(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (212) 922-9242

Securities registered pursuant to Section 12(b) 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 6,001 shares of common stock outstanding on March 29, 2004, all of which are owned Sun Life Assurance Company of Canada (U.S.).

2

On October 9, 2002, Sun Life Insurance and Annuity Company of New York ("Sun NY Predecessor"), which was a wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.) ("Sun Life U.S."), and Keyport Benefit Life Insurance Company ("KBL"), which was 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. On December 31, 2002 at 5:00 p.m., Sun NY Predecessor and KBL completed the merger. Pursuant to the Merger Agreement, KBL merged with and into Sun NY Predecessor, with Sun NY Predecessor as the surviving company ("SLNY"), and SLNY issued 4,001 additional shares of common stock to Keyport in exchange for the assets and liabilities of KBL. As a result of the additional common stock issuance, SLNY became a subsidiary of both Keyport and Sun Life U.S., with Keyport owning 67% of the common stock of SLNY.

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.

SLNY is licensed and authorized to write all the business that was previously being written by KBL and Sun NY Predecessor. The merger had no effect on the existing rights and benefits of policyholders of either company. Keyport, KBL, Sun Life U.S., Sun NY Predecessor, and SLNY were at all times relevant to the merger indirect wholly-owned subsidiaries of Sun Life Assurance Company of Canada ("SLOC"). SLOC is an indirect wholly-owned subsidiary of Sun Life Financial Inc. ("SLF"), a reporting company under the Securities Exchange Act of 1934. SLNY is engaged in the sale of fixed and variable annuity contracts, group life insurance, stop loss, variable universal life and group disability insurance contracts. These contracts are sold by insurance agents, some of whom are registered representatives of national and regional stock brokerage firms and brokers.

On December 31, 2003 at 5:00 p.m., Sun Life U.S and Keyport merged, with Sun Life U.S as the surviving company. SLNY is now a wholly-owned subsidiary of Sun Life U.S.

SLNY'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, SLNY 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 SLNY's separate accounts. SLNY responded to this request and an additional related request. On March 4, 2004, the Boston District Office of the SEC notified SLNY that it intended to commence an examination of SLNY 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 and certain other subjects. SLNY is cooperating in the examination.

In addition, the SEC and other regulators have conducted or are conducting investigations and examinations of certain of SLNY'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.

SLNY does not own any properties. SLNY leases office space for its sales personnel located in New York City. The lease is scheduled to terminate in 2004. During 2001 and 2002, KBL leased office space in Purchase, New York. This lease was terminated on December 31, 2002, after completion of the merger with SLNY.

3

SLNY is engaged in various kinds of routine litigation, which, in management's judgment, are not expected to have a material impact on its financial condition or results of operations or cash flow.

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

SLNY is a wholly-owned subsidiary of Sun Life U.S. and as such there is no market for its common stock. SLNY did not pay any cash dividends to Sun Life U.S. during 2003 and 2002.

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.

4

SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK

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 SLNY. 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 relate 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 periodically and adjusted retrospectively when SLNY revises its estimates. Estimated gross profits include assumptions related to investment spread, mortality, lapse, expense, and asset growth rates. Although realization of deferred policy acquisition costs ("DAC") is not assured, SLNY 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.

The difference between actual and estimated amounts and 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. During the year ended December 31, 2003, SLNY revised its gross profit estimates used in the DAC amortization calculation resulting in a $14.8 million increase to DAC amortization in the current year. In the prior year, this analysis resulted in an increase of $4.6 million.

In the normal course of business, SLNY 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. SLNY monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses. SLNY 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.

Fixed maturities are classified as available-for-sale. The changes in fair value of available-for-sale securities are

recorded in other comprehensive income.

5

SLNY'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 SLNY believes its estimates reasonably reflect the fair value of those instruments, its 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 individual life insurance, group life and disability insurance products and stop loss 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 SLNY'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 SLNY recognizes a loss on the entire line of business. SLNY periodically reviews its policies for loss recognition based upon management's best estimates. From time to time SLNY may recognize a loss on certain lines of business.

