<PAGE>
DEAR CONTRACT OWNERS:
Rising global liquidity has underpinned international equity markets over the
past six months, and equities so far have ignored the "growth scare" that has
affected most bond markets in 1996. Low interest rates in Europe and Japan and a
growing money supply, plus signs of economic recovery and accelerating corporate
earnings in those areas, reinforced the positive message coming from the U.S.
equity market. Investors in these markets believe that the same trends are at
work as in the United States, but that the international markets are in an
earlier phase of their cycle. For the six months ended June 30, 1996, the
Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index
of common stock performance, returned 10.09%. All of the equity accounts
available under your contract achieved positive results.
U.S. OUTLOOK
Real (inflation-adjusted) economic growth in the first quarter of 1996 was 2.3%
on an annualized basis, and it appears that second-quarter growth could be even
stronger. Thus, real growth in gross domestic product has started the year at a
rate exceeding our expectations. While we continue to believe that growth from
quarter to quarter will be uneven, it is now our expectation that growth for all
of 1996 could exceed 2.5%. Although individual consumers appear to be carrying
an excessive debt load, the consumer sector itself, which represents two-thirds
of the economy, continues to be impressive as the auto and housing markets
remain resilient. Consumer spending has also been positively impacted by
widespread job growth. At the same time, however, the economies of Europe and
Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti-inflationary stance.
GLOBAL OUTLOOK
The first half of 1996 has seen a continuation of the positive performance of
global equity markets exhibited in 1995. Positive local currency returns were
generated throughout the world. The Morgan Stanley Capital International (MSCI)
Europe Index was up 10.4%, with returns ranging from 2.6% in the United Kingdom
to 20.9% in Spain; the MSCI Pacific Index was up 7.5%, with returns ranging from
- -2.2% in New Zealand to 14.3% in Malaysia. The MSCI indices are unmanaged,
market-capitalization-weighted total return indices of global stock market
performance. Meanwhile, the S&P 500 gained 10.1%, and the International Finance
Corp. Global Composite Index, a market-capitalization-weighted index comprising
the most active stocks of emerging markets (as defined by the World Bank), rose
13.5%. The only major negative was the strong U.S. dollar, which gained 6%
against the Japanese yen and the German mark and ate into dollar-based returns.
We believe that the equity markets will continue to be fundamentally driven,
although the economic outlook is uncertain, with the strength of the U.S.
economy unclear, Japan starting to show more meaningful signs of recovery, and
Europe's recovery still in its early stages. Lower interest rates, particularly
in Europe and Japan, have helped support strong equity markets. While we believe
that interest rates are unlikely to fall further, a subdued global inflation
outlook could mean that rates rise little from current levels, which should help
support current equity market valuations. Therefore, for the remainder of 1996,
we believe corporate earnings growth will be the key to further stock market
gains.
1
<PAGE>
BOND MARKETS
In the bond markets, persistent signs of economic weakness led to decreases in
short-term interest rates by the Federal Reserve in late 1995 and early 1996.
However, should signs of economic growth and, particularly, of higher inflation
continue, we would expect the Fed to maintain its anti-inflationary stance. In
the beginning of the year, bond markets were trading in a narrow range, as
investors shifted between concern about the lack of a budget resolution in
Washington and hopes that sluggish economic reports and low inflation might lead
to lower interest rates. Later, fixed-income markets began reacting to
conflicting signals regarding the strength of the economy with more-volatile
trading patterns marked by an upward bias in interest rates. Interest rates may
move even higher over the coming months, but we believe the current rise in bond
yields is reaching a point where fixed-income markets are becoming attractively
valued.
In world bond markets, non-U.S. bonds, measured in local currency terms,
continued to outperform U.S. bonds during the period. The best performance was
within the higher-yielding European markets (Italy, Spain, and Sweden).
Virtually all the yield curves within these markets steepened dramatically over
the period as most European central banks lowered official interest rates due to
continued slow growth and low inflation. Within the dollar bloc, Canada and
Australia also outperformed the United States, while New Zealand suffered
underperformance due to political concerns and a pickup in economic growth.
