<PAGE>
DEAR CONTRACT OWNERS:
An environment of declining interest rates and a favorable outlook for inflation
helped establish a pattern of positive performance in both fixed-income and
equity markets around the world during the past 12 months. Yields on many fixed-
income securities continued to decline throughout the year, and as bond prices
rose in response to these declines, all of the fixed-income funds available
under your contract experienced positive total returns. At the same time, lower
interest rates and strong corporate earnings reports through most of the year
helped the prices of many stocks to rise over the period, producing strong
returns. For the 12 months ended December 31, 1995, the market, as measured by
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock performance, returned +37.53%. All of the equity funds
available under your contract achieved positive results.
U.S. OUTLOOK
Moderate but sustainable growth was the hallmark of the economic expansion's
fifth year, although some signs of sluggishness were seen late in the year.
Recent retail sales, for example, have been disappointing, in part because of
rising levels of consumer debt. Growth is not expected to get much help from the
manufacturing sector, either, as order flows from manufacturers have moderated.
Export activity, meanwhile, is also expected to remain modest as continued
weakness abroad limits demand for many U.S. goods. However, the Federal Reserve
Board's consistent and, so far, successful efforts to fight inflation seem to be
giving consumers and businesses enough longer-term confidence to help maintain
modest growth in real (adjusted for inflation) gross domestic product into 1996.
GLOBAL OUTLOOK
A pattern of slow to moderate growth and low and controlled inflation remains a
dominant theme in major industrialized countries, including the United States.
While the recent recovery of the dollar against the German mark and the Japanese
yen has added some strength to the economies of Europe and Japan, the outlook is
for sluggish economic growth in the near term. Although moves by central banks
in Germany and Japan to lower interest rates have helped stimulate domestic
demand, many industrial companies in these countries are still struggling to
compete in a global marketplace in which the prices of their products are less
competitively priced. On the positive side, this does mean little to no
inflationary pressure in these countries, and we believe that this, combined
with potential further reductions in interest rates, could help provide a
foundation for stronger economic growth in the long run. Also, it appears that
many of the cost-cutting measures taken by companies in these countries over the
past few years will ultimately provide earnings leverage when economic growth
improves. Inflation in most overseas economies remains in a downward trend,
providing fixed-income investors with opportunities for relatively attractive
real rates of interest, possibly accompanied by moderate price appreciation.
While the dollar continues to represent a sound store of long-term value, its
relative strength in the near term is being restrained by the persistent U.S.
current-account deficit.
BOND MARKETS
Prospects for the Federal Reserve to lower short-term interest rates appear
favorable as the economy continues to be in a slow-growth mode. Long-term
yields, meanwhile, moved noticeably downward in the latter months of 1995 in
anticipation of more modest fourth-quarter growth with
1
<PAGE>
continued low inflation. While there were some increases in commodity prices
early in 1996, companies found it difficult to pass these on at the consumer
level as they continue to fight for market share. Additionally, unit labor costs
remain under control and seem to be growing at a pace that is near or below the
ongoing inflation rate. Thus, with long-term U.S. government bonds yielding
approximately 6% in an environment of 2% to 3% inflation, real rates of return
in the fixed-income markets remain relatively attractive.
In world bond markets, slowing economic growth, low inflation, and declining
official interest rates helped result in solid performance during the past year.
European governments are engaged in multi-year programs to reduce their budget
deficits and debt levels. These programs are positive for bonds, in that lower
government spending tends to reduce inflationary pressures and lower issuance of
government debt reduces supply pressures on the bond market. In the Japanese
market, powerful deflationary forces have supported a drop in yields to
historically low levels. We now feel this process may be drawing to an end,
given a reversal of priorities at the central bank from fighting inflation,
which is now non-existent, to offsetting the downward spiral of deflation.
Meanwhile, the high returns of the U.S. bond market have been echoed in other
U.S. dollar-bloc markets, including Australia, New Zealand, and Canada, all of
which saw positive performance over the last 12 months. The Australian market
currently offers significantly higher yields than the U.S. market and represents
good value. As long as the outlook for U.S. bonds remains positive, these
related markets could demonstrate relatively good performance.
