For the fiscal year ended December 31, 2002

Commission file numbers 33-3630, 333-1783, and 333-13609

(Exact name of registrant as specified in its charter)

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 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.

There were 2,411,986 shares of the registrant's Common Stock, $1.25 par value, outstanding as of March 31, 2003, all of which are owned by Sun Life of Canada (U.S.) Holdings, Inc.

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Keyport Life Insurance Company ("Keyport") is a specialty insurance company providing a diversified line of fixed, indexed and variable annuity products designed to serve the growing retirement savings market. Keyport sells its products through multiple distribution channels, including banks, agents and brokerage firms. Keyport seeks to (i) maintain its presence in the fixed annuity market while expanding its sales of variable and equity-indexed annuities, (ii) achieve a broader market presence through the use of diversified distribution channels and (iii) maintain a conservative approach to investment and liability management.

Keyport's wholly-owned insurance subsidiaries are Independence Life and Annuity Company ("Independence Life"), Keyport Ltd. (through May 1, 2002) and Keyport Benefit Life Insurance Company ("KBL"). On December 31, 2002, Keyport transferred its ownership interest in KBL for a 67% interest in Sun Life Insurance and Annuity Company of New York ("SLNY"). SLNY and KBL merged and the surviving entity was SLNY. Other wholly owned subsidiaries are Liberty Advisory Services Corp. (through October 31, 2001), an investment advisory company, and Keyport Financial Services Corp. ("KFSC"), a broker-dealer (collectively the "Company").

The Company is licensed to sell insurance in all states, the District of Columbia, the Virgin Islands and Bermuda.

The Company was a wholly-owned subsidiary of Liberty Financial Companies, Incorporated ("LFC"), which was a publicly traded holding company. LFC was an indirect majority owned subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual"), a multi-line insurance company.

On May 3, 2001, LFC announced that it had reached a definitive agreement to sell its annuity and bank marketing businesses to Sun Life Financial Services of Canada Inc. ("SLF"), a Canadian holding company and parent of Sun Life Assurance Company of Canada ("SLOC"). On October 31, 2001 Sun Life of Canada (U.S.) Holdings, Inc. ("SLF Holdings"), an indirect subsidiary of SLOC, acquired the Company for approximately $1.7 billion in cash. As part of the acquisition, Sun Life Financial (U.S.) Holdings, Inc., another indirect subsidiary of SLOC, acquired Independent Financial Marketing Group, Inc. ("IFMG"), an affiliate of the Company. As a result, the Company and IFMG are indirect wholly-owned subsidiaries of SLF, which is a reporting company under the Securities Exchange Act of 1934. The acquisition of the Company and IFMG complements both SLF's product array and distribution capabilities and advances SLF towards its strategic goal of reaching a top 10 position in target p roduct markets in North America. SLF also has reduced costs through economies of scale.

LFC was an asset accumulation and management company providing investment management and retirement-oriented insurance products through multiple distribution channels (LFC also sold its asset management business on November 1, 2001 to an unaffiliated company). Keyport issued and underwrote substantially all of LFC's retirement-oriented insurance products.

Stein Roe & Farnham, Incorporated ("Stein Roe"), a former affiliate of Keyport and subsidiary of LFC, manages certain underlying mutual funds and other invested assets of Keyport's separate accounts. Stein Roe also provided asset management services for a substantial portion of Keyport's general account (through October 31, 2001). IFMG, through its subsidiary, markets Keyport's products through the bank distribution channel.

Keyport's executive and administrative offices are located at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, and its home office is at 695 George Washington Highway, Lincoln, Rhode Island 02865.

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The Company (primarily Keyport and KBL, which was merged into SLNY effective December 31, 2002) 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. The Company's primary financial objectives are to increase policyholder balances through new sales and asset retention and to earn acceptable investment spreads on its fixed and indexed return products and fee income on its variable annuities.

The Company's principal retirement-oriented insurance products are categorized as follows:

Fixed Annuities. Fixed annuity products are principally single premium deferred annuities ("SPDA's"). 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, upon policyholder death, or when the policyholder turns age 90.

Equity-Indexed Annuities. Equity-indexed annuities are an innovative product first introduced to the marketplace in 1995 by the Company when it began selling its KeyIndex product. The Company's equity-indexed annuities credit interest to the policyholder at a "participation rate" equal to a portion (ranging for existing policies from 25% to 120%) of the change in value of a specified equity index. KeyIndex is currently offered for one, five, seven, and ten-year terms with interest earnings 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). With the five, seven and ten-year terms, the interest earnings are based on the highest policy anniversary date value of the S&P 500 Index during the term. KeyIndex also provides a guarantee of pri ncipal 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. The Multipoint product, a variation of KeyIndex, utilizes the monthly average of the S&P 500 index to calculate the amount due to the policyholder. The Company's market value adjusted ("MVA") annuity product, KeySelect, offers a choice between a fixed and equity-indexed account similar to KeyIndex and a fixed annuity type interest account. KeySelect offers terms for each equity-indexed account of one, three, five, six and seven years, as well as a ten-year term for the fixed interest account. KeySelect shifts some investment risk to the policyholder, since surrender of the policy before the end of the product term will result in increased or decreased account values based on the change in rates of designated U.S. Treasury securities since the beginning of the term.

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 18 to 24 separate account investment choices, depending on the product, and four guaranteed fixed interest options.

While the Company currently does not offer traditional life insurance products, it manages a closed block of single premium whole life insurance policies ("SPWL's"), a retirement-oriented tax-advantaged life insurance product. The Company discontinued sales of SPWL's in response to certain tax law changes in the 1980s. The Company had SPWL policyholder balances of $1.8 billion as of December 31, 2002.

On February 3, 2003, President Bush unveiled his fiscal year budget, which contains a number of new provisions impacting the life insurance and annuity industry. The "economic growth" provisions of this budget have been introduced in the House of Representatives as H.R. 2, The Jobs and Growth Tax Act of 2003. It appears that the passage of these provisions, in their current form, could have an adverse impact to the annuity industry.

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Under the Internal Revenue Code, returns credited on annuities and life insurance policies during the accumulation period (the period during which interest or other returns are credited) are not subject to federal or state income tax. Proceeds payable on death from a life insurance policy are also free from such taxes. At the maturity or payment date of an annuity policy, the policyholder is entitled to receive the original deposit plus accumulated returns. The policyholder may elect to take this amount in either a lump sum or an annuitized series of payments over time. The return component of such payments is taxed at the time of receipt as ordinary income at the recipient's then applicable tax rate. The demand for the Company's retirement-oriented insurance products could be adversely affected by changes in this tax law.

Institutional Annuities. Institutional annuity products are principally single premium deposits made by institutions that provide fixed or variable returns over a fixed period.

The following table sets forth certain information regarding the Company's retirement-oriented insurance business (excluding Sun Life Insurance Company of New York) for the periods indicated.

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Product sales are influenced primarily by overall market conditions impacting the attractiveness of the Company's retirement-oriented insurance products, and by product features, including interest crediting and participation rates, and innovations and services that distinguish the Company's products from those of its competitors.

The Company's mix of annuity products is designed to include products in demand under a variety of economic and market conditions. Sales of SPDA's tend to be sensitive to prevailing interest rates. Sales can be expected to increase and surrenders to decrease in interest rate environments when SPDA rates are higher than rates offered by competing conservative fixed return investments, such as bank certificates of deposit. SPDA sales can be expected to decline and surrenders to increase in interest rate environments when this differential in rates is not present. SPDA sales also can be adversely affected by low interest rates. Conversely, sales of variable annuities can be expected to increase and surrenders of such products to decrease in a rising equity market, low interest rate environment. Similarly sales of equity-indexed annuities can be expected to increase and surrenders to decrease in a rising equity market, low interest rate environment. While sales of equity-indexed annuiti es can be expected to increase and surrenders to decrease in a rising equity market, low interest rate environment, sales of these products can be affected by the participation rate credited by the Company, which may be reduced in a rising but relatively volatile equity market.

