SLNY group contracts.

SLNY has an agreement, effective May 31, 2007, to assume the net risks of SLHIC’s New York issued contracts.  At September 30, 2010 and December 31, 2009, SLNY held policyholder liabilities related to this agreement of $29.1 million and $30.3 million, respectively.  In addition, the reinsurance agreement increased revenues by $9.8 million and $34.4 million for the three and nine-month periods ended September 30, 2010, respectively, and by $13.1 million and $40.2 million for the three and nine-month periods ended September 30, 2009, respectively.  This agreement also increased benefits and expenses by $12.6 million and $35.2 million for the three and nine-month periods ended September 30, 2010, respectively, and by $11.7 million and $35.3 million for the three and nine-month periods ended September 30, 2009, respectively.

7. COMMITMENTS AND CONTINGENCIES

Regulation and Regulatory Developments

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

Litigation, Income Taxes and Other Matters

In Revenue Ruling 2007-61, issued on September 25, 2007, the 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.  On May 30, 2010, the IRS issued an Industry Director Directive which makes it clear that IRS interpretations prior to Revenue Ruling 2007-54 should be followed until new regulations are issued. New DRD regulations that the IRS proposes for issuance on this matter will be subject to public comment, at which time the insurance industry and other interested parties will have the opportunity to raise comments and questions about the content, scope and application of new regulations.  The timing, substance and effective date of the new regulations are unknown, but they could result in the elimination of some or all of the separate account DRD tax benefit that the Company ultimately receives.  The Company recorded (provisions) benefits of $(0.4) million and $7.8 million for the three and nine-month periods ended September 30, 2010, respectively, and $4.1 million and $12.3 million for the three and nine-month periods ended September 30, 2009, respectively, related to the separate account DRD.  The amounts recorded for the three and nine-month periods ended September 30, 2010 included an adjustment of $4.4 million to reflect a reduced run rate of separate account DRD benefits following the filing of the 2009 tax return.

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.

57

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)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Indemnities

In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, underwriting and agency agreements, information technology agreements, distribution agreements and service agreements.  The Company also has 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.

8.  RETIREMENT PLANS

Effective December 31, 2009, the Company transferred all of its employees to an affiliate, Sun Life Services, with the exception of 28 employees who were transferred to SLFD, another affiliate.  As a result of this transaction, the Company transferred pension and other employee benefit liabilities, accumulated other comprehensive losses related to pension and other postretirement plans, and cash to Sun Life Services.  Concurrent with this transaction, Sun Life Services became the sponsor of the retirement plans described below.  The employee transfer did not materially change the provisions of the related retirement plans.  The annual cost to the Company of these benefits is allocated by Sun Life Services and charged to the Company in a manner consistent with the allocation of employee compensation expenses.

Prior to the December 31, 2009 employee transfer, the Company sponsored the staff qualified pension plan and the staff nonqualified pension plan (collectively, the “Pension Plans”) for its employees and certain affiliated employees.  Expenses related to the Pension Plans were allocated to participating companies in a manner consistent with the allocation of employee compensation expenses.

Prior to the December 31, 2009 employee transfer, the Company sponsored a postretirement benefit plan for its employees and certain affiliated employees providing certain health, dental and life insurance benefits for retired employees and dependents (the “Other Benefit Plan”).  Expenses related to the Other Benefit Plan were allocated to participating companies based on the number of participants.

For the three-month period ended September 30, 2010, Sun Life Services allocated to the Company expenses of $0.8 million and $1.1 million for the Pension Plans and the Other Benefit Plan, respectively.  For the nine-month period ended September 30, 2010, expenses of $2.4 million and $3.3 million for the Pension Plans and the Other Benefit Plan, respectively, were allocated to the Company.

58

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 September 30, 2010 (in 000’s, except for age data):

Benefit Type	Account Balance	Net Amount at Risk 1	Average Attained Age
Minimum death	$           18,790,347	$           2,163,591	66.2
Minimum income	$                174,815	$                73,166	62.0
Minimum accumulation and withdrawal	$           11,161,822	$              382,685	63.3

The table below represents information regarding the Company’s variable annuity contracts with guarantees at December 31, 2009:

Benefit Type	Account Balance	Net Amount at Risk 1	Average Attained Age
Minimum death	$           16,947,362	$           2,459,360	66.2
Minimum income	$                194,780	$                84,591	61.5
Minimum accumulation or withdrawal	$             8,866,525	$              212,371	63.0

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

The following roll-forward summarizes the change in reserves for the Company’s guaranteed minimum death and income benefits at September 30, 2010 (in 000’s):

	Guaranteed Minimum Death Benefit	Guaranteed Minimum Income Benefit	Total
Balance at December 31, 2009	$                 96,267	$           10,058	$      106,325
Benefit ratio change /      Assumption changes	40,494	8,789	49,283
Incurred guaranteed benefits	22,498	1,161	23,659
Paid guaranteed benefits	(28,465)	(2,898)	(31,363)
Interest	5,766	533	6,299
Balance at September 30, 2010	$             136,560	$           17,643	$          154,203

59

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 reserves for the Company’s guaranteed minimum death and income benefits at September 30, 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	(63,705)	(5,874)	(69,579)
Incurred guaranteed benefits	35,127	2,149	37,276
Paid guaranteed benefits	(82,226)	(4,680)	(86,906)
Interest	8,542	1,085	9,627
Balance at September 30, 2009	$             99,386	$            11,453	$          110,839

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 a projection model and stochastic scenarios.  Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based upon factors such as eligibility conditions and the annuitant’s attained age.

The liability for guarantees is re-calculated and adjusted regularly.  Changes to the liability balance are recorded as a charge or credit to policyholder benefits.

GMABs and GMWBs are considered to be derivatives under FASB ASC Topic 815 and are recorded at fair value through earnings.  The Company incorporates 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 $693.3 million and $250.5 million at September 30, 2010 and December 31, 2009, respectively.  The Company records GMAB and GMWB reserves in its condensed consolidated balance sheets as part of contractholder deposit funds and other policy liabilities.

60

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

The Company’s goodwill represents the intangible asset related to the transfer of goodwill to SLNY, based on agreements between SLNY and SLHIC pursuant to which the existing and future New York issued business of SLHIC was transferred to SLNY (collectively the “SLHIC to SLNY asset transfer”).  Goodwill is allocated to the Group Protection Segment.  In accordance with FASB ASC Topic 350, “Intangibles–Goodwill and Other,” goodwill is tested for impairment on an annual basis.  The Company completed the required impairment tests of goodwill during the second quarter of 2010 and concluded that this asset was not impaired.

11. INCOME TAXES

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

Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company performs the required recoverability (realizability) test in terms of its ability to realize its recorded net deferred tax assets.  In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.  In projecting future taxable income and sources of capital gains, the Company utilizes historical and current operating results and incorporates assumptions including the amount of future federal and state pre-tax operating income, the reversal of temporary differences, and the implementation of prudent and feasible tax planning strategies.

