(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (781) 237- 6030

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

(Title of Class)

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. [x] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]

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

Registrant has 6,437 shares of common stock outstanding on March 29, 2004, all of which are owned by Sun Life of Canada (U.S.) Holdings, Inc.

2

The Company is a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc. ("SLC (U.S.) Holdings"), which is an indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada ("SLOC"), 150 King Street West, Toronto, Ontario, Canada. SLOC is a life insurance company incorporated in 1865 and currently transacts business directly or through its subsidiaries and joint ventures in all of the Canadian provinces and territories, all of the United States (except New York), the District of Columbia, Puerto Rico, the Virgin Islands, Great Britain, Ireland, Hong Kong, Bermuda, Barbados, Philippines, and India. On March 22, 2000, SLOC reorganized from a mutual life insurance company into a stock life insurance company. The Company is an indirect wholly-owned subsidiary of Sun Life Financial Inc. ("SLF"), a reporting company under the Securities Exchange Act of 1934.

On April 2, 2003, the Company and its affiliate Keyport Life Insurance Company ("Keyport") filed a Form D (Prior Notice of a Transaction) with the Division of Insurance, Department of Business Regulation of the State of Rhode Island. On April 3, 2003, the Company and Keyport filed similar documents with the Delaware Department of Insurance. Both filings sought regulatory approval for a contemplated merger of Keyport with and into the Company with the Company as the surviving entity. Prior to the merger, the Company and Keyport were both direct wholly-owned subsidiaries of SLC (U.S). Holdings and indirect wholly-owned subsidiaries of SLOC. Regulatory approval from the States of Rhode Island and Delaware was received on June 11, 2003 and July 21, 2003, respectively. On December 31, 2003, at 5:00 p.m., the merger was completed. The Company is licensed and authorized to write all business that was previously written by the Company and Keyport. The merger has no effect on the existing rights an d benefits of policyholders and contractholders from either company.

The merger was accounted for under Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." Under SFAS No. 141, transfers of net assets and exchanges of shares between entities under common control are recorded at their carrying amounts at the date of transfer. The financial statements of prior periods have been restated to give effect to the merger as of November 1, 2001, the date on which the predecessor companies came under common control.

The following summarizes the results of operations and total assets as of and for the year ended December 31, 2003 (in 000's):

The impact of the merger with Keyport (decreased) increased net income by $(22.6) million and $87.7 million for the years ended December 31, 2002 and 2001, respectively.

The Company's wholly-owned subsidiaries include: Sun Life Insurance and Annuity Company of New York ("SLNY"), which issues individual fixed and variable annuity contracts, group life, long-term disability and stop loss insurance, and individual variable universal life insurance in New York; Independence Life and Annuity Company ("Independence"), a life insurance company that sold variable and whole life insurance products; Clarendon Insurance Agency, Inc. ("Clarendon"), a registered broker-dealer; Sun Life of Canada (U.S.) SPE 97-1, Inc. ("SPE 97-1"), organized for the purpose of engaging in activities incidental to securitizing mortgage loans; Sun Capital Advisers, Inc. ("SCA"), a registered investment adviser; Sun Life of Canada (U.S.) Holdings General Partner LLC ("the General Partner"), the sole general partner of Sun Life of Canada (U.S.) Limited Partnership I ("the Partnership"); and Sun Benefit Services Company, Inc. ("SBSC"), an inactive subsidiary.

On November 18, 2003, the Company sold its interest in its' wholly-owned subsidiary, Vision Financial Corporation ("Vision), for $1.5 million. A loss of approximately $1.0 million was realized on this transaction.

3

The Company and its subsidiaries are engaged in the sale of individual and group variable life insurance, individual and group fixed and variable annuities, group pension contracts, guaranteed investment contracts, group life, group disability, stop loss insurance, and other asset management services. 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 reinsures portions of its life insurance, annuity and disability income exposure with both affiliated and unaffiliated companies using traditional indemnity reinsurance agreements. The Company also reinsures on a stop-loss basis with unaffiliated companies the guaranteed minimum death benefit exposure with respect to a portion of the Company's variable annuity business. The Company, as the ceding company, remains responsible for that portion of the policies reinsured under each of its existing agreements in the event the reinsurance companies are unable to pay their portion of any reinsured claim. To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.

The Company also acts as the reinsurer of risk under the lapse protection benefit under certain universal life contracts issued by SLOC. One hundred percent of such risk is retroceded to Sun Life Financial Insurance and Annuity Company (Bermuda) Ltd.

