SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT 0F 1934

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

(Exact name of registrant as specified in its charter)

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.

Registrant has no voting stock outstanding held by non-affiliates.

Registrant has 6,437 shares of common stock outstanding on November 14, 2002, all of which are owned by Sun Life of Canada (U.S.) Holdings, Inc.

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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.)

INDEX

PART I: Financial Information

Item 1: Financial Statements:

PART II: Other Information

2

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(in millions)

For the nine months ended September 30,

3

(in millions)

For the three months ended September 30,

4

(in millions except per share data)

5

(in millions)

For the nine months ended September 30,

For the three months ended September 30,

6

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(in millions)

For the nine months ended September 30, 2002 and 2001

7

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(in millions)

For the nine months ended September 30,

8

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(in millions)

For the nine months ended September 30,

9

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Sun Life Assurance Company of Canada (U.S.) (the "Company") was incorporated in 1970 as a life insurance company domiciled in the state of Delaware. Effective January 31, 2001, the Company became authorized to do business in all states, except New York. The Company's wholly-owned insurance subsidiary, Sun Life Insurance and Annuity Company of New York, is licensed in New York. The Company and its subsidiaries are engaged in the sale of individual and group variable life insurance, individual fixed and variable annuities, group fixed and variable annuities, group pension contracts, guaranteed investment contracts, group life and disability insurance, stop-loss contracts, and other asset management services.

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

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 stockholder-owned life insurance companies and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

The consolidated financial statements include the accounts of the Company and its subsidiaries. As of September 30, 2002, the Company owned all of the outstanding shares of Sun Life Insurance and Annuity Company of New York, Sun Life of Canada (U.S.) Distributors, Inc., Sun Life Financial Services Limited, Sun Benefit Services Company, Inc., Sun Capital Advisers, Inc., Sun Life of Canada (U.S.) SPE 97-I, Inc., Sun Life of Canada (U.S.) Holdings General Partner, Inc., Vision Financial Corporation and Clarendon Insurance Agency, Inc. The results are also consolidated with Sun Life of Canada Funding, LLC, which is owned by a trust sponsored by the Company and Sun Life of Canada (U.S.) Limited Partnership I, for which Sun Life of Canada (U.S.) Holdings General Partner, Inc. is the sole general partner.

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Sun Life Insurance and Annuity Company of New York is engaged in the sale of individual fixed and variable annuity contracts and group life, disability insurance and stop loss contracts in its state of domicile, New York. Sun Life of Canada (U.S.) Distributors, Inc. is a registered broker-dealer. Sun Life Financial Services Limited serves as the marketing administrator for the distribution of the offshore products of Sun Life Assurance Company of Canada, an affiliate. Sun Capital Advisers, Inc. is a registered investment adviser. Sun Life of Canada (U.S.) SPE 97-I, Inc. was organized for the purpose of engaging in activities incidental to securitizing mortgage loans. Sun Life of Canada (U.S.) Holdings General Partner, Inc. is the sole general partner of Sun Life of Canada (U.S.) Limited Partnership I. Clarendon Insurance Agency, Inc. is a registered broker-dealer that acts as the general distributor of certain annuity and life insurance contracts issued by the Company and its affiliat es. Sun Benefit Services Company, Inc. is inactive. Sun Life of Canada Funding, LLC was organized for the purpose of engaging in activities incidental to establishing the new guaranteed investment products of the Company. Sun Life of Canada (U.S.) Limited Partnership I was established to purchase subordinated debentures issued by the Company's parent, Sun Life of Canada (U.S.) Holdings, Inc., and to issue Partnership Capital Securities to an affiliated business trust, Sun Life of Canada (U.S.) Capital Trust I.

On March 12, 2001, the Company purchased Vision Financial Corporation for approximately $5.0 million. Vision Financial Corporation, based in Keene, N.H., is a third-party administrator that specializes in the administration of insurance products sold at the worksite. The Company has recorded the acquisition using the purchase method of accounting and goodwill associated with this acquisition was approximately $1.6 million. The results of operations of Vision Financial Corporation for the nine months ended September 30, 2002 and 2001 were insignificant to the Company.

All significant intercompany transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. The most significant estimates are those used in determining deferred policy acquisition costs, investment allowances and the liabilities for future policyholder benefits. Actual results could differ from those estimates.

Certain amounts in the prior year's financial statements have been reclassified to conform to the 2002 presentation.

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

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

During 2001, the Company adopted the requirements of Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 102, "Selected Loan Loss Allowance and Documentation Issues". The adoption of SAB No. 102 had no material effect on the Company's financial position or results of operations.

In July 2000, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 99-20, "Recognition of Interest Income and Impairment on Certain Investments". This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to evaluate these securities for an other than temporary decline in value. This consensus is effective for financial statements with fiscal quarters beginning after December 15, 2000. The Company adopted EITF No. 99-20 in June 2001; it had no material impact on the Company's financial condition or results of operations.

In September 2000, the FASB issued SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" which replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This standard revises the methods for accounting for securitizations and other transfers of financial assets and collateral as outlined in SFAS No. 125, and requires certain additional disclosures. Adoption of this standard did not have a material effect on the Company's financial position or results of operations.