The Company’s net deferred tax asset at September 30, 2010 was comprised of gross deferred tax assets and gross deferred tax liabilities.  The gross deferred tax assets are primarily related to unrealized investment security losses, actuarial liabilities and net operating loss (“NOL”) carryforwards, as well as capital loss carryforwards.  If unutilized, the NOL carryforwards and a majority of the capital loss carryforwards will begin to expire in 2023 and 2014, respectively.  The Company’s net deferred tax asset was $390.4 million and $549.8 million at September 30, 2010 and December 31, 2009, respectively.

As of September 30, 2010, no valuation allowance has been recorded against deferred tax assets for investment losses because the Company believes that it is more likely than not that the deferred tax assets related to the impairment losses will be realized due to tax planning strategies related to certain MBS, the Company’s intent and ability to hold the related investment securities to maturity, and other tax planning strategies. For the remaining unrealized investment losses, the Company believes that it is more likely than not that the related deferred tax assets will be realized due to the Company’s intent and ability to hold the related investment securities to recovery of amortized cost.

12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The following condensed consolidating financial statements are provided in compliance with Regulation S-X of the 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.

61

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.  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 nine-month period ended September 30, 2010

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Revenues
Premiums and annuity considerations	$	12,401	$	87,986	$	-	$	-	$	100,387
Net investment income (1)		1,202,835		128,179		2,973		-		1,333,987
Net derivative loss		(580,666)		(42,398)		-		-		(623,064)
Net realized investment gains (losses), excluding   impairment losses on available-for-sale   securities		17,468		(279)		(330)		-		16,859
Other-than-temporary impairment losses		(735)		(150)		-		-		(885)
Fee and other income		342,657		11,866		7,001		-		361,524
Total revenues		993,960		185,204		9,644		-		1,188,808
Benefits and Expenses
Interest credited		263,861		44,133		699		-		308,693
Interest expense		39,589		(72)		-		-		39,517
Policyowner benefits		80,136		63,363		174		-		143,673
Amortization of DAC, VOBA and VOCRA		119,133		58,301		-		-		177,434
Other operating expenses		199,652		30,028		6,667		-		236,347
Total benefits and expenses		702,371		195,753		7,540		-		905,664
Income (loss) before income tax expense (benefit)		291,589		(10,549)		2,104		-		283,144
Income tax expense (benefit)		94,867		(4,391)		612		-		91,088
Equity in the net loss of subsidiaries		(4,666)		-		-		4,666		-
Net income (loss)	$	192,056	$	(6,158)	$	1,492	$	4,666	$	192,056

(1)   SLUS as parent’s, SLNY’s and Other Subs’ net investment income includes an increase in the market value of trading fixed maturity securities of  $686.5 million, $62.3 million and $0 million, respectively, for the nine-month period ended September 30, 2010.

62

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Operations

For the nine-month period ended September 30, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Revenues
Premiums and annuity considerations	$	10,602	$	90,410	$	-	$	-	$	101,012
Net investment income (1)		2,049,633		208,693		3,319		-		2,261,645
Net derivative (loss) income		(188,157)		5,278		-		-		(182,879)
Net realized investment (losses) gains, excluding   impairment losses on available-for-sale   securities		(7,677)		3		(727)		-		(8,401)
Other-than-temporary impairment losses		(4,450)		(181)		(203)		-		(4,834)
Fee and other income		279,960		6,034		8,908		-		294,902
Total revenues		2,139,911		310,237		11,297		-		2,461,445
Benefits and Expenses
Interest credited		255,942		35,261		877		-		292,080
Interest expense		33,212		769		-		-		33,981
Policyowner benefits		26,799		59,611		1,502		-		87,912
Amortization of DAC, VOBA and VOCRA		434,372		85,696		-		-		520,068
Other operating expenses		137,788		34,162		2,990		-		174,940
Total benefits and expenses		888,113		215,499		5,369		-		1,108,981
Income from continuing operations before income    tax expense		1,251,798		94,738		5,928		-		1,352,464
Income tax expense		359,512		27,500		1,581		-		388,593
Equity in the net income of subsidiaries		216,311		-		-		(216,311)		-
Net income from continuing operations		1,108,597		67,238		4,347		(216,311)		963,871
Income from discontinued operations, net of tax		-		-		144,726		-		144,726
Net income	$	1,108,597	$	67,238	$	149,073	$	(216,311)	$	1,108,597

(1)   SLUS as parent’s, SLNY’s and Other Subs’ net investment income includes an increase in the market value of trading fixed maturity securities of $1,724.4 million, $168.9million and $0.0million, respectively, for the nine-month period ended September 30, 2009.

63

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Operations

For the three-month period ended September 30, 2010

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Revenues
Premiums and annuity considerations	$	4,094	$	28,051	$	-	$	-	$	32,145
Net investment income (1)		431,199		49,875		1,466		-		482,540
Net derivative (loss) income		(60,482)		4,583		-		-		(55,899)
Net realized investment gains (losses), excluding   impairment losses on available-for-sale   securities		1,086		(879)		313		-		520
Other-than-temporary impairment losses		-		-		-		-		-
Fee and other income		124,315		(1,633)		2,614		-		125,296
Total revenues		500,212		79,997		4,393		-		584,602
Benefits and Expenses
Interest credited		112,508		19,122		252		-		131,882
Interest expense		13,094		(29)		-		-		13,065
Policyowner benefits		9,053		17,989		54		-		27,096
Amortization of DAC, VOBA and VOCRA		413,840		16,826		-		-		430,666
Other operating expenses		63,505		10,519		2,530		-		76,554
Total benefits and expenses		612,000		64,427		2,836		-		679,263
(Loss) income before income tax (benefit) expense		(111,788)		15,570		1,557		-		(94,661)
Income tax (benefit) expense		(35,751)		5,020		465		-		(30,266)
Equity in the net income of subsidiaries		11,642		-		-		(11,642)		-
Net (loss) income	$	(64,395)	$	10,550	$	1,092	$	(11,642)	$	(64,395)

(1)   SLUS as parent’s, SLNY’s and Other Subs’ net investment income includes an increase in the market value of trading fixed maturity securities of $271.4 million, $27.4 million and $0.0 million, respectively, for the three-month period ended September 30, 2010.