The Company has established and reported liabilities for future policy benefits in accordance with generally accepted accounting principles ("GAAP") in order to meet its obligations on its outstanding contracts. Liabilities for variable annuity contracts, variable life insurance and variable universal life insurance policies are considered separate account liabilities and are carried at fair value (the policyholder bears the investment risk). Universal life policies, deferred fixed annuity contracts, and guaranteed investment contracts ("GICS") are classified as general account liabilities, and are carried at account value (the Company bears the investment risk). Account values of the contracts include deposits plus credited interest, less expenses, mortality fees and withdrawals. Reserves for individual life, group life, group disability and stop loss contracts are based on mortality and morbidity tables in general use in the United States and are computed to equal amounts that, with additions from premiums to be received, and with interest on such reserves compounded annually at assumed rates, will be sufficient to meet the Company's policy obligations.

The Company's consolidated total assets were $43.6 billion at December 31, 2003; 40.2% consisted of separate account assets, 43.5% were invested in bonds and similar securities, 2.2% in mortgages, 0.2% in real estate, and the remaining 13.9% in cash and other assets.

The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities marketing insurance products. A.M. Best Company, Inc. has assigned the Company and its affiliate, SLNY, a rating of A++ (with negative outlook). Fitch, Inc. has assigned the Company and SLNY a rating of AA. Standard & Poor's, a division of The McGraw-Hill Companies, has assigned the Company and SLNY each a rating of AA+ (with negative outlook). Moody's Investor Service, Inc. has assigned the Company a rating of Aa2.

Pursuant to a service agreement between the Company and SLOC, the Company provides personnel and certain services to SLOC. The Company is reimbursed for the cost of these services. As of December 31, 2003, the Company and its subsidiaries had 2,036 employees who were employed at its Principal Executive Office in Wellesley Hills, Massachusetts, as well as offices in Lincoln, Rhode Island, New York, New York, Brookfield, Wisconsin, and 20 regional group sales offices.

4

The annual statements include financial statements and exhibits in conformity with statutory accounting principles, which differ from GAAP. Effective January 1, 2001, the laws of the respective state departments required that insurance companies domiciled in the respective state prepare their statutory financial statements in accordance with the National Association of Insurance Commissioners' ("NAIC") Accounting Practices and Procedures manual, version effective January 1, 2001, subject to any deviation prescribed or permitted by the Insurance Commissioner of the respective state. The books and records of the Company and SLNY are subject to review or examination by their respective state departments of insurance at any time and a full examination of their operations is conducted at periodic intervals.

Many states also regulate affiliated groups of insurers, such as the Company, SLOC and its affiliates, under insurance holding company legislation. Under such laws, inter-company transfers of assets and dividend payments from insurance subsidiaries may be subject to prior notice or approval, depending on the size of such transfers and payments in relation to the financial positions of the companies involved. Under insurance guaranty fund laws in most states, insurers doing business in a given state can be assessed (up to prescribed limits) for policyholder losses incurred by another insolvent insurance company in that state. However, most of these laws provide that an assessment may be excused or deferred if it would threaten an insurer's own financial strength and many also permit the deduction of all or a portion of any such assessment from any future premium or similar taxes.

The Company's variable annuity contracts and variable life insurance policies are subject to various levels of regulation under federal securities laws administered by the Securities and Exchange Commission (the "SEC") and under certain state securities laws. On or about October 30, 2003, the Company received a request from the SEC for information regarding its policies, practices and procedures with respect to subaccount "market timing," its policies, practices and procedures with respect to receiving and processing exchange orders from contract owners, and its oversight of such activities in the Company's separate accounts. The Company responded to this request and an additional related request. On March 4, 2004, the Boston District Office of the SEC notified the Company that it intended to commence an examination of the Company and certain of its affiliates pursuant to Section 31(b) of the Investment Company Act of 1940 and the Securities Exchange Act of 1934 relating to these an d certain other subjects. The Company is cooperating in the examination.

In addition, the SEC and other regulators have conducted or are conducting investigations and examinations of certain of the Company's affiliates relating to various issues, including market timing and late trading of mutual funds and variable insurance products, directed brokerage, revenue-sharing and other arrangements with distributors.

Although the federal government generally does not directly regulate the business of insurance, federal initiatives often have an impact on the business in a variety of ways. Current and proposed federal measures that may significantly affect the insurance business include employee benefit regulation, removal of barriers preventing banks from engaging in the insurance business, and tax law changes affecting the taxation of insurance companies and insurance products, which may impact the relative desirability of various personal investment vehicles.

