<PAGE>
COMPASS-G
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
DIRECTORS AND OFFICERS OF
ST
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
DONALD A. STEWART, Chairman and Director
PROFESSIONALLY MANAGED COMBINATION
C. JAMES PRIEUR, President and Director
FIXED/VARIABLE GROUP ANNUITY
S. CAESAR RABOY, Senior Vice President and
FOR QUALIFIED AND NON-QUALIFIED
Deputy General Manager and Director
RETIREMENT PLANS
RICHARD B. BAILEY, Director
---------------------------------------------
M. COLYER CRUM, Director
SEMI-ANNUAL REPORT, JUNE 30, 1998
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
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
LEGAL COUNSEL
[LOGO]
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566, Washington, D.C. 20044
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, Massachusetts 02110
ACCOUNT INFORMATION
For account information, 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.
This report is prepared for the general information of
contract owners and participants. It is authorized for
distribution to prospective purchasers only if
preceded or accompanied by an effective
ISSUED BY
prospectus.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
A WHOLLY OWNED SUBSIDIARY OF
COG-8/98 25M
SUN LIFE OF CANADA (U.S.) HOLDINGS, INC.
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENT OF CONDITION-- June 30, 1998
<TABLE>
<CAPTION>
ASSETS
Investments in mutual funds: Shares Cost Value
------------- ------------- -------------
<S> <C> <C> <C>
Massachusetts Investors Trust ("MIT")*..................................... 2,244,380 $ 34,131,751 $ 45,122,792
Massachusetts Investors Growth Stock Fund ("MIG")*......................... 1,031,275 12,420,166 15,888,534
MFS Total Return Fund ("MTR")*............................................. 2,114,286 31,821,441 35,667,558
MFS Growth Opportunities Fund ("MGO")*..................................... 299,338 4,139,978 4,961,585
MFS Bond Fund ("MFB")*..................................................... 195,299 2,574,732 2,661,197
MFS World Governments Fund ("MWG")*........................................ 165,462 1,835,633 1,841,008
MFS-Registered Trademark-/Sun Life Series Trust:
Capital Appreciation Series ("CAS") 1,304,399 48,650,454 55,799,303
Government Securities Series ("GSS")..................................... 850,267 10,666,455 10,881,835
High Yield Series ("HYS")................................................ 619,117 5,613,643 5,936,646
Money Market Series ("MMS").............................................. 6,095,519 6,095,519 6,095,519
------------- -------------
$ 157,949,772 $ 184,855,977
-------------
-------------
LIABILITIES:
Payable to sponsor........................................................... 1,988
-------------
Net Assets............................................................................................ $ 184,853,989
-------------
-------------
</TABLE>
NET ASSETS:
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
------------------------------------------ Variable
Units Unit Value Value Annuities Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MIT-Level 2................... 598,270 $ 51.1481 $ 30,590,033 $ -- $ 30,590,033
MIT-Level 3................... 220,136 51.5785 11,257,245 -- 11,257,245
MIT-Level 4................... 85,780 38.1747 3,275,514 -- 3,275,514
MIG-Level 2................... 164,864 54.1347 8,925,644 -- 8,925,644
MIG-Level 3................... 83,858 59.8916 5,021,230 -- 5,021,230
MIG-Level 4................... 62,822 30.9082 1,941,660 -- 1,941,660
MTR-Level 2................... 674,437 35.8936 24,148,922 -- 24,148,922
MTR-Level 3................... 231,983 32.7621 7,586,205 -- 7,586,205
MTR-Level 4................... 156,996 25.0372 3,932,431 -- 3,932,431
MGO-Level 2................... 94,623 38.7527 3,689,661 -- 3,689,661
MGO-Level 3................... 23,087 41.6543 964,868 -- 964,868
MGO-Level 4................... 10,972 27.8052 307,056 -- 307,056
MFB-Level 2................... 83,699 21.6966 1,847,996 -- 1,847,996
MFB-Level 3................... 22,479 21.9806 509,207 -- 509,207
MFB-Level 4................... 15,978 18.1934 303,994 -- 303,994
MWG-Level 2................... 41,326 22.0288 910,205 -- 910,205
MWG-Level 3................... 17,650 19.5254 344,814 -- 344,814
MWG-Level 4................... 42,761 13.7068 585,989 -- 585,989
