SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q



[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002



or



[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from   to

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

KEYPORT LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

Rhode Island                                                          05-0302931

(State of other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)



One Sun Life Executive Park, Wellesley Hills, Massachusetts                        02481

(Address of principal executive offices)                                                (Zip Code)



(781) 237-6030

(Registrant's telephone number, including area code)



125 High Street, Boston, Massachusetts  02110-2712

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         [X] Yes      [   ] No



There were 2,412,000 shares of the registrant's Common Stock, $1.25 par value, outstanding as of  November 14, 2002.





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KEYPORT LIFE INSURANCE COMPANY

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2002



TABLE OF CONTENTS



|Part I.    | FINANCIAL INFORMATION                                                                                     | Page 
|---------- | --------------------------------------------------------------------------------------------------------- | -----
|           |                                                                                                           |      
|Item 1.    | Financial Statements                                                                                      |      
|           |                                                                                                           |      
|           | Consolidated Balance Sheets as of  September 30, 2002 (Unaudited) and
December 31, 2001 (Audited)         | 3    
|           |                                                                                                           |      
|           | Consolidated Statements of Operations (Unauditied) for the Three and Nine
Months Ended September 30, 2002 | 4    
|           |                                                                                                           |      
|           | Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended                               |      
|           | September 30, 2002 and 2001                                                                               | 5    
|           |                                                                                                           |      
|           | Notes to Consolidated Financial Statements (Unaudited)                                                    | 6-11 
|           |                                                                                                           |      
|Item 2.    | Management's Discussion and Analysis of Results of Operations and                                         |      
|           | Financial Condition                                                                                       | 12-23
|           |                                                                                                           |      
|Item 3.    | Quantitative and Qualitative Disclosures About Market Risk                                                | 24-26
|           |                                                                                                           |      
|Item 4.    | Controls and Procedures                                                                                   | 26   
|           |                                                                                                           |      
|Part II.   | OTHER INFORMATION                                                                                         |      
|           |                                                                                                           |      
|Item 5.    | Other Information                                                                                         | 26   
|           |                                                                                                           |      
|Item 6.    | Exhibits and Reports on Form 8-K                                                                          | 26   
|           |                                                                                                           |      
|Signatures |                                                                                                           | 27   



















2



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KEYPORT LIFE INSURANCE COMPANY



CONSOLIDATED BALANCE SHEETS

(in thousands)

|                                                                         | September 30, | December 31,
|------------------------------------------------------------------------ | ------------- | ------------
|ASSETS                                                                   | 2002          |             
|                                                                         | (Unaudited)   |             
|Cash and investments:                                                    |               |             
|Fixed maturities available for sale (amortized cost:  2002 - $13,493,082 |               |             
|2001 - $12,059,631)                                                      | $  13,784,425 |             
|Equity securities (cost:  2002 - $5,441 ; 2001 - $36,859)                | 1,960         |             
|Mortgage loans                                                           | 123,467       |             
|Policy loans                                                             | 638,004       |             
|Other invested assets                                                    | 294,765       |             
|Cash and cash equivalents                                                | 656,707       |             
|Total cash and investments                                               | 15,499,328    |             
|                                                                         |               |             
|Accrued investment income                                                | 222,486       |             
|Deferred policy acquisition costs                                        | 173,517       |             
|Value of business acquired                                               | 61,524        |             
|Goodwill                                                                 | 721,547       |             
|Income taxes recoverable                                                 | 33,120        |             
|Deferred income tax asset                                                | 162,025       |             
|Intangible assets                                                        | 11,858        |             
|Receivable for investments sold                                          | 165,885       |             
|Other assets                                                             | 26,549        |             
|Separate account assets                                                  | 1,955,676     |             
|                                                                         |               |             
|Total assets                                                             | $  19,033,515 |             
|                                                                         |               |             
|LIABILITIES AND STOCKHOLDER'S EQUITY                                     |               |             
|                                                                         |               |             
|Liabilities:                                                             |               |             
|Policy liabilities                                                       | $  14,206,183 |             
|Payable for investments purchased and loaned                             | 469,313       |             
|Other liabilities                                                        | 488,073       |             
|Separate account liabilities                                             | 1,939,128     |             
|Total liabilities                                                        | 17,102,697    |             
|                                                                         |               |             
|Stockholder's equity:                                                    |               |             
|Common stock, $1.25 par value; authorized 2,500 shares;                  |               |             
|issued and outstanding 2,412 shares                                      | 3,015         |             
|Additional paid-in capital                                               | 1,703,462     |             
|Retained earnings                                                        | 58,520        |             
|Accumulated other comprehensive income/(loss)                            | 165,821       |             
|Total stockholder's equity                                               | 1,930,818     |             
|                                                                         |               |             
|Total liabilities and stockholder's equity                               | $  19,033,515 |             

3

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KEYPORT LIFE INSURANCE COMPANY



CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

Unaudited



|                                                    | Three Months Ended |  | Nine Months Ended    
|--------------------------------------------------- | ------------------ |  | ---------------------
|                                                    | September  30,     |  | September 30,        
|                                                    | 2002               |  | PredecessorBasis
2001
|                                                    |                    |  |                      
|Revenues:                                           |                    |  |                      
|Net investment income                               | $ 190,609          |  | $ 195,391            
|Interest credited to policyholders                  | 140,289            |  | 148,099              
|Investment spread                                   | 50,320             |  | 47,292               
|Net realized investment gains (losses)              | 16,237             |  | (14,021)             
|Net derivative losses                               | (110,871)          |  | (6,537)              
|Equity income/(loss) of private limited             |                    |  |                      
|partnerships                                        | 12,498             |  | (2,483)              
|Fee income:                                         |                    |  |                      
|Surrender charges                                   | 2,207              |  | 3,681                
|Separate account income                             | 9,814              |  | 12,366               
|Management fees                                     | 1,541              |  | 1,748                
|Total fee income                                    | 13,562             |  | 17,795               
|                                                    |                    |  |                      
|Expenses:                                           |                    |  |                      
|Policy benefits                                     | 2,327              |  | 1,558                
|Operating expenses                                  | 21,770             |  | 16,975               
|Amortization of deferred policy acquisition costs   | 9,186              |  | 24,175               
|Amortization of value of business acquired          | 7,623              |  | -                    
|Amortization of intangible assets                   | 100                |  | 315                  
|Total expenses                                      | 41,006             |  | 43,023               
|                                                    |                    |  |                      
|(Loss)/income before income taxes and cumulative    |                    |  |                      
|effect of accounting changes                        | (59,260)           |  | (977)                
|Income tax (benefit)/expense                        | (20,503)           |  | (2,446)              
|                                                    |                    |  |                      
|(Loss)/income before cumulative effect of           |                    |  |                      
|accounting changes                                  | (38,757)           |  | 1,469                
|Cumulative effect of accounting changes, net of tax | -                  |  | -                    
|                                                    |                    |  |                      
|Net (loss)/income                                   | $ (38,757)         |  | $ 1,469              

4

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KEYPORT LIFE INSURANCE COMPANY



CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited



|                                                            | Nine Months Ended
|----------------------------------------------------------- | -----------------
|                                                            | September 30,    
|                                                            |                  
|                                                            |                  
|                                                            | 2002             
|                                                            |                  
|                                                            |                  
|Cash flows from operating activities:                       |                  
|Net  loss                                                   | $    (29,053)    
|Cumulative effect of accounting change                      | -                
|Non-cash derivative activity                                | 152,458          
|Adjustments to reconcile net loss  to net cash              |                  
|provided by operating activities:                           |                  
|Interest credited to policyholders                          | 425,280          
|Net realized investment losses                              | 1,090            
|Equity gains (losses)of private equity limited partnerships | (2,244)          
|Net amortization (accretion) on investments                 | 56,506           
|Amortization of value of business acquired and DAC          | 35,198           
|Change in deferred policy acquisition costs                 | (154,736)        
|Amortization of intangible assets                           | 242              
|Change in current and deferred                              |                  
|income taxes                                                | (113,668)        
|Net change in other assets and liabilities                  | 393,581          
|Net cash provided by operating activities                   | 764,654          
|                                                            |                  
|Cash flows from investing activities:                       |                  
|Investments purchased - available for sale                  | (8,614,653)      
|Investments sold or matured - available for sale            | 7,467,284        
|Increase in policy loans                                    | (2,066)          
|(Increase) decrease in mortgage loans                       | (116,596)        
|Other invested assets sold, net                             | 49,075           
|Net cash (used in) provided by investing activities         | (1,216,956)      
|                                                            |                  
|Cash flows from financing activities:                       |                  
|Withdrawals from policyholder accounts                      | (1,813,841)      
|Deposits to policyholder accounts                           | 1,967,618        
|Decrease in securities lending                              | (1,152,861)      
|Net cash used in financing activities                       | (999,084)        
|                                                            |                  
|Change in cash and cash equivalents                         | (1,451,386)      
|Cash and cash equivalents at beginning of period            | 2,108,093        
|Cash and cash equivalents at end of period                  | $    656,707     

5

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KEYPORT LIFE INSURANCE COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

1. General



The accompanying unaudited consolidated financial statements of Keyport Life Insurance Company (the Company) includes all adjustments, consisting of normal recurring accruals that management considers necessary for a fair presentation of the Company's financial position as of September 30, 2002 and December 31, 2001 and the related consolidated statements of operations and cash flows for the three and nine month periods ended September 30, 2002 and 2001, respectively.  Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.  Therefore, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company's 2001 Form 10-K. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year.



2.  Change of Control



Through October 31, 2001, Keyport Life Insurance Company ("the Company") was a wholly owned subsidiary of Liberty Financial Companies, Incorporated ("LFC"), which is a majority-owned, indirect subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").



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. ("Sun Life Financial"), a Canadian holding company and parent of Sun Life Assurance Company of Canada ("Sun Life").  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 Sun Life of Canada (U.S.) Holdings, Inc., an indirect subsidiary of Sun Life, 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 Sun Life, acquired Independent Financial Marketing Group, Inc. ("IFMG"), an affiliate of the Company.  The acquisition of the Company and IFMG complements both Sun Life Financial's product array and distribution capabilities and advances Sun Life Financial towards its strategic goal of reaching a top 10 position in target product markets in North America.  Sun Life Financial also expects to reduce 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.



