In May 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "2003 Act") was enacted. The 2003 Act included a provision that reduces the tax rate on capital gains and qualifying dividends to a maximum rate of 15 per cent. The reduced rate is, however, only available (either directly or through an investment in a mutual fund or other pass through entity) to individuals. Corporate taxation of dividends and capital gains, including those derived from corporate shares held through insurance, annuity and tax-qualified retirement plans, remains unchanged. It is not clear at this time what impact this provision has had or might have on the sale and surrender of certain products offered by the Company

5

In 2003, the Senate Finance Committee passed a bill entitled "National Employee Savings and Trust Equity Guarantee Act" ("NESTEG"), leaving open for further discussion a provision changing the current tax treatment of employers who buy Corporate Owned Life Insurance ("COLI"). On February 2, 2004, the Senate Finance Committee agreed upon amendments to the COLI provision of NESTEG. As amended, payments made to an employer under a COLI policy would be taxable unless certain qualifications, such as employment or level of compensation, are met. The provision also requires that employees covered under COLI policies be informed and give consent to the coverage before the employer purchases the COLI policy. NESTEG goes next to the Senate floor and, if passed, must be reconciled with the House version of the bill. If NESTEG becomes law, it could adversely affect the sale of COLI products currently offered by the Company.

The Company's home office consists of four office buildings located in Wellesley Hills, Massachusetts. The Company owns this facility and leases it to SLOC for lease terms not exceeding five years. During 2001, the operations of the Company's Wealth Management segment were moved to the home office in Wellesley Hills. Prior to May 2001, the Wealth Management operations were primarily conducted from office space in Boston, Massachusetts, which was leased by the Company from unrelated parties. The home office of SLNY consists of office space in New York, New York, and is leased from an unrelated party.

The Company also leases office space in Lincoln, Rhode Island from an unrelated party. In 2004, the Company announced its intentions to relocate the Lincoln, Rhode Island operations to Wellesley Hills commencing July 1, 2004. The Company also leases property in Boston, Massachusetts that was formerly occupied by Keyport personnel. The Company is in the process of subleasing this property.

The Company and its subsidiaries are engaged in various kinds of routine litigation, which, in management's judgment, are not expected to have a material impact on its financial condition, results of operations or cash flows of the Company.

Omitted pursuant to Instruction I(2)(c) to Form 10-K.

6

Omitted pursuant to Instruction I(2)(a) to Form 10-K. Please refer to Item 7 for management's narrative analysis of results of operations.

Pursuant to Instruction I(2)(a) to Form 10-K, the Company elects to omit the Management's Discussion and Analysis of Financial Condition and Results of Operations. Below is an analysis of the results of operations explaining material changes in the Statement of Operations between the years ended December 31, 2003 and December 31, 2002.

The Private Securities Litigation Reform Act of 1995 defines forward-looking statements as statements not based on historical fact and provides a safe harbor for such statements. This discussion includes forward-looking statements by the Company. These statements relate to such topics as volume growth, market share, 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:

Acquisition costs related to the issuance of 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 investment yields and interest rates, mortality, lapse, expense, and asset growth rates. Although realization of deferred policy acquisition costs ("DAC") is not assured, the Company believes that all of these costs will be realized. The amount of DAC considered realizable, however, could be reduced 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 DAC to decrease or increase, respectively, in the current period. This will cause fluctuation in earnings from period to period. These changes in assumptions resulted in a (decrease) increase in DAC amortization of $(37.4) million and $95.1 million for the years ended December 31, 2003 and 2002, respectively.

7

The value of business acquired ("VOBA") represents the actuarially determined present value of projected future gross profits from the Keyport policies in force at the date of the acquisition of Keyport (October 31, 2001). This amount is amortized in proportion to the projected emergence of profits. Interest is accrued on the unamortized balance at the average interest crediting rate.

The value of business acquired is also adjusted for amounts relating to the recognition of unrealized investment gains and losses. This adjustment, net of tax, is included with the change in net unrealized investment gains or losses that is credited or charged directly to accumulated other comprehensive income (loss). VOBA was decreased by $(27.5) million and $(32.9) million at December 31, 2003 and 2002, respectively, relating to this adjustment.

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, options and futures. The Company does not employ hedge accounting treatment. The Company believes that these derivatives provide economic hedges against the risks noted and the cost of formally documenting the effectiveness of the fair value of the hedged assets in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is not justified. As a result, the unrealized gains and losses are recognized immediately in net derivative income. Changes in the level of interest rates or equity markets will cause the value of these derivatives to cha nge and can cause quarterly fluctuations in earnings. 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 foreign currency exchange rates and equity markets change.

