<PAGE>
COMPASS-I
DIRECTORS AND OFFICERS OF
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
DONALD A. STEWART, Chairman and Director
C. JAMES PRIEUR, President and Director
S. CAESAR RABOY, Senior Vice President and
Deputy General Manager and Director
RICHARD B. BAILEY, Director
M. COLYER CRUM, Director
DAVID D. HORN, Director
JOHN S. LANE, Director
ANGUS A. MacNAUGHTON, Director
JOHN D. McNEIL, Director
MARGARET SEARS MEAD, Assistant Vice President
and Secretary
L. BROCK THOMSON, Vice President and Treasurer
SUN LIFE ASSURANCE COMPANY
OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
Sun Life Retirement Products and Services
P.O. Box 1024, Boston, Massachusetts 02103-9986
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
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.
CO1-8/98 6M
UV
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITY
FOR QUALIFIED RETIREMENT PLANS
SEMIANNUAL REPORT - JUNE 30, 1998
ISSUED BY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.),
A WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE OF CANADA (U.S.) HOLDINGS, INC.
<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, 1997 1998 in Unit Value
----------------- ------------ -------------
<S> <C> <C> <C>
Massachusetts Investors Trust........................ $85.1160 $98.4761 15.70%
Massachusetts Investors Growth Stock Fund............ 71.6206 88.2647 23.24%
MFS Total Return Fund................................ 62.6622 67.5758 7.84%
MFS Growth Opportunities Fund........................ 50.5718 60.4743 19.58%
MFS Reseach Fund..................................... 70.5612 83.0980 17.77%
MFS Bond Fund........................................ 37.4559 38.4744 2.72%
MFS Money Market Fund................................ 20.2949 20.6646 1.82%
MFS Government Money Market Fund..................... 19.4875 19.8246 1.73%
MFS High Income Fund................................. 42.8235 45.0476 5.19%
MFS World Governments Fund........................... 37.9444 38.6860 1.95%
MFS Emerging Growth Fund............................. 60.5646 71.1338 17.45%
</TABLE>
Investment return and principal value will fluctuate, and units, when
surrendered, may be worth more or less than their original cost.
1
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENT OF CONDITION -- June 30, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C> <C>
Investments in mutual funds: Shares Cost Value
------------ ------------ ------------
Massachusetts Investors Trust ("MIT")*........ 926,544 $ 12,277,808 $ 18,627,976
Massachusetts Investors Growth Stock Fund
("MIG")*.................................... 661,307 7,295,009 10,188,552
MFS Total Return Fund ("MTR")*................ 1,416,980 19,587,514 23,904,166
MFS Growth Opportunities Fund ("MGO")*........ 2,400,738 28,441,453 39,792,626
MFS Reseach Fund ("MFR")*..................... 418,494 6,294,463 10,561,239
MFS Bond Fund ("MFB")*........................ 437,376 5,742,890 5,959,812
MFS Money Market Fund ("MCM")................. 5,839,198 5,839,198 5,839,198
MFS Government Money Market Fund ("MCG")...... 1,212,083 1,212,083 1,212,083
MFS High Income Fund ("MFH")*................. 1,484,376 7,648,811 8,338,007
MFS World Governments Fund ("MWG")*........... 189,648 2,200,770 2,110,108
MFS Emerging Growth Fund ("MEG")*............. 439,328 8,979,000 18,790,334
------------ ------------
$105,518,999 $145,324,101
------------
------------
LIABILITY:
Payable to sponsor.......................................................... 82,034
------------
Net assets............................................................ $145,242,067
------------
------------
</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...................................... 187,180 $98.4761 $ 18,429,831 $ 223,229 $ 18,653,060
MIG...................................... 114,279 88.2647 10,082,300 119,433 10,201,733
MTR...................................... 349,195 67.5758 23,566,698 66,964 23,633,662
MGO...................................... 652,041 60.4743 39,644,622 230,355 39,874,977
MFR...................................... 126,633 83.0980 10,525,401 48,808 10,574,209
MFB...................................... 150,114 38.4744 5,865,113 115,401 5,980,514
MCM...................................... 279,140 20.6646 5,764,988 82,781 5,847,769
MCG...................................... 61,107 19.8246 1,211,189 1,133 1,212,322
MFH...................................... 184,888 45.0476 8,247,786 133,887 8,381,673
MWG...................................... 52,411 38.6860 2,027,421 41,081 2,068,502
MEG...................................... 262,974 71.1338 18,706,046 107,600 18,813,646
------------ ----------- ------------
Net assets................................................ $144,071,395 $1,170,672 $145,242,067
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
*Investments are made in Class A shares of the Fund.