64

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Operations

For the three-month period ended September 30, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Revenues
Premiums and annuity considerations	$	5,656	$	29,861	$	-	$	-	$	35,517
Net investment income (1)		956,969		86,866		867		-		1,044,702
Net derivative loss		(340,946)		(5,585)		-		-		(346,531)
Net realized investment losses, excluding   impairment losses on available-for-sale   securities		(5,285)		(41)		(238)		-		(5,564)
Other-than-temporary impairment losses		-		-		-		-		-
Fee and other income		118,994		2,629		6,611		-		128,234
Total revenues		735,388		113,730		7,240		-		856,358
Benefits and Expenses
Interest credited		57,928		9,097		(103)		-		66,922
Interest expense		8,275		(32)		-		-		8,243
Policyowner benefits		(23,110)		20,899		87		-		(2,124)
Amortization of DAC, VOBA and VOCRA		56,032		62,216		-		-		118,248
Other operating expenses		63,699		16,200		1,297		-		81,196
Total benefits and expenses		162,824		108,380		1,281		-		272,485
Income from continuing operations before income   tax expense (benefit)		572,564		5,350		5,959		-		583,873
Income tax expense (benefit)		116,984		(3,518)		1,244		-		114,710
Equity in the net income of subsidiaries		162,093		-		-		(162,093)		-
Net income from continuing operations		617,673		8,868		4,715		(162,093)		469,163
Income from discontinued operations, net of tax		-		-		148,510		-		148,510
Net income	$	617,673	$	8,868	$	153,225	$	(162,093)	$	617,673

(1)   SLUS as parent’s, SLNY’s and Other Subs’ net investment income includes an increase in the market value of trading fixed maturity securities of $876.3million, $75.6 million and $0.0 million, respectively, for the three-month period ended September 30, 2009.

65

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Balance Sheets at September 30, 2010

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
ASSETS
Investments
Available-for-sale fixed maturity securities at fair value	$	1,251,993	$	248,756	$	57,514	$	-	$	1,558,263
Trading fixed maturity securities at fair value		10,570,209		1,566,752		-		-		12,136,961
Investment in subsidiaries		559,010		-		-		(559,010)		-
Mortgage loans		1,588,332		178,085		38,792		-		1,805,209
Derivative instruments – receivable		333,398		-		-		-		333,398
Limited partnerships		44,694		-		-		-		44,694
Real estate		162,182		-		44,710		-		206,892
Policy loans		687,394		1,840		20,826		-		710,060
Other invested assets		6,855		970		-		-		7,825
Short-term investments		15,043		-		-		-		15,043
Cash and cash equivalents		1,277,441		102,968		14,268		-		1,394,677
Total investments and cash		16,496,551		2,099,371		176,110		(559,010)		18,213,022
Accrued investment income		183,035		21,298		1,703		-		206,036
Deferred policy acquisition costs and sales inducement asset		2,053,788		140,118		-		-		2,193,906
Value of business and customer renewals acquired		140,784		4,921		-		-		145,705
Net deferred tax asset		388,426		-		3,426		(1,406)		390,446
Goodwill		-		7,299		-		-		7,299
Receivable for investments sold		114,367		16,447		560		-		131,374
Reinsurance receivable		2,198,518		169,843		70		-		2,368,431
Other assets		99,755		34,827		3,162		(7,365)		130,379
Separate account assets		24,155,370		1,164,448		38,582		-		25,358,400
Total assets	$	45,830,594	$	3,658,572	$	223,613	$	(567,781)	$	49,144,998
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	13,947,082	$	1,643,651	$	25,179	$	-	$	15,615,912
Future contract and policy benefits		742,500		113,971		206		-		856,677
Payable for investments purchased		185,308		5,445		-		-		190,753
Accrued expenses and taxes		73,398		6,376		1,751		(7,365)		74,160
Deferred income tax liability		-		1,406		-		(1,406)		-
Debt payable to affiliates		783,000		-		-		-		783,000
Reinsurance payable		1,997,839		242,544		36		-		2,240,419
Derivative instruments – payable		500,880		-		-		-		500,880
Other liabilities		204,971		54,048		25,532		-		284,551
Separate account liabilities		24,155,370		1,164,448		38,582		-		25,358,400
Total liabilities	$	42,590,348	$	3,231,889	$	91,286	$	(8,771)	$	45,904,752
STOCKHOLDER’S EQUITY
Common stock	$	6,437	$	2,100	$	2,542	$	(4,642)	$	6,437
Additional paid-in capital		3,927,886		389,963		108,594		(498,557)		3,927,886
Accumulated other comprehensive income		76,773		10,062		2,531		(12,593)		76,773
(Accumulated deficit) retained earnings		(770,850)		24,558		18,660		(43,218)		(770,850)
Total stockholder’s equity		3,240,246		426,683		132,327		(559,010)		3,240,246
Total liabilities and stockholder’s equity	$	45,830,594	$	3,658,572	$	223,613	$	(567,781)	$	49,144,998

66

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Balance Sheets at December 31, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
ASSETS
Investments
Available-for-sale fixed maturity securities at fair value	$	959,156	$	164,158	$	52,202	$	-	$	1,175,516
Trading fixed maturity securities at fair value		9,724,195		1,406,327		-		-		11,130,522
Investment in subsidiaries		518,560		-		-		(518,560)		-
Mortgage loans		1,736,358		161,498		14,105		-		1,911,961
Derivative instruments – receivable		259,227		-		-		-		259,227
Limited partnerships		51,656		-		-		-		51,656
Real estate		158,170		-		44,107		-		202,277
Policy loans		700,974		270		21,346		-		722,590
Other invested assets		46,410		542		469		-		47,421
Short-term investments		1,208,320		58,991		-		-		1,267,311
Cash and cash equivalents		1,616,991		175,322		11,895		-		1,804,208
Total investments and cash		16,980,017		1,967,108		144,124		(518,560)		18,572,689
Accrued investment income		211,725		17,051		1,815		-		230,591
Deferred policy acquisition costs and sales inducement asset		1,989,676		183,966		-		-		2,173,642
Value of business and customer renewals acquired		163,079		5,766		-		-		168,845
Net deferred tax asset		539,323		5,830		4,611		-		549,764
Goodwill		-		7,299		-		-		7,299
Receivable for investments sold		11,969		642		-		-		12,611
Reinsurance receivable		2,232,651		117,460		96		-		2,350,207
Other assets		114,177		69,161		1,975		(1,350)		183,963
Separate account assets		22,293,989		989,939		42,395		-		23,326,323
Total assets	$	44,536,606	$	3,364,222	$	195,016	$	(519,910)	$	47,575,934
LIABILITIES
Contractholder deposit funds and other policy liabilities	$	15,078,201	$	1,605,038	$	26,350	$	-	$	16,709,589
Future contract and policy benefits		716,176		99,255		207		-		815,638
Payable for investments purchased		87,554		577		-		-		88,131
Accrued expenses and taxes		51,605		10,202		1,446		(1,350)		61,903
Debt payable to affiliates		883,000		-		-		-		883,000
Reinsurance payable		2,040,864		190,863		37		-		2,231,764
Derivative instruments – payable		572,910		-		-		-		572,910
Other liabilities		205,855		48,608		25,761		-		280,224
Separate account liabilities		22,293,989		989,939		42,395		-		23,326,323
Total liabilities	$	41,930,154	$	2,944,482	$	96,196	$	(1,350)	$	44,969,482
STOCKHOLDER’S EQUITY
Common stock	$	6,437	$	2,100	$	2,542	$	(4,642)	$	6,437
Additional paid-in capital		3,527,677		389,963		78,409		(468,372)		3,527,677
Accumulated other comprehensive income (loss)		35,244		(3,039)		701		2,338		35,244
(Accumulated deficit) retained earnings		(962,906)		30,716		17,168		(47,884)		(962,906)
Total stockholder’s equity		2,606,452		419,740		98,820		(518,560)		2,606,452
Total liabilities and stockholder’s equity	$	44,536,606	$	3,364,222	$	195,016	$	(519,910)	$	47,575,934