CAS-Level 2................... 636,076 51.6075 32,816,712 148,376 32,965,088
CAS-Level 3................... 120,497 54.9595 6,617,258 7,330 6,624,588
CAS-Level 4................... 302,292 53.6502 16,209,384 -- 16,209,384
GSS-Level 2................... 333,861 20.7555 6,927,577 3,232 6,930,809
GSS-Level 3................... 131,020 20.2208 2,651,531 4,096 2,655,627
GSS-Level 4................... 64,774 19.9673 1,293,538 -- 1,293,538
HYS-Level 2................... 158,369 25.7975 4,085,742 2,943 4,088,685
HYS-Level 3................... 42,003 24.0549 1,010,888 3,829 1,014,717
HYS-Level 4................... 35,339 23.5536 833,276 -- 833,276
MMS-Level 2................... 233,508 16.1313 3,760,986 2,662 3,763,648
MMS-Level 3................... 129,442 15.0343 1,944,542 -- 1,944,542
MMS-Level 4................... 26,184 14.7651 387,413 -- 387,413
------------ ------------ ------------
Net Assets............................................. $184,681,521 $ 172,468 $184,853,989
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
* Investments are made in Class A shares of the Fund
See notes to financial statements
1
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENT OF OPERATIONS-- Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
MIT MIG MTR MGO MFB MWG
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital
gain distributions
received................... $ 648,756 $ -- $ 640,921 $ 53,306 $ 85,110 $ --
Mortality and expense risk
charges.................... 259,490 91,091 213,068 27,669 15,012 11,168
------------ ----------- ----------- ----------- --------- -----------
Net investment income
(loss)..................... $ 389,266 $ (91,091) $ 427,853 $ 25,637 $ 70,098 $ (11,168)
------------ ----------- ----------- ----------- --------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales....... $ 11,120,516 $6,168,210 $9,762,338 $1,017,461 $665,515 $1,037,931
Cost of investments
sold..................... 7,196,139 4,693,136 8,299,138 829,171 637,125 1,074,439
------------ ----------- ----------- ----------- --------- -----------
Net realized gains
(losses)............... $ 3,924,377 $1,475,074 $1,463,200 $ 188,290 $ 28,390 $ (36,508)
------------ ----------- ----------- ----------- --------- -----------
Net unrealized appreciation
(depreciation) on
investments:
End of period............. $ 10,991,041 $3,468,368 $3,846,117 $ 821,607 $ 86,465 $ 5,375
Beginning of period....... 8,980,397 1,463,577 2,995,992 214,997 112,279 (87,189)
------------ ----------- ----------- ----------- --------- -----------
Change in unrealized
appreciation
(depreciation)......... $ 2,010,644 $2,004,791 $ 850,125 $ 606,610 $(25,814) $ 92,564
------------ ----------- ----------- ----------- --------- -----------
Realized and
unrealized gains
(losses)............. $ 5,935,021 $3,479,865 $2,313,325 $ 794,900 $ 2,576 $ 56,056
------------ ----------- ----------- ----------- --------- -----------
INCREASE IN NET ASSETS FROM
OPERATIONS................... $ 6,324,287 $3,388,774 $2,741,178 $ 820,537 $ 72,674 $ 44,888
------------ ----------- ----------- ----------- --------- -----------
------------ ----------- ----------- ----------- --------- -----------
<CAPTION>
CAS GSS HYS MMS
Sub-Account Sub-Account Sub-Account Sub-Account Total
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital
gain distributions
received................... $ 6,135,644 $ 610,457 $ 375,283 $ 155,424 $ 8,704,901
Mortality and expense risk
charges.................... 303,637 66,131 35,188 36,598 1,059,052
------------ ----------- ----------- ----------- ------------
Net investment income
(loss)..................... $ 5,832,007 $ 544,326 $ 340,095 $ 118,826 $ 7,645,849
------------ ----------- ----------- ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales....... $ 20,983,157 $3,392,956 $1,709,206 $3,274,256 $ 59,131,546
Cost of investments
sold..................... 13,628,383 3,354,122 1,458,831 3,274,256 44,444,740
------------ ----------- ----------- ----------- ------------
Net realized gains
(losses)............... $ 7,354,774 $ 38,834 $ 250,375 $ -- $ 14,686,806
------------ ----------- ----------- ----------- ------------
Net unrealized appreciation
(depreciation) on
investments:
End of period............. $ 7,148,849 $ 215,380 $ 323,003 $ -- $ 26,906,205
Beginning of period....... 11,134,186 432,466 635,781 $ -- 25,882,486