The Company's insurance products include important features designed to promote both sales and asset retention, including crediting rates and surrender charges. Initial interest crediting and participation rates on fixed and equity-indexed products significantly influence the sale of new policies. Resetting of rates on SPDA's impacts retention of SPDA assets, particularly on policies where surrender penalties have expired. At December 31, 2002, crediting rates on 59.5% of the Company's in force SPDA policy liabilities were subject to reset during 2003. In setting crediting and participation rates, the Company takes into account yield characteristics on its investment portfolio, surrender rate assumptions and competitive industry pricing. Interest crediting rates on the Company's in force SPDA's ranged from 3.0% to 7.3% at December 31, 2002. Such policies had guaranteed minimum rates ranging from 3.0% to 4.0% as of such date. Initial interest crediting rates on new policies issued in 2002 ranged from 3.0% to 4.0%. Guaranteed minimum rates on new policies issued during 2002 ranged from 3.0% to 3.5%.

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Substantially all of the Company's annuities permit the policyholder at anytime to withdraw all or part of the accumulated policy value. Premature termination of an annuity policy results in the loss by the Company of anticipated future earnings related to the premium deposit and the accelerated recognition of the expenses related to policy acquisition (principally commissions), which otherwise are deferred and amortized over the expected life of the policy. Surrender charges provide a measure of protection against premature withdrawal of policy values. Substantially all of the Company's insurance products currently are issued with surrender charges or similar penalties. Such surrender charges for all policies, except KeyIndex and Multipoint, typically start at 7% of the policy premium and then decline to zero over a five to seven year period. KeyIndex and Multipoint imposes a penalty on surrender of up to 10% of the premium deposit for the life of the policy. At December 31, 2002, 8 1.5% of the Company's fixed annuity policyholder balances were subject to surrender charges or restrictions. Surrender charges generally do not apply to withdrawals by policyowners of, depending on the policy, either up to 10% per year of the then accumulated policy value or the accumulated returns. In addition, certain policies may provide for charge-free withdrawals in certain circumstances and at certain times. All policies, except for certain variable annuities, are also subject to "free look" risk (the legal right of a policyholder to cancel the policy and receive back the premium deposit, without interest, for a period ranging from ten days to one year, depending upon the policy). To the extent a policyholder exercises the "free look" option, the Company may realize a loss as a result of any investment losses on the underlying assets during the free look period, as well as the commissions paid on the sale of the policy. While SPWL's also permit withdrawal, withdrawals generally would produce signi ficant adverse tax consequences to the policyholder.

Keyport's strong financial ratings are important to its ability to accumulate and retain assets. Keyport is rated "A+" (Superior) by A.M. Best, "AA+ with negative outlook" (Very strong) by Standard & Poor's ("S&P"), "Aa2" (Excellent) by Moody's and "AA" (Very strong) by Fitch, Inc. Rating agencies periodically review the ratings they issue. These ratings reflect the opinion of the rating agency as to the relative financial strength of Keyport and Keyport's ability to meet its contractual obligations to its policyholders. Such ratings are not "market" ratings or recommendations to use or invest in Keyport and should not be relied upon when making a decision to invest in the Company. Many financial institutions and broker-dealers focus on the claims-paying ability of an insurer in determining whether to market the insurer's annuities. If any of Keyport's ratings were downgraded from their current levels or if the ratings of Keyport's competitors improved and Keyport's did not, sales of Keyport's products, the level of surrenders on existing policies and the Company's relationships with distributors could be materially adversely affected. No assurances can be given that Keyport will be able to maintain its financial ratings.

Customer service is essential to asset accumulation and retention. The Company believes it has a reputation for excellent service to its distributors and its policyholders. The Company has developed advanced technology systems for immediate response to customer inquiries, and rapid processing of policy issuance and commission payments (often at the point of sale). These systems also play an important role in controlling costs.

Premium deposits on fixed and indexed annuities are credited to the Company's general account. Total general account investments include cash and cash equivalents. To maintain its investment spread at acceptable levels, the Company must earn returns on its general account sufficiently in excess of the fixed or equity-indexed returns credited to policyholders. The key element of this investment process is asset/liability management. Successful asset/liability management requires both a quantitative assessment of overall policy liabilities (including maturities, surrenders and crediting of interest) and prudent investment of general account assets. The two most important tools in managing policy liabilities are setting crediting rates and establishing surrender periods. The investment process requires portfolio techniques that earn acceptable yields while effectively managing both interest rate risk and credit risk. Various factors can impact the Company's investment spread, including changes in interest rates and other factors affecting the Company's general account investments (which includes institutional account investments that were previously presented as separate accounts, but reclassified after October 31, 2001).

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The bulk of the Company's general account investments are invested in fixed maturity securities (90.2% at December 31, 2002). The Company's principal strategy for managing interest rate risk is to closely match the duration of its general account investment portfolio to its policyholder balances. The Company also employs hedging strategies to manage this risk, including interest rate swaps and caps. In the case of equity-indexed products, the Company purchases S&P 500 Index call options and futures to hedge its obligations to provide participation rate returns. Credit risk is managed by credit analysis and monitoring. A portion of the general account investments ($595.9 million at December 31, 2002) are invested in below investment grade fixed maturity securities to enhance overall portfolio yield. Below investment grade securities pose greater risks than investment grade securities. The Company actively manages its below investment grade portfolio to optimize its risk/re turn profile. At December 31, 2002, the carrying value of fixed maturity investments that were non-income producing was $0.5 million, which constituted less than .004% of the Company's general account investments.

As of December 31, 2002, the Company owned approximately $3.7 billion of mortgage-backed securities (26.0% of its general account investments). Mortgage-backed securities are subject to prepayment and extension risks, since the underlying mortgages may be repaid more or less rapidly than scheduled.

As of December 31, 2002, approximately $2.6 billion (17.9% of the Company's general account investments) were invested in securities that were sold without registration under the Securities Act and were not freely tradable under the Securities Act or which were otherwise illiquid. These securities may be resold pursuant to an exemption from registration under the Securities Act. If the Company sought to sell such securities, it might be unable to do so at the then current carrying values and might have to dispose of such securities over extended periods of time at uncertain levels.

Keyport's sales strategy is to use multiple distribution channels to achieve broader market presence. During 2002, the bank channel represented approximately 71.13% of Keyport's annuity sales, and the brokerage channel represented approximately 10.64%. The sale of insurance and investment products through the bank distribution channel is highly regulated. Sales through other distributors of insurance products, such as financial planners, insurance agents and an institutional channel represented approximately 18.23% of total annuity sales.

The following table presents sales information for Keyport's distribution channels for the periods indicated (in millions).

(1) Includes institutional annuities.

The Company's business activities are extensively regulated. The following briefly summarizes the principal regulatory requirements and certain related matters.

Keyport's retirement-oriented insurance products generally are issued to individuals. The policy is a contract between the issuing insurance company and the policyholder. State law regulates policy forms, including all principal contract terms. In most cases, the policy form must be approved by the insurance department or similar agency of a state in order for the policy to be sold in that state.

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Keyport and Independence Life are chartered in Rhode Island, and the State of Rhode Island Insurance Department is their primary oversight regulator. KBL was chartered in the State of New York, with the New York Department of Insurance as its primary oversight regulator. KBL was merged with SLNY on December 31, 2002, and Keyport retained a 67% interest in the surviving entity, SLNY, which operates in New York with the same regulator. Keyport and Independence Life also must be licensed by the state insurance regulators in each other jurisdiction in which they conduct business. They currently are licensed to conduct business in 49 states (the exception being New York), and in the District of Columbia and the Virgin Islands. State insurance laws generally provide regulators with broad powers related to issuing licenses to transact business, regulating marketing and other trade practices, operating guaranty associations, regulating certain premium rates, regulating insurance holding compa ny systems, establishing reserve requirements, prescribing the form and content of required financial statements and reports, performing financial and other examinations, determining the reasonableness and adequacy of statutory capital and surplus, regulating the type and amount of investments permitted, limiting the amount of dividends that can be paid and the size of transactions that can be consummated without first obtaining regulatory approval, and other related matters. The regulators also make periodic examinations of individual companies and review annual and other reports on the financial conditions of all companies operating within their respective jurisdictions.