The Company issues annuity contracts and GICS that contain derivative instruments that are "embedded" in the contract. Upon issuing the contract, the embedded derivative is separated from the host contract (annuity or GICS contract) and is carried at fair value.

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 the Company's 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. The fair value of swaps are based on current settlement values. The current settlement values are based on dealer quotes and market prices. Fair values for options and futures are based on dealer quotes and market prices.

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

8

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. During 2002, the mortality assumptions related to the single premium pension contracts were adjusted to reflect expected payments and, as a result, a loss of $38 million was recognized in the Company's group pension line of business.

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

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

The Company's accounting policy for impairment requires recognition of an other-than-temporary impairment write-down on a security if it is determined that the Company is unable to recover all amounts due under the contractual obligations of the security. Once an impairment charge has been recorded, the Company continues to review the other-than-temporarily impaired securities for additional impairment.

During 2003 and 2002, the Company incurred realized losses totaling $58.1 million and $94.4 million, respectively, for other-than-temporary impairment of value of some of its fixed maturities after determining that not all of the unrealized losses were temporary in nature. During 2003 and 2002, $6.6 million and $1.6 million, respectively, of the losses incurred in prior years were recovered through disposition and are included in realized gains. The Company has discontinued the accrual of income on several of its holdings for issuers that are in default. Investment income would have increased by $10.1 million and $2.5 million for the years ended December 31, 2003 and 2002, respectively, if these holdings were performing.

9

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 sections provide a summary of operations by segment.

The Wealth Mangement Segment sells a full range of retirement-oriented insurance products that provide fixed, indexed or variable returns to policyholders. Annuities are insurance products designed to offer individuals protection against the risk of outliving their financial assets during retirement. Annuities offer a tax-deferred means of accumulating savings for retirement needs and provide a tax-efficient source of income in the payout period. The Company earns spread income from fixed and indexed annuities; variable annuities primarily produce fee income. Through 2002, this Segment also marketed GICS to unrelated third parties.

The Segment's principal products are categorized as follows:

Fixed Annuities - Fixed annuity products are principally single premium deferred annuities ("SPDA"). A 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 (typically one year) and is reset annually thereafter, subject to a guaranteed minimum rate. Interest crediting continues until the policy is surrendered, the policyholder dies, or when the policyholder turns age 90.

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. The Company has several different variable annuity products that currently offer various separate account investment choices, depending on the product, and guaranteed fixed interest options.

Equity-Indexed Annuities - Equity-indexed annuities credit interest to the policyholder at a "participation rate" equal to a portion of the change in value of a specified equity index. Earnings on the Company's equity-indexed annuity product is based on a percentage of the increase in the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index") ("S&P", "S&P 500", and "Standard & Poor's" are trademarks of The McGraw Hill Companies, Inc. and have been licensed for use by the Company). The Company's equity-indexed product also provides a guarantee of principal at the end of the term. Thus, unlike a direct equity investment, even if the S&P 500 Index declines, there is no market risk to the policyholder's principal.

Institutional Investment Contracts - Institutional contracts are contracts to institutional investors or to trusts that issued GICS to unrelated third parties. These contracts may contain any of a number of features including variable or fixed interest rates, equity index options, and may be denominated in foreign currencies.

10

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

The Company sells its annuity products via two affiliated wholesale distribution organizations, MFSLF and Independent Financial Marketing Group, Inc. ("IFMG"). The annuity products are also distributed through a variety of unaffiliated retail organizations including securities brokers, financial institutions, insurance agents, and financial advisers. Investment funds available under these products are managed by several investment managers, including MFS, an affiliate of the Company, and SCA, a subsidiary of the Company.

The following is a summary of operations for the Wealth Management Segment for the years ended December 31 (in 000's):

The Wealth Management Segment has been significantly impacted by changes in the financial markets. The pre-tax income of $162.0 million for the year ended December 31, 2003 was $294.6 million greater than the $132.6 million pre-tax loss for the year ended December 31, 2002. The increase in income over 2002 was primarily due to improvements in realized gains coupled with a reduction of operating and DAC expenses

Total Revenues were $1,409.6 million and $1,273.4 million for the years ended December 31, 2003 and 2002, respectively. The increase of $136.2 million was primarily due to the increase in realized gains on the sale of securities. The significant changes from the prior year were as follows:

Investment income - was $1,168.8 million and $1,182.1 million for the years ended December 31, 2003 and 2002, respectively. Investment income, excluding the mark to market of the trading portfolio and partnership income, was $1,059.3 million and $1,139.8 million for the years ended December 31, 2003 and 2002, respectively. The decrease of $80.5 million during 2003, as compared to 2002, was the result of a slightly lower average investment yield ($88.5 million), and an increase in average invested assets ($8.0 million). Changes in the market value of securities in the trading portfolio resulted in an increase in investment income of $63.6 million for the year ended December 31, 2003, as compared to the same period in 2002.