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

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Also in July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which relates to financial accounting and reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company believes that adoption of this statement will not have a material effect on the Company's financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Adoption of this statement did not have a material effect on the Company's financial position or results of operations.

In September 2001, the EITF discussed Issue No. 01-10 "Accounting for the Impact of the Terrorist Attacks of September 11, 2001" which gives accounting guidance and recommended disclosures. Following this guidance, the Company has reviewed its insurance contracts to quantify potential losses, if any, as a result of the tragedy and has determined that there were no material claims exposure to the Company. The national tragedy of September 11, 2001 has also had an adverse impact on the airline, hotel and hospitality businesses. The Company has investments associated with these industries. For the three and nine month periods ended September 30, 2002 the Company recorded a $6.5 million write-down of its airline industry investments for "other -than-temporary declines" due to the decrease in market value. The Company will continue to monitor these investments to determine if any further adjustments are necessary.

The FASB recently issued an exposure draft of an interpretation of SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries", to provide additional guidance to assist companies in identifying and accounting for special purpose entities ("SPEs") including when SPEs should be consolidated by the investor. The exposure draft introduces a concept that consolidation would be required unless the SPE can meet certain substantive independent economic substance criteria. It is not possible to determine at this time what conclusions will be included in the final interpretation; however, the result could impact the Company's accounting treatment of these entities.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" to update, clarify and simplify existing accounting pronouncements pertaining to extinguishment of debt and certain lease modifications. Adoption of this statement is not expected to have a material effect on the Company's financial position or results of operations.

In July 2002, the American Institute of Certified Public Accountants ("AICPA") issued a proposed Statement of Position ("SOP"), "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Separate Accounts". This SOP provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts. The Company is in the process of evaluating the provisions of this SOP and its impact to the Company's financial position or results of operations.

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2. TRANSACTIONS WITH AFFILIATES

The Company has an agreement with Sun Life Assurance Company of Canada ("SLOC") which provides that SLOC will furnish, as requested, certain services and facilities on a cost-reimbursement basis. Expenses under this agreement amounted to approximately $8,770,000 and $25,264,000 for the three and nine month periods ended September 30, 2002, respectively, and $11,400,000 and $33,931,000 for the same periods in 2001.

Effective January 2002, essentially all United States employees of Keyport Life Insurance Company ("Keyport Life"), an affiliate, and SLOC became employees of the Company. As a result, the Company has assumed most of the operating expenses of Keyport Life, including salaries and benefits, as well as the salaries and benefits previously incurred by SLOC in the United States. In accordance with a tri-party management service agreement between the Company, Keyport Life, and SLOC, the Company provides personnel and certain services to Keyport Life and SLOC, as requested. Reimbursements under this agreement, which are recorded as a reduction of other operating expenses, were approximately $11,996,000 and $36,453,000 for the three and nine month periods ended September 30, 2002, respectively. Management believes intercompany revenues and expenses are calculated on a reasonable basis, however, these amounts may not necessarily be indicative of the costs that would be incurred if the Company operated on a standalone basis.

The Company leases office space to SLOC under lease agreements with terms expiring in September, 2005, and has options to extend the terms for each of twelve successive five-year terms at a fair market rental not to exceed 125% of the fixed rent for the term which is ending. Rent received by the Company under the leases for the three and nine month periods ended September 30, 2002 amounted to approximately $2,914,000 and $8,742,000 in 2002 and $2,193,000 and $6,579,000 in 2001.

The Company has an administrative services agreement with Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc., under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which Massachusetts Financial Services Company serves as the investment adviser, and which are offered to certain of the Company's separate accounts established in connection with the variable annuity contracts issued by the Company. Amounts received under this agreement amounted to approximately $5,480,000 and $18,670,000 for the three and nine months ended September 30, 2002, respectively, and $7,125,000 for each of the same periods in 2001.

The Company has agreements with Keyport Life and certain of its subsidiaries ("Keyport") under which the Company provides wholesale distribution services in connection with certain annuity products offered by Keyport. Amounts received under this agreement amounted to approximately $5,440,000 and $17,390,000 for the three and nine months ended September 30, 2002, respectively.

On May 29, 2002, the Company sold its $100,000,000 note from Massachusetts Financial Services Company, an affiliate, to Keyport Life Insurance Company, another affiliate, for approximately $107,000,000. The note was included in fixed maturities available-for-sale at December 31, 2001. The note was sold at a gain of $7,000,000.

On July 25, 2002, the Company issued an $80,000,000 promissory note at 5.71% to an affiliate, Sun Life (Hungary) Group Financing Limited Liability Company ("Sun Life (Hungary) Ltd"), which matures on June 30, 2012. The Company will pay interest semi-annually to Sun Life (Hungary) Ltd beginning December 31, 2002. The proceeds of the note were used to purchase fixed rate corporate and government bonds. Interest expense on the note is included in interest expense and amounted to $851,000 for the three and nine month periods ended September 30, 2002.

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2. TRANSACTIONS WITH AFFILIATES (continued)

On September 24, 2002, the Company received a $100,000,000 capital contribution from its parent, Sun Life of Canada (US) Holdings, Inc.

