SUN LIFE ASSURANCE CO OF CANADA US
POS AM, 1998-11-25
LIFE INSURANCE
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<PAGE>
      As filed with the Securities and Exchange Commission on November 25, 1998
                                                     Registration No. 333-62837

- --------------------------------------------------------------------------------
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
- --------------------------------------------------------------------------------

                                      FORM S-2
                          POST-EFFECTIVE AMENDMENT NO. 1 TO
              REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                    Sun Life Assurance Company of Canada (U.S.)
               (Exact Name of registrant as specified in its charter)

                                      Delaware
           (State or other jurisdiction of incorporation or organization)

                                     38-1082080
                                    ------------

                        (I.R.S. Employer Identification No.)

                            One Sun Life Executive Park
                        Wellesley Hills, Massachusetts 02481
                                   (781) 237-6030
    (Address, including zip code, and telephone number, including area code, of
                     registrant's principal executive offices)

                                    Copies to:
<TABLE>
<S>                                                       <C>
Edward M. Shea, Assistant Vice President and Counsel               Michael Berenson            
   Sun Life Assurance Company of Canada (U.S.)                Jorden Burt Boros Cicchetti      
        Retirement Products and Services                         Berenson & Johnson LLP        
             One Copley Place                              1025 Thomas Jefferson Street, N.W.  
        Boston, Massachusetts, 02116                                 Suite 400E                
             (781) 237-6030                                     Washington, DC 20007           
                                                                    (202) 965-8100             
</TABLE>


<PAGE>

                                       PART I

                         INFORMATION REQUIRED IN PROSPECTUS


Attached hereto and made a part hereof is the Prospectus dated December __, 
1998.

<PAGE>
                                                                      PROSPECTUS
                                                              DECEMBER ___, 1998
 
                             FUTURITY FIXED ANNUITY
 
      This Prospectus describes the Futurity Fixed Annuity, a single payment
deferred annuity contract ("Contract" or "Contracts"). The Contract is designed
for use in connection with retirement and deferred compensation plans, some of
which may qualify as retirement programs under Sections 401, 403, 408 or 408A of
the Internal Revenue Code of 1986, as amended (the "Code"). The Contract
provides for the accumulation of values on a fixed basis, and for annuity
payments which do not vary as to dollar amount and which will begin on a future
date you select.
 
      The Contracts are offered by Sun Life Assurance Company of Canada (U.S.)
(the "Company;" also "we," "us," "our"). Our Principal Executive Offices are
located at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481,
telephone (781) 237-6030. Our Annuity Service Mailing Address is: Sun Life
Assurance Company of Canada (U.S.), Retirement Products and Services, P.O. Box
9133, Boston, Massachusetts 02117, telephone (888) 388-8748. We are an indirect
wholly-owned subsidiary of Sun Life Assurance Company of Canada, one of the
largest life insurance companies in Canada.
 
      The Company issues Contracts on either an individual or a group basis,
depending on the state or jurisdiction where the Contract is issued. A Contract
issued to an individual ("Individual Contract") is evidenced by an Individual
Contract. Participation in a Contract issued to a group ("Group Contract") is
evidenced by a certificate ("Certificate") which describes the Participant's
interest under the Group Contract. Unless otherwise expressly indicated,
references in this Prospectus to "Contracts" include Individual Contracts, Group
Contracts and Certificates issued under Group Contracts, and references to
"Participants" include Individual Contract Owners and individuals participating
under Group Contracts ("Participants;" also "you," "your").
 
      The minimum Purchase Payment for a Contract is $10,000, unless the Company
waives this requirement. If you desire to make a Purchase Payment in excess of
$1,000,000, you must obtain our prior approval.
 
      An Accumulation Account is established for each Participant in order to
determine benefits under the Contract. You may allocate your Net Purchase
Payment to one of the available Guarantee Periods you select in your
Application. The Guarantee Periods have durations of one to ten years, although
not all may be available. Your Purchase Payment, together with any interest
credited, is held in the Fixed Account, which is part of our general account
(See "The Fixed Account," page 10).
 
      Values under a Contract accumulate on a fixed basis. Your Accumulation
Account is credited at an interest rate ("Guaranteed Interest Rate") for the
duration of the Guarantee Period you choose, subject to any applicable
withdrawal charge or Market Value Adjustment. The Guaranteed Interest Rate for
any Guarantee Period will be at least three percent (3%) per year, compounded
annually. We may not change a Guaranteed Interest Rate during the Guarantee
Period. However, Guaranteed Interest Rates for subsequent Guarantee Periods
cannot be predicted and will be determined at our sole discretion (subject to
the Minimum Average Interest Rate guarantee).
 
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
 
THE CONTRACTS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED. FOR A MORE DETAILED DESCRIPTION OF THE RISKS
ASSOCIATED WITH PURCHASING A CONTRACT, PLEASE REFER TO PAGES 11 THROUGH 13 OF
THIS PROSPECTUS.
 
                                       1
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
THIS PROSPECTUS CONTAINS INFORMATION ABOUT THE CONTRACTS THAT A PROSPECTIVE
PURCHASER SHOULD KNOW BEFORE INVESTING. YOU SHOULD RETAIN THIS PROSPECTUS FOR
FUTURE REFERENCE.
 
      We will not assess a sales charge against your Purchase Payment or a
withdrawal charge upon annuitization (except for period certain annuities of
less than ten years) or if you make a transfer. Except as discussed below, you
may withdraw a portion (as specified in your Contract) of your Accumulation
Account in each Account Year without being subject to a withdrawal charge, and
you may withdraw your Purchase Payment without charge after the Company has held
it for seven years (although your withdrawal may be subject to a Market Value
Adjustment). However, if you otherwise withdraw any part of your Accumulation
Account, we may deduct a withdrawal charge, which ranges from 7% to 0%. In no
event will the withdrawal charges assessed against your Accumulation Account
exceed 7% of your Accumulation Account Value (See "Withdrawal Charges," page
14).
 
      Generally, any cash withdrawal (other than a withdrawal upon annuitization
or as the result of a transfer) is subject to a Market Value Adjustment. The
Market Value Adjustment will reflect the relationship between the current rate
(which is the Guaranteed Interest Rate currently declared by the Company for
Guarantee Periods equal to the balance of the Contract's Guarantee Period) and
the Guaranteed Interest Rate applicable to the Contract. Generally, if the
Guaranteed Interest Rate is lower than our currently declared rate, the
application of the Market Value Adjustment results in a lower payment upon
withdrawal. Similarly, except as described below under the section titled "Cash
Withdrawals, Withdrawal Charges and Market Value Adjustment--Market Value
Adjustment," if the Guaranteed Interest Rate is higher than the currently
declared rate, the application of the Market Value Adjustment results in a
higher payment upon withdrawal. The Market Value Adjustment also does not apply
to a withdrawal effective within 30 days prior to the Expiration Date of the
applicable Guarantee Period or the withdrawal of the free withdrawal amount (See
"Market Value Adjustment," page 16).
 
      The Contracts provide that the Company may modify the withdrawal charges,
transfer charges, the tables used to determine the amount of the first monthly
fixed annuity payments and the formula used to calculate the Market Value
Adjustment. However, the modification will apply only to Accumulation Accounts
established after the effective date of such modification (See "Modification,"
page 23).
 
      We reserve the right to defer the payment of any withdrawals for not more
than six months from the date we receive a written withdrawal request.
 
      Contracts sold in certain states are subject to a deduction for premium
taxes. These premium taxes are deducted from the Accumulation Account (See
"Premium Taxes," page 24).
 
      Subject to certain conditions, and during the Accumulation Period, you may
transfer the entire Accumulation Account Value to another Guarantee Period
available under the Contracts. No partial transfers are permitted. Currently
there is no charge for transfers. However, transfers are subject to the Market
Value Adjustment unless the transfer is effective within 30 days prior to an
Expiration Date and other restrictions may apply (See "Transfer Privilege;
Telephone Transfers," page 13).
 
      If the Participant dies prior to the Annuity Commencement Date, we will
pay a death benefit to the Beneficiary. If the Annuitant dies on or after the
Annuity Commencement Date, no death benefit is payable, except as may be
provided under the Annuity Option elected (See "Death Benefit," page 17).
 
      Annuity Payments begin on the Annuity Commencement Date. You select the
Annuity Commencement Date, frequency of payments and the Annuity Option (See
"Annuity Provisions," page 19).
 
      We periodically furnish Owners and Participants with certain reports and
statements (See "Periodic Statements," page 22). Such reports, other than
prospectuses, do not include the Company's financial statements.
 
                                       2
<PAGE>
      If you are not satisfied with your Contract, you may return it to us at
our Annuity Service Mailing Address within ten days after you receive the
Contract. When we receive your Contract, it will be canceled and the
Accumulation Account Value on the date on which the Contract was received by us
will be refunded to you. However, if applicable state or federal law so
requires, we will refund the full amount of any Purchase Payment received by us,
the "free look" period may be greater than ten days and alternative methods of
returning the Contract may be acceptable.
 
                             AVAILABLE INFORMATION
 
      The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and, in accordance therewith,
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. and at the Commission's Regional Offices
located at 75 Park Place, New York, New York and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois. Copies of such materials
also can be obtained, for a fee, from the Commission's Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a
Website that contains the text of reports, proxy and information statements and
other information as filed electronically by the Company with the Commission;
these filings are found at the following address: http://www.sec.gov.
 
      The Company has filed a registration statement and related exhibits
(collectively, the "Registration Statement") with respect to the Contracts with
the Commission under the Securities Act of 1933. This Prospectus has been filed
as a part of the Registration Statement and does not contain all of the
information set forth in the Registration Statement. Reference is hereby made to
the Registration Statement for further information relating to the Company and
the Contracts. The Registration Statement may be inspected and copied, and
copies can be obtained for a fee as described above.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
      The Annual Report on Form 10-K for the year ended December 31, 1997, the
Quarterly Reports on Form 10-Q for the Quarters Ended March 31, 1998, June 30,
1998 and September 30, 1998, and the Current Report on Form 8-K, dated January
8, 1998, which the Company has filed with the Commission under the 1934 Act, are
incorporated by reference in this Prospectus.
 
      Any statement contained in a document incorporated by reference in this
Prospectus shall be deemed modified or superseded by this Prospectus to the
extent that a statement contained in a later-filed document or in this
Prospectus shall modify or supersede such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
 
      The Company will furnish you, without charge, upon your written or oral
request, copies of the reports referred to above which have been incorporated by
reference in this Prospectus. Any documents so provided will not include the
exhibits to such reports, unless the exhibits are specifically incorporated by
reference in this Prospectus. Requests for such documents should be directed to
the Secretary, Sun Life Assurance Company of Canada (U.S.), One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02481, telephone (800) 225-3950.
 
                                       3
<PAGE>
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                          <C>
Special Terms                                                                                                        6
 
This Prospectus is a Catalog of Facts                                                                                9
 
Uses of the Contracts                                                                                                9
 
The Company                                                                                                          9
 
The Fixed Account                                                                                                   10
 
The Purchase Payment and Contract Values During the Accumulation Period                                             11
            The Purchase Payment                                                                                    11
            Accumulation Account                                                                                    11
            Guarantee Period                                                                                        12
            Guaranteed Interest Rates                                                                               12
            Transfer Privilege; Telephone Transfers                                                                 13
            Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest Rates                                      13
 
Cash Withdrawals, Withdrawal Charges and Market Value Adjustment                                                    14
            Cash Withdrawals                                                                                        14
            Withdrawal Charges                                                                                      14
            Section 403(b) Annuities                                                                                15
            Market Value Adjustment                                                                                 16
 
Death Benefit                                                                                                       17
            Death Benefit Provided by the Contract                                                                  17
            Election and Effective Date of Election                                                                 17
            Death of Participant                                                                                    18
            Payment of Death Benefit                                                                                18
            Amount of Death Benefit                                                                                 19
 
Annuity Provisions                                                                                                  19
            Annuity Commencement Date                                                                               19
            Election--Change of Annuity Option                                                                      20
            Annuity Options                                                                                         20
            Determination of Annuity Payments                                                                       21
            Annuity Payment Rates                                                                                   21
 
Other Contract Provisions                                                                                           21
            Designation and Change of Beneficiary                                                                   21
            Exercise of Contract Rights                                                                             21
            Change of Ownership                                                                                     22
            Periodic Statements                                                                                     22
            Modification                                                                                            22
            Discontinuance of New Participants                                                                      23
            Right to Return                                                                                         23
            Premium Taxes                                                                                           23
</TABLE>
 
                                       4
<PAGE>
<TABLE>
<S>                                                                                                          <C>
Federal Tax Status                                                                                                  24
            Introduction                                                                                            24
            Tax Treatment of the Company                                                                            24
            Taxation of Annuities in General                                                                        24
            Qualified Retirement Plans                                                                              26
            Pension and Profit-Sharing Plans                                                                        26
            Tax-Sheltered Annuities                                                                                 26
            Individual Retirement Accounts                                                                          26
            Roth IRAs                                                                                               27
 
Distribution of the Contracts                                                                                       27
 
Additional Information About the Company--Financial Condition September 30, 1998                                    28
            Selected Financial Data                                                                                 28
            Management's Discussion and Analysis of Financial Condition and Results of Operations                   28
            Year 2000 Compliance                                                                                    32
            Quantitative and Qualitative Disclosure About Market Risk                                               34
            Sun Life (Canada)                                                                                       35
            Reinsurance                                                                                             35
            Reserves                                                                                                35
            Investments                                                                                             35
            Competition                                                                                             36
            Employees                                                                                               36
            Properties                                                                                              36
 
The Company's Directors and Executive Officers                                                                      37
 
State Regulation                                                                                                    40
 
Accountants                                                                                                         40
 
Registration Statements                                                                                             41
 
Appendix--Examples of the Market Value Adjustment                                                                   67
</TABLE>
 
                                       5
<PAGE>
                                 SPECIAL TERMS
 
      Any reference in this Prospectus to "receipt" or "received" by the Company
means receipt at the Company's Annuity Service Mailing Address, Sun Life of
Canada (U.S.), Retirement Products and Services, P.O. Box 9133, Boston,
Massachusetts 02117.
 
      The following terms as used in this Prospectus have the indicated
meanings:
 
      ACCOUNT YEARS and ACCOUNT ANNIVERSARIES: The first Account Year is the
period of 12 months plus a part of a month as measured from the Date of Coverage
for each Participant through the last day of the calendar month in which the
Purchase Payment is received. All Account Years and Account Anniversaries
thereafter are 12 month periods based upon the first day of the calendar month
which follows the calendar month of coverage. For example, if the Date of
Coverage is in March, the first Account Year is determined from the Date of
Coverage and ends on March 31 in the following year; all subsequent Account
Years and all Account Anniversaries will be measured from April 1.
 
      ACCUMULATION ACCOUNT: An account established for each Participant to which
the Net Purchase Payment and any interest are credited.
 
      ACCUMULATION ACCOUNT VALUE: The value of the Accumulation Account on any
date.
 
      ACCUMULATION PERIOD: The period before the Annuity Commencement Date and
during the lifetime of the Participant.
 
      *ANNUITANT: The person (or persons) on whose life (or lives) the first
annuity payment is to be made. If the Annuitant dies prior to the Annuity
Commencement Date, the Co-Annuitant, if any, will become the Annuitant. If,
prior to the Annuity Commencement Date, the Co-Annuitant dies or if no
Co-Annuitant is named, the Participant becomes the Annuitant upon the
Annuitant's death.
 
      *ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under a Contract is to be made.
 
      *ANNUITY OPTION: The method for making annuity payments.
 
      APPLICATION: The document, if any, signed by each Participant that serves
as his or her application for participation under a Group Contract or for
purchase of an Individual Contract.
 
      *BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit set forth in each Contact and, for
Non-Qualified Contracts, who, in the event of the Participant's death, is the
"designated beneficiary" for purposes of Section 72(s) of the Code. After the
Annuity Commencement Date, the Beneficiary is the person or entity having the
right, upon the death of the Payee, to receive any remaining payments due under
the Annuity Option elected.
 
      CERTIFICATE: The document which evidences the coverage of a Participant
under a Group Contract. Unless otherwise expressly indicated, references in this
Prospectus to "Contracts" include Certificates.
 
      CODE: The Internal Revenue Code of 1986, as amended.
 
      DATE OF COVERAGE: The date on which a Participant's Accumulation Account
becomes effective.
 
      DEATH BENEFIT DATE: The date on which the Company receives Due Proof of
Death.
 
      DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, and/or any other proof satisfactory to
the Company.
 
- ---------
 
* As specified on the Contract Specifications Page or the Certificate
Specifications Page (as appropriate), unless changed.
 
                                       6
<PAGE>
      EXPIRATION DATE: The last day of a Guarantee Period.
 
      FLOATING RATE: The indexed rate set forth on the Contract Specifications
Page or the Certificate Specifications Page, as applicable, as such rate is
published in The Wall Street Journal two business days prior to the Floating
Rate Reset Date. In the event the Floating Rate is no longer published in The
Wall Street Journal, the Company will use an actuarially based method of
determining the indexed rate, which method will be determined in a manner the
Company believes is equitable.
 
      FLOATING RATE GUARANTEE PERIOD: A Guarantee Period for which the
Guaranteed Interest Rate changes on each Floating Rate Reset Date.
 
      FLOATING RATE RESET DATE: The first Floating Rate Reset Date shall be the
first business day of the first calendar quarter that begins after a Floating
Rate Guarantee Period is elected. Thereafter, a new Floating Rate Reset Date
will occur on the first business day of each subsequent calendar quarter until
the Expiration Date of the particular Floating Rate Guarantee Period.
 
      FLOATING RATE SPREAD: The amount deducted from the Floating Rate to
determine the Guaranteed Interest Rate in effect initially and on each Floating
Rate Reset Date during a Floating Rate Guarantee Period. The Floating Rate
Spread remains constant throughout a Floating Rate Guarantee Period.
 
      GUARANTEE AMOUNT: The amount of the Accumulation Account Value in a
particular Guarantee Period with a particular Expiration Date (including
interest earned thereon).
 
      GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited.
 
      GUARANTEED INTEREST RATE: The rate of interest credited by the Company on
a compound annual basis during a particular Guarantee Period.
 
      *MINIMUM AVERAGE INTEREST RATE: The minimum rate of interest that may be
credited by the Company on a compound annual basis, as determined at the end of
a particular Guarantee Period or upon surrender of the Contract, as applicable.
 
      NET PURCHASE PAYMENT: The portion of the Purchase Payment remaining after
the deduction of any applicable premium tax or similar tax.
 
      NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan which does not receive favorable federal income tax treatment under Section
401, 403, 408, or 408A or any other applicable section of the Code. The
Participant's interest in the Contract must be owned by a natural person or
agent for a natural person in order for the Contract to receive favorable income
tax treatment as an annuity.
 
      *OWNER: The person or entity named on the Group Contract Specifications
Page who is entitled to exercise all rights and privileges of ownership under
the Group Contract.
 
      PARTICIPANT (ALSO "YOU," "YOUR"): In the case of an Individual Contract,
the owner of the Contract. In the case of a Group Contract, the person named on
the Certificate Specifications Page who is entitled to exercise all rights and
privileges of ownership under the Certificate, except as reserved by the Owner.
If the Contract is a Non-Qualified Contract, the Participant must be a natural
person or agent for a natural person in order for the Contract to receive
favorable income tax treatment as an annuity. If the Contract is a Qualified
Contract (other than a Section 403 contract), the Participant must be a trustee
or custodian of a retirement plan which meets the requirements of Section 401,
Section 408(c), Section 408(k), Section 408A, or any other applicable Section of
the Code, and the Qualified Plan Endorsement must be attached to and made a part
of the Contract.
 
      PAYEE: A recipient of payments under the Contract.
 
- ---------
 
* As specified on the Contract Specifications Page or the Certificate
Specifications Page (as appropriate), unless changed.
 
                                       7
<PAGE>
      PURCHASE PAYMENT: The amount paid to the Company by or on behalf of the
Participant as consideration for the benefits provided by the Contract.
 
      QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which may receive favorable federal income tax treatment under Section 401, 403,
408, or 408A or any other applicable section of the Code.
 
                                       8
<PAGE>
                     THIS PROSPECTUS IS A CATALOG OF FACTS
 
      This Prospectus contains information about the Contracts, which provide
fixed benefits. It describes the Contracts' uses and objectives, the benefits
and costs, and the rights and privileges of Owners and Participants. It also
contains information about the Company and the Fixed Account. This Prospectus
has been carefully prepared in non-technical language to help you decide whether
the purchase of a Contract fits the needs of your retirement plan. We urge you
to read it carefully and retain it for future reference.
 
      A Fixed Annuity provides that Purchase Payments, less certain deductions,
will accumulate prior to the Annuity Commencement Date. After the Annuity
Commencement Date, annuity payments will be made to the Annuitant. Under a Fixed
Annuity, the investment risk is assumed by the Company (except in the case of
early withdrawals (See "Cash Withdrawals" and "Market Value Adjustment")), and
the amounts of the annuity payments do not vary. However, each Participant bears
the risk that the Guaranteed Interest Rate credited to the Contract may not
exceed the Minimum Average Interest Rate specified in the Contract.
 
                             USES OF THE CONTRACTS
 
      The Contracts are designed to be used in connection with retirement plans,
some of which meet the requirements of Section 401 (including Section 401(k)),
Section 403, Section 408(b), Section 408(c), Section 408(k), Section 408(p) or
Section 408A of the Code; however, the Company may discontinue offering new
Contracts in connection with certain types of qualified plans.
 
      Certain federal tax advantages are currently available to retirement plans
which qualify under the Code as (a) self-employed individuals' retirement plans
under Section 401; (b) corporate or association retirement plans under Section
401; (c) annuity purchase plans sponsored by certain tax exempt organizations or
public school systems under Section 403(b); or (d) individual retirement
accounts, including employer or association of employees individual retirement
accounts under Section 408(c), SEP-IRAs under Section 408(k), Simple Retirement
Accounts under Section 408(p), and Roth IRAs under Section 408A (See "Federal
Tax Status").
 
      The Contracts are also designed to be used in connection with certain
non-tax-qualified retirement plans, such as payroll savings plans, and by such
other groups (trusteed or nontrusteed) as may be eligible under applicable law.
 
                                  THE COMPANY
 
      Sun Life Assurance Company of Canada (U.S.) (the "Company;" also "we,"
"us," and "our") is a stock life insurance company which was incorporated under
the laws of Delaware on January 12, 1970. Its Executive Offices are located at
One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, telephone
(781) 237-6030. The Company currently is authorized to do business in 48 states,
the District of Columbia and Puerto Rico, and it is anticipated that the Company
will be authorized to do business in all states except New York. The Company
issues life insurance policies and individual and group annuities. The Company
has formed a wholly-owned subsidiary, Sun Life Insurance and Annuity Company of
New York, which issues individual fixed and combination fixed/variable annuity
contracts and group life and long-term disability insurance in New York. The
Company's other active subsidiaries are: Sun Capital Advisers, Inc., a
registered investment adviser; Clarendon Insurance Agency, Inc., a registered
broker-dealer that acts as the general distributor of the Contracts and other
annuity and life insurance contracts issued by the Company and its affiliates;
Sun Life of Canada (U.S.) Distributors, Inc., a registered broker-dealer and
investment adviser; New London Trust, F.S.B., a federally chartered savings
bank; Massachusetts Casualty Insurance Company, which issues individual
disability income policies; Sun Life Financial Services Limited, which provides
off-shore administrative services to the Company and its parent company, Sun
Life Assurance Company of Canada (sometimes referred to in this Prospectus as
"Sun Life (Canada)"), and Sun Life Information Services Ireland Limited, an
offshore technology center.
 
      The Company is a wholly-owned subsidiary of Sun Life of Canada (U.S.)
Holdings, Inc. ("Life Holdco"). Life Holdco is a wholly-owned subsidiary of Sun
Life Assurance Company of Canada-U.S. Operations Holdings, Inc. ("U.S. Holdco").
U.S. Holdco is a wholly-owned subsidiary of Sun Life (Canada), 150 King Street
West, Toronto, Ontario, Canada. Sun Life (Canada) is a mutual life insurance
company
 
                                       9
<PAGE>
incorporated pursuant to Act of Parliament of Canada in 1865 and currently
transacts business in all of the Canadian provinces and territories, in all U.S.
states except New York, and in the District of Columbia, Puerto Rico, the Virgin
Islands, Great Britain, Ireland, Bermuda, Hong Kong, and the Philippines.
 
                               THE FIXED ACCOUNT
 
      The Fixed Account is made up of all of the general assets of the Company,
other than those allocated to any unitized separate account. The Purchase
Payment is allocated to the Guarantee Period you elect at the time your
Accumulation Account is established. Your Accumulation Account Value may be
transferred to another Guarantee Period available under the Contract, subject to
certain restrictions (See "Transfer Privilege"). Assets supporting amounts
allocated to Guarantee Periods become part of the Company's general account
assets and are available to fund the claims of all classes of customers of the
Company, including claims for benefits under the Contracts.
 