6



<PAGE>

KEYPORT LIFE INSURANCE COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

2.  Change of Control (Continued)



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





| | Assets:                    |                 
| | -------------------------- | ----------------
| | Fixed-maturity securities  | $     10,609,150
| | Equity securities          | 35,313          
| | Mortgage loans             | 7,216           
| | Policy loans               | 631,916         
| | Value of business acquired | 105,400         
| | Goodwill                   | 714,755         
| | Intangible assets          | 12,100          
| | Deferred taxes             | 217,633         
| | Other invested assets      | 363,586         
| | Cash and cash equivalents  | 1,846,887       
| | Other assets acquired      | 465,152         
| | Separate account assets    | 3,941,527       
| | Total assets acquired      | 18,950,635      
| |                            |                 
| | Liabilities:               |                 
| | Policy liabilities         | 12,052,071      
| | Other liabilities          | 1,262,045       
| | Separate accounts          | 3,930,042       
| | Total liabilities assumed  | 17,244,158      
| |                            |                 
| | Net assets acquired        | $      1,706,477



In September 2002, the Company revised its valuation of certain assets acquired and liabilities assumed.  The revisions increased goodwill by $6.8 million, deferred taxes by $56.1 million, policy liabilities by $13.0 million, other liabilities by $8.9 million and reduced investments and other invested assets by $32.0 million and $9.0 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.



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.  Amortization for the three and nine month periods ended September 30, 2002 amounted to $7.6 million and $24.2 million respectively.  Interest is accrued on the unamortized balance at the average interest crediting rate (5.0% for the three and nine months ended September 30, 2002).  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.  Value of business acquired was decreased by $27.1 million at September 30, 2002 due to this adjustment.



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."

7

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KEYPORT LIFE INSURANCE COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited



3. Accounting Change

The cumulative effect of accounting change, net of tax, for the nine months ended September 30, 2001 of $60.8 million includes a loss of $54.3 million relating to the adoption of Statement of Financial Accounting Standards ("SFAS") 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.



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, 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 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 deferred policy acquisition costs, upon adoption of EITF Issue No. 99-20 on April 1, 2001 decreased net income by $6.5 million with a related increase to accumulated other comprehensive income of $1.8 million.



4. Accounting for Derivatives and Hedging Activities



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 are highly effective and are designated and qualify 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).









8

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KEYPORT LIFE INSURANCE COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited





4. Accounting for Derivatives and Hedging Activities (Continued)

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.  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 this index.  The call options and futures are non-designated derivatives.  In addition, the Company utilizes non-designated total return swap agreements to hedge certain other contract obligations.



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.  Prior to October 31, 2001, 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 deferred policy acquisition costs, resulted in a loss of ($4.5) and ($2.6) million for the three and nine months ended September 30, 2001.



The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedging transactions.  This process included linking all fair value hedges to specific assets on the balance sheet.  The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values.  When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative will continue to be carried on the balance sheet at its fair value and changes in fair value will be reported in operations.  The subsequent fair value changes in the hedged asset will no longer be reported in current period operations.



Effective November 1, 2001, in conformity with Sun Life accounting policies, the Company discontinued hedge accounting and classified its 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 deferred acquisition costs, resulted in a decrease to income of $51.6 million, and $93.2 million for the three and nine month periods ended September 30, 2002, respectively.  The change in values of the call options, futures, and the embedded derivative, net of related effects on the value of business acquired, decreased income by $40.6 million and $50.6 million for the three and nine month periods ended September 30, 2002, respectively.



5. Equity Income of  Private Limited Partnerships



Private limited partnerships ("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 $262.9 million at September 30, 2002.





9

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KEYPORT LIFE INSURANCE COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

5. Equity Income of  Private Limited Partnerships (continued)



The equity income of private limited partnerships is accounted for on the equity method and represented primarily increases/(decreases) in the fair value of the underlying investments of the private equity limited partnerships for which the Company had ownership interests in excess of 3%.  For the three months ended September 30, 2002 and 2001, the equity income/(loss) of partnerships of $12.5 and ($2.5) million is recorded net of the related amortization of value of business acquired and deferred acquisition costs of ($2.5) million and ($4.6) million, respectively. For the nine months ended September 30, 2002 and 2001, the equity gain (loss) of partnerships of $2.2 and ($17.1) million is recorded net of the related amortization of value of business acquired and deferred policy acquisition costs of ($0.4) million and ($31.7) million, respectively.  The financial information for these investments is obtained directly from the partnerships on a periodic basis.  There can be no assurance that any unrealized and undistributed gains will ultimately be realized or that the Company will not incur losses in the future on such investments.

6.  Comprehensive (Loss) Income



Total comprehensive income, net of tax, for the nine months ended September 30, 2002 and 2001, was $169.1 million and $64.6 million, respectively.