The Company offers financial products and services such as fixed and variable annuities, guaranteed investment contracts, retirement plan services, and life insurance on an individual and group basis, as well as disability insurance and excess major medical stop-loss contracts on a group basis. Within these areas, the Company conducts business principally in three operating segments and maintains a corporate segment to provide for the capital needs of the three operating segments and to engage in other financing related activities. Net investment income is allocated based on segmented assets by line of business.

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

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

The Wealth Management segment markets and administers individual and group variable annuity products, individual and group fixed annuity products which include market value adjusted annuities, other retirement benefit products, and guaranteed investment contracts ("GICs") that are marketed to unrelated third parties in overseas markets. The GICs 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 GIC contract options.

15

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The following amounts pertain to the various business segments:

16

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4. COMMITMENTS AND CONTINGENT LIABILITIES

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

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 and its subsidiaries pursuant to these laws may be used as credits for a portion of the associated premium taxes.

The Company has syndicated two lines of credit each in the amount of $250 million. There are 15 banks in the syndicate of lenders, which is led by J.P. Morgan Chase Bank, New York. The banks have committed to lend funds of up to $500 million when requested by the Company at prevailing rates determined in accordance with the line of credit agreements. One line of credit terminates October 2003, the other in October 2007. As of September 30, 2002, no amounts have been borrowed.

5. SUBSEQUENT EVENTS

On October 9, 2002, Sun Life Insurance and Annuity Company of New York ("SLNY") and Keyport Benefit Life Insurance Company ("KBL"), a wholly owned subsidiary of Keyport Life Insurance Company ("Keyport"), an affiliate, filed an Agreement and Plan of Merger ("Merger Agreement") with the New York State Insurance Department (the "Department"). Pursuant to the Merger Agreement, KBL will merge with and into SLNY. SLNY will be the surviving company ("the Surviving Company"). On November 7, 2002, the respective Boards of Directors of SLNY and KBL approved the merger. The merger will be effective December 31, 2002, pending final approval from the Department and receipt of certain other state regulatory approvals.

The Surviving Company will be licensed and authorized to write all the business that is today being written by KBL. KBL will cease to exist and the Surviving Company will carry on the business that SLNY now conducts along with that now conducted through KBL.

Based upon a Pro Forma Plan of Operations and Actuarial Projections submitted to the Department in October, 2002 as part of the approval process, the Surviving Company will require a capital contribution in January, 2003 in order to sustain future target surplus levels required by the Department. The total amount of the capital contribution is approximately $45 million. The parent companies of SLNY and KBL will each contribute a percentage of that amount equal to their respective ownership percentage of the Surviving Company. That percentage is based upon the pro forma statutory book value of the Surviving Company as of September 30, 2002, the most current value available, and would result in a contribution of approximately $16 million by the Company.

On November 7, 2002, after the close of the quarterly period to which this report relates, the Board of Directors of the Company voted to transfer the Company's wholly-owned subsidiary, Sun Life of Canada (U.S.) Distributors, Inc. ("SLD"), to the Company's parent, Sun Life Financial (U.S.) Holdings, Inc. ("SLF Holdings"), for consideration equal to the book value of SLD at the time of transfer (approximately $13 million on November 7, 2002). It is anticipated that SLF Holdings will, in turn, transfer one-half of the ownership interest in SLD to the Company's affiliate Massachusetts Financial Services Company ("MFS"), so that the existing annuity distribution operations of the Company and MFS can be combined to provide enhanced revenue from increased distribution for both the Company and MFS. The transfer of SLD and the related changes in the Company's distribution arrangements are scheduled for completion in the fourth quarter of 2002.

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This discussion includes 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 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. These risks and uncertainties may concern, among other things:

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions (see Note 1 to the consolidated financial statements). The Company believes that of its significant accounting, the following may involve a higher degree of judgement and complexity.

Acquisition costs related to fixed and variable annuities and life insurance products are deferred and amortized, generally in proportion to the ratio of annual gross profits to the estimated total gross profits over the lives of the contracts. Estimated gross profits are reviewed quarterly and adjusted retrospectively when the Company revises its estimates. Estimated gross profits include assumptions related to mortality, lapse, expense, and asset growth rates. Although realization of deferred policy acquisition costs is not assured, the Company believes it is more likely than not that all of these costs will be realized. The amount of deferred policy acquisition costs considered realizable, however, could be reduced in the near term if the estimates of gross profits or total revenues discussed above are reduced.

Changes in any of the assumptions that serve to increase or decrease the estimated future gross profits will cause the amortization of deferred acquisition costs to decrease or increase, respectively, in the current period. This will cause fluctuation in earnings from period to period.

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The Company uses derivative financial instruments for risk management purposes to hedge against specific interest rate risk, to alter investment rate exposures arising from mismatches between assets and liabilities, and to minimize the Company's exposure to fluctuations in interest rates, foreign currency exchange rates and general market conditions. The derivative instruments used by the Company include swaps and options. The Company does not employ hedge accounting treatment. As a result, the unrealized gains and losses are recognized immediately in net investment income. Changes in the level of interest rates, foreign currency exchange rates or equity markets will cause the value of these derivatives to change and can cause quarterly fluctuations in earnings.

