<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D. C. 20549

                                     FORM 10-Q

                    QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                       OF THE SECURITIES EXCHANGE ACT 0F 1934

<TABLE>
<CAPTION>
<S><C>
For the Quarterly Period Ended September 30, 1998       Commission File Number 2-99959
                               ------------                        ------------
</TABLE>

                    SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
               (Exact name of registrant as specified in its charter)


     Delaware                                     04-2461439
--------------------------------------- --------------------------------
(State or other jurisdiction of              (IRS Employer I.D. No.)
 incorporation or organization)


One Sun Life Executive Park,       Wellesley Hills, MA           02481
-------------------------------------------------------------------------------
    (Address of Principal Executive Offices)                     (Zip Code)

Registrant's telephone number, including area code          (781) 237-6030


                                        NONE
-------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

      (1) Yes  |X|  No |_|
      (2) Yes  |X|  No |_|


Registrant has no voting stock outstanding held by non-affiliates.

Registrant has 5,900 shares of common stock outstanding on November 12, 1998,
all of which are owned by Sun Life of Canada (U.S.) Holdings, Inc.

<PAGE>

                   SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
                              (WHOLLY-OWNED SUBSIDIARY OF
                      SUN LIFE OF CANADA (U.S.) HOLDINGS, INC.)

                                        INDEX

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                     NUMBER
<S>                                                                  <C>
 PART I:   Financial Information

  Item 1: Financial Statements:*

       Balance Sheets -
         September 30, 1998 and December 31, 1997                      3

       Statements of Operations -
         Nine Months Ended
         September 30, 1998 and September 30, 1997                     4

       Statements of Operations -
         Three  Months Ended
         September 30, 1998 and September 30, 1997                     5

       Statements of Capital Stock and Surplus -
         Nine Months Ended
         September 30, 1998 and September 30, 1997                     6

       Statements of Cash Flows -
         Nine Months Ended
          September 30, 1998 and September 30, 1997                    7

       Notes to Unaudited Financial Statements                         8

  Item 2: Management's Discussion and Analysis of
       Financial Condition and Results of Operations                  10

  Item 3. Quantitative and Qualitative Disclosures
       About Market Risk                                              15


PART II:  Other Information

  Item 6: Exhibits and Reports on Form 8-K                            17
</TABLE>

*The balance sheet at December 31, 1997 has been taken from the
audited financial statements at that date. All other statements
are unaudited.


                                          2
<PAGE>

ITEM 1: FINANCIAL STATEMENTS

                    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>
(IN 000'S)

                                                                        SEPTEMBER 30,        DECEMBER 31,
ADMITTED ASSETS                                                                1998                1997
                                                                        -------------       -------------
<S>                                                                     <C>                 <C>
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                                 0              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                                                                      0             110,142
Asset valuation reserve                                                        43,359              47,605
Reinsurance in unauthorized companies                                             964                   0
Payable to parent, subsidiaries, and affiliates                                27,206                   0
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.


                                        3
<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>
(in 000's)
                                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                                                          1998                1997
INCOME                                                             -----------------    -----------------
<S>                                                                <C>                  <C>
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.


                                        4
<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>
(in 000's)
                                                                       Three Months Ended September 30,
                                                                          1998                1997
INCOME                                                             -----------------    -----------------
<S>                                                                <C>                  <C>
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                                   (2)                   4
Statement
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                      36,834               26,880
  health policies and contracts
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.


                                        5
<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>
(in 000's)

                                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                                                          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)                   0

Change in asset valuation reserve                                              4,245               (9,092)

Other changes in surplus in Separate Accounts Statement                           48                    0

Dividends to stockholders                                                    (50,000)                   0
                                                                   -----------------    -----------------

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.


                                        6
<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>
(in 000's)                                                            NINE MONTHS ENDED SEPTEMBER 30,
                                                                          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.


                                        7
<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.

                                      8


<PAGE>

     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:

<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                                                  0          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.

                                      9
<PAGE>

ITEM 2:
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").

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.


                                      10
<PAGE>


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.

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.


                                      11
<PAGE>

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.

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.

                                      12

<PAGE>

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.

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.


                                      13
<PAGE>

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 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.


                                      14
<PAGE>

ITEM 3:
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.


                                     15
<PAGE>

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 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.

                                      16

<PAGE>

PART II:  OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are incorporated by reference unless otherwise
    indicated:


EXHIBIT NO.
-----------

27 FINANCIAL DATA SCHEDULE (filed herewith)











                                      17

<PAGE>












SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

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


Date     November 13, 1998                 /s/ Ellen B. King
                                           --------------------------------
                                           Ellen B. King
                                           Secretary


Date     November 13, 1998                  /s/ Robert P. Vrolyk
                                            -------------------------------
                                            Robert P. Vrolyk
                                            Vice President and Actuary
                                            Chief Financial Officer













                                      18