STOCK MARKETS
After some volatility late in the third quarter, the stock market continued to
strengthen. Although many companies reported solid third-quarter results, there
was some weakness in the earnings of retail, financial services and even some
technology companies. However, a slowdown in earnings may be a positive
development if it is an indication that the economy is not overheating and
inflation is under control. While we see a deceleration of corporate earnings as
the inevitable consequence of traditional business cycles, we remain encouraged
by the high absolute level of profitability among U.S. companies. Also, many
companies' increasing emphasis on cost containment and growing use of technology
have helped keep them highly competitive and reasonably profitable. Looking
ahead, we believe that a stabilizing interest rate environment, coupled with
reasonable earnings reports, could justify current market valuations.
We appreciate your support and welcome any questions or comments you may have.
On behalf of the Board of Directors,
John D. McNeil
Chairman
January 12, 1996
2
<PAGE>
PERFORMANCE SUMMARY
These performance results do not reflect any applicable surrender charges or
contract charges. Past performance is no guarantee of future results.
<TABLE>
<CAPTION>
Unit Value
---------------------------------
December 31, Percent Change
Compass 1 (U.S.) Contracts December 31, 1995 1994 in Unit Value
----------------- ------------- --------------
<S> <C> <C> <C>
Massachusetts Investors Trust.................................. $52.6746 $38.3097 37.50%
Massachusetts Investors Growth Stock Fund...................... 40.3897 31.8549 26.79%
MFS Total Return Fund.......................................... 46.4569 37.0619 25.35%
MFS Growth Opportunities Fund.................................. 34.5473 26.0211 32.77%
MFS Research Fund.............................................. 48.2543 35.2820 36.77%
MFS Bond Fund.................................................. 33.5161 27.9595 19.87%
MFS Money Market Fund.......................................... 18.9505 18.2359 3.92%
MFS Government Money Market Fund............................... 18.2642 17.5882 3.84%
MFS High Income Fund........................................... 34.3557 29.6848 15.73%
MFS World Governments Fund..................................... 36.8194 32.3034 13.98%
MFS Emerging Growth Fund....................................... 44.8831 32.2107 39.34%
</TABLE>
Investment return and principal value will fluctuate, and units, when
surrendered, may be worth more or less than their original cost.
3
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENT OF CONDITION -- December 31, 1995
<TABLE>
<CAPTION>
ASSETS:
Investments in mutual funds: Shares Cost Value
--------- ------------ ------------
<S> <C> <C> <C>
Massachusetts Investors Trust ("MIT")*........ 952,000 $ 11,799,462 $ 12,095,883
Massachusetts Investors Growth Stock Fund
("MIG")*..................................... 703,267 7,468,114 7,478,055
MFS Total Return Fund ("MTR")*................ 1,643,591 20,415,307 23,685,733
MFS Growth Opportunities Fund ("MGO")*........ 2,435,845 26,773,181 29,087,456
MFS Research Fund ("MFR")*.................... 492,475 6,021,587 7,700,759
MFS Bond Fund ("MFB")*........................ 564,754 7,709,256 7,724,477
MFS Money Market Fund ("MCM")................. 7,069,653 7,069,653 7,069,653
MFS Government Money Market Fund ("MCG")...... 1,977,361 1,977,361 1,977,361
MFS High Income Fund ("MFH")*................. 1,774,453 9,026,702 9,188,395
MFS World Governments Fund ("MWG")*........... 285,189 3,422,303 3,142,297
MFS Emerging Growth Fund ("MEG")*............. 629,542 10,405,523 16,814,922
------------ ------------
$112,088,449 $125,964,991
------------
------------
LIABILITY:
Payable to sponsor....................................................... 19,532
------------
Net assets......................................................... $125,945,459
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity
Contracts Reserve for
---------------------------------- Variable
NET ASSETS OF CONTRACT OWNERS: Units Unit Value Value Annuities Total
------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
MIT.................................................. 228,398 $52.6746 $ 12,028,862 $ 64,490 $ 12,093,352
MIG.................................................. 183,386 40.3897 7,405,788 77,476 7,483,264
MTR.................................................. 502,308 46.4569 23,341,200 276,106 23,617,306
MGO.................................................. 835,555 34.5473 28,983,611 143,061 29,126,672
MFR.................................................. 158,916 48.2543 7,669,909 30,037 7,699,946
MFB.................................................. 226,571 33.5161 7,669,685 60,377 7,730,062
MCM.................................................. 371,369 18.9505 7,035,857 32,709 7,068,566
MCG.................................................. 108,206 18.2642 1,976,102 1,313 1,977,415
MFH.................................................. 264,391 34.3557 9,071,935 146,184 9,218,119
MWG.................................................. 83,177 36.8194 3,062,372 39,641 3,102,013
MEG.................................................. 372,726 44.8831 16,728,380 100,364 16,828,744
------------ ----------- ------------
Net assets............................................................ $124,973,701 $971,758 $125,945,459
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
*Investments are made in Class A shares of the Fund.