67

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flow

For the nine-month period ended September 30, 2010

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Operating Activities:
Net income (loss)	$	192,056	$	(6,158)	$	1,492	$	4,666	$	192,056
Adjustments to reconcile net income (loss) to net    cash provided by operating activities:
Net amortization of premiums on investments		16,146		2,996		578		-		19,720
Amortization of DAC, VOBA and VOCRA		119,133		58,301		-		-		177,434
Depreciation and amortization		1,546		234		616		-		2,396
Net losses on derivatives		483,308		42,398		-		-		525,706
Net realized (gains) losses and OTTI credit losses    on available-for-sale investments		(16,733)		429		330		-		(15,974)
Net increase in fair value of trading investments		(686,458)		(62,265)		-		-		(748,723)
Net realized losses (gains) on trading investments		44,220		(11,766)		-		-		32,454
Undistributed loss on private equity limited    partnerships		399		-		-		-		399
Interest credited to contractholder deposits		263,861		44,133		699		-		308,693
Deferred federal income taxes		136,574		182		200		-		136,956
Equity in net loss of subsidiaries		4,666				-		(4,666)		-
Changes in assets and liabilities:
Additions to DAC, SIA, VOBA and VOCRA		(175,325)		(15,700)		-		-		(191,025)
Accrued investment income		28,690		(4,247)		112		-		24,555
Net change in reinsurance receivable/payable		87,991		2,716		25		-		90,732
Future contract and policy benefits		26,324		14,716		(1)		-		41,039
Other, net		77,619		39,274		(1,319)		-		115,574
Net cash provided by operating activities		604,017		105,243		2,732		-		711,992
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturity securities		330,126		38,937		13,737		-		382,800
Trading fixed maturity securities		2,492,639		612,870		(560)		-		3,104,949
Mortgage loans		138,734		8,036		2,683		(30,042)		119,411
Real estate		-		1,000		1,170		(2,170)		-
Other invested assets		(104,102)		815		501				(102,786)
Purchases of:
Available-for-sale fixed maturity securities		(557,511)		(102,654)		(15,382)				(675,547)
Trading fixed maturity securities		(2,747,460)		(712,640)		-		-		(3,460,100)
Mortgage loans		(43)		(28,441)		(31,171)		30,042		(29,613)
Real estate		(5,293)		-		(379)		2,170		(3,502)
Other invested assets		(47,191)		(333)		-		-		(47,524)
Net change in other investments		-		-		-		-		-
Net change in policy loans		13,580		(1,570)		520		-		12,530
Net change in short-term investments		1,193,277		58,991		-		-		1,252,268
Net cash provided by (used in) investing activities	$	706,756	$	(124,989)	$	(28,881)	$	-	$	552,886

Continued on next page

68

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flow (continued)

For the nine-month period ended September 30, 2010

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	826,639	$	136,151	$	-	$	-	$	962,790
Withdrawals from contractholder deposit funds		(2,730,167)		(185,396)		(1,869)		-		(2,917,432)
Repayment of debt		(100,000)		-		-		-		(100,000)
Capital contribution to subsidiaries		(30,185)		-		-		30,185		-
Capital contribution from Parent		400,000		-		30,185		(30,185)		400,000
Other, net		(16,610)		(3,363)		206		-		(19,767)
Net cash (used in) provided by financing activities		(1,650,323)		(52,608)		28,522		-		(1,674,409)
Net change in cash and cash equivalents		(339,550)		(72,354)		2,373		-		(409,531)
Cash and cash equivalents, beginning of period		1,616,991		175,322		11,895		-		1,804,208
Cash and cash equivalents, end of period	$	1,277,441	$	102,968	$	14,268	$	-	$	1,394,677

69

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flows

For the nine-month period ended September 30, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Operating Activities:
Net income	$	1,108,597	$	67,238	$	149,073	$	(216,311)	$	1,108,597
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net amortization of premiums on investments		7,724		212		15		-		7,951
Amortization of DAC, VOBA and VOCRA		434,372		85,696		-		-		520,068
Depreciation and amortization		3,447		233		603		-		4,283
Net loss (gains) on derivatives		97,978		(5,278)		1		-		92,701
Net realized losses and OTTI credit losses on available-for-sale investments		12,127		178		930		-		13,235
Net increase in fair value of trading investments		(1,724,398)		(168,863)		-		-		(1,893,261)
Net realized losses on trading investments		257,385		10,751		-		-		268,136
Undistributed losses in private equity limited partnerships		11,477		-		-		-		11,477
Interest credited to contractholder deposits		255,942		35,261		877		-		292,080
Deferred federal income taxes		302,403		21,532		631		-		324,566
Equity in net income of subsidiaries		(216,311)		-		-		216,311		-
Changes in assets and liabilities:
Additions to DAC, SIA, VOBA and VOCRA		(242,545)		(37,282)		-		-		(279,827)
Accrued investment income		48,853		(422)		211		-		48,642
Net change in reinsurance receivable/payable		108,502		(7,844)		(4,462)		-		96,196
Future contract and policy benefits		(114,736)		3,490		(1)		-		(111,247)
Other, net		36,786		(147,857)		563		-		(110,508)
Adjustments related to discontinued operations		-		-		(4,890)		-		(4,890)
Net cash provided by (used in) operating activities		387,603		(142,955)		143,551		-		388,199
Cash Flows From Investing Activities:
Sales, maturities and repayments of:
Available-for-sale fixed maturity securities		34,569		4,102		1,435		-		40,106
Trading fixed maturity securities		965,384		209,827		27,957		-		1,203,168
Mortgage loans		119,355		7,503		(36)		(18,357)		108,465
Other invested assets		(125,692)		1,587		-		-		(124,105)
Purchases of:
Available-for-sale fixed maturity securities		(333,234)		(3,578)		(311)		-		(337,123)
Trading fixed maturity securities		(50,392)		(419,107)		(1,634)		-		(471,133)
Mortgage loans		(9,902)		(2,125)		(18,389)		18,357		(12,059)
Real estate		(904)		-		(647)		-		(1,551)
Other invested assets		(97,908)		(15)		-		-		(97,923)
Net change in other investments		(109,307)		8,831		-		-		(100,476)
Net change in policy loans		7,565		(52)		2,466		-		9,979
Net change in short-term investments		98,999		115,969		14,694		-		229,662
Net cash provided by (used in) investing activities	$	498,533	$	(77,058)	$	25,535	$	-	$	447,010