7.  Transactions with Affiliates



Effective January 1, 2002, essentially all employee and other operating expenses were transferred to Sun Life Assurance Company of Canada (U.S.) ("Sun Life (U.S.)"), a subsidiary of Sun Life.  In accordance with a tri-party management service agreement among Sun Life (U.S.), Sun Life, and the Company, Sun Life (U.S.) allocates operating expenses back to the Company.  Expenses under this agreement amounted to approximately $15.1 million and $45.6 million for the three and nine-month periods ended September 30, 2002, respectively.  Management believes intercompany expenses are calculated on a reasonable basis, however, these amounts may not necessarily be indicative of the costs that would be incurred if the Company operated on a standalone basis.  In addition, certain affiliated companies distribute the Company's products and were paid $20.8 million and $68.0 million by the Company for the three and nine month periods ended September 30, 2002, respectively.



On May 29, 2002, the Company purchased a $100,000,000 note issued by Massachusetts Financial Services Company, an affiliate, for $107,000,000 from Sun Life Assurance Company of Canada (U.S.), another affiliate.  The note, which matures on August 11, 2004, pays interest at a rate of 8.599%.  The note is included in fixed maturities available for sale at September 30, 2002.



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 ("Sun Life (Hungary) Ltd"), 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.  Interest expense on the note is reported as a component of operating expenses and amounted to $4.1 million for the three and nine-month period ended September 30, 2002, respectively.



8. Commitments/Contingencies



The Company has commitments to fund mortgage loans and private limited partnerships in the future.  These outstanding commitments amounted to $25.2 million and $152.8 million on mortgages and private limited partnerships, respectively, at September 30, 2002.



10

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KEYPORT LIFE INSURANCE COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

8. Commitments/Contingencies (continued)

As part of the Stock Purchase Agreement between Sun Life Financial and LFC, LFC is 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 $37.0 million.  Under the agreement, if Sun Life Financial and LFC could not agree on the amount of taxes due, the matter would be submitted for arbitration. The dispute has been resolved and the recoverable amount was not adjusted.



9. Subsequent Event

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



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



Based upon a Pro Forma Plan of Operations and Actuarial Projections submitted to the Department in October, 2002 as part of the approval process, the Surviving Company will require a capital contribution in January, 2003 in order to sustain future target surplus levels required by the Department.  The total amount of the capital contribution is approximately $45 million.  The parent companies of KBL and SLNY will each contribute a percentage of that amount equal to their respective ownership percentage of the Surviving Company.  That percentage is based upon the pro forma statutory book value of the Surviving Company as of September 30, 2002, the most current available, and would result in a contribution of approximately $29 million by the Company.



Item 2.  Management's Discussion and Analysis of Results of Operations and Financial Condition

Cautionary Statement



This discussion includes forward-looking statements by the Company under the Private Securities Litigation Reform Act of 1995. These statements are not matters of historical fact; they relate to such topics as future product sales, volume growth, market share, market risk and financial goals. It is important to understand that these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those that the statements anticipate. These risks and uncertainties may concern, among other things:



|o | Heightened competition, particularly in terms of price, product features, and distribution capability, which could constrain the Company's growth and profitability.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                     
|o | Changes in interest rates and market conditions.                                                                                                                    
|  |                                                                                                                                                                     
|o | Regulatory and legislative developments.                                                                                                                            
|  |                                                                                                                                                                     
|o | Developments in consumer preferences and behavior patterns.                                                                                                         

11

<PAGE>

Change of Control

Through October 31, 2001, Keyport Life Insurance Company ("the Company") was a wholly owned subsidiary of LFC, which is a majority-owned, indirect subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").

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. ("Sun Life Financial"), a Canadian holding company and parent of Sun Life Assurance Company of Canada ("Sun Life").  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 Sun Life of Canada (U.S.) Holdings, Inc., an indirect subsidiary of Sun Life, 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 Sun Life, acquired Independent Financial Marketing Group, Inc. ("IFMG"), an affiliate of the Company.  The acquisition of the Company and IFMG complements both Sun Life Financial's product array and distribution capabilities and advances Sun Life Financial towards its strategic goal of reaching a top 10 position in target product markets in North America.  Sun Life Financial also expects to reduce 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.  The Company is in the process of completing the valuations of a portion of the assets acquired; thus, the allocation of the purchase price is subject to refinement.

























































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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):



| | Assets:                    |               
| | -------------------------- | --------------
| | Fixed-maturity securities  | $   10,609,150
| | Equity securities          | 35,313        
| | Mortgage loans             | 7,216         
| | Policy loans               | 631,916       
| | Value of business acquired | 105,400       
| | Goodwill                   | 714,755       
| | Intangible assets          | 12,100        
| | Deferred taxes             | 217,633       
| | Other invested assets      | 363,586       
| | Cash and cash equivalents  | 1,846,887     
| | Other assets acquired      | 465,152       
| | Separate account assets    | 3,941,527     
| | Total assets acquired      | $   18,950,635
| |                            |               
| | Liabilities:               |               
| | Policy liabilities         | $   12,052,071
| | Other liabilities          | 1,262,045     
| | Separate accounts          | 3,930,042     
| | Total liabilities assumed  | $   17,244,158
| |                            |               
| | Net assets acquired        | $    1,706,477

In September 2002, the Company revised its valuation of certain assets acquired and liabilities assumed.  The revisions increased goodwill by $6.8 million, deferred taxes by $56.1 million, policy liabilities by $13.0 million, other liabilities by $8.9 million and reduced investments and other invested assets by $32.0 million $9.0 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.



