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FEBRUARY 3, 1997
SUN LIFE CORPORATE VUL-SM-
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ISSUED BY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
A WHOLLY-OWNED SUBSIDIARY OF SUN LIFE ASSURANCE COMPANY OF CANADA.
ONE SUN LIFE EXECUTIVE PARK (ATTN: CORPORATE MARKETS)
WELLESLEY HILLS, MASSACHUSETTS 02181
(800) 432-1102 EXT. 2438
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This Prospectus describes Sun Life Corporate VUL, a flexible premium
variable universal life insurance policy (the "Policy") offered by Sun Life
Assurance Company of Canada (U.S.) (the "Company"). The Policy is designed for
use by corporations and other employers, to provide life insurance benefits,
flexibility of premium payments, and a variety of investment options.
The Policy provides a choice of two death benefit options and two tests to
be used to determine if the Policy qualifies as "life insurance" under federal
tax laws. The Policy has a Cash Surrender Value which generally increases with
the payment of each Premium, decreases to reflect charges, and varies with the
investment performance of the underlying investment options. There is no minimum
Cash Surrender Value. You may also borrow against your Account Value, within
certain limits. Additional life insurance coverage is available under an
Additional Protection Benefit Rider.
The Policy will remain in effect so long as the Account Value less your
Policy Debt is sufficient to cover charges assessed against the Policy.
The Policy allows you to allocate Net Premiums and Account Value among 17
Sub-Accounts, each of which invests in a corresponding investment portfolio of
one of the following mutual funds: MFS/Sun Life Series Trust, Fidelity Variable
Insurance Products Fund, Fidelity Variable Insurance Products Fund II, Neuberger
& Berman Advisers Management Trust, JPM Series Trust II and Templeton Variable
Products Series Fund.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
MFS/SUN LIFE SERIES TRUST, FIDELITY VARIABLE INSURANCE PRODUCTS FUND, FIDELITY
VARIABLE INSURANCE PRODUCTS FUND II, NEUBERGER & BERMAN ADVISERS MANAGEMENT
TRUST, JPM SERIES TRUST II AND TEMPLETON VARIABLE PRODUCTS SERIES FUND. YOU
SHOULD RETAIN THESE PROSPECTUSES FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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Summary 1
Definitions 4
Summary of the Policy 7
Use of the Policy 8
The Company, the Variable Account and the Funds 8
The Company 8
The Variable Account 9
The Funds 9
Performance Information 12
The Policy 14
Application and Issuance of a Policy 14
Free Look Period 15
Premium Payment 15
Planned Periodic Premiums 15
General Premium Limits 15
Tax Limits on Premium Payments 16
Allocation of Net Premium 16
Modified Endowment Contracts 16
Death Benefit 16
Death Benefit Compliance Test 16
Death Benefit Options 17
Benefits at Death 17
Changes in the Death Benefit Option 17
APB Rider 18
Minimum Face Amount 18
Changes in Face Amount 18
Decreases in Face Amount 19
Increases in Face Amount 19
Account Value 19
Account Value in the Sub-Accounts 19
Net Investment Factor 20
Account Value in the Loan Account 21
Transfer Privileges 21
Surrender 21
Partial Surrender 21
Allocation of Partial Surrender 22
Insufficient Value 22
Grace Period 22
Charges, Deductions and Refunds 22
Expense Charges Deducted as a Percent of Premium 22
Sales Load Refund at Surrender 23
Expense Charges Deducted as a Percent of Assets 23
Expenses of the Underlying Funds 23
Expense Charges Deducted on a Per Policy Basis 24
Monthly Cost of Insurance 24
Reduction of Charges 25
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TABLE OF CONTENTS--(CONTINUED)
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Policy Loans 25
General Provisions 25
Addition, Deletion or Substitution of Investments 25
Alteration 25
Assignments 26
Change in Operation of the Variable Account 26
Conversion 26
Deferral of Payment 26
Entire Contract 26
Illustrations 26
Incontestability 26
Maturity 27
Misstatement of Age or Sex (Non-Unisex Policy) 27
Modification 27
Nonparticipating 27
Procedure 27
Report to Owner 27
Rights of Beneficiary 27
Rights of Owner 27
Splitting Units 28
Suicide 28
Termination 28
Voting Rights 28
Distribution of the Policies 29
Other Contractual Arrangements 29
Administration 29
Custodian 29
Reinsurance 29
Federal Tax Status 29
Tax Treatment of the Company and the Variable Account 30
Taxation of Policy Proceeds 30
The Company's Directors and Executive Officers 32
State Regulation 35
Legal Proceedings 35
Legal Matters 35
Experts 36
Accountants 36
Registration Statements 36
Financial Statements 36
Appendix A--Illustrations of Death Benefits, Account Values
and Cash Surrender Values A-1
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUSES.
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DEFINITIONS
The following terms as used in the Prospectus have the indicated meanings.
ACCOUNT VALUE: The sum of the amounts in each Sub-Account of the Variable
Account with respect to the Policy and the amount of the Loan Account.
ADDITIONAL PROTECTION BENEFIT RIDER ("APB RIDER"): A rider available that
allows you to add life insurance coverage to the Policy.
ANNIVERSARY: The same day in each succeeding year as the day of the year
corresponding to the Issue Date.
APB RIDER DEATH BENEFIT: The death benefit under the APB Rider.
APB RIDER FACE AMOUNT: The amount of APB Rider coverage you request, as
specified in the Application. It is used in determining the Death Benefit. You
may apply for a varying amount of APB Rider coverage, subject to the Company's
limits and requirements, as described in this prospectus.
APPLICATION: Your application for the Policy.
ATTAINED AGE: The Insured's Issue Age plus the number of completed Policy
Years.
BASE DEATH BENEFIT: The death benefit under the Policy, exclusive of any
APB Rider Death Benefit or any other supplemental benefits.
BENEFICIARY: The person or entity entitled to receive the Policy Proceeds
as they become due at death.
BUSINESS DAY: Any day that we are open for business.
CASH SURRENDER VALUE: The Account Value decreased by the balance of any
outstanding Policy Debt, increased by the Sales Load Refund at Surrender, if
any.
CLASS: The risk, underwriting, and substandard table rating, if any,
classification of the Insured.
COMPANY: Sun Life Assurance Company of Canada (U.S.) (also referred to as
"we, us, our").
DAILY RISK PERCENTAGE: The daily rate for deduction of the mortality and
expense risk charge.
DEATH BENEFIT: The sum of the Base Death Benefit and the APB Rider Death
Benefit, if any.
DUE PROOF: Such evidence as we may reasonably require in order to establish
that Policy Proceeds are due and payable.
EFFECTIVE DATE OF COVERAGE: Initially, the Investment Start Date; with
respect to any increase in the Total Face Amount, the Monthly Anniversary Day
that falls on or next follows the date we approve the supplemental application
for such increase; with respect to any decrease in the Total Face Amount, the
Monthly Anniversary Day that falls on or next follows the date we receive your
request.
EXPENSE CHARGES APPLIED TO PREMIUM: The expense charges applied to Premium,
consisting of the charges for premium tax, the federal deferred acquisition cost
("DAC") tax, and the sales load.
FUND: A mutual fund in which a Sub-Account invests.
GENERAL ACCOUNT: The assets held by us other than those allocated to the
Sub-Accounts of the Variable Account or any other separate account of the
Company. There is no General Account investment option available under this
Policy.
INSURED: The person on whose life the Policy is issued.
INVESTMENT START DATE: The date the first Premium is applied, which will be
the later of the Issue Date, the Business Day we approve the application for a
Policy, or the Business Day we receive a Premium equal to or in excess of the
Minimum Premium.
ISSUE AGE: The Insured's age as of the Insured's birthday nearest the Issue
Date.
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ISSUE DATE: A date specified in your Policy as the date from which Policy
Anniversaries, Policy Years and Policy Months are measured.
LOAN ACCOUNT: An account established for the Policy, the value of which is
the principal amount of any outstanding loan against the Policy, plus credited
interest thereon.
MATURITY: The Anniversary on which the Insured's Attained Age is 100.
MINIMUM PREMIUM: The Premium amount due and payable as of the Issue Date,
as specified in your Policy. The Minimum Premium varies based on the Issue Age,
sex, and Class of the Insured and the Total Face Amount of the Policy.
MONTHLY ANNIVERSARY DAY: The same day in each succeeding month as the day
of the month corresponding to the Issue Date.
MONTHLY COST OF INSURANCE: A deduction made on a monthly basis for the
insurance coverage provided by the Policy.
MONTHLY EXPENSE CHARGE: A per Policy deduction made on a monthly basis for
administration and other expenses.
MORTALITY AND EXPENSE RISK PERCENTAGE: The annual percentage rate deducted
from the Account Value in the Sub-Accounts for the mortality and expense risk
charge. This annual rate is converted to a daily rate, the Daily Risk
Percentage, and deducted from the Account Value on a daily basis.
NET PREMIUM: The amount you pay as the Premium less the Expense Charges
Applied to Premium.
OUR PRINCIPAL OFFICE: Sun Life Assurance Company of Canada (U.S.) (Attn:
Corporate Markets), One Sun Life Executive Park, Wellesley Hills, Massachusetts,
02181, or such other address as we may specify to you by written notice.
OWNER: The person, persons or entity entitled to the ownership rights
stated in the Policy while the Insured is alive (also referred to as "you,
your").
PARTIAL SURRENDER: A surrender of a portion of the Account Value in
exchange for a payment to the Owner, in accordance with the Policy.
POLICY: The life insurance contract, Sun Life Corporate VUL, including the
Application, any riders or endorsements and any applications therefor.
POLICY DEBT: The principal amount of any outstanding loan against the
Policy, plus accrued but unpaid interest on such loan.
POLICY MONTH: A Policy Month is a one-month period commencing on the Issue
Date or any Monthly Anniversary Day and ending on the next Monthly Anniversary
Day.
POLICY PROCEEDS: The amount determined in accordance with the terms of this
Policy that is payable at the death of the Insured prior to Maturity. This
amount is the Base Death Benefit, decreased by the amount of any outstanding
Policy Debt, and increased by the amounts payable under any APB Rider Death
Benefit and any other supplemental benefits.
POLICY YEAR: A Policy Year is a one-year period commencing on the Issue
Date or any Anniversary and ending on the next Anniversary.
PREMIUM: An amount paid to us by the Owner or on the Owner's behalf as
consideration for the benefits provided by the Policy.
SALES LOAD REFUND AT SURRENDER: The portion of any Premium paid in the
Policy Year of surrender which is refunded upon surrender in the first three
Policy Years, determined in the manner specified in the Policy.
SERVICE CENTER: Andesa TPA, Inc., 1605 N. Cedar Crest Blvd., Suite 502,
Allentown, Pennsylvania, 18104-2351, or such other service center or address as
we may hereafter specify to you by written notice.
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SPECIFIED FACE AMOUNT: The amount of life insurance coverage you request as
specified in the Policy, exclusive of any APB Rider. It is used in determining
the Death Benefit. You may increase or decrease the Specified Face Amount as
described in this Prospectus.
SUB-ACCOUNTS: Sub-Accounts into which the assets of the Variable Account
are divided, each of which corresponds to an investment choice available to you.
TARGET PREMIUM: An amount of Premium specified in your Policy. The Target
Premium varies based on the Insured's Issue Age, sex, and Specified Face Amount.
The sales load deduction applied to Premiums paid in the first seven Policy
Years and the Sales Load Refund at Surrender for surrender in the first three
Policy Years is higher on premium paid up to Target Premium and lower on premium
paid above Target Premium. Use of the APB Rider will affect Target Premium and
policy Values as described in this prospectus in the section DEATH BENEFIT--APB
Rider.
TOTAL FACE AMOUNT: The sum of the Specified Face Amount and the APB Rider
Face Amount.
UNIT: A unit of measurement that we use to calculate the value of each
Sub-Account.
UNIT VALUE: The value of each Unit of assets in a Sub-Account.
VALUATION DATE: Any day that benefits vary and on which the New York Stock
Exchange, we, and the relevant Fund are open for business. A Valuation Date will
also include any day that may be required by any applicable Securities and
Exchange Commission Rules and Regulations.
VALUATION PERIOD: A period of time from one determination of Unit Values to
the next subsequent determination of Unit Values. We will determine Unit Values
for each Valuation Date as of the close of the New York Stock Exchange on that
Valuation Date.
VARIABLE ACCOUNT: Sun Life of Canada (U.S.) Variable Account G, a separate
account of the Company consisting of assets set aside by the Company, the
investment performance of which is kept separate from that of the general assets
of the Company (also referred to as "Variable Account G").
WE, US AND OUR: The Company and the Company's.
YOU AND YOUR: The Owner and the Owner's.
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SUMMARY OF THE POLICY
The Policy is an individual flexible premium variable universal life
insurance policy offered by Sun Life Assurance Company of Canada (U.S.). The
Policy may be owned by an individual, a corporation or other entity. The Policy
may be used for such purposes as financing non-tax qualified executive benefit
plans. The Policy is subject to our policy issue rules. You must have an
insurable interest in the life of the Insured. (See "USE OF THE POLICY.")
Premium payments under the Policy are flexible, and you choose the amount
and frequency of your Premium payments. The Policy will remain in effect so long
as your Account Value less Policy Debt is sufficient to cover any charges
against the Policy. (See "PREMIUM PAYMENTS.")
Net Premiums and Account Value may be allocated among any of the investment
options available under the Policy, each of which is represented by a
Sub-Account under the Policy. Each Sub-Account invests in a corresponding
portfolio (the "Portfolios") of one of the following mutual funds (the "Funds"):
MFS/Sun Life Series Trust
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- - Capital Appreciation Series - Total Return Series
- - Emerging Growth Series - World Growth Series
- - Government Securities Series
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Fidelity Variable Insurance Products Fund ("VIP") and Fidelity Variable
Insurance Products
Fund II ("VIP II")
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- - VIP II Contrafund Portfolio - VIP High Income Portfolio
- - VIP Equity Income Portfolio - VIP II Index 500 Portfolio
- - VIP Growth Portfolio - VIP Money Market Portfolio
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Neuberger & Berman Advisers Management Trust
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- - Limited Maturity Bond Portfolio - Partners Portfolio
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JPM Series Trust II
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- - Bond Portfolio - Small Company Portfolio
- - Equity Portfolio
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Templeton Variable Products Series Fund
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- - Templeton Stock Fund
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(See "THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS -- The Funds.")
You may change your allocation percentages and transfer your Account Value
among Sub-Accounts, within certain limits. (See "PREMIUM PAYMENTS -- Allocation
of Net Premium" and "ACCOUNT VALUE -- Transfer Privileges.")
The Policy offers a choice of death benefit options and a choice between two
tests to be used to determine if the Policy qualifies as "life insurance" under
federal tax laws. The two tests are the Cash Value Accumulation Test and the
Guideline Premium Test. If the Cash Value Accumulation Test is chosen, only
death benefit Option A is available. Death benefit Option A results in a level
Base Death Benefit equal to the Specified Face Amount, unless the life insurance
test requires a greater amount. Death benefit Option B results in a variable
Base Death Benefit equal to the Specified Face Amount plus Account Value, unless
the life insurance test chosen requires a greater amount. The life insurance
test you choose cannot be changed after issue. If you choose the Guideline
Premium Test, you may change your death benefit option. (See "DEATH BENEFIT.")
We deduct from Premium payments a charge to cover our federal deferred
acquisition tax cost, which is currently 1.25% of Premium (guaranteed not to
exceed this rate), and for premium tax, which is currently the rate charged in
your state of residence for state and local taxes (guaranteed not to exceed 4%
of Premium in most states). In each of the first seven Policy Years, we deduct a
sales load equal to 8.75% of Premium up to
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Target Premium, as specified in your Policy, and 2.25% of Premium in excess of
Target Premium. No sales load is deducted after the seventh Policy Year. We also
deduct a daily mortality and expense risk charge, currently at an annual rate of
0.75% of the Variable Account's net asset value for the first ten Policy Years
and 0.35% thereafter (guaranteed not to exceed 0.90%), and monthly cost of
insurance charges for the insurance protection provided under the Policy. We
deduct a Monthly Expense Charge of $13.75 during the first Policy Year, and
$7.50 thereafter (guaranteed not to exceed $13.75 per month). Account Value also
reflects the deduction of management fees and other expenses incurred by the
underlying investment Portfolios. (See "CHARGES, DEDUCTIONS AND REFUND.")
There are no surrender charges. Upon full surrender during the first three
Policy Years, you will receive a partial refund of the sales load deducted in
that year. Partial Surrenders are permitted once per Policy Year after the first
Policy Year. No refund of sales load is provided for Partial Surrenders. Loans
are available under the Policy at any time. (See "CHARGES, DEDUCTIONS AND
REFUNDS.")
An APB Rider, which provides additional life insurance coverage, is
available with the Policy as an optional benefit. The cost of the APB Rider is
included in the Monthly Cost of Insurance deduction. (See "DEATH BENEFIT -- APB
Rider.")
The Policy offers other benefits and features described in greater detail in
this Prospectus. You should consult the Policy concerning the insurance coverage
and rights afforded to you under the Policy.
This summary is intended to provide only a very brief overview of the more
significant aspects of the Policy. Further detail is provided in the Prospectus
and the Policy.
USE OF THE POLICY
The Policy is designed to provide to corporations and other entities life
insurance coverage on their employees or other persons in whose lives they have
an insurable interest, and may be used in connection with various types of
non-tax qualified executive benefit plans. At the same time, the Policy provides
an Account Value which will be to some extent responsive to changes in the
economic environment, including inflationary forces and changes in rates of
return available from various types of investments. A range of investment
options is provided under the Policy. You, as the Owner, will have all rights
and privileges under the Policy.
The Policy's Account Value and Cash Surrender Value will fluctuate and are
subject to the risks of changing economic conditions, as well as the risks
inherent in the ability of the various Funds' managements to make necessary
changes in their portfolios to anticipate changes in economic conditions. There
is no minimum or guaranteed Account Value attainable or Cash Surrender Value
payable under the Policy.
It may not be advantageous to replace existing insurance or supplement an
existing life insurance policy with the Policy.
THE COMPANY, THE VARIABLE ACCOUNT, AND THE FUNDS
THE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Delaware on January 12, 1970. Its Executive Office mailing address is One Sun
Life Executive Park, Wellesley Hills, Massachusetts 02181, telephone (617)
237-6030. It has obtained authorization to do business in forty-eight states,
the District of Columbia and Puerto Rico, and it is anticipated that the Company
will be authorized to do business in all states except New York. The Company
issues life insurance policies and individual and group annuities. The Company
has formed a wholly-owned subsidiary, Sun Life Insurance and Annuity Company of
New York, which issues individual fixed and combination fixed/variable annuity
contracts and group life and long-term disability insurance in New York. The
Company's other subsidiaries are Massachusetts Financial Services Company and
Sun Capital Advisers, Inc., registered investment advisers, Sun Investment
Services Company, a registered broker-dealer and investment adviser, Sun Benefit
Services, Company, Inc., which offers claims, administrative and pension
brokerage services, New London Trust, F.S.B., a federally
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chartered savings bank, Massachusetts Casualty Insurance Company, which issues
individual disability income policies, and Sun Life Financial Services Limited,
which provides administrative services to Sun Life Assurance Company of Canada
in connection with non-U.S. business.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada, 150 King Street West, Toronto, Ontario, Canada MFH 1J9. Sun Life
Assurance Company of Canada is a mutual life insurance company incorporated
pursuant to Act of Parliament of Canada in 1865 and currently transacts business
in all of the Canadian provinces and territories, in all states except New York,
and in the District of Columbia, Puerto Rico, the Virgin Islands, Great Britain,
Ireland, Hong Kong, Bermuda and the Philippines.
THE VARIABLE ACCOUNT
Pursuant to a resolution of the Board of Directors, the Variable Account was
established by the Company on July 25, 1996. Under Delaware insurance law and
under the Policy, the income, gains or losses of the Variable Account are
credited to or charged against the assets of the Variable Account without regard
to the other income, gains or losses of the Company. These assets are held in
relation to the Policies described in this Prospectus and such other variable
life insurance contracts as we have issued and designated and may, in the
future, issue and designate as providing benefits which vary in accordance with
the investment performance of the Variable Account. Although the assets
maintained in the Variable Account will not be charged with any liabilities
arising out of any other business conducted by the Company, all obligations
arising under the Policy, including the promise to make all benefit payments,
are general corporate obligations of the Company.