See notes to financial statements
4
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENT OF OPERATIONS -- Year Ended December 31, 1995
<TABLE>
<CAPTION>
MIT MIG MTR MGO MFR MFB
Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account
----------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income and expenses:
Dividend income and capital gain distributions
received....................................... $ 1,128,667 $ 985,916 $2,093,305 $ 3,654,859 $ 473,444 $ 539,228
Mortality and expense risk charges.............. 135,668 88,422 287,807 355,069 93,646 92,618
----------- ---------- ---------- ----------- ---------- ----------
Net investment income (expense)............. $ 992,999 $ 897,494 $1,805,498 $ 3,299,790 $ 379,798 $ 446,610
----------- ---------- ---------- ----------- ---------- ----------
Realized and unrealized gains (losses):
Realized gains (losses) on investment
transactions:
Proceeds from sales........................... $ 1,465,125 $ 794,128 $4,234,254 $ 4,616,173 $1,595,685 $1,587,638
Cost of investments sold...................... 1,530,247 699,941 3,386,443 4,105,186 1,265,897 1,676,042
----------- ---------- ---------- ----------- ---------- ----------
Net realized gains (losses)................. $ (65,122) $ 94,187 $ 847,811 $ 510,987 $ 329,788 $ (88,404)
----------- ---------- ---------- ----------- ---------- ----------
Net unrealized appreciation (depreciation) on
investments:
End of year................................... $ 296,421 $ 9,941 $3,270,426 $ 2,314,275 $1,679,172 $ 15,221
Beginning of year............................. (2,127,756) (606,232) 806,008 (1,660,908) 108,141 (924,010)
----------- ---------- ---------- ----------- ---------- ----------
Change in unrealized appreciation
(depreciation)............................. $ 2,424,177 $ 616,173 $2,464,418 $ 3,975,183 $1,571,031 $ 939,231
----------- ---------- ---------- ----------- ---------- ----------
Realized and unrealized gains................... $ 2,359,055 $ 710,360 $3,312,229 $ 4,486,170 $1,900,819 $ 850,827
----------- ---------- ---------- ----------- ---------- ----------
Increase in net assets from operations.......... $ 3,352,054 $1,607,854 $5,117,727 $ 7,785,960 $2,280,617 $1,297,437
----------- ---------- ---------- ----------- ---------- ----------
----------- ---------- ---------- ----------- ---------- ----------
</TABLE>
See notes to financial statements
5
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENT OF OPERATIONS -- continued
<TABLE>
<CAPTION>
MCM MCG MFH MWG MEG
Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Total
---------- -------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income and expenses:
Dividend income and capital gain distributions
received.......................................... $ 391,849 $113,686 $ 850,225 $ 393,155 $ -- $10,624,334
Mortality and expense risk charges................. 98,000 28,957 125,312 41,754 185,410 1,532,663
---------- -------- ---------- --------- ---------- -----------
Net investment income (expense)................ $ 293,849 $ 84,729 $ 724,913 $ 351,401 $ (185,410) $ 9,091,671
---------- -------- ---------- --------- ---------- -----------
Realized and unrealized gains (losses):
Realized gains (losses) on investment transactions:
Proceeds from sales.............................. $4,239,257 $880,204 $3,185,037 $ 761,413 $1,801,633 $25,160,547
Cost of investments sold......................... 4,239,257 880,204 3,034,374 811,411 1,271,819 22,900,821
---------- -------- ---------- --------- ---------- -----------
Net realized gains (losses).................... $ -- $ -- $ 150,663 $ (49,998) $ 529,814 $ 2,259,726
---------- -------- ---------- --------- ---------- -----------
Net unrealized appreciation (depreciation) on
investments:
End of year...................................... $ -- $ -- $ 161,693 $(280,006) $6,409,399 $13,876,542
Beginning of year................................ -- -- (419,372) (412,384) 1,985,871 (3,250,642)
---------- -------- ---------- --------- ---------- -----------
Change in unrealized appreciation
(depreciation)................................ $ -- $ -- $ 581,065 $ 132,378 $4,423,528 $17,127,184
---------- -------- ---------- --------- ---------- -----------