The Company believes that its derivatives provide economic hedges against the risks noted. Since the majority of the liabilities that are being hedged are not carried at fair value, the changes in the fair value of the derivatives will cause fluctuation in the reported earnings from period to period as interest rates, foreign currency exchange rates and equity markets change.

In the normal course of business, the Company enters into transactions involving various types of financial instruments. These instruments involve credit risk and may also be subject to risk of loss due to interest rate fluctuation. The Company monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses. The Company values its publicly traded fixed maturities using market prices or dealer quotes. For privately placed fixed maturities, fair values are estimated by taking into account prices for publicly traded securities of similar credit risk, maturity, repayment and liquidity characteristics. The fair values of mortgages are estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Certain of our fixed maturities are classified as trading and others as available-for-sale. The changes in fair value of trading securities are recorded as a component of net investment income. The changes in fair value of available-for-sale securities are recorded in other comprehensive income.

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

The liabilities associated with traditional life insurance, annuity and disability insurance products are computed using the net level premium method based on assumptions about future investment yields, mortality, morbidity and persistency. The assumptions used are based upon the Company's experience and industry standards.

Once these assumptions are made for a given group of policies they will not be changed over the life of the policies unless the Company recognizes a loss on the entire line of business. The Company periodically reviews its policies for loss recognition based upon management's best estimates. From time to time the Company may recognize a loss on certain lines of business.

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Net income was $28 million for the nine months ended September 30, 2002 as compared to $5 million for the nine months ended September 30, 2001. Earnings increased by $27 million on a pretax basis before the cumulative change in accounting principle that was recorded in the first quarter of 2001 related to the adoption of Statement of Financial Accounting Standards No. 133. Key factors of the increase in earnings relate to higher fee and other income, and higher realized investment gains.

Total revenues of $597 million for the nine months ended September 30, 2002 increased $96 million as compared to the nine months ended September 30, 2001.

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

The following table provides a summary of net income (loss) from operations by segment (after tax, before cumulative change in accounting principle), which is discussed more fully below.

The Wealth Management segment focuses on the savings and retirement needs of individuals preparing for retirement or who have already retired and on the marketing of guaranteed investment contracts (''GICs'') to unrelated third parties in overseas markets. In the U.S. it primarily markets to upscale consumers, selling individual and group fixed and variable annuities. Its major product lines, ''Regatta'' and ''Futurity,'' are combination fixed/variable annuities. In these combination annuities, contractholders have the choice of allocating payments either to a fixed account, which provides a guaranteed rate of return, or to variable accounts. Withdrawals from the fixed account are subject to market value adjustment. In the variable accounts, the contractholder can choose from a range of investment options and styles. The return depends upon investment performance of the options selected. Investment funds available under Regatta products are managed by Massachusetts Financial Services Co mpany ("MFS"), an affiliate of the Company. Investment funds available under Futurity products are managed by several investment managers, including MFS and Sun Capital Advisers, Inc., a subsidiary of the Company.

The Company sells its annuity products via two affiliated wholesale distribution organizations, Massachusetts Financial Distributors, Inc. (Regatta products) and Sun Life of Canada (U.S.) Distributors, Inc., a subsidiary of the Company (Futurity products). During the second quarter of 2002, a third, non-affiliated distributor organization, Liberty Fund Distributors, Inc., initiated sales with the inception of a new product, All Star. The annuity products are then distributed through a variety of unaffiliated retail organizations including securities brokers, financial institutions, insurance agents, and financial advisers. In 2002, an affiliated retail distributor, Independent Financial Marketing Group, Inc., became a significant distribution source within the bank channel.

In 1997, the Company decided to no longer market group pension and GIC products in the U.S. Although these pension products are not currently sold in the U.S., there continues to be a small block of U.S. group retirement business in-force, including GICs, pension plans and group annuities. A significant portion of these pension contracts is non-surrenderable, resulting in limited liquidity exposure to the Company. GICs were marketed directly in the U.S. through independent managers. Beginning in the second quarter of 2000, the Company began marketing GICs to unrelated third parties in overseas markets.

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Wealth Management net loss from operations was ($15) million and $(23) million for the nine months ended September 30, 2002 and 2001, respectively. The loss on a pretax basis, before cumulative changes in accounting principles, was ($21) million and $(46) million for the nine months ended September 30, 2002 and 2001, respectively. The $25 million pretax increase is primarily due to increased realized gains on investments related to the sale of the S&P 500 put options, a decrease in interest paid to policyholders offset by the decline in market value of bonds in the Wealth Management portfolio, which are classified as trading securities, as well as increased amortization of DAC on annuity products and death benefits.

Total Revenues were $437 million and $359 million for the nine months ended September 30, 2002 and 2001, respectively.

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Other items to note regarding the Wealth Management segment:

The Company currently markets variable life insurance products. These products include variable universal life products marketed to the corporate-owned life insurance ("COLI") market, which were first introduced in late 1997. In September 1999, the Company introduced a new variable life product as part of the Futurity product portfolio. The Company's management expects the variable life business to grow and become more significant.