The Company is the legal owner of the assets of the Variable Account. We are
required to maintain at all times assets in the Variable Account with a total
market value at least equal to the reserves and other liabilities relating to
the variable life insurance benefits under the contracts participating in the
Variable Account. In addition to these assets, the Variable Account's assets may
include amounts we have contributed to commence operation of the Variable
Account, and may include accumulations of the charges we make against the
Variable Account. From time to time these additional assets may be transferred
in cash to our General Account. Before making any such transfer, we will
consider any possible adverse impact the transfer might have on the Variable
Account.
The Variable Account meets the definition of a separate account under the
federal securities laws and is registered as a unit investment trust under the
Investment Company Act of 1940. Registration with the Securities and Exchange
Commission (the "Commission") does not involve supervision of the management or
investment practices or policies of the Variable Account or of the Company by
the Commission. For state law purposes, the Variable Account is treated as a
part or division of the Company. We are the custodian of the assets of the
Variable Account.
The assets of the Variable Account are divided into Sub-Accounts, each of
which invests exclusively in shares of a single corresponding investment
portfolio. Currently there are 17 Sub-Accounts, and Sub-Accounts may be added or
deleted in the future. Income, gains and losses, whether or not realized, from
the assets of each Sub-Account are credited to or charged against that
Sub-Account without regard to income, gains or losses in other Sub-Accounts of
the Variable Account. All amounts allocated to the Variable Account will be used
to purchase shares of one or more of the Funds, as you designate. Deductions and
surrenders from the Variable Account will, in effect, be made by redeeming the
number of Fund shares at net asset value equal in total value to the amount to
be deducted. The Variable Account will be fully invested in Fund shares at all
times.
The Variable Account can choose to receive distributions from the Funds in
either cash or additional shares. It is expected that the Variable Account will
choose to receive distributions in additional shares. If the Variable Account
chooses to receive distributions in cash, it will reinvest the cash in the Funds
to purchase additional shares at their net asset value.
THE FUNDS
The following is a brief description of the Funds and a summary of the
investment objectives of each Portfolio. More comprehensive information,
including a discussion of potential risks, is found in the current prospectuses
for each Fund, which are distributed with and must accompany this Prospectus.
You should
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read the accompanying prospectuses carefully before investing. Additional
prospectuses and the Statements of Additional Information for each of the Funds
can be obtained from the Company's Office at the address and telephone number
listed on the cover of this Prospectus.
MFS/SUN LIFE SERIES TRUST. MFS/Sun Life Series Trust (the "MFS Series
Fund") is an open-end investment management company registered under the
Investment Company Act of 1940 (a "mutual fund") organized as a Massachusetts
business trust. The MFS Series Fund is managed by Massachusetts Financial
Services, Inc. ("MFS"), a subsidiary of the Company. In addition, the World
Growth Series is managed by the following subadvisers: Oechsle International
Advisors, L.P., an independent international investment adviser, Foreign &
Colonial Management Limited ("FCM"), and Foreign & Colonial Emerging Markets
Limited, a subsidiary of FCM. The MFS Series Fund is composed of nineteen
independent portfolios of securities, five of which are currently available for
investment by the Variable Account.
- CAPITAL APPRECIATION SERIES seeks capital appreciation by investing in
securities of all types, with major emphasis on common stocks.
- EMERGING GROWTH SERIES seeks long term growth of capital by investing
primarily (i.e., at least 80% of its assets under normal circumstances) in
common stocks of emerging growth companies. Emerging growth companies
include companies that MFS believes are early in their life cycle but
which have the potential to become major enterprises. Dividend and
interest income from portfolio securities, if any, is incidental to its
objective of long-term growth of capital.
- GOVERNMENT SECURITIES SERIES seeks current income and preservation of
capital by investing in U.S. Government and U.S. Government-related
securities.
- TOTAL RETURN SERIES seeks primarily to obtain above-average income
(compared to a portfolio entirely invested in equity securities)
consistent with prudent employment of capital; its secondary objective is
to take advantage of opportunities for growth of capital and income.
Assets will be allocated and reallocated from time to time between money
market, fixed income and equity securities. Under normal market
conditions, at least 25% of the series assets will be invested in fixed
income securities and at least 40% and no more than 75% of its assets will
be invested in equity securities.
- WORLD GROWTH SERIES seeks capital appreciation by investing in securities
of companies worldwide growing at rates expected to be well above the
growth rate of the overall U.S. economy.
FIDELITY VIP FUND AND VIP FUND II. Variable Insurance Products Fund ("VIP")
and Variable Insurance Products Fund II ("VIP II") are mutual funds organized as
Massachusetts business trusts. VIP and VIP II are both managed by Fidelity
Management & Research Company ("FMR"), located at 82 Devonshire Street, Boston,
Massachusetts 02109. FMR is the management arm of Fidelity Investments, which
was established in 1946 and is one of the largest investment management
organizations in the United States. Various Fidelity companies perform
activities required for the operation of VIP and VIP II, and affiliates of FMR
may assist it in the choosing of investments for the funds.
Each of the VIP and VIP II is composed of five portfolios of securities, for
a total of 10 portfolios, of which six portfolios, in the aggregate, are
available for investment under the Policy.
- VIP II CONTRAFUND PORTFOLIO seeks long-term capital appreciation.
Portfolio purchases will normally be common stock and securities
convertible into common stock of companies believed to be undervalued due
to an overly pessimistic appraisal by the public.
- VIP EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily
in income producing equity securities. The portfolio seeks to achieve a
yield in excess of the composite yield of the Standard & Poor's 500
Composite Stock Index ("S&P 500"), a recognized measure of U.S. stock
market performance. At least 65% of the portfolio's assets will be
invested in income-producing common or preferred stock, with the remainder
normally invested in convertible and non-convertible debt obligations.
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- VIP GROWTH PORTFOLIO seeks capital appreciation. Portfolio purchases
normally will be common stocks of both smaller, less-known companies and
well-known, established companies although the investments are not
restricted to any one type of security. Dividend income will only be
considered if it might have an effect on stock values.
- VIP HIGH INCOME PORTFOLIO seeks a high level of current income by
investing in high income producing, lower-rated debt securities (sometimes
called "junk bonds"), preferred stocks including convertible securities
and restricted securities.
- VIP II INDEX 500 PORTFOLIO seeks investment results that correspond to the
total return of common stocks publicly traded in the United States, as
presented by the S&P 500. The portfolio will primarily invest in equity
securities of companies that compose the S&P 500. The portfolio will also
purchase short-term debt securities for cash management purposes and use
various investment techniques, such as futures contracts, to adjust its
exposure to the S&P 500.
- VIP MONEY MARKET PORTFOLIO seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity.
The Portfolio will invest in high quality U.S. dollar-denominated money
market instruments of domestic and foreign issuers.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST. Neuberger & Berman Advisers
Management Trust ("AMT") is a mutual fund organized as a Delaware business
trust. AMT is composed of seven separate portfolios (each an "AMT Portfolio").
Each AMT Portfolio invests all of its net investable assets in its corresponding
series (each an "AMT Series") of Advisers Managers Trust, an open-end management
investment company. All AMT Series of Advisers Managers Trust are managed by
Neuberger & Berman Management Inc. Each AMT Series invests in accordance with an
investment objective, policies, and limitations identical to those of its
corresponding AMT Portfolio. The Policy provides for investment in shares of the
two AMT Portfolios described below.
- LIMITED MATURITY BOND PORTFOLIO primarily seeks the highest current income
and total return consistent with low risk to principal and liquidity; and
secondarily, total return. AMT Limited Maturity Bond Portfolio invests in
a diversified portfolio of fixed and variable rate debt securities and
seeks to increase income and preserve or enhance total return by actively
managing average portfolio duration in light of market conditions and
trends. This AMT Series' dollar-weighted average portfolio duration may
range up to four years.
- PARTNERS PORTFOLIO seeks capital growth through an investment approach
that is designed to increase capital with reasonable risk. Its investment
program seeks securities believed to be undervalued based on strong
fundamentals such as low price-to-earning ratios, consistent cash flow,
and support from asset values.
JPM SERIES TRUST II. The JPM Series Trust II ("JPM") is a mutual fund
organized as a Delaware business trust. JPM is composed of five separate
portfolios of securities, each of which has separate investment objectives and
policies. The Policy provides for investment in the three portfolios of JPM
described below.
- JPM BOND PORTFOLIO seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity by investing broadly
in the fixed-income markets.
- JPM EQUITY PORTFOLIO seeks to provide a high total return by investing in
selected equity securities of large and mid-sized U.S. corporations with
market capitalizations above $1.5 billion.
- JPM SMALL COMPANY PORTFOLIO seeks to provide a high total return by
investing in equity securities of companies primarily with market
capitalizations of less than $2 billion.
TEMPLETON VARIABLE PRODUCTS SERIES FUND. Templeton Variable Products Series
Fund ("TVPSF") is a mutual fund organized as a Massachusetts business trust.
TVPSF has contracted with Templeton Investment Counsel, Inc. to manage the
Templeton Stock Fund. TVPSF is composed of six separate series, each of which
has separate investment objectives and policies. The Policy provides for
investment in the series of TVPSF described below.
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- TEMPLETON STOCK FUND seeks capital growth through a policy of investing
primarily in common stocks issued by companies, large and small,
throughout the world. In pursuit of this objective, the fund will normally
maintain at least 65% of its assets in common and preferred stocks.
INVESTMENT ADVISORY FEES AND EXPENSES. Each Fund has an investment adviser
and pays an investment advisory fee, which is deducted daily from each Fund's
net assets. In addition, each Fund incurs operational and other expenses that
are deducted from each Fund's net assets. See the prospectus for each Fund for
the amount of these fees and expenses.
Certain of the investment advisers to the Funds may reimburse us for
administrative costs in connection with administering the Funds as variable
funding options. These amounts are not charged to the Funds or Owners, but are
paid from assets of the advisers.
MIXED AND SHARED FUNDING. Shares of all the Funds are sold to insurance
company separate accounts that issue both variable annuity and variable life
insurance policies ("mixed funding"). Shares of all Funds other than the MFS
Series Fund are sold to separate accounts of insurance companies that may or may
not be affiliated with the Company or each other ("shared funding"). The MFS
Series Fund sells shares only to separate accounts of the Company and its
affiliates. It is conceivable that, in the future, such mixed or shared funding
may not be advantageous for certain variable life insurance or variable annuity
policy owners. Although neither the Company nor the Funds currently foresee any
such disadvantages either to variable life insurance or to variable annuity
policy owners, the Company and each Fund's Board of Trustees/Directors have
agreed to monitor events in order to identify any material irreconcilable
conflicts between policy owners that may arise and to determine what action, if
any, should be taken in response thereto. If such a conflict were to occur, one
of the separate accounts might withdraw its investment in a Fund. This might
force that Fund to sell portfolio securities at disadvantageous prices.
PERFORMANCE INFORMATION
From time to time we may advertise "Total Return" and "Average Annual Total
Return." Such figures are based on historical earnings and are not intended to
indicate future performance.
"Total Return" for a Portfolio refers to the total of the income generated
by the Portfolio net of total Portfolio operating expenses plus capital gains
and losses, realized or unrealized. "Total Return" for the Sub-Accounts refers
to the total of the income generated by the Portfolio net of total Portfolio
operating expenses plus capital gains and losses, realized or unrealized, and
net of the mortality and expense risk charge. "Average Annual Total Return"
reflects the hypothetical annually compounded return that would have produced
the same cumulative return if the Portfolio's or Sub-Account's performance had
been constant over the entire period. Because Average Annual Total Returns tend
to smooth out variations in the return of the Portfolio, they are not the same
as actual year-by-year results.
Performance information may be compared, in reports and promotional
literature, to: (i) the S&P 500, Dow Jones Industrial Average, Lehman Brothers
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(ii) other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons, such as Morningstar, Inc., who rank such
investment products on overall performance or other criteria; or (iii) the
Consumer Price Index (a measure for inflation) to assess the real rate of return
from an investment in the Sub-Account. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
We may provide in advertising, sales literature, periodic publications or
other materials information on various topics of interest to Owners and
prospective Owners. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing
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<PAGE>
in tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparisons between the Policies and the
characteristics of and market for such financial instruments.
The Policies are first being offered to the public in 1997. However, total
return data may be advertised based on the period of time that the Portfolios
have been in existence. The results for any period prior to the Policies being
offered will be calculated as if the Policies had been offered during that
period of time, with all charges assumed to be those applicable to the Policies.
PORTFOLIO PERFORMANCE FOR PERIOD ENDING: NOVEMBER 30, 1996
The following performance information of the Portfolios reflects the total
of the income generated by the Portfolio net of total Portfolio operating
expenses plus capital gains and losses, realized or unrealized. It does not
reflect any Policy or Variable Account charges.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN OF THE PORTFOLIOS
- -------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
INCEPTION LIFE OF
PORTFOLIO DATE 1 YR. 3 YR. 5 YR. 10 YR. PORTFOLIO
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
MFS/Sun Life Capital Appreciation Series 07/19/85 25.41% 18.65% 20.15% 15.85% 16.44%
MFS/Sun Life Emerging Growth Series 05/01/95 22.07% NA NA NA 31.90%
MFS/Sun Life Government Securities Series 07/19/85 4.07% 5.82% 7.27% 8.02% 8.79%
MFS/Sun Life Total Return Series 05/02/88 17.89% 12.96% 12.95% NA 12.46%
MFS/Sun Life World Growth Series 11/16/93 17.02% 13.02% NA NA 12.92%
Fidelity VIP II Contrafund Portfolio 01/03/95 22.58% NA NA NA 32.14%
Fidelity VIP Equity Income Portfolio 10/09/86 19.59% 19.80% 20.18% 13.58% 13.72%
Fidelity VIP Growth Portfolio 10/09/86 14.66% 18.37% 18.80% 15.30% 15.30%
Fidelity VIP High Income Portfolio 09/19/85 13.81% 10.72% 14.77% 11.04% 11.96%
Fidelity VIP II Index 500 Portfolio 08/27/92 27.58% 20.68% NA NA 18.00%
Fidelity VIP Money Market Portfolio 04/01/82 5.38% 5.11% 4.52% 5.96% 6.99%
Neuberger & Berman AMT Limited Maturity Bond
Portfolio 09/10/84 5.31% 5.07% 5.73% 6.76% 8.35%
Neuberger & Berman AMT Partners Portfolio 03/22/94 31.12% NA NA NA 22.40%
JPM Bond Portfolio 01/03/95 4.39% NA NA NA 10.13%
JPM Equity Portfolio 01/03/95 25.40% NA NA NA 30.00%
JPM Small Company Portfolio 01/03/95 18.72% NA NA NA 25.65%
Templeton Stock Fund 08/24/88 23.16% 16.38% 18.04% NA 13.34%
</TABLE>
The annualized yield for the Fidelity VIP Money Market Portfolio for the
seven days ending November 30, 1996 was 5.26%.
SUB-ACCOUNT INVESTMENT PERFORMANCE
Although as of the date of this Prospectus the Sub-Accounts have not
commenced operations and therefore have no performance history, the following
performance information of the Sub-Accounts assumes that the Sub-Accounts have
been in operation for the same periods as the corresponding Portfolio and
investing in the corresponding Portfolio. It reflects the total of the income
generated by the Portfolio net of total Portfolio operating expenses, plus
capital gains and losses, realized or unrealized, net of the mortality and
expense risk charge (at the current rate of 0.75% of net asset value for the
first ten years and 0.35% thereafter, rather than the guaranteed rate of 0.90%).
THE FOLLOWING SUB-ACCOUNT PERFORMANCE FIGURES DO NOT REFLECT THREE OTHER
SIGNIFICANT CHARGES. IF THESE CHARGES WERE INCLUDED, THE TOTAL RETURN FIGURES
WOULD BE LOWER. FIRST, THE TOTAL RETURN
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<PAGE>
FIGURES DO NOT REFLECT THE DEDUCTION FROM PREMIUMS OF THE EXPENSE CHARGES
APPLIED TO PREMIUM. SECOND, MONTHLY COST OF INSURANCE CHARGES HAVE NOT BEEN
DEDUCTED. THIRD, THE FIGURES DO NOT REFLECT THE DEDUCTION OF THE MONTHLY EXPENSE
CHARGE.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN OF THE SUB-ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 1 YR. 3 YR. 5 YR. 10 YR. LIFE OF SUB-ACCOUNT
- ------------------------------------------------------- ---------- ---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
MFS/Sun Life Capital Appreciation Series 24.48% 17.77% 19.26% 14.99% 15.63%
MFS/Sun Life Emerging Growth Series 21.16% NA NA NA 30.92%
MFS/Sun Life Government Securities Series 3.30% 5.03% 6.47% 7.22% 8.03%
MFS/Sun Life Total Return Series 17.01% 12.12% 12.11% NA 11.62%
MFS/Sun Life World Growth Series 16.15% 12.18% NA NA 12.08%
Fidelity VIP II Contrafund Portfolio 21.67% NA NA NA 31.16%
Fidelity VIP Equity Income Portfolio 18.70% 18.91% 19.29% 12.73% 12.88%
Fidelity VIP Growth Portfolio 13.81% 17.49% 17.92% 14.44% 14.45%
Fidelity VIP High Income Portfolio 12.96% 9.90% 13.92% 10.21% 11.17%
Fidelity VIP II Index 500 Portfolio 26.63% 19.78% NA NA 17.12%
Fidelity VIP Money Market Portfolio 4.60% 4.33% 3.74% 5.17% 6.33%
Neuberger & Berman AMT Limited Maturity Bond Portfolio 4.53% 4.29% 4.94% 5.97% 7.62%
Neuberger & Berman AMT Partners Portfolio 30.14% NA NA NA 21.49%
JPM Bond Portfolio 3.61% NA NA NA 9.31%
JPM Equity Portfolio 24.47% NA NA NA 29.03%
JPM Small Company Portfolio 17.84% NA NA NA 24.72%
Templeton Stock Fund 22.24% 15.51% 17.16% NA 12.50%
</TABLE>
THE POLICY
This Prospectus describes the standard features of the Policy. There may be
differences in your Policy due to requirements of the state where your Policy is
issued. Any such changes will be defined in your Policy.
APPLICATION AND ISSUANCE OF A POLICY
To purchase a Policy, you must submit an application to our Principal
Office, so that we may follow certain underwriting procedures designed to
determine the insurability of the proposed Insured. We offer the Policy on a
regular (medical) underwriting, simplified underwriting, and guaranteed issue
basis (each such basis is referred to as an underwriting Class). The proposed
Insured generally must be less than 81 years old for medical issue, 76 years old
for simplified issue, and 71 years old for guaranteed issue underwriting
classes. Medical and simplified issue policies may require medical exams and
further information before the proposed application is approved. Availability of
guaranteed issue policies must be pre-approved based on information you provide
on a master application along with specific requirements which must be met by
all members of the group of proposed Insureds. Proposed Insureds must be
acceptable risks based on our underwriting limits and standards. A policy cannot
be issued until the underwriting process has been completed to our satisfaction
and we reserve the right to reject an application that does not meet our
underwriting requirements or to "rate" an insured as a substandard risk, which
will result in the charging of increased Monthly Cost of Insurance charges
and/or flat extra charges.
The Policy is designed for use only by an Owner who has an insurable
interest in the life of the Insured. Under the applicable state law and for tax
purposes, the Policy will not qualify as life insurance unless this insurable
interest requirement is satisfied. You should consult with a qualified adviser
to ensure that you have an insurable interest in the life of the Insured up to
the full amount of the Death Benefit. You should consult with a qualified
adviser when determining the Total Face Amount of the Policy and prior to
undertaking any action or making any change that increases the Policy's Death
Benefit.