Looking forward, we believe the main issue is whether the recent trends of
rising interest rates in most markets and a stronger dollar will remain intact.
The case for a continuation of these trends rests primarily on accelerating
world growth, led by a buoyant U.S. economy. Indicators which we feel could lead
to a further rise in interest rates include the higher-than-expected growth seen
in the United States so far this year, the rebound of growth in Japan, signs of
a rebound in Germany, and strong growth among emerging economies. However, in
our view, any further rise in yield from current levels could be less dramatic
than that experienced so far this year.
STOCK MARKET
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in the growth of corporate earnings and the
increases in interest rates experienced so far this year raise near-term
concerns. Further increases in interest rates, and an acceleration of inflation
coupled with an additional slowdown in corporate earnings growth, could have a
negative effect on the stock market. However, to the extent that some earnings
disappointments are taken as a sign that the economy is not overheating, this
may prove beneficial for the longer-term health of the equity market. We
continue to believe that many of the technology-driven productivity gains that
U.S. companies have made in recent years will continue to enhance corporate
America's competitiveness and profitability. Therefore, while we have some
near-term concerns, we remain quite constructive on the long-term viability of
the equity market.
We appreciate your support and welcome any questions or comments you may have.
On behalf of the Board of Managers,
John D. McNeil
Chairman
July 10, 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
-------------------------------- Percent
June 30, Change
Compass 1 (U.S.) Contracts December 31, 1995 1996 in Unit Value
----------------- ------------ -------------
<S> <C> <C> <C>
Massachusetts Investors Trust........................ $52.6746 $57.8664 9.86%
Massachusetts Investors Growth Stock Fund............ 40.3897 45.5544 12.79%
MFS Total Return Fund................................ 46.4569 48.4069 4.20%
MFS Growth Opportunities Fund........................ 34.5473 38.7016 12.02%
MFS Research Fund.................................... 48.2543 54.6176 13.19%
MFS Bond Fund........................................ 33.5161 32.3778 (3.40)%
MFS Money Market Fund................................ 18.9505 19.2655 1.66%
MFS Government Money Market Fund..................... 18.2642 18.5565 1.60%
MFS High Income Fund................................. 34.3557 35.5158 3.38%
MFS World Governments Fund........................... 36.8194 36.2556 (1.53)%
MFS Emerging Growth Fund............................. 44.8831 50.8770 13.35%
</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 -- June 30, 1996
<TABLE>
<CAPTION>
ASSETS:
Investments in mutual funds: Shares Cost Value
------------ ------------ ------------
<S> <C> <C> <C>
Massachusetts Investors Trust (MIT)*.......... 926,371 $ 11,456,219 $ 12,919,223
Massachusetts Investors Growth Stock Fund
(MIG)*....................................... 581,324 6,367,853 7,016,824
MFS Total Return Fund (MTR)*.................. 1,580,572 19,892,369 23,370,607
MFS Growth Opportunities Fund (MGO)*.......... 2,317,894 25,520,841 31,207,483
MFS Research Fund (MFR)*...................... 476,838 6,012,309 8,493,982
MFS Bond Fund (MFB)*.......................... 565,012 7,688,910 7,245,449
MFS Money Market Fund (MCM)................... 6,314,910 6,314,910 6,314,910
MFS Government Money Market Fund (MCG)........ 1,722,823 1,722,823 1,722,823
MFS High Income Fund (MFH)*................... 1,673,810 8,552,202 8,633,224
MFS World Governments Fund (MWG)*............. 261,877 3,125,371 2,859,622
MFS Emerging Growth Fund (MEG)*............... 612,632 10,497,544 18,668,273
------------ ------------
$107,151,351 $128,452,420
------------
------------
Receivable from sponsor..................................................... 9,223
------------
Net assets............................................................ $128,461,643
------------
------------
</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...................................... 221,973 $57.8664 $ 12,842,572 $ 85,133 $ 12,927,705