See notes to financial statements
2
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENT OF OPERATIONS -- Six Months Ended June 30, 1998
<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......................................... $ 259,344 $ -- $ 426,893 $ 429,173 $ -- $195,421
Mortality and expense risk charges................ 111,638 60,112 152,500 241,198 63,104 37,216
---------- ---------- ---------- ----------- ---------- --------
Net investment income (loss).................. $ 147,706 $ (60,112) $ 274,393 $ 187,975 $ (63,104) $158,205
---------- ---------- ---------- ----------- ---------- --------
Realized and unrealized gains (losses):
Realized gains (losses) on investment
transactions:
Proceeds from sales............................. $1,166,058 $ 707,367 $2,408,929 $ 2,725,170 $ 606,719 $562,034
Cost of investments sold........................ 800,771 585,990 1,721,093 1,824,963 297,600 603,170
---------- ---------- ---------- ----------- ---------- --------
Net realized gains (losses)................... $ 365,287 $ 121,377 $ 687,836 $ 900,207 $ 309,119 $(41,136)
---------- ---------- ---------- ----------- ---------- --------
Net unrealized appreciation (depreciation) on
investments:
End of period................................... $6,350,168 $2,893,543 $4,316,652 $11,351,173 $4,266,776 $216,922
Beginning of period............................. 4,329,519 1,007,405 3,446,969 5,707,322 2,911,315 172,676
---------- ---------- ---------- ----------- ---------- --------
Change in unrealized appreciation............. $2,020,649 $1,886,138 $ 869,683 $ 5,643,851 $1,355,461 $ 44,246
---------- ---------- ---------- ----------- ---------- --------
Realized and unrealized gains............... $2,385,936 $2,007,515 $1,557,519 $ 6,544,058 $1,664,580 $ 3,110
---------- ---------- ---------- ----------- ---------- --------
Increase in net assets from operations............ $2,533,642 $1,947,403 $1,831,912 $ 6,732,033 $1,601,476 $161,315
---------- ---------- ---------- ----------- ---------- --------
---------- ---------- ---------- ----------- ---------- --------
</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............................................ $ 140,153 $ 31,155 $ 353,886 $ -- $ -- $ 1,836,025
Mortality and expense risk charges................... 36,054 8,374 54,508 13,425 117,393 895,522
---------- -------- ---------- --------- ---------- -----------
Net investment income (loss)..................... $ 104,099 $ 22,781 $ 299,378 $ (13,425) $ (117,393) $ 940,503
---------- -------- ---------- --------- ---------- -----------
Realized and unrealized gains (losses):
Realized gains (losses) on investment transactions:
Proceeds from sales................................ $2,316,520 $263,054 $ 971,646 $ 167,157 $1,681,563 $13,576,217
Cost of investments sold........................... 2,316,520 263,054 869,647 172,250 630,830 10,085,888
---------- -------- ---------- --------- ---------- -----------
Net realized gains (losses)...................... $ -- $ -- $ 101,999 $ (5,093) $1,050,733 $ 3,490,329
---------- -------- ---------- --------- ---------- -----------
Net unrealized appreciation (depreciation) on
investments:
End of period...................................... $ -- $ -- $ 689,196 $ (90,662) $9,811,334 $39,805,102
Beginning of period................................ -- -- 655,044 (153,917) 7,828,944 25,905,277
---------- -------- ---------- --------- ---------- -----------
Change in unrealized appreciation
(depreciation)................................. $ -- $ -- $ 34,152 $ 63,255 $1,982,390 $13,899,825
---------- -------- ---------- --------- ---------- -----------
Realized and unrealized gains.................. $ -- $ -- $ 136,151 $ 58,162 $3,033,123 $17,390,154
---------- -------- ---------- --------- ---------- -----------
Increase in net assets from operations............... $ 104,099 $ 22,781 $ 435,529 $ 44,737 $2,915,730 $18,330,657
---------- -------- ---------- --------- ---------- -----------