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.  Amortization for the three and nine month periods ended September 30, 2002 amounted to $7.6 million and $24.2 million, respectively.  Interest is accrued on the unamortized balance at the average interest crediting rate (5.0% for the three and nine month periods ended September 30, 2002).  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.  Value of business acquired was decreased by $27.1 million at September 30, 2002 due to this adjustment.



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."













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Accounting Change

The cumulative effect of accounting changes, net of tax, for the nine months ended September 30, 2001 of $60.8 million includes a loss of $54.3 million relating to the adoption of Statement of Financial Accounting Standards ("SFAS") 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 99-20, "Recognition of Interest Income on Impairment of Purchased and Retained Beneficial Interests in Securitized Financial Assets" in the quarter ending June 30, 2001.



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, 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 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 deferred policy acquisition costs, upon adoption of EITF Issue No. 99-20 on April 1, 2001 decreased net income by $6.5 million with a related increase to accumulated other comprehensive income of $1.8 million.

Critical Accounting Policies

The Company's discussion and analysis of its financial position and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principals 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.



Derivative Instruments



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 gains.  Changes in the fair value of non-designated derivatives are reported in current period operations as a component of net derivative gains.

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Critical Accounting Policies (Continued)



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.



Value of Business Acquired



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).

Deferred Policy Acquisition Costs



Deferred policy acquisition costs 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.



Deferred policy acquisition costs are 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).



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

Income Taxes



The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") 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.







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Critical Accounting Policies (Continued)

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 Sun Life Financial and LFC, LFC is 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 $37.0 million.  Under the agreement, if Sun Life Financial and LFC could not agree on the amount of taxes due, the matter would be submitted for arbitration.  The dispute has been resolved and the recoverable amount was not adjusted.

Other than Temporary Declines



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.



Results of Operations



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."  Net investment income, amortization of deferred policy acquisition costs, and amortization of value of business acquired are income statement captions that were significantly impacted.



Net (loss)/income was $(38.8) million and $1.5 million for the three months ended September 30, 2002 and 2001, respectively, and $(29.1) million and $(1.2) million for the nine months ended September 30, 2002 and 2001, respectively.  Income/(loss) from operations (income before cumulative effect of accounting changes, income taxes, equity income of private limited partnerships, and net realized investment gains/(losses)) was $(88.0) million and $15.5 million for the three months ended September 30, 2002 and 2001, respectively, and $(45.5) million and $128.1 million for the nine months ended September 30, 2002 and 2001, respectively.



The decrease in income from operations, in the third quarter, is primarily attributable to an increase in derivative loss of $104.3 million, a decrease in fee income of $4.2 million, an increase in operating expenses of $4.8 million offset by a decrease in amortization of deferred acquisition expenses and the value of business acquired of $7.5 million.  For the nine months ended September 30, 2002 the decrease in income from operations is primarily attributable to a decrease in investment spread of $33.0 million, a decrease in derivative income of $169.7 million, a decrease in fee income of $11.8 million, an increase in operating expenses of $9.1 million offset by a decrease in amortization of deferred acquisition expenses and the value of business acquired of $52.6 million.







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Investment spread is the amount by which investment income earned on the Company's investments exceeds interest credited to policyholder balances.  Investment spread was $50.3 million and $47.3 million for the three months ended September 30, 2002 and 2001, 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 1.21% and 1.37% for the three months ended September 30, 2002 and 2001, respectively.  The investment spread was $183.1 million and $216.1 million for the nine months ended September 30, 2002 and 2001, respectively.  The investment spread percentage was 1.30% and 2.10% for the nine months ended September 30, 2002 and 2001, respectively.  The decline in the yield is a result of the purchase accounting valuation of the bond portfolio at values in excess of historical amortized cost.



Investment income was $190.6 million and $195.4 million for the three months ended September 30, 2002 and 2001, respectively.  The decrease of $4.8 million in 2002 compared to 2001 is the result of a lower average investment yield ($21.5 million), offset by an increase in average invested assets ($8.5 million) and a classification adjustment of ($8.2 million).  The average investment yield was 5.62% and 6.32% for the three months ended September 30, 2002 and 2001, respectively. Investment income was $604.4 million and $666.1 for the nine months ended September 30, 2002 and 2001, respectively.  The decrease of $61.7 million in 2002 is the result of lower average investment yield ($118.2 million)offset by an increase in average invested assets ($9.2 million) and a classification adjustment of ($47.3 million).  The average investment yield was 5.84% and 7.10% for the nine months ended September 30, 2002 and 2001, respectively.