Keyport and Independence Life prepare their statutory-basis financial statements in accordance with accounting practices prescribed or permitted by the Insurance Department of the State of Rhode Island. KBL (now SLNY) prepares its statutory-basis financial statements in accordance with accounting practices prescribed or permitted by the New York Department of Insurance. State laws prescribe certain statutory accounting practices. Permitted statutory accounting practices encompass all accounting practices that are not proscribed; such practices may differ between the states and companies within a state. In 1998, the NAIC adopted codified statutory accounting principles ("Codification"). Codification changed, to some extent, prescribed statutory accounting practices and resulted in changes to the accounting practices that the Company uses to prepare its statutory-based financial statements. Codification required adoption by the various states before it became the prescribed statutory b asis of accounting for insurance companies domesticated within those states. Accordingly, before Codification became effective for the Company, Rhode Island and New York had to adopt Codification as the prescribed basis of accounting on which domestic insurers report their statutory-basis results to the state insurance departments. Rhode Island and New York (with modification) have adopted Codification. The adoption of Codification on the Company's statutory-basis financial statements in Rhode Island reduced statutory surplus at January 1, 2001 by approximately $17.4 million.

Risk-Based Capital Requirements. In recent years, various states have adopted new quantitative standards promulgated by the NAIC. These standards are designed to reduce the risk of insurance company insolvencies, in part by providing an early warning of financial or other difficulties. These standards include the NAIC's risk-based capital ("RBC") requirements. RBC requirements attempt to measure statutory capital and surplus needs based on the risks in a company's mix of products and investment portfolio. The requirements provide for four different levels of regulatory attention, which implement increasing levels of regulatory control (ranging from development of an action plan to mandatory receivership). As of December 31, 2002, Keyport's capital and surplus exceeded the level at which the least severe of these regulatory attention levels would be triggered.

Guaranty Fund Assessments. Under the insurance guaranty fund laws existing in each state, insurers can be assessed for certain obligations of insolvent insurance companies to policyholders and claimants. Because assessments typically are not made for several years after an insurer fails, Keyport cannot accurately determine the precise amount or timing of its exposure to known insurance company insolvencies at this time. The insolvency of large life insurance companies in future years could result in material assessments to Keyport by state guaranty funds. No assurance can be given that such assessments would not have a material adverse effect on the Company.

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Insurance Holding Company Regulation. Current Rhode Island insurance law permits the payment of dividends or distributions from the Company to SLOC, which, together with dividends and distributions paid during the preceding 12 months, do not exceed the lesser of (i) 10% of statutory surplus as of the preceding December 31 or (ii) the net gain from operations for the preceding fiscal year. Any proposed dividend in excess of this amount is called an "extraordinary dividend" and may not be paid until it is approved by the Commissioner of Insurance of the State of Rhode Island. The Company did not make any dividend payments in 2002 and paid $0.1 million and $10.0 million in dividends to LFC during 2001 and 2000, respectively. In connection with its acquisition by SLC Holdings in 2001, the Company agreed not to make any dividend payments for a period of 18 months without the prior approval of the Rhode Island Insurance Department. Subsequent to the 18-month period (May 1, 2002), the a mount of dividends that the Company was able to pay will be based upon current Rhode Island insurance law. In addition, no person or group may acquire, directly or indirectly, 10% or more of the voting stock or voting power of Keyport unless such person has provided certain required information to the Rhode Island and New York Departments of Business Regulation and such acquisition is approved by the Departments.

Although the federal government generally does not directly regulate the insurance business, 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 limitations on antitrust immunity, minimum solvency requirements and the removal of barriers restricting banks from engaging in the insurance business. In particular, several proposals to repeal or modify the Bank Holding Company Act of 1956 (which prohibits banks from being affiliated with insurance companies) have been made by members of Congress. Moreover, the United States Supreme Court held in 1995 in NationsBank of North Carolina v. Variable Annuity Life Insurance Company that annuities are not insurance for purposes of the National Bank Act. In addition, the Supreme Court also held in 1995 in Barnett Bank of Marion City v. Nelson that state laws prohibiting national banks from selling insurance in small town locations are preempted by federal law. The Office of the Comptroller of the Currency adopted a ruling in November 1996 that permits national banks, under certain circumstances, to expand into other financial services, thereby increasing competition for the Company. At present, the extent to which banks can sell insurance and annuities without regulation by state insurance departments is being litigated in various courts in the United States. Although the effect of these recent developments on the Company and its competitors is uncertain, there can be no assurance that such developments would not have a material adverse effect on the Company.

On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 was signed into law. The major provisions of this new law became effective on November 13, 2000. While the Gramm-Leach-Bliley Act eliminates legal barriers to affiliates among banks, insurance companies and other financial services companies and therefore effectively repeals the Glass-Steagall Act of 1933 (which restricted banks from engaging in securities-related businesses), the effect on the Company and its competitors is uncertain.

The Company's business activities are conducted in extremely competitive markets. Keyport competes with a large number of life insurance companies, some of which are larger and more highly capitalized and have higher ratings than Keyport. No one company dominates the industry. In addition, Keyport's products compete with alternative investment vehicles available through financial institutions, brokerage firms and investment managers. Management believes that Keyport competes principally with respect to product features, pricing, ratings and service. Management also believes that Keyport can continue to compete successfully in this market by offering innovative products and superior services. In addition, financial institutions and broker-dealers focus on the insurer's ratings for financial strength or claims-paying ability in determining whether to market the insurer's annuities.

Effective January 2002, essentially all United States employees of the Company became employees of Sun Life Assurance Company of Canada (U.S.) ("SLUS"). As a result, SLUS has assumed most of the operating expenses of the Company, including salaries and benefits, which are allocated back to the Company. The company has 6 full time employees through SLNY.

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As of December 31, 2002, the Company maintained its administrative and sales offices in leased facilities. The Company leases approximately 96,500 square feet in two facilities in downtown Boston pursuant to leases that expire in 2008. The Company also leases approximately 19,800 square feet in a single facility in Lincoln, Rhode Island, which expires in 2007. The Company sub-leases approximately 600 square feet from IFMG in Purchase, New York under a lease which expires in 2007.

The Company is from time to time involved in litigation incidental to its business. In the opinion of Keyport's management, the resolution of such litigation is not expected to have a material adverse effect on the Company's financial condition or results of operations.

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

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The Company is a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.; there is no market for its common stock.

The two-month period ended December 31, 2001 includes the operations of SLNY. On December 31, 2002, the Company acquired a 67% interest in SLNY, an affiliated company, in exchange for its interest in its wholly-owned subsidiary, KBL. SLNY was merged with KBL on December 31, 2002, and SLNY was the surviving entity. SLNY and Keyport are under common control. Accounting principles generally accepted in the United States (GAAP) require that the financials should be restated to the earliest year presented or to the date the entities became under common control (November 1, 2001). Minority interest has been established for a portion of the earnings not attributable to Keyport's 67% ownership. The financial condition and results of SLNY are included in the financial statements from November 1, 2001. The restatement increased the Company's assets by $518.9 million and $619.2 million at December 31, 2002 and 2001, respectively. Net income was increased by $1.2 million for the year ended December 31, 2002 and decreased by $83,000 for the two-month period ended December 31, 2001.

As a result of the acquisition of Keyport by SLC Holdings on October 31, 2001, the financial statements for the period subsequent to the acquisition are presented on a different basis of accounting than those for the periods prior to the acquisition and, therefore, are not directly comparable. For periods prior to the date of the acquisition, the balances are referred to as "Predecessor Basis."

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This discussion includes forward-looking statements by the Company under the Private Securities Litigation Reform Act of 1995. These statements are not matters of historical fact; they relate to such topics as future product sales, volume growth, market share, market risk, interest rates 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:

Through October 31, 2001, the Company was a wholly-owned subsidiary of LFC, which was a majority-owned, indirect subsidiary of Liberty Mutual.