Pending approval of the application, any initial Premium will be held in our
General Account. Upon approval of the application, your Policy on the life of
the Insured will be issued to you, which will set forth your rights and our
obligations. The Minimum Premium is due and payable as of the Issue Date. The
Effective Date of Coverage for the Policy, which initially is the Investment
Start Date, will be the later of the Issue Date, the date we approve the
application for the Policy, or the date you pay a Premium equal to or in excess
of the Minimum Premium. If an application is not approved, any Premium payment
will be returned promptly.
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<PAGE>
FREE LOOK PERIOD
Your Policy has a "Right to Return" provision, which gives you certain
cancellation rights. If you are not satisfied with your Policy, you may return
it by delivering or mailing it to our Principal Office or to the sales
representative through whom you purchased the Policy within 20 days from the
date of receipt (unless a different period is applicable under state law) or
within 45 days after your application is signed, whichever period ends later
(the "Free Look Period").
A Policy returned under this provision will be deemed void as though it had
never been applied for. You will receive a refund equal to the sum of (1) the
difference between any Premium payments made, including fees and charges, and
the amounts allocated to the Variable Account, (2) the value of the amounts
allocated to the Variable Account on the date the cancellation request is
received by the Company or the sales representative through whom you purchased
the Policy, and (3) any fees or charges imposed on amounts allocated to the
Variable Account. However, if your Policy provides for a full refund under its
"Right to Return" provision, you will receive a refund of all Premium payments
made, with no adjustment for investment experience.
If your Policy provides for such a full refund during the Free Look Period,
beginning on the Investment Start Date all Net Premium will be allocated to the
VIP Money Market Sub-Account until the expiration of the Free Look Period, at
which time your Account Value and future Net Premium will be allocated in
accordance with your instructions. (See "PREMIUM PAYMENTS -- Allocation of Net
Premium.")
PREMIUM PAYMENT
The Policy is designed to offer you a wide range of Premium flexibility. In
general, subject to the limits described below, you may choose the frequency and
amount of Premium payments (your Premium pattern). The charges and deductions
and Policy rights with respect to transfers, loans and partial surrenders remain
the same regardless of the Premium pattern you choose. Your Premium pattern may
affect whether the Policy is treated as a Modified Endowment Contract, which can
cause Policy distributions and loans to be subject to tax. (See "FEDERAL TAX
STATUS -- Taxation of Policy Proceeds.")
All Premium payments are payable to us, and should be mailed to our
Principal Office.
PLANNED PERIODIC PREMIUMS
While you are not required to make Premium payments according to a fixed
schedule, you may select a planned periodic Premium schedule and corresponding
billing period, subject to our Premium limits. In general, the billing period
must be annual or semiannual. We will send reminder notices for the planned
periodic Premium at the beginning of each billing period unless reminder notices
have been suspended as described below. However, you are not required to pay the
planned periodic Premium; you may increase or decrease Premium payments, subject
to our limits, and you may skip a planned payment or make unscheduled payments.
You may change your planned payment schedule or the billing period, subject to
our approval. Depending on the investment performance of the Sub-Accounts you
select, the planned periodic Premium may not be sufficient to keep your Policy
in force, and you may need to change your planned payment schedule or make
additional payments in order to prevent termination of your Policy. We will
suspend reminder notices at your written request, and we reserve the right to
suspend reminder notices if Premiums are not being paid (except for notices in
connection with the grace period (see "ACCOUNT VALUE -- Grace Period")). We will
notify you prior to suspending reminder notices.
GENERAL PREMIUM LIMIT
We reserve the right to limit the number of Premium payments we accept on an
annual basis. No Premium payment may be less than $100 without our consent,
although we will accept a smaller Premium payment if it is necessary to keep
your Policy in force. We reserve the right not to accept a Premium payment that
causes the Base Death Benefit to increase by an amount that exceeds the Premium
received. Evidence of insurability satisfactory to us may be required before we
accept such a Premium. Moreover, you should consult with a qualified adviser
concerning whether such a Premium causes the Death Benefit to exceed your
insurable interest in the Insured. (See "THE POLICY -- Application and Issuance
of a Policy.")
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<PAGE>
TAX LIMITS ON PREMIUM PAYMENTS
If the death benefit compliance test you have specified is the Guideline
Premium Test (see "DEATH BENEFIT -- Death Benefit Compliance Test"), we will not
accept Premium payments that would, in our opinion, cause the Policy to fail to
qualify as life insurance under that test. The maximum Premium limit for each
year is the largest Premium that can be paid such that the sum of all Premiums
paid will not exceed the limitations referred to in Section 7702 of the Internal
Revenue Code, or any successor provision. Maximum Premium limits for each year
(based on reasonable industry interpretations) will be shown in your annual
report. If a Premium payment is made in excess of these limits, we will accept
only that portion of the Premium within those limits, and will refund the
remainder to you. No such maximum Premium limitations apply under the Cash Value
Accumulation Test.
ALLOCATION OF NET PREMIUM
The Net Premium is the amount you pay as the Premium less the Expense
Charges Applied to Premium. In general, Net Premium will be allocated to the
Sub-Accounts in accordance with the allocation percentages specified by you,
subject to special provisions applicable during the Free Look Period. (See "THE
POLICY -- Free Look Period.") Your initial allocation of Net Premium will be
specified in the application. There are no limitations concerning the number of
Sub-Accounts to which Net Premium may be allocated, although the minimum
allocation for any Sub-Account to which you choose to allocate Account Value is
5% of Net Premium, and percentages must be in whole numbers.
You may change the allocation of future Net Premium at any time pursuant to
written or telephone request to the Service Center. Telephone requests will be
honored only if we have a properly completed telephone authorization form for
you on file. We and our agents and affiliates will not be responsible for losses
resulting from acting upon telephone requests reasonably believed to be genuine.
We will use reasonable procedures to confirm that instructions communicated by
telephone are genuine. The procedures we follow for transactions initiated by
telephone include requirements that you identify yourself by name and identify a
personal identification number. For additional protection, all changes in
allocation percentages by telephone may be recorded. An allocation change will
be effective as of the date the Service Center receives the request for that
change. The Policy also permits certain transfers of Account Value among
Sub-Accounts. (See "ACCOUNT VALUE -- Transfer Privileges.")
MODIFIED ENDOWMENT CONTRACTS
Federal income tax law provides special rules for the income taxation of
proceeds from life insurance policies that are defined as "Modified Endowment
Contracts." If your Policy is a Modified Endowment Contract, some or all of the
Policy loans, surrenders, partial surrenders and other distributions under the
Policy will likely be taxable and subject to an additional 10% tax. Whether your
Policy is a Modified Endowment Contract depends primarily upon whether you have
paid Premiums in excess of a prescribed "7-pay" limit or undertaken other
actions with respect to the Policy. For further discussion of this determination
and the rules that will apply, see "FEDERAL TAX STATUS -- Taxation of Policy
Proceeds."
At the time a Premium is received that would, in our opinion, cause the
Policy to become a Modified Endowment Contract based on reasonable industry
interpretations, the Company will so notify the Owner and will not credit the
Premium unless it has received specific instructions from the Owner to do so. If
such instructions are not received within 24 hours of the date we send
notification to the Owner, the Premium will be immediately returned.
DEATH BENEFIT
DEATH BENEFIT COMPLIANCE TEST
The Policy must satisfy either of two death benefit compliance tests in
order to qualify as life insurance under Section 7702 of the Internal Revenue
Code: the Cash Value Accumulation Test or the Guideline Premium Test. Each test
effectively requires that the Policy's Death Benefit must always be equal to or
greater than the Account Value multiplied by a certain percentage (the "Death
Benefit Percentage"). Thus, the Policy has been structured so that your Base
Death Benefit may increase above your Specified Face Amount in order to comply
with the applicable test. The Death Benefit Percentage for the Guideline Premium
16
<PAGE>
Test varies only by age. The Death Benefit Percentage for the Cash Value
Accumulation Test varies by age and sex. As a general matter, the Death Benefit
Percentages for the Guideline Premium Test are lower than those for the Cash
Value Accumulation Test. The Guideline Premium Test also imposes maximum Premium
limits whereas the Cash Value Accumulation Test does not.
You must select and specify one of the two death benefit compliance tests in
your application. Once your policy is issued, you may not change this selection.
In general, where maximum accumulation of Account Value during the initial
Policy Years is a primary objective, the Cash Value Accumulation Test is more
appropriate. Where your primary objective is the most economically efficient
method of obtaining a specified amount of coverage, the Guideline Premium Test
is generally more appropriate. Since your selection of the death benefit
compliance test depends on complex factors and may not be changed, you should
consult with a qualified tax adviser before making this election.
DEATH BENEFIT OPTIONS
The Policy provides the following two death benefit options for determining
the Base Death Benefit. You must select and specify one of the two death benefit
options in your application. You may change your death benefit option in the
manner described below.
Option A -- Specified Face Amount. The Base Death Benefit is the greater of
the Specified Face Amount, or the Account Value multiplied by the applicable
Death Benefit Percentage.
Option B -- Specified Face Amount Plus Account Value. The Base Death Benefit
is the greater of the Specified Face Amount plus the Account Value, or the
Account Value multiplied by the applicable Death Benefit Percentage. Option B is
not available if the death benefit compliance test is the Cash Value
Accumulation Test.
At any time the Base Death Benefit is defined as the Account Value
multiplied by the applicable Death Benefit Percentage, and the Base Death
Benefit less the Account Value exceeds the Total Face Amount, we reserve the
right to distribute Account Value to you as a partial surrender to the extent
necessary so that the Base Death Benefit less the Account Value equals the Total
Face Amount. You will not have the option of providing evidence of insurability
to maintain your level of death benefit.
BENEFITS AT DEATH
The Policy Proceeds will be paid as they become due upon the death of the
Insured prior to Maturity. We will make payment when we receive Due Proof of
that death. The Policy Proceeds equal the amount of the Base Death Benefit
decreased by the amount of any outstanding Policy Debt, and increased by the
amounts payable under any APB Rider Death Benefit and any other supplemental
benefits. The Death Benefit used to determine Policy Proceeds is based on the
Specified Face Amount, Total Face Amount and Account Value in effect, on the
date of death.
CHANGES IN THE DEATH BENEFIT OPTION
If the death benefit compliance test you have chosen is the Guideline
Premium Test, you may change the death benefit option either from Option A to
Option B, or from Option B to Option A. If the death benefit compliance test you
have chosen is the Cash Value Accumulation Test, only Option A is available, and
you may not change to Option B. Changes in the death benefit option are subject
to our underwriting rules in effect at the time of change. Requests for a change
must be made in writing to our Service Center. The effective date of the change
will be the Policy Anniversary on or next following the date of receipt of your
request.
If the death benefit option change is from Option B to Option A, the
Specified Face Amount will be increased by the Account Value. If the death
benefit option change is from Option A to Option B, the Specified Face Amount
will be reduced by the Account Value. In either case, the amount of the Base
Death Benefit at the time of change will not be altered, but the change in death
benefit option will affect the determination of the Base Death Benefit from that
point on. Under the Guideline Premium Test, a change in death benefit option
could cause total Premiums theretofore paid to exceed the maximum premium
limitation determined under the test. The change also could reduce the maximum
premium limitation for future Premium payments. If the change results in total
Premiums paid exceeding the maximum premium
17
<PAGE>
limitation, the Company will require you to undertake a partial surrender of the
Policy (see "DEATH BENEFIT -- Partial Surrender" and "FEDERAL TAX STATUS --
Taxation of Policy Proceeds"). You should consult a qualified tax adviser prior
to changing the death benefit option.
APB RIDER
The Policy can be issued with an APB Rider, which provides life insurance
coverage, annually renewable to Attained Age 100, on the life of the Insured.
The amount of coverage under the APB Rider, the APB Rider Death Benefit, is
initially the APB Rider Face Amount that you have the flexibility to specify in
your Policy. Subsequently, the amount of the APB Rider Death Benefit is adjusted
automatically by the Company; if the Base Death Benefit under the Policy exceeds
the Specified Face Amount (or for death benefit Option B, the Specified Face
Amount plus Account Value) as a result of an increase in Account Value (see
"DEATH BENEFIT -- Death Benefit Compliance Test"), the APB Rider Death Benefit
will be reduced by an equivalent amount, under the formula set forth below.
The APB Rider Death Benefit is the greater of zero or the result of (a) less
(b) where:
(a) is the APB Rider Face Amount, and
(b) is the excess, if any, of the Base Death Benefit over
- the Specified Face Amount for death benefit Option A policies, or
- the Specified Face Amount plus the Account Value for death benefit
Option B policies.
The cost of the APB Rider is included in the Monthly Cost of Insurance
deduction. (See "CHARGES, DEDUCTIONS AND REFUNDS -- Monthly Cost of Insurance.")
Two otherwise identical policies with the same Total Face Amount will have
different Target Premiums depending on the mixture of Specified Face Amount and
APB Rider Face Amount. The policy with more APB Rider will have lower Target
Premium (see "DEFINITIONS -- Target Premium") and consequently, lower sales load
deductions (see "CHARGES, DEDUCTIONS AND REFUNDS"); however, conversion rights
do not apply to the APB Rider (see "GENERAL PROVISIONS -- Conversion") and
guaranteed maximum cost of insurance rates associated with the APB Rider Death
Benefit exceed those associated with the Base Death Benefit (see"CHARGES,
DEDUCTIONS AND REFUNDS -- Monthly Cost of Insurance").
An APB Rider will terminate on the earliest of the following dates: (1)
receipt of your written request for termination, (2) lapse of the Policy because
of insufficient value, or (3) termination of the Policy.
MINIMUM FACE AMOUNT
The sum of the Specified Face Amount and the APB Rider Face Amount, the
Total Face Amount, generally must be at least equal to a minimum of $50,000, of
which the Specified Face Amount must be at least equal to a minimum of $5,000.
The Company reserves the right to waive these minimums and also reserves the
right to offer the Policy only in conjunction with an APB Rider with a certain
APB Rider Face Amount.
CHANGES IN FACE AMOUNT
After the end of the first Policy Year, you may change the Specified Face
Amount and, if it is part of the Policy, the APB Rider Face Amount. Unless you
specify otherwise, a change in the Policy's Total Face Amount will first be
applied, to the extent possible, to the APB Rider Face Amount. You must send
your request for a change to our Service Center, in writing. The Effective Date
of Coverage for changes is:
- for any increase in coverage, the Monthly Anniversary Day that falls on or
next follows the date we approve the supplemental application for such
increase, and
- for any decrease in coverage, the Monthly Anniversary Day that falls on or
next follows the date we receive your request.
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DECREASES IN FACE AMOUNT
The Specified Face Amount may not decrease to less than the minimum
Specified Face Amount. A decrease in Specified Face Amount or APB Rider Face
Amount may not decrease the Policy's Total Face Amount to an amount less than
the minimum Total Face Amount. A decrease in face amount will be applied to the
initial face amount and to each increase in face amount in the following order:
- first, to the most recent increase;
- second, to the next most recent increases in reverse chronological order;
and
- finally, to the initial face amount.
If you have chosen the Guideline Premium Test, a decrease in the Specified
Face Amount or APB Rider Face Amount could cause total Premiums theretofore paid
to exceed the maximum premium limitation determined under the test. The decrease
also will reduce the maximum premium limitation for future Premium payments. If
the decrease results in total Premiums paid exceeding the maximum premium
limitation, the Company will require you to undertake a partial surrender of the
Policy (see"DEATH BENEFIT -- Partial Surrender" and "FEDERAL TAX STATUS --
Taxation of Policy Proceeds"). You should consult a qualified tax adviser prior
to decreasing the Specified Face Amount or APB Rider Face Amount.
INCREASES IN FACE AMOUNT
An increase in the face amount is subject to our underwriting rules in
effect at the time of the increase. You may be required to submit evidence of
the Insured's insurability satisfactory to us. Moreover, you should consult with
a qualified adviser concerning whether your insurable interest in the Insured
will support such an increase. (See "THE POLICY -- Application and Issuance of a
Policy.")
ACCOUNT VALUE
The Account Value is the sum of the amounts in each Sub-Account of the
Variable Account with respect to your Policy, plus the amount of the Loan
Account. The Account Value varies depending upon the Premiums paid, Expense
Charges Applied to Premium, Mortality and Expense Risk Percentage deductions,
Monthly Expense Charges, Monthly Cost of Insurance charges, Policy loans and
loan repayments, Partial Surrenders, fees, and the Net Investment Factor
(determined as provided below) for the Sub-Accounts to which your Account Value
is allocated.
We measure the amounts in the Sub-Accounts in terms of Units and Unit
Values. On any given day, the amount you have in a Sub-Account is equal to the
Unit Value multiplied by the number of Units credited to you in that
Sub-Account. The Units for each Sub-Account will have different Unit Values.
Amounts allocated to a Sub-Account will be used to purchase Units of the
Sub-Account. Units are redeemed when you make partial surrenders, undertake
Policy loans or transfer amounts from a Sub-Account, and for payment of the
Mortality and Expense Risk Charge, the Monthly Expense Charge, and the Monthly
Cost of Insurance Charge. The number of Units of each Sub-Account purchased or
redeemed is determined by dividing the dollar amount of the transaction by the
Unit Value for the Sub-Account. The Unit Value for each Sub-Account was
initially established at $10.00. The Unit Value for any subsequent Valuation
Date is equal to the Unit Value for the preceding Valuation Date multiplied by
the Net Investment Factor. The Unit Value of a Sub-Account for any Valuation
Date is determined as of the close of the Valuation Period ending on that
Valuation Date.
Transactions are processed on the date we receive a Premium at Our Principal
Office or any acceptable written or telephonic request is received at the
Service Center. If your Premium or request is received on a date that is not a
Valuation Date, or after the close of the New York Stock Exchange on a Valuation
Date, the transaction will be processed on the next subsequent Valuation Date.
ACCOUNT VALUE IN THE SUB-ACCOUNTS
The Account Value attributable to each Sub-Account of the Variable Account
on the Investment Start Date equals:
- that portion of Net Premium received and allocated to the Sub-Account,
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less
- the Monthly Expense Charges due on the Issue Date and subsequent Monthly
Anniversary Days through the Investment Start Date, and
- the Monthly Cost of Insurance deductions due from the Issue Date through
the Investment Start Date.
The Account Value attributable to each Sub-Account of the Variable Account
on subsequent Valuation Dates is equal to:
- the Account Value attributable to the Sub-Account on the preceding
Valuation Date multiplied by that Sub-Account's Net Investment Factor,
less the Daily Risk Percentage multiplied by the number of days in the
Valuation Period multiplied by the Account Value in the Sub-Account,
plus
- that portion of Net Premium received and allocated to the Sub-Account
during the current Valuation Period,
- any amounts transferred by you to the Sub-Account from another Sub-Account
during the current Valuation Period,
- that portion of any loan repayment allocated to the Sub-Account during the
current Valuation Period, and
- that portion of any interest credited on the Loan Account which is
allocated to the Sub-Account during the current Valuation Period,
less
- any amounts transferred by you from the Sub-Account to another Sub-Account
during the current Valuation Period,
- that portion of any partial surrenders deducted from the Sub-Account
during the current Valuation Period,
- that portion of any Policy loan transferred from the Sub-Account to the
Loan Account during the current Valuation Period,
- if a Monthly Anniversary Day occurs during the current Valuation Period,
that portion of the Monthly Expense Charge for the Policy month just
beginning charged to the Sub-Account,
- if a Monthly Anniversary Day occurs during the current Valuation Period,
that portion of the Monthly Cost of Insurance for the Policy month just
ending charged to the Sub-Account, and
- if you surrender during the current Valuation Period, that portion of the
pro-rata Monthly Cost of Insurance for the Policy month charged to the
Sub-Account.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore your
Account Value allocated to the Sub-Account may increase, decrease or remain the
same.
The Net Investment Factor for each Sub-Account for any Valuation Period is
determined by dividing (a) by (b) where
(a) is the net result of:
(1) the net asset value of a Fund share held in the Sub-Account
determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution declared
on Fund shares held in the Sub-Account if the"ex-dividend" date
occurs during the Valuation Period, plus or minus
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<PAGE>
(3) a per share credit or charge with respect to any taxes paid, or
reserved for by the Company during the Valuation Period which are
determined by the Company to be attributable to the operation of the
Sub-Account (no federal income taxes are applicable under present
law); and
(b) is the net asset value of a Fund share held in the Sub-Account
determined as of the end of the preceding Valuation Period.