Realized and unrealized gains...................... $ -- $ -- $ 731,728 $ 82,380 $4,953,342 $19,386,910
---------- -------- ---------- --------- ---------- -----------
Increase in net assets from operations............. $ 293,849 $ 84,729 $1,456,641 $ 433,781 $4,767,932 $28,478,581
---------- -------- ---------- --------- ---------- -----------
---------- -------- ---------- --------- ---------- -----------
</TABLE>
See notes to financial statements
6
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MIT MIG MTR
Sub-Account Sub-Account Sub-Account
------------------------ ----------------------- ------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------------------ ----------------------- ------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................. $ 992,999 $ 941,136 $ 897,494 $ 544,896 $ 1,805,498 $ 708,043
Net realized gains (losses)............ (65,122) (325,464) 94,187 156,783 847,811 466,317
Net unrealized gains (losses).......... 2,424,177 (843,071) 616,173 (1,273,217) 2,464,418 (2,102,324)
----------- ----------- ---------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations................... $ 3,352,054 $ (227,399) $1,607,854 $ (571,538) $ 5,117,727 $ (927,964)
----------- ----------- ---------- ----------- ----------- -----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received........... $ 369,642 $ 376,453 $ 179,962 $ 183,072 $ 632,542 $ 776,476
Net transfers between Sub-Accounts
and Fixed Account................... 632,110 (161,720) 129,225 (151,270) (573,277) 298,368
Withdrawals, surrenders,
annuitizations, and contract
charges............................. (1,247,573) (1,382,160) (602,589) (633,457) (3,299,740) (3,550,874)
----------- ----------- ---------- ----------- ----------- -----------
Net accumulation activity.......... $ (245,821) $(1,167,427) $ (293,402) $ (601,655) $(3,240,475) $(2,476,030)
----------- ----------- ---------- ----------- ----------- -----------
Annuitization activity:
Annuitizations....................... $ 6,637 $ 23,903 $ 16,780 $ -- $ 16,421 $ --
Annuity payments..................... (10,426) (7,374) (10,536) (10,179) (33,654) (35,096)
Annuity transfers.................... -- -- -- -- -- --
Adjustments to annuity reserve....... (896) 38 334 (1,123) (16,418) (1,676)
----------- ----------- ---------- ----------- ----------- -----------
Net annuitization activity......... $ (4,685) $ 16,567 $ 6,578 $ (11,302) $ (33,651) $ (36,772)
----------- ----------- ---------- ----------- ----------- -----------
Decrease in net assets from participant
transactions.......................... $ (250,506) $(1,150,860) $ (286,824) $ (612,957) $(3,274,126) $(2,512,802)
----------- ----------- ---------- ----------- ----------- -----------
Increase (decrease) in net assets.... $ 3,101,548 $(1,378,259) $1,321,030 $(1,184,495) $ 1,843,601 $(3,440,766)
NET ASSETS:
Beginning of year...................... 8,991,804 10,370,063 6,162,234 7,346,729 21,773,705 25,214,471
----------- ----------- ---------- ----------- ----------- -----------
End of year............................ $12,093,352 $ 8,991,804 $7,483,264 $ 6,162,234 $23,617,306 $21,773,705
----------- ----------- ---------- ----------- ----------- -----------
----------- ----------- ---------- ----------- ----------- -----------
</TABLE>
See notes to financial statements
7
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MGO MFR MFB
Sub-Account Sub-Account Sub-Account
------------------------ ------------------------ -----------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------------------ ------------------------ -----------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................. $ 3,299,790 $ 1,697,646 $ 379,798 $ 572,686 $ 446,610 $ 510,715
Net realized gains (losses)............ 510,987 (141,035) 329,788 359,946 (88,404) (218,531)
Net unrealized gains (losses).......... 3,975,183 (3,067,770) 1,571,031 (1,000,706) 939,231 (911,126)
----------- ----------- ----------- ----------- ---------- -----------
Increase (decrease) in net assets
from operations................... $ 7,785,960 $(1,511,159) $ 2,280,617 $ (68,074) $1,297,437 $ (618,942)
----------- ----------- ----------- ----------- ---------- -----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received........... $ 453,315 $ 478,427 $ 135,168 $ 121,114 $ 149,502 $ 200,554