Continued on next page

70

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.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flows (continued)

For the nine-month period ended September 30, 2009

	SLUS as Parent		SLNY		Other Subs		Elimination		Consolidated Company
Cash Flows From Financing Activities:
Additions to contractholder deposit funds	$	1,859,301	$	416,555	$	26,211	$	-	$	2,302,067
Withdrawals from contractholder deposit funds		(2,123,945)		(183,188)		(6,526)		-		(2,313,659)
Capital contribution to subsidiaries		(58,910)		-		-		58,910		-
Capital contribution from Parent		748,652		-		58,910		(58,910)		748,652
Debt proceeds		-		-		100,000		-		100,000
Other, net		(37,135)		(7,415)		-		-		(44,550)
Net cash provided by financing activities		387,963		225,952		178,595		-		792,510
Net change in cash and cash equivalents		1,274,099		5,939		347,681		-		1,627,719
Cash and cash equivalents, beginning of period		733,518		261,989		29,161		-		1,024,668
Cash and cash equivalents, end of period	$	2,007,617	$	267,928	$	376,842	$	-	$	2,652,387

71

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 operations between the nine-month periods ended September 30, 2010 and September 30, 2009.

Cautionary Statement

This 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 year ended December 31, 2009.

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:

Ø   Deferred policy acquisition costs (“DAC”), including sales inducement asset (“SIA”);

Ø   Value of business acquired (“VOBA”);

Ø   Value of customer renewals acquired (“VOCRA”);

Ø   Derivative instruments;

Ø   Fair value of financial instruments;

Ø   Policy liabilities and accruals;

Ø   Other-than-temporary impairments (“OTTI”) of investments;

Ø   Goodwill valuation;

Ø   Allowance for loan loss;

Ø   Valuation allowance on deferred tax assets; and

Ø    Provisions for 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 additional information concerning the Company’s critical accounting estimates, 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 year ended December 31, 2009.

72

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

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

RESULTS OF OPERATIONS

Nine-month period ended September 30, 2010 compared to the nine-month period ended September 30, 2009:

Net Income

The Company’s net income was $192.1 million and $1,108.6 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The significant changes are described below.

Discontinued Operations

On December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of the Company’s wholly-owned subsidiary, Sun Life Financial (U.S.) Reinsurance Company (“Sun Life Vermont”), to Sun Life of Canada (U.S.) Holdings, Inc. (the “Parent”).  As a result of this transaction, Sun Life Vermont is no longer the Company’s wholly-owned subsidiary and is not included in the Company’s condensed consolidated balance sheets at September 30, 2010 and December 31, 2009, or the condensed consolidated statements of operations for the nine-month period ended September 30, 2010.  In addition, Sun Life Vermont’s net income for the nine-month period ended September 30, 2009 is separately presented as income from discontinued operations in the condensed consolidated statements of operations.  The following table provides a summary of operations of Sun Life Vermont for the nine-month period ended September 30, 2009 (in 000’s):

	2009
Total revenues	$	284,217
Total benefits and expenses		77,395
Income before income tax expense		206,822
Net income	$	144,726

Continuing Operations

The significant changes in the Company’s condensed consolidated statements of operations during the nine-month periods ending September 30, 2010 and 2009, respectively, excluding Sun Life Vermont are described below.

REVENUES

Total revenues were $1,188.8 million and $2,461.4 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The decrease of $1,272.6 million was primarily due to the following:

Premium and annuity considerations - were $100.4 million and $101.0 million for the nine-month periods ended September 30, 2010 and 2009, respectively.

Net investment income - was $1,334.0 million and $2,261.6 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  Investment income, excluding the mark-to-market of the trading portfolio, net realized gains (loss) related to trading securities, partnership income and ceded investment income, was $661.6 million and $747.0 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The decrease of $85.4 million during 2010, as compared to 2009, was the result of lower average investment yields which decreased investment income by $68.7 million, as well as lower average invested assets which decreased investment income by $16.7 million.

73

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 investment income (continued)

The change in investment income related to net realized gains (losses) and changes in the mark-to-market of the trading portfolio was $(909.0) million.  The Company recognized $748.7 million and $1,893.3 million of investment income due to the change in fair value of the trading portfolio during the nine-month periods ended September 30, 2010 and 2009, respectively.  The decrease in investment income related to the change in market value of the Company’s trading portfolio during the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009, was primarily due to the significant tightening of credit spreads and change in interest rate as market conditions improved during the nine-month period ended September 30, 2009, resulting in a significant increase in market value and the recovery of unrealized loss in the portfolio from 2008.  The credit spread tightening and change in interest rate was less significant during the nine-month period ended September 30, 2010, which resulted in a smaller increase in the market value of the Company’s trading portfolio.  The Company also recognized $(32.5) million and $(268.1) million of realized losses during the nine-month periods ended September 30, 2010 and 2009, respectively.  The $235.6 million decrease in realized losses was primarily due to lower write-downs recognized during the nine-month ended September 30, 2010, as compared to same period in 2009.  The $(909.0) million change in the trading portfolio was partially offset by an $11.1 million increase in the fair value of the Company’s limited partnership investments.

Investment income on the funds-withheld reinsurance portfolios is included as a component of net investment income in the Company’s condensed consolidated statements of operations.  The Company ceded net investment income of $43.4 million and $99.1 million for the nine-month periods ended September 30, 2010 and 2009, respectively, under the funds-withheld reinsurance agreements between the Company and certain of its affiliates related to the Company’s single premium whole life (“SPWL”) and certain of its universal life (“UL”) policies. The decrease in ceded net investment income was primarily due to a loss on interest rate swaps related to the SPWL.

Net derivative loss - was $(623.1) million and $(182.9) million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The Company’s realized and unrealized gains and losses by derivative type for the nine-month periods ended September 30 consisted of the following (in 000’s):

	2010	2009
Interest rate contracts	$      (96,191)	$     132,861
Foreign currency contracts	(7,480)	(7,580)
Equity contracts	(32,856)	(58,355)
Credit contracts	3,716	(5,864)
Futures contracts	(9,531)	(246,742)
Embedded derivatives	(480,722)	2,801
Net derivative loss	$    (623,064)	$    (182,879)

The $(623.1) million net derivative loss during the nine-month period ended September 30, 2010, as compared to the $(182.9) million net derivative loss during the same period ended September 30, 2009, was primarily due to a $(483.5) million change in net unrealized gain (loss) related to embedded derivatives and a $(229.1) million net loss related to swap contracts.  These changes were partially offset by a $237.2 million net gain related to futures contracts.