---------- -------- ---------- --------- ---------- -----------
</TABLE>
See notes to financial statements
3
<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
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1998 1997 June 30, 1998 1997 June 30, 1998 1997
-------------- -------------- -------------- -------------- -------------- --------------
OPERATIONS:
Net investment income
(loss)...................... $ 147,706 $ 1,084,136 $ (60,112) $ 1,201,248 $ 274,393 $ 2,494,923
Net realized gains........... 365,287 391,861 121,377 20,166 687,836 1,165,431
Net unrealized gains......... 2,020,649 2,436,981 1,886,138 1,533,779 869,683 440,641
-------------- -------------- -------------- -------------- -------------- --------------
Increase in net assets
from operations........ $ 2,533,642 $ 3,912,978 $ 1,947,403 $ 2,755,193 $ 1,831,912 $ 4,100,995
-------------- -------------- -------------- -------------- -------------- --------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received................. $ 151,867 $ 295,282 $ 72,530 $ 161,450 $ 208,941 $ 375,661
Net transfers between Sub-
Accounts and Fixed
Account.................. 283,711 443,283 238,698 190,511 (957,443) (117,230)
Withdrawals, surrenders,
annuitizations and
contract charges......... (810,532) (2,182,271) (518,596) (1,420,037) (1,078,080) (4,140,788)
-------------- -------------- -------------- -------------- -------------- --------------
Net accumulation
activity............... $ (374,954) $(1,443,706) $ (207,368) $(1,068,076) $(1,826,582) $(3,882,357)
-------------- -------------- -------------- -------------- -------------- --------------
Annuitization activity:
Annuitizations............. $ -- $ 73,820 $ -- $ -- $ 3,588 $ --
Annuity payments........... (24,995) (26,781) (11,940) (24,415) (5,081) (132,212)
Adjustments to annuity
reserve.................. 3,456 12,259 2,729 4,039 (21,251) (139,226)
-------------- -------------- -------------- -------------- -------------- --------------
Net annuitization
activity............... $ (21,539) $ 59,298 $ (9,211) $ (20,376) $ (22,744) $ (271,438)
-------------- -------------- -------------- -------------- -------------- --------------
Decrease in net assets from
participant transactions.... $ (396,493) $(1,384,408) $ (216,579) $(1,088,452) $(1,849,326) $(4,153,795)
-------------- -------------- -------------- -------------- -------------- --------------
Increase (decrease) in net
assets................... $ 2,137,149 $ 2,528,570 $ 1,730,824 $ 1,666,741 $ (17,414) $ (52,800)
NET ASSETS:
Beginning of period.......... 16,515,911 13,987,341 8,470,909 6,804,168 23,651,076 23,703,876
-------------- -------------- -------------- -------------- -------------- --------------
End of period................ $18,653,060 $16,515,911 $10,201,733 $ 8,470,909 $23,633,662 $23,651,076
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
See notes to financial statements
4
<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
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1998 1997 June 30, 1998 1997 June 30, 1998 1997
------------- -------------- ------------- -------------- ------------- --------------
OPERATIONS:
Net investment income
(loss)...................... $ 187,975 $ 3,877,405 $ (63,104) $ 292,042 $ 158,205 $ 343,280
Net realized gains
(losses).................... 900,207 1,192,014 309,119 645,408 (41,136) (100,223)
Net unrealized gains......... 5,643,851 1,531,238 1,355,461 586,469 44,246 270,646
------------- -------------- ------------- -------------- ------------- --------------
Increase in net assets
from operations........ $ 6,732,033 $ 6,600,657 $1,601,476 $ 1,523,919 $ 161,315 $ 513,703
------------- -------------- ------------- -------------- ------------- --------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received................. $ 240,521 $ 396,402 $ 41,694 $ 115,867 $ 48,061 $ 97,957
Net transfers between Sub-
Accounts and Fixed
Account.................. (126,225) (331,038) 330,958 112,699 (87,128) 137,968