------------ ----------- ----------- ----------- ------------
Change in unrealized
appreciation
(depreciation)......... $ (3,985,337) $ (217,086) $ (312,778) $ -- $ 1,023,719
------------ ----------- ----------- ----------- ------------
Realized and
unrealized gains
(losses)............. $ 3,369,437 $ (178,252) $ (62,403) $ -- $ 15,710,525
------------ ----------- ----------- ----------- ------------
INCREASE IN NET ASSETS FROM
OPERATIONS................... $ 9,201,444 $ 366,074 $ 277,692 $ 118,826 $ 23,356,374
------------ ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ------------
</TABLE>
See notes to financial statements
2
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MIT MIG
Sub-Account Sub-Account
----------------------------- -----------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...................................... $ 389,266 $ 2,992,016 $ (91,091) $ 2,323,691
Net realized gains................................................ 3,924,377 8,194,722 1,475,074 1,176,338
Net unrealized gains (losses)..................................... 2,010,644 1,593,276 2,004,791 2,198,495
------------- ------------- ------------- -------------
Increase in net assets from operations........................ $ 6,324,287 $ 12,780,014 $ 3,388,774 $ 5,698,524
------------- ------------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received...................................... $ 2,347,981 $ 7,414,274 $ 746,125 $ 1,659,301
Net transfers between Sub-Accounts and Fixed Account............ 134,425 926,030 317,885 277,942
Withdrawals, surrenders, annuitizations and contract charges.... (8,638,085) (26,661,131) (4,219,763) (5,570,136)
------------- ------------- ------------- -------------
Net accumulation activity..................................... $ (6,155,679) $(18,320,827) $ (3,155,753) $ (3,632,893)
------------- ------------- ------------- -------------
Increase (decrease) in net assets......................... $ 168,608 $ (5,540,813) $ 233,021 $ 2,065,631
NET ASSETS:
Beginning of period............................................... 44,954,184 50,494,997 15,655,513 13,589,882
------------- ------------- ------------- -------------
End of period..................................................... $ 45,122,792 $ 44,954,184 $ 15,888,534 $ 15,655,513
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
MTR
Sub-Account
-----------------------------
Six Months
Ended Year Ended
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)...................................... $ 427,853 $ 4,246,865
Net realized gains................................................ 1,463,200 4,392,240
Net unrealized gains (losses)..................................... 850,125 (664,202)
------------- -------------
Increase in net assets from operations........................ $ 2,741,178 $ 7,974,903
------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received...................................... $ 1,792,281 $ 6,596,639
Net transfers between Sub-Accounts and Fixed Account............ (594,590) (1,493,129)
Withdrawals, surrenders, annuitizations and contract charges.... (5,719,877) (25,159,273)
------------- -------------
Net accumulation activity..................................... $ (4,522,186) $(20,055,763)
------------- -------------
Increase (decrease) in net assets......................... $ (1,781,008) $(12,080,860)
NET ASSETS:
Beginning of period............................................... 37,448,566 49,529,426
------------- -------------
End of period..................................................... $ 35,667,558 $ 37,448,566
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
MGO MFB
Sub-Account Sub-Account
----------------------------- -----------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...................................... $ 25,637 $ 487,195 $ 70,098 $ 266,293
Net realized gains (losses)....................................... 188,290 501,748 28,390 139,774
Net unrealized gains (losses)..................................... 606,610 (124,934) (25,814) (18,882)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from operations............. $ 820,537 $ 864,009 $ 72,674 $ 387,185
------------- ------------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received...................................... $ 248,506 $ 671,571 $ 166,820 $ 614,719