The $(483.5) million net unrealized loss on embedded derivative during the nine-month period ended September 30, 2010, as compared to the $2.8 million net unrealized gain on embedded derivative during the nine-month period ended September 30, 2009, was primarily due to an increase in the fair value liability for guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”) on certain of the Company’s variable annuity products during the nine-month period ended September 30, 2010, as opposed to a decrease in the fair value liability for GMAB and GMWB during the nine-month period ended September 30, 2009.  The change in the liability for GMAB and GMWB resulted from updates to projected benefits related to changes in equity markets, as well as interest rate swaps and market volatility.

74

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 derivative loss (continued)

The $(229.1) million change in net derivative loss related to swap contracts was primarily due to interest rate swaps.  The increase (decrease) in the fair value of interest rate swaps resulted from changes in notional amounts, duration and the overall swap curve.  The decrease in the fair value of interest rate swap agreements for the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009, was primarily a result of a change in interest rates.

The $237.2 million change in net derivative loss related to futures contracts for the nine-month period ended September 30, 2010 and 2009 was primarily related to the Company’s short exposure to the change in equity markets. The Company’s derivative instruments portfolio includes short future positions to hedge guaranteed minimum benefits on certain variable annuity products against potential adverse movements in the stock market. An increase in equity markets decreases the value of these short positions.  However, these positions comprise a combination of economic and macro hedges that offset funding gaps and other adverse movements in equity markets.

Net realized investment gains (losses), excluding impairment losses on available-for-sale securities - were $16.9 million and $(8.4)million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $16.9 million in realized gains during the nine-month period ended September 30, 2010 were primarily due to the sale of available-for-sale fixed maturity securities.  The $8.4 million in realized losses for the nine-month period ended September 30, 2009 primarily related to impairments on the Company’s mortgage loan assets.

Other-than-temporary impairment losses -were $0.9 million and $4.8 million for the nine-month period ended September 30, 2010 and 2009, respectively, related to available-for-sale fixed maturity securities.  The OTTI losses relate to credit losses and were recorded to earnings in accordance with certain aspects of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, “Investments-Debt and Equity Securities,” which the Company adopted on April 1, 2009, as described in the Company’s annual report on Form 10-K for the year ended December 31, 2009.  The Company did not incur any OTTI losses related to factors other than credit during the nine-month periods ended September 30, 2010 and 2009, respectively, and therefore did not recognize OTTI losses in other comprehensive income for those periods.

Fee and other income – were $361.5 million and $294.9 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  Fee and other income consists primarily of mortality and expense charges, rider fees, marketing and distribution fees on mutual funds (“12b-1 fees”), surrender charges and other income.  Mortality and expense charges, rider fees, and 12b-1 fees are based on the market values of the assets in the separate accounts supporting the contract.  Mortality and expense charges, rider fees, and

12b-1 fees combined were $277.1 million and $218.2 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  Variable product fees represented 1.53 % and 1.37% of the average variable annuity separate account balances for the nine-month periods ended September 30, 2010 and 2009, respectively.  Average separate account assets were $24.1 billion and $21.2 billion for the nine-month periods ended September 30, 2010 and 2009, respectively.

Surrender charges represent revenues earned on the early withdrawal of fixed, fixed index, variable annuity, 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 $12.0 million and $16.0 million for the nine-month periods ended September 30, 2010 and 2009, respectively.

Other income represents fees charged for the cost of insurance, investment advisory services, asset participation fees, benefit fees and administrative service fees.  Other income was $72.4 million and $60.7 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $11.7 million increase was primarily due to an increase in benefit fees and administrative services fees from affiliates.  The increase in benefit fees was attributable to an increase in the sale of certain variable annuity products with optional living benefit features.

75

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)

BENEFITS AND EXPENSES

Total benefits and expenses were $905.7 million and $1,109.0 million for the nine-month periods ended September 30, 2010 and 2009, respectively. The decrease of $203.3 million was primarily due to the following:

Interest credited - to policyholders was $308.7 million and $292.1 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The increase of $16.6 million was the result of a decrease in capitalized interest and an increase in SIA amortization expense related to certain fixed annuity products which increased interest credited by $57.7 million.  The $57.7 million increase was offset by a lower average crediting rate, decreasing interest credited by $31.7 million as well as a lower average policyholder balances which decreased interest credited by $9.4 million.  SIA relates to costs of offering enhanced or bonus crediting rates on certain of the Company’s annuity products.

Interest expense - was $39.5 million and $34.0 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $5.5 million increase was primarily due to an increase in interest expense related to unrecognized tax benefits during the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.

Policyowner benefits - were $143.7 million and $87.9 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $55.8 million increase in 2010 as compared to 2009 was primarily due to a $154.3 million increase related to an increase in reserves, a $15.7 million increase in benefits due to a reimbursement related to the surrender of a reinsured bank-owned life insurance (“BOLI”) policy during 2009 and a $3.1 million increase in health and surrender benefits, offset by a $63.5 million decrease in death benefits, a $39.2 million decrease in SIA amortization and deferrals related to certain variable annuity products and a $14.7 million decrease in annuity payments.  Reserves increased (decreased) by $28.0 million and $(126.3) million during the nine-month periods ended September 30, 2010 and 2009, respectively.  The change in reserves was mainly attributable to reserves for guaranteed minimum death benefits (“GMDB”) on variable annuity products.  The increase (decrease) in GMDB reserves represents the change in the difference between guaranteed benefits and variable annuity account value balances.  The decrease in GMDB reserves during the nine-month period ended September 30, 2009 was due to the increase in the difference between guaranteed benefits and variable annuity account value balances.  The increase was primarily driven by the improvement in equity markets and market volatility during that period.

Amortization of DAC – 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.  DAC amortization expense was $154.2 million and $506.8 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $352.6 million change in amortization expense during the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009, was primarily attributable to a decrease in current period amortization expense and interest on the DAC asset.

Of the net decrease of $352.6 million, $475.6 million was primarily due to a decrease in actual gross profits in 2010 relative to 2009.  The decrease in actual gross profits during the nine-month period ended September 30, 2010 primarily related to an increase in the liabilities held for guaranteed minimum benefits on certain variable annuity products.  The increase in the guaranteed minimum benefit reserves during the nine-month ended September 30, 2010, was primarily attributable to assumption changes and a decrease in interest rates, partially offset by changes in equity markets and volatility.  During the nine-month period ended September 30, 2009, actual gross profits improved due primarily to a decrease in guaranteed minimum benefit reserves and an increase in the fair value of fixed maturity securities held in the trading portfolio.

The $475.6 million decrease in amortization expense was offset by a $80.9 million increase during the nine-month period ended September 30, 2010 as compared to same period in 2009, due to a loss recognition charge recorded for certain annuity products.  The Company tests its DAC asset for loss recognition on a quarterly basis. The remainder of the offset related to an increase in DAC amortization expense of $42.1 million, primarily driven by updates to profitability projections resulting from actual changes to in-force policies and assumption changes primarily related to variable annuity products.