ACCOUNT VALUE IN THE LOAN ACCOUNT
The Account Value in the Loan Account is zero on the Investment Start Date.
The Account Value in the Loan Account on any day after the Investment Start
Date equals:
- the Account Value in the Loan Account on the preceding day credited with
interest at the rate specified in the Policy as the "interest credited on
Loan Account rate" of 4%,
plus
- any amount transferred from Sub-Accounts to the Loan Account for Policy
loans requested on that day,
less
- any loan repayments made on that day, and
- if that day is a Policy Anniversary, any amount transferred to the
Sub-Accounts by which the Loan Account Value exceeds the outstanding
Policy loan.
TRANSFER PRIVILEGES
Subject to our rules as they may exist from time to time and to any limits
that may be imposed by the Funds, including those set forth in the Policy, you
may at any time transfer to another Sub-Account all or a portion of the Account
Value allocated to a Sub-Account. We will make transfers pursuant to an
authorized written or telephone request to the Service Center. Telephone
requests will be honored only if we have a properly completed telephone
authorization form for you on file. We and our agents and affiliates will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. We will use reasonable procedures to confirm that
instructions communicated by telephone are genuine. The procedures we follow for
transactions initiated by telephone include requirements that you identify
yourself by name and identify a personal identification number. Transfers may be
requested by indicating the transfer of either a specified dollar amount or a
specified percentage of the Sub-Account's value from which the transfer will be
made. If you request a transfer based on a specified percentage of the
Sub-Account's value, that percentage will be converted into a request for the
transfer of a specified dollar amount based on application of the specified
percentage to the Sub-Account's value at the time the request is received.
These transfer privileges are subject to our consent. We reserve the right
to impose limitations on transfers, including, but not limited to: (1) the
minimum amount that may be transferred; and (2) the minimum amount that may
remain in a Sub-Account following a transfer from that Sub-Account. In addition,
transfer privileges are subject to any restrictions that may be imposed by the
Funds.
SURRENDER
You may surrender the Policy for the Cash Surrender Value at any time. The
Cash Surrender Value is the Account Value, decreased by the balance of any
outstanding Policy Debt, increased by the Sales Load Refund at Surrender, if
any.
PARTIAL SURRENDER
You may make a Partial Surrender of the Policy once each Policy Year after
the first Policy Year by written request to the Service Center. The maximum
amount of any Partial Surrender is the Account Value decreased by the balance of
any outstanding Policy Debt. Unless you provide evidence satisfactory to us that
the Insured is still an acceptable risk based on our underwriting limits and
standards, the Total Face Amount will be reduced to the extent necessary so
that:
- the Death Benefit less the Account Value immediately after the Partial
Surrender,
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<PAGE>
does not exceed
- the Death Benefit less the Account Value immediately before the Partial
Surrender.
If you provide such evidence, you will have the option of keeping the Death
Benefit equal to what it was immediately prior to the Partial Surrender. The
Specified Face Amount remaining in force after the Partial Surrender must be no
lower than the minimum Specified Face Amount. A Partial Surrender may not
decrease the Policy's Total Face Amount to an amount less than the minimum Total
Face Amount.
ALLOCATION OF PARTIAL SURRENDER
You may allocate the Partial Surrender among the Sub-Accounts of the
Variable Account. If you do not specify the allocation, then the Partial
Surrender will be allocated among the Sub-Accounts in the same proportion that
the Account Value of each Sub-Account bears to the aggregate Account Value of
all Sub-Accounts on the date of Partial Surrender.
INSUFFICIENT VALUE
If, on a Valuation Date, the Account Value less the outstanding Policy Debt
is less than or equal to zero, then the Policy will terminate for no value,
subject to the grace period.
GRACE PERIOD
If, on a Valuation Date, your Policy will terminate by reason of
insufficient value, we will allow a grace period. This grace period will allow
61 calendar days from that Valuation Date for the payment of a Net Premium that
is sufficient to cover the deductions from the Account Value. These deductions
include the Monthly Cost of Insurance, the Monthly Expense Charge and the Daily
Risk Percentage charge. Notice of Premium due will be mailed to your last known
address or the last known address of any assignee of record. We will assume that
your last known address is the address shown on the application (or notice of
assignment), unless we receive written notice of a change in address in a form
satisfactory to us. If the Premium due is not paid within 61 days after the
beginning of the grace period, then the Policy and all rights to benefits will
terminate without value at the end of the 61 day period. The Policy will
continue to remain in force during this grace period. If the Policy Proceeds
become payable during the grace period, then any overdue Monthly Cost of
Insurance and Monthly Expense Charge will be deducted from the amount payable by
us.
CHARGES, DEDUCTIONS AND REFUNDS
EXPENSE CHARGES DEDUCTED AS A PERCENT OF PREMIUM
The Expense Charges Applied to Premium will be the sum of the charges for
premium tax, the federal deferred acquisition cost ("DAC") tax, and the
applicable sales load rates. The Expense Charges Applied to Premium are
multiplied by each Premium you pay and the result will be deducted from the
Premium payment.
All states and a few cities and municipalities impose taxes on premiums paid
for life insurance. These charges vary from 2% to 4% of premium in most states,
depending on the state of residence of the Owner (Kentucky currently charges a
tax of 7% of premium). The premium tax percentage rate charged against the
Premium on your Policy will be determined from time to time and will equal the
rate we expect to pay for premium taxes in your state of residence. In no event
will the premium tax rate exceed 4%, except that for Kentucky Policy Owners, in
no event will the premium tax rate exceed 9%. In the event your state of
residence changes, the premium tax rate will be adjusted to reflect the rate for
the new state of residence.
We also make a deduction of 1.25% of Premium, which is the rate
approximately equal to our expenses in paying federal DAC taxes associated with
the Policies. The charge for DAC tax expenses is guaranteed not to exceed this
rate.
A sales load rate of 8.75% is deducted from Premium paid up to Target
Premium for each of the first seven Policy Years. A sales load rate of 2.25% is
deducted from Premium paid in excess of Target Premium for each of the first
seven Policy Years. The amount of Target Premium is specified in your Policy.
All Premium paid in a Policy Year is aggregated to determine which portion of a
Premium exceeds Target Premium. There is no sales load imposed after the seventh
Policy Year. The sales load rates are guaranteed not to exceed these amounts.
The sales load is designed primarily to compensate us for a portion of the
expenses
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<PAGE>
incurred in distributing the Policy, including agent compensation, the cost of
prospectuses, and advertising. We may reduce or waive the sales load for certain
group or sponsored arrangements or corporate purchasers. (See "CHARGES,
DEDUCTIONS, AND REFUNDS -- Reduction of Charges.")
SALES LOAD REFUND AT SURRENDER
If you surrender your Policy during the first three Policy Years, a portion
of the sales load charged against the Premium payments made in the Policy Year
of surrender will be refunded. We will refund 6% of Premium paid up to Target
Premium, and the entire sales load charged against Premium paid in excess of
Target Premium. The refund only applies to Premiums paid in the Policy Year of
surrender (rather than applying to Premiums paid since issue). This refund is
not available for partial surrenders or Policy loans. There is no refund for
surrenders occurring after the third Policy Year.
EXPENSE CHARGES DEDUCTED AS A PERCENT OF ASSETS
We deduct a daily charge from the assets of the Variable Account for
mortality and expense risks we assume in connection with the Policy. The amount
of the daily charge is the Daily Risk Percentage multiplied by the net asset
value of the Variable Account. The Daily Risk Percentage will be determined by
us from time to time based on our expectations of future interest, mortality
experience, persistency, expenses and taxes. During the first ten Policy Years,
the Daily Risk Percentage is currently .0020471%, which is equivalent to an
annual rate of 0.75%; beginning in the eleventh Policy Year, the Daily Rate
Percentage decreases to .0009572%, which is equivalent to an annual rate of
0.35%. In no event will the Daily Risk Percentage exceed .0024548%, which is
equivalent to an annual rate of .90%.
The Company does not take any federal, state or local taxes into account
when determining the Net Investment Factor (see "FEDERAL TAX STATUS -- Tax
Treatment of the Company and the Variable Account"). We reserve the right to
impose charges for such taxes.
EXPENSES OF THE UNDERLYING FUNDS
Because the Variable Account purchases shares of the Funds, your Account
Value will reflect investment management fees and other expenses incurred by the
Funds. The following table illustrates these fees and expenses paid by each of
the Portfolios of Funds as a percentage of average net assets based on
information for the year ended December 31, 1995, except as indicated. These
fees and expenses are more fully described in the accompanying prospectuses. The
data with respect to the Funds' annual expenses have been provided to us by the
Funds. We have not independently verified such data.
FEE TABLE
Annual Fund Expenses (as a percentage of Fund average net assets)
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEES OTHER EXPENSES EXPENSES
--------------- -------------- ------------
<S> <C> <C> <C>
MFS/Sun Life Capital Appreciation Series 0.75% 0.08% 0.83%
MFS/Sun Life Emerging Growth Series 0.75% 0.25% 1.00%
MFS/Sun Life Government Securities Series 0.55% 0.08% 0.63%
MFS/Sun Life Total Return Series 0.70% 0.06% 0.76%
MFS/Sun Life World Growth Series 0.75% 0.32% 1.07%
Fidelity VIP II Contrafund Portfolio 0.61% 0.11% 0.72%(1)
Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
Fidelity VIP Growth Portfolio 0.61% 0.09% 0.70%
Fidelity VIP High Income Portfolio 0.60% 0.11% 0.71%(1)
Fidelity VIP II Index 500 Portfolio 0.00% 0.28% 0.28%(2)
Fidelity VIP Money Market Portfolio 0.24% 0.09% 0.33%
Neuberger & Berman AMT Limited Maturity Bond Portfolio 0.65% 0.10% 0.75%
Neuberger & Berman AMT Partners Porfolio 0.85% 0.30% 1.15%
JPM Bond Portfolio 0.30% 0.45% 0.75%(3)
JPM Equity Portfolio 0.40% 0.50% 0.90%(3)
JPM Small Company Portfolio 0.60% 0.55% 1.15%(3)
Templeton Stock Fund 0.47% 0.19% 0.66%(4)
</TABLE>
- ----------
(1)A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction total operating expenses would have been
0.71% for the High Income Portfolio (brokerage commissions were paid, but the
ratio was not affected) and 0.73% for the Contrafund Portfolio.
(2) The Fund's expenses were voluntarily reduced by the Fund's investment
adviser. Absent reimbursement, management fees, other expenses, and total
expenses would have been 0.28%, 0.19% and 0.47%, respectively.
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<PAGE>
(3) This information reflects current fees and expenses, restated to reflect an
agreement by Morgan Guaranty Trust Company of New York, an affiliate of the
adviser, to reimburse the Fund to the extent certain expenses exceed in any
fiscal year 0.75%, 0.90% and 1.15% of the average daily net assets of JPM
Bond Portfolio, JPM Equity Portfolio and JPM Small Company Portfolio,
respectively.
(4) On December 3, 1996, the Fund's Board of Trustees approved a new investment
management agreement (the "Proposed Agreement") between the Fund and its
investment manager, Templeton Investment Counsel, Inc. ("TICI"), subject to
shareholder approval. Shareholders of record as of the close of business on
December 9, 1996 are entitled to vote at the February 10, 1997 shareholders'
meeting. The Proposed Agreement provides for an increase in the rate of the
investment management fee payable by the Fund to TICI as follows: 0.75% up
to $200 million, 0.675% up to $1.3 billion, and 0.60% over $1.3 billion
(based on average daily net assets of the Fund). The net asset value of the
Fund was $644,448,634 as of December 31, 1996. If approved by the
shareholders, the Proposed Agreement would be effective on May 1, 1997. Any
investments in the Fund prior to May 1, 1997 will be affected after May 1,
1997 by the increased investment advisory fee if the proposed agreement is
approved by the shareholders.
EXPENSE CHARGES DEDUCTED ON A PER POLICY BASIS
We deduct a Monthly Expense Charge of $13.75 at the beginning of each month
during the first Policy Year and $7.50 for months thereafter. The Monthly
Expense Charge will be determined from time to time based on our expectations of
future expenses. However, the Monthly Expense Charge will not be greater than
$13.75 in any Policy month. This charge is designed to reimburse us for actual
administrative costs we incur, and we do not expect to make a profit from this
charge. The Monthly Expense Charge deduction will be allocated among
Sub-Accounts in the same proportion that the Account Value of each Sub-Account
bears to the aggregate Account Value of all Sub-Accounts immediately prior to
the deduction.
MONTHLY COST OF INSURANCE
We deduct a Monthly Cost of Insurance charge from your Account Value to
cover anticipated costs of providing insurance coverage. This charge is made, in
arrears, at the end of each Policy Month. If you surrender your Policy on any
day other than a Monthly Anniversary Day, a pro-rata charge will be made. The
Monthly Cost of Insurance deduction will be allocated among Sub-Accounts in the
same proportion that the Account Value of each Sub-Account bears to the
aggregate Account Value of all Sub-Accounts immediately prior to the deduction.
The Monthly Cost of Insurance deduction is the sum of
- the monthly cost of insurance rate (described below )multiplied by the Net
Amount at Risk (as defined below) divided by 1000; the "Net Amount at
Risk" equals the Base Death Benefit at the end of the Policy Month before
the deduction of the Monthly Cost of Insurance less the Account Value at
the end of the Policy Month before the deduction of the Monthly Cost of
Insurance;
- the monthly cost of insurance rate for the APB Rider Death Benefit, if
any, times the APB Rider Death Benefit divided by 1000;
- the monthly rider cost for any other riders that are a part of the Policy;
- the flat extra, if any, specified in the Policy, times the Total Face
Amount divided by 1000.
The Account Value deduction occurs first to the initial Total Face Amount and
second to successive increases.
The monthly cost of insurance rates are based on the length of time the
Policy has been in force and the Insured's sex (in the case of Non-Unisex
Policies), Issue Age, Class and table rating, if any. The monthly cost of
insurance rates for the Base Death Benefit and the APB Rider Death Benefit are
currently the same but may differ in the future. The monthly cost of insurance
rates will be determined by us from time to time based on our expectations of
future experience with respect to mortality, persistency, interest rates,
expenses and taxes. However, the maximum monthly cost of insurance rates for the
Base Death Benefit for Insureds that are not rated substandard risks will not
exceed the monthly rates based on the 1980 CSO Mortality Tables A (for male and
unisex) and G (for females). Generally, the maximum monthly cost of insurance
rates for the APB Rider Death Benefit for Insureds that are not rated
substandard risks will not exceed 125% of the monthly rates based on the 1980
CSO Mortality Tables A (for male and unisex) and G (for females). Monthly
24
<PAGE>
cost of insurance rates for Classes with substandard risk ratings are based on
multiples of these tables. Flat extras apply only with respect to certain types
of substandard risk Classes, and, if applicable, will be specified in your
Policy.
REDUCTION OF CHARGES
We reserve the right to reduce any of the charges and deductions described
in this section in connection with the sale of any Policy when it is expected
that the nature of the sale will result in savings of costs underlying the
charge or deduction. We will determine the propriety and amount of the reduction
in our discretion. We may modify the qualification requirements that enable a
sale to receive such a reduction as experience is gained. Any such reduction
will not be unfairly discriminatory against the interests of any Policy Owner.
POLICY LOANS
You may request a Policy loan of up to 90% of your Account Value, decreased
by the balance of any outstanding Policy Debt on the date the Policy loan is
made. Account Value equal to the amount of the Policy loan will be transferred
from the Sub-Accounts to the Loan Account on the date the Policy loan is made.
You may allocate the Policy loan among the Sub-Accounts. If you do not specify
the allocation, then the Policy loan will be allocated among the Sub-Accounts in
the same proportion that the Account Value of each Sub-Account bears to the
aggregate Account Value of all Sub-Accounts immediately prior to the loan.
Interest on the Policy loan will accrue daily at the Policy loan interest
rate of 5% in Policy Years one through ten and 4.25% thereafter. This interest
shall be due and payable to us in arrears on each Policy Anniversary. Any unpaid
interest will be added to the principal amount as an additional Policy loan and
will bear interest at the same rate and in the same manner as the prior Policy
loan.
All funds we receive from you will be credited to your Policy as Premium
unless we have received written notice, in form satisfactory to us, that the
funds are for loan repayment. In the event you have a loan against the Policy,
it is generally advantageous to repay the loan rather than make a Premium
payment because Premium payments incur expense charges whereas loan repayments
do not. Loan repayments will first reduce the outstanding balance of the Policy
loan and then accrued but unpaid interest on such loans. We will accept
repayment of any Policy loan at any time before Maturity. The amount of the loan
repayment up to the outstanding balance of the Policy loan will be transferred
from the Loan Account to the Sub-Accounts. You may allocate the loan repayment
among the Sub-Accounts. If you do not specify the allocation, then the loan
repayment will be allocated among the Sub-Accounts in the same proportion that
the Account Value of each Sub-Account bears to the total Account Value less the
Loan Account immediately prior to the loan repayment.
GENERAL PROVISIONS
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Shares of any or all of the Portfolios may not always be available for
purchase by the Sub-Accounts of the Variable Account, or we may decide that
further investment in any such shares is no longer appropriate. In either event,
shares of other registered open end investment companies or unit investment
trusts may be substituted both for Portfolio shares already purchased by the
Variable Account and/or as the security to be purchased in the future, provided
that these substitutions have been approved, if required, by the Securities and
Exchange Commission. In addition, the investment policy of the Variable Account
will not be changed without the approval of the Insurance Commissioner of the
State of Delaware. We also reserve the right to eliminate or combine existing
Sub-Accounts or to transfer assets between Sub-Accounts. In the event of any
substitution or other act pursuant to this provision, we may make appropriate
amendment to the Policy to reflect the substitution.
ALTERATION
Our sales representatives do not have the authority to either alter or
modify the Policy or to waive any of its provisions. The only persons with this
authority are our president, actuary, secretary, or one of our vice presidents.
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<PAGE>
ASSIGNMENTS
During the lifetime of the Insured, you may assign all or some of your
rights under the Policy. All assignments must be filed at our Service Center and
must be in written form satisfactory to us. The assignment will then be
effective as of the date you signed the form, subject to any action taken before
it was received by us at our Service Center. We are not responsible for the
validity or legal effect of any assignment.
CHANGE IN THE OPERATION OF THE VARIABLE ACCOUNT
At our election, and subject to any necessary vote by those having voting
rights, the Variable Account may be operated as a unit investment trust or a
management company under the Investment Company Act of 1940. It is currently
registered as an investment company under the Investment Company Act of 1940 and
may be deregistered in the event registration is no longer required. In the
event of any change in the operation of the Variable Account pursuant to this
provision, we may make appropriate amendment to the Policy to reflect the change
and take such other action as may be necessary and appropriate to effect the
change.
CONVERSION
You may convert the Policy into a flexible premium universal life policy
offered by Sun Life Assurance Company of Canada during the first 24 months after
the Issue Date while the Policy is in force. Choice of a new policy is subject
to our approval and will be restricted to those policies that offer the same
Class and rating as your Policy. The new policy will be issued with the same
Class and rating as the Policy without evidence of the insured's insurability.
The conversion provision does not apply to the APB Rider, if any, or to any
supplemental benefits that may be attached to the Policy. Riders or supplemental
benefits will terminate automatically when the Policy is converted.
DEFERRAL OF PAYMENT
We will usually pay any amount due from the Variable Account within seven
days after the Valuation Date following our receipt of written notice or, in the
case of death of the Insured, Due Proof of such death. Payment of any amount
payable from the Variable Account on death, surrender, partial surrender, or
Policy loan may be postponed whenever:
- the New York Stock Exchange ("NYSE") is closed, other than customary
weekend and holiday closing, or trading on the NYSE is otherwise
restricted,
- the Securities and Exchange Commission, by order, permits postponement for
the protection of Policy Owners, or
- an emergency exists as determined by the Securities and Exchange
Commission, as a result of which disposal of securities is not reasonably
practicable, or it is not reasonably practicable to determine the value of
the assets of the Variable Account.