Net transfers between Sub-Accounts
and Fixed Account................... (83,265) (774,231) (299,560) 264,916 633,442 (2,342,807)
Withdrawals, surrenders,
annuitizations, and contract
charges............................. (4,010,089) (4,408,644) (1,142,203) (1,924,638) (990,064) (1,643,081)
----------- ----------- ----------- ----------- ---------- -----------
Net accumulation activity.......... $(3,640,039) $(4,704,448) $(1,306,595) $(1,538,608) $ (207,120) $(3,785,334)
----------- ----------- ----------- ----------- ---------- -----------
Annuitization activity:
Annuitizations....................... $ 17,843 $ 2,024 $ 13,047 $ 2,706 $ -- $ 20,883
Annuity payments..................... (17,899) (17,432) (3,401) (2,839) (7,848) (7,361)
Annuity transfers.................... -- -- -- -- -- --
Adjustments to annuity reserve....... 8,499 (259) (1,016) 367 1,914 (211)
----------- ----------- ----------- ----------- ---------- -----------
Net annuitization activity......... $ 8,443 $ (15,667) $ 8,630 $ 234 $ (5,934) $ 13,311
----------- ----------- ----------- ----------- ---------- -----------
Decrease in net assets from participant
transactions.......................... $(3,631,596) $(4,720,115) $(1,297,965) $(1,538,374) $ (213,054) $(3,772,023)
----------- ----------- ----------- ----------- ---------- -----------
Increase (decrease) in net assets.... $ 4,154,364 $(6,231,274) $ 982,652 $(1,606,448) $1,084,383 $(4,390,965)
NET ASSETS:
Beginning of year...................... 24,972,308 31,203,582 6,717,294 8,323,742 6,645,679 11,036,644
----------- ----------- ----------- ----------- ---------- -----------
End of year............................ $29,126,672 $24,972,308 $ 7,699,946 $ 6,717,294 $7,730,062 $ 6,645,679
----------- ----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ----------- ---------- -----------
</TABLE>
See notes to financial statements
8
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MCM MCG MFH
Sub-Account Sub-Account Sub-Account
------------------------ ---------------------- ------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------------------ ---------------------- ------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income................... $ 293,849 $ 214,619 $ 84,729 $ 53,180 $ 724,913 $ 750,483
Net realized gains (losses)............. -- -- -- -- 150,663 1,152,091
Net unrealized gains (losses)........... -- -- -- -- 581,065 (2,267,010)
----------- ----------- ---------- ---------- ----------- -----------
Increase (decrease) in net assets
from operations.................... $ 293,849 $ 214,619 $ 84,729 $ 53,180 $ 1,456,641 $ (364,436)
----------- ----------- ---------- ---------- ----------- -----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received............ $ 238,984 $ 390,625 $ 66,406 $ 75,647 $ 221,528 $ 202,770
Net transfers between Sub-Accounts and
Fixed Account........................ (301,095) 1,918,944 (259,690) 485,402 (211,934) (20,819)
Withdrawals, surrenders,
annuitizations, and contract
charges.............................. (1,961,874) (2,896,413) (364,427) (960,223) (2,451,712) (2,371,864)
----------- ----------- ---------- ---------- ----------- -----------
Net accumulation activity........... $(2,023,985) $ (586,844) $ (557,711) $ (399,174) $(2,442,118) $(2,189,913)
----------- ----------- ---------- ---------- ----------- -----------
Annuitization activity:
Annuitizations........................ $ -- $ -- $ -- $ -- $ -- $ 2,426
Annuity payments...................... (4,026) (3,642) (196) (199) (19,590) (24,131)
Annuity transfers..................... -- 20,529 -- -- -- --
Adjustments to annuity reserve........ 464 (19,466) 62 55 (5,594) 2,745
----------- ----------- ---------- ---------- ----------- -----------
Net annuitization activity.......... $ (3,562) $ (2,579) $ (134) $ (144) $ (25,184) $ (18,960)
----------- ----------- ---------- ---------- ----------- -----------
Decrease in net assets from participant
transactions........................... $(2,027,547) $ (589,423) $ (557,845) $ (399,318) $(2,467,302) $(2,208,873)
----------- ----------- ---------- ---------- ----------- -----------