Net transfers between Sub-Accounts and Fixed Account............ 194,361 19,958 (90,483) (247,713)
Withdrawals, surrenders, annuitizations and contract charges.... (617,448) (1,534,890) (252,980) (3,388,353)
------------- ------------- ------------- -------------
Net accumulation activity..................................... $ (174,581) $ (843,361) $ (176,643) $ (3,021,347)
------------- ------------- ------------- -------------
Increase (decrease) in net assets......................... $ 645,956 $ 20,648 $ (103,969) $ (2,634,162)
NET ASSETS:
Beginning of period............................................... 4,315,629 4,294,981 2,765,166 5,399,328
------------- ------------- ------------- -------------
End of period..................................................... $ 4,961,585 $ 4,315,629 $ 2,661,197 $ 2,765,166
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
MWG
Sub-Account
-----------------------------
Six Months
Ended Year Ended
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)...................................... $ (11,168) $ 71,033
Net realized gains (losses)....................................... (36,508) (20,089)
Net unrealized gains (losses)..................................... 92,564 (81,457)
------------- -------------
Increase (decrease) in net assets from operations............. $ 44,888 $ (30,513)
------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received...................................... $ 134,797 $ 410,460
Net transfers between Sub-Accounts and Fixed Account............ (291,015) (339,526)
Withdrawals, surrenders, annuitizations and contract charges.... (189,565) (1,019,371)
------------- -------------
Net accumulation activity..................................... $ (345,783) $ (948,437)
------------- -------------
Increase (decrease) in net assets......................... $ (300,895) $ (978,950)
NET ASSETS:
Beginning of period............................................... 2,141,903 3,120,853
------------- -------------
End of period..................................................... $ 1,841,008 $ 2,141,903
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
3
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS-- continued
<TABLE>
<CAPTION>
CAS GSS HYS
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31, June 30, December 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income....... $ 5,832,007 $ 4,127,154 $ 544,326 $ 1,286,592 $ 340,095 $ 550,929
Net realized gains.......... 7,354,774 6,325,453 38,834 62,610 250,375 515,244
Net unrealized gains
(losses)................... (3,985,337) 601,031 (217,086) (19,750) (312,778) (30,493)
------------- ------------- ------------- ------------- ------------- -------------
Increase in net assets
from operations........ $ 9,201,444 $ 11,053,638 $ 366,074 $ 1,329,452 $ 277,692 $ 1,035,680
------------- ------------- ------------- ------------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................. $ 2,469,574 $ 6,447,175 $ 512,118 $ 2,574,283 $ 295,269 $ 1,164,890
Net transfers between
Sub-Accounts and
Fixed Account............ 421,280 865,318 (455,581) (1,799,091) (160,063) (275,269)
Withdrawals, surrenders,
annuitizations and
contract charges......... (5,990,825) (18,586,687) (1,599,130) (13,777,389) (529,888) (5,055,478)
------------- ------------- ------------- ------------- ------------- -------------
Net accumulation
activity............... $ (3,099,971) $(11,274,194) $ (1,542,593) $(13,002,197) $ (394,682) $ (4,165,857)
------------- ------------- ------------- ------------- ------------- -------------
Annuitization Activity:
Annity payments and
contract charges......... $ (7,038) $ (12,103) $ (1,055) $ (2,042) $ (987) $ (1,847)
Adjustments to annuity
reserve.................. (583) (7,554) (48) (170) 5 (12)
------------- ------------- ------------- ------------- ------------- -------------
Net annuitization
activity............... $ (7,621) $ (19,657) $ (1,103) $ (2,212) $ (982) $ (1,859)
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets
from participant
transactions......... $ (3,107,592) $(11,293,851) $ (1,543,696) $(13,004,409) $ (395,664) $ (4,167,716)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease)
in net assets...... $ 6,093,852 $ (240,213) $ (1,177,622) $(11,674,957) $ (117,972) $ (3,132,036)
NET ASSETS