ENTIRE CONTRACT
The entire contract with us consists of the Policy, including the
Application and any attached copies of supplemental applications for increases
in the face amount. Any illustrations prepared in connection with the Policy do
NOT form a part of our contract with you and are intended solely to provide
information about possible future performance, based solely on data available at
the time such illustrations are prepared.
ILLUSTRATIONS
Upon request, we will provide you with an illustration of future Account
Value and Death Benefits. This illustration will be furnished to you for a
nominal fee not to exceed $25.
INCONTESTABILITY
All statements made in the Application or in a supplemental application are
representations and not warranties. We will rely on these statements when
approving the issuance, increase in face amount, increase in Base Death Benefit
over Premium paid, or change in death benefit option of the Policy. No statement
can be used by us in defense of a claim unless the statement was made in the
application or in a supplemental application. In the absence of fraud, after the
Policy has been in force during the lifetime of the Insured for a period of two
years from its Issue Date, we cannot contest it except for non-payment of
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<PAGE>
Premiums in accordance with the Insufficient Value provision. However, any
increase in the Total Face Amount which is effective after the Issue Date will
be incontestable only after such increase has been in force during the lifetime
of the Insured for two years from the effective date of coverage of such
increase. Any increase in Base Death Benefit over Premium paid or increase in
Base Death Benefit due to a death benefit option change will be incontestable
only after such increase has been in force during the lifetime of the Insured
for two years from the date of the increase.
MATURITY
If the Insured is living and the Policy is in force on the date of Maturity,
the Cash Surrender Value is payable to you. It is possible that insurance
coverage may not continue to Maturity, even if planned periodic Premiums are
paid in a timely manner.
MISSTATEMENT OF AGE OR SEX (NON-UNISEX POLICY)
If the age or (in the case of a Non-Unisex Policy) sex of the Insured is
stated incorrectly in the Application, the amounts payable by us will be
adjusted as follows:
- Misstatement discovered at death: The Death Benefit will be recalculated
to that which would be purchased by the most recently charged Monthly Cost
of Insurance rate for the correct age or (for a Non-Unisex Policy) sex.
- Misstatement discovered prior to death: The Account Value will be
recalculated from the Issue Date using the Monthly Cost of Insurance rates
based on the correct age or (for a Non-Unisex Policy) sex.
MODIFICATION
Upon notice to you, we may modify the Policy if such modification:
- is necessary to make the Policy or the Variable Account comply with any
law or regulation issued by a governmental agency to which the Company or
the Variable Account is subject, or
- is necessary to assure continued qualification of the Policy under the
Internal Revenue Code or other federal or state laws as a life insurance
policy, or
- is necessary to reflect a change in the operation of the Variable Account
or the Sub-Accounts, or
- adds, deletes or otherwise changes Sub-Account options.
We also reserve the right to modify certain provisions of the Policy as stated
in those provisions. In the event of any such modification, we may make
appropriate amendment to the Policy to reflect such modification.
NONPARTICIPATING
The Policy does not pay dividends.
PROCEDURE
You do not need the consent of a Beneficiary or a contingent Owner in order
to exercise any of your rights. However, you must give us written notice of the
requested action. The request must be filed at our Service Center and must be in
written form satisfactory to us. Your request will then, except as otherwise
specified in the Policy, be effective as of the date you signed the form,
subject to any action taken before it was received by us at our Service Center.
REPORT TO OWNER
We will send you a report at least once each Policy Year. The report will
show current Policy values, Premiums paid, and deductions made since the last
report. It will also show the balance of any outstanding Policy loans and
accrued interest on such loans. There is no charge for this report.
RIGHTS OF BENEFICIARY
The Beneficiary has no rights in the Policy until the death of the Insured.
If a Beneficiary is alive at that time, the Beneficiary will be entitled to
payment of the Policy Proceeds as they become due.
RIGHTS OF OWNER
While the Insured is alive, unless you have assigned any of these rights,
you may:
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- transfer ownership to a new Owner;
- name a contingent Owner who will automatically become the Owner of the
Policy if you die before the Insured;
- change or revoke a contingent Owner;
- change or revoke a Beneficiary;
- exercise all other rights in the Policy;
- increase or decrease the Specified Face Amount or APB Rider Face Amount,
subject to the provisions of the Policy;
- change the death benefit option, subject to the provisions of the Policy.
When you transfer your rights to a new Owner, you automatically revoke any prior
contingent Owner designation. When you want to change or revoke a prior
Beneficiary designation, you have to specify that action. You do not affect a
prior Beneficiary when you merely transfer ownership, or change or revoke a
contingent Owner designation.
SPLITTING UNITS
We reserve the right to split or combine the value of Units. In effecting
any such change, strict equity will be preserved and no change will have a
material effect on the benefits or other provisions of the Policy.
SUICIDE
In most states, if the Insured, whether sane or insane, commits suicide
within two years after the Issue Date, we will not pay any part of the Policy
Proceeds. We will refund to you the Premiums paid, less the amount of any Policy
Debt and any Partial Surrenders.
TERMINATION
The Policy terminates on the earlier of the date we receive your request to
surrender, the expiration date of the grace period (see "Account Value -- Grace
Period"), the date of death of the Insured, or the date of Maturity.
VOTING RIGHTS
To the extent required by law, we will vote shares of the Funds held by each
Sub-Account in accordance with instructions received from Policy Owners with
Account Value allocated to the relevant Sub-Account. Each person having a voting
interest will be provided with proxy materials of the relevant Fund together
with an appropriate form with which to give us voting instructions. Shares held
in each Sub-Account for which no timely instructions are received will be voted
in proportion to the instructions received from all persons with an interest in
such Sub-Account who furnish us with voting instructions. We will also vote
shares held in the Separate Account that we own and which are not attributable
to Policies in the same proportion.
We will determine the number of votes as to which you have the right to give
voting instructions as of the record date established for the relevant Fund.
This number is determined by dividing your Account Value in the Sub-Account, if
any, by the net asset value of one share in the corresponding Fund in which the
assets of the Sub-Account are invested.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
(1) to cause a change in the subclassification or investment objective of one or
more of the Funds; or (2) to approve or disapprove an investment advisory
contract for a Fund. In addition, we may disregard voting instructions in favor
of any change in the investment policies or in any investment advisor or
principal underwriter initiated by Policy Owners or the Board of
Trustees/Directors any of the Funds. Our disapproval of any such change must be
reasonable and, in the case of a change in investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise is inappropriate in light of the objectives and
purposes of the Fund. In the event we disregard voting instructions, a summary
of and the reasons for that action will be included in the next periodic report
to Policy Owners.
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If the Investment Company Act of 1940 or any rules thereunder should be
amended or if the present interpretation of the Investment Company Act of 1940
or such rules should change, and as a result the Company determines that it is
permitted to vote shares in its own right, whether or not such shares are
attributable to the Policies, we reserve the right to do so.
DISTRIBUTION OF THE POLICIES
The Policy will be sold by licensed insurance agents in those states where
the Policy may be lawfully sold. Such agents will be registered representatives
of broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. ("NASD") and who
have entered into distribution agreements with the Company and the General
Distributor, Sun Investment Services Company ("Sun Investment"). Sun Investment
is a corporation organized under the laws of Delaware on August 6, 1970, and is
a wholly-owned subsidiary of the Company. Sun Investment is a broker-dealer
registered under the Securities Exchange Act of 1934 and is a member of the
NASD. As such, it serves as the principal underwriter for the Policies. Sun
Investment is located at One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181.
The maximum commission payable by us will be 15% of Premium in the first
Policy Year and 9% of Premium in Policy Years two through seven. A maximum
commission rate of 0.10% of Account Value in the Sub-Accounts for Policy Years
one through seven and 0.20% of Account Value in the Sub-Accounts thereafter may
also be paid.
We may also pay expense allowances, bonuses, and training allowances.
Registered representatives who meet specified production levels may qualify,
under our sales incentive programs, to receive non-cash compensation such as
expense-paid trips, expense-paid educational seminars and merchandise.
OTHER CONTRACTUAL ARRANGEMENTS
ADMINISTRATION
We have entered into a contract with Andesa TPA, Inc. (1605 N. Cedar Crest
Blvd., Suite 502, Allentown, Pennsylvania, 18104-2351) under which Andesa TPA,
Inc. has agreed to perform certain administrative functions relating to the
Policies and the Variable Account. These functions include, among other things,
maintaining records of the name, address, taxpayer identification number, Policy
number and Account Value of each Policy and other pertinent information
necessary for the administration of the Policies. Andesa TPA, Inc. is not an
affiliate of the Company.
CUSTODIAN
We are the custodian of the assets of the Variable Account. We will purchase
shares in connection with amounts allocated to the Sub-Accounts in accordance
with the instructions of the Owner, redeem shares for the purposes of meeting
the contractual obligations of the Variable Account and pay charges relative to
the Variable Account. The shares of the Funds purchased by the Variable Account,
to the extent represented by separate certificates, will be kept physically
segregated and held separate from the assets of our General Account or any other
separate account.
REINSURANCE
We intend to reinsure a portion of the risks assumed under the Policies. You
will not have any rights against the reinsurer(s); we remain fully liable for
the benefits under the Policy.
FEDERAL TAX STATUS
The discussion contained herein is general in nature, is based upon the
Company's understanding of current federal income tax laws and is not intended
as tax advice. Congress has the power to enact legislation affecting the tax
treatment of life insurance contracts, and such legislation -- as well as any
new judicial or administrative interpretation of federal income tax law-could be
applied retroactively. Also, because the Internal Revenue Code of 1986, as
amended (the "Code"), is not in force in the Commonwealth of Puerto Rico, some
references in this discussion will not apply to Policies issued in Puerto Rico.
Any person contemplating the purchase of a Policy or any transaction involving a
Policy should consult a
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qualified tax adviser. THE COMPANY DOES NOT MAKE ANY REPRESENTATION OR PROVIDE
ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY POLICY
OR ANY TRANSACTION INVOLVING THE POLICIES.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under Subchapter L of the
Code. Although the operations of the Variable Account are accounted for
separately from other operations of the Company for purposes of federal income
taxation, the Variable Account currently is not separately taxable as a
regulated investment company or other taxable entity.
Taxes paid or reserved for by the Company that are attributable to the
earnings of the Variable Account could affect the Net Investment Factor, which
affects your Account Value (see "ACCOUNT VALUE -- Net Investment Factor). Under
existing federal income tax law, however, the income (consisting primarily of
interest, dividends and net capital gains) of the Variable Account, to the
extent that it is applied to increase reserves under the Policy, is not taxable
to the Company. Similarly, no significant state or local income taxes are
attributable to the earnings of the Variable Account. Therefore, the Company
currently does not take any federal, state or local taxes into account when
determining the Net Investment Factor. The Company may take taxes into account
when determining the Net Investment Factor in future years if, due to a change
in law, a change in the Company's tax status or otherwise, such taxes are
attributable to the earnings of the Variable Account.
TAXATION OF POLICY PROCEEDS
Section 7702 of the Code provides that, if certain tests are met, a life
insurance policy will be treated as a life insurance contract for tax purposes.
Provided that the Owner has an insurable interest in the Insured, the Company
believes that the Policy meets these tests, and hence should receive the same
federal income tax treatment as a fixed life insurance contract. As such: (1)
the Death Benefit will be eligible for exclusion from the gross income of the
Beneficiary under Section 101 of the Code; and (2) the Owner will not be deemed
to be in constructive receipt of the increases in Cash Surrender Values,
including additions attributable to interest, dividends, appreciation or gains
realized upon transfers among the Sub-Accounts, under the Policy until actual
receipt thereof. CORPORATE OWNERS, HOWEVER, MIGHT BE SUBJECT TO ALTERNATIVE
MINIMUM TAX ON THE ANNUAL INCREASES IN CASH SURRENDER VALUES AND ON THE DEATH
BENEFIT.
To qualify as a life insurance contract under Section 7702 of the Code, the
Policy must satisfy certain actuarial requirements. Section 7702 specifies that
the required actuarial calculations be based on mortality charges that meet the
reasonable mortality charge requirements set forth in the Code, and other
charges reasonably expected to be actually paid. The law relating to
reasonableness standards for mortality and other charges is based on statutory
language and certain IRS pronouncements that do not address all relevant issues.
Accordingly, although the Company believes that the mortality and other charges
that are used in the calculations (including those used with respect to Policies
issued to so-called "sub-standard risks") meet the applicable requirements, it
cannot offer complete assurance. It is possible that future regulations will
contain standards that would require the Company to modify the mortality and
other charges used in the calculations, and the Company reserves the right to
make any such modifications.
For a variable contract like the Policy to qualify as life insurance for
federal income tax purposes, it also must comply with the diversification rules
found in Code Section 817 and the regulations promulgated thereunder. The
Company believes that the Variable Account complies with the diversification
requirements prescribed by Treas. Reg. Section 1.817-5. When these regulations
were proposed, the preamble to the regulations stated that the Internal Revenue
Service may promulgate guidelines under which a variable contract will not be
treated as a life insurance contract for tax purposes if the owner has excessive
control over the investments underlying the contract. Although the Company
believes that the Owner does not have excessive control over the assets
underlying the Policy, it cannot offer complete assurance prior to the issuance
of such guidelines, which may have retroactive effect. If guidelines are
promulgated, the Company will take any action (including modification of the
Policy or the Variable Account) necessary to comply with the guidelines.
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Upon the complete surrender or lapse of a Policy, the amount by which the
sum of the Policy's Cash Surrender Value and any unpaid Policy Debt exceeds the
Owner's Investment in the Policy (as defined below) is treated as ordinary
income subject to tax. Any loss incurred upon surrender generally is not
deductible.
For purposes of the preceding paragraph and the following paragraphs, the
term Investment in the Policy means (i) the aggregate amount of any Premiums or
other consideration paid for a Policy, minus (ii) the aggregate amount received
under a Policy which is excluded from gross income of the Owner (other than loan
amounts), plus (iii) the amount of any loan from, or secured by,a Policy that is
a Modified Endowment Contract (defined below) to the extent that such amount is
included in the gross income of the Owner. The repayment of a Policy loan (or
the payment of interest on a loan) does not affect Investment in the Policy.
The tax consequences of distributions from, and loans taken from or secured
by, a Policy depend on whether the Policy is classified as a Modified Endowment
Contract under Section 7702A of the Code. Due to the flexibility of the payment
of premiums and other rights you have under the Policy, classification of the
Policy as a Modified Endowment Contract will depend upon the individual
operation of each Policy. A Policy is a Modified Endowment Contract if the
aggregate amount paid under the Policy at any time during the first seven Policy
Years exceeds the sum of the net level premiums that would have been paid on or
before such time if the Policy provided for paid up future benefits after the
payment of seven level annual premiums. If there is a reduction in benefits
during the first seven Policy Years, the foregoing computation is made as if the
Policy originally had been issued at the reduced benefit level. If there is a
"material change" to the Policy, the seven year testing period for Modified
Endowment Contract status is restarted. A life insurance contract received in
exchange for a Modified Endowment Contract also will be treated as a Modified
Endowment Contract.
The Company has undertaken measures to prevent payment of a Premium from
inadvertently causing the Policy to become a Modified Endowment Contract (see
"PREMIUM PAYMENTS -- Modified Endowment Contracts"). In general, an Owner should
consult a qualified tax adviser before undertaking any transaction involving the
Policy to determine whether such transaction would cause the Policy to become a
Modified Endowment Contract.
Provided that a Policy is not a Modified Endowment Contract, cash
distributions from the Policy are treated first as a nontaxable return of the
Owner's Investment in the Policy and then as a distribution of the Policy's
inside buildup, which is subject to tax. (An exception to this general rule
occurs in the case that a cash distribution is made in connection with certain
reductions in the Death Benefit under the Policy in the first fifteen contract
years. Such a cash distribution is taxed in whole or in part as ordinary
income.) Loans from, or secured by, a Policy that is not a Modified Endowment
Contract generally are treated as bona fide indebtedness, and hence are not
included in the gross income of the Owner.
If a Policy is a Modified Endowment Contract, distributions from the Policy
are treated as ordinary income subject to tax up to the amount equal to the
excess of the Account Value (which includes unpaid policy loans) immediately
before the distribution over the Investment in the Policy. Loans taken from, or
secured by, such a Policy, as well as due but unpaid interest thereon, are taxed
in the same manner as distributions from the Policy. A 10 percent additional tax
is imposed on the portion of any distribution from, or loan taken from or
secured by, a Modified Endowment Contract that is included in income except
where the distribution or loan is made on or after the Owner attains age 59 1/2,
is attributable to the Owner's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) of the Owner and the
Owner's Beneficiary. These exceptions likely do not apply where the Policy is
not owned by an individual (or held in trust for an individual). For purposes of
the computations described in this paragraph, all Modified Endowment Contracts
issued by the Company (or its affiliates) to the same Owner during any calendar
year are treated as one Modified Endowment Contract.
Because there are limits on the deductibility of policy loan interest, an
Owner should consult a qualified tax adviser regarding the deducting of any
Policy loan interest.
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An Owner generally will not recognize gain upon the exchange of the Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the Owner receives cash in the exchange or is
relieved of Policy indebtedness as a result of the exchange. In no event will
the gain recognized exceed the amount by which the Policy's Account Value (which
includes unpaid Policy loans) exceeds the Owner's Investment in the Policy.
A transfer of the Policy, a change in the Owner, a change in the
Beneficiary, certain other changes to the Policy and particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken prior to consulting with a qualified tax adviser. For instance, if
the Owner transfers the Policy or designates a new Owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the Death Benefit payable upon the death of
the Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any Premiums and other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each Owner or Beneficiary.
THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
The directors and principal officers of the Company are listed below,
together with information as to their ages, dates of election and principal
business occupations during the last five years (if other than their present
business occupations). Except as otherwise indicated, the directors and officers
of the Company who are associated with Sun Life Assurance Company of Canada
and/or its subsidiaries have been associated with Sun Life Assurance Company of
Canada for more than five years either in the position shown or in other
positions.
JOHN D. MCNEIL, 62, Chairman and Director (1982*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Chairman and a Director of Sun Life Assurance Company of Canada and
Sun Life Insurance and Annuity Company of New York; a Director of Massachusetts
Financial Services Company; President and a Director of Sun Growth Variable
Annuity Fund, Inc.; Chairman and a Trustee of MFS/Sun Life Series Trust;
Chairman and a Member of the Boards of Managers of Money Market Variable
Account, High Yield Variable Account, Capital Appreciation Variable Account,
Government Securities Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors Variable Account; and a
Director of Shell (Canada) Limited and Canadian Pacific, Ltd.
DONALD A. STEWART, 50, President and Director (1996*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is President and a Director of Sun Life Assurance Company of Canada, and
Sun Life Insurance and Annuity Company of New York; and a Director of
Massachusetts Casualty Insurance Company, Massachusetts Financial Services
Company; and a Director of Spectrum United Holdings Inc., Sun Life Investment
Management Limited; and Sun Life of Canada UK Holdings, plc.
DAVID D. HORN, 55, Senior Vice President and General Manager and Director (1970,
1985*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Senior Vice President and General Manager for the United States of Sun
Life Assurance Company of Canada; Chairman and President and a Director of Sun
Investment Services Company; Senior Vice
- ---------
* Year elected director.
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President and a Director of Sun Life Insurance and Annuity Company of New York;
Vice President and a Director of Sun Growth Variable Annuity Fund, Inc.;
President and a Director of Sun Benefit Services Company, Inc., Sun Canada
Financial Co., and Sun Life Financial Services Limited; a Director of Sun
Capital Advisers, Inc.; Chairman and a Director of Massachusetts Casualty
Insurance Company; a Trustee of MFS/ Sun Life Series Trust; and a Member of the
Boards of Managers of Money Market Variable Account, High Yield Variable
Account, Capital Appreciation Variable Account, Government Securities Variable
Account, World Governments Variable Account, Total Return Variable Account and
Managed Sectors Variable Account.
ANGUS A. MACNAUGHTON, 65, Director (1985*)
Metro Tower, Suite 1170,
950 Tower Lane
Foster City, California 94404
He is President of Genstar Investment Corporation and a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Canadian Pacific, Ltd., Stelco, Inc. and Varian Associates, Inc.