76

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 VOBA and VOCRA – VOBA and VOCRA relates to the actuarially-determined value of in-force business from the Company’s acquisition of Keyport Life Insurance Company (“Keyport”) and agreements between Sun Life and Health Insurance Company (U.S.) (“SLHIC”), an affiliate, and the Company’s subsidiary, Sun Life Insurance and Annuity Company of New York (“SLNY”), under which SLNY agreed to assume direct responsibility for all sales and administration of existing and new business issued by SLHIC 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 underlying contracts.  Amortization was $23.2 million and $13.3 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The change was primarily due to current year amortization on VOBA assets for certain fixed annuity products. The Company did not record any amortization expense for the nine-month period ended September 30, 2009. At September 31, 2009, the Company reached the cap for its VOBA asset related to certain fixed and fixed index annuity products and reported the VOBA asset for these products at historical accumulated deferrals, plus interest.

Other operating expenses - were $236.3 million and $174.9 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $61.4 million change in 2010 as compared to 2009, was primarily due to a $38.5 million increase in non-deferrable commission expense related primarily to an increase in the sale of certain variable annuity products and a $21.6 million increase in other operating expenses primarily due to severance costs related to staff restructuring during the current year, advertising expenses related to the Company’s branding campaign and other project-related costs.  The remaining $1.3 million was attributable to an increase in premium taxes.

Income tax expense - was $91.1 million and $388.6 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The effective tax rates for the same periods were 32.2 % and 28.7%, respectively.  The effective tax rate for the nine-month period ended September 30, 2010 differed 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 effective tax rate for the nine-month period ended September 30, 2009 differed 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, partially offset by an increase in the valuation allowance against deferred tax assets for investment losses.

77

 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)

Results of Operations by Segment

The Company’s net income 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 or (loss) from operations by segment, excluding Sun Life Vermont.

Wealth Management Segment

The Wealth Management Segment sells a full range of retirement-oriented insurance products that provide variable, fixed or indexed 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 (“SPDA”).  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 for certain of the Company’s annuity products, 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 withdrawal) at the end of the term or surrender charge period.

78

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.

The Company had issued floating rate funding agreements to its affiliates, Sun Life Financial Global Funding III, L.L.C. (“LLC III”), Sun Life Financial Global Funding II, L.L.C. (“LLC II”), and Sun Life Financial Global Funding, L.L.C (“LLC”).  The floating rate funding agreements issued to LLC matured on July 6, 2010.  The impact of these funding agreements and the detail of payments to the LLC are described in Note 2 of the Company’s condensed consolidated financial statements included in Part I, Item I of this quarterly report on Form 10-Q.

Other - The Wealth Management Segment manages a closed block of SPWL insurance policies, a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of the SPWL product in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of $1.5 billion at both September 30, 2010 and December 31, 2009, respectively.  This entire block of business is reinsured on a funds-withheld, coinsurance basis with Sun Life Assurance Company of Canada (“SLOC”), an affiliate.

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.  The impact of this agreement on the Company’s financial statements is described in Note 1 of the Company’s condensed consolidated financial statements included in Part I, Item I of this quarterly report on Form 10-Q.

79

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 summary of operations for the Wealth Management Segment for the nine-month periods ended September 30 (in 000’s):

	2010		2009
Total revenues	$	1,080,834	$	2,308,049
Total benefits and expenses		760,992		976,677
Income before income tax expense		319,842		1,331,372
Net income	$	221,310	$	879,559

Pre-tax income was $319.8 million and $1,331.4 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The significant changes are described below.

Total revenues were $1,080.8 million and $2,308.0 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $1,227.2 million change was primarily due to decreases of $852.2 million in net investment income and $447.2 million in net derivative income.  These decreases were offset by a $69.7 million increase in fee and other income and a $2.5 million increase in premiums and annuity considerations.

The decrease of $852.2 million in net investment income resulted primarily from a $1,113.3 million decrease in the fair market value of fixed maturity securities in the Wealth Management Segment’s trading portfolio in 2010 as compared to 2009.  The decrease in the fair market value was primarily due to significant tightening of credit spreads and changes in interest rates during the nine-month period ended September 30, 2009, resulting in a significant increase in market value, as compared to a less pronounced spread tightening during the nine-month period ended September 30, 2010, resulting in a smaller increase in the market value of the trading portfolio during this period.  The decrease was partially offset by decreases in realized losses due to lower write-downs in 2010 as compared to 2009 and ceded investment income related to the reinsurance of the SPWL policies to SLOC.

The $447.2 million decrease in net derivative income in 2010 as compared to 2009, primarily related to an increase in the fair value of the GMAB and GMWB liabilities, which was primarily due to changes in equity markets and interest rate swap and market volatility during the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.  The decrease also was due to changes in the fair value of interest rate swap agreements.  These decreases were partially offset by an increase in income related to changes in the fair value of equity futures which was positively impacted by a less significant increase in equity markets during the nine-month period ended September 30, 2010 as compared to the nine month period ended September 30, 2009.

The $69.7 million increase in fee and other income was primarily due to increases in mortality and expense charges, rider fees and 12b-1 fees which related to an increase in the average variable annuity separate account balances during the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.

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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)

Total benefits and expenses were $761.0 million and $976.7 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The decrease of $215.7 million was primarily due to a $349.5 million decrease in DAC and VOBA amortization expense.  The decrease was offset by increases of $57.2 million, $31.9 million $25.3 million and $19.4 million related to policyowner benefits, other operating expenses, interest expense and interest credited, respectively.

The $349.5 million decrease in DAC and VOBA amortization was attributable to a $373.6 million decrease in amortization expense and interest.  The change in amortization expense was primarily due to a decrease in actual gross profit during the nine-month period ended September 30, 2010, as compared to the nine-month period ended September 30, 2009.  The amortization expense and interest also includes an $80.9 million change related to loss recognition, which increased DAC amortization expense.  In addition, the decrease in amortization expense was also offset by a $104.3 million decrease in expenses primarily driven by updates to profitability projection and assumption changes for certain annuity products.  The $23.5 million decrease in interest credited was primarily the result of a lower average crediting rate coupled with lower average policyholder balances, offset by a decrease in capitalized interest.

The $57.2 million increase in policyowner benefits for the nine-month period ended September 30, 2010, as compared to 2009, was primarily due to a $174.7 million increase in reserves, offset by decreases of $63.7 million in death benefits, a $39.2 million decrease in SIA amortization and deferrals related to certain variable annuity products and $14.6 million in annuity payments.  The increase in reserves was mainly related to changes in reserves for GMDB on certain variable annuity products which were attributable to changes in equity markets.

The $31.9 million increase in other operating expenses was primarily due to an increase in non-deferrable commission expense which was attributable to an increase in sales in certain variable annuity products, as well as an increase in advertising expenses related to the Company’s branding campaign. The $25.3 million change in interest expense was attributable to an increase in interest expense allocated to the Wealth Management Segment during the nine-month period ended September 30, 2010, relative to the same period in 2009.