Separate Account fees - are primarily mortality and expense charges earned on variable annuity balances. These charges, which are based on the market values of the assets in the separate accounts supporting the contracts, were $192.0 million and $208.9 million for the years ended December 31, 2003 and 2002, respectively. Variable product fees represented 1.39% and 1.42% of the average variable annuity separate account balances for the years ended December 31, 2003 and 2002, respectively. The decrease in separate account income was due to a decrease in average separate account assets. Average separate account assets were $13.8 billion and $14.7 billion for the years ended December 31, 2003 and 2002, respectively.

Surrender charges - are revenues earned on the early withdrawal of fixed, equity-indexed and variable annuity policyholder balances. Surrender charges on fixed, equity-indexed and variable annuity surrenders generally are assessed at declining rates applied to policyholder surrenders during the first five to seven years of the contract. Total surrender charges were $27.3 million and $39.2 million for the years ended December 31, 2003 and 2002, respectively.

Other fee income decreased from 2002 to 2003 by $7.6 million due to the sale of MFSLF in 2002.

11

Derivative losses - were $(204.0) million and $(196.4) million for the year ended December 31, 2003 and 2002, respectively. Derivative losses primarily represent fair value changes of derivative instruments, and the net interest received or paid on swap agreements.

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

The Company issues annuity contracts and GICS that contain a derivative instrument that is "embedded" in the contract. Upon issuing the contract, the embedded derivative is separated from the host contract (annuity contract or GIC contract) and is carried at fair value. The Company also purchases call options and futures on the S&P 500 Index and total return swaps to economically hedge its obligation under certain of these equity-indexed annuity contracts. Each GIC contract 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 these swaps with interest rate swaps allows the Company to lock in U.S. dollar fixed rate payments for the life of the contract.

As a component of its investment strategy and to reduce its exposure to interest rate risk, the Company utilizes interest rate swap agreements. Interest rate swap agreements are agreements to exchange with a counterparty interest rate payments of differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. The Company also utilizes put options on the S&P 500 Index to hedge against stock market exposure inherent in the mortality and expense risk charges and guaranteed minimum death benefit features of the Company's variable annuities.

Net derivative (loss) for the Segment consisted of the following (in 000's):

Realized investment gains (losses) - were $135.2 million and $(58.8) million for the years ended December 31, 2003 and 2002, respectively. Sales of investments generally are made to maximize total return and take advantage of prevailing market conditions. Net realized investment gains (losses) included $(39.3) million and $(87.1) million for the years ended December 31, 2003 and 2002, respectively, for certain fixed maturity investments where the decline in value was determined to be other-than-temporary.

Interest credited - to policyholders was $773.7 million and $696.9 million for the years ended December 31, 2003 and 2002, respectively. The increase of $76.8 million during the year ended December 31, 2003, as compared to the year ended December 31, 2002, was the result of a lower average interest credited rate ($1.7 million) and increased average policyholder balances ($45.7 million) and a reserve adjustment of $32.5 million during the first quarter of 2003, which was recorded as a component of interest credited to policyholders. (Interest credited to policyholders was accurately recorded at the policy level at all times).

12

Amortization of deferred policy acquisition costs - relates to the costs of acquiring new business, which vary with and are primarily related to, the production of new annuity business. Such acquisition costs included commissions, costs of policy issuance, underwriting and selling expenses. Amortization expense was $86.7 million and $241.0 million for the years ended December 31, 2003 and 2002, respectively. The decrease in DAC amortization for the year ended December 31, 2003 was primarily due to favorable changes in the equity markets utilized in the estimated future gross profit assumptions used to calculate DAC amortization.

Amortization of value of business acquired - relates to the actuarial-determined present value of projected future gross profits from policies in force at the date that Keyport was acquired (November 1, 2001). This amount is amortized in proportion to the projected emergence of profits over the estimated lives of the contracts. Amortization was $7.8 million and $4.5 million for the years ended December 31, 2003 and 2002, respectively. During 2003, the Company revised its gross profit estimates resulting in a decrease to VOBA amortization of $17.1 million.