MIG...................................... 152,417 45.5544 6,941,718 80,415 7,022,133
MTR...................................... 476,039 48.4069 23,025,810 272,780 23,298,590
MGO...................................... 800,340 38.7016 31,106,612 149,959 31,256,571
MFR...................................... 154,990 54.6176 8,466,784 31,760 8,498,544
MFB...................................... 219,968 32.3778 7,195,879 57,192 7,253,071
MCM...................................... 326,200 19.2655 6,282,367 31,725 6,314,092
MCG...................................... 92,793 18.5565 1,721,635 1,275 1,722,910
MFH...................................... 240,489 35.5158 8,525,760 138,708 8,664,468
MWG...................................... 76,840 36.2556 2,785,790 33,839 2,819,629
MEG...................................... 365,174 50.8770 18,578,066 105,864 18,683,930
------------ ----------- ------------
Net assets................................................ $127,472,993 $988,650 $128,461,643
------------ ----------- ------------
------------ ----------- ------------
</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
STATEMENTS OF OPERATIONS -- Six Months Ended June 30, 1996
<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....................................... $ 92,798 $ -- $ 493,276 $ -- $ -- $ 268,182
Mortality and expense risk charges.............. 80,710 47,775 149,799 195,090 53,406 46,536
----------- ---------- ---------- ----------- ---------- ----------
Net investment income (expense)............. $ 12,088 $ (47,775) $ 343,477 $ (195,090) $ (53,406) $ 221,646
----------- ---------- ---------- ----------- ---------- ----------
Realized and unrealized gains (losses):
Realized gains (losses) on investment
transactions:
Proceeds from sales........................... $ 792,059 $1,521,159 $1,880,226 $ 1,767,224 $ 678,505 $ 433,869
Cost of investments sold...................... 791,775 1,210,553 1,481,386 1,510,650 408,439 452,816
----------- ---------- ---------- ----------- ---------- ----------
Net realized gains (losses)................. $ 284 $ 310,606 $ 398,840 $ 256,574 $ 270,066 $ (18,947)
----------- ---------- ---------- ----------- ---------- ----------
Net unrealized appreciation (depreciation) on
investments:
End of period................................. $ 1,463,004 $ 648,971 $3,478,238 $ 5,686,642 $2,481,673 $ (443,461)
Beginning of period........................... 296,421 9,941 3,270,426 2,314,275 1,679,172 15,221
----------- ---------- ---------- ----------- ---------- ----------
Change in unrealized appreciation
(depreciation) $ 1,166,583 $ 639,030 $ 207,812 $ 3,372,367 $ 802,501 $ (458,682)
----------- ---------- ---------- ----------- ---------- ----------
Realized and unrealized gains (losses).......... $ 1,166,867 $ 949,636 $ 606,652 $ 3,628,941 $1,072,567 $ (477,629)
----------- ---------- ---------- ----------- ---------- ----------
Increase (decrease) in net assets from
operations..................................... $ 1,178,955 $ 901,861 $ 950,129 $ 3,433,851 $1,019,161 $ (255,983)
----------- ---------- ---------- ----------- ---------- ----------
----------- ---------- ---------- ----------- ---------- ----------
</TABLE>
<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.......................................... $ 155,111 $ 40,731 $ 387,636 $ -- $ -- $ 1,437,734
Mortality and expense risk charges................. 43,465 11,780 57,245 18,764 114,557 819,127
---------- -------- ---------- --------- ---------- -----------
Net investment income (expense)................ $ 111,646 $ 28,951 $ 330,391 $ (18,764) $ (114,557) $ 618,607
---------- -------- ---------- --------- ---------- -----------
Realized and unrealized gains (losses):
Realized gains (losses) on investment transactions:
Proceeds from sales.............................. $2,114,727 $384,383 $1,472,866 $ 330,725 $1,205,909 $12,581,652
Cost of investments sold......................... 2,114,727 384,383 1,420,072 375,149 647,005 10,796,955
---------- -------- ---------- --------- ---------- -----------
Net realized gains (losses).................... $ -- $ -- $ 52,794 $ (44,424) $ 558,904 $ 1,784,697
---------- -------- ---------- --------- ---------- -----------
Net unrealized appreciation (depreciation) on
investments:
End of period.................................... $ -- $ -- $ 81,022 $(265,749) $8,170,729 $21,301,069
Beginning of period.............................. -- -- 161,693 (280,006) 6,409,399 13,876,542
---------- -------- ---------- --------- ---------- -----------
Change in unrealized appreciation
(depreciation)................................ $ -- $ -- $ (80,671) $ 14,257 $1,761,330 $ 7,424,527
---------- -------- ---------- --------- ---------- -----------
Realized and unrealized gains (losses)............. $ -- $ -- $ (27,877) $ (30,167) $2,320,234 $ 9,209,224
---------- -------- ---------- --------- ---------- -----------
Increase (decrease) in net assets from
operations........................................ $ 111,646 $ 28,951 $ 302,514 $ (48,931) $2,205,677 $ 9,827,831
---------- -------- ---------- --------- ---------- -----------
---------- -------- ---------- --------- ---------- -----------
</TABLE>
See notes to financial statements
5
<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
------------------------------- ------------------------------ -------------------------------
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1996 1995 June 30, 1996 1995 June 30, 1996 1995
-------------- -------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(expense)................... $ 12,088 $ 992,999 $ (47,775) $ 897,494 $ 343,477 $ 1,805,498
Net realized gains
(losses).................... 284 (65,122) 310,606 94,187 398,840 847,811
Net unrealized gains......... 1,166,583 2,424,177 639,030 616,173 207,812 2,464,418
-------------- -------------- -------------- ------------- -------------- --------------
Increase in net assets
from operations......... $ 1,178,955 $ 3,352,054 $ 901,861 $1,607,854 $ 950,129 $ 5,117,727
-------------- -------------- -------------- ------------- -------------- --------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received.................. $ 161,918 $ 369,642 $ 108,747 $ 179,962 $ 295,292 $ 632,542
Net transfers between Sub-
Accounts and Fixed
Account................... 220,463 632,110 (43,527) 129,225 158,248 (573,277)
Withdrawals, surrenders,
annuitizations, and
contract charges.......... (740,426) (1,247,573) (1,421,765) (602,589) (1,703,048) (3,299,740)
-------------- -------------- -------------- ------------- -------------- --------------
Net accumulation
activity................ $ (358,045) $ (245,821) $(1,356,545) $ (293,402) $(1,249,508) $(3,240,475)
-------------- -------------- -------------- ------------- -------------- --------------
Annuitization activity:
Annuitizations............. $ 15,384 $ 6,637 $ -- $ 16,780 $ 4,004 $ 16,421
Annuity payments........... (12,953) (10,426) (6,547) (10,536) (19,751) (33,654)
Adjustments to annuity
reserve................... 11,012 (896) 100 334 (3,590) (16,418)
-------------- -------------- -------------- ------------- -------------- --------------
Net annuitization
activity................ $ 13,443 $ (4,685) $ (6,447) $ 6,578 $ (19,337) $ (33,651)
-------------- -------------- -------------- ------------- -------------- --------------
Decrease in net assets from
participant transactions.... $ (344,602) $ (250,506) $(1,362,992) $ (286,824) $(1,268,845) $(3,274,126)
-------------- -------------- -------------- ------------- -------------- --------------
Increase (decrease) in net
assets.................... $ 834,353 $ 3,101,548 $ (461,131) $1,321,030 $ (318,716) $ 1,843,601
NET ASSETS:
Beginning of period.......... 12,093,352 8,991,804 7,483,264 6,162,234 23,617,306 21,773,705
-------------- -------------- -------------- ------------- -------------- --------------
End of period................ $12,927,705 $12,093,352 $ 7,022,133 $7,483,264 $23,298,590 $23,617,306
-------------- -------------- -------------- ------------- -------------- --------------
-------------- -------------- -------------- ------------- -------------- --------------
</TABLE>
See notes to financial statements
6
<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
------------------------------- ------------------------------ -----------------------------
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1996 1995 June 30, 1996 1995 June 30, 1996 1995
-------------- -------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(expense)................... $ (195,090) $ 3,299,790 $ (53,406) $ 379,798 $ 221,646 $ 446,610
Net realized gains