Beginning of period......... 49,705,208 49,945,421 12,057,596 23,732,553 6,054,650 9,186,686
------------- ------------- ------------- ------------- ------------- -------------
End of period............... $ 55,799,060 $ 49,705,208 $ 10,879,974 $ 12,057,596 $ 5,936,678 $ 6,054,650
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
MMS
Sub-Account Total
----------------------------- -----------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income....... $ 118,826 $ 401,612 $ 7,645,849 $ 16,753,380
Net realized gains.......... -- -- 14,686,806 21,288,040
Net unrealized gains
(losses)................... -- -- 1,023,719 3,453,084
------------- ------------- ------------- -------------
Increase in net assets
from operations........ $ 118,826 $ 401,612 $ 23,356,374 $ 41,494,504
------------- ------------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................. $ 376,648 $ 1,325,566 $ 9,090,119 $ 28,878,878
Net transfers between
Sub-Accounts and
Fixed Account............ 632,063 210,852 108,282 (1,854,628)
Withdrawals, surrenders,
annuitizations and
contract charges......... (1,373,901) (8,920,064) (29,131,462) (109,672,772)
------------- ------------- ------------- -------------
Net accumulation
activity............... $ (365,190) $ (7,383,646) $ (19,933,061) $ (82,648,522)
------------- ------------- ------------- -------------
Annuitization Activity:
Annity payments and
contract charges......... $ (111) $ (221) $ (9,191) $ (16,213)
Adjustments to annuity
reserve.................. (4) (9) (630) (7,745)
------------- ------------- ------------- -------------
Net annuitization
activity............... $ (115) $ (230) $ (9,821) $ (23,958)
------------- ------------- ------------- -------------
Decrease in net assets
from participant
transactions......... $ (365,305) $ (7,383,876) $ (19,942,882) $ (82,672,480)
------------- ------------- ------------- -------------
Increase (decrease)
in net assets...... $ (246,479) $ (6,982,264) $ 3,413,492 $ (41,177,976)
NET ASSETS
Beginning of period......... 6,342,082 13,324,346 181,440,497 222,618,473
------------- ------------- ------------- -------------
End of period............... $ 6,095,603 $ 6,342,082 $ 184,853,989 $ 181,440,497
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements
4
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life of Canada (U.S.) Variable Account D (the "Variable Account"), a
separate account of Sun Life Assurance Company of Canada (U.S.), the Sponsor,
was established on August 20, 1985 as a funding vehicle for the variable portion
of group combination fixed/variable annuities. 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), 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 revenues 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.
5
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS -- continued
(3) CONTRACT CHARGES
A mortality and expense risk charge is deducted from the Variable Account at the
end of each valuation period for the mortality and expense risks assumed by the
Sponsor. These deductions are transferred periodically to the Sponsor. The rate
of this deduction varies based on total purchase payments credited to all
participants' accounts under a contract as follows:
<TABLE>
<CAPTION>
Mortality
and Expense
Level Purchase Payments Risk Charge
- ---------- ------------------------- ------------
<S> <C> <C>
1 up to $250,000 1.30%
2 $250,000 to 1,499,999 1.25%
3 $1,500,000 to 4,999,999 1.10%
4 $5,000,000 and over 0.95%
</TABLE>
Since 1987 the Sponsor has reduced the Level 1 mortality and expense risk charge
to 1.25% and, therefore, has been accounting for all Level 1 units as Level 2
units.
Each year on the account anniversary, an account administration fee is deducted
from the participant's account to cover administrative expenses relating to the
contract and the participant's account. The amount of the fee varies from $12 to
$25 and is based on total purchase payments credited to all participants'
accounts under a contract. After the annuity commencement date the account fee
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 6% of the purchase payments made under the
contract.
(4) ANNUITY RESERVES
Annuity reserves are calculated using the 1983 Individual Annuitant Mortality
Table and an assumed interest rate of 4%. Required adjustments to the reserve
are accomplished by transfers to or from the Sponsor.