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

During 2003, 2002 and 2001, SLNY incurred realized losses totaling $0.8 million, $4.6 million, and $0.6 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, $0.3 million and $0.2 million, respectively, of the prior years' losses were recovered through disposition and are included in realized gains. SLNY has discontinued the accrual of income on several of its holdings for issuers that are in default. The termination of accrual accounting on these holdings reduced income by $198,000, $98,000 and $75,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", requires goodwill to be subject to an assessment of impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred. SLNY performs its annual assessment of goodwill for impairment during the second quarter. The general level of interest rates, equity markets and overall economic conditions all have an impact on this assessment.

SLNY had a net income (loss) of $0.08 million and ($3.1) million for the years ended December 31, 2003 and 2002, respectively. The increase in net income is primarily attributed to improvement in the Wealth Management Segment, offset by a decline in the Group Protection Segment.

6

SLNY's net income from operations reflects the operations of its four business segments: Wealth Management, Individual Protection, Group Protection and Corporate. As a result of the merger at December 31, 2002, KBL's results are included with the Wealth Management Segment.

The following provides a summary of operations by segment for the years ended December 31 (in 000's):

The Wealth Management Segment focuses on the savings and retirement needs of individuals preparing for retirement or who have already retired. It primarily markets to affluent consumers, selling individual and group fixed and variable annuities. Its major product lines are fixed and variable annuities. In certain variable 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 certain fixed accounts 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. The Wealth Management Segment had a pretax loss of ($4.0) million and ($11.2) million for the years ended December 31, 2003 and 2002, respectively.

The $30.5 million increase in revenues was primarily attributed to increases in investment income and realized gains on the sale of bonds. The $23.3 million increase in expenditures was due to an increase in interest credited to contractholders and an increase in DAC amortization, which was due to an unlocking adjustment.

Investment income for the year ended December 31, 2003 increased by $9.4 million, compared to 2002. The increase in investment income was due to an increase in the average bond and mortgage loan balances. Bonds and mortgage loans were $243.2 million and $57.1 million, respectively, higher at December 31, 2003 compared to December 31, 2002. Net realized gains on the sale of bonds increased by $18.1 million, as compared to 2002. The 2002 results included a $3.9 million charge for other-than-temporary impairment losses on bonds.

The increases in investment income and realized gains on the sale of bonds were partially offset by an increase in interest credited to policyholders of $15.6 million. Interest credited to policyholders is a function of policyholder balances held by SLNY. These balances increased by $288.3 million at December 31, 2003, compared to December 31, 2002. Additionally, during 2003, SLNY increased DAC amortization by $9.1 million, primarily due to an unlocking adjustment due to revised gross profit assumptions used in the calculation of DAC. Current year expenditures includes a reserve adjustment of approximately $2.5 million (pre-tax) 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).

7

The following table provides a summary of operations for the Group Protection Segment for the years ended December 31 (in 000's):

The Group Protection Segment markets and administers group life insurance, stop loss insurance and long-term disability products. These products are sold to employers that provide group benefits for their employees. Pretax income was $0.9 million and $4.6 million for the years ended December 31, 2003 and 2002, respectively.

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 is 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 an increase in the volume of business. Incurred claims increased by $7.4 million due to the growing insurance block of business, particularly stop loss, and a deterioration in long-term disability experience.

The following table provides a summary of operations for the Individual Protection Segment for the years ended December 31 (in 000's):

The Individual Protection Segment products offered by SLNY are conversions from its group life products. Pretax income was approximately $160,000 and $72,000 for the years ended December 31, 2003 and 2002, respectively.

8

The increase in pretax income during the year ended December 31, 2003 primarily related to an increase in premiums from group to individual life product conversions of approximately $472,000, offset by a decrease in net investment income of $21,000 and increases in death benefits, reserves and premium taxes of approximately $124,000, $233,000 and $9,000, respectively.