Earnings from the Individual Protection segment for the nine months ended September 30, 2002 improved in comparison to the nine months ended September 30, 2001. Pretax net income increased by $4 million. This increase is attributed to several factors including increased fee income partially offset by reductions in reinsurance recoverable assets as well as increases in DAC amortization and operating expenses. New and existing business in the COLI and Futurity variable universal life product lines accounted for increased fee income of $20 million, primarily in the form of premium and cost of insurance charges. Amortization of DAC increased by $3 million during the nine months ended September 30, 2002 as compared to the same period in 2001. Other operating expenses increased by $8 million for the same period as a result of higher asset management fees and premium taxes associated with the COLI product lines.

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

The Corporate segment had net income of $37 million for the nine months ended September 30, 2002 as compared to net income of $20 million for the same period in 2001. This $17 million increase reflects $36 million of derivative income earned during the nine months ended September 30, 2002 as compared to $24 million of income recognized during the same period in 2001. During the last six months of 2001, the Company purchased put options on the S&P 500 index as part of its overall risk management strategy. The fair value of these options increased by $31 million from December 31, 2001 to June 30, 2002. The S&P 500 put options were purchased as an economic hedge relating to the risks associated with the impact of the equity market decline on variable annuity products. Effective July 1, 2002 the puts were reallocated to the Wealth Management segment to better reflect the economics of the put purchase and the results of the Wealth Management segment. Net realized and unrealized ga ins totaling $123 million for the three months ended September 30, 2002 are included in the Wealth Management segment results. Realized gains on bonds decreased by $8 million.

The reduction in the effective tax rate for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 relates to the benefits of the dividend received deduction generated from the separate accounts. This reduction is related to a technical advice memorandum issued by the IRS as well as the closing of several audit years. The benefit to income for the nine months ended September 30, 2002 is $10.5 million.

Net income was $25 million for the three months ended September 30, 2002 as compared to a ($6) million loss for the three months ended September 30, 2001. An increase of $39 million on a pretax basis is due primarily to increases in realized investment gains, fee and other income, and lower payments to policyholders, offset by increases in amortization of DAC and lower net investment income.

Total revenues of $235 million for the three months ended September 30, 2002 increased $80 million as compared to the three months ended September 30, 2001.

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Total benefits and expenses of $184 million for the three months ended September 30, 2002 increased by $40 million as compared to the three months ended September 30, 2001.

The following table provides a summary of net income (loss) for the three month periods ended September 30, 2002 and 2001 by segment (after tax), which is discussed more fully below.

Net income (loss) for the quarter increased by $46 million as compared to the third quarter of 2001; the increase was $78 million on a pretax basis. The increase in net income over prior year is primarily attributed to the realized gain on the sale of S&P 500 put options during the third quarter of 2002, offset by increased amortization of deferred acquisition costs and increased death benefits.

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Following are the major factors affecting the Wealth Management segment's results in the third quarter of 2002 as compared to the third quarter of 2001.

Earnings from the Individual Protection segment for the third quarter of 2002 were $2 million higher than the same period in 2001. Pretax net income increased by $4 million primarily due to increased fee income partially offset by higher operating expenses. New and existing business in the COLI product line accounted for increased fee income of $7 million, consisting primarily of premium charges. Operating expenses increased $3 million as a result of higher premium taxes and divisional expenses attributed to growing new business.

Earning from the Group Protection Segment for the third quarter of 2002 remained consistent with the same period in 2001. The primary driver for the net loss $1.0 million was a reduction in premium income of $1.0 million for the third quarter of 2002 due to an adjustment to reinsurance premiums ceded.

The Corporate segment had net income of $8 million for the three months ended September 30, 2002 compared to net income of $25 million for the same period in 2001. This decrease in income is primarily attributed to a $32 million dollar decrease in derivative income. In 2001 the Company purchased S&P 500 put options as part of its overall risk management strategy. For the three month period ended September 30, 2001 the market value of these options increased $32 million. The S&P 500 put options were purchased as an economic hedge relating to the risks associated with the impact of the equity market decline on variable annuity products. Effective July 1, 2002 the puts were reallocated to the Wealth Management segment to better reflect the economics of the put purchase and the results of the Wealth Management segment. Net realized and unrealized gains totaling $123 million for the three months ended September 30, 2002 are included in the Wealth Management segment results

The reduction in the effective tax rate for the three months ended September 30, 2002 compared to the three months ended September 30, 2001 relates to the benefits of the dividend received deduction generated from the separate accounts. This reduction is related to a technical advice memorandum issued by the IRS. The benefit to income for three months ended September 30, 2002 is $5.9 million.

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The Company's total assets comprise those held in its general account and those held in its separate accounts. General account assets support general account liabilities. Separate accounts are investment vehicles for the Company's variable life and annuity contracts. Policyholders may choose from among various investment options offered under these contracts according to their individual needs and preferences. Policyholders assume the investment risks associated with their choices. Separate account assets are not available to fund the liabilities of the general account.

The following table summarizes changes in asset balances during the nine months ended September 30, 2002.