6
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<TABLE>
<CAPTION>
Units Transferred
Units Outstanding Between Sub-Accounts Units Withdrawn,
Beginning of Period Units Purchased and Fixed Account Surrendered and Annuitized
-------------------------- -------------------------- -------------------------- --------------------------
Six Months Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31, June 30, December 31, June 30, December 31,
Sub-Accounts 1998 1997 1998 1997 1998 1997 1998 1997
- ----------- ----------- ------------ ----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MIT-Level 2 668,603 1,035,562 31,269 119,997 (9,934) (78,771) (91,668) (408,185)
MIT-Level 3 347,926 374,426 10,701 56,588 (46,100) 87,556 (92,391) (170,644)
MIT-Level 4 -- 101,111 8,558 20,016 78,585 13,893 (1,363) (135,020)
MIG-Level 2 225,178 286,668 7,819 24,657 (4,234) (6,604) (63,899) (79,543)
MIG-Level 3 118,801 146,881 3,895 18,311 (20,602) 9,095 (18,236) (55,486)
MIG-Level 4 -- 7,527 4,785 995 58,363 5,279 (326) (13,801)
MTR-Level 2 759,684 1,220,754 34,029 122,825 (16,393) (95,836) (102,883) (488,059)
MTR-Level 3 403,015 447,243 11,208 69,668 (113,754) 59,761 (68,486) (173,657)
MTR-Level 4 17 212,122 10,228 45,961 148,148 (11,935) (1,397) (246,131)
MGO-Level 2 100,623 128,456 5,240 14,964 (155) (2,534) (11,085) (40,263)
MGO-Level 3 29,668 27,750 1,033 6,533 (1,855) 3,047 (5,759) (7,662)
MGO-Level 4 -- 3,601 702 641 10,312 (624) (42) (3,618)
MFB-Level 2 86,309 119,172 4,689 13,246 (2,274) (6,694) (5,025) (39,415)
MFB-Level 3 41,360 74,041 1,675 7,182 (13,863) (1,215) (6,693) (38,648)
MFB-Level 4 -- 98,114 1,682 12,307 14,394 (5,773) (98) (104,648)
MWG-Level 2 50,083 80,813 2,223 7,813 (6,908) (14,242) (4,072) (24,301)
MWG-Level 3 55,415 70,547 1,438 13,242 (34,244) (2,198) (4,959) (26,176)
MWG-Level 4 -- -- 4,160 -- 38,816 -- (215) --
CAS-Level 2 680,351 779,654 28,389 78,476 (219) (28,613) (72,445) (149,166)
CAS-Level 3 431,268 408,890 9,203 55,556 (279,575) 45,603 (40,399) (78,781)
CAS-Level 4 5,247 178,569 12,264 22,562 295,018 (180) (10,237) (195,704)
GSS-Level 2 377,706 496,576 15,122 51,339 (17,919) (55,743) (41,048) (114,466)
GSS-Level 3 225,343 344,849 8,182 43,387 (72,844) 7,712 (29,661) (170,605)
GSS-Level 4 2,450 454,901 2,119 43,269 69,178 (48,251) (8,973) (447,469)
HYS-Level 2 161,891 177,022 8,235 20,630 (3,975) (9,930) (7,782) (25,831)
HYS-Level 3 89,331 97,148 2,546 8,624 (37,691) 9,157 (12,183) (25,598)
HYS-Level 4 102 163,622 1,087 23,922 35,925 (11,531) (1,775) (175,911)
MMS-Level 2 246,919 364,557 18,215 52,788 26,223 32,929 (57,849) (203,355)
MMS-Level 3 158,492 281,464 5,228 19,839 (10,893) 11,873 (23,385) (154,684)
MMS-Level 4 6,803 271,307 557 15,511 25,743 (31,926) (6,919) (248,089)
<CAPTION>
Units Outstanding
End of Period
--------------------------
Six Months
Ended Year Ended
June 30, December 31,
Sub-Account 1998 1997
- ----------- ----------- ------------
<S> <C> <C>
MIT-Level 2 598,270 668,603
MIT-Level 3 220,136 347,926
MIT-Level 4 85,780 --
MIG-Level 2 164,864 225,178
MIG-Level 3 83,858 118,801
MIG-Level 4 62,822 --
MTR-Level 2 674,437 759,684
MTR-Level 3 231,983 403,015
MTR-Level 4 156,996 17
MGO-Level 2 94,623 100,623
MGO-Level 3 23,087 29,668
MGO-Level 4 10,972 --
MFB-Level 2 83,699 86,309
MFB-Level 3 22,479 41,360
MFB-Level 4 15,978 --
MWG-Level 2 41,326 50,083
MWG-Level 3 17,650 55,415
MWG-Level 4 42,761 --
CAS-Level 2 636,076 680,351
CAS-Level 3 120,497 431,268
CAS-Level 4 302,292 5,247
GSS-Level 2 333,861 377,706
GSS-Level 3 131,020 225,343
GSS-Level 4 64,774 2,450
HYS-Level 2 158,369 161,891
HYS-Level 3 42,003 89,331
HYS-Level 4 35,339 102
MMS-Level 2 233,508 246,919
MMS-Level 3 129,442 158,492
MMS-Level 4 26,184 6,803
</TABLE>
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Participants in Sun Life of Canada (U.S.) Variable Account D
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 D (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
8