Interest credited to policyholders was $140.3 million and $148.1 million for the three months ended September 30, 2002 and 2001, respectively.  The decrease of $7.8 million in 2002 compared to 2001 is the result of a lower average interest credited rate ($14.3 million) offset by increased average policyholder balances ($6.5 million).  Policyholder balances (excluding institutional account balances) averaged $12.6 billion ($11.4 billion of fixed products, consisting of fixed annuities and the closed block of single premium whole life insurance, and $1.2 billion of equity-indexed annuities) and $12.0 billion ($10.3 billion of fixed products and $1.7 billion of equity-indexed annuities) for the three months ended September 30, 2002 and 2001, respectively.  Interest credited to policyholders was $421.2 million and $450.0 million for the nine months ended September 30, 2002 and 2001, respectively.  The decrease of $28.8 million in 2002 as compared to 2001 is the result of a lower average interest credited rate ($41.8 million) offset by increased average policyholder balances ($13.0 million). Policyholder balances (excluding institutional account balances) averaged $12.4 billion  ($11.2 billion of fixed products, consisting of fixed annuities and the closed block of single premium whole life insurance, and $1.2billion of equity-indexed annuities) and  $12.0 billion ($10.1 billion of fixed products and $1.9 billion of equity-indexed annuities) for the nine months ended September 30, 2002 and 2001, respectively.



The average interest credited rate was 4.41% and 4.95% for the three months ended September 30, 2002 and 2001, respectively.    The average interest credited rate for the nine months ended September 30, 2002 and 2001 was 4.54% and 5.00%, respectively. 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 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 (computed without giving effect to SFAS 115 and institutional assets), including a portion of the Company's cash and cash equivalents, were $13.0 billion and $12.4 billion for the three months ended September 30, 2002 and 2001, respectively.  Average investments were $12.7 billion and $12.5 billion for the nine months ended September 30, 2002 and 2001, respectively.









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Net realized investment gains (losses) were $16.2 million and ($14.0) million for the three months ended September 30, 2002 and 2001, respectively and $(1.1) million and ($31.8) million for the nine months ended September 30, 2002 and 2001, respectively.  Sales of investments generally are made to maximize total return and to take advantage of prevailing market conditions.  Net realized investment losses included $23.4 million and $19.3 million for the three months ended September 30, 2002 and 2001, respectively and $41.4 million and $42.8 million for the nine months ended September 30, 2002 and 2001, respectively, for certain fixed maturity investments where the decline in value was determined to be other than temporary.



Net derivative losses of $110.9 million and $6.5 million for the three months ended September 30, 2002 and 2001, respectively, and $171.6 million and $1.8 million for the nine months ended September 30, 2002 and 2001 respectively, represent fair value changes of non-designated derivatives and the ineffective portion of fair value hedges, net of related effects on deferred policy acquisition costs and value of business acquired.



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 gains.  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.  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 this 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.  Prior to October 31, 2001, 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 deferred policy acquisition costs, resulted in a loss of $(4.5) million and $(2.6) million for the three and nine months ended September 30, 2001, respectively.

Effective November 1, 2001, in conformity with Sun Life accounting policies, the Company discontinued hedge accounting and classified its 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 deferred acquisition costs, resulted in a decrease to income of $51.6 and $93.2 million for the three and nine month periods ended September 30, 2002, respectively.  The change in values of the call options, futures, and the embedded derivative, net of related effects on the value of business acquired,



Equity income of private limited partnerships primarily represents increases/(decreases) in the fair value of the underlying investments of the private equity limited partnerships for which the Company has ownership interests in excess of 3%.  Private equity limited partnerships ("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 $262.9 million at September 30, 2002, respectively.



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For the three months ended September 30, 2002 and 2001, the net change in equity of partnerships of $12.5 million and $(2.5) million is recorded net of the related amortization of value of business acquired and deferred acquisition costs amortization of $(2.5) million and $(4.6) million. For the nine months ended September 30, 2002 and 2001, the net change in equity of partnerships of $2.2 million and $(17.1) million is recorded net of the related amortization of deferred policy acquisition costs of $0.4 million and $(31.7) million.  The financial information for these investments is obtained directly from the private equity limited partnerships on a periodic basis.  There can be no assurance that any unrealized and undistributed gains will ultimately be realized or that the Company will not incur losses in the future on such investments.



Surrender charges are revenues earned on the early withdrawal of fixed, equity-indexed and variable annuity policyholder balances.  Surrender charges on fixed, equity-indexed and variable annuity 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 $2.2 million and $3.7 million for the three months ended September 30, 2002 and 2001, respectively and $8.0 million and $11.2 million for the nine months ended September 30, 2002 and 2001, respectively.



On an annualized basis, total annuity withdrawals represented 17.4% and 19.0% of the total average annuity policyholder and separate account balances for the three months ended September 30, 2002 and 2001, respectively, and 17.5% and 19.2% of the total average annuity policyholder and separate account balances for the nine months ended September 30, 2002 and 2001, respectively.

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 $9.8 million and $12.4 million for the three months ended September 30, 2002 and 2001, respectively and $31.2 million and $39.6 million for the nine months ended September 30, 2002 and 2001, respectively. Variable product fees represented 1.54% and 1.24% of the average variable annuity and variable life separate account balances for the three months ended September 30, 2002 and 2001, respectively and 1.59% and 1.30% for the nine months ended September 30, 2002 and 2001, respectively.  Prior to November 1, 2001, net spread from institutional contracts was included in separate account income.  The amount included in separate account income for three and nine months ended September 30, 2001 was immaterial.



Management fees are primarily investment advisory fees related to the separate account assets.  The fees are based on the level of assets under management, which are affected by product sales, redemptions and changes in the fair values of the investments managed.  Management fees were $1.5 million and $1.7 million for the three months ended September 30, 2002 and 2001, respectively and $5.0 million and $5.3 million for the nine months ended September 30, 2002 and 2001, respectively.  Average separate account assets, subject to management fees, were $2.1 billion and $2.7 billion for the three months ended September 30, 2002 and 2001, respectively, and $2.3 billion and $2.6 billion for the nine months ended September 30, 2002 and 2001, respectively.



Operating expenses primarily represent compensation and 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.) ("Sun Life (U.S.)"), a subsidiary of Sun Life.  In accordance with a tri-party management service agreement among Sun Life (U.S.), Sun Life, and the Company, Sun Life (U.S.) 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 standalone basis.



Operating expenses were $21.8 million and $16.9 million for the three months ended September 30, 2002 and 2001, respectively and $58.5 million and $49.4 million for the nine months ended September 30, 2002 and 2001, respectively.  The primary increase in operating expenses for the three and nine month periods ended September 30, 2002 compared to the same periods in the prior year is attributed to the interest expense of $4.1 million relating to the $380 million promissory note issued to Sun Life Hungary Ltd.



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Amortization of deferred policy acquisition costs relates to the costs of acquiring new business, which vary with, and are primarily related to, the production of new annuity business.  Such acquisition costs included commissions, costs of policy issuance, underwriting and selling expenses.  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 $173.5 million at September 30, 2002.  This amount represents the cost of acquiring new business since November 1, 2001. Amortization was $9.1 million and $24.2 million for the three months ended September 30, 2002 and 2001, respectively, and $10.9 million and $87.8 million for the nine months ended September 30, 2002 and 2001, respectively.



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 their 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 at the contract rate of 5% for the three and nine-month periods ended September 30, 2002.  Amortization of value of business acquired was $7.6 million and $24.3 million for the three and nine-month periods ended September 30, 2002.  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 $61.5 million at September 30, 2002.



Federal income tax (benefit)/expense was ($20.5) million or 34.6% and $(2.5) million or 250.4% of pretax income for the three months ended September 30, 2002 and 2001, respectively and  $(15.3) million or 34.5% and $19.5 million or 24.6% for the nine months ended September 30, 2002 and 2001, 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 three and nine months ended September 30, 2001.



Financial Condition



Stockholder's equity was $1.931 billion as of September 30, 2002 compared to $1.762 billion as of December 31, 2001.  The $169.2 million increase in stockholder's equity consists of a $198.3 million increase in net unrealized investment gains on available for sale securities and the $29.1 million net loss for the nine months ended September 30, 2002.



Investments (computed without giving effect to Statement of Financial Accounting Standards No. 115), including a portion of the Company's cash and cash equivalents, were $15.1 billion and $14.1 billion as of September 30, 2002 and December 31, 2001, respectively.



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 bond portfolio as "available for sale" and carries such investments at fair value.  Gross unrealized gains/(losses) on the bond portfolio at September 30, 2002 and December 31, 2001 were $243.1 million and $(60.0) million, respectively.

Approximately $13.6 billion, or 87.5%, of the Company's general account investments at September 30, 2002, were rated by Standard & Poor's Corporation, Moody's Investors Service or under comparable statutory rating guidelines established by the National Association of Insurance Commissioners (NAIC).  At September 30, 2002, the carrying value of investments in below investment grade securities totaled $472.3 million, or 3.0% of general account investments of $15.5 billion.  Below investment grade securities generally provide higher yields and involve greater risks than investment grade securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers.  In addition, the trading market for these securities may be more limited than for investment grade securities.





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Commitments



The Company has commitments to fund mortgage loans and private limited partnerships in the future.  These outstanding commitments amounted to $25.2 million and $152.8 million on mortgages and private limited partnerships, respectively, at September 30, 2002.



Derivatives



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 contract liabilities.  The Company had outstanding swap agreements with an aggregate notional principal amount of $3.2 billion as of September 30, 2002 and December 31, 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 notional principal to hedge against rising interest rates. There were no outstanding interest rate cap agreements as of September 30, 2002 and December 31, 2001.



With respect to the Company's equity-indexed annuities, the Company buys call options and futures 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 $8.2 million and $56.1



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 effects 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 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 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 500 Index call options, futures and certain total return swap agreements increase less than (or decrease more than) the value of the guarantees made to equity-indexed policyholders.





21

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Liquidity



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 the purchase of investments.  The Company generates cash from annuity premiums and 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 September 30, 2002 $12.7 billion, or 81.8%, of the Company's general account investments 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, the sale of short-term or floating-rate instruments, thereby precluding the sale of fixed maturity investments in a potentially unfavorable market.



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.  In connection with the Sun Life acquisition, the Company will not make 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, the Company's current financial condition and the Company's 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 for the Company 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 ("Sun Life (Hungary) Ltd"), 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.



Effects of Inflation



Inflation has not had a material effect on the Company's consolidated results of operations to date.  The Company manages its investment portfolio in part to reduce its exposure to interest rate fluctuations.  In general, the fair value of the Company's fixed maturity portfolio increases or decreases in inverse relationship with fluctuations in interest rates, and the Company's net investment income increases or decreases in direct relationship with interest rate changes.  For example, if interest rates decline the Company's fixed maturity investments generally will increase in fair value, while net investment income will decrease as fixed maturity investments mature or are sold and the proceeds are reinvested at reduced rates.  However, inflation may result in increased operating expenses that may not be readily recoverable in the prices of the services charged by the Company.







22

<PAGE>

Subsequent Event



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



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



Based upon a Pro Forma Plan of Operations and Actuarial Projections submitted to the Department in October, 2002 as part of the approval process, the Surviving Company will require a capital contribution in January, 2003 in order to sustain future target surplus levels required by the Department.  The total amount of the capital contribution is approximately $45 million.  The parent companies of KBL and SLNY will each contribute a percentage of that amount equal to their respective ownership percentage of the Surviving Company.  That percentage is based upon the pro forma statutory book value of the Surviving Company as of September 30, 2002, the most current available, and would result in a contribution of approximately $29 million by the Company.

















































23

<PAGE>

Item 3.  Quantitative and Qualitative Disclosure of Market Risk

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 under which 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 accountabilities 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.



Interest rate risk



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 invest 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 carefully 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:



|o | an economic or market value basis for both assets and liabilities;                                                                                                            
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o | an option pricing methodology;                                                                                                                                                
|o | The use of effective duration and convexity to measure interest rate sensitivity; and                                                                                         
|o | The use of key rate durations to estimate interest rate exposure at different parts of the yield curve and to estimate the exposure to non-parallel shifts in the yield curve.



















24

<PAGE>

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 year.



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 September 30, 2002 had a fair value of $13.3 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 as of September 30, 2002.  The analysis showed that if there were an immediate decrease of 100 basis points in interest rates, the fair value of the liabilities would show a net increase of $481.8 million (for an adjusted total of approximately $13.8 billion) and the corresponding assets would show a net increase of $485.8 million (for an adjusted total of approximately $14.7 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 this limitation is one of conservatism; that is, it will tend to cause the models to produce estimates that are generally worse than one might actually expect, all other things being equal.



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

Equity Price Risk

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 September 30, 2002 and December 31, 2001, the Company had approximately $2.0 million and $39.6 million, respectively, in common stocks and $8.2 million and $56.1 million, respectively, in call options.

At September 30, 2002 and December 31, 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.









25

<PAGE>

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.

Based upon the information and assumptions the Company used in its stress-test scenarios at September 30, 2002 and December 31, 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 by approximately $0.134 million and $1.0, respectively.  If the S&P 500 Index decreases by 10%, management estimates that the net fair value of its assets and liabilities will decrease by approximately $0.269 million and $3.6 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.



Item 4. Controls and Procedures

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



Part II Other Information



Item 5. Other Information

None



Item 6.  Exhibits and Reports on Form 8-K

None

















26

<PAGE>





SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





|                         | KEYPORT LIFE INSURANCE COMPANY          
|------------------------ | ----------------------------------------
|                         |                                         
|Date: November 14, 2002  | /s/ James A. McNulty, III               
|                         | James A. McNulty, III                   
|                         | President                               
|                         |                                         
|Date:  November 14, 2002 | /s/ Davey S. Scoon                      
|                         | Davey S. Scoon                          
|                         | Vice President, Chief Administrative and
|                         | Financial Officer and Treasurer         
|                         |                                         







































27

<PAGE>



Certification of Principal Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, James A. McNulty, III, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q;                                                                                                                                                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                               
|2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|   |                                                                                                                                                                                                                                                                                                                               
|3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;                   
|   |                                                                                                                                                                                                                                                                                                                               
|4. | The other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                      

|(a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                
|(b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Date"); and                                                                                                      
|    |                                                                                                                                                                                                                                                                                                
|(c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;                                                                                                                        

|5. | The other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                               
|(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and                                                                                                                                        

|6. | The other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: | November 14, 2002 | /s/ James A. McNulty, III
|----- | ----------------- | -------------------------
|      |                   | James A. McNulty, III    
|      |                   | President                



<PAGE>

Certification of Principal Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Davey S. Scoon, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q;                                                                                                                                                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                               
|2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|   |                                                                                                                                                                                                                                                                                                                               
|3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;                   
|   |                                                                                                                                                                                                                                                                                                                               
|4. | The other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                      

|(a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                
|(b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Date"); and                                                                                                      
|    |                                                                                                                                                                                                                                                                                                
|(c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;                                                                                                                        

|5. | The other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                               
|(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and                                                                                                                                        

|6. | The other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: | November 14, 2002 | /s/ Davey S. Scoon                      
|----- | ----------------- | ----------------------------------------
|      |                   | Davey S. Scoon                          
|      |                   | Vice President, Chief Administrative and
|      |                   | Financial Officer and Treasurer