Withdrawals, surrenders,
annuitizations and
contract charges......... (1,873,880) (3,356,390) (560,844) (1,160,821) (270,208) (1,220,161)
------------- -------------- ------------- -------------- ------------- --------------
Net accumulation
activity............... $(1,759,584) $(3,291,026) $ (188,192) $ (932,255) $ (309,275) $ (984,236)
------------- -------------- ------------- -------------- ------------- --------------
Annuitization activity:
Annuitizations............. $ -- $ 40,042 $ -- $ -- $ -- $ 52,142
Annuity payments........... (14,111) (22,778) (3,199) (9,402) (6,877) (12,112)
Adjustments to annuity
reserve.................. 12,770 12,645 1,230 1,887 2,814 11,228
------------- -------------- ------------- -------------- ------------- --------------
Net annuitization
activity............... $ (1,341) $ 29,909 $ (1,969) $ (7,515) $ (4,063) $ 51,258
------------- -------------- ------------- -------------- ------------- --------------
Decrease in net assets from
participant transactions.... $(1,760,925) $(3,261,117) $ (190,161) $ (939,770) $ (313,338) $ (932,978)
------------- -------------- ------------- -------------- ------------- --------------
Increase (decrease) in net
assets................... $ 4,971,108 $ 3,339,540 $1,411,315 $ 584,149 $ (152,023) $ (419,275)
NET ASSETS:
Beginning of period.......... 34,903,869 31,564,329 9,162,894 8,578,745 6,132,537 6,551,812
------------- -------------- ------------- -------------- ------------- --------------
End of period................ $39,874,977 $34,903,869 $10,574,209 $ 9,162,894 $5,980,514 $ 6,132,537
------------- -------------- ------------- -------------- ------------- --------------
------------- -------------- ------------- -------------- ------------- --------------
</TABLE>
See notes to financial statements
5
<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
------------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1998 1997 June 30, 1998 1997 June 30, 1998 1997
-------------- -------------- ------------- ------------- ------------- --------------
OPERATIONS:
Net investment income........ $ 104,099 $ 243,804 $ 22,781 $ 41,525 $ 299,378 $ 620,612
Net realized gains........... -- -- -- -- 101,999 19,181
Net unrealized gains......... -- -- -- -- 34,152 271,258
-------------- -------------- ------------- ------------- ------------- --------------
Increase in net assets
from operations........ $ 104,099 $ 243,804 $ 22,781 $ 41,525 $ 435,529 $ 911,051
-------------- -------------- ------------- ------------- ------------- --------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received................. $ 55,238 $ 107,567 $ 18,660 $ 29,140 $ 33,238 $ 66,166
Net transfers between Sub-
Accounts and Fixed
Account.................. 756,911 (678,009) (87,283) 55,363 49,503 (76,758)
Withdrawals, surrenders,
annuitizations and
contract charges......... (1,261,112) (1,416,396) (81,000) (171,168) (765,163) (1,125,638)
-------------- -------------- ------------- ------------- ------------- --------------
Net accumulation
activity............... $ (448,963) $(1,986,838) $ (149,623) $ (86,665) $ (682,422) $(1,136,230)
-------------- -------------- ------------- ------------- ------------- --------------
Annuitization activity:
Annuitizations............. $ -- $ 49,826 $ -- $ -- $ -- $ --
Annuity payments........... (4,192) (7,711) (97) (194) (11,569) (19,721)
Annuity transfers.......... -- -- -- -- -- (3,495)
Adjustments to annuity
reserve.................. 57 9,057 41 76 5,734 9,135
-------------- -------------- ------------- ------------- ------------- --------------
Net annuitization
activity............... $ (4,135) $ 51,172 $ (56) $ (118) $ (5,835) $ (14,081)
-------------- -------------- ------------- ------------- ------------- --------------
Decrease in net assets from
participant transactions.... $ (453,098) $(1,935,666) $ (149,679) $ (86,783) $ (688,257) $(1,150,311)
-------------- -------------- ------------- ------------- ------------- --------------