JOHN S. LANE, 61, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Senior Vice President, Investments of Sun Life Assurance Company of
Canada; and a Director of Sun Investment Services Company, Sun Capital Advisers,
Inc. and Sun Life Insurance and Annuity Company of New York.
RICHARD B. BAILEY, 69, Director (1983*)
500 Boylston Street
Boston, Massachusetts 02116
He is a Director of Sun Life Insurance and Annuity Company of New York and a
Director/Trustee of certain Funds in the MFS Family of Funds. Prior to October
1, 1991, he was Chairman and a Director of Massachusetts Financial Services
Company.
A. KEITH BRODKIN, 61, Director (1990*)
500 Boylston Street
Boston, Massachusetts 02116
He is Chairman and a Director of Massachusetts Financial Services Company; a
Director of Sun Life Insurance and Annuity Company of New York; and a
Director/Trustee and/or Officer of the Funds in the MFS Family of Funds.
M. COLYER CRUM, 64, Director (1986*)
Harvard Business School
Soldiers Field Road
Boston, Massachusetts 02163
He is a Professor at the Harvard Business School; and a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Merrill Lynch Ready Assets Trust, Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch Special Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
U.S.A. Government Reserves, Merrill Lynch Natural Resources Trust, Merrill Lynch
U.S. Treasury Money Fund, MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, Inc., MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey
Fund,Inc., MuniVest New York Insured Fund, Inc., MuniYield Florida Insured Fund,
MuniYield Insured Fund II, Inc., MuniYield Michigan Insured Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund III,
Inc. and MuniYield Pennsylvania Fund.
- ---------
* Year elected director.
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ROBERT A. BONNER, 52, Vice President, Pensions (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Individual Insurance for the United States of Sun Life
Assurance Company of Canada.
ROBERT E. MCGINNESS, 55, Vice President and Counsel (1983)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President and Chief Compliance Officer for the United States of
Sun Life Assurance Company of Canada; Vice President and Counsel and a Director
of Sun Investment Services Company and Sun Benefit Services Company, Inc.;
Secretary and a Director of New London Trust, F.S.B.; and a Director of
Massachusetts Casualty Insurance Company.
C. JAMES PRIEUR, 45, Vice President, Investments (1993)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Investments for the United States of Sun Life
Assurance Company of Canada; Vice President, Investments of Sun Investment
Services Company and Sun Life Insurance and Annuity Company of New York; and a
Director of Sun Capital Advisers, Inc., New London Trust, F.S.B. and Sun Canada
Financial Co.
S. CAESAR RABOY, 60, Senior Vice President and Deputy General Manager (1991)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Senior Vice President and Deputy General Manager, Individual Insurance
for the United States of Sun Life Assurance Company of Canada; Senior Vice
President and Deputy General Manager of Sun Life Insurance and Annuity Company
of New York; and Senior Vice President and Deputy General Manager and a Director
of Sun Life Financial Services Limited. Prior to 1990 he was President and Chief
Operating Officer of Connecticut Mutual Life Insurance Company.
ROBERT P. VROLYK, 43, Vice President and Actuary (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Finance for the United States of Sun Life Assurance
Company of Canada; Vice President, Controller and Actuary of Sun Life Annuity
Company of New York; a Director of Massachusetts Casualty Insurance Company; and
Vice President and a Director of Sun Canada Financial Co.
MARGARET SEARS MEAD, 46, Assistant Vice President and Secretary (1996)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
She is Assistant Vice President and Counsel for the Unites States of Sun
Life Assurance Company of Canada and Secretary of Sun Life Insurance and Annuity
Company of New York.
L. BROCK THOMSON, 55, Vice President and Treasurer (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Portfolio Management for the United States of Sun Life
Assurance Company of Canada; Vice President and Treasurer of Sun Investment
Services Company, Sun Capital Advisers, Inc., Sun Benefit Services Company, Inc.
and Sun Life Insurance and Annuity Company of New York; and Assistant Treasurer
of Massachusetts Casualty Insurance Company.
- ---------
* Year elected director.
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The directors, officers and employees of the Company are covered under a
commercial blanket bond and a liability policy. The directors, officers and
employees of Massachusetts Financial Services Company and Sun Investment
Services Company are covered under a fidelity bond and errors and omissions
policy.
No shares of the Company are owned by any executive officer or director. The
Company is a wholly-owned subsidiary of Sun Life Assurance Company of Canada,
150 King Street West, Toronto, Ontario, Canada M5H 1J9.
STATE REGULATION
The Company is subject to the laws of the State of Delaware governing life
insurance companies and to regulation by the Commissioner of Insurance of
Delaware. An annual statement is filed with the Commissioner of Insurance on or
before March 1st in each year relating to the operations of the Company for the
preceding year and its financial condition on December 31st of such year. Its
books and records are subject to review or examination by the Commissioner or
his agents at any time and a full examination of its operations is conducted at
periodic intervals.
The Company is also subject to the insurance laws and regulations of the
other states and jurisdictions in which it is licensed to operate. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business, overseeing
trade practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
it does business and its operations and accounts are subject to examination by
such agencies at regular intervals.
In addition, many states regulate affiliated groups of insurers, such as the
Company, its parent and its affiliates, under insurance holding company
legislation. Under such laws, inter-company transfers of assets and dividend
payments from insurance subsidiaries may be subject to prior notice or approval,
depending on the size of such transfers and payments in relation to the
financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for policyholder losses
incurred by insolvent companies. The amount of any future assessments of the
Company under these laws cannot be reasonably estimated. However, most of these
laws do provide that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength and many permit the deduction of
all or a portion of any such assessment from any future premium or similar taxes
payable.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies, the tax treatment
of insurance products and its impact on the relative desirability of various
personal investment vehicles, and proposed legislation to prohibit the use of
gender in determining insurance and pension rates and benefits.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. The
Company and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, is not of material importance to their
respective total assets or material with respect to the Variable Account.
LEGAL MATTERS
The organization of the Company, its authority to issue the Policies and the
validity of the form of the Policies have been passed upon by Robert E.
McGinness, Esq., Vice President and Counsel of the Company.
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EXPERTS
Actuarial matters concerning the policy have been examined by John E.
Coleman, FSA, MAAA, Product Officer for Corporate Markets of Sun Life Assurance
Company of Canada, as stated in his opinion filed as an exhibit to the
registration statement.
ACCOUNTANTS
The statement of condition of the Variable Account as of December 23, 1996
and the financial statements of the Company as of December 31, 1995 and 1994,
and for the years ended December 31, 1995, 1994 and 1993 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
REGISTRATION STATEMENTS
A registration statement has been filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 as amended, with
respect to the Policies offered by this Prospectus. This Prospectus does not
contain all the information set forth in the registration statement and the
exhibits filed as part of the registration statement, to all of which reference
is hereby made for further information concerning the Variable Account, the
Company, MFS/Sun Life Series Trust, Fidelity Variable Insurance Products Fund,
Fidelity Variable Insurance Products Fund II, Neuberger & Berman Advisers
Management Trust, JPM Series Trust II, Templeton Variable Products Series Fund,
and the Policy. Statements found in this Prospectus as to the terms of the
Policies and other legal instruments are summaries, and reference is made to
such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this
Prospectus, should be considered only as bearing on the ability of the Company
to meet its obligations with respect to the death benefit and the Company's
assumption of the mortality and expense risks. They should not be considered as
bearing on the investment performance of the shares of the MFS Series Fund, VIP,
VIP II, AMT, JPM, and TVPSF held in the Sub-Accounts of the Variable Account.
The Variable Account value of the interests of Owners and Beneficiaries under
the Policies is affected primarily by the investment results of those funds.
36
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENT OF CONDITION--DECEMBER 23, 1996
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C> <C>
Investments in Fidelity Variable Insurance Products Fund: Shares Cost Value
--------- --------- ---------
Fidelity VIP Money Market Portfolio....................... 100,000 $ 100,000 $ 100,000
--------- ---------
Net Assets............................................ $ 100,000 $ 100,000
--------- ---------
--------- ---------
NET ASSETS:
<CAPTION>
Value
---------
<S> <C> <C> <C>
Net Assets Applicable to Sponsor........................... $ 100,000
---------
Net Assets............................................ $ 100,000
---------
---------
Value per Unit (10,000 units)............................. $ 10
---------
---------
</TABLE>
SEE NOTES TO STATEMENT OF CONDITION.
37
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
NOTES TO STATEMENT OF CONDITION
1. ORGANIZATION
Sun Life of Canada (U.S.) Variable Account G (the "Variable Account"), a
separate account of Sun Life Assurance Company of Canada (U.S.), the Sponsor,
was established on July 25, 1996 as a funding vehicle for the variable portion
of certain individual variable life insurance contracts. The Variable Account is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a unit investment trust.
Net assets applicable to the Sponsor represent seed money provided by the
Sponsor in exchange for units in the Variable Account.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account is invested in shares of certain Portfolios of one of the following
mutual funds as specified by the prospectus: MFS/Sun Life Series Trust, Fidelity
Variable Insurance Products Fund, Fidelity Variable Insurance Products Fund II,
Neuberger & Berman Advisers Management Trust, JPM Series Trust II and Templeton
Variable Products Series Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS--
Investments in shares of an investment portfolio of one of the mutual funds are
recorded at their net asset value.
FEDERAL INCOME TAX STATUS--
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately; the Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Under existing federal income tax law, investment income and capital gains
earned by the Variable Account on contract owner reserves are not subject to
tax.
INDEPENDENT AUDITORS' REPORT
TO THE CONTRACT OWNERS PARTICIPATING IN SUN LIFE OF CANADA (U.S.) VARIABLE
ACCOUNT G
AND THE BOARD OF DIRECTORS OF SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.):
We have audited the accompanying statement of condition of Sun Life of Canada
(U.S.) Variable Account G (the "Variable Account") as of December 23, 1996. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation with the custodian of securities held for the Variable Account as
of December 23, 1996. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statement presents fairly, in all material
respects, the financial position of the Variable Account as of December 23, 1996
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 10, 1997
38
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (SEE NOTE BELOW)
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -----------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $ 2,286,265 $ 2,846,067
Preferred stock 0 1,149
Mortgage loans 994,222 1,066,911
Investments in subsidiaries 147,687 138,282
Real estate 96,514 95,575
Other invested assets 47,139 38,387
Policy loans 39,966 38,355
Cash (5,957) (20,280)
Investment income due and accrued 47,704 62,720
Funds withheld on reinsurance assumed 865,487 741,091
Due from separate accounts 201,814 148,675
Other assets 61,549 26,346
-------------- -----------------
General account assets 4,782,390 5,183,278
-------------- -----------------
Unitized separate account assets 6,412,150 5,275,808
Non-unitized separate account assets 2,003,032 2,040,596
-------------- -----------------
$ 13,197,572 $ 12,499,682
-------------- -----------------
-------------- -----------------
LIABILITIES
Policy reserves $ 2,063,481 $ 1,937,301
Annuity and other deposits 1,997,088 2,290,656
Policy benefits in process of payment 3,484 5,884
Accrued expenses and taxes 56,300 44,114
Other liabilities 56,030 36,082
Due to (from) parent and affiliates--net 3,562 9,498
Interest maintenance reserve 26,716 25,217
Asset valuation reserve 54,300 42,099
-------------- -----------------
General account liabilities 4,260,961 4,390,851
-------------- -----------------
Unitized separate account liabilities 6,412,125 5,275,783
Non-unitized separate account liabilities 2,003,032 2,040,596
-------------- -----------------
12,676,118 11,707,230
-------------- -----------------
CAPITAL STOCK AND SURPLUS
Capital Stock--Par value $1,000:
Authorized 10,000 shares,
issued and outstanding 5,900 shares 5,900 5,900
Surplus 515,554 786,552
-------------- -----------------
Total capital stock and surplus 521,454 792,452
-------------- -----------------
$ 13,197,572 $ 12,499,682
-------------- -----------------
-------------- -----------------
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
UNAUDITED
----------------------
1996 1995
---------- ----------
(IN 000'S)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 60,473 $ 70,663
Annuity and other deposit funds 97,803 103,761
Transfers to separate accounts--net (31,581) (852)
Net investment income 86,663 96,878
Amortization of interest maintenance
reserve 613 (125)
Realized losses on investments (2,884) (361)
Mortality and expense risk charges 21,194 15,981
Other income--net 13,848 7,608
---------- ----------
246,129 293,553
BENEFITS AND EXPENSES
Increase (decrease) in liability for
annuity and other deposit funds (77,847) 30,216
Increase in policy reserves 36,087 33,641
Death, surrender benefits, and
annuity payments 48,742 51,526
Annuity and other deposit fund
withdrawals 177,255 111,556
Transfers to (from) non-unitized
separate account (2,110) 3,655
---------- ----------
182,127 230,594
Operating expenses 9,532 8,617
Commissions 30,943 24,759
Dividends 6,188 3,887
Taxes, licenses and fees 672 (425)
---------- ----------
229,462 267,432
Net income from operations before
surplus note interest and equity in
income of subsidiaries 16,667 26,121
Surplus note interest (5,432) (7,788)
---------- ----------
Net income from operations before
equity in income of subsidiaries
and federal income tax 11,235 18,333
Equity in income of subsidiaries 23,474 19,593
Federal income tax expense (7,019) (14,201)
---------- ----------
NET INCOME $ 27,690 $ 23,725
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
40
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
UNAUDITED
----------------------
1996 1995
---------- ----------
(IN 000'S)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 200,672 $ 199,730
Annuity and other deposit funds 327,986 622,587
Transfers from (to) separate
accounts--net (89,323) 27,870
Net investment income 262,271 269,529
Amortization of interest maintenance
reserve 994 439
Realized losses on investments (4,325) (2,421)
Mortality and expense risk charges 59,490 44,046
Other income--net 53,959 7,605
---------- ----------
811,724 1,169,385
BENEFITS AND EXPENSES
Increase (decrease) in liability for
annuity and other deposit funds (293,567) 41,351
Increase in policy reserves 126,179 119,218
Death, surrender benefits, and
annuity payments 141,416 139,547
Annuity and other deposit fund
withdrawals 723,536 363,881
Transfers to (from) non-unitized
separate account (80,815) 337,203
---------- ----------
616,749 1,001,200
Operating expenses 31,578 27,356
Commissions 93,938 82,694
Dividends 19,480 16,598
Taxes, licenses and fees 2,145 4,537
---------- ----------
763,890 1,132,385
Net income from operations before
surplus note interest and equity in
income of subsidiaries 47,834 37,000
Surplus note interest (17,636) (23,363)
---------- ----------
Net income from operations before
equity in income of subsidiaries
and federal income tax 30,198 13,637
Equity in income of subsidiaries 61,068 40,259
Federal income tax expense (14,136) (21,525)
---------- ----------
NET INCOME $ 77,130 $ 32,371
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
41
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
UNAUDITED
----------------------
1996 1995
---------- ----------
(IN 000'S)
<S> <C> <C>
CAPITAL STOCK $ 5,900 $ 5,900
PAID-IN SURPLUS 199,355 199,355
SURPLUS NOTES
Balance, beginning of period 650,000 335,000
Paid during period (335,000) 0
---------- ----------
Balance, end of period 315,000 335,000
---------- ----------
UNASSIGNED SURPLUS
Balance, beginning of period (62,801) (84,767)
Net income 77,130 32,371
Change in non-admitted assets (877) (2,435)
Unrealized gains (losses) on real estate (51) 1,096
Change in and transfers of separate account surplus 0 (1)
Change in asset valuation reserve (12,202) (7,990)
---------- ----------
Balance, end of period 1,199 (61,726)
---------- ----------
TOTAL SURPLUS 515,554 472,629
---------- ----------
TOTAL CAPITAL STOCK AND SURPLUS $ 521,454 $ 478,529
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
42
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
UNAUDITED
------------------------
1996 1995
----------- -----------
(IN 000'S)
<S> <C> <C>
Cash flows from operating activities:
Net income from operations before
surplus note interest and equity in
income of subsidiaries $ 47,832 $ 37,001
Adjustments to reconcile net income
from operations to net cash provided
by (used in) operating activities:
Increase (decrease) in liability for
annuity and other deposit funds (293,567) 41,351
Increase in policy reserves 126,180 119,218
Increase in investment income due and
accrued 15,015 590
Net accrual and amortization of
discount and premium on investments 1,518 1,820
Realized losses on investments 4,325 2,421
Change in non-admitted assets (877) (2,435)
Change in funds withheld on
reinsurance (124,396) (121,103)
Other (8,532) (12,626)
----------- -----------
Net cash provided by (used in) operating
activities (232,502) 66,237
----------- -----------
Cash flows from investing activities:
Proceeds from sale and maturity of
investments 985,589 1,295,015
Purchase of investments (624,195) (1,288,636)
Net change in short-term investments 211,770 (58,997)
Investment in subsidiaries (1,000)
Dividends from subsidiaries 27,298 13,077
----------- -----------
Net cash provided by (used in) investing
activities 599,462 (39,541)
----------- -----------
Cash flows from financing activities:
Repayment of surplus notes (335,000) 0
Payment of interest on surplus note (17,636) (23,363)
Repayment of seed capital 0 4,036
----------- -----------
Net cash used in financing activities (352,636) (19,327)
----------- -----------
Increase in cash during the period 14,323 7,369
Cash balance, beginning of period (20,280) (11,460)
----------- -----------
Cash balance, end of period $ (5,957) $ (4,091)
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
43
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim financial statements of Sun Life Assurance Company of
Canada (U.S.) ("the Company") are prepared on the basis of accounting practices
prescribed or permitted by the State of Delaware Department of Insurance
(statutory financial statements). The accompanying financial statements do not
include all of the footnote disclosures required for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The accompanying interim financial statement should be read in
conjunction with the Company's annual financial statements.
Results of nine months ended September 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996.
The Financial Accounting Standards Board (FASB) has issued certain
pronouncements relating to mutual life insurance companies, and wholly owned
subsidiaries of mutual life insurance companies effective for years beginning
after December 15, 1995. Such pronouncements will no longer allow statutory
financial statements to be described as being prepared in conformity with
generally accepted accounting principles (GAAP). Upon the effective date of the
pronouncements, in order for their financial statements to be described as being
prepared in conformity with GAAP, mutual life insurance companies, and wholly
owned subsidiaries of mutual life insurance companies will be required to adopt
all applicable accounting principles promulgated by the FASB in any general
purpose financial statements that they may issue. If the Company issues general
purpose statutory financial statements for 1996 and reissues statutory financial
statement for prior years, the independent auditor will be able to express an
opinion regarding the presentation of any statutory financial statements in
accordance with accounting practices prescribed or permitted by the State of
Delaware Department of Insurance but will be required to issue an adverse or
qualified opinion on any statutory financial statements regarding their
presentation in conformity with GAAP. The Company has not quantified the effects
of the application of the GAAP pronouncements on its financial statements.
2. MANAGEMENT AND SERVICE CONTRACTS
Expenses under the agreement with the parent which enables the parent to provide
certain services amounted to approximately $3,294,000 and $13,562,000 for the
three and nine month periods in 1996 and $3,673,000 and $13,708,000 for the same
periods in 1995.
3. INVESTMENTS IN SUBSIDIARIES
The following is combined unaudited summarized financial information of the
subsidiaries as of September 30, 1996 and 1995 and for the nine months then
ended:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(IN 000'S)
<S> <C> <C>
Intangible assets $ 10,668 $ 12,676
Other assets, net of liabilities 140,119 133,093
----------- -----------
Total net assets $ 150,787 $ 145,769
----------- -----------
Total income $ 513,021 $ 426,027
Total expenses (439,852) (381,082)
Income tax expense (32,437) (20,905)
----------- -----------
Net income $ 40,732 $ 24,040
----------- -----------
----------- -----------
</TABLE>
44
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
The following is combined unaudited summarized financial information of the
subsidiaries for the three months ended September 30, 1995 and 1994:
<TABLE>
<S> <C> <C>
Total income $ 183,931 $ 140,805
Total expenses (154,191) (119,698)
Income tax expense (12,983) (11,217)
--------- ---------
Net income $ 16,757 $ 9,890
--------- ---------
--------- ---------
</TABLE>
In determining the equity in income of subsidiaries for the periods, the
Registrant has excluded federal income tax expenses of approximately $10,355,000
and $25,365,000 for the three month and nine month periods in 1996 and
$9,703,000 and $16,219,000 for the same periods in 1995.