(losses).................... 256,574 510,987 270,066 329,788 (18,947) (88,404)
Net unrealized gains
(losses).................... 3,372,367 3,975,183 802,501 1,571,031 (458,682) 939,231
-------------- -------------- ------------- -------------- ------------- -------------
Increase (decrease) in
net assets from
operations.............. $ 3,433,851 $ 7,785,960 $1,019,161 $ 2,280,617 $ (255,983) $1,297,437
-------------- -------------- ------------- -------------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received.................. $ 220,852 $ 453,315 $ 82,520 $ 135,168 $ 85,077 $ 149,502
Net transfers between Sub-
Accounts and Fixed
Account................... (150,893) (83,265) 304,865 (299,560) (20,877) 633,442
Withdrawals, surrenders,
annuitizations, and
contract charges.......... (1,368,360) (4,010,089) (605,885) (1,142,203) (283,461) (990,064)
-------------- -------------- ------------- -------------- ------------- -------------
Net accumulation
activity................ $(1,298,401) $(3,640,039) $ (218,500) $(1,306,595) $ (219,261) $ (207,120)
-------------- -------------- ------------- -------------- ------------- -------------
Annuitization activity:
Annuitizations............. $ -- $ 17,843 $ -- $ 13,047 $ -- $ --
Annuity payments........... (15,423) (17,899) (7,438) (3,401) (3,784) (7,848)
Adjustments to annuity
reserve................... 9,872 8,499 5,375 (1,016) 2,037 1,914
-------------- -------------- ------------- -------------- ------------- -------------
Net annuitization
activity................ $ (5,551) $ 8,443 $ (2,063) $ 8,630 $ (1,747) $ (5,934)
-------------- -------------- ------------- -------------- ------------- -------------
Decrease in net assets from
participant transactions.... $(1,303,952) $(3,631,596) $ (220,563) $(1,297,965) $ (221,008) $ (213,054)
-------------- -------------- ------------- -------------- ------------- -------------
Increase (decrease) in net
assets.................... $ 2,129,899 $ 4,154,364 $ 798,598 $ 982,652 $ (476,991) $1,084,383
NET ASSETS:
Beginning of period.......... 29,126,672 24,972,308 7,699,946 6,717,294 7,730,062 6,645,679
-------------- -------------- ------------- -------------- ------------- -------------
End of period................ $31,256,571 $29,126,672 $8,498,544 $ 7,699,946 $7,253,071 $7,730,062
-------------- -------------- ------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------- ------------- -------------
</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>
MCM MCG MFH
Sub-Account Sub-Account Sub-Account
------------------------------ ----------------------------- ------------------------------
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1996 1995 June 30, 1996 1995 June 30, 1996 1995
------------- -------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income........ $ 111,646 $ 293,849 $ 28,951 $ 84,729 $ 330,391 $ 724,913
Net realized gains........... -- -- -- -- 52,794 150,663
Net unrealized gains
(losses).................... -- -- -- -- (80,671) 581,065
------------- -------------- ------------- ------------- ------------- --------------
Increase in net assets
from operations......... $ 111,646 $ 293,849 $ 28,951 $ 84,729 $ 302,514 $ 1,456,641
------------- -------------- ------------- ------------- ------------- --------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received.................. $ 76,803 $ 238,984 $ 25,898 $ 66,406 $ 83,532 $ 221,528
Net transfers between Sub-
Accounts and Fixed
Account................... (289,983) (301,095) (126,122) (259,690) (427,222) (211,934)
Withdrawals, surrenders,
annuitizations, and
contract charges.......... (651,200) (1,961,874) (183,167) (364,427) (500,590) (2,451,712)
------------- -------------- ------------- ------------- ------------- --------------
Net accumulation
activity................ $ (864,380) $(2,023,985) $ (283,391) $ (557,711) $ (844,280) $(2,442,118)
------------- -------------- ------------- ------------- ------------- --------------
Annuitization activity:
Annuitizations............. $ -- $ -- $ -- $ -- $ -- $ --
Annuity payments........... (2,009) (4,026) (98) (196) (13,405) (19,590)
Adjustments to annuity
reserve................... 269 464 33 62 1,520 (5,594)
------------- -------------- ------------- ------------- ------------- --------------
Net annuitization