Increase (decrease) in net assets..... $(1,733,698) $ (374,804) $ (473,116) $ (346,138) $(1,010,661) $(2,573,309)
NET ASSETS:
Beginning of year....................... 8,802,264 9,177,068 2,450,531 2,796,669 10,228,780 12,802,089
----------- ----------- ---------- ---------- ----------- -----------
End of year............................. $ 7,068,566 $ 8,802,264 $1,977,415 $2,450,531 $ 9,218,119 $10,228,780
----------- ----------- ---------- ---------- ----------- -----------
----------- ----------- ---------- ---------- ----------- -----------
</TABLE>
See notes to financial statements
9
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MWG MEG
Sub-Account Sub-Account Total
----------------------- ------------------------ --------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
----------------------- ------------------------ --------------------------
1995 1994 1995 1994 1995 1994
---------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income................ $ 351,401 $ 134,675 $ (185,410) $ 97,096 $ 9,091,671 $ 6,225,175
Net realized gains (losses).......... (49,998) (56,869) 529,814 469,030 2,259,726 1,862,268
Net unrealized gains (losses)........ 132,378 (421,856) 4,423,528 (117,182) 17,127,184 (12,004,262)
---------- ----------- ----------- ----------- ------------ ------------
Increase (decrease) in net assets
from operations................. $ 433,781 $ (344,050) $ 4,767,932 $ 448,944 $ 28,478,581 $ (3,916,819)
---------- ----------- ----------- ----------- ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received......... $ 56,089 $ 60,004 $ 313,173 $ 267,434 $ 2,816,311 $ 3,132,576
Net transfers between Sub-Accounts
and Fixed Account................. (8,929) (136,100) 252,941 322,219 (90,032) (297,098)
Withdrawals, surrenders,
annuitizations, and contract
charges........................... (694,187) (700,903) (1,159,186) (1,071,937) (17,923,644) (21,544,194)
---------- ----------- ----------- ----------- ------------ ------------
Net accumulation activity........ $ (647,027) $ (776,999) $ (593,072) $ (482,284) $(15,197,365) $(18,708,716)
---------- ----------- ----------- ----------- ------------ ------------
Annuitization activity:
Annuitizations..................... $ 19,499 $ -- $ -- $ -- $ 90,227 $ 51,942
Annuity payments................... (5,171) (5,454) (15,686) (13,626) (128,433) (127,333)
Annuity transfers.................. -- -- -- (20,529) -- --
Adjustments to annuity reserve..... (5,384) 2,332 5,819 21,345 (12,216) 4,147
---------- ----------- ----------- ----------- ------------ ------------
Net annuitization activity....... $ 8,944 $ (3,122) $ (9,867) $ (12,810) $ (50,422) $ (71,244)
---------- ----------- ----------- ----------- ------------ ------------
Decrease in net assets from
participant transactions............ $ (638,083) $ (780,121) $ (602,939) $ (495,094) $(15,247,787) $(18,779,960)
---------- ----------- ----------- ----------- ------------ ------------
Increase (decrease) in net
assets............................ $ (204,302) $(1,124,171) $ 4,164,993 $ (46,150) $ 13,230,794 $(22,696,779)
NET ASSETS:
Beginning of year.................... 3,306,315 4,430,486 12,663,751 12,709,901 112,714,665 135,411,444
---------- ----------- ----------- ----------- ------------ ------------
End of year.......................... $3,102,013 $ 3,306,315 $16,828,744 $12,663,751 $125,945,459 $112,714,665
---------- ----------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ----------- ------------ ------------
</TABLE>
See notes to financial statements
10
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life of Canada (U.S.) Variable Account C (the "Variable Account"), a
separate account of Sun Life Assurance Company of Canada (U.S.), the Sponsor,
was established on March 31, 1982 as a funding vehicle for individual variable
annuities issued in connection with qualified retirement plans. The Variable
Account is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 as a unit investment trust.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account is invested in shares of a specific mutual fund or series thereof
selected by contract owners from among available mutual funds (the "Funds")
advised by Massachusetts Financial Services Company ("MFS"), a wholly-owned
subsidiary of the Sponsor.