      The Company invests the assets of the Fixed Account in those assets chosen
by the Company and allowed by applicable state laws regarding the nature and
quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
 
      The Company's general investment strategy is to invest the assets of the
Fixed Account in investment grade debt securities and mortgages. The Company
intends to invest the assets of the Fixed Account primarily in such debt
instruments as follows:
 
      -  Securities issued by the United States Government or its agencies or
         instrumentalities, which securities may or may not be guaranteed by the
         United States Government;
 
      -  Investment grade debt securities, I.E., those which have a rating, at
         the time of purchase, within the four highest grades assigned by
         Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's
         Corporation ("Standard & Poor's") (Aaa, Aa, A or Baa and AAA, AA, A or
         BBB, respectively) or any other nationally recognized rating service;
 
      -  Other debt instruments, including, but not limited to, issues of or
         guaranteed by banks or bank holding companies and other corporations,
         which obligations, although not rated by Moody's or Standard & Poor's,
         are deemed by the Company's management to have an investment quality
         comparable to securities which may be purchased as stated above; and
 
      -  Other evidences of indebtedness secured by mortgages or deeds of trust
         representing liens upon real estate.
 
      The Company may also invest a portion of the Fixed Account in below
investment grade debt instruments. Instruments rated Baa and/or BBB or lower
normally involve a higher risk of default and are less liquid than higher rated
instruments. If the rating of an investment grade debt security held by the
Company is subsequently downgraded to below investment grade, the Company's
decision to retain or dispose of the security will be made based upon our
individual evaluation of the circumstances surrounding the downgrade and the
prospects for continued deterioration, stabilization and/or improvement.
 
      In pursuing its general investment strategy with respect to amounts
allocated to the Fixed Account, the Company uses immunization strategies
appropriate to the various Guarantee Periods. This includes, with respect to
investments and average terms of investments, using dedication (cash flow
matching) and/ or duration matching to minimize the Company's risk of not
achieving the rates it is crediting under Guarantee Periods in volatile interest
rate environments.
 
      We are not obligated to invest amounts allocated to the Fixed Account
according to any particular strategy, except as may be required by applicable
state insurance laws. Investment income from such Fixed Account assets will be
allocated between the Company and all contracts participating in the Fixed
Account, including the Contracts, in accordance with the terms of such
contracts.
 
                                       10
<PAGE>
      Fixed annuity payments made to Annuitants under the Contracts will not be
affected by the mortality experience (death rate) of the persons receiving such
payments or of the general population. The Company assumes this "mortality risk"
by virtue of annuity rates incorporated in the Contracts which cannot be changed
(except as described under "Modification" with respect to Accumulation Accounts
established after the effective date of such modification). In addition, the
Company guarantees that it will not impose a charge for maintenance of the
Contracts, regardless of its actual expenses (except as described under
"Modification" with respect to Accumulation Accounts established after the
effective date of such modification).
 
      Investment income from the Fixed Account which is allocated to the Company
includes compensation for mortality and expense risks, distribution expenses and
administrative expenses borne by the Company in connection with contracts
(including the Contracts), participating in the Fixed Account. We expect to
derive a profit from this compensation. The amount of investment income
allocated to the Contracts will vary from Guarantee Period to Guarantee Period
in our sole discretion. However, the Company guarantees that it will credit
interest at the Minimum Average Interest Rate, compounded annually, to amounts
allocated to the Fixed Account under the Contracts. The Company may (but is not
obligated to) declare Guaranteed Interest Rates in excess of the Minimum Average
Interest Rate.
 
      We are aware of no statutory limitations on the maximum amount of interest
we may credit, and the Company's Board of Directors has set no limitations.
However, inherent in our exercise of discretion in this regard is the equitable
allocation of distributable earnings and surplus among our various policyholders
and contract owners and our sole stockholder.
 
      THE PURCHASE PAYMENT AND CONTRACT VALUES DURING ACCUMULATION PERIOD
 
THE PURCHASE PAYMENT
 
      -  PLACE AND AMOUNT. Your Purchase Payment is paid to the Company at its
         Annuity Service Mailing Address. The Company generally will not accept
         a Purchase Payment which is less than $10,000; exceptions will be
         determined by the Company on an individual basis. In addition, the
         Company's prior approval is required before it will accept a Purchase
         Payment which exceeds $1,000,000.
 
        A completed Application, if required, and the Purchase Payment are
        forwarded to the Company for acceptance. Upon acceptance, in the case of
        an Individual Contract, the Contract is issued to the Participant, and
        in the case of a Group Contract, the Contract and Certificate(s), as
        applicable, are issued to the Owner and the Participant(s),
        respectively. The Purchase Payment, minus any applicable premium tax or
        similar tax (the "Net Purchase Payment"), is credited to the
        Accumulation Account. The Company generally confirms receipt of the
        Purchase Payment in writing within five business days of receipt. Your
        Accumulation Account starts earning interest on the day the Purchase
        Payment is applied.
 
        If an Application or a purchase order is not properly completed, we will
        attempt to contact the prospective Participant in writing or by
        telephone. If the Application or purchase order has not been properly
        completed within five business days after we receive it, we will return
        the Purchase Payment.
 
      -  ACCOUNT CONTINUATION: The Accumulation Account is automatically
         continued in full force during the lifetime of the Participant and
         until the Annuity Commencement Date or until the Accumulation Account
         is surrendered.
 
      -  ALLOCATION OF NET PURCHASE PAYMENT: The Net Purchase Payment will be
         allocated to the Guarantee Period selected by the Participant in the
         Application, from among such Guarantee Periods as may be made available
         from time to time by the Company.
 
ACCUMULATION ACCOUNT
 
      We will establish an Accumulation Account for each Participant and will
maintain the Accumulation Account during the Accumulation Period.
 
                                       11
<PAGE>
GUARANTEE PERIOD
 
      You may elect one Guarantee Period of one to ten years from among those
made available from time to time by the Company. The Guarantee Period that you
elect determines the Guaranteed Interest Rate. Amounts allocated to a particular
Guarantee Period, less any applicable premium taxes or similar taxes and less
any amounts subsequently withdrawn, earn interest at the Guaranteed Interest
Rate in effect during the Guarantee Period.
 
      The Initial Guarantee Period begins on the date the Net Purchase Payment
is applied. Except for Floating Rate Guarantee Periods, the Initial Guarantee
Period ends when the number of calendar years in the Guarantee Period elected
(measured from the end of the calendar month in which the Net Purchase Payment
was applied) has elapsed. For Floating Rate Guarantee Periods, the Initial
Guarantee Period ends when the number of calendar years in the Floating Rate
Guarantee Period elected (measured from the end of the calendar quarter in which
the Net Purchase Payment was applied) has elapsed. The last day of a Guarantee
Period is the Expiration Date. Subsequent Guarantee Periods begin on the first
day following the Expiration Date. For Floating Rate Guarantee Periods, the
Expiration Date always occurs at the end of a calendar quarter. For other
Guarantee Periods, the Expiration Date always occurs at the end of a calendar
month.
 
      We will mail written notification to the Participant at least 45 and no
more than 75 days prior to the Expiration Date of a Guarantee Period. A new
Guarantee Period of the same duration and type as the previous Guarantee Period
will commence automatically at the end of the previous Guarantee Period, unless
the Company receives, in writing or other manner acceptable to us, prior to the
end of such Guarantee Period, an election by the Participant of a different
Guarantee Period from among those being offered by the Company at such time.
 
      We reserve the right to add or remove Guarantee Periods available at any
time for election by the Participant.
 
GUARANTEED INTEREST RATES
 
      The Company periodically establishes a Guaranteed Interest Rate for each
Guarantee Period. There is no specific formula for the determination of
Guaranteed Interest Rates. Some of the factors that the Company may consider in
establishing Guaranteed Interest Rates, are:
 
      -  general economic trends
 
      -  rates of return currently available and anticipated on the Company's
investments
 
      -  regulatory and tax requirements
 
      -  competitive factors
 
      -  sales commissions and administrative and distribution expenses borne by
         the Company
 
      Guaranteed Interest Rates will be reflective of expected investment yields
and interest rates available on the types of debt instruments in which the
Company intends to invest. These rates are guaranteed for the duration of the
respective Guarantee Periods. Interest is credited to your Accumulation Account
daily at an annual effective rate of interest. However, any Accumulation Account
Value withdrawn is subject to any applicable withdrawal charge and may be
subject to a Market Value Adjustment upon withdrawal or surrender (See "Market
Value Adjustment").
 
      For a Floating Rate Guarantee Period, the Guaranteed Interest Rate may
change on each Floating Rate Reset Date; however, the Floating Rate Spread used
by the Company to compute the Guaranteed Interest Rate will remain constant
throughout such Floating Rate Guarantee Period. The Company will determine a new
Floating Rate Spread at the beginning of each Floating Rate Guarantee Period.
 
      The Minimum Average Interest Rate will not be less than three percent (3%)
per year, compounded annually. The Participant bears the risk that the
Guaranteed Interest Rate to be credited may not exceed the Minimum Average
Interest Rate for any Guarantee Period.
 
                                       12
<PAGE>
      On any Expiration Date, and on the date on which a Contract is surrendered
in full, the Accumulation Account Value (before the application of any
applicable withdrawal charge and/or Market Value Adjustment) will not be less
than the Net Purchase Payment, less any previous withdrawals, accumulated at an
effective annual rate of interest equal to the Minimum Average Interest Rate.
Subject to the above guarantees, the Guaranteed Interest Rate credited on a
particular day to a Floating Rate Guarantee Period may be less than the Minimum
Average Interest Rate.
 
TRANSFER PRIVILEGE; TELEPHONE TRANSFERS
 
      At any time during the Accumulation Period, you may transfer your entire
Accumulation Account Value to a new Guarantee Period, subject to the conditions
set forth below. No partial transfers are permitted. One transfer per Account
Year is permitted and a minimum of 30 calendar days must elapse between
transfers. No transfer is allowed within 30 days after the Date of Coverage. A
transfer will be subject to the Market Value Adjustment (See "Market Value
Adjustment"), unless the transfer is effective within 30 days prior to an
Expiration Date. The Company reserves the right, in its sole discretion, to
delay the effective date of any transfer for a period not to exceed six months
from the date written request for such transfer is received by the Company.
Under current law, there is no tax liability to you if you make a transfer.
 
      Except as described below, a transfer generally is effective on the date
the request for transfer is received by the Company, if such request is received
in good order by 4:00 p.m. Eastern Time on any date on which the Company is open
for business. The Company generally is open for business on any day that the New
York Stock Exchange is open for business.
 
      If you make a transfer, we will establish a new Guarantee Period for the
amount being transferred. Any such new Guarantee Period will begin on the
effective date of the transfer and end on the new Expiration Date. The amount
transferred will earn interest at the Guaranteed Interest Rate declared by the
Company for the new Guarantee Period as of the effective date of the transfer.
 
      You or your agent of record may request a transfer either in writing or by
telephone. The telephone transfer privilege is made available to Participants
automatically without the Participants' election. The Company employs reasonable
procedures to confirm that instructions communicated by telephone by
Participants and their agents of record are genuine. Such procedures may include
one or more of the following: requesting identifying information, such as name,
Contract number, Social Security Number, and/ or personal identification number;
tape recording all telephone transactions; providing written confirmation
thereof to both the Participant and any agent of record, at the last address of
record; or such other procedures as the Company may deem reasonable. Although
the Company's failure to follow reasonable procedures may result in the
Company's liability for any losses due to unauthorized or fraudulent telephone
transfers, the Company will not be liable for following instructions
communicated by telephone which it reasonably believes to be genuine. The
Participant bears the risk of incurring a loss on actions taken by the Company
in reliance on telephone instructions which the Company reasonably believed to
be genuine.
 
WAIVERS; REDUCED CHARGES; CREDITS; BONUS GUARANTEED INTEREST RATES
 
      The Company may reduce or waive the withdrawal charge, credit additional
amounts, or grant bonus Guaranteed Interest Rates in situations where selling
and/or maintenance costs associated with the Contracts are reduced, such as the
sale of several Contracts to the same Participant, sales of large Contracts, and
certain group sales. In addition, the Company may waive the withdrawal charge,
credit additional amounts, or grant bonus Guaranteed Interest Rates in
connection with Contracts sold to officers, directors and employees of the
Company or its affiliates, registered representatives and employees of
broker-dealers with a current selling agreement with the Company and their
affiliates, employees of affiliated asset management firms, and persons who have
retired from such positions ("Eligible Employees") and immediate family members
of Eligible Employees. The Company may reduce or waive such charges, credit
additional amounts, or grant bonus Guaranteed Interest Rates on any Contract
where, for example, expenses associated with the sale of the Contract and/or
costs or services associated with administering and maintaining the Contract are
reduced. Eligible Employees and their immediate family members may also purchase
a Contract without regard to minimum Purchase Payment requirements. For other
situations in which withdrawal charges may be waived, see "Withdrawal Charges."
 
                                       13
<PAGE>
        CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
 
CASH WITHDRAWALS
 
      At any time before the Annuity Commencement Date, you may elect to receive
a cash withdrawal payment by filing with the Company at its Annuity Service
Mailing Address, a written election in such form as the Company may require. Any
such election shall specify the amount of the withdrawal and will be effective
on the date that it is received by the Company. The Company reserves the right
to defer the payment of amounts withdrawn for a period not to exceed six months
from the date the Company receives a written request for such withdrawal. The
Company is not required to pay interest on amounts so deferred.
 
      You may request a full surrender or a partial withdrawal. A full surrender
will result in a cash withdrawal payment equal to:
 
      (1)  the Accumulation Account Value as of the date the Company receives
           the request, plus or minus
 
      (2)  any applicable Market Value Adjustment, minus
 
      (3)  any applicable withdrawal charge (determined as a percentage of (1)
           before any application of a Market Value Adjustment).
 
Upon a full surrender, the Contract will be canceled and no further benefits
will be payable thereunder. A request for a partial withdrawal (I.E., a payment
of an amount less than that paid under a full surrender) will reduce the
Accumulation Account Value by
 
      (1)  the dollar amount of the cash withdrawal amount, plus or minus
 
      (2)  any applicable Market Value Adjustment, plus
 
      (3)  any applicable withdrawal charge (determined as a percentage of (1)
           before any application of a Market Value Adjustment).
 
If you request a partial withdrawal which would cause your Accumulation Account
Value to be less than $1,000, the partial withdrawal will be treated as a full
surrender.
 
      All cash withdrawals, except those effective within 30 days prior to the
Expiration Date of a Guarantee Amount or the withdrawal of the "free withdrawal
amount," will be subject to the Market Value Adjustment described in this
Prospectus under the heading "Market Value Adjustment." Any applicable Market
Value Adjustment will be deducted from, or added to (as applicable), your
Accumulation Account before the application of any withdrawal charge.
 
      Upon request, the Company will advise the Participant of the amounts that
would be payable in the event of a full surrender or partial withdrawal.
 
      Since the Qualified Contracts offered by this Prospectus will be issued in
connection with retirement plans which meet the requirements of Section 401,
403, 408, and 408A of the Code, you should refer to the terms of your particular
retirement plan for any limitations or restrictions on cash withdrawals. For
special restrictions applicable to withdrawals from Contracts used with
Tax-Sheltered Annuities established pursuant to Section 403(b) of the Code, see
"Section 403(b) Annuities," below.
 
WITHDRAWAL CHARGES
 
      We deduct no sales charges from your Purchase Payment. However, we will
assess a withdrawal charge, when applicable, as reimbursement to us for certain
expenses relating to the distribution of the Contracts, including commissions,
costs of preparing sales literature and other promotional costs and acquisition
expenses. A cash withdrawal under either a Qualified Contract or a Non-Qualified
Contract may result in a tax penalty of ten percent (10%) (See "Federal Tax
Status").
 
      You may withdraw a portion of your Accumulation Account Value each year
without incurring any withdrawal charge, and after seven years your entire
Accumulation Account Value may be withdrawn free of
 
                                       14
<PAGE>
any withdrawal charge. In addition, no withdrawal charge is imposed on amounts
withdrawn on or after the later of:
 
      (a)  the end of the Initial Guarantee Period, or
 
      (b)  the end of the third Account Year.
 
No withdrawal charge is assessed upon annuitization (except for period certain
annuities of less than ten years), upon payment of the death benefit (unless the
Participant was age 86 or older on the Date of Coverage) or upon the transfer of
your Accumulation Account Value to a new Guarantee Period.
 
      The withdrawal charge is not assessed on an Accumulation Account
established for the personal account of an employee of the Company or of any of
its affiliates, or of a licensed insurance agent engaged in distributing the
Contracts, and the Company may waive the withdrawal charge with respect to a
Purchase Payment derived from the surrender of other annuity contracts and/or
certificates issued by the Company.
 
      All other full or partial withdrawals are subject to a withdrawal charge
which will be determined on the following basis:
 
      (a)  FREE WITHDRAWAL AMOUNT: The free withdrawal amount in any Account
           Year is the greater of:
 
           (1)  10% of that Account Year's beginning Accumulation Account Value,
                or
 
           (2)  any amounts required to be withdrawn to comply with any
                mandatory distribution requirements applicable to Qualified
                Contracts under federal law.
 
      (b) AMOUNT SUBJECT TO WITHDRAWAL CHARGE: For a partial withdrawal or full
          surrender, the amount subject to a withdrawal charge equals the amount
          of the partial withdrawal or full surrender, minus any of the current
          Account Year's remaining free withdrawal amount.
 
      (c) WITHDRAWAL CHARGE PERCENTAGE: The withdrawal charge percentage varies
          according to the number of complete Account Years occurring between
          the Account Year in which the Net Purchase Payment was credited to the
          Accumulation Account and the Account Year in which it is withdrawn.
 
      (d) AMOUNT OF WITHDRAWAL CHARGE: The amount of the withdrawal charge is
          determined by multiplying the amount subject to the withdrawal charge
          by the applicable withdrawal charge percentage, in accordance with the
          following table:
 
<TABLE>
<CAPTION>
 NUMBER OF COMPLETE    WITHDRAWAL CHARGE
   ACCOUNT YEARS          PERCENTAGE
- --------------------  -------------------
<S>                   <C>
        0-1                   7%
         2                    6%
         3                    5%
         4                    4%
         5                    3%
         6                    2%
     7 or more                0%
</TABLE>
 
      In no event shall the aggregate withdrawal charges assessed against an
Accumulation Account exceed 7% of the Contract's Accumulation Account Value (See
the Appendix for examples of withdrawals, withdrawal charges and the Market
Value Adjustment). The Company may, upon notice to the Owner, modify the
withdrawal charges under a Group Contract, provided that such modification shall
apply only to Accumulation Accounts established after the effective date of such
modification (See "Modification").
 
SECTION 403(B) ANNUITIES
 
      The Code imposes restrictions on cash withdrawals from Contracts used with
Section 403(b) Annuities. In order for such Contracts to receive tax deferred
treatment, the Contracts must provide that cash withdrawals of amounts
attributable to salary reduction contributions (other than withdrawals of
Accumulation Account Value as of December 31, 1988 ("Pre-1989 Account Value"))
may be made only when the Participant:
 
                                       15
<PAGE>
      (a)  attains age 59 1/2,
 
      (b)  separates from service with the employer,
 
      (c)  dies, or
 
      (d)  becomes disabled (within the meaning of Section 72(m)(7) of the
           Code).
 
These restrictions apply to any growth or interest on or after January 1, 1989
on Pre-1989 Account Value, salary reduction contributions made on or after
January 1, 1989, and any growth or interest on such contributions ("Restricted
Account Value").
 
      In cases of financial hardship, withdrawals of Restricted Account Value
are permitted to the extent of contributions. Earnings on contributions cannot
be withdrawn for hardship reasons. While specific rules defining hardship have
not been issued by the Internal Revenue Service, it is expected that to qualify
for a hardship distribution, the Participant must have an immediate and heavy
bona fide financial need and lack other resources reasonably available to
satisfy the need. Hardship withdrawals (as well as certain other premature
withdrawals) will be subject to a 10% tax penalty, in addition to any withdrawal
charge applicable under the Contract (See "Federal Tax Status"). Under certain
circumstances, the 10% tax penalty may not apply if the withdrawal is made to
pay medical expenses. You should consult your tax adviser.
 
      Under the terms of a particular Section 403(b) plan, the Participant may
be entitled to transfer all or a portion of the Accumulation Account Value to
one or more alternative funding options. Participants should consult the
documents governing their plan and the person who administers the plan for
information as to such investment alternatives.
 
      For information on the federal income tax withholding rules that apply to
distributions from Qualified Contracts (including Section 403(b) Annuities), see
"Federal Tax Status."
 
MARKET VALUE ADJUSTMENT
 
      Any cash withdrawal, other than a withdrawal effective within 30 days
prior to the Expiration Date of a Guarantee Period or the withdrawal of the
"free withdrawal amount," is subject to a Market Value Adjustment ("MVA"). (For
this purpose, transfers, death benefit distributions and amounts applied to
purchase an annuity are treated as cash withdrawals.)
 
      The MVA reflects the relationship between the Current Rate (as defined
below) for the amount being withdrawn and the Guaranteed Interest Rate
applicable to the amount being withdrawn. It also reflects the time remaining in
the applicable Guarantee Period. Generally, if the Guaranteed Interest Rate is
lower than the applicable Current Rate, then the application of the MVA will
result in a lower payment upon withdrawal. Similarly, if the Guaranteed Interest
Rate is higher than the applicable Current Rate plus the "b factor" referenced
below, the application of the MVA will result in a higher payment upon
withdrawal.
 
      The MVA is determined by multiplying the amount being withdrawn, before
deduction of any applicable withdrawal charge, by the market value adjustment
factor.
 
      The market value adjustment factor for all Guarantee Periods, except
Floating Rate Guarantee Periods, is:
 
<TABLE>
 <S>                        <C>
                              N/12
                      1 +
                      I
                    ( ----- )      -1
                      1 + J
                      + b
</TABLE>
 
where,
 
      I is the Guaranteed Interest Rate currently being credited to the
Accumulation Account,
 
      J is the Guaranteed Interest Rate declared by the Company, as of the date
of the application of the MVA, for current allocations to Guarantee Periods
equal to the balance of the current Guarantee Period, rounded to the next higher
number of complete years (the "Current Rate"),
 
      b is a factor which the Company will determine for a Contract and which
will not exceed 0.25%, and
 
      N is the number of complete months remaining in the current Guarantee
Period.
 
                                       16
<PAGE>
      In determining J, if the Company currently does not offer the applicable
Guarantee Period, then the rate will be determined by linear interpolation of
the current rates for Guarantee Periods that are available. If no Guarantee
Periods are available to perform a linear interpolation, the Company will use an
equitable method and will inform the appropriate state regulatory authority of
such method.
 
      The market value adjustment factor for each Floating Rate Guarantee Period
is:
 
<TABLE>
 <C>                                 <C>
                                       N/12
                        1 + F - X
                    ( -------------- )      -1
                      1 + F - Y + b
</TABLE>
 
where,
 
      F is the Floating Rate currently being used to determine the Guaranteed
Interest Rate for the Floating Rate Guarantee Period;
 
      X is the Floating Rate Spread in effect during the current Floating Rate
Guarantee Period,
 
      Y is the Floating Rate Spread, as of the date of the application of the
MVA, for current allocations to new Floating Rate Guarantee Periods equal to the
balance of the current Floating Rate Guarantee Period, rounded up to the next
higher number of complete years,
 
      b is a factor which the Company will determine for a Contract and which
will not exceed 0.25%, and
 
      N is the number of complete months remaining in the current Floating Rate
Guarantee Period.
 
      In the determination of Y, if the Company currently does not offer the
applicable Floating Rate Guarantee Period, then the rate will be determined by
using the next longer Floating Rate Guarantee Period that is available. If the
Company currently does not offer a longer Floating Rate Guarantee Period, the
Company will determine, in an equitable manner and in its sole discretion, the
value of Y.
 
      See the Appendix for examples of the application of the MVA.
 
                                 DEATH BENEFIT
 
DEATH BENEFIT PROVIDED BY THE CONTRACT
 
      -  If the Participant dies while the Contract is in effect and prior to
         the Annuity Commencement Date, the Company will, upon receipt of Due
         Proof of Death of the Participant, pay a death benefit to the
         Beneficiary.
 
      -  If the designated Beneficiary does not survive the Participant, the
         Company will, upon receipt of Due Proof of Death of the Participant
         and/or the Beneficiary, if applicable, pay the death benefit in one sum
         to the estate of the deceased Participant.
 
      -  If the Annuitant dies on or after the Annuity Commencement Date, no
         death benefit will be payable under the Contract, except as may be
         provided under the elected Annuity Option.
 
      -  If the Participant is not a natural person, the Annuitant is considered
         the "Participant" for purposes of the Death Benefit provided by the
         Contract.
 
ELECTION AND EFFECTIVE DATE OF ELECTION
 
      During your lifetime and prior to the Annuity Commencement Date, you may
elect to have the death benefit applied under one or more of the Annuity Options
available under the Contract to effect a Fixed Annuity for the Beneficiary as
Payee after your death. The Annuity Option chosen must comply with Section 72(s)
of the Code.
 
      If no method of settlement of the death benefit is in effect on the date
of your death, the Beneficiary may elect either: (a) to receive the death
benefit in the form of a single cash payment, or (b) to have the death benefit
applied under one or more of the Annuity Options (on the Annuity Commencement
Date described under "Payment of Death Benefit") to effect a Fixed Annuity for
the Beneficiary as Payee. Either election may be made, or subsequently revoked,
by filing with the Company at its Annuity Service Mailing
 
                                       17
<PAGE>
Address, a written election or revocation of an election in such form as the
Company may require. Any election or revocation of an election of a method of
settlement of the death benefit by the Participant will become effective on the
date the Company receives it. For the purposes of the "Payment of Death Benefit"
and "Amount of Death Benefit" sections of this Prospectus, any election by the
Participant of a method of settlement of the death benefit which is in effect on
the date of the Participant's death will be deemed effective on the date the
Company receives Due Proof of Death of the Participant.
 