Decrease in net assets..... $ (348,999) $(1,691,862) $ (126,898) $ (45,258) $ (252,728) $ (239,260)
NET ASSETS:
Beginning of period.......... 6,196,768 7,888,630 1,339,220 1,384,478 8,634,401 8,873,661
-------------- -------------- ------------- ------------- ------------- --------------
End of period................ $ 5,847,769 $ 6,196,768 $1,212,322 $1,339,220 $8,381,673 $ 8,634,401
-------------- -------------- ------------- ------------- ------------- --------------
-------------- -------------- ------------- ------------- ------------- --------------
</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>
MWG MEG
Sub-Account Sub-Account Total
----------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six Months Year Ended Six Months Year Ended Six Months Year Ended
Ended December 31, Ended December 31, Ended December 31,
June 30, 1998 1997 June 30, 1998 1997 June 30, 1998 1997
------------- ------------- -------------- -------------- -------------- --------------
OPERATIONS:
Net investment income
(loss)...................... $ (13,425) $ 67,492 $ (117,393) $ (60,819) $ 940,503 $ 10,205,648
Net realized gains
(losses).................... (5,093) (50,885) 1,050,733 1,959,202 3,490,329 5,242,155
Net unrealized gains
(losses).................... 63,255 (48,770) 1,982,390 1,077,568 13,899,825 8,099,810
------------- ------------- -------------- -------------- -------------- --------------
Increase (decrease) in
net assets from
operations............. $ 44,737 $ (32,163) $ 2,915,730 $ 2,975,951 $ 18,330,657 $ 23,547,613
------------- ------------- -------------- -------------- -------------- --------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received................. $ 5,998 $ 20,613 $ 111,328 $ 273,824 $ 988,076 $ 1,939,929
Net transfers between Sub-
Accounts and Fixed
Account.................. (42,188) (57,194) (146,868) 180,160 212,646 (140,245)
Withdrawals, surrenders,
annuitizations and
contract charges......... (96,910) (504,226) (1,153,206) (2,750,634) (8,469,531) (19,448,530)
------------- ------------- -------------- -------------- -------------- --------------
Net accumulation
activity............... $ (133,100) $ (540,807) $(1,188,746) $(2,296,650) $ (7,268,809) $(17,648,846)
------------- ------------- -------------- -------------- -------------- --------------
Annuitization activity:
Annuitizations............. $ -- $ 12,236 $ -- $ 4,465 $ 3,588 $ 232,531
Annuity payments........... (2,908) (5,464) (9,894) (22,268) (94,863) (283,058)
Annuity transfers.......... -- -- -- 3,495 -- --
Adjustments to annuity
reserve.................. (1,082) 2,064 4,851 2,764 11,349 (74,072)
------------- ------------- -------------- -------------- -------------- --------------
Net annuitization
activity............... $ (3,990) $ 8,836 $ (5,043) $ (11,544) $ (79,926) $ (124,599)
------------- ------------- -------------- -------------- -------------- --------------
Decrease in net assets from
participant transactions.... $ (137,090) $ (531,971) $(1,193,789) $(2,308,194) $ (7,348,735) $(17,773,445)
------------- ------------- -------------- -------------- -------------- --------------
Increase (decrease) in net
assets................... $ (92,353) $ (564,134) $ 1,721,941 $ 667,757 $ 10,981,922 $ 5,774,168
NET ASSETS:
Beginning of period.......... 2,160,855 2,724,989 17,091,705 16,423,948 134,260,145 128,485,977
------------- ------------- -------------- -------------- -------------- --------------
End of period................ $2,068,502 $2,160,855 $18,813,646 $17,091,705 $145,242,067 $134,260,145
------------- ------------- -------------- -------------- -------------- --------------
------------- ------------- -------------- -------------- -------------- --------------
</TABLE>
See notes to financial statements
7
<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 available mutual funds (the "Funds") advised by
Massachusetts Financial Services Company ("MFS"), an affiliate 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%.