On October 21, 2003, SLNY announced that it was introducing a portfolio of Variable Universal Life ("VUL") insurance products to customers in New York State.

The following table provides a summary of operations for the Corporate Segment for the years ended December 31 (in 000's):

The Corporate Segment includes the unallocated capital of SLNY and items not otherwise attributable to the other segments. Pretax income within the Corporate Segment was $2.6 million and $1.7 million for the years ended December 31, 2003 and 2002, respectively.

The increase of $0.9 million in 2003 was mainly due to increased net investment income of approximately $1.6 million and decreased realized gains of approximately $0.3 million. The increase in investment income resulted from capital contributions during the latter part of 2002.

Total stockholders' equity of SLNY at December 31, 2003 and 2002 was $291.6 million and $292.1 million, respectively. No dividends were paid during 2003 or 2002. SLNY's management considers its capital resources to be adequate.

SLNY held $1.90 billion and $1.60 billion in invested assets at December 31, 2003 and 2002, respectively. SLNY pursues a high-quality, well-diversified portfolio strategy that is appropriate for its general fund obligations. The investment function is a critical component of SLNY's business given the role invested assets play in supporting SLNY's product lines and the impact of investment results on profitability.

9

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

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

SLNY manages its exposure to credit risk through internal analyses of a given investment. SLNY's corporate bond staff applies 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. SLNY'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. SLNY relies on its credit team's ability to analyze a wide range of public and private bond issues and structures and to acquire the investments needed to profitably fund SLNY's liability requirements.

SLNY 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 SLNY's investments remains sound and to review for other-than-temporary impairments.

The pricing of SLNY's products includes provisions for expected default losses over the long term. This expectation is reassessed on a regular basis to determine the adequacy of the provision. 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. SLNY'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.

The composition of the investments in SLNY's general account portfolio was as follows at December 31 (in 000's):

11

12

As of December 31, 2003, the portfolio carried $60.9 million in gross unrealized gains relative to $11.6 million in unrealized losses. The $49.2 million net unrealized gains as of December 31, 2003 is a $6.9 million improvement over the $42.3 million in net unrealized gains at December 31, 2002, reflecting improvement in corporate bond spreads, particularly in lower-rated issues and industries that suffered last year. As a percent of fair value, the largest contributor of net unrealized losses was the Transportation sector, driven by ongoing restructuring in the airline sub-sector. A brief discussion concerning the sectors of SLNY's fixed securities holdings is as follows:

13

14

15

The Securities Valuation Office ("SVO") of the National Association of Insurance Commissioners 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 SLNY's fixed maturity investments were investment grade, with 96.3% and 98.0%, respectively, of fixed maturity securities classified as Category 1 and 2 by the SVO. SLNY's below investment grade bonds were 3.7% and 2.0% of fixed maturity investments and 3.6% and 2.0% of total invested assets as of December 31, 2003 and 2002, respectively. The fair value of investments in SVO categories 3-6 increased by $36.9 million since December 31, 2002, as bond sales, particularly in Category 6, were offset by improvements in fair value of SLNY's below-investment-grade holdings.

16

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

The composition by credit quality of the securities with gross unrealized losses in SLNY's fixed maturity securities portfolio was as follows at December 31 (in 000's):

17

At December 31, 2003, $8.2 million or 70.2%, of 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 these losses are generally considered to be temporary in nature. Additionally, losses associated with SVO Category 1 reflect the decline in value of highly rated, but stressed ABS. SLNY's policy is to subject any security with a gross unrealized loss of greater than 20% to a comprehensive asset review 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.

SLNY 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. SLNY's process focuses on issuer operating performance as well as 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. Additionally, SLNY's analysis 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. SLNY has a Credit Committee that includes members from its Investment, Finance and Actuarial functions. The Credit Committee meets and reviews the results of SLNY's impairment analysis on a quarterly basis.

Securities that have been triggered for the asset review process may be determined to be impaired or placed on a watchlist for monitoring. Should it be determined that a security is impaired, SLNY may sell the security and realize a loss or hold the security following an appropriate adjustment in carrying value.