Policyholder benefits - were $174.8 million and $202.1 million for the years ended December 31, 2003 and 2002, respectively. The $27.3 million decrease in 2003 compared to 2002 was primarily due to a decrease in reserves of $32.7 million. During 2002, reserves related to the single premium pension policies increased by $38.0 million as a result of changes in the mortality assumptions used to calculate the reserves. The mortality was adjusted to reflect an increase in future expected payments, and resulted in a loss being recognized on the line of business.

Operating Expenses - were $133.1 million and $176.7 million for the years ended December 31, 2003 and 2002, respectively. The primary decrease in operating expenses for the year ended December 31, 2003 compared to the same period in the prior year was attributed the sale of SLD which represented a favorable change in operating expenses of $15.9 million over the prior year. In addition, general operating expenses decreased by $18.7 million due to improved expense management.

The Company currently markets variable life insurance products. These products include variable universal life ("VUL") products marketed to individuals and the COLI and bank-owned life insurance ("BOLI") markets. VUL products are insurance products that allow for flexible premiums and the policyholder directs how the cash value is invested, and thus bears the investment risk. The Company's management expects the variable life business to grow and become more significant in the future. Additionally, the Company also administers closed blocks of single premium whole life, universal life and variable life insurance business.

The following provides a summary of operations for the Individual Protection Segment for the years ended

December 31 (in 000's):

Pretax earnings from the Individual Protection Segment decreased by $5.1 million in 2003, as compared to 2002 due primarily to increased death claims. The Individual Protection Segment experienced a net loss of $2.3 million for the year ended December 31, 2003, and net income of $0.5 million for the year ended December 31, 2002. During 2003, the Company received $218.5 million of deposits, which was $762.1 lower than 2002 deposits. The decrease in deposits resulted in a decrease in fee income of approximately $13.4 million. This decrease occurred primarily in the BOLI line, which had a decrease in fee income of $10.2 million. The decrease in fee income was offset by a decrease in operating expenses of $10.9 million. The change in operating expenses consisted of reduced premium taxes of $14.8 million due to the lower deposits as compared to 2002, increased asset management fees of $2.6 million and higher expenses with the VUL product of $1.1 million due to increased distributio n and allocated expenses.

13

The Group Protection Segment markets and administers group life insurance, stop loss insurance and long-term disability products to small and medium sized employers as part of those companies' employee benefit plans. This segment operates only in the State of New York through a subsidiary, SLNY.

The following provides a summary of operations for the Group Protection Segment for the years ended

December 31 (in 000's):

Pretax net income from the Group Protection Segment decreased by $3.7 million for the year ended December 31, 2003, as compared to 2002 due primarily to increased health and mortality benefits, and an increase in reserves in long-term disability insurance.

Total revenues in 2003 increased by $6.4 million in comparison to 2002. The increase in revenue was due primarily to higher premiums in the stop loss, group life insurance and long-term disability lines of business of $2.8 million, $2.5 million and $1.4 million, respectively. Additionally, during the third quarter of 2002, a one-time adjustment of $ 1.8 million was made to decrease group life premiums.

Total expenditures in 2003 increased by $10.1 million in comparison to 2002. The expense increase was due in part to higher commission payments of $1.5 million due to an increase in premiums and higher operating expenses of $0.8 million due to the increased volume of business. Incurred claims increased by $7.4 million primarily due to the growing insurance block of business, particularly stop loss, and a deterioration in long-term disability experience.

The Corporate Segment consists of the unallocated capital of the Company, its debt financing, and items not otherwise attributable to the other segments. The following provides a summary of operations for the Corporate Segment for the years ended December 31 (in 000's):

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The Company's primary investment objective is to maximize after-tax returns on the products issued within acceptable risk parameters. The Company is exposed to two primary types of investment risk:

For a more detailed discussion of the Company's interest rate risk management policies, practices and procedures, see "Interest rate risk management" in the "Quantitative and Qualitative Disclosures about Market Risk" section below (Item 7A).

The Company manages exposure to credit risk through internal analyses of a given investment. The Company's fixed income credit analysts apply a wide range of qualitative input and quantitative tools in assessing an issuer's credit risk. The credit analysts apply industry and financial knowledge to assess an issuer's ability to succeed within a broader economic framework. The Company's analysts work with legal staff and portfolio management to assess transaction structure and risks to promote appropriate covenant protection as well as investment diversification and asset allocation. The Company relies on its credit analysts' ability to analyze a wide range of public and private bond issues and structures and to acquire the investments needed to profitably fund the Company's liability requirements.