The change in equity in income of subsidiaries reported in the summary of
operations, differs from the net income above, due to federal income taxes and a
minority shareholder interest not held by the Registrant.
4. SURPLUS NOTES
The Registrant repaid $335,000,000 of surplus notes to its parent on January 16,
1996 after having received permission from the Delaware Department of Insurance.
45
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
(000'S)
<S> <C> <C>
Interest income from bonds $ 135,661 $ 150,962
Interest income from mortgage loans 71,410 74,888
Interest income from policy loans 2,043 2,026
Real estate investment income 7,958 9,150
Interest income on funds withheld 51,589 41,267
Other 1,124 1,723
---------- ----------
Gross investment income $ 269,785 $ 280,016
Investment expenses 7,514 10,487
---------- ----------
$ 262,271 $ 269,529
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
(000'S)
<S> <C> <C>
Interest income from bonds $ 42,418 $ 52,665
Interest income from mortgage loans 23,271 24,227
Interest income from policy loans 711 671
Real estate investment income 2,966 3,752
Interest income on funds withheld 19,886 20,447
Other (53) 39
---------- ----------
Gross investment income $ 89,199 $ 101,801
Investment expenses 2,536 4,923
---------- ----------
$ 86,663 $ 96,878
---------- ----------
---------- ----------
</TABLE>
46
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $ 2,846,067 $ 2,471,152
Preferred stock 1,149 0
Mortgage loans 1,066,911 1,120,981
Investments in subsidiaries 138,282 134,807
Real estate 95,574 89,487
Other invested assets 38,387 26,036
Policy loans 38,355 36,584
Cash (20,280) (11,459)
Investment income due and accrued 62,719 56,096
Funds withheld on reinsurance assumed 741,091 566,693
Due from separate accounts 148,675 132,496
Other assets 26,349 27,683
-------------- --------------
General account assets 5,183,279 4,650,556
-------------- --------------
Unitized separate account assets 5,275,808 4,061,821
Non-unitized separate account assets 2,040,596 1,425,445
-------------- --------------
$ 12,499,683 $ 10,137,822
-------------- --------------
-------------- --------------
LIABILITIES
Policy reserves $ 1,937,302 $ 1,765,326
Annuity and other deposits 2,290,656 2,277,104
Policy benefits in process of payment 5,884 5,796
Accrued expenses and taxes 44,114 12,386
Other liabilities 36,080 50,087
Due to parent and affiliates--net 9,498 41,881
Interest maintenance reserve 25,218 18,140
Asset valuation reserve 42,099 28,409
-------------- --------------
General account liabilities 4,390,851 4,199,129
-------------- --------------
Unitized separate account liabilities 5,275,784 4,057,759
Non-unitized separate account liabilities 2,040,596 1,425,445
-------------- --------------
11,707,231 9,682,333
-------------- --------------
CAPITAL STOCK AND SURPLUS
Capital Stock--Par value $1,000:
Authorized 10,000 shares,
issued and outstanding 5,900 shares 5,900 5,900
Surplus 786,552 449,589
-------------- --------------
Total capital stock and surplus 792,452 455,489
-------------- --------------
$ 12,499,683 $ 10,137,822
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
(IN 000'S)
INCOME
Premiums and annuity considerations $ 274,244 $ 313,025 $ 469,157
Annuity and other deposit funds 722,327 699,189 1,205,680
Transfers from separate
accounts--net 21,455 102,213 350
Net investment income 366,598 337,747 253,496
Amortization of interest maintenance
reserve 899 3,316 2,703
Realized losses on investments (1,434) (6,166) (12,403)
Expense allowance on reinsurance
ceded 0 0 8,475
Mortality and expense risk charges 60,954 52,338 42,981
Other income--net 16,666 33,377 46,102
---------- ---------- ----------
1,461,709 1,535,039 2,016,541
BENEFITS AND EXPENSES
Increase (decrease) in liability for
annuity and other deposit funds 13,552 (69,542) 894,128
Increase in policy reserves 171,976 219,334 589,559
Death, surrender benefits, and
annuity payments 189,744 166,889 128,902
Annuity and other deposit fund
withdrawals 531,928 540,352 146,260
Transfers to non-unitized separate
account 331,403 455,688 28,070
---------- ---------- ----------
1,238,603 1,312,721 1,786,919
Operating expenses 37,492 32,231 24,170
Commissions 108,672 150,011 204,016
Dividends 25,722 22,928 8,074
Taxes, licenses and fees 4,774 4,649 4,180
---------- ---------- ----------
1,415,263 1,522,540 2,027,359
---------- ---------- ----------
Net income (loss) from operations
before surplus note interest and
equity in income of subsidiaries 46,446 12,499 (10,818)
Surplus note interest (31,813) (31,150) (26,075)
---------- ---------- ----------
Net income (loss) from operations
before equity in income of
subsidiaries and federal income tax 14,633 (18,651) (36,893)
Equity in income of subsidiaries 59,875 62,629 62,640
Federal income tax expense (38,593) (42,521) (22,491)
---------- ---------- ----------
NET INCOME $ 35,915 $ 1,457 $ 3,256
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN 000'S)
<S> <C> <C> <C>
CAPITAL STOCK $ 5,900 $ 5,900 $ 5,900
PAID-IN SURPLUS 199,355 199,355 199,355
SURPLUS NOTES
Balance, beginning of year 335,000 335,000 265,000
Issued during year 315,000 0 70,000
---------- ---------- ----------
Balance, end of year 650,000 335,000 335,000
---------- ---------- ----------
UNASSIGNED SURPLUS
Balance, beginning of year (84,766) (57,067) (57,485)
Net income 35,915 1,457 3,256
Writedown of goodwill 0 (18,397) 0
Change in non-admitted assets (2,270) (1,485) (191)
Unrealized gains (losses) on real estate 2,009 (671) (4,440)
Change in and transfers of separate account
surplus (1) (227) 117
Change in asset valuation reserve (13,690) (8,376) 1,676
---------- ---------- ----------
Balance, end of year (62,803) (84,766) (57,067)
---------- ---------- ----------
TOTAL SURPLUS 786,552 449,589 477,288
---------- ---------- ----------
TOTAL CAPITAL STOCK AND SURPLUS $ 792,452 $ 455,489 $ 483,188
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
(IN 000'S)
Cash flows from operating activities:
Net income (loss) from operations
before surplus note interest and
equity in income of subsidiaries $ 46,446 $ 12,499 $ (10,818)
Adjustments to reconcile net income
(loss) from operations to net cash
provided by (used in) operating
activities:
Increase (decrease) in liability for
annuity and other deposit funds 13,552 (69,542) 894,128
Increase in policy reserves 171,976 219,334 589,559
Increase in investment income due and
accrued (6,623) (2,736) (21,746)
Net accrual and amortization of
discount and premium on investments 3,127 7,272 5,911
Realized losses on investments 1,434 6,166 12,403
Change in non-admitted assets (2,270) (1,485) (191)
Change in funds withheld on
reinsurance (174,398) (199,826) (1,087,862)
Other (11,160) (71,746) 24,953
----------- ----------- -----------
Net cash provided by (used in) operating
activities 42,084 (100,064) 406,337
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale and maturity of
investments 1,705,685 1,596,851 1,173,345
Purchase of investments (1,820,843) (1,491,159) (1,618,587)
Net change in short-term investments (254,897) (20,543) (38,782)
Investment in subsidiaries (6,000) (4,894) (15,250)
Dividends from subsidiaries 37,927 37,444 42,520
----------- ----------- -----------
Net cash provided by (used in) investing
activities (338,128) 117,699 (456,754)
----------- ----------- -----------
Cash flows from financing activities:
Issue of surplus notes 315,000 0 70,000
Payment of interest on surplus notes (31,813) (31,150) (26,075)
Repayment of seed capital 4,036 0 0
----------- ----------- -----------
Net cash provided by (used in) financing
activities 287,223 (31,150) 43,925
----------- ----------- -----------
Decrease in cash during the year (8,821) (13,515) (6,492)
Cash balance, beginning of year (11,459) 2,056 8,548
----------- ----------- -----------
Cash balance, end of year $ (20,280) $ (11,459) $ 2,056
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL--
Sun Life Assurance Company of Canada (U.S.) (the Company) is incorporated as a
life insurance company and is currently engaged in the sale of individual fixed
and variable annuities, group fixed and variable annuities and group pension
contracts. The Company also underwrites a block of individual life insurance
business through a reinsurance contract with its parent. Sun Life Assurance
Company of Canada (the parent company) is a mutual life insurance company. The
Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Statutory accounting
practices are considered to be generally accepted accounting principles for
mutual insurance companies and subsidiaries of mutuals. Prescribed accounting
practices include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and general
administrative rules. Permitted accounting practices encompass all accounting
practices not so prescribed. The permitted accounting practices adopted by the
Company are not material to the financial statements. Preparation of the
financial statements requires management to make certain estimates and
assumptions.
Assets in the balance sheets are stated at values prescribed or permitted to
be reported by state regulatory authorities. Bonds are carried at cost adjusted
for amortization of premium or accrual of discount. Investments in subsidiaries
are carried on the equity basis. Mortgage loans acquired at a premium or
discount are carried at amortized values and other mortgage loans at the amounts
of the unpaid balances. Real estate investments are carried at the lower of cost
or appraised value, adjusted for accumulated depreciation, less encumbrances.
Depreciation of buildings and improvements is calculated using the straight line
method over the estimated useful life of the property. For life and annuity
contracts, premiums are recognized as revenues over the premium paying period,
whereas commissions and other costs applicable to the acquisition of new
business are charged to operations as incurred. Furniture and equipment
acquisitions are capitalized but treated as nonadmitted assets. Furniture and
equipment depreciation is calculated on a straight line basis over the useful
life of the assets.
MANAGEMENT AND SERVICE CONTRACTS--
The Company has an agreement with its parent company which provides that the
parent company will furnish, as requested, personnel as well as certain services
and facilities on a cost reimbursement basis. Expenses under this agreement
amounted to approximately $20,293,000 in 1995, $18,452,000 in 1994, and
$13,883,000 in 1993.
REINSURANCE--
The Company has agreements with the parent company which provide that the parent
company will reinsure the mortality risks of the individual life insurance
contracts sold by the Company. Under these agreements basic death benefits and
supplementary benefits are reinsured on a yearly renewable term basis and
coinsurance basis, respectively. Reinsurance transactions under these agreements
had the effect of decreasing income from operations by approximately $2,184,000,
$2,138,000, and $1,046,000, for the years ended December 31, 1995, 1994 and
1993, respectively.
Effective January 1, 1991, the Company entered into an agreement with the
parent company under which 100% of certain fixed annuity contracts issued by the
Company were reinsured. Effective December 31, 1993 this agreement was
terminated. This agreement had the effect of decreasing income from operations
by approximately $9,930,000 in 1993.
Effective January 1, 1991, the Company entered into an agreement with the
parent company under which certain individual life insurance contracts issued by
the parent company were reinsured by the
51
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Company on a 90% coinsurance basis. Also, effective January 1, 1991, the Company
entered into an agreement with the parent company which provides that the parent
company will reinsure the mortality risks in excess of $500,000 per policy for
the individual life insurance contracts assumed by the Company in the
reinsurance agreement described above. Such death benefits are reinsured on a
yearly renewable term basis. These agreements had the effect of increasing
income from operations by approximately $11,821,000 in 1995, and decreasing
income by approximately $29,188,000, and $43,591,000 for the years ended
December 31, 1994 and 1993, respectively.
The life reinsurance assumed agreement requires the reinsurer to withhold
funds in amounts equal to the reserves assumed.
The following are summarized pro-forma results of operations of the Company
for the years ended December 31, 1995, 1994 and 1993 before the effect of
reinsurance transactions with the parent company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $ 890,560 $ 962,320 $ 762,553
Net investment income and realized gains (losses) 306,893 304,155 293,557
------------ ------------ ------------
Subtotal 1,197,453 1,266,475 1,056,110
------------ ------------ ------------
Benefits and Expenses:
Policyholder benefits 1,030,342 1,092,192 926,827
Other expenses 130,302 130,457 85,575
------------ ------------ ------------
Subtotal 1,160,644 1,222,649 1,012,402
------------ ------------ ------------
Income from operations $ 36,809 $ 43,826 $ 43,708
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of decreasing income from operations by $1,599,000 in 1995, increasing
income from operations by $1,854,000 in 1994 and decreasing income from
operations by $390,000 in 1993.
SEPARATE ACCOUNTS--
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits
and accumulated net investment earnings less fees, held primarily for the
benefit of contract holders are shown as separate captions in the financial
statements. Assets held in the separate accounts are carried at market values.
Deposits to all separate accounts are reported as increases in separate
account liabilities and are not reported as revenues. Mortality and expense risk
charges and surrender fees incurred by the separate accounts are included in
income of the Company.
52
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company has established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Any difference between the assets and liabilities of the separate accounts
is treated as payable to or receivable from the general account of the Company.
Amounts payable to the general account of the Company were $148,675,000 in 1995
and $132,496,000 in 1994.
OTHER--
Income on investments is recognized on the accrual method.
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
Net income reported in the Company's statutory Annual Statement differs from
net income reported in these financial statements. Dividends from subsidiaries
are included in income and undistributed income (losses) of subsidiaries are
included as gains (losses) in unassigned surplus in the statutory Annual
Statement. Both the dividends and the undistributed income (losses) are included
in net income in these financial statements.
Investments in non-insurance subsidiaries are carried at their stockholders'
equity value, determined in accordance with generally accepted accounting
principles. Investments in insurance subsidiaries are carried at their statutory
surplus values.
Certain reclassifications have been made in the 1993 and 1994 financial
statements to conform to the classifications used in 1995.
2. INVESTMENTS IN SUBSIDIARIES:
The Company owns all of the outstanding shares of Massachusetts Financial
Services Company (MFS), Sun Life Insurance and Annuity Company of New York (Sun
Life (N.Y.)), Sun Investment Services Company (Sunesco), Sun Benefit Services
Company, Inc. (Sunbesco), Massachusetts Casualty Insurance Company (MCIC), New
London Trust, F.S.B. (NLT), Sun Capital Advisers, Inc. (Sun Capital), and Sun
Life Finance Corporation (Sunfinco).
Effective January 1, 1994, NLT acquired all of the outstanding shares of
Danielson Federal Savings and Loan Association of Danielson, Connecticut. These
two banks have been merged into a newly formed federally chartered savings bank
now called New London Trust, F.S.B.
MFS, a registered investment adviser, serves as investment adviser to the
mutual funds in the MFS family of funds and certain mutual funds and separate
accounts established by the Company, and the MFS Asset Management Group provides
investment advice to substantial private clients.
Clarendon Insurance Agency, Inc., a wholly-owned subsidiary of MFS, serves
as the distributor of certain variable contracts issued by the Company and Sun
Life (N.Y.). Sun Life (N.Y.) is engaged in the sale of individual fixed and
variable annuity contracts and group life and disability insurance contracts in
the state
53
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
of New York. Sunesco is a registered investment adviser and broker-dealer. MCIC
is a life insurance company which issues only individual disability income
policies. Sun Capital, a registered investment adviser, Sunfinco, and Sunbesco
are currently inactive.
In 1994, the Company reduced its carrying value of MCIC by $18,397,000, the
unamortized amount of goodwill. The reduction was accounted for as a direct
charge to surplus.
During 1995, 1994 and 1993, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
MCIC $6,000,000 $6,000,000 $6,000,000
Sun Capital 0 0 250,000
New London Trust 0 0 9,000,000
</TABLE>
Summarized combined financial information of the Company's subsidiaries as
of December 31, 1995, 1994 and 1993 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
Intangible assets $ 12,174 $ 13,485 $ 14,891
Other assets, net of liabilities 126,108 121,321 112,332
--------- --------- ---------
Total net assets $ 138,282 $ 134,806 $ 127,223
--------- --------- ---------
--------- --------- ---------
Total income $ 570,794 $ 495,097 $ 424,324
Operating expenses (504,070) (425,891) (355,679)
Income tax expense (31,193) (29,374) (24,507)
--------- --------- ---------
Net income $ 35,531 $ 39,832 $ 44,138
--------- --------- ---------
--------- --------- ---------
</TABLE>
3. STOCK, SURPLUS NOTES, CONTRIBUTIONS AND NOTE RECEIVABLE:
The Company has issued surplus notes to its parent of $335,000,000 during the
years 1982 through 1993 at interest rates between 7.25% and 10%. The Company
subsequently repaid all principal and interest associated with these surplus
notes on January 16, 1996. On December 19, 1995 the Company issued surplus notes
totalling $315,000,000 to an affiliate, Sun Canada Financial Co., at interest
rates between 5.75% and 7.25%. Of these notes, $157,500,000 will mature in the
year 2007, and $157,500,000 will mature in the year 2015. Interest on these
notes is payable semi-annually. Principal and interest on surplus notes are
payable only to the extent that the Company meets specified requirements as
regards free surplus exclusive of the principal amount and accrued interest, if
any, on these notes; and, in the case of principal repayments, with the consent
of the Delaware Insurance Commissioner. Interest payments require the consent of
the Delaware Insurance Commissioner after December 31, 1993. Payment of
principal and interest on the notes issued in 1995 also requires the consent of
the Canadian Office of the Superintendent of Financial Institutions. The Company
expensed $31,813,000, $31,150,000 and $26,075,000 in respect of interest on
surplus notes for the years 1995, 1994 and 1993, respectively. On December 19,
1995, the parent borrowed $120,000,000 at 5.6 % through a short term note from
the Company maturing on January 16, 1996. The note, which is classified under
short-term bonds at December 31, 1995, was repaid in full by the parent at
maturity.
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. BONDS:
The amortized cost and estimated market value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 467,597 $ 22,783 $ 443 $ 489,937
States, provinces and political
subdivisions 2,252 81 0 2,333
Foreign governments 38,303 4,551 6 42,848
Public utilities 513,704 45,466 203 558,967
Transportation 215,786 22,794 2,221 236,359
Finance 225,074 13,846 84 238,836
All other corporate bonds 1,045,745 67,371 7,415 1,105,701
---------- ---------- ---------- ----------
Total long-term bonds 2,508,461 176,892 10,372 2,674,981
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 337,606 0 0 337,606
---------- ---------- ---------- ----------
$2,846,067 $176,892 $10,372 $3,012,587
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 444,100 $ 5,017 $11,010 $ 438,107
States, provinces and political
subdivisions 252 0 17 235
Foreign governments 20,965 147 187 20,925
Public utilities 458,839 11,414 11,619 458,633
Transportation 215,478 5,099 9,444 211,133
Finance 193,355 3,734 4,010 193,080
All other corporate bonds 1,055,455 15,785 31,171 1,040,069
---------- --------- ---------- ----------
Total long-term bonds 2,388,444 41,196 67,458 2,362,182
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 82,708 0 0 82,708
---------- --------- ---------- ----------
$2,471,152 $41,196 $67,458 $2,444,890
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. BONDS (CONTINUED):
The amortized cost and estimated market value of bonds at December 31, 1995
and 1994 are shown below by contractual maturity. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
(IN 000'S)
Maturities are:
Due in one year or less $ 678,775 $ 681,119
Due after one year through five
years 844,446 866,230
Due after five years through ten
years 256,552 269,549
Due after ten years 884,187 1,000,908
---------- ----------
2,663,960 2,817,806
Mortgage-backed securities 182,107 194,781
---------- ----------
$2,846,067 $3,012,587
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
(IN 000'S)
Maturities are:
Due in one year or less $ 209,875 $ 209,527
Due after one year through five
years 953,222 930,578
Due after five years through ten
years 319,858 311,360
Due after ten years 877,062 885,462
---------- ----------
2,360,017 2,336,927
Mortgage-backed securities 111,135 107,963
---------- ----------
$2,471,152 $2,444,890
---------- ----------
---------- ----------
</TABLE>
Proceeds from sales of investments in debt securities during 1995, 1994, and
1993 were $1,510,553,000, $1,390,974,000, and $911,644,000, gross gains were
$24,757,000, $15,025,000, and $43,674,000 and gross losses were $5,742,000,
$30,041,000 and $687,000, respectively.