SLNY incurred write-downs of fixed maturities totaling $0.8 million and $4.6 million for other-than-temporary impairment for the years ended December 31, 2003 and 2002, respectively. The write-downs taken in 2003 reflected impairments primarily relating to the Utilities sector and ABS backed by franchise loans and aircraft leases. Realized losses on the voluntary disposal of fixed maturity securities totaled $2.6 million and $8.5 million for the years ended December 31, 2003 and 2002, respectively.

The carrying value of fixed maturity securities with unrealized losses by maturity date was as follows at December 31 (in 000's):

18

SLNY's mortgage holdings amounted to $108.0 million and $50.9 million at December 31, 2003 and 2002, respectively, representing 5.7% and 3.2%, respectively, of total invested assets. All of SLNY's mortgage holdings at December 31, 2003 were in good standing.

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

SLNY has investment policies and guidelines that define the overall framework for managing market and other investment risks, including the accountabilities and controls over its investment activities. In addition, SLNY has specific investment policies that delineate the investment limits and strategies that are appropriate given the SLNY's liquidity, surplus, product and regulatory requirements.

SLNY's management believes that stringent underwriting standards and practices have resulted in high-quality portfolios that have the effect of limiting credit risk. The management of interest rate risk exposure is discussed below.

A well-diversified portfolio of fixed interest investments primarily supports SLNY's fixed interest rate liabilities. They are also supported by small amounts of floating rate notes. These interest-bearing investments include both publicly issued and privately placed bonds. Public bonds can include treasury bonds, corporate bonds and money market instruments. SLNY also holds securitized assets, including MBS, collateralized mortgage obligations, commercial MBS and ABS. These securities are subject to the same standards applied to other portfolio investments, including relative value criteria and diversification guidelines. SLNY 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.

Changes in the level of domestic interest rates affect the market value of fixed interest assets and liabilities. SLNY manages risks from wide fluctuations in interest rates using analytical and modeling software acquired from outside vendors. Important assumptions include the timing of cash flows on mortgage-related assets and liabilities subject to policyholder surrenders.

Significant features of SLNY 's models include:

19

SLNY's Interest Rate Risk Committee meets monthly. After reviewing duration analyses, market conditions and forecasts, the committee develops specific asset management strategies. 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 assets. SLNY manages these mismatches to a tolerance range of plus or minus 1.0.

Fixed interest liabilities held in SLNY's general account at December 31, 2003 had a fair value of $1.6 billion. Fixed income investments supporting those liabilities had a fair value of $1.8 billion at that date. SLNY performed a sensitivity analysis on these interest-sensitive liabilities and assets as of 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 $56.7 million and the corresponding assets would show a net increase of $60.6 million.

By comparison, fixed interest liabilities held in SLNY's general account at December 31, 2002 had a fair value of $1.4 billion. Fixed income investments supporting those liabilities had a fair value of $1.5 billion at that date. SLNY 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 $47.0 million and the corresponding assets would show a net increase of $52.0 million.

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

20

(in thousands)

21

(in thousands, except share data)

22

(in thousands)

For the years ended December 31

23

(in thousands)

For the years ended December 31

24

(in thousands)

For the years ended December 31

25

(in thousands)

For the years ended December 31

26

For the Years Ended December 31, 2003, 2002 and 2001

On October 9, 2002, Sun Life Insurance and Annuity Company of New York ("Sun NY Predecessor"), which was a wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.) ("Sun Life U.S."), and Keyport Benefit Life Insurance Company ("KBL"), which was 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. On December 31, 2002 at 5:00 p.m., Sun NY Predecessor and KBL completed the merger. Pursuant to the Merger Agreement, KBL merged with and into Sun NY Predecessor, with Sun NY Predecessor as the surviving company ("SLNY"), and SLNY issued 4,001 additional shares of common stock to Keyport in exchange for the assets and liabilities of KBL. As a result of the additional common stock issuance, SLNY became a subsidiary of both Keyport and Sun Life U.S., with Keyport owning 67% of the common stock of SLNY.