The Company regularly reviews its bond portfolios relative to any change in specific issuer performance, external and internal ratings, industry conditions, financial ratios and changes in investment value. Such analysis is undertaken to determine that the integrity of the Company's investments remains sound and to review for other-than-temporary impairments.

Within the pricing of the Company's products, it has included provisions for expected default losses over the long term. This expectation is reassessed on a regular basis to determine the adequacy of the estimate. However, actual losses may prove to be above or below the expected loss rate. The overall economic environment will also impact the market value of the portfolio through both interest rate changes and the response of credit spreads to changes in the business cycle. The Company's credit function and capital base generally permit it to pursue a buy and hold strategy that balances assets and liabilities with the intent of withstanding near-term swings in the broader economy.

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The fixed maturity portion of the portfolio consists of publicly traded and privately placed debt securities. The Company diversifies its fixed maturities by industry sectors, government (domestic and foreign), and mortgage-backed and asset-backed securities. Asset-backed securities include structured equipment and receivables investments.

The composition of the Company's fixed maturity portfolio by sector and the unrealized gains and losses contained therein as of December 31, 2003 and 2002 were as follows (in 000's):

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As of December 31, 2003, the portfolio carried $882.5 million in gross unrealized gains relative to $(170.3) million in unrealized losses. The $712.2 million net unrealized gain as of December 31, 2003 is a $177.6 million improvement over the $534.6 million in net unrealized gains at year-end 2002, reflecting improvement in corporate bond prices, particularly in lower-rated issues and industries that suffered last year, such as the airline sub-sector. The marked improvement in the Transportation sector contributed to a net unrealized gain of $12.7 million as of year-end 2003, versus a net unrealized loss of $(11.4) million at year-end 2002. A brief discussion concerning the sectors of the Company's fixed securities holdings is as follows:

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The Securities Valuation Office (SVO) of the NAIC evaluates all public and private bonds purchased as investments by insurance companies. The SVO assigns one of six investment categories to each security it reviews. Category 1 is the highest quality rating, and Category 6 is the lowest. Categories 1 and 2 are the equivalent of investment grade debt as defined by rating agencies such as Standard & Poor's ("S&P") and Moody's (i.e., BBB-/Baa3 or higher), while Categories 3-6 are the equivalent of below-investment-grade securities.

As of December 31, 2003 and 2002, the majority of the Company's fixed maturity investments were investment grade, with 93.7% and 95.1%, respectively, of fixed maturity securities classified as Category 1 and 2 by the SVO. The Company's below-investment-grade bonds were 6.3% and 4.9% of fixed maturity investments and 5.6% and 4.3% of total invested assets as of December 31, 2003 and 2002, respectively. The fair value of investments in SVO categories 3-6 increased by $299.6 million from 2002 to 2003, primarily as a result of improvement in market prices of the Company's below-investment-grade holdings.

The following table provides the SVO ratings for the Company's bond portfolio along with an equivalent S&P rating designation as of December 31, (in 000's):

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At December 31, 2003, $110.9 million, or 65.2%, of the gross unrealized losses were on securities rated investment grade. In general, unrealized losses on investment grade securities reflect changes in interest rates or changes in credit spreads since the securities were acquired and are generally temporary. The Company's policy is to subject any security with a gross unrealized loss of greater than 20% to a comprehensive asset impairment process. Securities at any level of the SVO rating scale would be subject to such review should a drop in market valuation or any other event signal a potential problem.

The Company has a comprehensive process in place to identify potential problem securities that could have an impairment that is other-than-temporary. At the end of each quarter, all securities with a market value that has been below 80% of amortized cost for more than six months are reviewed. An analysis is undertaken to determine whether this decline in market value is other-than-temporary. The Company's process focuses on issuer operating performance and overall industry and market conditions. Any deterioration in operating performance is assessed relative to the impact on issuer financial ratios, including leverage and coverage measures specific to an industry and relative to any investment covenants. The Company's analysis also assesses each issuer's ability to service its debts in a timely fashion, the length of time the security has been trading below 80% of amortized cost, rating agency actions, and any other key developments. The Company has a Credit Committee that includes members from its Invest ment, Finance and Actuarial functions. The Credit Committee meets and reviews the results of the Company's impairment analysis on a quarterly basis.