activity................ $ (1,740) $ (3,562) $ (65) $ (134) $ (11,885) $ (25,184)
------------- -------------- ------------- ------------- ------------- --------------
Decrease in net assets from
participant transactions.... $ (866,120) $(2,027,547) $ (283,456) $ (557,845) $ (856,165) $(2,467,302)
------------- -------------- ------------- ------------- ------------- --------------
Decrease in net assets..... $ (754,474) $(1,733,698) $ (254,505) $ (473,116) $ (553,651) $(1,010,661)
NET ASSETS:
Beginning of period.......... 7,068,566 8,802,264 1,977,415 2,450,531 9,218,119 10,228,780
------------- -------------- ------------- ------------- ------------- --------------
End of period................ $6,314,092 $ 7,068,566 $1,722,910 $1,977,415 $8,664,468 $ 9,218,119
------------- -------------- ------------- ------------- ------------- --------------
------------- -------------- ------------- ------------- ------------- --------------
</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>
MWG MEG Total
Sub-Account Sub-Account Sub-Account
----------------------------- ------------------------------- -------------------------------
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1996 1995 June 30, 1996 1995 June 30, 1996 1995
------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(expense)................... $ (18,764) $ 351,401 $ (114,557) $ (185,410) $ 618,607 $ 9,091,671
Net realized gains
(losses).................... (44,424) (49,998) 558,904 529,814 1,784,697 2,259,726
Net unrealized gains......... 14,257 132,378 1,761,330 4,423,528 7,424,527 17,127,184
------------- ------------- -------------- -------------- -------------- --------------
Increase (decrease) in
net assets from
operations.............. $ (48,931) $ 433,781 $ 2,205,677 $ 4,767,932 $ 9,827,831 $ 28,478,581
------------- ------------- -------------- -------------- -------------- --------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received.................. $ 21,690 $ 56,089 $ 235,535 $ 313,173 $ 1,397,864 $ 2,816,311
Net transfers between Sub-
Accounts and Fixed
Account................... 21,744 (8,929) 321,846 252,941 (31,458) (90,032)
Withdrawals, surrenders,
annuitizations, and
contract charges.......... (271,774) (694,187) (901,888) (1,159,186) (8,631,564) (17,923,644)
------------- ------------- -------------- -------------- -------------- --------------
Net accumulation
activity................ $ (228,340) $ (647,027) $ (344,507) $ (593,072) $ (7,265,158) $(15,197,365)
------------- ------------- -------------- -------------- -------------- --------------
Annuitization activity:
Annuitizations............. $ -- $ 19,499 $ -- $ -- $ 19,388 $ 90,227
Annuity payments........... (5,405) (5,171) (7,819) (15,686) (94,632) (128,433)
Adjustments to annuity
reserve................... 292 (5,384) 1,835 5,819 28,755 (12,216)
------------- ------------- -------------- -------------- -------------- --------------
Net annuitization
activity................ $ (5,113) $ 8,944 $ (5,984) $ (9,867) $ (46,489) $ (50,422)
------------- ------------- -------------- -------------- -------------- --------------
Decrease in net assets from
participant transactions.... $ (233,453) $ (638,083) $ (350,491) $ (602,939) $ (7,311,647) $(15,247,787)
------------- ------------- -------------- -------------- -------------- --------------
Increase (decrease) in net
assets.................... $ (282,384) $ (204,302) $ 1,855,186 $ 4,164,993 $ 2,516,184 $ 13,230,794
NET ASSETS:
Beginning of period.......... 3,102,013 3,306,315 16,828,744 12,663,751 125,945,459 112,714,665
------------- ------------- -------------- -------------- -------------- --------------
End of period................ $2,819,629 $3,102,013 $18,683,930 $16,828,744 $128,461,643 $125,945,459
------------- ------------- -------------- -------------- -------------- --------------
------------- ------------- -------------- -------------- -------------- --------------
</TABLE>
See notes to financial statements
9
<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 subsidiary of the
Sponsor.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
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%.
10
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS -- continued
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.