The $19.4 million increase in interest credited was primarily the result of a decrease in capitalized interest and an increase in SIA amortization expense related to certain fixed annuity products, offset by a lower average crediting rate coupled with lower average policyholder balances.

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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 individual 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.

In this segment, the Company maintains funds withheld reinsurance agreements with affiliates.  Pursuant to a reinsurance agreement with Sun Life Reinsurance (Barbados) No. 3 Corp. (“BarbCo 3”), the Company has ceded all risks associated with certain in-force VUL policies.  In addition, the Company’s subsidiary, SLNY, has a reinsurance agreement with SLOC, under which SLOC funds certain reserves attributable to certain UL policies sold by SLNY.  Further detail on these agreements are disclosed in Notes 1 and 6 of the Company’s condensed consolidated financial statements, included in Part I, Item I of the quarterly report on Form 10-Q.

The following provides a summary of the operations for the Individual Protection Segment, excluding the discontinued operations of Sun Life Vermont, for the nine-month periods ended September 30 (in 000’s):

	2010	2009
Total revenues	$              43,035	$            60,321
Total benefits and expenses	38,563	30,340
Income before income tax expense	4,472	29,981
Net income from continuing      operations	$                3,026	$              9,301

Total revenues were $43.0 million and $60.3 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $17.3 million decrease in total revenues resulted primarily from decreases of $24.5 million in net investment income and $13.6 million in fee and other income offset, by increases of $19.5 million in embedded derivative income and $1.3 million in net realized investment gains.

The decrease of $24.5 million in net investment income resulted primarily from a $24.8 million decrease in the fair market value of fixed maturity securities in the trading portfolio in 2010, as compared to 2009.  The decrease in the fair market value was primarily due to significant tightening of credit spreads, resulting in a significant increase in the market value of the trading portfolio during the nine-month period ended September 30, 2009.  The tightening of credit spreads was less significant during the nine-month period ended September 30, 2010, resulting in a smaller increase in the market value of the trading portfolio.

The $13.6 million decrease in fee and other income was primarily due to decreases in the average separate account assets and lower sales of certain VUL products in 2010, as compared to 2009.  The increase of $19.5 million in embedded derivative income resulted from the embedded derivative liabilities increasing more moderately in 2010, as compared to 2009.  The increase in embedded derivative liabilities was primarily driven by downward shifts in interest rates, which were more pronounced in 2009 than 2010.

Total benefits and expenses were $38.6 million and $30.3 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $8.3 million increase in benefits and expenses resulted from increases in DAC amortization and other operating expenses of $7.7 million and $11.8 million, respectively, offset by decreases in policyowner benefits, interest credited and interest expense of $7.4 million, $2.9 million and $0.9 million, respectively.

The $7.7 million increase in DAC amortization resulted from higher estimated gross profits in the investment portfolio associated with the DAC asset.  The $11.8 million increase in other operating expenses resulted primarily from a decrease in sales of certain VUL products.  The $7.4 million decrease in policyowner benefits was primarily caused by changes to the actuarial reserves associated with the segment’s reinsurance agreements.

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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.

The Company maintains through SLNY a reinsurance agreement with SLHIC pursuant to which SLNY assumes the net risks associated with all existing and future new business issued by SLHIC in New York.  In addition, SLNY and SLHIC are parties to a renewal rights agreement under which SLNY has exclusive rights to renew SLHIC in-force business assumed under the reinsurance agreement.

The following provides a summary of operations for the Group Protection Segment for the nine-month periods ended September 30 (in 000’s):

	2010	2009
Total revenues	$              96,555	$          104,252
Total benefits and expenses	90,982	86,051
Income before income tax expense	5,573	18,201
Net income	$                3,632	$            11,830

The Group Protection Segment had pre-tax income of $5.6 million and $18.2 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  Total revenues for the nine-month period ended September 30, 2010 decreased by $7.7 million in comparison to the nine-month period ended September 30, 2009.  The decrease in revenues resulted primarily from a $4.7 million decrease in net investment income driven by a decrease in the fair value of the trading portfolio, as well as a decrease in premiums of $3.0 million due to a decrease in revenue from assumed business.

Total benefits and expenses in 2010 increased by $4.9 million in comparison to 2009.  The increase in benefits and expenses resulted primarily from an increase in policyowner benefits of $5.5 million, due mostly to unfavorable claims experience in stop loss and disability in 2010.

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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 Company maintains the Corporate Segment to provide for the capital needs of the three operating segments and to engage in other financing related activities.  Net investment income is allocated based on segmented asset, including allocated capital, by line of business.  Allocations of operating expenses among segments are made using both standard rates and actual expenses incurred.

The following provides a summary of operations for the Corporate Segment for the nine-month periods ended September 30 (in 000’s):

	2010	2009
Total revenues	$            (31,616)	$           (11,177)
Total benefits and expenses	15,127	15,913
Loss before income tax benefit	(46,743)	(27,090)
Net (loss) income	$            (35,912)	$            63,181

The Corporate Segment had a pre-tax loss of $46.7 million and $27.1 million for the nine-month periods ended September 30, 2010 and 2009, respectively.  The $19.7 million decrease in pre-tax income was primarily attributable to a decrease in total revenues of $20.4 million.  The $20.4 million decrease in total revenues was due to decreases of $46.3 million and $12.4 million in net investment income and derivative income, respectively, offset by increases of $24.1 million and $10.5 million in net realized gains on available-for-sale investments and fee and other income, respectively.  Additionally, the Corporate Segment had a $3.7 million decrease in OTTI credit losses.

The decrease of $46.3 million in net investment income resulted primarily from the change in allocation of net investment income to the operating segments, decreasing net investment income by $57.4 million.  This decrease was offset by an increase of $11.1 million in limited partnership investment income.

The decrease of $12.4 million in derivative income was primarily related to the decrease in fair value of interest rate swap agreements as a result of changes in the applicable interest rate and currency exchange rates.

Benefits and expenses decreased by $0.8 million due primarily to a $19.4 million decrease in interest expense, offset by an increase in other operating expenses of $18.6 million.  The decrease of $19.4 million in interest expense resulted primarily from a change in allocation of interest expense to the operating segments.  The increase of $18.6 million in operating expenses resulted primarily from increases to affiliated company fees, allocated expenses, advertising and other expenses.

84

 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)) and concluded that they were effective as of the end of the period covered by this report based on such evaluation.  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 September 30, 2010 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, refer to Part I, Item IA, Risk Factors, in the Company's annual report on Form 10-K for the year ended December 31, 2009.

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. (Removed and Reserved).

Item 5. Other Information.

(a)  Not applicable.

(b)  Not applicable.

85

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

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

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)

November 15, 2010	/s/ Westley V. Thompson
Date	Westley V. Thompson, President, SLF U.S.
	(Principal Executive Officer)

November 15, 2010	/s/ Ronald H. Friesen
Date	Ronald H. Friesen, Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

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