On May 3, 2001, LFC announced that it had reached a definitive agreement to sell its annuity and bank marketing businesses to SLF, a Canadian holding company and parent of SLOC. The transaction was subject to customary conditions to closing, including receipt of approvals by various state insurance regulators in the U.S., certain other regulatory authorities in the U.S. and Canada and LFC's shareholders.

Effective after the close of business on October 31, 2001 all required approvals had been obtained and SLC Holdings, an indirect subsidiary of SLOC, acquired the Company for approximately $1.7 billion in cash. As part of the acquisition, SLF Holdings, another indirect subsidiary of SLOC, acquired IFMG, an affiliate of the Company. The acquisition of the Company and IFMG complements both SLF's product array and distribution capabilities and advances SLF towards its strategic goal of reaching a top 10 position in target product markets in North America. SLF also has reduced costs through economies of scale.

The acquisition was accounted for using the purchase method under Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". Under the purchase method of accounting, the assets acquired and liabilities assumed are recorded at estimated fair value at the date of acquisition.

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

In 2002, the Company completed its valuation of certain assets acquired and liabilities assumed. The revisions decreased goodwill by $9.6 million, decreased deferred taxes by $54.9 million, increased policy liabilities by $13.0 million, increased other liabilities by $13.7 million and reduced investments and other assets by $12.8 million and $5.8 million, respectively.

Intangible assets acquired primarily consist of state insurance licenses ($10.1 million) that are not subject to amortization. The remaining $2.0 million of intangible assets relate to product rights that have a weighted-average useful life of 7 years. Most of the goodwill is expected to be deductible for tax purposes.

As a result of the acquisition, the financial statements for the period subsequent to the acquisition are presented on a different basis of accounting than those for the periods prior to the acquisition and, therefore, are not directly comparable. For periods prior to the date of the acquisition, the balances are referred to as "Predecessor Basis."

The cumulative effect of accounting changes, net of tax, for the ten-month period ended October 31, 2001 of $60.8 million includes a loss of $54.3 million relating to the Company's adoption of No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of SFAS No. 133" (collectively hereafter referred to as the "Statement") in the quarter ended March 31, 2001 and a loss of $6.5 million relating to the adoption of Emerging Issues Task Force ("EITF") Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets" in the quarter ended June 30, 2001.

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The Company adopted the Statement on January 1, 2001. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset by the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in operations.

The cumulative effect reported after tax and net of related effects on deferred policy acquisition costs ("DAC") upon adoption of the Statement at January 1, 2001 decreased net income and stockholder's equity by $54.3 million. The adoption of the Statement may increase volatility in future reported income due, among other reasons, to the requirements of defining an effective hedging relationship under the Statement as opposed to certain hedges the Company believes are effective economic hedges. The Company anticipates that it will continue to utilize its current risk management philosophy, which includes the use of derivative instruments.

The Company adopted EITF Issue No. 99-20 on April 1, 2001. EITF Issue 99-20 governs the method of recognizing interest income and impairment on asset-backed investment securities. EITF Issue No. 99-20 requires the Company to update the estimate of cash flows over the life of certain retained beneficial interests in securitization transactions and purchased beneficial interests in securitized financial assets. Pursuant to EITF Issue No. 99-20, based on current information and events, if the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value and if there has been a decrease in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment should be recognized. The cumulative effect, reported after tax and net of related effects on DAC, upon adoption of EITF Issue No. 99-20 on April 1, 2001, decreased net income by $6.5 million with a related increase to ac cumulated other comprehensive income of $1.8 million.

The Company's discussion and analysis of its financial position and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

All derivatives are recognized on the balance sheet at fair value. On the date the derivative contract is entered into, the Company designates the derivative as either (i) a hedge of the fair value of a recognized asset ("fair value hedge") or (ii) utilizes the derivative as an economic hedge ("non-designated derivative"). Changes in the fair value of a derivative that is highly effective and is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset attributable to the hedged risk, are recorded in current period operations as a component of net derivative gains (losses). Changes in the fair value of non-designated derivatives are reported in current period operations as a component of net derivative gains (losses).

The Company issues equity-indexed annuity contracts 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), is carried at fair value, and is considered a non-designated derivative.

Fair values are based upon either dealer price quotations or are derived from pricing models that consider current market and contractual prices for the underlying financial instrument, as well as time value and yield curve or volatility factors underlying the positions. Pricing models and their underlying assumptions impact the amount and timing of unrealized gains and losses recognized. Changes in the fixed income and equity markets will affect the Company's estimate of fair value in the future, which will affect reported derivative income.

15

The value of business acquired represents the actuarially-determined present value of projected future gross profits from policies in force at the date of their acquisition. 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). Value of business acquired was ($27.3) million and $0.6 million at December 31, 2002 and 2001, respectively, relating to this adjustment.

DAC relate to the costs of acquiring new business, which vary with, and are primarily related to, the production of new annuity business. Such acquisition costs include commissions, costs of policy issuance, and underwriting and selling expenses. These costs are deferred and amortized with interest in relation to the present value of estimated gross profits from mortality, investment spread and expense margins. This amortization is reviewed annually and adjusted retrospectively when the Company revises its estimate of current or future gross profits to be realized, including realized and unrealized gains and losses from investments.

DAC is adjusted for amounts relating to unrealized gains and losses on available for sale fixed-maturity securities. 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). The impact of this adjustment on DAC was to decrease it by $20.2 million and increase it by $0.1 million at December 31, 2002 and December 31, 2001.

The Company accounts for income taxes in accordance with No. 109, "Accounting for Income Taxes," which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax asset will not be realized.

The carrying value of the Company's net deferred tax asset assumes that the Company will be able to generate sufficient future taxable income based upon estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record a valuation allowance against its net deferred tax asset resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates the recoverability of the deferred tax asset on a quarterly basis.

As part of the Stock Purchase Agreement between SLF and LFC, LFC was obligated to reimburse the Company for any federal, state or local taxes arising from certain tax elections under Section 338(h) of the Internal Revenue Code of 1986. LFC had given notice to the Company of certain objections it had with the calculation of these taxes. The amount in dispute was approximately $27 million. The dispute has been resolved and the recoverable amount was not adjusted.

16

The Company routinely reviews its portfolio of investment securities. The Company identifies any investments that require additional monitoring on a monthly basis, and carefully reviews the carrying value of such investments at least quarterly to determine whether specific investments should be placed on a nonaccrual basis and to determine declines in value that may be other-than-temporary. In making these reviews, the Company principally considers the adequacy of collateral (if any), compliance with contractual covenants, the borrower's recent financial performance, news reports and other externally generated information concerning the creditor's affairs. In the case of publicly traded investments, management also considers market value quotations, if available.

The net realized investment losses for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000 included losses of $66.8 million, $42.8 million and $16.7 million, respectively, for certain fixed maturity investments where the decline in value was determined to be other-than-temporary. As of December 31, 2002 and 2001, the carrying value of fixed maturity investments that were non-income producing was $0.5 million and $81.8 million, respectively, which constitutes 0.004% and 0.2%, respectively, of general account investments.

Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", requires goodwill to be tested for impairment on an annual basis, or more frequently in certain circumstances. The Company performs its annual testing of goodwill for impairment during the second quarter of each year. The Company has begun to gather the appropriate information to complete the first portion of the required goodwill impairment test. The impairment test will be completed during the second quarter.

As a result of the acquisition, the Company's financial statements for the period subsequent to the acquisition are presented on a different basis of accounting than those for the periods prior to the acquisition and, therefore, are not directly comparable. For periods prior to the date of the acquisition, the balances are referred to as "Predecessor Basis." Net investment income, amortization of DAC, and amortization of value of business acquired are income statement items that were significantly impacted.