General account assets increased by 11.7% in 2002, while variable separate account assets decreased by 20.6%. The growth in general account assets is primarily due to the new GIC products marketed to foreign investors which had net deposits of approximately $398 million during the nine months ended September 30, 2002. The decline in separate account assets reflects depreciation of the funds held in the variable separate accounts, as well as increased surrenders. Net deposit activity reduced variable account assets by $569 million since December 31, 2001.

The assets of the general account are available to support general account liabilities. For management purposes, it is the Company's practice to segment its general account to facilitate the matching of assets and liabilities. General account assets primarily comprise cash, invested assets, and deferred policy acquisition costs, which represented essentially all of general account assets at September 30, 2002. Major types of invested asset holdings included fixed maturity securities, short-term investments, mortgages, real estate and other invested assets. The Company's fixed maturity securities, totaling $4.1 billion comprised 77.4% of the Company's portfolio of invested assets at September 30, 2002, and included both public and private issues as well as $600 million of subordinated debentures from the Company's parent. It is the Company's policy to acquire only investment-grade securities in the general account. As a result, the overall quality of the fixed maturity portfolio is hi gh. At September 30, 2002, only 6.6% of the fixed maturity portfolio was rated below-investment-grade. Short-term investments of $138 million represented 2.6% of the total portfolio. The Company's mortgage holdings amounted to $791 million at September 30, 2002 representing 14.9% of the total portfolio. All of the Company's mortgage holdings at September 30, 2002 were in good standing. The Company believes that the high quality of its mortgage portfolio is largely attributable to its stringent underwriting standards. At September 30, 2002, investment real estate amounted to $81 million, representing 1.5% of the total portfolio. The Company invests in real estate to enhance yields and, because of the long-term nature of these investments, the Company uses them for purposes of matching with products having long-term liability durations. Other invested assets amounted to $152 million, representing about 2.8% of the portfolio. These holdings comprised mainly leveraged lease investments, limited partnershi ps and unrealized gains on derivatives. Policy loans represent the remaining 0.8% of invested assets.

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As with assets, the variable separate account liabilities have been decreasing during 2002 due to the unfavorable market conditions. Liabilities decreased 12.8% during the first three quarters of 2002. Most of the Company's liabilities comprise reserves for life insurance and for annuity contracts and deposit funds. During 2000, the new GIC products marketed overseas were introduced which have increased general account liabilities by approximately $1.4 billion from inception to date. The Company would expect the general account liabilities related to annuity contracts and deposit funds to decline more than separate account liabilities because it believes that in the future, net deposits to variable products will exceed net deposits for the fixed contracts associated with these liabilities.

See Item 3 "Quantitative and Qualitative Disclosures About Market Risk", in this quarterly report on Form 10-Q for a discussion of the Company's capital markets risk management.

The National Association of Insurance Commissioners (''NAIC'') adopted regulations at the end of 1993 that established minimum capitalization requirements for insurance companies, based on risk-based capital (''RBC'') formulas applied to statutory surplus. These requirements are intended to identify undercapitalized companies, so that specific regulatory actions can be taken on a timely basis. The RBC formula for life insurance companies calculates capital requirements related to assets, insurance, interest rates, and business risks. According to the RBC calculation, the Company met its capital requirements at September 30, 2002 and December 31, 2001. During the third quarter of 2002 the Company's parent contributed an additional $100 million to the Company.

The Company's liquidity requirements are generally met by funds from operations. The Company's main uses of funds are to pay out death benefits and other maturing insurance and annuity contract obligations; to make pay-outs on contract terminations; to purchase new investments; to fund new business ventures; and to pay normal operating expenditures and taxes. The Company's main sources of funds are premiums and deposits on insurance and annuity products; proceeds from the sale of investments; income from investments; and repayments of investment principal. Reimbursements and fees from affiliates are also used to pay normal operating expenditures.

In managing its general account assets in relation to its liabilities, the Company has segmented these assets by product or by groups of products. The Company manages each segment's assets based on an investment policy that it has established for that segment. Among other matters, this investment policy considers liquidity requirements and provides cash flow estimates. The Company reviews these policies quarterly.

The Company's liquidity targets are intended to enable it to meet its day-to-day cash requirements. On a quarterly basis, the Company compares its total "liquifiable" assets to its total demand liabilities. Liquifiable assets are comprised of cash and assets that could quickly be converted to cash should the need arise. These assets include short-term investments and other liquid assets and investment-grade bonds. The Company's policy is to maintain a liquidity ratio in excess of 100%. Based on its ongoing liquidity analyses, the Company believes that its available liquidity is more than sufficient to meet its liquidity needs.

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The Company's cash contractual obligations are as follows (in 000's):

The Company has syndicated two lines of credit each in the amount of $250 million. There are 15 banks in the syndicate of lenders, which is led by J. P. Chase Manhattan Bank, New York. The banks have committed to lend funds upon request by the Company, with interest at prevailing rates determined in accordance with the line of credit agreements. One line of credit terminates in October 2003, and the other in October 2007. As of September 30, 2002, no amounts have been borrowed.

The Company has made commitments of mortgage loans on real estate into the future. The outstanding commitments at September 30, 2002 amount to $19.5 million.

On March 12, 2001, the Company purchased all of the outstanding shares of Vision Financial Corporation ("Vision") for approximately $5 million. Vision is a third party administrator incorporated in New Hampshire that provides insurance services throughout the United States.