      Any election of a method of settlement of the death benefit by the
Beneficiary will become effective on the later of: (a) the date the election is
received by the Company, or (b) the date Due Proof of Death of the Participant
is received by the Company. If an election by the Beneficiary is not received by
the Company within 60 days following the date Due Proof of Death of the
Participant is received by the Company, the Beneficiary will be deemed to have
elected a cash payment as of the last day of the 60 day period.
 
      In all cases, no Participant or Beneficiary shall be entitled to exercise
any rights that would adversely affect the treatment of the Contract as an
annuity contract under the Code. (See "Death of Participant").
 
DEATH OF PARTICIPANT
 
      If a Participant under a Non-Qualified Contract dies prior to the Annuity
Commencement Date, the death benefit must be distributed to the "designated
beneficiary" (as defined below) either (a) within five years after the date of
death of the Participant, or (b) as an annuity over some period not greater than
the life or expected life of the designated beneficiary, with annuity payments
beginning within one year after the date of death of the Participant. For this
purpose (and for purposes of Section 72(s) of the Code), the person named as
Beneficiary shall be considered the designated beneficiary, and if no person
then living has been so named, then the Annuitant shall automatically be the
designated beneficiary. If the designated beneficiary is the surviving spouse of
the deceased Participant, the spouse can elect to continue the Contract in the
spouse's own name as Participant, in which case these mandatory distribution
requirements will apply on the spouse's death.
 
      If the Payee dies on or after the Annuity Commencement Date and before the
entire Accumulation Account has been distributed, the remaining portion of such
Accumulation Account, if any, must be distributed at least as rapidly as the
method of distribution then in effect.
 
      In any case where a non-natural person is the holder of the Contract for
the purposes of Section 72(s) of the Code, (a) the distribution requirements
described above shall apply upon the death of any Annuitant, and (b) a change in
any Annuitant shall be treated as the death of an Annuitant.
 
      In no cases, shall a Participant or Beneficiary be entitled to exercise
any rights that would adversely affect the treatment of the Contract as an
annuity contract under the Code.
 
      Any distributions upon the death of a Participant under a Qualified
Contract will be subject to the laws and regulations governing the particular
retirement or deferred compensation plan in connection with which the Qualified
Contract was issued.
 
PAYMENT OF DEATH BENEFIT
 
      If the Participant has elected settlement under one or more of the Annuity
Options available under the Contract:
 
      -  the Annuity Commencement Date will be the first day of the calendar
         month following the Death Benefit Date, and
 
      -  the Accumulation Account will be maintained in effect until the Annuity
         Commencement Date.
 
      If the death benefit is to be paid in cash to the Beneficiary, payment
will be made within seven calendar days of the Death Benefit Date.
 
                                       18
<PAGE>
AMOUNT OF DEATH BENEFIT
 
      The death benefit is determined by the Company as of the Death Benefit
Date.
 
      -  If the Participant was age 85 or less on the Date of Coverage, the
         death benefit equals the greater of:
 
            (1)  the Accumulation Account Value on the Death Benefit Date; or
 
            (2)  the amount which would have been payable in the event of a full
                 surrender of the Contract on the Death Benefit Date.
 
        For the purposes of determining the amount payable under (2), the
        Accumulation Account Value will be adjusted by the difference between
        (2) and (1).
 
      -  If the Participant was age 86 or older on the Date of Coverage, the
         death benefit is equal to the amount which would have been payable in
         the event of a full surrender of the Contract on the Death Benefit
         Date. The Accumulation Account Value will be adjusted to equal such
         amount.
 
                               ANNUITY PROVISIONS
 
ANNUITY COMMENCEMENT DATE
 
      Annuity payments begin on the Annuity Commencement Date which you select.
The Annuity Commencement Date may not be sooner than the first day of the second
calendar month following the Date of Coverage. If no such date has been
specified, the Annuity Commencement Date will be the first day of the first
month following the Annuitant's 90th birthday.
 
      If more than one person is named as Annuitant, due to the designation of a
Co-Annuitant, the Annuity Commencement Date will be no later than the first day
of the first month following the 90th birthday of the youngest of the named
Annuitants. In most situations, current law requires that the Annuity
Commencement Date under a Qualified Contract be no later than April 1 following
the year the Annuitant reaches age 70 1/2 (or, for Qualified Contracts other
than IRAs, no later than April 1 following the year the Annuitant retires, if
later than the year the Annuitant reaches age 70 1/2). The terms of your
particular retirement plan may impose additional limitations.
 
      You may change your Annuity Commencement Date from time to time by written
notice to the Company in such form as the Company may require, provided that the
Company receives notice of each change at least 30 days prior to the then
current Annuity Commencement Date and the new Annuity Commencement Date is a
date which is:
 
          (a)  at least 30 days after the date notice of the change is received
               by the Company;
 
          (b)  the first day of a month; and
 
          (c)  not later than the first day of the first month following the
               Annuitant's 90th birthday, unless otherwise restricted, in the
               case of a Qualified Contract, by the particular retirement plan
               or by applicable law.
 
      The Annuity Commencement Date may also be changed by your election of an
Annuity Option (See "Death Benefit").
 
      On the Annuity Commencement Date, your Accumulation Account will be
canceled and its adjusted value will be applied to provide an annuity under one
or more of the options described under the heading "Annuity Options," below. No
withdrawal charge will be imposed upon amounts applied to purchase an annuity;
except that period certain annuities of less than ten years may incur a
withdrawal charge. A Market Value Adjustment may apply, as noted under
"Determination of Annuity Payments," below.
 
      No payments may be requested under the Contract's cash withdrawal
provisions on or after the Annuity Commencement Date and no cash withdrawal will
be permitted except as may be available under the Annuity Option elected by you.
 
                                       19
<PAGE>
      Since the Contracts may be issued in connection with retirement plans
which meet the requirements of Section 401, 403, 408, or 408A of the Code, as
well as certain non-qualified plans, you should refer to the terms of your
particular retirement plan for any limitations or restrictions on the Annuity
Commencement Date.
 
ELECTION/CHANGE OF ANNUITY OPTION
 
      During the lifetime of the Participant and prior to the Annuity
Commencement Date, the Participant may elect to one or more of the Annuity
Options described below, or such other settlement option as may be agreed to by
the Company, for the Annuitant as Payee. The Participant may also change any
election, but written notice of any election or change of election must be
received by the Company at least 30 days prior to the Annuity Commencement Date.
If no election is in effect on the 30th day before the Annuity Commencement
Date, Annuity Option B, for a Life Annuity with 120 monthly payments certain,
will be determined to have been elected. If there is no election of a sole
Annuitant in effect on the 30th day before the Annuity Commencement Date, the
person designated as Co-Annuitant will be the Payee under the applicable Annuity
Option.
 
      Annuity Options may also be elected by the Participant or the Beneficiary
(See "Death Benefit").
 
      You should refer to the terms of your particular retirement plan and any
applicable legislation for any limitations or restrictions on the Annuity
Options which may be elected.
 
      You should be aware that no change of Annuity Option is permitted after
the Annuity Commencement Date.
 
ANNUITY OPTIONS
 
      No lump sum settlement option is available under the Contract. You may
surrender a Contract prior to the Annuity Commencement Date. Upon surrender, any
applicable surrender charge and Market Value Adjustment may will be deducted
from the cash withdrawal payment and a Market Value Adjustment, if applicable,
will be applied.
 
      ANNUITY OPTION A. LIFE ANNUITY: Monthly payments during the lifetime of
the Payee. This option offers a higher level of monthly payments than Annuity
Options B or C because no further payments are payable after the death of the
Payee and there is no provision for a death benefit payable to a Beneficiary.
 
      ANNUITY OPTION B. LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY PAYMENTS
CERTAIN: Monthly payments during the lifetime of the Payee and in any event for
60, 120, 180 or 240 months certain, as elected. The election of a longer period
certain results in smaller monthly payments than would be the case if a shorter
period certain were elected. In the event of the death of the Payee under this
option, the Contract provides that the Company will pay any remaining payments
to the Payee's designated beneficiary. If there is no designated beneficiary
entitled to the remaining payments then living, the discounted value of the
remaining payments, if any, will be calculated and paid in one sum to the
deceased Payee's estate. In addition, any Beneficiary who becomes entitled to
any remaining payments under this option may elect to receive the discounted
value of the amounts due under this option in one sum. In the event of the death
of the Beneficiary who has become entitled to receive any remaining payments
under an Annuity Option, the Company will pay the discounted value of such
remaining payments, in one sum, to the deceased Beneficiary's estate.
 
      ANNUITY OPTION C. JOINT AND SURVIVOR ANNUITY: Monthly payments payable
during the joint lifetime of the Payee and a designated second person and during
the lifetime of the survivor. During the lifetime of the survivor, monthly
payments will be determined using the percentage chosen at the time of election
of this option.
 
      ANNUITY OPTION D. MONTHLY PAYMENTS FOR A SPECIFIED PERIOD CERTAIN: Monthly
payments for a specified period of time (at least five years but not exceeding
30 years), as elected. In the event of the death of the Payee under this option,
the Contract provides that, as described under Annuity Option B above, in
certain circumstances the discounted value of the remaining payments, if any,
will be calculated and paid in one sum.
 
                                       20
<PAGE>
DETERMINATION OF ANNUITY PAYMENTS
 
      On the Annuity Commencement Date the Accumulation Account will be canceled
and its adjusted value will be applied to provide a Fixed Annuity. The adjusted
value will equal:
 
          (1)  the Accumulation Account Value on the date immediately preceding
               the Annuity Commencement Date, plus or minus
 
          (2)  any applicable Market Value Adjustment, and minus
 
          (3)  any applicable premium taxes or similar taxes.
 
      Amounts applied to provide period certain annuities of less than ten years
will also be reduced by any applicable withdrawal charges.
 
      If the amount to be applied under any annuity option is less than $10,000,
or if the first annuity payment payable in accordance with such option is less
than $50, the Company will pay the amount to be applied in a single payment to
the Payee.
 
      The dollar amount of each fixed annuity payment will be determined by the
Company in accordance with the Annuity Payment Rates found in the Contract. Such
Annuity Payments Rates are based on the Minimum Average Interest Rate, or, if
more favorable to the Payee(s), in accordance with the Annuity Payment Rates
published by the Company and in use on the Annuity Commencement Date.
 
ANNUITY PAYMENT RATES
 
      The Contract contains Annuity Payment Rates for each Annuity Option. The
rates show, for each $1,000 applied, the dollar amount of the monthly fixed
annuity payment, when this payment is based on the Minimum Average Interest
Rate. The Company may change these rates for any Accumulation Accounts
established after the effective date of such change (See "Modification").
 
      The Contract also describes the method of determining the adjusted age of
the Payee. The mortality table used in determining the annuity payment rates for
Annuity Options A, B and C is the 1983 Individual Annuitant Mortality Table.
 
      Participants should be aware that annuity payment rates may vary according
to the Annuity Option elected and the adjusted age of the Payee.
 
                           OTHER CONTRACT PROVISIONS
 
DESIGNATION AND CHANGE OF BENEFICIARY
 
      The Beneficiary designation made by you will remain in effect until you
change it.
 
      Subject to the rights of an irrevocably designated Beneficiary, you may
change or revoke the designation of a Beneficiary. Any such change or revocation
must be filed with the Company and shall be in such form as the Company may
require. The change or revocation of a Beneficiary designation will not be
binding upon the Company until the Company receives it. When the Company
receives a change or revocation of a Beneficiary, such change or revocation will
be effective as of the date on which you signed it; however, the Company is not
liable for any payment made or action taken by the Company before the Company
received the change or revocation.
 
      You should refer to the terms of your particular retirement plan and any
applicable legislation for any restrictions on the Beneficiary designation.
 
EXERCISE OF CONTRACT RIGHTS
 
      An Individual Contract shall belong to the individual Participant to whom
the Contract is issued. A Group Contract shall belong to the Owner. In the case
of a Group Contract, all Contract rights and privileges may be expressly
reserved by the Owner, failing which, each Participant shall be entitled to
exercise such rights and privileges. In any case, such rights and privileges can
be exercised without the consent of the
 
                                       21
<PAGE>
Beneficiary (other than an irrevocably designated Beneficiary) or any other
person. Such rights and privileges may be exercised only during the
Participant's lifetime and prior to the Annuity Commencement Date, except as
otherwise provided in the Contract.
 
      The Annuitant becomes the Payee on and after the Annuity Commencement
Date. The Beneficiary becomes the Payee on the death of the Participant prior to
the Annuity Commencement date or upon the death of the Annuitant after the
Annuity Commencement Date. Such Payees may thereafter exercise such rights and
privileges, if any, of ownership which continue under the Contract.
 
CHANGE OF OWNERSHIP
 
      Ownership of a Qualified Contract may only be transferred to:
 
          (a)  the Annuitant;
 
          (b)  a trustee or successor trustee of a pension or profit sharing
               trust which is qualified under Section 401 of the Code;
 
          (c)  the employer of the Annuitant, provided that the Qualified
               Contract after transfer is maintained under the terms of a
               retirement plan qualified under Section 403(a) of the Code for
               the benefit of the Annuitant;
 
          (d)  the trustee of an individual retirement account plan qualified
               under Section 408 of the Code for the benefit of the Participants
               under a Group Contract; or
 
          (e)  as otherwise permitted from time to time by laws and regulations
               governing the retirement or deferred compensation plans for which
               a Qualified Contract may be issued.
 
      Subject to the foregoing, a Qualified Contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
 
      The Owner of a Non-Qualified Contract may change the ownership of such
Contract prior to the Annuity Commencement Date by filing written notification
with the Company at its Annuity Service Mailing Address; and each Participant,
in like manner, may change the ownership interest in a Contract. When such
notification is received by the Company, the change will be effective as of the
date on which the request for change was signed by the Owner or Participant, as
appropriate, but the change will be without prejudice to the Company on account
of any payment made or any action taken by the Company prior to receiving the
change.
 
      A change of ownership will not be binding upon the Company until the
Company receives written notification of such change.
 
PERIODIC STATEMENTS
 
      During the Accumulation Period, the Company will mail to you, or such
other person having voting rights, at least once during each Account Year, a
statement showing the value of your Accumulation Account. Such statement shall
be accurate as of a date not more than two months previous to the mailing date.
The Company will also mail such other statements reflecting transactions in your
Accumulation Account as may be required by law.
 
      These periodic statements contain important information concerning any
transactions in your Accumulation Account. It is your obligation to review each
such statement carefully. If you find any error or discrepancy in the
information presented therein, you should report it to the Company, at the
address or telephone number provided on the statement, within 60 days of the
date of such statement. Unless the Company receives notice of any such error or
discrepancy from you within such 60 day period, the Company may not be
responsible for correcting the error.
 
MODIFICATION
 
      Upon notice to you, the Company may modify a Contract if such
modification:
 
                                       22
<PAGE>
        (i)  is necessary to ensure compliance with applicable laws or
             regulations to which the Company is subject; or
 
        (ii)  is necessary to assure continued qualification of the Contract
              under the Code or other federal or state laws relating to
              retirement annuities or annuity contracts; or
 
        (iii)  provides additional fixed accumulation options; or
 
        (iv)  is otherwise in the best interests of Owners or Participants, as
              applicable.
 
The Company will not modify the Contract without first notifying the
Participant, in the case of an Individual Contract, and the Owner and
Participant(s), in the case of a Group Contract (or the Payee(s) during the
annuity period). In the event of any such modification, the Company may make
appropriate endorsement in the Contract to reflect the modification.
 
      In addition, the Company may modify a Group Contract to impose a charge
for maintenance of the Contract or to change the withdrawal charges, the tables
used in determining the amount of the guaranteed annuity payments and the
formula used to calculate the Market Value Adjustment, provided that the
modification shall apply only to Accumulation Accounts established after the
effective date of such modification. In order to exercise its modification
rights in these particular instances, the Company will provide the Owner with
written notice of the modification. The notice shall specify the effective date
of the modification, which must be at least 60 days following the date of
mailing of the notice of modification by the Company. All of the charges and the
annuity tables which are provided in the Group Contract prior to any such
modification will remain in effect permanently, unless improved by the Company,
with respect to Accumulation Accounts established prior to the effective date of
such modification.
 
DISCONTINUANCE OF NEW PARTICIPANTS
 
      The Company may limit or discontinue the acceptance of new Applications
and the issuance of new Certificates under a Group Contract upon 30 days' prior
written notice to the Owner. Such limitation or discontinuance shall have no
effect on rights or benefits with respect to any Accumulation Accounts
established under such Group Contract prior to the effective date of the
limitation or discontinuance.
 
RIGHT TO RETURN
 
      If you are not satisfied with your Contract, you may return the Contract
to the Annuity Service Mailing Address, within ten days after it was delivered
to you. Generally, upon receiving the returned Contract, the Company will cancel
it and your Accumulation Account Value at the end of the Valuation Period during
which the Contract was received by the Company will be refunded to you. However,
if applicable state law so requires, the "free look" period may be greater than
ten days and alternative methods of returning the Contract may be acceptable.
 
      With respect to Individual Retirement Accounts, the Code requires the
Company to furnish a Participant establishing an Individual Retirement Account
("IRA") with a disclosure statement containing certain information about the
Contract and applicable legal requirements. This statement must be furnished on
or before the date the IRA is established. If the Participant is furnished with
such disclosure statement before the seventh day preceding the date the IRA is
established, the Participant will not have any right of revocation. If the
disclosure statement is furnished after the seventh day preceding the
establishment of the IRA, then the Participant may give a notice of revocation
to the Company at any time within seven days after the date on which the
Contract becomes effective. Upon such revocation, the Company will refund the
Purchase Payment made by the Participant. This right of revocation is in
addition to the return privilege set forth in the preceding paragraph. The
Company will allow a Participant establishing an IRA a "ten day free-look,"
notwithstanding the provisions of the Code.
 
PREMIUM TAXES
 
      A deduction, when applicable, is made for premium taxes or similar state
or local taxes. The amount of such applicable tax varies by jurisdiction and
may, from time to time, be changed by the legislature or other authority. In
many jurisdictions, there is no premium tax at all. The Company believes that
such
 
                                       23
<PAGE>
premium taxes or similar taxes currently range from 0% to 3.5%. For more
complete information, you should consult a tax adviser. The Company's current
policy is to deduct any applicable tax from the amount applied to provide an
annuity at the time annuity payments commence. However, the Company reserves the
right to deduct such taxes on or after the date they are incurred.
 
                               FEDERAL TAX STATUS
 
INTRODUCTION
 
      The Contracts are designed for use by personal retirement plans and
employer, association and other group retirement plans under the provisions of
Sections 401 (including Section 401(k)), 403, 408(b), 408(c), 408(k), 408(p) and
408A of the Internal Revenue Code (the "Code"), as well as non-qualified
retirement plans. The ultimate effect of federal income taxes may depend upon
the type of retirement plan for which the Contract is purchased, among other
factors. This discussion is general in nature, is based upon the Company's
understanding of current federal income tax laws, and is not intended as tax
advice. Congress may enact legislation affecting the tax treatment of annuity
contracts, which could be applied retroactively to Contracts purchased before
the date of enactment. Also, because the Code is not in force in the
Commonwealth of Puerto Rico, some references in this discussion will not apply
to Contracts issued in Puerto Rico. Any person contemplating the purchase of a
Contract should consult a qualified tax adviser.
 
      Participants should be aware that the Company does not make any guarantee
regarding the tax status, federal, state or local, of any Contract or any
transaction involving the Contracts.
 
TAX TREATMENT OF THE COMPANY
 
      The Company is taxed as a life insurance company under Subchapter L of the
Code.
 
TAXATION OF ANNUITIES IN GENERAL
 
      Purchase Payments made under Non-Qualified Contracts are not deductible
from the Participant's income for federal income tax purposes. Participants
under Qualified Contracts should consult a tax adviser regarding the tax
treatment of Purchase Payments.
 
      Generally, no taxes are imposed on the increase in the value of a Contract
until a distribution occurs, either as an annuity payment or as a cash
withdrawal or lump-sum payment prior to the Annuity Commencement Date. However,
corporate Owners and Participants and other Owners and Participants that are not
natural persons are subject to taxation on the annual increase in value of a
Non-Qualified Contract, unless the non-natural person holds the Contract as
agent for a natural person (for example, a bank holding a Contract as trustee
under a trust agreement). The taxation of annuities held by non-natural persons
does not apply to earnings accumulated under an "immediate annuity," which the
Code defines as a single premium contract with an annuity commencement date
within one year of the date of purchase. Also, the Internal Revenue Service
might assert that Owners or Participants under both Qualified Contracts and
Non-Qualified Contracts annually receive, and are subject to tax on, a deemed
distribution equal to the cost of any life insurance benefit provided by the
Contracts.
 
      The following discussion applies to both Individual Contracts and Group
Contracts. Because the Code is unclear in its application to a group annuity
contract where the Owner is distinct from the individuals who receive the
Contract benefits, the discussion as applied to the Group Contracts is the
Company's best understanding of the operation of the Code in the context of
group contracts. However, Owners and Participants should consult a qualified tax
adviser.
 
      Under a Non-Qualified Contract, a partial cash withdrawal (that is, a
withdrawal of less than the entire Accumulation Account Value) before the
Annuity Commencement Date is treated first as a withdrawal from the increase in
the Accumulation Account Value, rather than as a return of Purchase Payments.
The amount of the withdrawal allocable to this increase is includible in the
Participant's income and is subject to tax at ordinary income rates. If part or
all of an Accumulation Account Value is assigned or pledged as collateral for a
loan, the amount assigned or pledged must be treated as if it were withdrawn
from the Contract.
 
                                       24
<PAGE>
      In the case of annuity payments under a Non-Qualified Contract after the
Annuity Commencement Date, a portion of each payment is treated as a nontaxable
return of Purchase Payments. The nontaxable portion is determined by applying an
"exclusion ratio" to each annuity payment. An exclusion ratio, in general, is
the ratio that the total amount the Participant paid for the Contract bears to
the Payee's expected return under the Contract. The remainder of the payment is
taxable at ordinary income rates.
 
      The total amount that a Payee may exclude from income through application
of the "exclusion ratio" is limited to the amount the Participant paid for the
Contract. If the Annuitant survives for his full life expectancy, so that the
Payee recovers the entire amount paid for the Contract, any subsequent annuity
payments will be fully taxable as income. Conversely, if the Annuitant dies
before the Payee recovers the entire amount paid, the Payee will be allowed a
deduction for the unrecovered amount of the Purchase Payment.
 
      Taxable cash withdrawals and lump-sum payments from Non-Qualified
Contracts may be subject to a penalty tax equal to 10% of the amount treated as
taxable income. This 10% penalty also may apply to certain annuity payments.
This penalty will not apply in certain circumstances (such as where the
distribution is made upon the death of the Participant). The withdrawal penalty
also does not apply to distributions under an immediate annuity (as defined
above).
 
      In the case of Qualified Contracts, distributions generally are taxable
and distributions made prior to age 59 1/2 are subject to a 10% penalty tax,
although this penalty tax will not apply in certain circumstances. Certain
distributions, known as "eligible rollover distributions," if rolled over to
certain other qualified retirement plans (either directly or after being
distributed to the Participant or Payee), are not taxable until distributed from
the plan to which they are rolled over. In general, an eligible rollover
distribution is any taxable distribution other than a hardship distribution or a
distribution that is part of a series of payments made for life or for a
specified period of ten years or more.
 
      Owners, Participants, Annuitants, Payees and Beneficiaries should seek
qualified advice about the tax consequences of distributions, withdrawals,
rollovers and payments under the retirement plans in connection with which the
Contracts are purchased.
 
      If the Participant under a Non-Qualified Contract dies, the value of the
Contract generally must be distributed within a specified period (See "Other
Contractual Provisions--Death of Participant"). For Contracts owned by
non-natural persons, a change in the Annuitant is treated as the death of the
Participant.
 
      The purchaser of a Qualified Contract should refer to the terms of the
applicable retirement plan and consult a tax adviser regarding distribution
requirements upon the death of the Participant.
 
      The transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse) is treated as the receipt by the Participant of income in
an amount equal to the Accumulation Account Value minus the total amount paid
for the Contract.
 
      The Company will withhold and remit to the U.S. Government a part of the
taxable portion of each distribution made under a Non-Qualified Contract or
under a Qualified Contract issued for use with an individual retirement account
unless the Participant or Payee provides his or her taxpayer identification
number to the Company and notifies the Company (in the manner prescribed) before
the time of the distribution that he or she chooses not to have any amounts
withheld.
 
      In the case of distributions from a Qualified Contract (other than
distributions from a Contract issued for use with an individual retirement
account), the Company or the plan administrator must withhold and remit to the
U.S. Government 20% of each distribution that is an eligible rollover
distribution (as defined above) unless the Participant or Payee elects to make a
direct rollover of the distribution to another qualified retirement plan that is
eligible to receive the rollover. If a distribution from a Qualified Contract is
not an eligible rollover distribution, then the Participant or Payee can choose
not to have amounts withheld as described above for Non-Qualified Contracts and
Qualified Contracts issued for use with individual retirement accounts.
 
      Amounts withheld from any distribution may be credited against the
Participant's or Payee's federal income tax liability for the year of the
distribution.
 
                                       25
<PAGE>
      THE FOLLOWING INFORMATION SHOULD BE CONSIDERED ONLY WHEN AN IMMEDIATE
ANNUITY CONTRACT AND A DEFERRED ANNUITY CONTRACT ARE PURCHASED TOGETHER: The
Company understands that the Treasury Department is in the process of
reconsidering the tax treatment of annuity payments under an immediate annuity
contract (as defined above) purchased together with a deferred annuity contract.
The Company believes that any adverse change in the existing tax treatment of
such immediate annuity contracts is likely to be prospective, that is, it would
not apply to contracts issued before such a change is announced. However, there
can be no assurance that any such change, if adopted, would not be applied
retroactively.
 
QUALIFIED RETIREMENT PLANS
 
      The Qualified Contracts are designed for use with several types of
qualified retirement plans. The tax rules applicable to participants in such
qualified retirement plans vary according to the type of plan and its terms and
conditions. Therefore, no attempt is made herein to provide more than general
information about the use of the Qualified Contracts with the various types of
qualified retirement plans. Participants under such plans as well as Owners,
Annuitants, Payees and Beneficiaries are cautioned that the rights of any person
to any benefits under these plans may be subject to the terms and conditions of
the plans themselves, regardless of the terms and conditions of the Qualified
Contracts issued in connection therewith. These terms and conditions may include
restrictions on, among other things, ownership, transferability, assignability,
contributions and distributions. Any person contemplating the purchase of a
Qualified Contract should consult a qualified tax adviser. In addition, Owners,
Participants, Payees, Beneficiaries and administrators of qualified retirement
plans should consider and consult their tax adviser concerning whether the death
benefit payable under the Contract affects the qualified status of their
retirement plan. Following are brief descriptions of various types of qualified
retirement plans and the use of the Qualified Contracts in connection therewith.
 
PENSION AND PROFIT-SHARING PLANS
 
      Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of retirement plans for
employees. The Tax Equity and Fiscal Responsibility Act of 1982 eliminated most
differences between qualified retirement plans of corporations and those of
self-employed individuals. The Contract may be purchased by those who would have
been covered under the rules governing old H.R. 10 (Keogh) Plans as well as by
corporate plans. Such retirement plans may permit the purchase of the Qualified
Contracts described in this Prospectus to provide benefits under the plans.
Employers intending to use such Qualified Contracts in connection with such
plans should seek qualified advice in connection therewith.
 
TAX-SHELTERED ANNUITIES
 
      Section 403(b) of the Code permits public school employees and employees
of certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code to purchase annuity contracts and,
subject to certain limitations, exclude the amount of purchase payments from
gross income for tax purposes. These annuity contracts are commonly referred to
as "Tax-Sheltered Annuities." Purchasers of the Qualified Contracts for such
purposes should seek qualified advice as to eligibility, limitations on
permissible amounts of Purchase Payments and tax consequences of distributions
(See "Section 403(b) Annuities").
 
INDIVIDUAL RETIREMENT ACCOUNTS
 
      Sections 219 and 408 of the Code permit eligible individuals to contribute
to an individual retirement program, including Simplified Employee Pension
Plans, Employer/Association of Employees Established Individual Retirement
Account Trusts, and Simple Retirement Accounts, known as an Individual
Retirement Account ("IRA"). These IRAs are subject to limitations on the amount
that may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, certain distributions from some other
types of retirement plans may be placed on a tax-deferred basis in an IRA.
 
      Sales of the Contracts for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. The Company will provide
purchasers of Contracts to be used in connection with
 
                                       26
<PAGE>
IRAs with such supplementary information as may be required by the Internal
Revenue Service or other appropriate agency. Additionally, purchasers of
Contracts to be used in connection with IRAs will have the right to revoke their
Contracts under certain circumstances (See "Right to Return Contract").
 
ROTH IRAS
 
      Section 408A of the Code permits an individual to contribute to an
individual retirement program called a Roth IRA. Unlike contributions to a
regular IRA under Section 408 of the Code, contributions to a Roth IRA are not
made on tax-deferred basis. However, distributions are tax-free provided certain
requirements are satisfied. Like regular IRAs, Roth IRAs are subject to
limitations on the amount that may be contributed and the time when
distributions may commence. A regular IRA may be converted into a Roth IRA and
the resulting income may be spread over four years if the conversion occurs
before January 1, 1999. The Company will provide to purchasers of the Contracts
to be used in connection with Roth IRAs such supplementary information as may be
required by the Internal Revenue Service or other appropriate agency.
 
                         DISTRIBUTION OF THE CONTRACTS
 
      The Contracts are offered by the Company on a continuous basis. The
Contracts are sold by licensed insurance agents in those states where the
Contracts may be lawfully sold. The agents are registered representatives of
broker-dealers registered under the Securities Exchange Act of 1934. The
broker-dealers are members of the National Association of Securities Dealers,
Inc. and have entered into distribution agreements with the Company and the
General Distributor, Clarendon Insurance Agency, Inc. ("Clarendon"), One Sun
Life Executive Park, Wellesley Hills, Massachusetts 02481. Clarendon is a
wholly-owned subsidiary of the Company and is registered as a broker-dealer with
the Securities and Exchange Commission under the Securities Exchange Act of
1934. Clarendon is a member of the National Association of Securities Dealers,
Inc. and acts as the general distributor of certain other annuity contracts
issued by the Company and its wholly-owned subsidiary, Sun Life Insurance and
Annuity Company of New York, and variable life insurance contracts issued by the
Company.
 
      Commissions and other distribution compensation with respect to the
Contracts will be paid by the Company and will not be more than 7.34% of the
Purchase Payment. In addition, after the first Account Year, broker-dealers who
have entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Accumulation Account Value.
Commissions will not be paid with respect to Accumulation Accounts established
for the personal account of employees of the Company or any of its affiliates,
or of persons engaged in the distribution of the Contracts, or of immediate
family members of such employees or persons. In addition, commissions may be
waived or reduced in connection with certain transactions described in this
Prospectus under the heading "Waivers, Reduced Charges; Credits; Bonus
Guaranteed Interest Rates."
 
      In addition to commissions, the Company may provide additional promotional
incentives, in the form of cash or other compensation. In some instances, these
incentives may be offered only to certain broker-dealers that sell or are
expected to sell during specified time periods certain minimum amounts of the
Contracts or other contracts offered by the Company.
 
                                       27
<PAGE>
                    ADDITIONAL INFORMATION ABOUT THE COMPANY
 
SELECTED FINANCIAL DATA
 
      The following selected financial data for the Company should be read in
conjunction with the statutory financial statements of the Company and notes
thereto included in this Prospectus beginning on page __.
<TABLE>
<CAPTION>
                                                                          1997        1996        1995        1994        1993
                                                                       ----------- ----------- ----------- ----------- ----------
                                                   FOR THE QUARTER
                                                        ENDED
                                                    SEPTEMBER 30,
                                                ---------------------
                                                        1998
                                                ---------------------
                                                                                    FOR THE YEARS ENDED DECEMBER 31,
<S>                                             <C>                    <C>         <C>         <C>         <C>         <C>
                                                                       ----------------------------------------------------------
 
<CAPTION>
                                                                                   (IN 000'S)
<S>                                             <C>                    <C>         <C>         <C>         <C>         <C>
Revenues
      Premiums, annuity deposits and other           $ 1,769,748       $ 2,513,741 $ 2,131,939 $ 1,883,901 $ 1,997,525 $2,443,310
        revenue
 
      Net investment income and realized gains           226,413           301,524     312,870     315,966     312,583    311,322
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
                                                       1,996,161         2,815,265   2,444,809   2,199,867   2,310,108  2,754,632
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
 
Benefits and expenses
      Policyholder benefits                            1,325,636         2,469,215   2,149,145   1,995,208   2,102,290  2,515,320
      Other expenses                                     559,409           206,066     175,342     150,937     186,892    232,365
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
                                                       1,885,045         2,675,281   2,324,487   2,146,145   2,289,182  2,747,685
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
Operating gain                                            80,097           139,984     120,322      53,722      20,926      6,947
Federal income tax expense (benefit)                      32,206            10,742      (2,702)      17,807      19,469      3,691
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
Net income                                           $    52,698       $   129,242 $   123,024 $    35,915 $     1,457 $    3,256
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
 
Assets                                               $16,344,292       $15,927,045 $13,621,952 $12,359,683 $10,117,822 $9,179,090
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
 
Surplus notes                                        $   565,000       $   565,000 $   315,000 $   650,000 $   335,000 $  335,000
                                                ---------------------  ----------- ----------- ----------- ----------- ----------
</TABLE>
 
See Note 1 to financial statements for the effect of the reinsurance agreements
on net income.
 
See Note 1 to financial statements for changes in accounting principles and
reporting.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
SEPTEMBER 30, 1998
ASSETS
 
      Total admitted assets increased by $417.2 million to $16,344.3 million in
the nine months ended September 30, 1998. This increase reflected a decline of
$424.4 million in general account assets offset by an increase in separate
account assets of $841.6 million.
 
      The major element of the decline in general account assets was a $494.9
million decrease in cash and invested assets. Partially offsetting this decline
was a $101.5 million increase in other assets. These changes are discussed in
more detail below.
 
      Cash decreased during 1998, by $346.9 million partly as a result of the
deployment of $250.0 million of proceeds from the Company's surplus note issued
in December 1997. Cash also decreased as a result of the Company's payment, in
the first half of 1998, of $46.0 million of dividends to its parent, Sun Life of
Canada (U.S.) Holdings, Inc. ("Life Holdco") and by its repayment, in January
1998, of its $110.0 million short-term note to its penultimate parent, Sun Life
Assurance Company of Canada--U.S. Operations Holdings, Inc. ("U.S. Holdco").
 
                                       28
<PAGE>
      General account invested assets other than cash declined by $148.0
million. The decline in general account invested assets during the first nine
months of 1998 was mostly evident in mortgages, which decreased by $129.9
million to $554.1 million at September 30, 1998, mainly as a result of scheduled
maturities and early repayments. The decline is also reflected in the fact that
maturities of pension and fixed annuity contracts exceeded general account fixed
asset deposits. This trend resulted in part from the Company's decision in 1997
to discontinue selling group pension and GIC contracts and to focus its
marketing efforts on its combination fixed/variable annuity products. As a
result, separate account assets have increased while general account assets have
decreased. The Company expects these trends to continue, as sales of separate
account products continue to be emphasized.
 
      Other general account assets increased $101.5 million in the nine months
ended September 30, 1998, almost entirely reflecting an increase in funds
withheld for reinsurance assumed.
 
LIABILITIES
 
      The majority of the Company's liabilities consist of reserves for life
insurance and annuity contracts and deposit funds. Although total liabilities
increased by $413.2 million to $15,507.6 million in the nine months ended
September 30, 1998, general account liabilities decreased by $428.3 million to
$3,254.2 million. The liability for premium and other deposits decreased $369.8
million over the first nine months of 1998. The Company expects this declining
trend in general account liabilities to continue, since net maturities are
expected to exceed sales for the fixed contracts associated with these
liabilities, particularly in view of the Company's decision in 1997 to
discontinue selling group pension and GIC contracts and to focus its marketing
efforts on its combination fixed/variable annuity products. Also contributing to
this decline was the Company's repayment, during the first quarter of 1998, of
its $110.0 million short-term note payable to U.S. Holdco.
 
CAPITAL AND SURPLUS
 
      Capital and surplus increased by $4.0 million to $836.7 million over the
first nine months of 1998. This net change primarily reflected net income during
the period of $52.7 million, offset in part by the Company's having declared
during the second quarter of 1998 a shareholder dividend of $50.0 million. As
noted above, $46.0 million of this dividend has been paid through September 30,
1998.
 
LIQUIDITY
 
      The Company's cash inflow consists primarily of premiums on insurance and
annuity products, income from investments, repayments of investment principal,
and sales of investments. The Company's cash outflow is primarily to pay out
death benefits and other maturing insurance and annuity contract obligations,
pay out on contract terminations, fund investment commitments, and pay normal
operating expenses and taxes. Cash outflows are met from the normal net cash
inflows.
 
      The Company segments its general account business internally in order to
better manage projected cash inflows and outflows within each segment defined to
be an identifiable pool of assets. Targets for money market holdings are
established for each segment, which in the aggregate meet the day to day cash
needs of the Company. If greater liquidity is required, government issued bonds,
which are highly liquid, are sold to provide necessary funds. Government and
publicly traded bonds comprise 55.0% of the Company's long-term bond holdings.
 
      Management believes that the Company's sources of liquidity are more than
adequate to meet its anticipated needs.
 
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
 
NET INCOME
 
      Net income decreased by $52.0 million from $104.7 million to $52.7
million, for the nine months ended September 30, 1998 as compared to the same
period in 1997.
 
                                       29
<PAGE>
      Three factors primarily affected the decrease in net income period over
period. First, a reorganization by the Company in December 1997 (discussed
below) resulted in lower earnings from subsidiaries (by $30.7 million) and
higher federal income taxes (by $33.0 million). Second, the growth in the
Company's direct business, primarily its fixed/variable annuity products,
resulted in higher net income, by approximately $10.1 million. (Increasing
annuity account balances, resulting from both strong market performance and
sales, has generated corresponding increases in annuity fee income.) Third, the
effects of reinsurance arrangements with its ultimate parent, Sun Life Assurance
Company of Canada ("SLOC"), resulted in higher net income of $1.6 million. These
items are discussed in more detail below.
 
INCOME
 
      Total income decreased by $161.6 million to $1,996.2 million for the first
nine months of 1998. This decrease mainly reflected lower premiums and deposits,
of $104.2 million, and lower net investment income of $65.2 million.
 
      The reinsurance arrangements with SLOC had the effect of increasing income
by approximately $13.7 million due to increased premiums of $8.0 million
resulting from policyholders using dividends to purchase "paid-up additions" to
their policies; and higher interest income of $5.8 million on the funds withheld
in conjunction with the reinsurance arrangements.
 
      With respect to the company's direct business, deposits from sales of the
company's combination fixed/variable annuity products (net of annuitizations)
declined by $126.8 million in the first nine months of 1998 compared to the same
period in 1997, primarily as a result of lower deposits (approximately $173.0
million) into these products' dollar cost averaging ("DCA") programs. Under
these programs, which were introduced in late 1996, deposits are made into the
fixed portion of the annuity contract and receive a bonus rate of interest for
the policy year. During the year, the fixed deposit is exchanged to the variable
portion of the contract in equal periodic installments. The Company believes the
decline in DCA deposits in 1998, in part, has resulted from heightened
competition, as other companies have introduced similar DCA programs within the
past year. In early 1998, the Company took steps to diversify the marketing of
its variable annuity business by offering variable annuity funds managed by a
variety of non-affiliated managers. Premiums and annuity considerations
increased by $22.0 million in the first nine months of 1998 compared to the same
prior-year period partially as a result of the introduction of a new corporate
owned life insurance product.
 
      Net investment income decreased by $65.2 million period over period. This
decrease mainly reflected lower interest income on bonds and mortgages of $31.6
million; and lower dividends from subsidiaries of $30.7 million. It also
reflected higher interest expense on surplus notes and borrowed money (by $4.7
million).
 
      The lower interest income on bonds and mortgages was a direct function of
declining general account invested assets. As noted above, the Company expects
that, absent other factors, the declining trend in general account invested
assets will continue and will have a corresponding effect on interest income.
 
      The decrease in dividends from subsidiaries resulted primarily from the
reorganization, completed in December 1997, under which the Company transferred
all of its outstanding shares of Massachusetts Financial Services Company
("MFS") to its parent, Life Holdco. As a result of this reorganization, the
Company received no dividends from MFS in 1998, whereas in the first nine months
of 1997, the Company received $33.1 million of dividends from MFS. Dividends
from other subsidiaries, however, were higher by $2.4 million period over
period.
 
      The increase in interest expense on surplus notes and borrowed money
reflected the higher surplus notes balance in 1998, resulting from the Company's
issuance, in December 1997, of a $250.0 million surplus note. It also reflected
interest expense related to the Company's $110 million note payable, issued in
December 1997 and repaid in January 1998 to U.S. Holdco.
 
                                       30
<PAGE>
BENEFITS & EXPENSES
 
      Benefits and expenses decreased by $149.8 million from $2,034.8 to
$1,885.0 million for the nine-month period ended September 30, 1998 as compared
to the same period in 1997.
 
      Reinsurance arrangements with SLOC had the effect of increasing benefits
and expenses by $5.4 million. This increase mainly reflected higher death
benefits on reinsurance assumed of $4.4 million, resulting from the occurrence
of a small number of relatively large claims during 1998.
 
      With respect to direct business, the sum of death benefits, annuity
payments, and surrender benefits and other fund withdrawals increased by $78.8
million. Partially offsetting this aggregate change was a greater decrease of
$20.4 million in the liability for premium and other deposit funds in the first
nine months of 1998 compared to the same period in 1997. These changes mainly
reflected surrenders and withdrawals, primarily occurring in the first half of
1998, related to separate account contracts issued at least seven years
previously, for which the surrender charge period has now expired.
 
      Commissions decreased by $2.1 million reflecting the decrease in total
sales of combination fixed/ variable annuities. General insurance expenses and
insurance taxes, licenses and fees, taken together, increased by $10.7 million.
This increase mainly reflected increased investment in technology, both to
support the growth of the Company's in-force business, particularly its
fixed/variable annuities, and to assure that the Company's information systems
are Year 2000 compliant. (See below.) Net transfers to the separate accounts
decreased by $225.8 million due to the maturing block of annuity business and to
the decrease in annuity sales period over period.
 
FEDERAL INCOME TAXES
 
      As a result of the reorganization by the Company in December 1997, certain
subsidiary tax benefits are no longer available to the Company. Federal income
taxes were $33.0 million higher in the first nine months of 1998 than in the
same period in 1997.
 
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
 
NET INCOME
 
      Net income decreased by $25.6 million from $43.1 million to $17.5 million,
for the three months ended September 30, 1998 as compared to the same period in
1997.
 
      Key factors affecting the decrease in net income period over period were:
lower earnings from subsidiaries (by $11.0 million) and higher federal income
taxes (by $23.8 million), mainly as a result of the Company's reorganization in
December 1997; the growth in the Company's direct business, primarily its
fixed/variable annuity products, resulting in higher net income (approximately
$3.9 million); and the effects of reinsurance arrangements with SLOC, resulting
in higher net income of $5.3 million. These items are discussed in more detail
below.
 
INCOME
 
      Total income increased by $18.9 million to $708.8 million for the third
quarter of 1998 compared to the same period in 1997. This increase mainly
reflected higher premiums and deposits of $42.3 million, partially offset by
lower net investment income of $23.6 million.
 
      With respect to the increase in premiums and deposits, annuity deposits
increased by $37.7 million overall, mainly from higher deposits into variable
accounts (approximately $50.0 million) while DCA deposits remained flat overall.
Fixed annuity deposits were down by $10.7 million. Corporate owned life premiums
were higher by $1.0 million quarter over quarter.
 
      The reinsurance arrangements with SLOC had the effect of increasing income
by approximately $6.2 million mainly due to increased premiums resulting from
policyholders using dividends to purchase "paid-up additions" to their policies.
 
                                       31
<PAGE>
      Net investment income decreased $23.6 million period over period. This
decrease mainly reflected lower interest income on bonds and mortgages of $15.0
million; and lower earnings from subsidiaries of $11.0 million. Lower interest
expense on surplus notes and borrowed money (by $2.9 million) partially offset
these factors.
 
      The lower interest income on bonds and mortgages was a direct function of
declining general account invested assets. As noted above, the Company expects
that, absent countervailing factors, the declining trend in general account
invested assets will continue and will have a corresponding effect on interest
income.
 
      The decrease in dividends from subsidiaries resulted primarily from the
reorganization, completed in December 1997, under which the Company transferred
all of its outstanding shares of Massachusetts Financial Services Company
("MFS") to its parent, Life Holdco. As a result of this reorganization, the
Company received no dividends from MFS in 1998. In the third quarter of 1997,
the Company received $11.0 million of dividends from MFS.
 
BENEFITS & EXPENSES
 
      Benefits and expenses increased by $16.2 million to $664.3 million for the
three-months ended September 30, 1998 as compared to the same period in 1997.
 
      Reinsurance arrangements with SLOC had the effect of decreasing benefits
and expenses by $2.1 million. This increase mainly reflected lower death and
surrender benefits of $5.1 million on reinsurance assumed. The change in
aggregate reserves for life policies, however, increased by $2.8 million
reflecting growth in the underlying block of business.
 
      With respect to direct business, the sum of death benefits, annuity
payments, and surrender benefits and other fund withdrawals decreased by $16.7
million. However, more than offsetting this aggregate change was a lower
decrease of $35.1 million in the liability for premium and other deposit funds
in the third quarter of 1998 compared to the same period in 1997. Commissions
increased by $2.3 million reflecting the increase in sales of combination
fixed/variable annuities.
 
FEDERAL INCOME TAXES
 
      As a result of the reorganization by the Company in December 1997, certain
subsidiary tax benefits are no longer available to the Company. Federal income
taxes were $23.8 million higher in the third quarter of 1998 than in the same
period in 1997.
 
OTHER
 
      In October 1998, the Company entered into a definitive agreement to sell
its wholly-owned subsidiary, Massachusetts Casualty Insurance Company to Centre
Reinsurance Holdings, Ltd. This transaction is expected to be completed by or
near year-end 1998, subject to regulatory approvals. This transaction is not
expected to have a significant effect on the ongoing operations of the Company.
 
YEAR 2000 COMPLIANCE
 
      During the fourth quarter of 1996, the Company began a comprehensive
analysis of its information technology ("IT") and non-IT systems, including its
hardware, software, data, data feed products, and internal and external
supporting services, to address the ability of these systems to correctly
process date calculations through the year 2000 and beyond. The Company created
a full-time Year 2000 project team in early 1997 to manage this endeavor across
the Company. This team, which works with dedicated personnel from all business
units and with the legal and audit departments, reports directly to the
Company's senior management on a monthly basis. In addition, the Company's Year
2000 project is periodically reviewed by internal and external auditors.
 
      To date, relevant systems have been identified and their components
inventoried, needed resolutions have been documented, timelines and project
plans have been developed, remediation and testing are in process, and over 70%
of Company applications have been certified as compliant. The Company's goal is
 
                                       32
<PAGE>
to complete the majority of the effort by the end of 1998. However, a small
number of tasks will be pushed into the first quarter of 1999 to accommodate
testing of vendor upgrades not available until late 1998, re-testing interfaces
once all systems are certified as compliant, and re-testing of mission critical
functions.
 
      In mid-1997, the project team contacted all key vendors to obtain either
their certification for the products and services provided or their plan to make
those products and services compliant. To date, approximately 90% of these
vendors have responded, and the project team is in the process of reviewing
these responses. In addition, the project team recently has opened
communications with critical business partners, such as third-party
administrators, investment property managers, investment mortgage
correspondents, and others, with the goal that these partners will continue to
be able to support the Company's objective of assuring Year 2000 compliance.
 
      Non-IT applications will be tested in accordance with the Company's
standard Year 2000 test strategy, including building security, HVAC systems, and
other such systems. Compliant client server and mainframe environments have been
built which allow for testing of critical dates such as December 31, 1999,
January 1, 2000, February 28, 2000, February 29, 2000, and March 1, 2000 without
impact to current production.
 
      Although the Company expects all critical systems to be Year 2000
compliant before the end of 1999, there can be no assurance that this result
will be completely achieved. Factors giving rise to this uncertainty include
possible loss of technical resources to perform the work, failure to identify
all susceptible systems, non-compliance by third-parties whose systems and
operations affect the company, and other similar uncertainties. A possible
worst-case scenario might include one or more of the Company's significant
systems being non-compliant. Such a scenario could result in material disruption
to the company's operations. Consequences of such disruptions could include,
among other possibilities, the inability to update customers' accounts, process
payments and other financial transactions; and report accurate data to
management, customers, regulators, and others. Consequences also could include
business interruptions or shutdowns, reputational harm, increased scrutiny by
regulators, and litigation related to Year 2000 issues. Such potential
consequences, depending on their nature and duration, could have a material
impact on the Company's results of operations and financial position.
 
      In order to mitigate the risks to the Company of material adverse
operational or financial impacts from failure to achieve planned Year 2000
compliance, the Company has established contingency planning at the business
unit and corporate levels. Each business unit has ranked its applications as
being of high, medium or low business risk to ensure that the most critical are
addressed first. The business units also have developed alternate plans of
action where possible, and established dates for the alternate plans to be
enacted. On the corporate level, the Company is in the process of enhancing its
business continuation plan, by identifying minimum requirements for facilities,
computing, staffing, and other factors; and it is developing a plan to support
those requirements.
 
      By year-end 1998, the Company expects to have expended, cumulatively,
approximately $7 million on its Year 2000 effort, and it expects to incur a
further $4.8 million on this effort in 1999.
 
CAUTIONARY STATEMENT
 
      Statements by the Company in the Form 10-Q and in other contexts that are
not historical fact are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These may include, among others,
forward-looking statements relating to Year 2000 compliance, volume growth,
market share, and financial goals. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements, including
but not limited to the following: (1) uncertainties relating to the ability of
the Company to identify and address Year 2000 issues successfully and in a
timely manner and at costs that are reasonably in line with the Company's
estimates, and the ability of the Company's vendors, suppliers, other service
providers, and customers to identify and address successfully their own Year
2000 issues in a timely manner; (2) heightened competition, particularly with
respect to price, product features, and distribution capability, which could
constrain growth and profitability in the Company's businesses; (3) significant
changes in interest rates and market conditions; and (4) regulatory and
legislative uncertainties and developments.
 
                                       33
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
      The following discussion about the Company's risk management activities
includes "forward-looking statements" that involve risk and uncertainties.
 
      Assets within the general account are segmented by product or groups of
products. This allows the Company to better manage assets relative to
liabilities. Asset management for each segment is conducted within the context
of any investment policy, reviewed each quarter with business unit managers to
ensure that investment policy remains appropriate, taking into account a
segment's liability characteristics. The review of investment policy includes
cash flow estimates, liquidity requirements and targets for asset mix, duration
and quality.
 
      Market risks associated with investment portfolios supporting products
that are funded by separate accounts where results are not guaranteed and where
the policyholder assumes the risks are not included in this discussion.
 
      All of the Company's fixed interest investments are held for other than
trading purposes and generally fixed interest rate liabilities are supported by
well diversified portfolios of fixed interest investments including publicly
issued and privately placed bonds and commercial mortgage loans. Public bonds
can include Treasuries, corporates, money market instruments, Mortgage Backed
Securities. Credit risk is managed by the Company's underwriting standards which
have resulted in high average quality portfolios. For example, the Company does
not purchase below investment grade securities. Also, as a result of investment
policy, there is no foreign currency, commodity or equity price risk exposure in
the portfolios. However, changes in the level of domestic interest rates will
impact the market value of fixed interest assets and liabilities. The management
of interest rate risk exposure and immunization strategies are discussed below.
 
      Immunization strategies which minimize the loss from wide fluctuations in
interest rates are deployed in segments where the bulk of the liabilities arise
from the sale of products containing interest rate guarantees for certain terms.
These strategies are supported by investment and asset liability analytical
software acquired from outside vendors. The significant features of the
immunization framework include: an economic or market value basis for both
assets and liabilities; an option pricing methodology; the use of effective
duration and convexity to measure price sensitivity; the use of key rate
durations (KRDs) to capture interest rate exposure to different parts of the
yield curve and manage non-parallel curve movements; and active portfolio
management, including the use of derivatives (e.g. interest rate swaps) for
portfolio restructuring.
 
      An Interest Rate Risk Committee meets monthly and after reviewing the
duration reports for various portfolios, market conditions and forecasts, the
committee develops asset management strategies for interest sensitive
portfolios. These strategies may involve managing assets to small intentional
mismatches, either at the total effective duration level or at certain KRDs but,
in any event, the overall duration gap between interest sensitive assets and
liabilities is managed within a tolerance range of +/-0.25 effective duration.
 
      The estimates presented here are from computer model simulations which,
because they are predictions about the future, contain a certain degree of
uncertainty. For example, there are algorithms for assumptions about
policyholder behavior and asset cash flows and consequently estimates of
duration and market values which may or may not represent what actually will
occur. Also there is no provision in the estimates to incorporate any management
decisions which might be taken to mitigate against adverse results. The company
is sufficiently comfortable with its interest rate risk management process to
feel the exposure to interest rate changes will not materially affect the
near-term financial position, results of operations or cash flows of the
Company.
 
      The Company's fixed interest investments had an aggregate fair value at
September 30, 1998 of $2,844.1 million. A portion of the Company's general
account liabilities of $3,254.2 million are categorized as financial
instruments. The portion of the liabilities so categorized had a carrying value
of $1,584.8 million and a fair value of $1,641.5 million at September 30, 1998.
Using modeling and analytical software, the Company performed sensitivity
analysis of its financial instruments at September 30, 1998. Assuming an
immediate increase of 100 basis points in interest rates, the net hypothetical
decrease in the fair value of the
 
                                       34
<PAGE>
Company's assets is estimated to be $118.8 million. A corresponding decrease in
the fair value of the liabilities categorized as financial instruments is
estimated to be $50.8 million at September 30, 1998.
 
SUN LIFE (CANADA)
 
      On January 27, 1998, the Company's ultimate parent, Sun Life (Canada),
announced that its Board of Directors had requested management to develop a plan
to convert from a mutual life insurance company into a publicly traded stock
company through demutualization. Management has put in place a full time task
force which, together with a worldwide team of actuarial, financial, and legal
advisers, has begun work on a plan. The Board of Directors will decide later in
1998 whether to proceed with demutualization, following the completion of such
plan. Demutualization would require regulatory approval and approval by
policyholders of Sun Life (Canada). Based on information known to date, the
potential demutualization of Sun Life (Canada) is not expected to have any
significant impact on the Company.
 
REINSURANCE
 
      The Company has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) will reinsure the mortality risks of the individual life insurance
contracts previously sold by the Company. Under these agreements basic death
benefits and supplementary benefits are reinsured on a yearly renewable term
basis and coinsurance basis, respectively. Reinsurance transactions under these
agreements in 1997 had the effect of decreasing net income from operations by
$1,381,000.
 
      Effective January 1, 1991 the Company entered into an agreement with Sun
Life (Canada) under which certain individual life insurance contracts issued by
Sun Life (Canada) were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with Sun Life
(Canada) which provides that Sun Life (Canada) will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. Death
benefits are reinsured on a yearly renewable term basis. These agreements had
the effect of increasing income from operations by approximately $37,050,000 for
the year ended December 31, 1997.
 
      The life reinsurance assumed agreement requires the reinsurer to withhold
funds in an amount equal to the reserves assumed.
 
      The Company has also executed reinsurance agreements with unaffiliated
companies. These agreements provide reinsurance of certain individual life
insurance contracts on a modified coinsurance basis under which all deficiency
reserves are ceded; as well as reinsurance for variable universal life on a
yearly renewable term basis for which the Company has a maximum retention of
$2,000,000.
 
RESERVES
 
      In accordance with the life insurance laws and regulations under which the
Company operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements, these reserves are determined in accordance with statutory
regulations.
 
INVESTMENTS
 
      Of the Company's total assets of $16.3 billion at September 30, 1998,
75.0% ($12.2 billion) consisted of unitized and non-unitized separate account
assets, 11.5 % ($1.9 billion) was invested in bonds and similar securities, 3.4%
($554.2 million) was invested in mortgages, 0.8 % ($130.4 million) was invested
in subsidiaries, 0.6% ($97.8 million) was invested in real estate, and the
remaining 8.7% ($1.4 billion) was invested in cash and other assets.
 
                                       35
<PAGE>
COMPETITION
 
      The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. According to the most recent Best's Review,
Life-Health Edition, as of December 31, 1997 the Company ranked   th among all
life insurance companies in the United States based upon total assets. Its
ultimate parent company, Sun Life (Canada), ranked   th. Best's Insurance
Reports, Life-Health Edition, 1998, assigned the Company and Sun Life (Canada)
its highest classification, A++, as of December 31, 1997. This rating was
affirmed by A.M. Best on November 24, 1997. Standard & Poor's and Duff & Phelps
have assigned the Company and Sun Life (Canada) their highest ratings for claims
paying ability, AAA. Moody's Investor Service, Inc. has assigned the Company an
unsolicited rating of Aa1 for financial strength.
 
EMPLOYEES
 
      The Company and Sun Life (Canada) have entered into a Service Agreement
which provides that the latter will furnish the Company, as required, with
personnel as well as certain services and facilities on a cost reimbursement
basis. As of September 30, 1998, the Company had 1,508 direct employees who are
employed at its Principal Executive Office in Wellesley Hills, Massachusetts and
at its Retirement Products and Services Division in Boston, Massachusetts.
 
PROPERTIES
 
      The Company occupies office space owned by it and leased to Sun Life
(Canada), and certain unrelated parties for lease terms not exceeding five
years.
 
                                       36
<PAGE>
                 THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
 
      The directors and principal officers of the Company are listed below,
together with information as to their ages, dates of election and principal
business occupations during the last five years (if other than their present
business occupations). Except as otherwise indicated, the directors and officers
of the Company who are associated with Sun Life Assurance Company of Canada
and/or its subsidiaries have been associated with Sun Life Assurance Company of
Canada for more than five years either in the position shown or in other
positions.
 
DONALD A. STEWART, 52, Chairman and Director (1996*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
 
      He is President, Chief Executive Officer and a Director of Sun Life
Assurance Company of Canada; Chairman and a Director of Sun Life Insurance and
Annuity Company of New York; and a Director of Massachusetts Financial Services
Company, Massachusetts Casualty Insurance Company, Sun Life Financial Services
Limited, Spectrum United Holdings, Inc., and Sun Life of Canada UK Holdings,
plc.
 
C. JAMES PRIEUR, 47, President and Director (1998*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
 
      He is Senior Vice President and General Manager for the United States of
Sun Life Assurance Company of Canada; Chairman and a Director of Sun Life of
Canada (U.S.) Distributors, Inc. and Sun Capital Advisers, Inc.; Chairman, Sun
Capital Advisers Trust; President and a Director of Sun Life of Canada (U.S.)
Holdings, Inc., Sun Life Assurance Company of Canada--U.S. Operations Holdings,
Inc., Sun Life of Canada (U.S.) Financial Services Holdings, Inc., Sun Life
Insurance and Annuity Company of New York, Sun Canada Financial Co., Sun Life of
Canada (U.S.) SPE 97-1, Inc., and Sun Benefit Services Company; and a Director
of Sun Life Financial Services, Ltd., Clarendon Insurance Agency, Inc.,
Massachusetts Casualty Insurance Company, and Sun Life Information Services
Ireland Limited.
 
DAVID D. HORN, 57, Director (1985*)
Strong Road
New Vineyard, Maine 04956
 
      He was formerly Senior Vice President and General Manager for the United
States of Sun Life Assurance Company of Canada, retiring in December, 1997. He
is a Director of Sun Life Insurance and Annuity Company of New York; a Trustee
of MFS/Sun Life Series Trust; and a Member of the Boards of Managers of Money
Market Variable Account, High Yield Variable Account, Capital Appreciation
Variable Account, Government Securities Variable Account, World Governments
Variable Account, Total Return Variable Account and Managed Sectors Variable
Account.
 
JOHN D. MCNEIL, 64, Director (1982*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
 
      He is Chairman and a Director of Sun Life Assurance Company of Canada and
Sun Life Financial Holdings, Inc.; Chairman and a Trustee of MFS/Sun Life Series
Trust; Chairman and a Member of the Boards of Managers of Money Market Variable
Account, High Yield Variable Account, Capital Appreciation Variable Account,
Government Securities Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors Variable Account; and a
Director of Sun Life Insurance and Annuity Company of New York; Massachusetts
Financial Services Company, SLC Services Peru, S.A., Spectrum United Holdings,
Inc., Sun Life Financial Holdings, Inc., Sun Life Trust Company, Sun Life
Savings & Mortgage Corporation, Sun Life of Canada UK Holdings, plc; Shell
(Canada) Limited, Canadian Pacific, Ltd., and Canadian Pacific Securities
(Ontario) Limited.
 
- ---------
 
*Year elected Director
 
                                       37
<PAGE>
ANGUS A. MACNAUGHTON, 67, Director (1985*)
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404
 
      He is President of Genstar Investment Corporation; a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Canadian Pacific, Ltd., Varian Associates, Inc., Diversified Collection
Services, Inc., the San Francisco Opera, Genstar Investment L.L.C., and Genstar
Capital Corporation; and Vice Chairman and a Director of Barrick Gold
Corporation.
 
JOHN S. LANE, 63, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
 
      He is Senior Vice President, Investments of Sun Life Assurance Company of
Canada; and a Director of Sun Life Insurance and Annuity Company of New York.
 
RICHARD B. BAILEY, 72, Director (1983*)
63 Atlantic Avenue
Boston, Massachusetts 02116
 
      He is a Director of Sun Life Insurance and Annuity Company of New York and
a Director/Trustee of certain Funds in the MFS Family of Funds.
 
M. COLYER CRUM, 66, Director (1986*)
104 Westcliff Street
Weston, Massachusetts 02193
 
      He is Professor Emeritus of the Harvard Business School; a Director of Sun
Life Assurance Company of Canada, Sun Life Insurance and Annuity Company of New
York, Cambridge Bancorp, Cambridge Trust Company, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Special Value
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch U.S. Treasury Money Fund, MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Insured Fund, Inc., and
Phaeton International/N.V.; and a Trustee of Merrill Lynch Global Resources
Trust, Merrill Lynch Ready Assets Trust, MuniYield Florida Insured Fund, and
MuniYield Pennsylvania Fund. Prior to July, 1996, he was a Professor at the
Harvard Business School.
 
S. CAESAR RABOY, 62, Senior Vice President and Deputy General Manager and
Director (1996*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
 
      He is Senior Vice President and Deputy General Manager for the United
States of Sun Life Assurance Company of Canada; Senior Vice President and a
Director of Sun Life Insurance and Annuity Company of New York; Vice President
and a Director of Sun Life Financial Services Limited; and a Director of Sun
Life of Canada (U.S.) Distributors, Inc. and Clarendon Insurance Agency, Inc.
 
JAMES M. A. ANDERSON, 49, Vice President, Investments (1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
 
      He is Vice President, Investments, of Sun Life Assurance Company of Canada
and Sun Life Insurance and Annuity Company of New York; President and a Director
of Sun Capital Advisers, Inc.; President and Chief Executive Officer of Sun
Capital Advisers Trust; Vice President and a Director of Sun Life of Canada
(U.S.) Holdings, Inc., Sun Life of Canada (U.S.) Financial Services Holdings,
Inc., and Sun Canada Financial Co.; Vice President, Investments, and a Director
of Sun Life of Canada (U.S.) Distributors, Inc.; and a Director of Massachusetts
Casualty Insurance Company, New London Trust, F.S.B., Sun Benefit Services
Company, Inc., and Sun Life Information Services Ireland Limited.
 
- ---------
 
*Year elected Director
 
                                       38
<PAGE>
L. BROCK THOMSON, 57, Vice President and Treasurer (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
 
      He is Vice President, Portfolio Management for the United States of Sun
Life Assurance Company of Canada; Vice President and Treasurer of Sun Life of
Canada (U.S.) Distributors, Inc., Sun Benefit Services Company, Inc., Sun Life
Insurance and Annuity Company of New York, and Clarendon Insurance Agency, Inc.;
and Assistant Treasurer of Massachusetts Casualty Insurance Company.
 
ROBERT P. VROLYK, 45, Vice President and Actuary (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
 
      He is Vice President, Finance of Sun Life Assurance Company of Canada;
Vice President, Controller and Actuary of Sun Life Insurance and Annuity Company
of New York; Vice President and a Director of Sun Life of Canada (U.S.)
Holdings, Inc., Sun Canada Financial Co., Sun Life of Canada (U.S.)
Distributors, Inc., Sun Life of Canada (U.S.) Financial Services Holdings, Inc.,
and Sun Life Assurance Company of Canada-- U.S. Operations Holdings, Inc.; Vice
President, Treasurer and a Director of Sun Capital Advisers, Inc.; Treasurer and
a Director of Sun Life of Canada (U.S.) SPE 97-1, Inc.; Treasurer and Chief
Financial Officer of Sun Capital Advisers Trust; and a Director of Clarendon
Insurance Agency, Inc., Sun Benefit Services Company, Inc., and Sun Life
Information Services Ireland, Limited.
 
PETER F. DEMUTH, 40, Vice President, Chief Counsel and Assistant Secretary
(1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
 
      He is Vice President and Chief Counsel for the United States of Sun Life
Assurance Company of Canada; and Assistant Secretary of Sun Life Insurance and
Annuity Company of New York and Sun Capital Advisers Trust.
 
ELLEN B. KING, 41, Secretary (1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
 
      She is Assistant Counsel of Sun Life Assurance Company of Canada.
 
      The directors, officers and employees of the Company are covered under a
commercial blanket bond and a liability policy. The directors, officers and
employees of Massachusetts Financial Services Company and Clarendon Insurance
Agency, Inc. are covered under a fidelity bond and errors and omissions policy.
 
EXECUTIVE COMPENSATION
 
      All of the executive officers of the Company also serve as officers of Sun
Life Assurance Company of Canada and receive no compensation directly from the
Company. Allocations have been made as to such officers' time devoted to duties
as executive officers of the Company and its subsidiaries. The allocated cash
compensation of all executive officers of the Company as a group for services
rendered in all capacities to the Company and its subsidiaries during 1997
totaled $824,000.
 
      Directors of the Company who are also officers of Sun Life Assurance
Company of Canada or its affiliates receive no compensation in addition to their
compensation as officers of Sun Life Assurance Company of Canada or its
affiliates. Messrs. Bailey, Crum, Horn and MacNaughton receive compensation in
the amount of $7,000 per year, plus $1,000 for each meeting attended, plus
expenses.
 
      No shares of the Company are owned by any executive officer or director.
The Company is a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings,
Inc., One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, which
is in turn a wholly-owned subsidiary of Sun Life Assurance Company of
Canada--U.S. Operations Holdings, Inc., a wholly-owned subsidiary of Sun Life
Assurance Company of Canada.
 
                                       39
<PAGE>
                                STATE REGULATION
 
      The Company is subject to the laws of the State of Delaware governing life
insurance companies and to regulation by the Commissioner of Insurance of
Delaware. An annual statement is filed with the Commissioner of Insurance on or
before March 1st in each year relating to the operations of the Company for the
preceding year and its financial condition on December 31st of such year. Its
books and records are subject to review or examination by the Commissioner or
his agents at any time and a full examination of its operations is conducted at
periodic intervals.
 
      The Company is also subject to the insurance laws and regulations of the
other states and jurisdictions in which it is licensed to operate. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business, overseeing
trade practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
it does business and its operations and accounts are subject to examination by
such agencies at regular intervals.
 
      In addition, many states regulate affiliated groups of insurers, such as
the Company, its parent and its affiliates, under insurance holding company
legislation. Under such laws, inter-company transfers of assets and dividend
payments from insurance subsidiaries may be subject to prior notice or approval,
depending on the size of such transfers and payments in relation to the
financial positions of the companies involved.
 
      Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for policyholder losses
incurred by insolvent companies. The amount of any future assessments of the
Company under these laws cannot be reasonably estimated. However, most of these
laws do provide that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength and many permit the deduction of
all or a portion of any such assessment from any future premium or similar taxes
payable.
 
      Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies, the tax treatment
of insurance products and its impact on the relative desirability of various
personal investment vehicles.
 
                                  ACCOUNTANTS
 
      The statutory financial statements of the Company as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
included and incorporated by reference in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
 
                                       40
<PAGE>
                            REGISTRATION STATEMENTS
 
      Registration statements have been filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 as amended, with
respect to the Contracts. This Prospectus does not contain all the information
set forth in the registration statements and the exhibits filed as part of the
registration statements, to all of which reference is hereby made for further
information concerning the Fixed Account, the Company and the Contracts.
Statements found in this Prospectus as to the terms of the Contracts and other
legal instruments are summaries, and reference is made to such instruments as
filed.
 
                            ------------------------
 
                                       41
<PAGE>
     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
     (Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
     STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
     CAPITAL STOCK AND SURPLUS
     DECEMBER 31, 1997 AND 1996 (IN 000'S)
 
<TABLE>
<CAPTION>
                                                                                          1997         1996
                                                                                       -----------  -----------
<S>                                                                                    <C>          <C>
ADMITTED ASSETS
      Bonds                                                                            $ 1,910,699  $ 2,170,103
      Common stocks                                                                        117,229      144,043
      Mortgage loans on real estate                                                        684,035      938,932
      Properties acquired in satisfaction of debt                                           22,475       23,391
      Investment real estate                                                                78,426       76,995
      Policy loans                                                                          40,348       40,554
      Cash and short-term investments                                                      544,418      148,059
      Other invested assets                                                                 55,716       51,378
      Premiums and annuity considerations due and uncollected                                9,203       11,282
      Investment income due and accrued                                                     39,279       68,191
      Receivable from parent, subsidiaries and affiliates                                   28,825       40,829
      Funds withheld on reinsurance assumed                                                982,653      878,798
      Other assets                                                                           1,841        1,343
                                                                                       -----------  -----------
      General account assets                                                             4,515,147    4,593,898
      Separate account assets
            Unitized                                                                     9,068,021    6,919,219
            Non-unitized                                                                 2,343,877    2,108,835
                                                                                       -----------  -----------
      Total Admitted Assets                                                            $15,927,045  $13,621,952
                                                                                       -----------  -----------
LIABILITIES
      Aggregate reserve for life policies and contracts                                $ 2,188,243  $ 2,099,980
      Supplementary contracts                                                                2,247        2,205
      Policy and contract claims                                                             2,460        2,108
      Policyholders' dividends and coupons payable                                          32,500       27,500
      Liability for premium and other deposit funds                                      1,450,705    1,898,309
      Surrender values on cancelled policies                                                   215           72
      Interest maintenance reserve                                                          33,830       28,675
      Commissions to agents due or accrued                                                   2,826        3,245
      General expenses due or accrued                                                        7,202        4,654
      Transfers from Separate Accounts due or accrued                                     (284,078)    (232,743)
      Taxes, licenses and fees accrued, excluding federal income taxes                         105          342
      Federal income taxes due or accrued                                                   58,073       49,479
      Unearned investment income                                                                34           19
      Amounts withheld or retained by company as agent or trustee                               47           27
      Remittances and items not allocated                                                    1,363        1,359
      Borrowed money                                                                       110,142       58,000
      Asset valuation reserve                                                               47,605       53,911
      Payable for securities                                                                27,104       22,177
      Other liabilities                                                                      1,959        7,561
                                                                                       -----------  -----------
      General account liabilities                                                        3,682,582    4,026,880
      Separate account liabilities
            Unitized                                                                     9,067,891    6,919,094
            Non-unitized                                                                 2,343,877    2,108,835
                                                                                       -----------  -----------
      Total liabilities                                                                 15,094,350   13,054,809
                                                                                       -----------  -----------
CAPITAL STOCK AND SURPLUS
      Capital stock par value $1,000; Authorized, 10,000 shares; issued and
        outstanding, 5,900 shares                                                            5,900        5,900
                                                                                       -----------  -----------
      Surplus notes                                                                        565,000      315,000
      Gross paid in and contributed surplus                                                199,355      199,355
      Unassigned funds                                                                      62,440       46,888
                                                                                       -----------  -----------
      Surplus                                                                              826,795      561,243
                                                                                       -----------  -----------
      Total capital stock and surplus                                                      832,695      567,143
                                                                                       -----------  -----------
      Total Liabilities, Capital Stock and Surplus                                     $15,927,045  $13,621,952
                                                                                       -----------  -----------
</TABLE>
 
                  SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
 
                                       42
<PAGE>
     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
     (Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
     STATUTORY STATEMENTS OF OPERATIONS
     YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
 
<TABLE>
<CAPTION>
                                                                           1997        1996        1995
                                                                        ----------  ----------  ----------
<S>                                                                     <C>         <C>         <C>
INCOME:
      Premiums and annuity considerations                               $  270,700  $  282,466  $  279,407
      Deposit-type funds                                                 2,155,298   1,775,230   1,545,542
      Considerations for supplementary contracts without life                1,615       2,340       1,088
      contingencies and dividend accumulations
      Net investment income                                                270,249     303,753     312,872
      Amortization of interest maintenance reserve                           1,166       1,557       1,025
      Net gain from operations from Separate Accounts                            5          --          --
      Other income                                                          86,123      71,903      57,864
                                                                        ----------  ----------  ----------
      Total                                                              2,785,156   2,437,249   2,197,798
                                                                        ----------  ----------  ----------
BENEFITS AND EXPENSES:
      Death benefits                                                        17,284      12,394      15,317
      Annuity benefits                                                     148,135     146,654     140,497
      Surrender benefits and other fund withdrawals                      1,854,004   1,507,263   1,074,396
      Interest on policy or contract funds                                     699       2,205         739
      Payments on supplementary contracts without life contingencies         1,687       2,120       1,888
      and of dividend accumulations
      Increase in aggregate reserves for life and accident and health      127,278     162,678     171,975
      policies and contracts
      Increase (decrease) in liability for premium and other deposit      (447,603)   (392,348)     13,553
      funds
      Increase (decrease) in reserve for supplementary contracts                42         327        (663)
      without life contingencies and for dividend and coupon
      accumulations
                                                                        ----------  ----------  ----------
      Total                                                              1,701,526   1,441,293   1,417,702
      Commissions on premiums and annuity considerations (direct           132,700     109,894      88,037
      business only)
      Commissions and expense allowances on reinsurance assumed             17,951      18,910      22,012
      General insurance expenses                                            47,102      37,206      34,580
      Insurance taxes, licenses and fees, excluding federal income           7,790       8,431       7,685
      taxes
      Increase (decrease) in loading on and cost of collection in              523         901      (1,377)
      excess of loading on deferred and uncollected premiums
      Net transfers to separate accounts                                   734,373     678,663     551,784
                                                                        ----------  ----------  ----------
      Total                                                              2,641,965   2,295,298   2,120,423
                                                                        ----------  ----------  ----------
      Net gain from operations before dividends to policyholders and       143,191     141,951      77,375
      federal income taxes
      Dividends to policyholders                                            33,316      29,189      25,722
                                                                        ----------  ----------  ----------
      Net gain from operations after dividends to policyholders and        109,875     112,762      51,653
      before federal income taxes
      Federal income tax expense (benefit) (excluding tax on capital        10,742      (2,702)     17,807
      gains)
                                                                        ----------  ----------  ----------
      Net gain from operations after dividends to policyholders and         99,133     115,464      33,846
      federal income taxes and before realized capital gains
      Net realized capital gains less capital gains tax and transfers       30,109       7,560       2,069
      to the interest maintenance reserve
                                                                        ----------  ----------  ----------
NET INCOME                                                              $  129,242  $  123,024  $   35,915
                                                                        ----------  ----------  ----------
</TABLE>
 
                  SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
 
                                       43
<PAGE>
     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
     (Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
     STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
     YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
 
<TABLE>
<CAPTION>
                                                                              1997       1996       1995
                                                                            ---------  ---------  --------
<S>                                                                         <C>        <C>        <C>
Capital and surplus, beginning of year                                      $ 567,143  $ 792,452  $455,489
                                                                            ---------  ---------  --------
Net income                                                                    129,242    123,024    35,915
Change in net unrealized capital gains                                          1,153     (1,715)    2,009
Change in non-admitted assets and related items                                  (463)        67    (2,270)
Change in reserve on account of change in valuation basis                      39,016         --        --
Change in asset valuation reserve                                               6,306    (11,812)  (13,690)
Other changes in surplus in Separate Accounts Statement                            --        100    (4,038)
Change in surplus notes                                                       250,000   (335,000)  315,000
Dividends to stockholder                                                     (159,722)        --        --
Miscellaneous gains in surplus                                                     20         27     4,037
                                                                            ---------  ---------  --------
Net change in capital and surplus for the year                                265,552   (225,309)  336,963
                                                                            ---------  ---------  --------
Capital and surplus, end of year                                            $ 832,695  $ 567,143  $792,452
                                                                            ---------  ---------  --------
</TABLE>
 
                  SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
 
                                       44
<PAGE>
     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
     (Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
     STATUTORY STATEMENTS OF CASH FLOW
     YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
 
<TABLE>
<CAPTION>
                                                                           1997        1996        1995
                                                                        ----------  ----------  ----------
<S>                                                                     <C>         <C>         <C>
Cash Provided
Premiums, annuity considerations and deposit funds received             $2,427,554  $2,059,577  $1,826,456
Considerations for supplementary contracts and dividend accumulations        1,615       2,340       1,088
  received
Net investment income received                                             323,199     324,914     374,398
Other income received                                                       81,701      88,295      25,348
                                                                        ----------  ----------  ----------
Total receipts                                                           2,834,069   2,475,126   2,227,290
                                                                        ----------  ----------  ----------
Benefits paid (other than dividends)                                     2,020,615   1,671,483   1,231,936
Insurance expenses and taxes paid (other than federal income and           203,650     172,015     150,463
  capital gains taxes)
Net cash transferred to Separate Accounts                                  785,708     755,605     568,188
Dividends paid to policyholders                                             28,316      22,689      17,722
Federal income tax (recoveries) payments (excluding tax on capital           1,397     (15,363)    (20,655)
  gains)
Other--net                                                                     699       2,205         739
                                                                        ----------  ----------  ----------
Total payments                                                           3,040,385   2,608,634   1,948,393
                                                                        ----------  ----------  ----------
Net cash from operations                                                  (206,316)   (133,508)    278,897
                                                                        ----------  ----------  ----------
Proceeds from long-term investments sold, matured or repaid (after       1,343,803   1,768,147   1,658,655
  deducting taxes on capital gains of $750,449, $1,554,873 and
  $8,610,951)
Issuance of surplus notes                                                  250,000    (335,000)    315,000
Other cash provided                                                        117,297     147,956     419,446
                                                                        ----------  ----------  ----------
Total cash provided                                                      1,711,100   1,581,103   2,393,101
                                                                        ----------  ----------  ----------
Cash Applied
Cost of long-term investments acquired                                     773,721   1,318,880   1,749,714
Other cash applied                                                         334,704     177,982     796,207
                                                                        ----------  ----------  ----------
Total cash applied                                                       1,108,425   1,496,862   2,545,921
                                                                        ----------  ----------  ----------
Net change in cash and short-term investments                              396,359     (49,267)    126,077
Cash and short term investments
Beginning of year                                                          148,059     197,326      71,249
                                                                        ----------  ----------  ----------
End of year                                                             $  544,418  $  148,059  $  197,326
                                                                        ----------  ----------  ----------
</TABLE>
 
                  SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
 
                                       45
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
GENERAL
 
Sun Life Assurance Company of Canada (U.S.) (the "Company") is incorporated as a
life insurance company and is currently engaged in the sale of individual
variable life insurance, individual fixed and variable annuities, group fixed
and variable annuities and group pension contracts. The Company also underwrites
a block of individual life insurance business through a reinsurance contract
with an affiliate, Sun Life Assurance Company of Canada ("SLOC"). SLOC is a
mutual life insurance company.
 
Effective May 1, 1997, the Company became a wholly-owned subsidiary of the newly
established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of the Sun Life
Assurance Company of Canada--U.S. Operations Holdings, Inc. ("US Holdco"). US
Holdco is a wholly-owned subsidiary of SLOC. Prior to December 18, 1997 Life
Holdco was a direct wholly-owned subsidiary of SLOC.
 
The Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly-owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, which changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices as described above, vary from and are not
intended to present the Company's financial position, results of operations or
cash flow in conformity with generally accepted accounting principles. (See Note
19 for further discussion relative to the Company's basis of financial statement
presentation.) The effects on the financial statements of the variances between
the statutory basis of accounting and GAAP, although not reasonably
determinable, are presumed to be material.
 
INVESTED ASSETS AND RELATED RESERVES
 
Bonds are carried at cost adjusted for amortization of premium or accrual of
discount. Investments in non-insurance subsidiaries are carried on the equity
basis. Investments in insurance subsidiaries are carried at their statutory
surplus values. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans are carried at the amounts of the
unpaid balances. Real estate investments are carried at the lower of cost
adjusted for accumulated depreciation or appraised value, less encumbrances.
Short-term investments are carried at amortized cost, which approximates fair
value. Depreciation of buildings and improvements is calculated using the
straight-line method over the estimated useful life of the property, generally
40 to 50 years.
 
                                       46
<PAGE>
POLICY AND CONTRACT RESERVES
 
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
 
INCOME AND EXPENSES
 
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
 
SEPARATE ACCOUNTS
 
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
 
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value.
 
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
 
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, are transferred to (from)
the general account. Accumulated gains (losses) that have not been transferred
are recorded as a payable (receivable) to (from) the general account. Amounts
payable to the general account of the Company were $284,078,000 in 1997 and
$232,743,000 in 1996.
 
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
 
Prior to 1996, dividends paid to the Company by its subsidiaries and the
undistributed gains (losses) of those subsidiaries were included in net income
of the Company. For Annual Statement reporting, dividends were (and continue to
be) reported in net income while undistributed gains (losses) are reported
directly to surplus (as a separate component of unassigned surplus). As a
result, net income as reported in these financial statements is $2.5 million
less than net income reported in the Annual Statement in 1995. Effective for
1996, the Company changed its method of accounting for investments in
subsidiaries to conform with a preferable prescribed statutory accounting
practices used in the preparation of its Annual Statement. As a result of the
change, $5.7 million in undistributed losses of subsidiaries are reported
directly as a separate component of unassigned surplus rather than being
included in net income for the year ended December 31, 1996. The amounts as
reported in prior years have not been restated.
 
As described more fully in Note 10, during 1997 the Company changed certain
assumptions used in determining actuarial reserves.
 
OTHER
 
Preparation of the financial statements requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
 
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
 
                                       47
<PAGE>
2.    INVESTMENTS IN SUBSIDIARIES:
 
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York ("Sun Life (N.Y.)"), Massachusetts Casualty Insurance
Company ("MCIC"), Sun Life of Canada (U.S.) Distributors, Inc. (formerly Sun
Investment Services Company) ("Sundisco"), New London Trust, F.S.B. ("NLT"), Sun
Life Financial Services Limited, ("SLFSL"), Sun Benefit Services Company, Inc.
("Sunbesco"), Sun Capital Advisers, Inc. ("Sun Capital"), and Sun Life Finance
Corporation ("Sunfinco").
 
On October 30, 1997, the Company established a wholly-owned special purpose
corporation, Sun Life of Canada (U.S.) SPE 97-1, Inc. (SPE 97-1). SPE 97-1 was
organized for the purpose of engaging in activities incidental to securitizing
mortgage loans.
 
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
Massachusetts Financial Services Company ("MFS"). On December 24, 1997, the
Company transferred all of its shares of MFS to Life Holdco in the form of a
dividend valued at $159,722,000. As a result of this transaction the Company
realized a gain of $21,195,000 of undistributed earnings.
 
On December 31, 1997, the Company purchased all of the outstanding shares of
Clarendon Insurance Agency, Inc. ("Clarendon") from MFS.
 
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in the State of New
York. MCIC is a life insurance company which issues only individual disability
income policies. Sundisco is a registered investment adviser and broker-dealer.
NLT is a federally chartered savings bank. SLFSL serves as the marketing
administrator for the distribution of the offshore products of SLOC, an
affiliate. Sun Capital is a registered investment adviser. Sunfinco and Sunbesco
are currently inactive. Clarendon is a registered broker-dealer that acts as the
general distributor of certain annuity and life insurance contracts issued by
the Company and its affiliates.
 
MFS, a registered investment adviser, serves as investment adviser to the mutual
funds in the MFS family of funds as well as certain mutual funds and separate
accounts established by the Company. The MFS Asset Management Group provides
investment advice to substantial private clients.
 
On December 23, 1997, the Company issued a $110,000,000 note to US Holdco at an
interest rate of 5.80%, which is scheduled for repayment on March 1, 1998, and
is included in borrowed money. A $110,000,000 note was also issued by MFS on
December 23, 1997 to the Company at an interest rate of 5.85% due on March 1,
1998 and is included in cash and short-term investments.
 
On December 31, 1996, the Company issued a $58,000,000 note to SLOC which was
repaid on February 10, 1997 at an interest rate of 5.70%. Also on December 31,
1996, the Company was issued a $58,000,000 note by MFS at an interest rate of
5.76%. This note was repaid to the Company on February 10, 1997. On December 31,
1997 and 1996 the Company had an additional $20,000,000 in notes issued by MFS,
scheduled to mature in 2000.
 
During 1997, 1996, and 1995, the Company contributed capital in the following
amounts to its subsidiaries:
 
<TABLE>
<CAPTION>
                                                                          1997            1996           1995
                                                                     --------------  --------------  ------------
<S>                                                                  <C>             <C>             <C>
MCIC                                                                 $    2,000,000  $   10,000,000  $  6,000,000
SLFSL                                                                     1,000,000       1,500,000            --
SPE 97-1                                                                 20,377,000              --            --
</TABLE>
 
                                       48
<PAGE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1997, 1996 and 1995 and for the years then ended, follows:
 
<TABLE>
<CAPTION>
                                                                         1997           1996           1995
                                                                     -------------  -------------  -------------
                                                                                    DECEMBER 31,
                                                                     -------------------------------------------
                                                                                     (IN 000'S)
<S>                                                                  <C>            <C>            <C>
Intangible assets                                                    $           0  $       9,646  $      12,174
Other assets                                                             1,190,951      1,376,014      1,233,372
Liabilities                                                             (1,073,966)    (1,241,617)    (1,107,264)
                                                                     -------------  -------------  -------------
Total net assets                                                     $     116,985  $     144,043  $     138,282
                                                                     -------------  -------------  -------------
Total revenues                                                       $     750,364  $     717,280  $     570,794
Operating expenses                                                        (646,896)      (624,199)      (504,070)
Income tax expense                                                         (43,987)       (42,820)       (31,193)
                                                                     -------------  -------------  -------------
Net income                                                           $      59,481  $      50,261  $      35,531
                                                                     -------------  -------------  -------------
</TABLE>
 
3.    BONDS:
 
Investments in debt securities are as follows:
 
<TABLE>
<CAPTION>
                                                                             GROSS        GROSS      ESTIMATED
                                                             AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                                                COST         GAINS      (LOSSES)       VALUE
                                                            ------------  -----------  -----------  ------------
                                                                             DECEMBER 31, 1997
                                                            ----------------------------------------------------
                                                                                 (IN 000'S)
<S>                                                         <C>           <C>          <C>          <C>
Long-term bonds:
      United States government and government agencies and  $    126,923   $   5,529    $      --   $    132,452
      authorities
      States, provinces and political subdivisions                22,361       2,095           --         24,456
      Public utilities                                           398,939      35,338          (91)       434,186
      Transportation                                             214,130      22,000         (390)       235,740
      Finance                                                    157,891       5,885         (120)       163,656
      All other corporate bonds                                  990,455      52,678       (5,456)     1,037,677
                                                            ------------  -----------  -----------  ------------
          Total long-term bonds                                1,910,699     123,525       (6,057)     2,028,167
                                                            ------------  -----------  -----------  ------------
Short-term bonds:
      U.S. Treasury Bills, bankers acceptances and               431,032          --           --        431,032
      commercial paper
      Affiliates                                                 110,000          --           --        110,000
                                                            ------------  -----------  -----------  ------------
          Total short-term bonds                                 541,032          --           --        541,032
                                                            ------------  -----------  -----------  ------------
Total bonds                                                 $  2,451,731   $ 123,525    $  (6,057)  $  2,569,199
                                                            ------------  -----------  -----------  ------------
</TABLE>
 
                                       49
<PAGE>
 
<TABLE>
<CAPTION>
                                                                             GROSS        GROSS      ESTIMATED
                                                             AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                                                COST         GAINS      (LOSSES)       VALUE
                                                            ------------  -----------  -----------  ------------
                                                                             DECEMBER 31, 1996
                                                            ----------------------------------------------------
                                                                                 (IN 000'S)
<S>                                                         <C>           <C>          <C>          <C>
Long-term bonds:
      United States government and government agencies and  $    267,756   $  12,272    $  (8,927)  $    271,101
      authorities
      States, provinces and political subdivisions                 2,253          20           --          2,273
      Foreign governments                                         18,812       1,351           --         20,163
      Public utilities                                           415,641      24,728       (1,223)       439,146
      Transportation                                             167,937      14,107       (2,243)       179,801
      Finance                                                    290,024       7,914         (472)       297,466
      All other corporate bonds                                1,007,680      42,338      (14,496)     1,035,522
                                                            ------------  -----------  -----------  ------------
          Total long-term bonds                                2,170,103     102,730      (27,361)     2,245,472
                                                            ------------  -----------  -----------  ------------
Short-term bonds:
      U.S. Treasury Bills, bankers acceptances and                88,754          --           --         88,754
      commercial paper
      Affiliates                                                  58,000          --           --         58,000
                                                            ------------  -----------  -----------  ------------
          Total short-term bonds                                 146,754          --           --        146,754
                                                            ------------  -----------  -----------  ------------
Total bonds                                                 $  2,316,857   $ 102,730    $ (27,361)  $  2,392,226
                                                            ------------  -----------  -----------  ------------
</TABLE>
 
The amortized cost and estimated fair value of bonds at December 31, 1997 are
shown below by contractual maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call and/or prepayment penalties.
 
<TABLE>
<CAPTION>
                                                                                                      ESTIMATED
                                                                                        AMORTIZED        FAIR
                                                                                           COST         VALUE
                                                                                       ------------  ------------
                                                                                           DECEMBER 31, 1997
                                                                                       --------------------------
                                                                                               (IN 000'S)
<S>                                                                                    <C>           <C>
Maturities:
      Due in one year or less                                                          $    699,548  $    700,280
      Due after one year through five years                                                 533,901       541,382
      Due after five years through ten years                                                270,607       286,651
      Due after ten years                                                                   735,624       821,002
                                                                                       ------------  ------------
                                                                                          2,239,680     2,349,315
      Mortgage-backed securities                                                            212,051       219,884
                                                                                       ------------  ------------
Total bonds                                                                            $  2,451,731  $  2,569,199
                                                                                       ------------  ------------
</TABLE>
 
Proceeds from sales and maturities of investments in debt securities during
1997, 1996, and 1995 were $980,264,000, $1,554,016,000, and $1,510,553,000,
gross gains were $10,732,000, $16,975,000, and $24,757,000 and gross losses were
$2,446,000, $10,885,000, and $5,742,000, respectively.
 
Bonds included above with an amortized cost of approximately $2,578,000 and
$2,060,000 at December 31, 1997 and 1996, respectively, were on deposit with
governmental authorities as required by law.
 
4.    SECURITIES LENDING:
 
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chemical Bank of New York. The custodian has
indemnified the Company against losses arising from this program. The total par
value of securities out on loan was $0 and $51,537,000 at December 31, 1997 and
1996 respectively. Income resulting from this program was $200,000, $137,000 and
$2,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
 
                                       50
<PAGE>
5.    MORTGAGE LOANS:
 
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
 
The following table shows the geographical distribution of the mortgage loan
portfolio.
 
<TABLE>
<CAPTION>
                                                                                              1997        1996
                                                                                           ----------  ----------
                                                                                                DECEMBER 31,
                                                                                           ----------------------
                                                                                                 (IN 000'S)
<S>                                                                                        <C>         <C>
California                                                                                 $  119,122  $  154,272
Massachusetts                                                                                  58,981      79,929
Michigan                                                                                       42,912      57,119
New York                                                                                       45,696      67,742
Ohio                                                                                           51,862      75,405
Pennsylvania                                                                                   97,949     115,584
Washington                                                                                     54,948      75,819
All other                                                                                     212,565     313,062
                                                                                           ----------  ----------
                                                                                           $  684,035  $  938,932
                                                                                           ----------  ----------
</TABLE>
 
The Company has restructured mortgage loans totaling $26,284,000 and $29,261,000
at December 31, 1997 and 1996, respectively, against which there are allowances
for losses of $3,026,000 and $5,893,000, respectively.
 
Mortgage loans from Sun Life (U.S.)'s portfolio with an approximate book value
of $53,188,000 were included in a transaction also involving loans from the
portfolios of other SLOC entities with an aggregate book value of $256 million,
whereby such loans were securitized for sale to the public markets.
 
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $12,300,000
and $9,800,000 at December 31, 1997 and 1996, respectively.
 
6.    INVESTMENT GAINS AND LOSSES:
 
<TABLE>
<CAPTION>
                                                                                     1997       1996       1995
                                                                                   ---------  ---------  ---------
                                                                                      YEARS ENDED DECEMBER 31,
                                                                                   -------------------------------
                                                                                             (IN 000'S)
<S>                                                                                <C>        <C>        <C>
Net realized gains (losses)
Bonds                                                                              $   2,882  $   5,631  $   3,935
Common stock of affiliates                                                            21,195         --         --
Mortgage loans                                                                         3,837        763        292
Real estate                                                                            2,912        599        391
Other invested assets                                                                   (717)       567     (2,549)
                                                                                   ---------  ---------  ---------
                                                                                   $  30,109  $   7,560  $   2,069
                                                                                   ---------  ---------  ---------
Changes in unrealized gains (losses):
Common stock of affiliates                                                         $  (2,894) $  (5,739) $      --
Mortgage loans                                                                         1,524       (600)    (1,574)
Real estate                                                                            3,377      4,624      3,583
Other invested assets                                                                   (854)        --         --
                                                                                   ---------  ---------  ---------
                                                                                   $   1,153  $  (1,715) $   2,009
                                                                                   ---------  ---------  ---------
</TABLE>
 
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve ("IMR") and amortized into income over the remaining contractual life of
the security sold. The net realized capital gains credited to the interest
 
                                       51
<PAGE>
maintenance reserve were $6,321,000 in 1997, $7,710,000 in 1996, and $12,714,000
in 1995. All gains and losses are transferred net of applicable income taxes.
 
7.    NET INVESTMENT INCOME:
 
Net investment income consisted of:
 
<TABLE>
<CAPTION>
                                                                                 1997        1996        1995
                                                                              ----------  ----------  ----------
                                                                                   YEARS ENDED DECEMBER 31,
                                                                              ----------------------------------
                                                                                          (IN 000'S)
<S>                                                                           <C>         <C>         <C>
Interest income from bonds                                                    $  188,924  $  178,695  $  205,445
Income from investment in common stock of affiliates                              41,181      50,408      35,403
Interest income from mortgage loans                                               76,073      92,591      99,766
Real estate investment income                                                     17,161      16,249      14,979
Interest income from policy loans                                                  3,582       2,790       2,777
Other                                                                               (193)      1,710       2,672
                                                                              ----------  ----------  ----------
    Gross investment income                                                      326,728     342,443     361,042
                                                                              ----------  ----------  ----------
Interest on surplus notes and notes payable                                      (42,481)    (23,061)    (31,813)
Investment expenses                                                              (13,998)    (15,629)    (16,357)
                                                                              ----------  ----------  ----------
Net investment income                                                         $  270,249  $  303,753  $  312,872
                                                                              ----------  ----------  ----------
</TABLE>
 
8.    DERIVATIVES:
 
The Company uses derivative instruments for interest risk management purposes,
including hedges against specific interest rate risk and to minimize the
Company's exposure to fluctuations in interest rates. The Company's use of
derivatives has included U.S. Treasury futures, conventional interest rate
swaps, and forward spread lock interest rate swaps.
 
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, where it is impractical to allocate gains (losses) to specific hedged
assets or liabilities, gains (losses) are deferred in IMR and amortized over the
remaining life of the hedged assets. At December 31, 1997 and 1996 there were no
futures contracts outstanding.
 
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
 
                                       52
<PAGE>
Options are used to hedge the stock market interest exposure in the mortality
and expense risk charges and guaranteed minimum death benefit features of the
Company's variable annuities. The Company's open positions are as follows:
 
<TABLE>
<CAPTION>
                                                                                      NOTIONAL       MARKET VALUE
                                                                                 PRINCIPAL AMOUNTS   OF POSITIONS
                                                                                 ------------------  -------------
                                                                                         SWAPS OUTSTANDING
                                                                                       AT DECEMBER 31, 1997
                                                                                 ---------------------------------
                                                                                            (IN 000'S)
<S>                                                                              <C>                 <C>
Conventional interest rate swaps                                                     $   80,000        $  (2,891)
Foreign currency swap                                                                     1,700              208
Forward spread lock swaps                                                                50,000              274
Asian Put Option S&P 500                                                                 70,000              693
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                      NOTIONAL       MARKET VALUE
                                                                                 PRINCIPAL AMOUNTS   OF POSITIONS
                                                                                 ------------------  -------------
                                                                                         SWAPS OUTSTANDING
                                                                                       AT DECEMBER 31, 1996
                                                                                 ---------------------------------
                                                                                            (IN 000'S)
<S>                                                                              <C>                 <C>
Conventional interest rate swaps                                                    $    429,000       $  (2,443)
Foreign currency swap                                                                      2,100              70
Forward spread lock swaps                                                                 50,000             (50)
</TABLE>
 
The market value of swaps is the estimated amount that the Company would receive
or pay on termination or sale, taking into account current interest rates and
the current credit worthiness of the counterparties. The Company is exposed to
potential credit loss in the event of non-performance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
 
9.    LEVERAGED LEASES:
 
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994, under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of the purchase price
was furnished by third-party long-term debt financing, collateralized by the
equipment and non-recourse to the Company. At the end of the lease term, the
Master Lessee may exercise a fixed price purchase option to purchase the
equipment.
 
The Company's net investment in leveraged leases is composed of the following
elements:
 
<TABLE>
<CAPTION>
                                                                                             1997        1996
                                                                                          ----------  -----------
                                                                                           YEARS ENDED DECEMBER
                                                                                                    31,
                                                                                          -----------------------
                                                                                                (IN 000'S)
<S>                                                                                       <C>         <C>
Lease contracts receivable                                                                $   92,605  $   101,244
Less non-recourse debt                                                                       (92,589)    (101,227)
                                                                                          ----------  -----------
                                                                                                  16           17
Estimated residual value of leased assets                                                     41,150       41,150
Less unearned and deferred income                                                            (10,324)     (11,501)
                                                                                          ----------  -----------
Investment in leveraged leases                                                                30,842       29,666
Less fees                                                                                       (163)        (188)
                                                                                          ----------  -----------
Net investment in leveraged leases                                                        $   30,679  $    29,478
                                                                                          ----------  -----------
</TABLE>
 
The net investment is included as an other invested asset.
 
                                       53
<PAGE>
10.    REINSURANCE:
 
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality risks of the individual life insurance contracts sold by the Company.
Under these agreements basic death benefits and supplementary benefits are
reinsured on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements had the effect of decreasing
income from operations by approximately $1,381,000, $1,603,000 and $2,184,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
 
Effective January 1, 1991, the Company entered into an agreement with SLOC under
which certain individual life insurance contracts issued by SLOC were reinsured
by the Company on a 90% coinsurance basis. During 1997 SLOC changed certain
assumptions used in determining the gross and the ceded reserve balance. The
Company reflected the effect of the changes in assumptions to its assumed
reserves as a direct credit to surplus. The effect of the change was a
$39,016,000 decrease in reserves. Also, effective January 1, 1991, the Company
entered into an agreement with SLOC which provides that SLOC will reinsure the
mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company in the reinsurance agreement
described above. Such death benefits are reinsured on a yearly renewable term
basis. These agreements had the effect of increasing income from operations by
approximately $37,050,000, $35,161,000 and $11,821,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. The life reinsurance assumed
agreement requires the reinsurer to withhold funds in amounts equal to the
reserves assumed.
 
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1997, 1996 and 1995 before the effect of
reinsurance transactions with SLOC.
 
<TABLE>
<CAPTION>
                                                                            1997          1996          1995
                                                                        ------------  ------------  ------------
                                                                                YEARS ENDED DECEMBER 31,
                                                                        ----------------------------------------
                                                                                       (IN 000'S)
<S>                                                                     <C>           <C>           <C>
Income:
      Premiums, annuity deposits and other revenues                     $  2,230,980  $  1,858,145  $  1,619,337
      Net investment income and realized gains                               300,669       312,870       315,967
                                                                        ------------  ------------  ------------
      Subtotal                                                             2,531,649     2,171,015     1,935,304
                                                                        ------------  ------------  ------------
Benefits and Expenses:
      Policyholder benefits                                                2,240,597     1,928,720     1,760,917
      Other expenses                                                         187,591       155,531       130,302
                                                                        ------------  ------------  ------------
      Subtotal                                                             2,428,188     2,084,251     1,891,219
                                                                        ------------  ------------  ------------
Income from operations                                                  $    103,461  $     86,764  $     44,085
                                                                        ------------  ------------  ------------
</TABLE>
 
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of decreasing income from operations by $2,658,000 in 1997, $46,000 in
1996, and by $1,599,000 in 1995.
 
                                       54
<PAGE>
11.    WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
 
The withdrawal characteristics of general account and separate account annuity
reserves and deposits are as follows:
 
<TABLE>
<CAPTION>
                                                                                            AMOUNT       % OF TOTAL
                                                                                        --------------  -------------
                                                                                              DECEMBER 31, 1997
                                                                                        -----------------------------
                                                                                                 (IN 000'S)
<S>                                                                                     <C>             <C>
Subject to discretionary withdrawal--with adjustment:
      With market value adjustment                                                      $    3,415,394          25%
      At book value less surrender charges (surrender charge >5%)                            7,672,211          57
      At book value (minimal or no charge or adjustment)                                     1,259,698           9
Not subject to discretionary withdrawal provision                                            1,164,651           9
                                                                                        --------------         ---
Total annuity actuarial reserves and deposit liabilities                                $   13,511,954         100%
                                                                                        --------------         ---
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                            AMOUNT       % OF TOTAL
                                                                                        --------------  -------------
                                                                                              DECEMBER 31, 1996
                                                                                        -----------------------------
                                                                                                 (IN 000'S)
<S>                                                                                     <C>             <C>
Subject to discretionary withdrawal--with adjustment:
      With market value adjustment                                                      $    3,547,683          31%
      At book value less surrender charges (surrender charge >5%)                            5,626,117          48
      At book value (minimal or no charge or adjustment)                                     1,264,586          11
Not subject to discretionary withdrawal provision                                            1,218,157          10
                                                                                        --------------         ---
Total annuity actuarial reserves and deposit liabilities                                $   11,656,543         100%
                                                                                        --------------         ---
</TABLE>
 
12.    RETIREMENT PLANS:
 
The Company participates with SLOC in a non-contributory defined benefit pension
plan covering essentially all employees. The benefits are based on years of
service and compensation.
 
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA; currently the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
 
The Company's share of the group's accrued pension cost at December 31, 1997,
1996 and 1995 was $593,000, $446,000 and $420,000, respectively. The Company's
share of net periodic pension cost was $146,000, $27,000 and $3,000, for 1997,
1996 and 1995, respectively.
 
The Company also participates with SLOC and certain affiliates in a 401(k)
savings plan for which substantially all employees are eligible. The Company
matches, up to specified amounts, employees' contributions to the plan. Company
contributions were $259,000, $233,000 and $185,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
 
OTHER POST-RETIREMENT BENEFIT PLANS
 
In addition to pension benefits, the Company provides certain health, dental,
and life insurance benefits ("post-retirement benefits") for retired employees
and dependents. Substantially all employees may become eligible for these
benefits if they reach normal retirement age while working for the Company, or
retire early upon satisfying an alternate age plus service condition. Life
insurance benefits are generally set at a fixed amount.
 
                                       55
<PAGE>
13.    FAIR VALUE OF FINANCIAL INSTRUMENTS:
 
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                            CARRYING AMOUNT   ESTIMATED FAIR VALUE
                                                                           -----------------  --------------------
                                                                                      DECEMBER 31, 1997
                                                                           ---------------------------------------
                                                                                         (IN 000'S)
<S>                                                                        <C>                <C>
      ASSETS:
      Bonds                                                                  $   2,451,731       $    2,569,199
      Mortgages                                                                    684,035              706,975
      LIABILITIES:
      Insurance reserves                                                     $     123,128       $      123,128
      Individual annuities                                                         307,668              302,165
      Pension products                                                           1,527,433            1,561,108
      Derivatives                                                                       --               (1,716)
</TABLE>
 
<TABLE>
<CAPTION>
                                                                            CARRYING AMOUNT   ESTIMATED FAIR VALUE
                                                                           -----------------  --------------------
                                                                                      DECEMBER 31, 1996
                                                                           ---------------------------------------
                                                                                         (IN 000'S)
<S>                                                                        <C>                <C>
      ASSETS:
      Bonds                                                                  $   2,316,857       $    2,392,226
      Mortgages                                                                    938,932              958,909
      LIABILITIES:
      Insurance reserves                                                     $     122,606       $      122,606
      Individual annuities                                                         373,488              367,878
      Pension products                                                           1,911,284            1,922,602
      Derivatives                                                                       --               (2,423)
</TABLE>
 
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
 
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk
and maturity and repayment and liquidity characteristics.
 
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance, annuity and pension
contracts that do not involve mortality or morbidity risks) are estimated using
discounted cash flow analyses or surrender values. Those contracts that are
deemed to have short-term guarantees have a carrying amount equal to the
estimated market value.
 
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
 
The fair values of derivative financial instruments are estimated using the
process described in Note 8.
 
14.    STATUTORY INVESTMENT VALUATION RESERVES:
 
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
 
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve ("IMR") and amortized into income over the remaining contractual life of
the security sold.
 
                                       56
<PAGE>
The tables shown below present changes in the major elements of the AVR and IMR.
 
<TABLE>
<CAPTION>
                                                                        AVR         IMR        AVR        IMR
                                                                     ----------  ---------  ---------  ---------
                                                                             1997                   1996
                                                                     ---------------------  --------------------
                                                                          (IN 000'S)             (IN 000'S)
<S>                                                                  <C>         <C>        <C>        <C>
Balance, beginning of year                                           $   53,911  $  28,675  $  42,099  $  25,218
Net realized investment gains, net of tax                                17,400      6,321      3,160      5,011
Amortization of net investment gains                                         --     (1,166)        --     (1,557)
Unrealized investment gains (losses)                                     (2,340)        --      1,502         --
Required by formula                                                     (21,366)        --      7,150          3
                                                                     ----------  ---------  ---------  ---------
Balance, end of year                                                 $   47,605  $  33,830  $  53,911  $  28,675
                                                                     ----------  ---------  ---------  ---------
</TABLE>
 
15.    FEDERAL INCOME TAXES:
 
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $31,000,000, $19,264,000 and
$12,429,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
 
16.    SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE):
 
On December 22, 1997, the Company issued a $250,000,000 surplus note to Life
Holdco. This note has an interest rate of 8.625% and is due on or after November
6, 2027. On May 9, 1997, the Company issued a short-term note of $600,000,000 to
Life Holdco at an interest rate of 5.10%, which was extended at various interest
rates. This note was repaid on December 22, 1997.
 
The Company had issued and outstanding surplus notes to SLOC with an aggregate
carrying value of $335,000,000, during the period 1982 through January 16, 1996
at interest rates between 7.25% and 10%. The Company repaid all principal and
interest associated with these surplus notes on January 16, 1996.
 
On December 19, 1995 the Company issued surplus notes totaling $315,000,000 to
an affiliate, Sun Canada Financial Co., at interest rates between 5.75% and
7.25%. Of these notes, $157,500,000 will mature in the year 2007 and
$157,500,000 will mature in the year 2015. Interest on these notes is payable
semi-annually.
 
Principal and interest on surplus notes are payable only to the extent that the
Company meets specified requirements regarding free surplus exclusive of the
principal amount and accrued interest, if any, on these notes and with the
consent of the Delaware Insurance Commissioner. In addition, with regard to
surplus notes outstanding through January 16, 1996, subsequent to December 31,
1994 interest payments required the consent of the Delaware Insurance
Commissioner. Payment of principal and interest on the notes issued in 1995 and
in 1997 also requires the consents of the Delaware Insurance Commissioner and
Canadian Office of the Superintendent of Financial Institutions.
 
The Company obtained the required consents and expensed $42,481,000, $23,061,000
and $31,813,000 for interest on surplus notes and notes payable for the years
ended December 31, 1997, 1996 and 1995, respectively.
 
17.    MANAGEMENT AND SERVICE CONTRACTS:
 
The Company has an agreement with SLOC which provides that SLOC will furnish, as
requested, personnel as well as certain services and facilities on a
cost-reimbursement basis. Expenses under this agreement amounted to
approximately $15,997,000 in 1997, $20,192,000 in 1996, and $20,293,000 in 1995.
 
18.    RISK-BASED CAPITAL:
 
Effective December 31, 1993 the NAIC adopted risk-based capital requirements for
life insurance companies. The risk-based capital requirements provide a method
for measuring the minimum acceptable amount of adjusted capital that a life
insurer should have, as determined under statutory accounting practices,
 
                                       57
<PAGE>
taking into account the risk characteristics of its investments and products.
The Company has met the minimum risk-based capital requirements at December 31,
1997 and 1996.
 
19.    ACCOUNTING POLICIES AND PRINCIPLES:
 
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the Company's surplus. Changes in the net equity value of the common stock of
all other subsidiaries are directly reflected in the Company's Asset Valuation
Reserve. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
 
Other differences between statutory accounting practices and GAAP include the
following: statutory accounting practices do not recognize the following assets
or liabilities which are reflected under GAAP-deferred policy acquisition costs,
deferred federal income taxes and statutory non-admitted assets. Asset Valuation
Reserves and Interest Maintenance Reserves are established under statutory
accounting practices but not under GAAP. Methods for calculating real estate
depreciation and investment valuation allowances differ under statutory
accounting practices and GAAP. Actuarial assumptions and reserving methods
differ under statutory accounting practices and GAAP. Premiums for universal
life and investment type products are recognized as income for statutory
purposes and as deposits to policyholders' accounts for GAAP.
 
Because the Company's management uses financial information prepared in
conformity with accounting principles generally accepted in Canada in the normal
course of business, the management of Sun Life Assurance Company of Canada
(U.S.) has determined that the cost of complying with Statement No. 120
"Accounting and Reporting by Mutual Insurance Enterprises and by Insurance
Enterprises for Certain Long Duration Participating Contracts" exceed the
benefits that the Company, or the users of its financial statements, would
experience. Consequently, the Company has elected not to apply such standards in
the preparation of these financial statements.
 
                                       58
<PAGE>
INDEPENDENT AUDITORS' REPORT
 
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
 
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) as of December 31, 1997 and 1996, and the related statutory
statements of operations, changes in capital stock and surplus, and cash flow
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's 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.
 
As described more fully in Notes 1 and 19 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, and capital stock and
surplus of Sun Life Assurance Company of Canada (U.S.) as of December 31, 1997
and 1996, and the results of its operations and its cash flow for each of the
three years in the period ended December 31, 1997 on the basis of accounting
described in Notes 1 and 19.
 
However, because of the effects of the matter discussed in the second preceding
paragraph, in our opinion, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of Sun Life Assurance Company of Canada (U.S.) as of December
31, 1997 and 1996 or the results of its operations or its cash flow for each of
the three years in the period ended December 31, 1997.
 
As management has stated in Note 19, because the Company's management uses
financial information prepared in accordance with accounting principles
generally accepted in Canada in the normal course of business, the management of
Sun Life Assurance Company of Canada (U.S.) has determined that the cost of
complying with Statement No. 120 would exceed the benefits that the Company, or
the users of its financial statements, would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
financial statements.
 
DELOITTE & TOUCHE LLP
 
Boston, Massachusetts
February 5, 1998
 
                                       59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND
SURPLUS
 
<TABLE>
<CAPTION>
                                                                                   SEPTEMBER 30,   DECEMBER 31,
(IN 000'S)                                                                             1998            1997
- ---------------------------------------------------------------------------------  -------------   ------------
<S>                                                                                <C>             <C>
ADMITTED ASSETS
Bonds                                                                               $ 1,878,905    $ 1,910,699
Common stocks                                                                           127,545        117,229
Mortgage loans on real estate                                                           554,135        684,035
Properties acquired in satisfaction of debt                                              17,330         22,475
Investment real estate                                                                   78,040         78,426
Policy loans                                                                             42,149         40,348
Cash & short-term investments                                                           197,542        544,418
Other invested assets                                                                    62,787         55,716
Life insurance premiums and annuity considerations due & uncollected                      7,790          9,203
Investment income due and accrued                                                        38,507         39,279
Receivable from parent, subsidiaries and affiliates                                          --         28,825
Funds withheld on reinsurance assumed                                                 1,062,112        982,653
Other assets                                                                             23,923          1,841
                                                                                   -------------   ------------
General account assets                                                                4,090,765      4,515,147
 
Separate account assets
  Unitized                                                                           10,091,576      9,068,021
  Non-unitized                                                                        2,161,951      2,343,877
                                                                                   -------------   ------------
        Total admitted assets                                                       $16,344,292    $15,927,045
                                                                                   -------------   ------------
                                                                                   -------------   ------------
LIABILITIES
Aggregate reserve for life policies and contracts                                   $ 2,283,326    $ 2,188,243
Supplementary contracts                                                                   1,787          2,247
Policy and contract claims                                                                3,436          2,460
Provision for policyholders' dividends and coupons payable                               37,000         32,500
Liability for premium and other deposit funds                                         1,080,881      1,450,705
Surrender values on cancelled policies                                                      142            215
Interest maintenance reserve                                                             38,409         33,830
Commissions to agents due or accrued                                                      2,114          2,826
General expenses due or accrued                                                           8,098          7,202
Transfers from Separate Accounts due or accrued                                        (379,065)      (284,078)
Taxes, licenses and fees due or accrued, excluding FIT                                      108            105
Federal income taxes due or accrued                                                      61,628         58,073
Unearned investment income                                                                   26             34
Amounts withheld or retained by company as agent or trustee                                 342             47
Remittances and items not allocated                                                       2,038          1,363
Borrowed money                                                                               --        110,142
Asset valuation reserve                                                                  43,359         47,605
Reinsurance in unauthorized companies                                                       964             --
Payable to parent, subsidiaries, and affiliates                                          27,206             --
Payable for securities                                                                   23,404         27,104
Other liabilities                                                                        19,022          1,959
                                                                                   -------------   ------------
General account liabilities                                                           3,254,225      3,682,582
 
Separate account liabilities
  Unitized                                                                           10,091,396      9,067,891
  Non-unitized                                                                        2,161,951      2,343,877
                                                                                   -------------   ------------
        Total liabilities                                                            15,507,572     15,094,350
                                                                                   -------------   ------------
Common capital stock                                                                      5,900          5,900
                                                                                   -------------   ------------
Surplus notes                                                                           565,000        565,000
Gross paid in and contributed surplus                                                   199,355        199,355
Unassigned funds                                                                         66,465         62,440
                                                                                   -------------   ------------
Surplus                                                                                 830,820        826,795
                                                                                   -------------   ------------
  Total common capital stock and surplus                                                836,720        832,695
                                                                                   -------------   ------------
        Total liabilities, capital stock and surplus                                $16,344,292    $15,927,045
                                                                                   -------------   ------------
                                                                                   -------------   ------------
</TABLE>
 
                  SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
 
                                       60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
 
STATUTORY STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                         NINE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                       ----------------------
(IN 000'S)                                                                                1998        1997
- -------------------------------------------------------------------------------------  ----------  ----------
<S>                                                                                    <C>         <C>
INCOME
Premiums and annuity considerations                                                    $  203,852  $  181,809
Deposit-type funds                                                                      1,564,472   1,691,235
Considerations for supplementary contracts without life contingencies and dividend
 accumulations                                                                              1,424         940
Net investment income                                                                     144,129     209,363
Amortization of interest maintenance reserve                                                1,504         813
Net gain from operations from Separate Accounts Statement                                       1           4
Other income                                                                               80,779      73,614
                                                                                       ----------  ----------
Total                                                                                   1,996,161   2,157,778
                                                                                       ----------  ----------
BENEFITS AND EXPENSES
Death benefits                                                                             17,892      15,994
Annuity benefits                                                                          113,713     109,690
Surrender benefits and other fund withdrawals                                           1,466,827   1,388,459
Interest on policy or contract funds                                                          461         194
Payments on supplementary contracts without life contingencies and of dividend
 accumulations                                                                              1,946         766
Increase in aggregate reserves for life and accident and health policies and
 contracts                                                                                 95,083      92,567
Decrease in liability for premium and other deposit funds                                (369,825)   (349,640)
Increase (decrease) in reserve for supplementary contracts without life contingencies
 and for dividend and coupon accumulations                                                   (461)        255
                                                                                       ----------  ----------
Total                                                                                   1,325,636   1,258,285
 
Commissions on premiums and annuity considerations (direct business only)                 102,544     104,650
Commissions and expense allowances on reinsurance assumed                                  13,032      12,858
General insurance expenses                                                                 42,788      31,150
Insurance taxes, licenses and fees, excluding federal income taxes                          5,213       6,175
Decrease in loading on and cost of collection in excess of loading on deferred and
 uncollected premiums                                                                        (331)       (286)
Net transfers to Separate Accounts                                                        396,163     621,996
                                                                                       ----------  ----------
Total                                                                                   1,885,045   2,034,828
                                                                                       ----------  ----------
 
Net gain from operations before dividends to policyholders and FIT                        111,116     122,950
Dividends to policyholders                                                                 31,019      24,227
                                                                                       ----------  ----------
Net gain from operations after dividends to policyholders and before FIT                   80,097      98,723
Federal income tax expense (benefit) (excluding tax on capital gains)                      32,206        (833)
                                                                                       ----------  ----------
Net gain from operations after dividends to policyholders and FIT and before realized
 capital gains                                                                             47,891      99,556
Net realized capital gains less capital gains tax and transferred to the IMR                4,807       5,183
                                                                                       ----------  ----------
Net income                                                                             $   52,698  $  104,739
                                                                                       ----------  ----------
                                                                                       ----------  ----------
</TABLE>
 
             SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
 
                                       61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED
                                                                                             SEPTEMBER 30,
                                                                                          -------------------
(IN 000'S)                                                                                  1998      1997
- ----------------------------------------------------------------------------------------  --------  ---------
<S>                                                                                       <C>       <C>
INCOME
Premiums and annuity considerations                                                       $ 67,719  $  63,122
Deposit-type funds                                                                         568,447    530,735
Considerations for supplementary contracts without life contingencies and dividend
 accumulations                                                                                 280        390
Net investment income                                                                       44,398     68,033
Amortization of interest maintenance reserve                                                   581        432
Net gain from operations from Separate Accounts Statement                                       (2)         4
Other income                                                                                27,400     27,226
                                                                                          --------  ---------
Total                                                                                      708,823    689,942
                                                                                          --------  ---------
BENEFITS AND EXPENSES
Death benefits                                                                               2,059      9,624
Annuity benefits                                                                            40,636     38,763
Surrender benefits and other fund withdrawals                                              478,645    494,811
Interest on policy or contract funds                                                           199         39
Payments on supplementary contracts without life contingencies and of dividend
 accumulations                                                                                 747        315
Increase in aggregate reserves for life and accident and health policies and contracts      36,834     26,880
Decrease in liability for premium and other deposit funds                                  (88,386)  (123,462)
Increase (decrease) in reserve for supplementary contracts without life contingencies
 and for dividend and coupon accumulations                                                    (447)       110
                                                                                          --------  ---------
Total                                                                                      470,287    447,080
 
Commissions on premiums and annuity considerations (direct business only)                   35,929     33,663
Commissions and expense allowances on reinsurance assumed                                    4,806      4,502
General insurance expenses                                                                  13,004     12,267
Insurance taxes, licenses and fees, excluding federal income taxes                           1,483      1,698
Decrease in loading on and cost of collection in excess of loading on deferred and
 uncollected premiums                                                                          (98)       (56)
Net transfers to Separate Accounts                                                         138,845    148,926
                                                                                          --------  ---------
Total                                                                                      664,256    648,080
                                                                                          --------  ---------
 
Net gain from operations before dividends to policyholders and FIT                          44,567     41,862
Dividends to policyholders                                                                  11,111      8,114
                                                                                          --------  ---------
Net gain from operations after dividends to policyholders and before FIT                    33,456     33,748
Federal income tax expense (benefit) (excluding tax on capital gains)                       17,652     (6,193)
                                                                                          --------  ---------
Net gain from operations after dividends to policyholders and FIT and before realized
 capital gains                                                                              15,804     39,941
Net realized capital gains less capital gains tax and transferred to the IMR                 1,692      3,164
                                                                                          --------  ---------
Net income                                                                                $ 17,496  $  43,105
                                                                                          --------  ---------
                                                                                          --------  ---------
</TABLE>
 
             SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
 
                                       62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
 
<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                                                             SEPTEMBER 30,
                                                                                           ------------------
(IN 000'S)                                                                                   1998      1997
- -----------------------------------------------------------------------------------------  --------  --------
<S>                                                                                        <C>       <C>
CAPITAL AND SURPLUS, BEGINNING OF PERIOD                                                   $832,695  $567,143
                                                                                           --------  --------
Net income                                                                                   52,698   104,739
Change in net unrealized capital gains                                                       (1,421)    2,329
Change in non-admitted assets and related items                                                (581)      556
Change in liability for reinsurance in unauthorized companies                                  (964)       --
Change in asset valuation reserve                                                             4,245    (9,092)
Other changes in surplus in Separate Accounts Statement                                          48        --
Dividends to stockholders                                                                   (50,000)       --
                                                                                           --------  --------
Net change in capital and surplus for the period                                              4,025    98,532
                                                                                           --------  --------
CAPITAL AND SURPLUS, END OF PERIOD                                                         $836,720  $665,675
                                                                                           --------  --------
                                                                                           --------  --------
</TABLE>
 
             SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
 
                                       63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
 
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
 
STATUTORY STATEMENTS OF CASH FLOW
 
<TABLE>
<CAPTION>
                                                                                         NINE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                       ----------------------
(IN 000'S)                                                                                1998        1997
- -------------------------------------------------------------------------------------  ----------  ----------
<S>                                                                                    <C>         <C>
CASH PROVIDED
Premiums, annuity considerations and deposit funds received                            $1,770,069  $1,875,447
Considerations for supplementary contracts and dividend accumulations received              1,424         940
Net investment income received                                                            182,263     236,074
Other income received                                                                      82,206      73,614
                                                                                       ----------  ----------
Total receipts                                                                          2,035,962   2,186,075
                                                                                       ----------  ----------
Benefits paid (other than dividends)                                                    1,599,475   1,513,599
Insurance expenses and taxes paid (other than federal income and capital gains taxes)     166,425     147,956
Net cash transfers to Separate Accounts                                                   491,151     683,534
Dividends paid to policyholders                                                            26,519      20,477
Federal income tax payments (excluding tax on capital gains)                               28,224        (317)
Other--net                                                                                    461         194
                                                                                       ----------  ----------
Total payments                                                                          2,312,255   2,365,443
                                                                                       ----------  ----------
Net cash from operations                                                                 (276,293)   (179,368)
                                                                                       ----------  ----------
Proceeds from long-term investments sold, matured or repaid (after deducting taxes on
 capital gains of $428,228 for 1998, $374,528 for 1997)                                 1,075,039     820,973
Other cash provided                                                                       (50,530)    607,676
                                                                                       ----------  ----------
Total cash provided                                                                     1,024,509   1,428,649
                                                                                       ----------  ----------
CASH APPLIED
Cost of long-term investments acquired                                                    919,918     554,900
Other cash applied                                                                        175,174     135,425
                                                                                       ----------  ----------
Total cash applied                                                                      1,095,092     690,325
                                                                                       ----------  ----------
Net change in cash and short-term investments                                            (346,877)    558,956
Cash and short-term investments:
Beginning of period                                                                       544,418      90,059
                                                                                       ----------  ----------
End of period                                                                          $  197,542  $  649,015
                                                                                       ----------  ----------
                                                                                       ----------  ----------
</TABLE>
 
             SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
 
                                       64
<PAGE>
NOTES TO UNAUDITED FINANCIAL STATEMENTS
 
(1) GENERAL
 
In management's opinion all adjustments, which include only normal recurring
adjustments, necessary for a fair presentation of the financial statements have
been made.
 
(2) MANAGEMENT AND SERVICE CONTRACTS
 
The Company has an agreement with its ultimate parent, Sun Life Assurance
Company of Canada ("SLOC") which provides that SLOC will furnish, as requested,
personnel as well as certain services and facilities on a cost-reimbursement
basis. Expenses under this agreement amounted to approximately $2,879,000 and
$15,677,000 for the three and nine month periods in 1998 and $5,337,000 and
$13,871,000 for the same periods in 1997.
 