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.

SLNY is engaged in the sale of fixed and variable annuity contracts, group life, variable universal life, stop loss and group disability insurance contracts. These contracts are sold by insurance agents, some of whom are registered representatives of national and regional stock brokerage firms and brokers. On October 21, 2003, SLNY announced that it was introducing a portfolio of Variable Universal Life ("VUL") insurance products to customers in New York State.

On December 31, 2003, Keyport was merged into Sun Life U.S. with Sun Life U.S being the surviving company. Consequently, SLNY is a wholly-owned subsidiary of Sun Life U.S.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for stock life insurance companies.

27

For the Years Ended December 31, 2003, 2002 and 2001

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The most significant estimates are those used in determining deferred policy acquisition costs ("DAC"), the fair value of financial instruments, other-than-temporary impairments of investment, and the liabilities for future policyholder benefits.

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

Cash and cash equivalents include cash, commercial paper, money market investments, and short term bank participations. All such investments have been purchased with maturities of three months or less and are considered cash equivalents for purposes of reporting cash flows.

SLNY accounts for its investments in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At the time of purchase, fixed maturity securities are classified based on intent, as either held-to-maturity or available-for-sale. In order for the securities to be classified as held-to-maturity, SLNY must have positive intent and ability to hold the securities to maturity. Securities held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Securities that do not meet this criteria are classified as available-for-sale. Available-for-sale securities are carried at estimated fair value with changes in unrealized gains or losses reported as a separate component of other comprehensive income. Fair values for publicly traded securities are obtained from external market quotations. For privately placed fixed maturities, fair values are estimated by taking into account prices for publicly traded securitie s of similar credit risk, maturities, repayment and liquidity characteristics. SLNY does not engage in trading activities. All of SLNY's fixed maturity securities are classified as available-for-sale. All security transactions are recorded on a trade-date basis.

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

28

For the Years Ended December 31, 2003, 2002 and 2001

Mortgage loans are stated at unpaid principal balances, net of provisions for estimated losses. Mortgage loans acquired at a premium or discount are carried at amortized values, net of provisions for estimated losses. Loans include commercial first mortgage loans and are diversified by property type and geographic area throughout the United States. Mortgage loans are collateralized by the related properties and generally are no more than 75% of the properties' value at the time that the original loan is made.

A loan is recognized as impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan. Measurement of impairment is based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price. A specific valuation allowance is established if the fair value of the impaired loan is less than the recorded amount. Loans are also charged against the allowance when determined to be uncollectible. The allowance is based on a continuing review of the loan portfolio, past loss experience and current economic conditions, which may affect the borrower's ability to pay. While management believes that it uses the best information available to establish the allowance, future adjustments to the allowance may become necessary if economic conditions differ from the assumptions used in making the evaluation.

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

Realized gains and losses on the sales of investments are recognized in operations at the date of sale and are determined using the specific cost identification method. When an impairment of a specific investment or a group of investments is determined to be other-than-temporary, a realized investment loss is recorded. Changes in the provision for estimated losses on mortgage loans are included in net realized investment gains and losses.

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

Acquisition costs consist of commissions, underwriting and other costs that vary with and are primarily related to the production of new business. Acquisition costs related to investment-type contracts, primarily deferred annuity and guaranteed investment contracts, are deferred and amortized with interest in proportion to the present value of estimated gross profits to be realized over the estimated lives of the contracts. Estimated gross profits are composed of net investment income, net realized investment gains and losses, life and variable annuity fees, surrender charges and direct variable administrative expenses. This amortization is reviewed quarterly and adjusted retrospectively by a cumulative charge or credit to current operations when SLNY revises the actual profits and its estimate of future gross profits to be realized from investment-type contracts, including realized and unrealized gains and losses from investments.

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For the Years Ended December 31, 2003, 2002 and 2001

Although realization of deferred policy acquisition cost ("DAC") is not assured, SLNY believes it is more likely than not that all of these costs will be realized. The amount of DAC considered realizable, however, could be reduced in the near term if the estimates of gross profits discussed above are reduced.