On December 21, 2000, the Company's parent, Sun Life of Canada (U.S.) Holdings, Inc., transferred its $350,000,000 Sun Life Assurance Company of Canada subordinated note to Sun Canada Financial Co., an affiliate, in the form of additional capitalization. On the same day, Sun Canada Financial Co. transferred its ownership in the Company's surplus notes totaling $315,000,000 to Sun Life of Canada (U.S.) Holdings, Inc. in the form of a dividend. As a result, the Company had $565,000,000 of surplus notes issued to its parent, Sun Life of Canada (U.S.) Holdings Inc., as of December 31, 2000.

In October 2001, Sun Life of Canada (U.S.) Holdings, Inc. transferred its ownership in the Company's surplus notes totaling $565,000,000 to Sun Life Financial (U.S.) Finance, Inc., an affiliate of the Company, at book value.

On July 25, 2002, the Company issued an $80,000,000 promissory note at 5.71% to an affiliate, Sun Life (Hungary) Group Financing Limited Liability Company ("Sun Life (Hungary) Ltd"), which matures on June 30, 2012. The Company will pay interest semi-annually to Sun Life (Hungary) Ltd beginning December 31, 2002. The proceeds of the note were used to purchase fixed rate corporate and government bonds. Interest expense on the note is included in interest expense and amounted to $.9 million for the three and nine month periods ended September 30, 2002.

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On October 9, 2002, Sun Life Insurance and Annuity Company of New York ("SLNY") and Keyport Benefit Life Insurance Company ("KBL"), a wholly owned subsidiary of Keyport Life Insurance Company ("Keyport"), an affiliate, filed an Agreement and Plan of Merger ("Merger Agreement") with the New York State Insurance Department (the "Department"). Pursuant to the Merger Agreement, KBL will merge with and into SLNY. SLNY will be the surviving company ("the Surviving Company"). On November 7, 2002, the respective Boards of Directors of SLNY and KBL approved the merger. The merger will be effective December 31, 2002, pending final approval from the Department and receipt of certain other state regulatory approvals.

The Surviving Company will be licensed and authorized to write all the business that is today being written by KBL. KBL will cease to exist and the Surviving Company will carry on the business that SLNY now conducts along with that now conducted through KBL.

Based upon a Pro Forma Plan of Operations and Actuarial Projections submitted to the Department in October, 2002 as part of the approval process, the Surviving Company will require a capital contribution in January, 2003 in order to sustain future target surplus levels required by the Department. The total amount of the capital contribution is approximately $45 million. The parent companies of SLNY and KBL will each contribute a percentage of that amount equal to their respective ownership percentage of the Surviving Company. That percentage is based upon the pro forma statutory book value of the Surviving Company as of September 30, 2002, the most current value available, and would result in a contribution of approximately $16 million by the Company.

On November 7, 2002, after the close of the quarterly period to which this report relates, the Board of Directors of the Company voted to transfer the Company's wholly-owned subsidiary, Sun Life of Canada (U.S.) Distributors, Inc. ("SLD"), to the Company's parent, Sun Life Financial (U.S.) Holdings, Inc. ("SLF Holdings"), for consideration equal to the book value of SLD at the time of transfer (approximately $13 million on November 7, 2002). It is anticipated that SLF Holdings will, in turn, transfer one-half of the ownership interest in SLD to the Company's affiliate Massachusetts Financial Services Company ("MFS"), so that the existing annuity distribution operations of the Company and MFS can be combined to provide enhanced revenue from increased distribution for both the Company and MFS. The transfer of SLD and the related changes in the Company's distribution arrangements are scheduled for completion in the fourth quarter of 2002.

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This discussion covers market risks associated with investment portfolios that support the Company's general account liabilities including non-unitized fixed product liabilities. This discussion does not cover market risks associated with those investment portfolios that support unitized separate account products. For these products, the policyholder, rather than the Company, assumes these market risks.

The assets of the general account are available to support general account liabilities. For purposes of managing these assets in relation to these liabilities, the Company notionally segments these assets by product or by groups of products. The Company manages each segment's assets based on an investment policy statement that it has established for that segment. The policy statement covers the segment's liability characteristics and liquidity requirements, provides cash flow estimates, and sets targets for asset mix, duration, and quality. Each quarter, investment and business unit managers review these policies to ensure that the policies remain appropriate, taking into account each segment's liability characteristics.

The Company's management believes that stringent underwriting standards and practices have resulted in high-quality portfolios and have the effect of limiting credit risk. It is the Company's practice, for example, not to purchase below-investment-grade securities. Also, as a matter of investment policy, the Company manages foreign exchange and equity risk within tolerance bands. The Company does hold real estate and equity options in its portfolios. (At September 30, 2002, investment real estate holdings represented approximately 1.5% of the Company's total general account investment portfolio.) The management of interest rate risk exposure is discussed below.