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
8
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS -- continued
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.
9
<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
Ended Year Ended Ended Year Ended Ended Year Ended Ended Year Ended
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31,
1998 1997 1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Units outstanding,
beginning of period..... 191,532 211,924 116,839 137,226 376,845 445,574 682,668 752,698
Units purchased........ 1,626 3,952 876 2,689 3,170 6,597 4,299 8,648
Units transferred
between Sub-Accounts
and Fixed Account.... 2,809 5,860 2,899 2,571 (14,292) (1,968) (2,150) (6,742)
Units withdrawn,
surrendered, and
annuitized........... (8,787) (30,204) (6,335) (25,647) (16,528) (73,358) (32,776) (71,936)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Units outstanding, end
of period............ 187,180 191,532 114,279 116,839 349,195 376,845 652,041 682,668
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
MFR MFB
Sub-Account Sub-Account
------------------------ ------------------------
<S> <C> <C> <C> <C>
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, Dec. 31, June 30, Dec. 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Units outstanding,
beginning of period..... 129,195 143,843 158,314 186,637
Units purchased........ 527 1,771 1,264 2,751
Units transferred
between Sub-Accounts
and Fixed Account.... 4,101 2,007 (2,339) 3,481
Units withdrawn,
surrendered, and
annuitized........... (7,190) (18,426) (7,125) (34,555)
----------- ----------- ----------- -----------
Units outstanding, end
of period............ 126,633 129,195 150,114 158,314
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</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 Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended Ended
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30,
1998 1997 1998 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
Units outstanding, beginning of
period................................. 301,313 401,141 68,686 73,345 200,252 229,079 55,822
Units purchased....................... 2,696 5,399 949 1,523 742 1,652 154
Units transferred between Sub-Accounts
and Fixed Account................... 36,680 (33,845) (4,401) 2,802 1,111 (2,180) (1,080)
Units withdrawn, surrendered and
annuitized.......................... (61,549) (71,382) (4,127) (8,984) (17,217) (28,299) (2,485)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Units outstanding, end of period...... 279,140 301,313 61,107 68,686 184,888 200,252 52,411
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
MEG
Sub-Account
------------------------
<S> <C> <C> <C>
Six Months
Year Ended Ended Year Ended
Dec. 31, June 30, Dec. 31,
1997 1998 1997
----------- ----------- -----------
Units outstanding, beginning of
period................................. 70,278 280,589 321,077
Units purchased....................... 554 1,614 4,900
Units transferred between Sub-Accounts
and Fixed Account................... (1,541) (2,130) 4,053
Units withdrawn, surrendered and
annuitized.......................... (13,469) (17,099) (49,441)
----------- ----------- -----------
Units outstanding, end of period...... 55,822 262,974 280,589
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
10
<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, 1998, the
related statement of operations for the six month period then ended and the
statements of changes in net assets for the six month period ended June 30, 1998
and the year ended December 31, 1997. 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 of securities held at June 30, 1998 by correspondence with the
custodian. 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, 1998,
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 14, 1998
----------------------------------------
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.
11