On December 31, 2002, the Company acquired a 67% interest in SLNY, an affiliated company, in exchange for its interest in its wholly owned subsidiary, KBL. SLNY was merged with KBL on December 31, 2002, and SLNY was the surviving entity. SLNY and Keyport are under common control. Accounting principles generally accepted in the United States (GAAP) indicate that the financials should be restated to the earliest year presented or to the date the entities became under common control (November 1, 2001). Minority interest has been established for a portion of the earnings not attributable to Keyport's 67% ownership. The financial condition and results of SLNY are included in the financial statements from November 1, 2001. The restatement increased the Company's assets by $518.9 million and $619.2 million at December 31, 2002 and 2001, respectively. Net income was increased by $1.2 million for the year ended December 31, 2002 and decreased by $83,000 for the two-month period ended December 3 1, 2001.

Net income (loss) was ($16.2) million, $16.8 million, and $142.6 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The decrease in the year ended December 31, 2002 compared to the ten-month period ended October 31, 2001 primarily relates to the increases in net derivative losses in 2002 of $123.8 million and net realized investment losses of $18.4 million offset by a decrease in amortization expense of $49.5 million and the cumulative effect of accounting changes of $60.8 million. The decrease in the ten-month period ended October 31, 2001 compared to the year ended December 31, 2000 primarily relates to the $60.8 million cumulative effect of accounting changes and a $48.6 million decrease of the net change in unrealized and undistributed gains in private equity limited partnerships.

The net loss in 2002 does not constitute a trend. However, over the last three years the Company has experienced declines in investment spread and realized investment losses which, coupled with the volatility of net derivative gains (losses), produced a net loss in 2002. A further reduction in interest rates or continued unfavorable market conditions could result in additional losses for the Company.

17

Investment spread is the amount by which investment income earned on the Company's investments exceeds interest credited to policyholder balances. Investment spread was $226.8 million, $237.0 million and $317.2 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The amount by which the average yield on investments exceeds the average interest credited rate on policyholder balances is the investment spread percentage. The investment spread percentage was 1.25%, 2.07% and 2.26% for the year ended December 31, 2002, the ten-month period ended October 31, 2001, and the year ended December 31, 2000, respectively. The investment spread percentage for the two-month periods ended December 31, 2002 and 2001 was 0.96% and 1.72%, respectively.

The decrease in the investment spread percentage during 2002 and in the two-month period is attributable to the new accounting basis of the assets and the decline in interest rates. The investments were marked to fair value as of November 1, 2001 and the effective yield was decreased due to the market value adjustment.

Investment income was $802.3 million, $735.6 million and $856.8 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The increase in investment income of $66.7 in 2002 compared to the ten month period ended October 31, 2001 is primarily attributed to the inclusion of SLNY income in 2002 ($9.6 million) and the fact that the 2002 amount is a full year. Investment income (excluding investment income from SLNY and certain income related to institutional accounts that was classified with separate account income in 2001) was $672.2 million, $735.6 million and $701.5 million for the ten-month periods ended October 31, 2002, 2001 and 2000 respectively. The decrease of $63.4 million in the ten month period ended October 31, 2002 compared to the same period in 2001 is the result of lower average investment yield ($129.1 million) offset by an increase in average invested assets ($13.2 million) and a classifica tion adjustment for fee income of $52.5 million. The average investment yield was 5.82% for the ten-month period ended October 31, 2002 compared to 7.06% for the ten-month period ended October 31, 2001. The increase of $34.1 million in the ten month period ended October 31, 2001 compared to the same period in 2000 is the result of a higher average investment yield ($47.8 million) offset by a decrease in average invested assets ($13.7 million). The average investment yield was 6.61% for the ten-month period ended October 31, 2000 (6.74% for the year ended 2000).

The investment yield for the two-month periods ended December 31, 2002 and 2001 was 5.94% and 6.53%, respectively.

Interest credited to policyholders totaled $575.5 million, $498.7 million, $539.6 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The increase of $76.8 million is primarily attributable to the fact that the 2002 amount is for a full year while the 2001 amount is for a ten-month period. The average interest credited rate was 4.60% for the year ended December 31, 2001. Interest credited was $468.5 million, $498.7 million and $440.8 million for the ten-month periods ended October 31, 2002, 2001 and 2000, respectively. The decrease of $30.2 million in 2002 compared to 2001 is the result of a lower average interest credited rate ($46.6 million) offset by an increase in average policyholder liabilities ($16.4 million) for the ten-month periods ended October 31, 2002 and 2001, respectively. Policyholder balances averaged $12.4 billion ($11.1 billion of fixed products and $1.3 billion of equity-index ed annuities) compared to $12.0 billion ($10.1 billion of fixed products and $1.9 billion of equity-indexed annuities) for the ten-month periods ended October 31, 2002 and 2001, respectively. The average interest credited rate was 4.52% for the ten-month period ended October 31, 2002 compared to 4.99% for the ten-month period ended October 31, 2001.

The average interest credited rate was 4.98% and 4.78% for the two-month periods ended December 31, 2002 and 2001, respectively.

The increase of $57.9 million in 2001 compared to 2000 is the result of a higher average interest credited rate ($60.3 million) offset by a decrease in average policyholder liabilities ($2.4 million) for the ten-month periods ended October 31, 2001 and 2000, respectively. Policyholder balances averaged $12.0 billion ($10.1 billion of fixed products and $1.9 billion of equity-indexed annuities) compared to $12.1 billion ($9.7 billion of fixed products and $2.4 billion of equity-indexed annuities) for the ten-month periods ended October 31, 2001 and 2000. The average interest credited rate was 4.99% for the ten months ended October 31, 2001 compared to 4.39% for the ten-month period ended October 31, 2000.

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The Company's equity-indexed annuities credit interest to the policyholder at a "participation rate" equal to a portion (ranging for existing policies from 25% to 120%) of the change in value of the S&P 500 Index. The Company's equity-indexed annuities also provide a full guarantee of principal if held to term, plus interest at 0.85% annually

Under FAS 133, the index annuities are deemed to contain an embedded derivative (the change in value attributable to the change in the S&P 500 index) and a host contract. The host contracts' interest rate is derived at the inception of the contract and an effective interest rate is utilized that will result in a liability equal to the guaranteed minimum account value at the end of the term. The embedded derivative is a non-designated derivative and the changes in fair value are reported as a component of derivative income (loss).

Average investments in the Company's general account (based upon amortized cost and excluding institutional assets), were $12.8 billion for the year ended December 31, 2002, $12.5 billion for the ten-month period ended October 31, 2001, and $12.4 billion for the two-month period ended December 31, 2001.

Net realized investment losses were $41.1 million, $22.8 million and $35.8 million for year ended December 31, 2002, for the ten-month period ended October 31, 2001, and the year ended December 31, 2000, respectively. The net realized investment losses in 2002, 2001 and 2000 included losses of $66.8 million, $42.8 million and $16.7 million, respectively, for certain fixed maturity investments where the decline in value was determined to be other-than-temporary.

Net derivative (losses) gains were ($123.4), $100.0 million and $0.4 million for the year ended December 31, 2002, the two month period ended December 31, 2001, and for the ten month period ended October 31, 2001, respectively. Net derivative (losses) gains represent fair value changes of non-designated derivatives and the ineffective portion of fair value hedges, net of related effects on DAC and VOBA.

All derivatives are recognized on the balance sheet at fair value. On the date the derivative contract is entered into, the Company designates the derivative as either (1) a hedge of the fair value of a recognized asset ("fair value hedge") or (2) utilizes the derivative as an economic hedge ("non-designated derivative"). Changes in the fair value of a derivative that is highly effective and is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset attributable to the hedged risk, are recorded in current period operations as a component of net derivative (losses) gains. Changes in the fair value of non-designated derivatives are reported in current period operations as a component of net derivative (losses) gains.

The Company issues equity-indexed annuity contracts that contain a derivative instrument that is "embedded" in the contract. Upon issuing the contract, the embedded derivative is bifurcated from the host contract (annuity contract), is carried at fair value, and is considered a non-designated derivative. The Company purchases call options and futures on the S&P 500 Index to economically hedge its obligation under the annuity contract to provide returns based upon that index. The call options and futures are non-designated derivatives. In addition, the Company utilizes non-designated total return swap agreements to hedge certain policyholder obligations (classified as separate account liabilities through October 31, 2001).