Property, equipment, and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is provided using the straight-line or accelerated method over the estimated useful lives of the related assets, which generally range from 3 to 10 years. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the term of the lease or the estimated useful life of the improvements.

Reinsurance receivables from reinsurance ceded are also included in other assets.

Future contract and policy benefits are liabilities for traditional life, disability, stop loss and annuity products. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. 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 SLNY's experience and industry standards.

Contractholder deposit funds consist of policy values that accrue to the holders of investment-related products, such as deferred annuities and guaranteed investment contracts. The liabilities consist of net deposits and interest credited less administrative charges. The liability is before the deduction of any applicable 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.

Premiums for traditional individual life and annuity products are considered revenue when due. Premiums related to group disability insurance and stop loss are recognized as revenue pro-rata over the contract period. The unexpired portion of these premiums is recorded as unearned premiums. Revenue from investment-related products includes charges for cost of insurance (mortality), initiation and administration of the policy, and surrender charges. Revenue is recognized when the charges are assessed, except that any portion of an assessment that relates to services to be provided in future years is deferred and recognized over the period during which the services are provided.

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For the Years Ended December 31, 2003, 2002 and 2001

Other than DAC, benefits and expenses related to traditional life, annuity, and disability contracts, including group policies and stop loss, are recognized when incurred in a manner designed to match them with related premium revenue and spread income to be recognized over the expected policy lives. For investment-type contracts, benefits include death benefits in excess of account values, which are recognized as incurred.

Operating expenses primarily represent allocated compensation and general and administrative expenses. Management believes intercompany expenses are calculated on a reasonable basis, however, these amounts may not necessarily be indicative of the costs that would be incurred if SLNY operated on a stand-alone basis.

SLNY will file a stand-alone federal income tax return for 2003. Taxes are computed under SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by SFAS No. 109. These differences result primarily from policy reserves, policy acquisition expenses and unrealized gains or losses on investments.

SLNY has established separate accounts applicable to various classes of contracts providing for variable benefits and they are generally not subject to liabilities that arise from any other business of SLNY. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Contracts for which funds are invested in separate accounts include individual qualified and non-qualified variable annuity contracts. Assets and liabilities of the separate accounts, representing net deposits and accumulated net investment earnings, less fees, held primarily for the benefit of contractholders, are shown as separate captions in the financial statements. Assets held in the separate accounts are carried at market value and the investment risk of such securities is retained by the policyholder.

Certain amounts in the prior years' financial statements have been reclassified to conform to the 2003 presentation.

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For the Years Ended December 31, 2003, 2002 and 2001

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

In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. SFAS No. 150 was effective July 1, 2003 for SLNY. The adoption of SFAS No. 150 did not have a material effect on SLNY's financial position or results of operations.

On March 14, 2003, the American Institute of Certified Public Accountants ("AICPA") issued a proposed Statement of Position ("SOP"), "Accounting by Insurance Enterprises for Deferred Acquisition Costs on Internal Replacements Other Than Those Specifically Described in FASB Statement No. 97." This proposed SOP provides guidance on accounting by insurance companies for DAC on internal replacements other than those specifically described in SFAS No. 97. This proposed SOP is effective for fiscal years beginning after December 15, 2004. SLNY is in the process of evaluating the provisions of this proposed SOP and its impact on SLNY's financial position and results of operations.

In March 2003, the Accounting Standards Executive Committee ("AcSEC") approved SOP 03-1, "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 companies for certain non-traditional, long-duration contracts and for separate accounts. This SOP is effective for fiscal years beginning after December 15, 2003. SLNY is in the process of evaluating the provisions of this SOP and its impact on SLNY's financial position and results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). In December 2003, the FASB issued a revised version of FIN 46 ("FIN 46R"), which incorporates a number of modifications and changes made to the original version. FIN 46R replaces the previously issued FIN 46 and, subject to certain special provisions, is effective no later than the first reporting period that ends after December 15, 2003 for entities considered to be special-purpose entities and no later than the end of the first reporting period that ends after March 15, 2004 for all other variable interest entities ("VIEs"). Early adoption is permitted. SLNY adopted FIN No. 46 and FIN 46R in the fourth quarter of 2003. The adoption of FIN No. 46 and FIN 46R did not have a material effect on SLNY's financial position or results of operations.