(2) SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS
Investments in the Funds are recorded at their net asset value. Realized gains
and losses on sales of shares of the Funds are determined on the identified cost
basis. Dividend income and capital gain distributions received by the
Sub-Accounts are reinvested in additional Fund shares and are recognized on the
ex-dividend date.
Exchanges between Sub-Accounts requested by contract owners are recorded in the
new Sub-Account upon receipt of the redemption proceeds.
FEDERAL INCOME TAX STATUS
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately; the Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Under existing federal income tax law, investment income and capital gains
earned by the Variable Account on contract owner reserves are not subject to
tax.
(3) CONTRACT CHARGES
A mortality and expense risk charge based on the value of the Variable Account
is deducted from the Variable Account at the end of each valuation period for
the mortality and expense risks assumed by the Sponsor. The deduction is at an
effective annual rate of 1.3%.
Each year on the contract anniversary, a contract maintenance charge of $25 is
deducted from each contract's accumulation account to cover administrative
expenses relating to the contract. After the annuity commencement date the
charge is deducted pro rata from each annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) may be deducted to cover
certain expenses relating to the sale of the contract. In no event shall the
aggregate withdrawal charges exceed 5% of the purchase payments made under the
contract.
11
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS -- continued
A deduction, when applicable, is made for premium or similar state or local
taxes. It is currently the policy of the Sponsor to deduct the taxes from the
amount applied to provide an annuity at the time annuity payments commence;
however, the Sponsor reserves the right to deduct such taxes when incurred.
(4) ANNUITY RESERVES
Annuity reserves for contracts with annuity commencement dates prior to February
1, 1987 are calculated using the 1971 Individual Annuitant Mortality Table.
Annuity reserves for contracts with annuity commencement dates on or after
February 1, 1987 are calculated using the 1983 Individual Annuitant Mortality
Table. All annuity reserves are calculated using an assumed interest rate of 4%.
Required adjustments to the reserve are accomplished by transfers to or from the
Sponsor.