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The Company's mortgage holdings amounted to $972.1 million and $948.5 million at December 31, 2003 and 2002, respectively, representing 4.5% and 4.5%, respectively, of total invested assets. All but one of the Company's mortgage holdings at December 31, 2003 were in good standing. The one restructured mortgage carried at $6.6 million is current on all principal and interest payments.

This discussion covers market risk associated with investment portfolios that support the Company's general account liabilities. This discussion does not cover market risk associated with those investment portfolios that support separate account products. For those products, the policyholder, rather than the Company, assumes market risk.

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 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. 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 MBS and ABS. These securities are subject to the same standards applied to other portfolio investments, including relative value criteria and diversification guidelines. The Company does not engage in leveraged transactions and it does not routinely invest in the more speculative forms of these instruments, such as interest-only, principal-only, inverse floater or residual tranches. As a result of commercial mortgage securitization transactions involving assets formerly owned by the Company , the Company has retained subordinated interest certificates and interest-only certificates.

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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 its 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 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, options 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 Company's board of directors on a quarterly basis. The counterparties to hedging transactions are highly rated financial institutions, with respect to which the risk of the Company incurring losses related to credit exposures is considered remote.

Fixed interest liabilities held in the Company's general account at December 31, 2003 had a fair value of $17,294.1 million. Fixed income investments supporting those liabilities had a fair value of $18,175.3 million at that date. The Company performed a sensitivity analysis on these interest-sensitive liabilities and assets on December 31, 2003. 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 $612.4 million and the corresponding assets would show a net increase of $767.9 million.

By comparison, fixed interest liabilities held in the Company's general account at December 31, 2002 had a fair value of $17,714.1 million. Fixed income investments supporting those liabilities had a fair value of $18,028.6 million at that date. The Company performed a sensitivity analysis on these interest-sensitive liabilities and assets on December 31, 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 $572.8 million and the corresponding assets would show a net increase of $553.1 million.

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, all other factors being equal, this limitation will tend to cause the models to produce estimates that are generally worse than one might actually expect.

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 utilizes purchased put options on the S&P 500 Index to hedge against stock market exposure inherent in the mortality and expense risk charges and guaranteed minimum death benefit features contained within some of its variable annuity products. At December 31, 2003 and 2002, the fair value of these options was $65.6 million and $213.2 million, respectively. 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 by $19.0 million and $29.0 million at December 31, 2003, and 2002, respectively. A negative shift in the market of 10% would increase the market value by $26.0 million and $35.0 at December 31, 2003 and 2002, respectively.

At December 31, 2003 and December 31, 2002, the Company had $1.5 billion and $1.2 billion, respectively, in equity-indexed annuity liabilities that provide customers with contractually guaranteed participation in price appreciation of the S&P 500 Index. The Company purchases equity-indexed options and futures to hedge the risk associated with the price appreciation component of equity-indexed annuity liabilities.

The Company manages the equity risk inherent in its assets relative to the equity risk inherent in its equity-indexed annuity liabilities by conducting detailed computer simulations that model its S&P 500 Index derivatives and its equity-indexed annuity liabilities under stress-test scenarios in which both the index level and the index option implied volatility are varied through a wide range. Implied volatility is a value derived from standard option valuation models representing an implicit forecast of the standard deviation of the returns on the underlying asset over the life of the option or future. The fair values of S&P 500 Index linked securities, derivatives and annuities are produced using standard derivative valuation techniques. The derivative portfolios are constructed to maintain acceptable interest margins under a variety of possible future S&P 500 Index levels and option or future cost environments. In order to achieve this objective and limit its exposure to equity price risk, the Company measures and manages these exposures using methods based on the fair value of assets and the price appreciation component of related liabilities. The Company uses derivatives, including futures, options and total return swaps, to hedge its net exposure to fluctuations in the S&P 500 Index

Based upon the information and assumptions the Company used in its stress-test scenarios at December 31, 2003 and 2002, management estimates that if the S&P 500 Index increases by 10%, the net fair value of its assets and liabilities described above would increase by approximately $1.0 million and $0.4 million, respectively. If the S&P 500 Index decreases by 10%, management estimates that the net fair value of its assets and liabilities will decrease by approximately $0.2 million and $0.7 million, respectively.

The simulations do not consider the effects of other changes in market conditions that could accompany changes in the equity option and futures markets, including the effects of changes in implied dividend yields, interest rates, and equity-indexed annuity policy surrenders.

Financial statements in the form required by Regulation S-X are set forth below.

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For the years ended December 31,

December 31,

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