Effective December 31, 2003, SLNY adopted the disclosure requirements of Emerging Issues Task Force ("EITF") Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments". As such, disclosures are required for unrealized losses on fixed maturity and equity securities accounted for under SFAS No. 115, "Accounting for Certain Investment in Debt and Equity Securities" that are classified as either available-for-sale or held-to-maturity. The disclosure requirements include quantitative information regarding the aggregate amount of unrealized losses and the associated fair value of the investments in an unrealized loss position, segregated into time periods for which the investments have been in an unrealized loss position. The consensus also requires certain qualitative disclosures about the unrealized holdings in order to provide additional information that SLNY considered in concluding that the unrealized losses were not other-than-temporary. Fo r further discussion, see disclosures in Note 4.

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For the Years Ended December 31, 2003, 2002 and 2001

Goodwill represents the difference between the purchase price paid and the fair value of the net assets acquired in connection with the acquisition of KBL (through the acquisition of Keyport) on October 31, 2001 by SLF, a Canadian holding company and parent of SLOC.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed by SLNY as of November 1, 2001 (in thousands):

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For the Years Ended December 31, 2003, 2002 and 2001

In 2002, SLNY completed its valuation of certain assets acquired and liabilities assumed. The revisions increased goodwill by $2.5 million, increased deferred tax asset by $1.9 million, decreased other liabilities by $47,000 and decreased investments by $4.5 million.

Goodwill is accounted for in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". Effective January 1, 2002, goodwill is no longer amortized and is tested for impairment on an annual basis. SLNY completed the required impairment tests of goodwill and indefinite-lived intangible assets prior to reporting for the second quarter of 2003 and concluded that these assets are not impaired. SLNY used the actuarial appraisal method, with assumptions and discount rates reflective of current market conditions and determined that the fair value of SLNY was at least equal to the carrying value. SLNY also compared the results of that valuation to a range of values based on historical multiples, and found them to be consistent with the results of the actuarial appraisal method. Goodwill is allocated to the Wealth Management Segment.

SLNY has agreements with Sun Life U.S. and certain affiliates, under which SLNY receives, as requested, certain investment and administrative services on a cost reimbursement basis. Expenses under these agreements amounted to approximately $5.2 million, $4.4 million and $3.8 million for the years ended December 31, 2003, 2002 and 2001, respectively. Management believes intercompany expenses are calculated on a reasonable basis, however, these amounts may not necessarily be indicative of the costs that would be incurred if SLNY operated on a stand-alone basis.

In 2002, SLNY received $14.9 million of additional capital contributions from Sun Life U.S. and $30.1 million of additional capital contributions from Keyport.

In 2001, KBL received $66.0 million of additional capital contributions from Keyport.

SLNY had $4.0 million and $30.6 million due to related parties at December 31, 2003 and 2002, respectively, and $4.4 million and $0.6 million due from related parties at December 31, 2003 and 2002, respectively.

During 2003, SLNY paid $0.1 million in commission fees to MFS/Sun Life Financial Distributors, Inc.

During 2003 and 2002, the Company paid $3.1 million and $1.2 million, respectively, in commission fees to Independent Financial Marketing Group, Inc.

As more fully described in Note 8, SLNY has been involved in several reinsurance transactions with SLOC.

As more fully described in Note 9, SLNY participates in a pension plan and other post-retirement benefits sponsored by Sun Life U.S.

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SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK

For the Years Ended December 31, 2003, 2002 and 2001

The amortized cost and fair value of SLNY's fixed maturities were as follows (in 000's):

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For the Years Ended December 31, 2003, 2002 and 2001