(5) TRANSACTIONS IN UNITS OUTSTANDING
<TABLE>
<CAPTION>
MIT MIG MTR MGO
Sub-Account Sub-Account Sub-Account Sub-Account
------------------ ------------------ ------------------ ---------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
------------------ ------------------ ------------------ ---------------------
1995 1994 1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding beginning of year... 233,419 263,601 191,666 210,268 580,826 646,262 952,138 1,126,904
Units purchased..................... 8,255 9,625 5,027 5,720 15,382 20,357 15,050 17,873
Units transferred between
Sub-Accounts and Fixed Account..... 14,317 (4,059) 3,509 (4,872) (13,411) 7,502 (3,016) (29,218)
Units withdrawn, surrendered, and
annuitized......................... (27,593) (35,748) (16,816) (19,450) (80,489) (93,295) (128,617) (163,421)
-------- -------- -------- -------- -------- -------- --------- ----------
Units outstanding end of year......... 228,398 233,419 183,386 191,666 502,308 580,826 835,555 952,138
-------- -------- -------- -------- -------- -------- --------- ----------
-------- -------- -------- -------- -------- -------- --------- ----------
<CAPTION>
MFR MFB
Sub-Account Sub-Account
------------------ ------------------
Year Ended Year Ended
December 31, December 31,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Units outstanding beginning of year... 189,988 232,537 233,449 368,774
Units purchased..................... 3,374 3,339 4,911 7,025
Units transferred between
Sub-Accounts and Fixed Account..... (7,419) 7,358 19,907 (84,505)
Units withdrawn, surrendered, and
annuitized......................... (27,027) (53,246) (31,696) (57,845)
-------- -------- -------- --------
Units outstanding end of year......... 158,916 189,988 226,571 233,449
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
MCM MCG MFH
Sub-Account Sub-Account Sub-Account
-------------------- ------------------ ------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
-------------------- ------------------ ------------------
1995 1994 1995 1994 1995 1994
--------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding beginning of year 480,850 512,329 139,248 162,009 339,549 408,637
Units purchased..................... 12,892 21,724 3,707 4,349 7,012 6,736
Units transferred between
Sub-Accounts and Fixed Account..... (16,523) 107,801 (14,383) 28,123 (6,198) 1,513
Units withdrawn, surrendered, and
annuitized......................... (105,850) (161,004) (20,366) (55,233) (75,972) (77,337)
--------- --------- -------- -------- -------- --------
Units outstanding end of year......... 371,369 480,850 108,206 139,248 264,391 339,549
--------- --------- -------- -------- -------- --------
--------- --------- -------- -------- -------- --------
<CAPTION>
MWG MEG
Sub-Account Sub-Account
------------------ ------------------
Year Ended Year Ended
December 31, December 31,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Units outstanding beginning of year 101,661 125,704 390,605 405,542
Units purchased..................... 1,602 1,846 8,332 8,553
Units transferred between
Sub-Accounts and Fixed Account..... (229) (4,391) 5,480 11,117
Units withdrawn, surrendered, and
annuitized......................... (19,857) (21,498) (31,691) (34,607)
-------- -------- -------- --------
Units outstanding end of year......... 83,177 101,661 372,726 390,605
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Participants in Sun Life of Canada (U.S.) Variable Account C
and the Board of Directors of Sun Life Assurance Company of Canada (U.S.):
We have audited the accompanying statement of condition of Sun Life of Canada
(U.S.) Variable Account C (the "Variable Account") as of December 31, 1995, the
related statement of operations for the year then ended and the statements of
changes in net assets for the years ended December 31, 1995 and 1994. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation with the custodian of securities held for the Variable Account as
of December 31, 1995. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Variable Account as of December 31,
1995, the results of its operations and the changes in its net assets for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 2, 1996
----------------------------------------
This report is prepared for the general information of contract owners. It is
authorized for distribution to prospective purchasers only when preceded or
accompanied by an effective prospectus.
13
<PAGE>
COMPASS-I
DIRECTORS AND OFFICERS OF
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
JOHN D. McNEIL, Chairman and Director
JOHN R. GARDNER, President and Director
DAVID D. HORN, Senior Vice President and
General Manager and Director
RICHARD B. BAILEY, Director
A. KEITH BRODKIN, Director
M. COLYER CRUM, Director
JOHN S. LANE, Director
ANGUS A. MacNAUGHTON, Director
BONNIE S. ANGUS, Secretary
L. BROCK THOMSON, Vice President and Treasurer
SUN LIFE ASSURANCE COMPANY
OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
Sun Life Annuity Service Center
P.O. Box 1024, Boston, Massachusetts 02103-9986
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
500 Boylston Street, Boston, Massachusetts 02116-3741
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts 02110-2875
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566, Washington, D.C. 20044-7566
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, Massachusetts 02110-1616
ACCOUNT INFORMATION
For account information, please call toll free:
1-800-752-7218 anytime from a touch-tone telephone.
To speak with a customer service representative, please call toll
free: 1-800-752-7215 from 8 a.m. to 6 p.m.
Eastern time any business day.
CO1US-2 2/96 8.5M
[LOGO]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITY
FOR QUALIFIED RETIREMENT PLANS
ANNUAL REPORT - DECEMBER 31, 1995
ISSUED BY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.),
A WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA
