<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


For the Quarterly Period Ended June 30, 1998      Commission File Number 2-99959


                    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 incorporation          (IRS Employer I.D. No.)
     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 August 14, 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 -
         June 30, 1998 and December 31, 1997                         3

       Statements of Operations -
         Six Months Ended
         June 30, 1998 and June 30, 1997                             4

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

       Statements of Capital Stock and Surplus -
         Six Months Ended
         June 30, 1998 and June 30, 1997                             6

       Statements of Cash Flows -
         Six Months Ended
          June 30, 1998 and June 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                                            14


PART II:  Other Information

  Item 6: Exhibits and Reports on Form 8-K                          16
</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>
                                                                                   JUNE 30,    DECEMBER 31,
(IN 000'S)                                                                           1998          1998
                                                                                  -----------  ------------
<S>                                                                               <C>          <C>
ADMITTED ASSETS

Bonds                                                                             $ 1,957,581  $ 1,910,699
Common stocks                                                                         119,697      117,229
Mortgage loans on real estate                                                         587,297      684,035
Properties acquired in satisfaction of debt                                            20,338       22,475
Investment real estate                                                                 77,744       78,426
Policy loans                                                                           41,193       40,348
Cash & short-term investments                                                         198,390      544,418
Other invested assets                                                                  60,757       55,716
Life insurance premiums and annuity considerations due & uncollected                    8,240        9,203
Investment income due and accrued                                                      39,882       39,279
Receivable from parent, subsidiaries and affiliates                                         0       28,825
Funds withheld on reinsurance assumed                                               1,046,131      982,653
Other assets                                                                            2,540        1,841
                                                                                  -----------  ------------
General account assets                                                              4,159,790    4,515,147
 
Separate account assets
  Unitized                                                                         10,877,558    9,068,021
  Non-unitized                                                                      2,148,450    2,343,877
                                                                                  -----------  ------------
    TOTAL ADMITTED ASSETS                                                         $17,185,798  $15,927,045
                                                                                  -----------  ------------
                                                                                  -----------  ------------
LIABILITIES
Aggregate reserve for life policies and contracts                                 $ 2,246,492  $ 2,188,243
Supplementary contracts                                                                 2,234        2,247
Policy and contract claims                                                              3,341        2,460
Provision for policyholders' dividends and coupons payable                             35,500       32,500
Liability for premium and other deposit funds                                       1,169,266    1,450,705
Surrender values on cancelled policies                                                     88          215
Interest maintenance reserve                                                           36,877       33,830
Commissions to agents due or accrued                                                    4,362        2,826
General expenses due or accrued                                                         7,911        7,202
Transfers from Separate Accounts due or accrued                                      (340,547)    (284,078)
Taxes, licenses and fees due or accrued, excluding FIT                                     76          105
Federal income taxes due or accrued                                                    58,642       58,073
Unearned investment income                                                                 27           34
Amounts withheld or retained by company as agent or trustee                               496           47
Remittances and items not allocated                                                     1,686        1,363
Borrowed money                                                                              0      110,142
Asset valuation reserve                                                                46,224       47,605
Payable to parent, subsidiaries, and affiliates                                        31,879            0
Payable for securities                                                                 29,315       27,104
Other liabilities                                                                       8,973        1,959
                                                                                  -----------  ------------
General account liabilities                                                         3,342,842    3,682,582
 
Separate account liabilities
  Unitized                                                                         10,877,377    9,067,891
  Non-unitized                                                                      2,148,450    2,343,877
                                                                                  -----------  ------------
    TOTAL LIABILITIES                                                              16,368,669   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                                                                       46,874       62,440
                                                                                  -----------  ------------
Surplus                                                                               811,229      826,795
                                                                                  -----------  ------------
Total common capital stock and surplus                                                817,129      832,695
                                                                                  -----------  ------------
    Total liabilities, capital stock and surplus                                  $17,185,798  $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
 
(IN 000'S)
 
<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED JUNE 30,
                                     INCOME                                          1998          1997
                                                                                  -----------  ------------
<S>                                                                               <C>          <C>
Premiums and annuity considerations                                               $   136,133  $   118,687
Deposit-type funds                                                                    996,025    1,160,500
Considerations for supplementary contracts without life contingencies and
  dividend accumulations                                                                1,144          550
Net investment income                                                                  99,731      141,330
Amortization of interest maintenance reserve                                              923          381
Net gain from operations from Separate Accounts Statement                                   3            0
Other income                                                                           53,379       46,389
                                                                                  -----------  ------------
Total                                                                               1,287,338    1,467,837
                                                                                  -----------  ------------
BENEFITS AND EXPENSES
 
Death benefits                                                                         15,833        6,370
Annuity benefits                                                                       73,077       70,927
Surrender benefits and other fund withdrawals                                         988,182      893,648
Interest on policy or contract funds                                                      262          155
Payments on supplementary contracts without life contingencies and of dividend
  accumulations                                                                         1,199          451
Increase in aggregate reserves for life and accident and health policies and
  contracts                                                                            58,249       65,687
Decrease in liability for premium and other deposit funds                            (281,439)    (226,178)
Increase (decrease) in reserve for supplementary contracts without life
  contingencies and for dividend and coupon accumulations                                 (14)         145
                                                                                  -----------  ------------
Total                                                                                 855,349      811,205
 
Commissions on premiums and annuity considerations (direct business only)              66,615       70,987
Commissions and expense allowances on reinsurance assumed                               8,226        8,356
General insurance expenses                                                             29,784       18,883
Insurance taxes, licenses and fees, excluding federal income taxes                      3,730        4,477
Decrease in loading on and cost of collection in excess of loading on deferred
  and uncollected premiums                                                               (233)        (230)
Net transfers to Separate Accounts                                                    257,318      473,070
                                                                                  -----------  ------------
Total                                                                               1,220,789    1,386,748
                                                                                  -----------  ------------
NET GAIN FROM OPERATIONS BEFORE DIVIDENDS TO POLICYHOLDERS AND FIT                     66,549       81,089
Dividends to policyholders                                                             19,908       16,113
                                                                                  -----------  ------------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND BEFORE FIT               46,641       64,976
Federal income tax expense (excluding tax on capital gains)                            14,554        5,360
                                                                                  -----------  ------------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND FIT AND BEFORE
  REALIZED CAPITAL GAINS                                                               32,087       59,616
                                                                                  -----------  ------------
Net realized capital gains less capital gains tax and transferred to the IMR            3,115        2,019
                                                                                  -----------  ------------
NET INCOME                                                                        $    35,202  $    61,635
                                                                                  -----------  ------------
                                                                                  -----------  ------------
</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
 
(IN 000'S)
 
<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED JUNE 30,
                                     INCOME                                          1998          1997
                                                                                  -----------  ------------
<S>                                                                               <C>          <C>
Premiums and annuity considerations                                               $    65,351  $    58,733
Deposit-type funds                                                                    527,433      605,977
Considerations for supplementary contracts without life contingencies and
  dividend accumulations                                                                  846          182
Net investment income                                                                  50,128       69,346
Amortization of interest maintenance reserve                                              352          289
Net gain from operations from Separate Accounts Statement                                   2            0
Other income                                                                           27,377       24,512
                                                                                  -----------  ------------
Total                                                                                 671,489      759,039
                                                                                  -----------  ------------
BENEFITS AND EXPENSES
 
Death benefits                                                                          7,890        3,859
Annuity benefits                                                                       38,039       36,058
Surrender benefits and other fund withdrawals                                         531,101      488,832
Interest on policy or contract funds                                                      195          112
Payments on supplementary contracts without life contingencies and of dividend
  accumulations                                                                           947          247
Increase in aggregate reserves for life and accident and health policies and
  contracts                                                                            29,179       35,725
Decrease in liability for premium and other deposit funds                            (164,218)    (136,251)
Decrease in reserve for supplementary contracts without life contingencies and
  for dividend and coupon accumulations                                                   (82)         (44)
                                                                                  -----------  ------------
Total                                                                                 443,051      428,538
 
Commissions on premiums and annuity considerations (direct business only)              36,837       36,979
Commissions and expense allowances on reinsurance assumed                               3,984        4,314
General insurance expenses                                                             17,770       10,079
Insurance taxes, licenses and fees, excluding federal income taxes                      1,577        2,299
Decrease in loading on and cost of collection in excess of loading on deferred
  and uncollected premiums                                                               (183)        (152)
Net transfers to Separate Accounts                                                    133,924      238,345
                                                                                  -----------  ------------
Total                                                                                 636,960      720,402
                                                                                  -----------  ------------
NET GAIN FROM OPERATIONS BEFORE DIVIDENDS TO POLICYHOLDERS AND FIT                     34,529       38,637
Dividends to policyholders                                                             10,118        9,490
                                                                                  -----------  ------------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND BEFORE FIT               24,411       29,147
Federal income tax expense (excluding tax on capital gains)                             6,435        5,765
                                                                                  -----------  ------------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND FIT AND BEFORE
  REALIZED CAPITAL GAINS                                                               17,976       23,382
Net realized capital gains less capital gains tax and transferred to the IMR            2,301        1,779
                                                                                  -----------  ------------
NET INCOME                                                                        $    20,277  $    25,161
                                                                                  -----------  ------------
                                                                                  -----------  ------------
</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 OF CAPITAL STOCK AND SURPLUS
 
(IN 000'S)
 
<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED JUNE 30,
                                                                                     1998          1997
                                                                                  -----------  ------------
<S>                                                                               <C>          <C>
CAPITAL AND SURPLUS, BEGINNING OF PERIOD                                          $   832,695  $   567,143
                                                                                  -----------  ------------
Net income                                                                             35,202       61,635
Change in net unrealized capital gains                                                 (1,755)         248
Change in non-admitted assets and related items                                          (441)         (31)
Change in asset valuation reserve                                                       1,380       (3,248)
Other changes in surplus in Separate Accounts Statement                                    48            3
Dividends to stockholders                                                             (50,000)           0
                                                                                  -----------  ------------
Net change in capital and surplus for the period                                      (15,566)      58,607
                                                                                  -----------  ------------
Capital and surplus, End of period                                                $   817,129  $   625,750
                                                                                  -----------  ------------
                                                                                  -----------  ------------
</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>
                                                                                 SIX MONTHS ENDED JUNE 30,
                                                                                     1998          1997
                                                                                  -----------  ------------
<S>                                                                               <C>          <C>
CASH PROVIDED
 
Premiums, annuity considerations and deposit funds received                       $ 1,133,357  $ 1,288,821
Considerations for supplementary contracts and dividend accumulations received          1,144          550
Net investment income received                                                        125,061      159,309
Other income received                                                                  55,654       38,671
                                                                                  -----------  ------------
Total receipts                                                                      1,315,216    1,487,351
                                                                                  -----------  ------------
Benefits paid (other than dividends)                                                1,077,539      970,455
Insurance expenses and taxes paid (other than federal income and capital gains
  taxes)                                                                              109,174      102,669
Net cash transfers to Separate Accounts                                               313,788      531,492
Dividends paid to policyholders                                                        16,908       13,613
Federal income tax payments (excluding tax on capital gains)                           13,264        4,727
Other - net                                                                               262          155
                                                                                  -----------  ------------
Total payments                                                                      1,530,935    1,623,111
                                                                                  -----------  ------------
Net cash from operations                                                             (215,719)    (135,760)
                                                                                  -----------  ------------
Proceeds from long-term investments sold, matured or repaid (after deducting
  taxes on capital gains of $721,800 for 1998, $1,722,195 for 1997)                   757,516      604,144
Other cash provided                                                                    67,071      618,395
                                                                                  -----------  ------------
Total cash provided                                                                   824,587    1,222,539
                                                                                  -----------  ------------
CASH APPLIED

Cost of long-term investments acquired                                                710,436      421,879
Other cash applied                                                                    244,460       75,505
                                                                                  -----------  ------------
Total cash applied                                                                    954,896      497,384
                                                                                  -----------  ------------
NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS                                        (346,028)     589,395

CASH AND SHORT-TERM INVESTMENTS:

BEGINNING OF PERIOD                                                                   544,418       90,059
                                                                                  -----------  ------------
END OF PERIOD                                                                     $   198,390  $   679,454
                                                                                  -----------  ------------
                                                                                  -----------  ------------
</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 $6,401,000 and
$10,685,000 for the three and six month periods in 1998 and $4,189,000 and
$7,352,000 for the same periods in 1997.
 
(3) INVESTMENTS IN SUBSIDIARIES
 
    The following is combined unaudited summarized financial information of the
subsidiaries as of June 30, 1998 and 1997 for the six months then ended:
 
<TABLE>
<CAPTION>
(000's)                                                                              1998          1997
                                                                                  -----------  ------------
<S>                                                                               <C>          <C>
Intangible assets                                                                           0       10,449
Other assets                                                                        1,264,155    1,527,141
Liabilities                                                                        (1,144,451)  (1,388,512)
                                                                                  -----------  ------------
Total net assets                                                                      119,704      149,078
                                                                                  -----------  ------------
                                                                                  -----------  ------------
Total revenue                                                                         126,152      428,535
Operating expenses                                                                   (124,389)    (380,489)
Income tax expense                                                                     (1,795)     (21,641)
                                                                                  -----------  ------------
Net income                                                                                (32)      26,405
                                                                                  -----------  ------------
                                                                                  -----------  ------------
</TABLE>
 
The following is combined unaudited summarized financial information of the
subsidiaries as of June 30, 1998 and 1997 for the three months then ended:
 
<TABLE>
<CAPTION>
(000's)                                                                              1998          1997
                                                                                  -----------  ------------
<S>                                                                               <C>          <C>
Total revenue                                                                          63,685      220,985
Operating expenses                                                                    (64,453)    (193,614)
Income tax expense                                                                       (730)     (12,082)
                                                                                  -----------  ------------
Net income                                                                             (1,498)      15,289
                                                                                  -----------  ------------
                                                                                  -----------  ------------
</TABLE>

    In determining the equity in income of subsidiaries for the periods, the 
Company has excluded expenses of approximately $868,000 and $1,973,000 for 
the three and six month periods in 1998 and $9,167,000 and $16,624,000 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").

                                       8
<PAGE>


NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
 
(4) INVESTMENT INCOME

Net investment income consisted of:
<TABLE>
<CAPTION>


                                                              Six Months Ended
                                                         ------------------------
                                                           June 30        June 30
(000's)                                                      1998           1997
                                                         ---------       --------
<S>                                                      <C>            <C>
Interest income from bonds                                  88,078         91,026
Income from investment in common stocks of affiliates        3,000         22,641
Interest income from mortgage loans                         27,885         41,216
Real estate investment income                                7,881          6,270
Interest income from policy loans                            1,392          1,496
Other                                                          242            (90)
                                                         ---------       --------
Gross investment income                                    128,478        162,559
Interest on surplus notes and borrowed money                23,271         15,648
Investment expenses                                          5,476          5,581
                                                         ---------       --------
                                                            99,731        141,330
                                                         ---------       --------
                                                         ---------       --------

                                                             Three Months Ended
                                                         ------------------------
                                                           June 30         June 30
(000's)                                                      1998            1997
                                                         ---------       --------
Interest income from bonds                                 41,555          48,211
Income from investment in common stocks of affiliates       3,000          11,040
Interest income from mortgage loans                        13,505          19,897
Real estate investment income                               3,914           3,426
Interest income from policy loans                             858             871
Other                                                         433            (532)
                                                         ---------       --------
Gross investment income                                    63,265          82,913
Interest on surplus notes and borrowed money               10,817          10,222
Investment expenses                                         2,320           3,345
                                                         ---------       --------
                                                           50,128          69,346
                                                         ---------       --------
                                                         ---------       --------
</TABLE>

                                       9
<PAGE>


ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Financial Condition
June 30, 1998

ASSETS

    The general account invested assets declined by $390.3 million for the 
six months ended June 30, 1998 due to maturities of pension and annuity 
contracts exceeding fixed annuity sales net of dollar cost averaging 
transfers to the separate accounts. The decrease in cash was due to the 
deployment of the $250 million proceeds from surplus notes issued in December 
1997 and the payment of a $46 million dividend to the Company's parent, Sun 
Life of Canada (U.S.) Holdings, Inc. ("Life Holdco") and a short term note 
repayment of $110 million to Sun Life Assurance Company of Canada 
(U.S.)-Operations Holdings, Inc. ("U.S. Holdco"). 

    The Company's bond holdings consist of a diversified portfolio of both 
public and private issues. It is the Company's policy to acquire only 
investment grade securities and the overall quality of the bond portfolio 
remains high. At June  30, 1998, 4.9% of the Company's bond holdings were 
rated below investment grade (i.e. below NAIC rating "1" or "2").

    The mortgage loan portfolio of $587.3 million at June 30, 1998 represents 
19.2% of cash and invested assets, slightly down from 19.8% at December 31, 
1997. The Company underwrites commercial mortgages with a maximum loan to 
value ratio of 75%. The Company, as a rule, invests in properties that are 
almost fully leased. The portfolio is diversified by region and type. The 
level of arrears in the portfolio remains substantially below the industry 
average. At June 30, 1998, the Company's portfolio did not contain any 
mortgage loans which were 60 days or more in arrears.

LIABILITIES

    The majority of the Company's liabilities consist of reserves for life 
insurance and annuity contracts and deposit funds. The liability for premium 
and other deposits continues to decline due to net maturities exceeding sales 
of the fixed contracts associated with these liabilities. During the first 
quarter of 1998 the Company repaid its $110 million short-term note payable 
to U.S. Holdco.

CAPITAL AND SURPLUS

    The total capital stock and surplus of the Company at June 30, 1998 was 
$817.1 million. The Company's management considers its surplus position to be 
adequate.

    During the second quarter of 1998 the Company declared a dividend of $50.0 
million to Life Holdco, of which $46.0 million has been paid to date.

                                    10

<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)

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 meet 
death and other maturing insurance and annuity contract obligations, to pay 
out on contract terminations, to fund investment commitments and to 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. 
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 56% 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
SIX MONTHS ENDED JUNE 30, 1998 AND 1997

NET INCOME

    Net income from operations after dividends and before federal income 
taxes decreased by $18.4 million from $65.0 to $46.6 million, for the six 
months ended June 30, 1998 as compared to the same period in 1997. Earnings 
from the Company's surplus investment in subsidiaries decreased by $19.6 
million primarily due to the transfer of the investment in Massachusetts 
Financial Services Company ("MFS") to the Company's parent via a dividend in 
December 1997. Dividends from other subsidiaries increased by $2.4 million in 
1998 as compared to 1997 while results of operations for the same period in 
1997 included dividends from MFS of $22.0 million.  Net income associated 
with the reinsurance agreements with SLOC decreased by $3.7 million in 1998 
due to increased death claims. Prior to reinsurance, earnings from the life 
line of business remained relatively flat. The remaining earnings increase of 
approximately $4.9 million is attributed to the Company's retirement products 
and services lines of business, which markets combination fixed/variable 
annuities. This increase in earnings reflects profits being generated from 
the large in-force block of annuity business held in both the general account 
and the separate accounts. The strong market performance of the separate 
accounts in 1997 and the first half of 1998 coupled with strong sales 
generated a significant increase in mortality and expense fees, which are 
calculated as a percentage of net assets. The net assets held in the unitized 
separate accounts increased by over 34% at the beginning of 1998 as compared 
to the same period in 1997. These additional fees cover the increased general 
expenses associated with growing the business. In addition, decreased sales 
in 1998 result in lower strain which contributes to the increased earnings.
                                   


                                         11


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)

INCOME

    Total income decreased $180.5 million for the period ended June 30, 1998 
as compared to the same period in 1997. During 1997 the Company introduced a 
new variable life insurance product which resulted in an increase of $9.9 
million of premiums and annuity considerations during 1998.  Reinsurance had 
the effect of increasing income by approximately $7.6 million due to 
increased interest income on the funds withheld. Deposits from sales of 
combination fixed/variable annuities decreased by $164.5 million, reflecting 
the heightened competition of the dollar cost averaging program for 
annuities.  Several other insurance companies offer similar programs to that 
of the Company's and some offer bonus rates of interest in excess of those 
offered by the Company. Under the dollar cost averaging program, 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. Net investment income and amortization of the interest 
maintenance reserve decreased by $41.1 million due to a decline in general 
account invested assets, an increase in interest expense from surplus notes 
of $7.6 million and a decrease of $19.6 million in dividends from 
subsidiaries. General account invested assets decreased by $390.1 million 
during the calendar year 1997 due to guaranteed interest contract and annuity 
maturities exceeding fixed annuity sales. The issuance of $250 million of 
8.625% surplus notes in December 1997 resulted in a net decrease in invested 
assets of $140 million for the year. General account invested assets 
decreased by $390.3 million in the first half of 1998 again due to maturities 
of contracts exceeding fixed annuity sales.  This trend is expected to 
continue as current product sales are directed to the unitized and 
non-unitized separate accounts.

BENEFITS AND EXPENSES

    Benefits and expenses before dividends to policyholders and federal 
income taxes decreased by $165.9 million from $1,386.7 to $1,220.8 million 
for the period ended June 30, 1998 as compared to the same period in 1997. 
Reinsurance had the effect of increasing benefits and expenses by $11.3 
million, primarily death benefits on reinsurance assumed which increased 
$8.8 million in 1998 as compared to 1997 due to a few large claims. 
Deaths, annuity payments and surrender benefits and fund withdrawals 
other than reinsurance increased by $96.2 million, reflecting surrenders and 
withdrawals mostly from separate account contracts for which the surrender 
charge period has expired. Sales of this particular annuity block of business 
issued seven years prior totaled over $249 million. The decrease in aggregate 
reserves for life contracts of $ 7.4 million was affected by the Company 
changing its basis of valuation of its reinsured liabilities at December 31, 
1997.  This change results in lower reserve increases in 1998 and greater 
earnings as compared to 1997. The change in the liability for premium and 
other deposit funds decreased by $55.3 million, reflecting the increase in 
surrenders of the contracts described above. Commissions decreased by $4.5 
million, reflecting the decrease in total sales of combination fixed/variable 
annuities. General insurance expenses increased by $10.9 million, reflecting 
increased staff, rent expense, higher guaranty fund assessments and 
allocations from SLOC associated with the growth in business and the 
Company's system transition to be Year 2000 compliant (see below). Net 
transfers to the separate accounts decreased by $215.7 million, reflecting 
decreased exchange activity out of the general account into the separate 
accounts due to the maturing block of annuity business as well as the 
decrease in sales.

                                         12


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)

RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997

NET INCOME

    Net income from operations after dividends and before federal income 
taxes decreased by $4.7 million from $24.4 to $29.1 million, for the three 
months ended June 30, 1998 as compared to the same period in 1997. Earnings 
from the Company's surplus investment in subsidiaries decreased by $8.0 
million primarily due to the transfer of the investment in Massachusetts 
Financial Services Company ("MFS") to the Company's parent via a dividend in 
December 1997. The 1997 results of operations included dividends from MFS of 
$11.0 million as compared to $3.0 million from other subsidiaries in 1998. 
Net income associated with the reinsurance agreements with SLOC increased by 
$1.5 million in 1998 due.  The Company changed its basis of valuation of its 
reinsured liabilities at December 31, 1997.  This change results in lower 
reserve increases in 1998 and greater earnings as compared to 1997.  Prior to 
reinsurance, earnings from the life line of business remained relatively 
flat. The remaining earnings increase of approximately $1.8 million is 
attributed to the Company's retirement products and services lines of 
business, which markets combination fixed/variable annuities. This increase 
in earnings reflects profits being generated from the large in-force block of 
annuity business held in both the general account and the separate accounts. 
The strong market performance of the separate accounts in 1997 and  the first 
half of 1998 coupled with strong sales generated a significant increase in 
mortality and expense fees, which are calculated as a percentage of net 
assets.  These additional fees cover the increased general expenses 
associated with growing the business.   
                                       
INCOME

    Total income decreased $87.5 million for the three months ended June 30, 
1998 as compared to the same period in 1997 primarily due to the decrease in 
deposits of $78.5 million from sales of combination fixed/variable annuities 
which reflects the increased competition of the dollar cost averaging 
program. Sales from the new variable life insurance product of $2.3 million 
and purchases of payout annuities of $4.3 million increased premium and 
annuity considerations. Reinsurance had the effect of increasing income by 
approximately $1.6 million. Net investment income and amortization of the 
interest maintenance reserve decreased by $19.2 million due to the decline in 
general account invested assets described prior, increased interest expense 
of $1.0  million from surplus notes and the decrease in dividends of $8.0 
million received from subsidiaries.


                                    13

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS (continued)

BENEFITS AND EXPENSES

    Benefits and expenses decreased by $83.4 million from $720.4 million to 
$637.0 million for the three months ended June 30, 1998 as compared to the 
same period in 1997. Death benefits and surrenders on reinsurance assumed 
increased by $ 4.5 million in 1998 as compared to 1997 due to a few large 
claims while the decrease in reserve reflected the prior year reserve 
adjustment causing no change in total to benefits for reinsurance. Deaths, 
annuity payments and surrender benefits and other fund withdrawals prior to 
reinsurance increased by $44.4 million, reflecting surrenders and withdrawals 
from mostly separate account contracts for which the surrender charge period 
has expired. Sales of this particular annuity block of business issued seven 
years prior totaled over $145 million. The change in the liability for 
premium and other deposit funds decreased by $28.0 million, reflecting the 
increase in surrenders of the contracts described above. General insurance 
expenses increased by $7.7 million, reflecting increased staff, rent expense, 
higher guaranty fund assessments and allocations from SLOC associated with 
the growth in business and cost of the systems transition related to Year 
2000.  Net transfers to the separate accounts decreased by $104.4 million, 
reflecting decreased exchange activity out of the general account into the 
separate accounts due to the maturing block of annuity business as well as 
the decrease in sales.

YEAR 2000 COMPLIANCE

    The Company's business, financial condition, and results of operations 
could be materially and adversely affected by the failure of its systems and 
applications (or those either provided or operated by third-parties) to 
properly operate or manage dates beyond the year 1999. However, the Company 
has investigated the nature and extent of the work necessary to render its 
computer systems capable of processing beyond the turn of the century ("Year 
2000 compliant"), and has made substantial progress toward achieving this 
goal, including upgrading and/or replacing existing systems. The Company 
expects that its principal systems will be Year 2000 compliant by the end of 
1998, leaving 1999 for extensive testing.  While it is believed that these 
efforts do involve substantial costs, the Company closely monitors associated 
costs and continues to evaluate associated risks based on actual testing. 
Based on available information, the Company believes that it will be able to 
manage its total Year 2000 transition without a material adverse effect on 
its business operations, financial condition, or results of operations.

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 assets 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.

                                         14

<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK (continued)

    Immunization strategies which minimize the loss from wide fluctuations in 
interest rates are pursued 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 
June 30, 1998 of $2,909.6 million. A portion of the Company's general account 
liabilities of $3,339.1 million are categorized as financial instruments. The 
portion of the liabilities so categorized had a carrying value of $1,680.9 
million and a fair value of $1,719.2 million at June 30, 1998. Using modeling 
and analytical software, the Company performed sensitivity analysis of its 
financial instruments at June 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 $119.0 million.  A 
corresponding decrease in the fair value of the liabilities categorized as 
financial instruments is estimated to be $49.9 million at June 30, 1998.


                                      15

<PAGE>


PART II:  OTHER INFORMATION

ITEM 6:
EXHIBITS AND REPORTS

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


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

27 FINANCIAL DATA SCHEDULE (filed herewith)

                                         16 

<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   August 14, 1998                 /s/Margaret S. Mead
                                          --------------------------------
                                          Margaret S. Mead
                                          Secretary


Date   August 14, 1998                  /s/Robert P. Vrolyk
                                           -------------------------------
                                           Robert P. Vrolyk
                                           Vice President and Actuary
                                           Chief Financial Officer