(3) INVESTMENTS IN SUBSIDIARIES
 
The following is combined unaudited summarized financial information of the
subsidiaries as of:
 
<TABLE>
<CAPTION>
                             SEPTEMBER 30,    DECEMBER 31,
(000'S)                           1998            1997
- ---------------------------  --------------   -------------
<S>                          <C>              <C>
Other assets                  $  1,233,207    $  1,190,951
Liabilities                     (1,105,654)     (1,073,966)
                             --------------   -------------
Total net assets              $    127,553    $    116,985
                             --------------   -------------
                             --------------   -------------
</TABLE>
 
<TABLE>
<CAPTION>
                                     NINE MONTHS ENDED
                                       SEPTEMBER 30,
                               ------------------------------
(000'S)                          1998                 1997
- -----------------------------  ---------            ---------
<S>                            <C>                  <C>
Total revenue                  $ 175,856            $ 665,904
Operating expenses              (173,093)            (585,857)
Income tax expense                (1,710)             (36,944)
                               ---------            ---------
Net income                     $   1,053            $  43,103
                               ---------            ---------
                               ---------            ---------
</TABLE>
 
The following is combined unaudited summarized financial information of the
subsidiaries as of:
 
<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED
                                        SEPTEMBER 30,
                                ------------------------------
(000'S)                           1998                 1997
- ------------------------------  --------             ---------
<S>                             <C>                  <C>
Total revenue                   $ 49,704             $ 237,369
Operating expenses               (48,704)             (205,368)
Income tax expense                    85               (15,303)
                                --------             ---------
Net income                      $  1,085             $  16,698
                                --------             ---------
                                --------             ---------
</TABLE>
 
In determining the equity in income of subsidiaries for the periods, the Company
has excluded expenses of approximately $396,000 and $2,369,000 for the three and
nine month periods in 1998 and $11,819,000 and $28,443,000 for the same periods
in 1997, representing payables to the Company in lieu of federal income taxes.
 
On December 24, 1997, the Company transferred all of its shares of Massachusetts
Financial Services Company ("MFS") to its parent Sun Life of Canada (U.S.)
Holdings, Inc. ("Life Holdco").
 
(4) INVESTMENT INCOME
 
Net investment income consisted of:
 
                                       65
<PAGE>
NOTES TO UNAUDITED FINANCIAL STATEMENTS
 
(4) INVESTMENT INCOME (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                            NINE MONTHS ENDED SEPTEMBER
                                                                                                        30,
                                                                                           -----------------------------
(000'S)                                                                                      1998                 1997
- -----------------------------------------------------------------------------------------  --------             --------
<S>                                                                                        <C>                  <C>
Interest income from bonds                                                                 $128,687             $141,610
Income from investment in common stocks of affiliates                                         3,000               33,681
Interest income from mortgage loans                                                          41,025               59,716
Real estate investment income                                                                11,729               10,290
Interest income from policy loans                                                             2,115                2,230
Other                                                                                          (264)                (353)
                                                                                           --------             --------
Gross investment income                                                                     186,292              246,874
Interest on surplus notes and borrowed money                                                 34,087               29,375
Investment expenses                                                                           8,076                8,136
                                                                                           --------             --------
                                                                                           $144,129             $209,363
                                                                                           --------             --------
                                                                                           --------             --------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                             THREE MONTHS ENDED SEPTEMBER
                                                                                                         30,
                                                                                             ----------------------------
(000'S)                                                                                       1998                 1997
- -------------------------------------------------------------------------------------------  -------              -------
<S>                                                                                          <C>                  <C>
Interest income from bonds                                                                   $40,609              $50,284
Income from investment in common stocks of affiliates                                          --                  11,040
Interest income from mortgage loans                                                           13,140               18,500
Real estate investment income                                                                  3,848                4,020
Interest income from policy loans                                                                723                  734
Other                                                                                           (506)                (263)
                                                                                             -------              -------
Gross investment income                                                                       57,814               84,315
Interest on surplus notes and borrowed money                                                  10,816               13,727
Investment expenses                                                                            2,600                2,555
                                                                                             -------              -------
                                                                                             $44,398              $68,033
                                                                                             -------              -------
                                                                                             -------              -------
</TABLE>
 
(5) SUBSEQUENT EVENT
 
In October 1998, the Company entered into a definitive agreement to sell its
wholly-owned subsidiary, Massachusetts Casualty Insurance Company to Centre
Reinsurance Holdings, Ltd. This transaction is expected to be completed by or
near year-end 1998, subject to regulatory approvals. This transaction is not
expected to have a significant effect on the ongoing operations of the Company.
 
                                       66
<PAGE>
                                    APPENDIX
                 EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
 
1.    The MVA factor for all Guarantee Periods, except Floating Rate Guarantee
Periods, is:
 
<TABLE>
 <C>                             <C>
                                   N/12
                        1 + I
                    (  --------  )      -1
                      1 + J + b
</TABLE>
 
      The following examples assume the following:
 
          (a) the Guarantee Amount was allocated to a five year Guarantee Period
              with a Guaranteed Interest Rate of 6% or .06 (I).
 
          (b) the date of surrender is two years from the Expiration Date (N =
              24).
 
          (c) the value of the Guarantee Amount on the date of surrender is
              $11,910.16.
 
          (d) the Accumulation Account Value at the beginning of the current
              Account Year was $11,236.00.
 
          (e) no transfers or partial withdrawals have been made.
 
          (f)  withdrawal charges, if any, are calculated in the same manner
               described in the Prospectus (See "Withdrawal Charges").
 
          (g) the b factor for the Contract is .0025 (b)
 
EXAMPLE OF A NEGATIVE MVA:
 
      Assume that on the date of surrender, the current rate (J) is 8% or .08.
 
<TABLE>
    <C>              <S> <C>        <C>
                                      N/12
                           1 + I
    The MVA factor =   (  --------  )       -1
                         1 + J + b
</TABLE>
 
<TABLE>
    <C>              <S> <C>             <C>
                                           24/12
                             1 + .06
                   =   ( --------------  )       -1
                         1 + .08 + .0025
 
                             2
                   =   (.979) -1
 
                   =   .959 -1
 
                   = - .041
</TABLE>
 
The value of the Guarantee Amount less the free withdrawal amount is multiplied
by the MVA factor to determine the MVA:
 
               ($11,910.16 - $11,236.00 X .1) X (-.041) = -$443.74
 
- -$443.74 represents the MVA that will be deducted from the value of the
Guarantee Amount before the deduction of any withdrawal charge.
 
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA would be
($2,000.00 - $11,236.00 X .1) X (-$.041) = -$36.05. -$36.05. represents the MVA
that will be deducted from the partial withdrawal amount before the deduction of
any withdrawal charge.
 
                                       67
<PAGE>
EXAMPLE OF A POSITIVE MVA:
 
      Assume that on the date of surrender, the current rate (J) is 5% or .05.
 
<TABLE>
    <C>              <S> <C>       <C>
                                     N/12
                           1 + I
    The MVA factor =   ( --------  )       -1
                         1 + J + b
</TABLE>
 
<TABLE>
    <C>              <S> <C>             <C>
                                           24/12
                             1 + .06
                   =   ( --------------  )       -1
                         1 + .05 + .0025
 
                              2
                   =   (1.007) -1
 
                   =   1.014 -1
 
                   =   .014
</TABLE>
 
      The value of the Guarantee Amount less the free withdrawal amount is
multiplied by the MVA factor to determine the MVA:
 
                 ($11,910.16 - $11,236.00 X .1) X .014 = $154.28
 
      $154.28 represents the MVA that would be added to the value of the
Guarantee Amount before the deduction of any withdrawal charge.
 
      For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA
would be ($2,000.00 - $11,236.00 X .1) X (.019) = $12.53.
 
      $12.53 represents the MVA that would be added to the partial withdrawal
amount before the deduction of any withdrawal charge.
 
2.    The MVA factor for Floating Rate Guarantee Periods is calculated similarly
applying the following formula:
 
                      [(1 + F - X)/(1 + F - Y + b)]N/12 -1
 
where,
 
      F is the Floating Rate currently being used in determining the Floating
      Rate Guarantee Period's Guaranteed Interest Rate;
 
      X is the Floating Rate Spread in effect during the current Floating Rate
      Guarantee Period,
 
      Y is the Floating Rate Spread, as of the date of the application of the
      MVA, for current allocations to new Floating Rate Guarantee Periods equal
      to the balance of the current Floating Rate Guarantee Period, rounded up
      to the next higher number of complete years,
 
      b is a factor which the Company will determine for a Contract and which
      will not exceed 0.25%, and
 
      N is the number of complete months remaining in the current Floating Rate
      Guarantee Period.
 
3.    The MVA factor for all Floating Rate Guarantee Periods is:
 
<TABLE>
 <C>                        <C> <C>  <C>
                                N/12
                      1 + I
                    ( ----- )        -1
                      1 + J
</TABLE>
 
      The following examples assume the following:
 
          (a) the Guarantee Amount was allocated to a five year Guarantee Period
              with a Guaranteed Interest Rate of LIBOR - 1.25% (X = 1.25%)
 
          (b) the date of surrender is two years from the Expiration Date (N =
              24).
 
          (c) the value of the Floating Rate Guarantee Amount on the date of
              surrender is $11,910.16.
 
          (d) the Account Value at the beginning of the current Account Year was
              $11,236.00.
 
          (e) no transfers or partial withdrawals affecting this Guarantee
              Amount have been made.
 
                                       68
<PAGE>
          (f)  withdrawal charges, if any, are calculated in the same manner
               described in the Prospectus (See "Withdrawal Charges").
 
          (g) the LIBOR rate currently used for crediting interest to the
              Contract equals 7.25% (F).
 
          (h) the b factor for the Contract is .0025 (b)
 
EXAMPLE OF A NEGATIVE MVA:
 
      Assume that on the date of surrender, the current Floating Rate Spread (Y)
is .75%.
 
<TABLE>
    <C>              <S> <C>            <C>
                                          N/12
                           1 + F - X
    The MVA factor =   ( -------------- )       -1
                         1 + F - Y + b
</TABLE>
 
<TABLE>
    <C>                <C> <S> <C>                        <C> <C>        <C>
                                                              24/12
                                   1 + .0725 - .0125
                     =     (   -------------------------  )              -1
                               1 + .0725 - .0090 + .00258
                                 2
                     =     (.994) -1
 
                     =     .989 -1
 
                     = -.011
</TABLE>
 
      The value of the Guarantee Amount less the free withdrawal amount is
multiplied by the MVA factor to determine the MVA:
 
                ($11,910.16 - $11,236 X .1) X (-.011) = -$121.08
 
      -$121.08 represents the MVA that will be deducted from the value of the
Guarantee Amount before the deduction of any withdrawal charge.
 
      For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA
would be ($2,000.00 - $11,236 X .1) X (-.011) = -$121.08. -$121.08 represents
the MVA that will be deducted from the value of the Gurantee Amount before the
deduction of any withdrawal charge.
 
EXAMPLE OF A POSITIVE MVA:
 
      Assume that on the date of surrender, the current Floating Rate Spread (Y)
is 1.60%.
 
<TABLE>
    <C>                <C> <S> <C>             <C> <C>        <C>
                                                   N/12
                                  1 + F - X
      The MVA factor =     (   --------------  )              -1
                                1 + F - Y + b
</TABLE>
 
<TABLE>
    <C>                <C> <S> <C>                        <C> <C>        <C>
                                                              24/12
                                   1 + .0725 - .0125
                     =     (    ------------------------  )              -1
                               1 + .0725 - .0160 + .0025
                                  2
                     =     (1.001) -1
 
                     =     1.002 -1
 
                     = -.002
</TABLE>
 
      The value of the Guarantee Amount less the free withdrawal amount is
multiplied by the MVA factor to determine the MVA:
 
                   ($11,910.16 - $11,236 X .1) X .002 = $20.38
 
      $20.38 represents the MVA that would be added to the value of the
Guarantee Amount before the deduction of any withdrawal charge.
 
      For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA
would be ($2,000.00 - $11,236 X .1) X (.002) = $1.66.
 
      $1.66 represents the MVA that would be added to the partial withdrawal
amount before the deduction of any withdrawal charge.
 
                                       69
<PAGE>
 
<TABLE>
 <S>                           <C>
                               SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
                               ANNUITY SERVICE MAILING ADDRESS:
                               RETIREMENT PRODUCTS AND SERVICES
                               P.O. BOX 9133
                               BOSTON, MASSACHUSETTS 02117
 
                               TELEPHONE:
                               Toll Free (888) 388-8748
 
                               GENERAL DISTRIBUTOR
                               Clarendon Insurance Agency, Inc.
                               One Sun Life Executive Park
                               Wellesley Hills, Massachusetts 02481
 
                               LEGAL COUNSEL
                               Jorden Burt Boros Cicchetti Berenson & Johnson LLP
                               1025 Thomas Jefferson Street, N.W.
                               Suite 400E
                               Washington, D.C. 20007
 
                               AUDITORS
                               Deloitte & Touche LLP
                               125 Summer Street
                               Boston, Massachusetts 02110
 
 FUTFIX-1 12/98
</TABLE>
<PAGE>


                                      PART II

                       INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

        Not Applicable

Item 15. INDEMNIFICATION

        Article 8 of the By-Laws of Sun Life Assurance Company of Canada (U.S.)
provides for indemnification of directors and officers as follows:

        Section 8.01 (a). Every person who is or was a director or officer or
        employee of this corporation or of any other corporation which he
        served at the request of this corporation and in which this corporation
        owns or owned shares of capital stock or of which it is or was a
        creditor shall have a right to be indemnified by this corporation
        against all liability and reasonable expense incurred by him in
        connection with or resulting from any claim, action, suit or proceeding
        in which he may become involved as a party or otherwise by reason of
        his being or having been a director, officer or employee of this
        corporation or such other corporation, provided (1) said claim, action,
        suit or proceeding shall be prosecuted to a final determination and he
        shall be vindicated on the merits, or (2) in the absence of such a
        final determination vindicating him on the merits, the board of
        directors shall determine that he acted in good faith and in a manner
        he reasonably believed to be in or not opposed to the best interests of
        the corporation, and, with respect to any criminal action or
        proceeding, had no reasonable cause to believe his conduct was
        unlawful; said determination to be made by the board of directors
        acting through a quorum of disinterested directors, or in its absence
        on the opinion of counsel.

               (b) For purposes of the preceding subsection: (1) "liability and
        reasonable expenses" shall include but not be limited to reasonable
        counsel fees and disbursements, amounts of any judgment, fine or
        penalty, and reasonable amounts paid in settlement; (2) "claim, action,
        suit or proceeding" shall include every such claim, action, suit or
        proceeding, whether civil or criminal, derivative or otherwise,
        administrative, judicial or legislative, any appeal relating thereto,
        and shall include any reasonable apprehension or threat of such a
        claim, action, suit or proceeding; (3) a settlement, plea of nolo
        contendere, consent judgment, adverse civil judgment, or conviction
        shall not of itself create a presumption that the conduct of the person
        seeking indemnification did not meet the standard of conduct set forth
        in subsection (a)(2) hereof.

               (c) (Notwithstanding the foregoing, the following limitations
        shall apply with respect to any action by or in the right of the
        Corporation: (1) no indemnification shall be made in respect of any
        claim, issue or matter as to which the person seeking indemnification
        shall have been adjudged to be liable for negligence or misconduct int
        he performance of his durt to the corporation unless and only to the
        extent that the Court of Chancery of the State of Delaware or the court
        in which such action or suit was brought shall determine upon
        application that, despite the adjudication of liability but in view of
        all the circumstances of the case, such person is fairly and reasonably
        entitled to indemnity for such expenses which the Court of Chanceery or
        such other court shall deem proper; and (2) indemnification shall
        extend only to reasonable expenses, including reasonable counsel's fees
        and disbursements.

               (d)The right to indemnification shall extend to any person
        otherwise entitled to it under this by-law whether or not that person
        continues to be a director, officer or employee of this corporation or
        such other corporations at the time such liability or expense shall be
        incurred. The right of indemnification shall extend to the legal
        representative and heirs of any person otherwise entitled to
        indemnification. If a person meets the requirements of this by-law with
        respect to some matters in a claim, action, suit or proceeding, but not
        with respect to others, he shall be entitled to indemnification as the
        former. Advances against liability and expenses may be made by the
        corporation on terms fixed by the board of directors subject to an
        obligation to repay if indemnification proves unwarranted.

               (e) This by-law shall not exclude any other rights of
        indemnification or other rights to which any director, officer or
        employee may be entitled to be contract, vote of stockholders or as a
        matter of law. If any clause, provision or application of this section
        shall be determined to be invalid, the other clauses, provisions or

<PAGE>


        applications of this section shall not  be affected but shall remain in
        full force and effect. The provisions of this by-law shall be
        applicable to claims, actions, suits or proceedings made or commenced
        after the adoption hereof, whether arising from acts or omissions to
        act occurring before or after the adoption hereof.

               (f) Nothing contained in this by-law shall be construed to
        protect any director or officer of the corporation against any
        liability to the corporation or its security holders to which he would
        otherwise by subject by reason of wilful malfeasance, bad faith, gross
        negligence or reckless disregard of the duties involved in the conduct
        of his office.

Item 16. EXHIBITS

   (1)         Underwriting Agreement *

   (3) (a)     Certificate of Incorporation *

       (b)     By-laws *

   (4) (a)     Single Payment Deferred Fixed Individual Annuity Contract **

       (b)     Single Payment Deferred Fixed Group Annuity Contract **

       (c)     Certificate to be used in connection with Contract filed as
               Exhibit 4(b) **

   (5)         Opinion re Legalilty ***

   (23)        Independent Auditor's Consent ***

   (24)        Powers of Attorney ***

     *   Incorporated by reference from Post-Effective Amendment No. 1 to the 
         Registration Statement of the Registrant on Form S-2, File 
         No. 333-45923.
    **   Incorporated by reference from Registration Statement of the 
         Registrant on Form S-2, File No. 333-62837.
   ***   Filed herewith.

Item 17. UNDERTAKINGS

    (a)  The undersigned Registrant hereby undertakes:

         (1) To file, during any period in which offers or sales are being
    made, a post-effective amendment to this registration statement:

               (i)    to include any prospectus required by Section 10(a)(3) of
                      the Securities Act of 1933;

               (ii)   to reflect in the prospectus any facts or events arising
                      after the effective date of the registration statement
                      (or the most recent post-effective amendment thereof),
                      which, individually or in the aggregate, represent a
                      fundamental change in the information set forth in the
                      registration statement;

               (iii)  to include any material information with respect to the
                      plan of distribution not previously disclosed in the
                      registration statement or any material change to such
                      information in the registration statement;

                      provided, however, that paragraphs (a)(1)(i) and
                      (a)(1)(ii) do not apply if the registration statement is
                      on Form S-3 or Form S-8, and the information required to
                      be included in a post-effective amendment by those
                      paragraphs is contained in periodic reports filed by the
                      registrant pursuant to Section 13 or Section 15(d) of the
                      Securities Exchange Act of 1934 that are incorporated by
                      reference in the registration statement.

<PAGE>

         (2) That for the purpose of determining any liability under the
    Securities Act of 1933, each such post-effective amendment shall be deemed
    to be a new registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall be deemed
    to be the initial bona fide offering thereof.

         (3) To remove from registration by means of a post-effective amendment
    any of the securities being registered which remain unsold at the
    termination of the offering.

    Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

Item 18. FINANCIAL STATEMENTS AND SCHEDULES

The following Financial Statements are included in the Registration Statement:

    Included in Part I:

    Financial Statements of the Depositor:

         1.    Statutory Statements of Admitted Assets, Liabilities and Capital
               Stock and Surplus, Period Ended September 30, 1998 and Years 
               Ended December 31, 1997 and 1996;

         2.    Statutory Statements of Operations, Period Ended September 30,
               1998 and Years Ended December 31, 1997, 1996 and 1995;

         3.    Statutory Statements of Changes in Capital Stock and Surplus,
               Period Ended September 30, 1998 and Years Ended December 31, 
               1997, 1996 and 1995;

         4.    Statutory Statements of Cash Flow, Period Ended September 30,
               1998 and Years Ended December 31, 1997, 1996 and 1995;

         5.    Notes to Statutory Financial Statements; and

         6.    Independent Auditors' Report.

<PAGE>

                                      SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, the 
Registrant, Sun Life Assurance Company of Canada (U.S.), certifies that it 
has reasonable grounds to believe that it meets all of the requirements for 
filing on Form S-2 and has duly caused this Post-Effective Amendment No. 1 to 
its Registration Statement on Form S-2 to be signed on its behalf by the 
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth 
of Massachusetts, on the 24th day of November, 1998.

                              Sun Life Assurance Company of Canada (U.S.)
                              (Registrant)


                              By:* /s/ DONALD A. STEWART
                                 -----------------------
                              Donald A. Stewart
                              Chairman

Attest:/s/ EDWARD M. SHEA
       --------------------
       Edward M. Shea
       Assistant Vice President and Counsel

     Pursuant to the requirements of the Securities Act of 1933, this Form S-2 
Registration Statement has been signed by the following persons in the 
capacities and on the dates indicated.

<TABLE>
<CAPTION>

 Signature                                        Title                                   Date
 ---------                                        -----                                   ----
<S>                                               <C>                                     <C>
* /s/ DONALD A. STEWART                           Chairman and Director                   November 24, 1998
- -------------------------                         (Principal Executive Officer)


* /s/ ROBERT P. VROLYK                            Vice President and Actuary              November 24, 1998
- -------------------------                         (Principal Financial and
     Robert P. Vrolyk                             Accounting Officer)


* /s/ RICHARD B. BAILEY                           Director                                November 24, 1998
- -------------------------
     Richard B. Bailey


* /s/ M. COLYER CRUM                              Director                                November 24, 1998
- -------------------------
     M. Colyer Crum


                                                  Director                                November __, 1998
- -------------------------
     David D. Horn


                                                  Director                                November __, 1998
- -------------------------
     John S. Lane


* /s/ ANGUS A. MACNAUGHTON                        Director                                November 24, 1998
- -------------------------
     Angus A. MacNaughton
</TABLE>

- ------------
*    By Edward M. Shea pursuant to Power of Attorney filed herewith.



<PAGE>


<TABLE>
<S>                                               <C>                                     <C>
* /s/ JOHN D. MCNEIL                              Director                                November 24, 1998
- -------------------------
     John D. McNeil


* /s/ C. JAMES PRIEUR                             President and Director                  November 24, 1998
- -------------------------
     C. James Prieur


* /s/ S. CAESAR RABOY                             Senior Vice President                   November 24, 1998
- -------------------------                         and Deputy General Manager and
     S. Caesar Raboy                              Director
</TABLE>

- ------------
*    By Edward M. Shea pursuant to Power of Attorney filed herewith.




<PAGE>

Sun Life Assurance Company of Canada (U.S.)
On Sun Life Executive Park
Wellesley Hills, Massachusetts 02481

    Re:  Registration Statement on Form S-2

Ladies and Gentlemen:

    I have acted as counsel to Sun Life Assurance Company of Canada (U.S.) 
(the "Company") in connection with the above-captioned registration 
Statement (the "Registration Statement") with respect to the registration 
of certain annuity contracts (the "Contracts") with the Securities and 
Exchange Commission under the Securities Act of 1933, as amended. In giving 
this opinion, I have examined the Registration Statement and such other 
documents and reviewed such questions of Delaware law as I have considered 
necessary and appropriate. Based on such examination and review, it is my 
opinion that:

     1.  The Company is a corporation duly organized and validly existing 
under the laws of the State of Delaware.

     2.  The Contracts when issued in the manner described in the 
Registration Statement will be validly issued and will represent binding 
obligations of the Company and its general account under Delaware law.

     I hereby consent to the filing of this opinion as an exhibit to the 
Registration Statement.

                                                 Respectfully yours,


                                                 /s/ Edward M. Shea, Esq.
                                                 ------------------------


November 24, 1998



<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Post-Effective Amendment No. 1 to Registration 
Statement No. 333-62837 of Sun Life Assurance Company of Canada (U.S.) on 
Form S-2 of our report dated February 5, 1998, included in the Annual Report 
on Form 10-K of Sun Life Assurance Company of Canada (U.S.) for the year 
ended December 31, 1997, and to the use of our report dated February 5, 1998 
appearing in the Prospectus, which is part of this Registration Statement.

We also consent to the references to us under the heading "Accountants" in 
such Prospectus.

DELOITTE & TOUCHE LLP


Boston, Massachusetts
November 24, 1998



<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that Donald A. Stewart, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ Donald A. Stewart
                                       ---------------------------
                                       Donald A. Stewart

November 16, 1998

<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that Robert P. Vrolyk, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ Robert P. Vrolyk
                                       ---------------------------
                                       Robert P. Vrolyk

November 16, 1998

<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that Richard B. Bailey, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ Richard B. Bailey
                                       ---------------------------
                                       Richard B. Bailey

November 16, 1998

<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that M. Colyer Crum, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ M. Colyer Crum
                                       ---------------------------
                                       M. Colyer Crum

November 16, 1998

<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that Angus A. MacNaughton, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ Angus A. MacNaughton
                                       ---------------------------
                                       Angus A. MacNaughton

November 16, 1998

<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that John D. McNeil, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ John D. McNeil
                                       ---------------------------
                                       John D. McNeil

November 16, 1998

<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that C. James Prieur, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ C. James Prieur
                                       ---------------------------
                                       C. James Prieur

November 16, 1998

<PAGE>

                     SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)

                                 POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that S. Caesar Raboy, whose signature 
appears below, constitutes and appoints Edward M. Shea, C. James Prieur, 
Peter F. Demuth and Ellen B. King, and each of them, his attorneys-in-fact, 
each with the power of substitution, for him in any and all capacities, to 
sign a Registration Statement on Form S-2 of Sun Life of Canada (U.S.) (File 
No. 333-62837), and any amendments thereto, and to file the same, with 
exhibits thereto, and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact or his substitute or substitutes, may do or 
cause to be done by virtue hereof.


                                       /s/ S. Caesar Raboy
                                       ---------------------------
                                       S. Caesar Raboy

November 16, 1998



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