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.
11
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS -- continued
(5) TRANSACTIONS IN UNITS OUTSTANDING
<TABLE>
<CAPTION>
MIT MIG MTR MGO
Sub-Account Sub-Account Sub-Account Sub-Account
------------------------ ------------------------ ------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six Months Six Months Six Months Six Months Year
Ended Year Ended Ended Year Ended Ended Year Ended Ended Ended
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31,
1996 1995 1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
Units outstanding,
beginning of period... 228,398 233,419 183,386 191,666 502,308 580,826 835,555 952,138
Units purchased...... 2,908 8,255 2,533 5,027 6,214 15,382 6,027 15,050
Units transferred
between Sub-Accounts
and Fixed Account... 3,978 14,317 (990) 3,509 3,423 (13,411) (4,143) (3,016)
Units withdrawn,
surrendered and
annuitized.......... (13,311) (27,593) (32,512) (16,816) (35,906) (80,489) (37,099) (128,617)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
Units outstanding, end
of period............. 221,973 228,398 152,417 183,386 476,039 502,308 800,340 835,555
----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
<CAPTION>
MFR MFB
Sub-Account Sub-Account
------------------------ ----------------------
<S> <C> <C> <C> <C>
Six Months Six Months Year
Ended Year Ended Ended Ended
June 30, Dec. 31, June 30, Dec. 31,
1996 1995 1996 1995
----------- ----------- ----------- ---------
Units outstanding,
beginning of period... 158,916 189,988 226,571 233,449
Units purchased...... 1,609 3,374 2,610 4,911
Units transferred
between Sub-Accounts
and Fixed Account... 5,561 (7,419) (535) 19,907
Units withdrawn,
surrendered and
annuitized.......... (11,096) (27,027) (8,678) (31,696)
----------- ----------- ----------- ---------
Units outstanding, end
of period............. 154,990 158,916 219,968 226,571
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
MCM MCG MFH MWG
Sub-Account Sub-Account Sub-Account Sub-Account
---------------------- ------------------------ ------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Year Six Months Six Months Six Months
Ended Ended Ended Year Ended Ended Year Ended Ended
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30,
1996 1995 1996 1995 1996 1995 1996
----------- --------- ----------- ----------- ----------- ----------- -----------
Units outstanding, beginning of
period................................. 371,369 480,850 108,206 139,248 264,391 339,549 83,177
Units purchased....................... 4,016 12,892 1,405 3,707 2,381 7,012 599
Units transferred between Sub-Accounts
and Fixed Account.................... (15,123) (16,523) (6,849) (14,383) (12,023) (6,198) 581
Units withdrawn, surrendered and
annuitized........................... (34,062) (105,850) (9,969) (20,366) (14,260) (75,972) (7,517)
----------- --------- ----------- ----------- ----------- ----------- -----------
Units outstanding, end of period........ 326,200 371,369 92,793 108,206 240,489 264,391 76,840
----------- --------- ----------- ----------- ----------- ----------- -----------
----------- --------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
MEG
Sub-Account
------------------------
<S> <C> <C> <C>
Six Months
Year Ended Ended Year Ended
Dec. 31, June 30, Dec. 31,
1995 1996 1995
----------- ----------- -----------
Units outstanding, beginning of
period................................. 101,661 372,726 390,605
Units purchased....................... 1,602 4,861 8,332
Units transferred between Sub-Accounts
and Fixed Account.................... (229) 6,295 5,480
Units withdrawn, surrendered and
annuitized........................... (19,857) (18,708) (31,691)
----------- ----------- -----------
Units outstanding, end of period........ 83,177 365,174 372,726
----------- ----------- -----------
----------- ----------- -----------
</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 June 30, 1996, the
related statements of operations for the six months then ended and the
statements of changes in net assets for the six months ended June 30, 1996 and
the year ended December 31, 1995. 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. 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 June 30, 1996,
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
August 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-3 8/96 9M
[LOGO]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITY
FOR QUALIFIED RETIREMENT PLANS
SEMIANNUAL REPORT - JUNE 30, 1996
ISSUED BY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.),
A WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA