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 interest rate swap agreements were designated and qualified as fair value hedges. The ineffective portion of the fair value hedges, net of related effects on DAC, resulted in a loss of $2.6 million for the ten-month period ended October 31, 2001.

19

Effective November 1, 2001, in conformity with SLOC accounting policies, the Company discontinued hedge accounting and classified the interest rate swap agreements as non-designated derivatives. 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 133 was not justified. The decrease in the swap values, net of related effects on the value of business acquired and DAC, resulted in a (decrease) increase to income of ($113.7) million and $64.9 million for the year ended December 31, 2002 and for the two-month period ended December 31, 2001, respectively. The change in values of the call options, futures, and the embedded derivative, net of related effects on the value of business acquired and DAC, (decreased) increased income by ($9.7) and $35.1 million for the year ended December 31, 2002 and for the two-month period ended December 31, 2001, respectively.

Equity income of private limited partnerships primarily represents increases (decreases) in the fair value of the underlying investments of the private equity limited partnerships ("partnerships") for which the Company has ownership interests in excess of 3%. Partnerships, which are included in other invested assets, are accounted for on either the cost method or equity method. The equity method of accounting is used for all partnerships in which the Company has an ownership interest in excess of 3%. Partnerships amounted to $258.0 million at December 31, 2002.

Premiums are SLNY's premiums for life insurance contracts. Premiums were $20.3 million and $4.1 million for the year ended December 31, 2002 and the two-month period ended December 31, 2001.

Surrender charges are revenues earned on the early withdrawal of fixed, equity-indexed and variable annuity policyholder balances. Surrender charges on fixed and variable annuity withdrawals generally are assessed at declining rates applied to policyholder withdrawals during the first five to seven years of the contract. Total surrender charges were $29.3 million ($5.9 million relating to SLNY), $13.6 million and $24.2 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively.

Total annuity withdrawals represented 15.5%, 19.2% and 16.2% of the total average annuity policyholder and separate account balances for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. High surrenders are primarily due to increased competition from other investment products.

Separate account income is primarily mortality and expense charges earned on variable annuity and variable life policyholder balances. These charges, which are based on the market values of the assets in the separate accounts supporting the contracts, were $30.6 million, $30.9 million and $39.3 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. Variable product fees represented 1.36%, 1.42% and 1.45% of average variable annuity and variable life separate account balances for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. Prior to November 1, 2001, net spread from institutional contracts was included in separate account income. Net spread from institutional contracts was $13.6 million and $4.2 million for the ten-month period ended October 31, 2001 and for the year ended December 31, 2000, respectively.

Management fees are primarily investment advisory fees related to the separate account assets. The fees are based on the levels of assets under management, which are affected by product sales, redemptions and changes in the market values of the investments managed. Management fees were $6.8 million, $5.7 million and $6.2 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. Average separate account assets were $2.2 billion and $2.6 billion for the years ended December 31, 2002 and 2001, respectively.

20

Policy Benefits are primarily death and disability benefits related to traditional insurance products issued by SLNY, as well as death benefits related to annuity products and the closed block of SPWL in which the death benefit exceeds the account value. Policy benefits were $29.5 million, $4.9 million and $5.0 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The increase in policy benefits from 2001 to 2002 is primarily attributed to SLNY's policy benefits of $19.7 included in the 2002 balance. In addition, the 2002 amount is for a full year while the 2001 amount reflects a ten-month period only.

Operating expenses primarily represent compensation, general and administrative expenses. Effective January 1, 2002 essentially all employee and other operating expenses were transferred to Sun Life Assurance Company of Canada (U.S.) ("SLUS"), a subsidiary of SLF. In accordance with a tri-party management service agreement among SLF, SLOC and the Company, SLUS allocates operating expenses back to the Company. 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 the Company operated on a stand alone basis.

Operating expenses were $94.7 million, $55.7 million and $64.9 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The increase in operating expenses from 2001 to 2002 is attributed to the fact that the 2002 amount is for a full year and the 2001 amount is for a ten-month period. In addition, the 2002 amount includes SLNY's operating expenses of $9.5 as well as the interest expense of $4.1 million relating to the $380 million promissory note issued to Sun Life (Hungary) Group Financing Limited Liability Company. The increase in operating expenses for the ten-month period ended October 31, 2001 compared to the year ended December 31, 2000 is primarily due to higher compensation related expenses.

Amortization of deferred policy acquisition costs relates to the amortization of 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. Under the purchase method of accounting, the actuarial-determined present value of projected future gross profits from policies in force at the date of their acquisition are recorded at estimated fair value and are reported as value of business acquired.

Deferred policy acquisition costs, net of amortization and adjustment for amounts relating to unrealized gains and losses on available for sale fixed-maturity securities, amounted to $209.8 million at December 31, 2002. This amount represents the cost of acquiring new business since November 1, 2001.

Amortization of DAC was $23.2 million, $95.5 million, and $116.1 million for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. Amortization expense represented 9.0%, 33.4% and 28.3% of investment spread and separate account fees for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The decrease in amortization of DAC in the current year compared to prior periods is due to the acquisition of the company on November 1, 2001. In September 2001, an additional $5.4 million of deferred policy acquisition cost was amortized based upon revised estimates of future gross profits. Excluding the prospective unlocking adjustment of $5.4 million, amortization of deferred policy acquisition cost as a percent of investment spread and separate account fees would have been 31.4% for the ten-month period ended October 31, 2001.

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 of the Company's acquisition. This amount is amortized in proportion to the projected emergence of profits over the estimated lives of the contracts. Interest is accrued on the unamortized balance. Amortization of value of business acquired was $22.7 million and $3.8 million for the year ended December 31, 2002 and for the two-month period ended December 31, 2001, respectively. Value of business acquired, net of amortization and adjustment for amounts relating to unrealized gains and losses on available for sale fixed-maturity securities, amounted to $57.7 million at December 31, 2002. The increase in amortization in 2002 compared to the prior period is due to the acquisitions of the company on November 1, 2001.

21

Federal income tax (benefit) expense was ($11.0) million, $26.6 million and $57.1 million or 38.44%, 25.56% and 28.61% of pretax income for the year ended December 31, 2002, the ten-month period ended October 31, 2001 and the year ended December 31, 2000, respectively. The lower effective tax rate in 2001 is attributable to the release of a portion of a valuation allowance for unrealized capital losses in the "available for sale" investment portfolio established prior to 2001, which reduced expense for the ten month period ended October 31, 2001 and for the year ended December 31, 2000.

Minority Interest relates to SLUS's 33% ownership interest of SLNY. On December 31, 2002, the Company acquired a 67% interest in SLNY, an affiliated company, in exchange for its interest in its wholly owned subsidiary, KBL. SLNY was merged with KBL on December 31, 2002 and SLNY was the surviving entity. The Company's net income (loss) is decreased by SLUS's 33% minority interest share of $(1.6) million and $0.8 million for the year ended December 31, 2002 and the two-month period ended December 31, 2001.

Stockholder's Equity was $1.954 billion and $1.747 billion at December 31, 2002 and 2001, respectively. The increase is attributable to the accumulated comprehensive income of $230.3 million offset by the net loss of $16.2 million and dividends of $6.7 million.

The Company's general investment policy is to hold fixed maturity investments for long-term investment and, accordingly, the Company does not have a trading portfolio. To provide for maximum portfolio flexibility and appropriate tax planning, the Company classifies its entire fixed maturity portfolio as "available for sale" and carries such investments at fair value.

The Company held $15.3 billion and $13.4 billion in invested assets at December 31, 2002 and 2001, respectively. The Company pursues a high-quality, well-diversified portfolio strategy that is appropriate for its general fund obligations. The investment function is a critical component of the Company's business given the role invested assets play in supporting our product lines and the direct impact of investment results on profitability.

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, please see the Interest Rate Risk Management section in the Quantitative and Qualitative Disclosures about Market Risk section of this document.

The Company manages exposure to credit risk through internal analyses of a given investment. The Company'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. 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 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 the Company's liability requirements.

22

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 embedded 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. The Company's credit function and capital base generally permit it to pursue a buy and hold strategy which balances assets and liabilities with the intent of withstanding near-term swings in the broader economy.

The composition of the investments in the Company's general account portfolio is as follows at December 31 (in thousands):

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 mortgaged-back and asset-backed securities. Asset-backed securities include structured equipment and receivable investments.

The following table provides the composition of the Company's fixed maturity portfolio by sector and the unrealized gains and losses contained therein as of December 31, 2002 (in thousands):

23

As of December 31, 2002 the portfolio carried $562.9 million in gross unrealized gains relative to $202.5 million in unrealized losses. As a percent of carrying value, the largest contributors of unrealized losses were found in the Transportation, Utilities, Energy and Communications sectors. Basic Industries and Consumer Cyclical stand out as experiencing the smallest gross unrealized losses as a percent of total carrying value. A brief discussion concerning the industry segments of our corporate bond holdings is as follows:

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25

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.

The majority of the fixed maturity investments are investment grade, with 95.8% of fixed maturity securities classified as Category 1 and 2 by the SVO as of December 31, 2002. Below investment grade bonds were 4.2% of fixed maturity investments and 3.9 % of total invested assets as of December 31, 2002. The following table provides the SVO ratings for the Company's bond portfolio along with an equivalent S&P rating agency designation at December 31, 2002 (in thousands):

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The following table shows the composition by credit quality of the securities with gross unrealized losses in the Company's fixed maturity securities portfolio at December 31, 2002 (in thousands):

At December 31, 2002, $104.8 million, or 51.8%, of the gross unrealized losses are on securities that are 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. 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 below 80% of amortized cost 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 as well as overall industry and market conditions. Any deterioration in operating performance is assessed relative to the impact on financial ratios including leverage and coverage measures specific to an industry and relative to any investment covenants. Additionally, the Company'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. The Chief Investment Officer and the Chief Financial Officer review the resul ts of the impairment analysis.

Securities that have been triggered for the impairment review process may either be determined to be impaired or placed on a watchlist for monitoring. Should it be determined that a security is impaired the Company may sell the security and realize a loss or hold the security following an appropriate adjustment in carrying value to reflect expected recovery. During 2002 and 2001, the Company incurred write-downs of fixed maturities totaling $66.8 million and $42.3 million for other-than-temporary impairment. The 2002 write-downs reflect impairments primarily relating to the airline, energy, communications and utilities sectors. Realized losses on the voluntary disposal of fixed maturity securities totaled $128.6 million in 2002 compared to $17.3 million in 2001.

The carrying value of fixed maturity securities with unrealized losses by maturity date at December 31, 2002 was as follows (in thousands):

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This discussion covers market risks associated with investment portfolios that support the Company'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 the Company, assumes market risks.

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

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. Efforts to reduce holdings of below investment grade bonds were initiated in late 2001. Also, as a matter of investment policy, the Company manages foreign exchange and equity risk within tolerance bands. The Company does not hold real estate but does own substantial amounts of equity options supporting its Equity-Indexed Annuities business. The management of interest rate risk exposure is discussed below.

The Company's fixed interest rate liabilities are primarily supported by a well-diversified portfolio of fixed interest investments. 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. The Company also holds securitized assets, including mortgage-backed securities ("MBS"), collateralized mortgage obligations, commercial MBS and asset-backed securities. These securities are subject to the same standards applied to other portfolio investments, including relative value criteria and diversification guidelines. The Company restricts MBS investments to pass-through securities issued by U.S. government agencies and to collateralized mortgage obligations, which are expected to exhibit relatively low volatility. The Company does not engage in leveraged transactions and it does not routinely in vest in the more speculative forms of these instruments such as the 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. The Company manages risks from wide fluctuations in interest 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 the Company's 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. These strategies may involve managing to achieve small intentional mismatches, either in terms of total effective duration or for certain key rate durations, between the liabilities and assets. The Company manages these mismatches to a tolerance range of plus or minus 1.0. At December 31, 2002 and 2001, the estimated difference between the Company's asset and liability duration was approximately 0.1 and 0.5, respectively. This positive duration gap indicates that the fair value of the Company's assets is somewhat more sensitive to interest rate movements than the fair value of its liabilities.

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

Liabilities categorized as financial instruments and held in the Company's general account at December 31, 2002 had a fair value of $14.3 billion. Fixed income investments supporting those liabilities had a fair value of $14.2 billion 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 $483.6 million (for an adjusted total of approximately $13.9 billion) and the corresponding assets would show a net increase of $468.0 million (for an adjusted total of approximately $15.0 billion).

By comparison, liabilities categorized as financial instruments and held in the Company's general account at December 31, 2001 had a fair value of $13.2 billion. Fixed income investments supporting those liabilities had a fair value of $14.1 billion at that date. The Company performed a sensitivity analysis on these interest-sensitive liabilities and assets on December 31, 2001. The analysis showed that if there were an immediate decrease of 100 basis points in interest rates, the fair value of the liabilities would show a net increase of $354.2 million (for an adjusted total of approximately $13.5 billion) and the corresponding assets would show a net increase of $364.5 million (for an adjusted total of approximately $14.5 billion).

The Company produced these estimates using computer models. Since these models reflect assumptions about the future, they contain an element of uncertainty. For example, the models contain assumptions about future policyholder behavior and asset cash flows. Actual policyholder behavior and asset cash flows could differ from what the models show. As a result, the models' estimates of duration and market values may not reflect what actually would occur. The models are further limited by the fact that they do not provide for the possibility that management action could be taken to mitigate adverse results. The Company believes that, 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.

Equity price risk is the risk that the Company will incur economic losses due to adverse changes in a particular stock or stock index. At December 31, 2002 and 2001, the Company had approximately $1.1 million and $39.6 million, respectively, in common stocks and $20.1 million and $56.1 million, respectively, in call options.

At December 31, 2002 and 2001, the Company had $1.5 billion and $1.4 billion, respectively, in equity-indexed annuity liabilities that provide customers with contractually guaranteed participation in price appreciation of the Standard & Poor's 500 Composite Price Index ("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 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 modify its net exposure to fluctuations in the S&P 500 Index.

29

Based upon the information and assumptions the Company used in its stress-test scenarios at December 31, 2002 and 2001, 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 (decrease) by approximately $0.4 million and $1.0 million, respectively. If the S&P 500 Index decreases by 10%, management estimates that the net fair value of its assets and liabilities will increase by approximately $(0.7) million and $3.6 million, respectively. If option implied volatilities increase by 100 basis points, management estimates that the net fair value of its assets and liabilities will decrease by approximately $0.8 million and $.3 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.

As a component of its investment strategy and to reduce its exposure to interest rate risk, the Company utilizes interest rate and total return swap agreements and interest rate cap agreements to match assets more closely to liabilities. Interest rate swap agreements are agreements to exchange with 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 currently utilizes interest rate swap agreements to reduce asset duration and to better match interest earned on longer-term fixed-rate assets with interest credited to policyholders. A total return swap agreement is an agreement to exchange payments based upon an underlying notional balance and changes in variable rate and total return indices. The Company utilizes total return swap agreements to hedge its obligations related to certain institutional account l iabilities. The Company had 88 outstanding swap agreements with an aggregate notional principal amount of $3.9 billion and $3.2 billion as of December 31, 2002 and 2001, respectively.

Cap agreements are agreements with a counterparty that require the payment of a premium for the right to receive payments for the difference between the cap interest rate and a market interest rate on specified future dates based on an underlying principal balance (notional principal) to hedge against rising interest rates. The Company had no outstanding interest rate cap agreements as of December 31, 2002 and 2001.

With respect to the Company's equity-indexed annuities and institutional account liabilities, the Company buys call options, futures and certain total return swap agreements based on the S&P 500 Index to hedge its obligations to provide returns based upon this index. The Company had call options with a carrying value of $20.1 million and $56.1 million as of December 31, 2002 and 2001, respectively. The Company had open futures with a fair value of $5.2 million and $0.2 million as of December 31, 2002 and 2001, respectively. The Company had total return swap agreements with a carrying value of $165.0 million and $41.7 million as of December 31, 2002 and 2001, respectively.

There are risks associated with some of the techniques the Company uses to match its assets and liabilities. The primary risk associated with swap, cap and call option agreements is counterparty nonperformance. The Company believes that the counterparties to its swap, cap and call option agreements are financially responsible and that the counterparty risk associated with these transactions is minimal. Future contracts trade on organized exchanges and, therefore, have minimal credit risk. In addition, swap and cap agreements have interest rate risk and call options, futures and certain total return swap agreements have stock market risk. These swap and cap agreements hedge fixed-rate assets and the Company expects that any interest rate movements that adversely affect the market value of swap agreements would be offset by changes in the market values of such fixed-rate assets. However, there can be no assurance that these hedges will be effective in offsetting the potential adverse eff ects of changes in interest rates. Similarly, the call options, futures and certain total return swap agreements hedge the Company's obligations to provide returns on equity-indexed annuities and institutional account liabilities based upon the S&P 500 Index, and the Company believes that any stock market movements that adversely affect the market value of S&P 500 Index call options, futures and certain total return swap agreements would be substantially offset by a reduction in policyholder and institutional account liabilities. However, there can be no assurance that these hedges will be effective in offsetting the potentially adverse effects of changes in S&P 500 Index levels. The Company's profitability could be adversely affected if the value of its swap and cap agreements increase less than (or decrease more than) the change in the market value of its fixed rate assets and/or if the value of its S&P Index 500 call options, futures and certain total return swap agreements increase les s than (or decrease more than) the value of the guarantees made to equity-indexed and institutional account policyholders.

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The Company's liquidity needs and financial resources pertain to the management of the general account assets and policyholder balances. The Company uses cash for the payment of annuity and life insurance benefits, operating expenses, policy acquisition costs, and investment purchases. The Company generates cash from annuity premiums, deposits, net investment income, and from maturities and sales of its investments. Annuity premiums, maturing investments and net investment income have historically been sufficient to meet the Company's cash requirements. The Company monitors cash and cash equivalents in an effort to maintain sufficient liquidity and has strategies in place to maintain sufficient liquidity in changing interest rate environments. Consistent with the nature of its obligations, the Company has invested a substantial amount of its general account assets in readily marketable securities. At December 31, 2002, $13.2 billion, or 92.8%, of the Company's general account investmen ts are considered readily marketable.

To the extent that unanticipated surrenders cause the Company to sell for liquidity purposes a material amount of securities prior to their maturity, such surrenders could have a material adverse effect on the Company. Although no assurance can be given, the Company believes that liquidity to fund withdrawals would be available through incoming cash flow or the sale of short-term or floating-rate instruments, thereby precluding the sale of fixed maturity investments in a potentially unfavorable market. In addition, the Company's fixed-rate products incorporate surrender charges to encourage retention of policyholder balances.

Current Rhode Island insurance law permits the payment of dividends or distributions from the Company to its parent, which, together with dividends and distributions paid during the preceding 12 months, do not exceed the lesser of (i) 10% of statutory surplus as of the preceding December 31 or (ii) the net gain from operations for the preceding fiscal year. Any proposed dividend in excess of this amount is called an "extraordinary dividend" and may not be paid until it is approved by the Commissioner of Insurance of the State of Rhode Island (May 1, 2003). In connection with its acquisition by SLC Holdings in 2001, the Company agreed not to make any dividend payments for a period of 18 months without the prior approval of the Rhode Island Insurance Department. Subsequent to the 18-month period, the amount of dividends that the Company will be able to pay will be based upon current Rhode Island insurance law.

Based upon the historical cash flow of the Company, its current financial condition and its expectation that there will not be a material adverse change in the results of operations of the Company and its subsidiaries during the next twelve months, the Company believes that cash flow provided by operating activities over this period will provide sufficient liquidity to meet its liquidity needs.

On July 25, 2002, the Company issued a $380,000,000 promissory note at 5.76% to an affiliate, Sun Life (Hungary) Group Financing Limited Liability Company, which matures on June 30, 2012. The Company will pay interest semi-annually beginning December 31, 2002. The proceeds of the note were used to purchase fixed rate corporate and government bonds.

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The Company's consolidated financial statements begin on page F-1. Reference is made to the Index to Financial Statements on page 34 herein.

Additional financial statement schedules are included on pages S-1 and S-2 herein. Reference is made to the Index to Financial Statement Schedules on page 34 herein.

On May 16, 2002, the Company filed a Current Report on Form 8-K in which it stated that on May 9, 2002 the board of directors of the Company voted to accept the recommendation of its audit committee to change its certifying accountant from Ernst & Young LLP to Deloitte & Touche LLP. This decision, which was effective immediately, follows the transfer in ownership of the Company from Liberty Financial Companies, Inc. ("LFC") to Sun Life Assurance Company of Canada ("Sun Life Assurance"). Since Sun Life Assurance acquired the Company, the board of directors of Sun Life Financial Services of Canada Inc. ("Sun Life Financial"), the ultimate parent company of Sun Life Assurance and the Company, reviewed its audit relationship and those of each of its subsidiaries in order to comply with the Canadian Insurance Companies Act, which requires Sun Life Financial to use the same accounting firm as certifying accountant for all of its material subsidiaries. As a result, it was decided that D eloitte & Touche LLP serve as the certifying accountants for all of its material subsidiaries.

Prior to the acquisition of the Company by Sun Life Assurance, subsidiaries of Sun Life Financial utilized Ernst & Young LLP to provide non-audit consulting services. It is anticipated that such subsidiaries, including the Company, will continue to do so. The dismissal of Ernst & Young LLP and the appointment of Deloitte & Touche LLP as certifying accountants for the Company was not based on any disagreement between Keyport and Ernst & Young LLP.

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

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

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

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

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33

Financial statement schedules not included in this Form 10-K have been omitted because the required information either is not applicable or is presented in the consolidated financials statements or notes thereto.

The exhibits filed as part of this Report are listed on the Exhibit Index immediately preceding the exhibits.

(b) Reports on Form 8-K:

The Company did not file any reports on Form 8-K during the quarter ended December 31, 2002.

See Item 15 (a) (3) above.

Other than the required financial statement schedules set forth in Item 15 (a) (2) above, no other financial statement schedules are required to be filed.

34

To the Board of Directors and Stockholder of Keyport Life Insurance Company

Wellesley, Massachusetts

We have audited the accompanying consolidated balance sheet of Keyport Life Insurance Company (the "Company") and subsidiaries as of December 31, 2002, and the related consolidated statements of income, comprehensive income, stockholder's equity and cash flows for the year ended December 31, 2002. Our audit also included the related financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Keyport Life Insurance Company and subsidiaries at December 31, 2002, and the results of their operations and their cash flows for the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Deloitte & Touche LLP

Boston, Massachusetts

February 21, 2003

Report of Independent Auditors

The Board of Directors

Keyport Life Insurance Company

We have audited the consolidated balance sheet of Keyport Life Insurance Company as of December 31, 2001, and the related consolidated statements of income, stockholder's equity, comprehensive income, and cash flows for the ten-month period ended October 31, 2001 and the two-month period ended December 31, 2001 and for the year ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Keyport Life Insurance Company at December 31, 2001, and the consolidated results of its operations and its cash flows for the ten-month period ended October 31, 2001 and the two-month period ended December 31, 2001 and for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 3 to the financial statements, in 2001, the Company changed its method of accounting for its derivatives.

ERNST & YOUNG LLP

Boston, Massachusetts

February 7, 2002

except for the second paragraph of "Principles of Consolidation" in Note 2, as to which the date is December 31, 2002

CONSOLIDATED BALANCE SHEETS

(in thousands)

The accompanying notes are an integral part of the consolidated financial statements
F-3

CONSOLIDATED STATEMENTS OF INCOME

(in thousands)

The accompanying notes are an integral part of the consolidated financial statements
F-4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

The accompanying notes are an integral part of the consolidated financial statements
F-5

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(in thousands)