The Company's fixed interest rate liabilities are primarily supported by well-diversified portfolios of fixed interest investments. They are also supported by holdings of real estate and floating rate notes. All of these interest-bearing investments can include publicly issued and privately placed bonds and commercial mortgage loans. Public bonds can include Treasury bonds, corporate bonds, and money market instruments. The Company's fixed income portfolios also hold securitized assets, including mortgage-backed securities ("MBS") and asset-backed securities. These securities are subject to the same standards applied to other portfolio investments, including relative value criteria and diversification guidelines. In all portfolios, the Company restricts MBS investments to pass-through securities issued by U.S. government agencies and to collateralized mortgage obligations, which are expected to exhibit relatively low volatility. The Company does not engage in leveraged transactions and it does not routinely invest in the more speculative forms of these instruments such as the interest-only, principal-only, inverse floater, or residual tranches. However, as a result of commercial mortgage securitization transactions involving assets formerly owned by the Company, the Company retained subordinated interest certificates as well as interest only certificates.

Changes in the level of domestic interest rates affect the market value of fixed interest assets and liabilities. Segments whose liabilities mainly arise from the sale of products containing interest rate guarantees for certain terms are sensitive to changes in interest rates. In these segments, the Company uses ''immunization'' strategies, which are specifically designed to minimize the loss from wide fluctuations in interest rates. The Company supports these strategies using analytical and modeling software acquired from outside vendors.

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Significant features of the Company's immunization models include:

The Company's Interest Rate Risk Committee meets monthly. After reviewing duration analyses, market conditions and forecasts, the Committee develops specific asset management strategies for the interest-sensitive portfolios. These strategies may involve managing to achieve small intentional mismatches, either in terms of total effective duration or for certain key rate durations, between the liabilities and related assets of particular segments. The Company manages these mismatches to a tolerance range of plus or minus 1.0.

Asset strategies may include the use of Treasury futures or interest rate swaps to adjust the duration profiles for particular portfolios. All derivative transactions are conducted under written operating guidelines and are marked to market. Total positions and exposures are reported to the Board of Directors on a quarterly basis. The counterparties to hedging transactions are major highly rated financial institutions, with respect to which the risk of the Company's incurring losses related to credit exposures is considered remote.

Liabilities categorized as financial instruments and held in the Company's general account as of September 30, 2002 had a fair value of $4.8 billion. Fixed income investments supporting those liabilities had a fair value of $6.4 billion at that date. The Company performed a sensitivity analysis on these interest-sensitive liabilities and assets as of September 30, 2002. The analysis showed that if there were an immediate decrease of 100 basis points in interest rates, the fair value of the liabilities would show a net increase of $205.3 million (for an adjusted total of approximately $5.0 billion) and the corresponding assets would show a net increase of $144.8 million (for an adjusted total of approximately $6.5 billion).

By comparison, liabilities categorized as financial instruments and held in the Company's general account at December 31, 2001 had a fair value of $4.3 billion. Fixed income investments supporting those liabilities had a fair value of $5.0 billion at that date. The Company performed a sensitivity analysis on these interest-sensitive liabilities and assets as of December 31, 2001. The analysis showed that if there were an immediate decrease of 100 basis points in interest rates, the fair value of the liabilities would show a net increase of $206.2 million (for an adjusted total of approximately $4.6 billion) and the corresponding assets would show a net increase of $172.5 million (for an adjusted total of approximately $5.2 billion).

The Company produced these estimates using computer models. Since these models reflect assumptions about the future, they contain an element of uncertainty. For example, the models contain assumptions about future policyholder behavior and asset cash flows. Actual policyholder behavior and asset cash flows could differ from what the models show. As a result, the models' estimates of duration and market values may not reflect what actually would occur. The models are further limited by the fact that they do not provide for the possibility that management action could be taken to mitigate adverse results. The Company believes that this limitation is one of conservatism; that is, it will tend to cause the models to produce estimates that are generally worse than one might actually expect, all other things being equal.

Based on its processes for analyzing and managing interest rate risk, the Company's management believes its exposure to interest rate changes will not materially affect its near-term financial position, results of operations, or cash flows.

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The Company's new GIC products introduced exposure to equity and foreign currency exchange risk. This is in addition to the traditional interest rate risk discussed previously. All of this exposure has been hedged through interest rate, currency, and equity swaps. The terms of each GIC such as interest rate, interest payment dates, maturity and redemption dates, and currency denomination are identical to the terms of the swaps. The GIC (liability) is swapped back to a US dollar fixed liability through the requisite derivative contracts. All foreign currency is swapped back to fixed US dollars, all floating rate payments are swapped to fixed rate payments, and any equity returns that the Company is required to pay (receive) on the GIC are received from (paid to) the swap. These interest rate, equity linked and currency exchange swaps effectively hedge the Company's exposure to interest, equity and foreign currency risks.

During 2001, the Company first purchased put options on the S&P 500 index as part of its overall risk management strategy. At September 30, 2002, the fair value of the options was $233.9 million. The Company has performed a sensitivity analysis on the effect of market changes and has determined that a 10% increase in the market would decrease the market value of the options at September 30, 2002 by $30.4 million. A negative shift in the market of 10% would increase the market value by $35.9 million at September 30, 2002.

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Based on an evaluation as of a date within 90 days prior to the filing date of this quarterly report, the registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II: OTHER INFORMATION

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5: OTHER INFORMATION

None

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

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