Long-term bonds at December 31, 1995 and 1994 included $20,000,000 of bonds
issued to the Company by a subsidiary company, MFS, during 1987. These bonds
will mature in 2000.
Bonds included above with an amortized cost of approximately $2,059,000 and
$1,561,000 at December 31, 1995 and 1994, respectively, were on deposit with
governmental authorities as required by law.
At year end 1995, the Company had outstanding mortgage-backed securities
(MBS) forward commitments amounting to a par value of $137,675,000 to be funded
through the sale of certain short-term securities shown above.
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
5. SECURITIES LENDING:
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chemical Bank of New York. The custodian has
indemnified the Company against losses arising from this program. The total par
value of securities out on loan was $250,729,000 at December 31, 1995.
6. MORTGAGE LOANS:
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
provisions have been made. In those cases where, in management's judgement, the
mortgage loans' values are impaired, appropriate losses are recorded.
The following table shows the geographic distribution of the mortgage
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
---------- -----------
(IN 000'S)
<S> <C> <C>
California $ 153,811 $ 131,953
Massachusetts 83,999 101,932
Pennsylvania 141,468 136,778
Ohio 83,915 79,478
Washington 91,900 90,422
Michigan 69,125 75,592
New York 81,480 93,178
All other 361,213 411,648
---------- -----------
$1,066,911 $1,120,981
---------- -----------
---------- -----------
</TABLE>
The Company has restructured mortgage loans totalling $49,846,000, against
which there are provisions of $8,799,000 at December 31, 1995.
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $13,100,000 at
December 31, 1995.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
7. INVESTMENTS--GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------- --------
(IN 000'S)
<S> <C> <C> <C>
Net realized gains (losses) (pre-tax):
Bonds $(2,300) $ 0 $ 0
Mortgage loans 418 (5,689) (9,975)
Stocks 0 0 445
Real estate 391 (334) (2,873)
Other assets 57 (143) 0
------- ------- --------
$(1,434) $(6,166) $(12,403)
------- ------- --------
------- ------- --------
Changes in unrealized gains (losses):
Bonds $ 0 $ 0 $ 84
Mortgage loans (1,574) 0 0
Real estate 3,583 (671) (4,113)
Stocks 0 0 (411)
------- ------- --------
$ 2,009 $ (671) $ (4,440)
------- ------- --------
------- ------- --------
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to
changes in levels of interest rate risk are charged or credited to an interest
maintenance reserve and amortized into income over the remaining contractual
life of the security sold. The realized capital gains and losses credited or
charged to the interest maintenance reserve were a credit of $12,714,000 in
1995, a charge of $14,070,000 in 1994 and a credit of $40,993,000 in 1993. All
gains and losses are net of applicable taxes.
8. INVESTMENT INCOME:
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $205,445 $200,339 $204,405
Interest income from mortgage loans 99,753 106,347 99,790
Interest income from policy loans 2,777 2,670 2,503
Real estate investment income 10,693 8,649 8,593
Interest income on funds withheld 57,373 30,741 19,420
Other 2,627 1,418 645
-------- -------- --------
Gross investment income 378,668 350,164 335,356
Investment expenses 12,070 12,417 12,679
Interest expense on funds withheld 0 0 69,181
-------- -------- --------
$366,598 $337,747 $253,496
-------- -------- --------
-------- -------- --------
</TABLE>
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
9. DERIVATIVES:
The Company uses derivative instruments for interest risk management purposes,
including hedges against specific interest rate risk and to minimize the
Company's exposure to fluctuations in interest rates. The Company's use of
derivatives has included U.S. Treasury futures, conventional interest rate
swaps, and forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that
qualify as hedges are deferred until the earliest of the completion of the
hedging transaction, determination that the transaction will no longer take
place, or determination that the hedge is no longer effective. Upon completion
of the hedge, gains or losses are deferred in IMR and amortized over the
remaining life of the hedged assets. At December 31, 1995, there were no futures
contracts outstanding.
In the case of interest rate and foreign currency swap agreements and
forward spread lock interest rate swap agreements, gains or losses on terminated
swaps are deferred in IMR and amortized over the shorter of the remaining life
of the hedged asset or the remaining term of the swap contract. The net
differential to be paid or received on interest rate swaps is recorded monthly
as interest rates change.
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1995
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN 000'S)
<S> <C> <C>
Conventional interest rate swaps $367,000 $3,275
Foreign currency swap 2,745 290
Forward spread lock swaps $ 50,000 $ 112
</TABLE>
The market values of interest rate swaps and forward spread lock agreements
are primarily obtained from dealer quotes. The market value is the estimated
amount that the Company would receive or pay on termination or sale, taking into
account current interest rates and the current creditworthiness of the counter
parties. The Company is exposed to potential credit loss in the event of
non-performance by counterparties. The counterparties are major financial
institutions and management believes that the risk of incurring losses related
to credit risk is remote.
10. LEVERAGED LEASES:
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994 under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of the purchase price
was furnished by third party long-term debt financing, secured by the equipment
and non-recourse to the Company. At the end of the lease term, the Master Lessee
may exercise a fixed price purchase option to purchase the equipment.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
10. LEVERAGED LEASES (CONTINUED):
The Company's net investment in leveraged leases is composed of the
following elements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1995 1994
--------- ---------
(IN 000'S)
<S> <C> <C>
Lease contracts receivable $ 111,611 $ 121,716
Less non-recourse debt (111,594) (121,699)
--------- ---------
17 17
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (13,132) (15,292)
--------- ---------
Investment in leveraged leases 28,035 25,875
Less fees (213) (237)
--------- ---------
Net investment in leveraged leases $ 27,822 $ 25,638
--------- ---------
--------- ---------
</TABLE>
The net investment is classified as other invested assets in the
accompanying balance sheets.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal--with adjustment
--with market value adjustment $3,796,596 36.36%
--at book value less surrender charges (surrender
charge >5%) 4,066,126 38.94
--at book value (minimal or no charge or adjustment) 1,278,215 12.24
Not subject to discretionary withdrawal provision 1,301,259 12.46
---------- ----------
Total annuity actuarial reserves and deposit liabilities $10,442,196 100.00%
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal--with adjustment
-- with market value adjustment $3,083,623 35.98%
-- at book value less surrender charges (surrender
charge > 5%) 2,915,460 34.02
-- at book value (minimal or no charge or
adjustment) 1,252,843 14.62
Not subject to discretionary withdrawal provision 1,318,092 15.38
---------- ----------
Total annuity actuarial reserves and deposit liabilities $8,570,018 100.00%
---------- ----------
---------- ----------
</TABLE>
12. RETIREMENT PLANS:
The Company participates with its parent company in a non-contributory defined
benefit pension plan covering essentially all employees. The benefits are based
on years of service and compensation.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
12. RETIREMENT PLANS (CONTINUED):
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA. The Company is charged for
its share of the pension cost based upon its covered participants. Pension plan
assets consist principally of a variable accumulation fund contract held in a
separate account of the parent company.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 87, which is in accordance with generally accepted accounting
principles.
The following table sets forth the funded status for the pension plan (for
the parent, Sun Life (U.S.), Sun Life (N.Y.) and Sunesco) at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
TOTAL PENSION PLAN
------------------
1995 1994
-------- --------
(IN 000'S)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(40,949) $(38,157)
Accumulated benefit obligation (42,452) (39,686)
-------- --------
-------- --------
Projected benefit obligation for service rendered to
date $(60,885) $(53,494)
Plan assets at fair value 117,178 101,833
-------- --------
Difference between plan assets and projected benefit
obligation 56,293 48,339
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions (9,016) (1,238)
Unrecognized net asset at January 1, 1994, being
recognized over 17 years (30,842) (32,898)
-------- --------
Prepaid pension cost included in other assets $ 16,435 $ 14,203
-------- --------
-------- --------
</TABLE>
The components of the 1995 and 1994 pension cost for the pension plan were:
<TABLE>
<CAPTION>
TOTAL PENSION
PLAN
-----------------
1995 1994
-------- -------
(IN 000'S)
<S> <C> <C>
Service cost $ 3,389 $ 2,847
Interest cost 4,050 3,770
Actual return on plan assets (16,388) (8,294)
Net amortization and deferral 6,715 (818)
-------- -------
Net pension income $ (2,234) $(2,495)
-------- -------
-------- -------
</TABLE>
The Company's share of the group's accrued pension cost at December 31, 1995
and 1994 was $420,000 and $417,000, respectively. The Company's share of net
periodic pension cost was $3,000 and $417,000, respectively.
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
7.5% and 4.5%, respectively. The expected long-term rate of return on assets was
7.5%.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
12. RETIREMENT PLANS (CONTINUED):
The Company also participates with its parent and certain affiliates in a
401(k) savings plan for which substantially all employees are eligible. The
Company matches, up to specified amounts, employees' contributions to the plan.
Employer contributions were $185,000, $152,000 and $124,000 for the years ended
December 31, 1995, 1994, and 1993, respectively.
13. OTHER POST-RETIREMENT BENEFIT PLANS:
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers Accounting for Post-retirement
Benefits other than Pensions". SFAS No. 106 requires the Company to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. SFAS No. 106 allows recognition of the cumulative effect of
the liability in the year of adoption or the amortization of the obligation over
a period of up to 20 years. The Company has elected to recognize this obligation
of approximately $400,000 over a period of ten years. The Company's cash flows
are not affected by implementation of this standard, but implementation
decreased net income by $142,000, $114,000, and $120,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. The Company's post-retirement
health care plans currently are not funded.
The following table sets forth the plan's funded status, reconciled with
amounts recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
(IN 000'S)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
--Retirees $ 0 $ 0
--Fully eligible active plan participants (601) (444)
--Other active plan participants 0 0
------- -------
--Accumulated post-retirement benefit obligation in excess
of plan assets (601) (444)
--Unrecognized gains from past experience (55) (110)
--Unrecognized transition obligation 280 320
------- -------
--Accrued post-retirement benefit cost $(376) $(234)
------- -------
------- -------
Net periodic post-retirement benefit cost components:
--Service cost--benefits earned $ 65 $ 49
--Interest cost on accumulated post-retirement benefit
obligation 42 33
--Amortization of transition obligation 40 40
--Net amortization and deferral (5) (8)
------- -------
--Net periodic post-retirement benefit cost $ 142 $ 114
------- -------
------- -------
</TABLE>
The discount rate used in determining the accumulated post-retirement
benefit obligation was 7.5% in 1995 and 8% in 1994, and the assumed health care
cost trend rate was 12.0% graded to 6% over 10 years after which it remains
constant.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
13. OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED):
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the post-retirement
benefit obligation as of December 31, 1995 by $149,000 and the estimated service
and interest cost components of the net periodic post-retirement benefit cost
for 1995 by $29,000.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------
ESTIMATED
CARRYING AMOUNT FAIR VALUE
--------------- ------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds 2,846,067 3,012,586
Mortgages 1,066,911 1,111,895
Real estate 95,575 98,437
LIABILITIES
Insurance reserves 124,066 124,066
Individual annuities 434,261 431,263
Pension products 2,227,882 2,265,386
Derivatives -- 3,387
<CAPTION>
DECEMBER 31, 1994
------------------------------
ESTIMATED
CARRYING AMOUNT FAIR VALUE
--------------- ------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $2,471,152 $2,444,890
Mortgages 1,120,981 1,107,012
Real estate 89,487 91,072
LIABILITIES
Insurance reserves 129,302 129,302
Individual annuities 475,557 476,570
Pension products 2,772,618 2,668,382
Derivatives -- 1
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost.
The fair values of long-term bonds which are publicly traded are based upon
market prices or dealer quotes. For privately placed bonds, fair values are
estimated using prices for publicly traded bonds of similar credit risk and
maturity and repayment characteristics.
The fair values of the Company's general account reserves and liabilities
under investment-type contracts (insurance, annuity and pension contracts that
do not involve mortality or morbidity risks) are estimated using discounted cash
flow analyses or surrender values. Those contracts that are deemed to have short
term guarantees have a carrying amount equal to the estimated market value.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
15. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve (AVR) provides a reserve for losses from investments
in bonds, stocks, mortgage loans, real-estate and other invested assets with
related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to
changes in levels of interest rate risk are charged or credited to an interest
maintenance reserve (IMR) and amortized into income over the remaining
contractual life of the security sold.
The tables shown below present changes in the major elements of the AVR and
IMR.
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------
AVR IMR AVR IMR
------- ------- ------- ------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $28,409 $18,140 $20,033 $31,414
Realized capital gains (losses), net of
tax (1,524) 7,977 (1,320) (9,958)
Amortization of investment gains 0 (897) 0 (3,316)
Unrealized investment gains (losses) 3,650 0 (3,537) 0
Required by formula 11,564 0 13,233 0
------- ------- ------- ------
Balance, end of year $42,099 $25,218 $28,409 $18,140
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
16. FEDERAL INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $12,429,000, $43,200,000 and
$25,000,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
17. RISK-BASED CAPITAL:
Effective December 31, 1993 the NAIC adopted risk-based capital requirements for
life insurance companies. The risk-based capital requirements provide a method
for measuring the minimum acceptable amount of adjusted capital that a life
insurer should have, as determined under statutory accounting practices, taking
into account the risk characteristics of its investments and products. The
Company has met the minimum risk-based capital requirements for 1995 and 1994.
18. NEW ACCOUNTING PRONOUNCEMENT:
In April, 1993, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." Under this
interpretation, annual financial statements of mutual life insurance enterprises
for fiscal years beginning after December 15, 1992, shall provide a brief
description that financial statements prepared on the basis of statutory
accounting practices will no longer be described as prepared in conformity with
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED):
generally accepted accounting principles. In January 1995, Statement of
Financial Accounting Standards No. 120 (SFAS No. 120) "Accounting and Reporting
by Mutual Life Insurance Enterprises for Certain Long Duration Participating
Contracts" was issued. SFAS No. 120 delays the effective date of interpretation
No. 40 until fiscal years beginning after December 15, 1995.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS
We have audited the accompanying balance sheets of Sun Life Assurance
Company of Canada (U.S.) (a wholly-owned subsidiary of Sun Life Assurance
Company of Canada) as of December 31, 1995 and 1994, and the related statements
of operations, capital stock and surplus, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1996
65
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
ACCOUNT VALUES AND CASH SURRENDER VALUES
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, SURRENDER VALUES
AND ACCUMULATED PREMIUMS
The Tables on the following pages illustrate the way in which a Policy's
Death Benefit, Account Value and Cash Surrender Value could vary over an
extended period of time. They assume that all Premiums are allocated to and
remain in the Variable Account for the entire period shown and are based on
hypothetical gross annual investment returns for the Portfolios (i.e.,
investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross annual rates of 0%, 6%, and 12% over the periods
indicated.
All Tables illustrate a Policy where the Insured is a male, Issue Age 45, in
the preferred (non-tobacco) rate class. These illustrations all assume a Total
Face Amount of $500,000 and payment of an annual Premium of $12,600. Tables 1,
2, 5 & 6 assume a Specified Face Amount of $500,000. Tables 3 and 4 assume a
Specified Face Amount of $50,000 and an APB Rider Face Amount of $450,000.
Tables 1 and 2 are based on guaranteed issue underwriting, Death Benefit Option
A, the Cash Value Accumulation Test and a Specified Face Amount of $500,000.
Tables 3 and 4 are based on the same assumptions, except that the Total Face
Amount reflects a Specified Face Amount of $50,000 and an APB Rider Face Amount
of $450,000. Tables 5 and 6 are based on full medical underwriting, Death
Benefit Option B, the Guideline Premium Test, and a Specified Face Amount of
$500,000. Tables 1, 3 and 5 differ from Tables 2, 4 and 6, respectively, only in
that Tables 1, 3 and 5 reflect the deduction of current Policy charges as
outlined below, while Tables 2, 4 and 6 reflect the deduction of Policy charges
at the guaranteed maximum rates (except that Kentucky Policy Owners will have
higher premium tax deductions than those reflected).
The Account Values and Death Benefits would be different from those shown if
the gross annual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below such averages for individual
Policy Years. The values would also be different depending on the allocation of
a Policy's total Account Value among the Sub-Accounts of the Variable Account,
if the actual rates of return averaged 0%, 6% or 12%, but the rates of each
Portfolio varied above and below such averages.
The amounts shown for the Death Benefits and Account Values take into
account all charges and deductions imposed under the Policy based on the
assumptions set forth in the Tables. These include: Expense Charges Applied to
Premium, assuming a premium tax rate of 2% for Tables 1, 3 and 5 and 4% for
Tables 2, 4 and 6. The Daily Risk Percentage charged against the Separate
Account for mortality and expense risks, at an effective annual rate of 0.75%
for the first 10 Policy Years and 0.35% thereafter for Tables 1, 3 and 5, and
0.90% for all Policy Years for Tables 2, 4 and 6; the Monthly Expense Charge of
$13.75 per month for the first Policy Year and $7.50 per month thereafter for
Tables 1, 3 and 5, and $13.75 per month for all Policy Years for Tables 2, 4,
and 6; and the Monthly Cost of Insurance based on current charges for Tables 1,
3 and 5, and guaranteed charges for Tables 2, 4, and 6.
The amounts shown in the Tables also take into account the Portfolios'
advisory fees and operating expenses, which are assumed to be at an annual rate
of 0.76% of the average daily net assets of each Portfolio. This is based upon a
simple average of the advisory fees and expenses of all the Portfolios for the
most recent fiscal year taking into account any applicable expense caps or
expense reimbursement arrangements. Actual fees and expenses of the Portfolios
may be more or less than 0.76%, will vary from year to year, and will depend
upon how Account Value is allocated among the Sub-Accounts. See the individual
prospectus for each Portfolio for more information on Portfolio expenses.
The gross annual rates of investment return of 0%, 6% and 12% correspond to
net annual rates of -1.50%, 4.46%, and 10.41%, respectively, during the first 10
Policy Years and -1.11%, 4.87%, and 10.85%, respectively, thereafter taking into
account the current Daily Risk Percentage and the assumed 0.76% charge for the
Portfolio's advisory fees and operating expenses; and -1.65%, 4.30% and 10.25%,
respectively taking into account the guaranteed Daily Risk Percentage.
A-1
<PAGE>
The hypothetical returns shown in the Tables do not reflect any charges for
income taxes against the Separate Account since no charges are currently made.
If, in the future, such charges are made, in order to produce the illustrated
death benefits and cash values, the gross annual investment rate of return would
have to exceed 0%, 6%, or 12% by a sufficient amount to cover the tax charges.
The second column of each Table shows the amount which would accumulate if
an amount equal to each Premium were invested and earned interest, after taxes,
at 5% per year, compounded annually.
We will furnish upon request a comparable Table using any specific set of
circumstances. In addition to a Table assuming Policy charges at their maximum,
we will furnish a Table assuming current Policy charges.
A-2
<PAGE>
TABLE 1
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SUN LIFE CORPORATE VUL
MALE, PREFERRED, GI, AGE 45
$500,000 SPECIFIED FACE AMOUNT
ANNUAL PREMIUM: $12,600.00
DEATH BENEFIT OPTION A
CASH VALUE ACCUMULATION TEST
CURRENT POLICY CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 12%
HYPOTHETICAL 0% HYPOTHETICAL 6% GROSS INVESTMENT
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PREMIUMS NET -1.50% NET 4.46% NET 10.41%
PAID PLUS ----------------------------------- ----------------------------------- ----------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- --------- ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 10,925 10,169 500,000 11,565 10,809 500,000 12,204 11,448
2 27,121 20,651 19,895 500,000 22,559 21,803 500,000 24,544 23,788
3 41,708 30,026 29,270 500,000 33,837 33,081 500,000 37,962 37,206
4 57,023 38,380 38,380 500,000 44,741 44,741 500,000 51,905 51,905
5 73,104 47,270 47,270 500,000 56,845 56,845 500,000 68,072 68,072
6 89,989 55,980 55,980 500,000 69,454 69,454 500,000 85,902 85,902
7 107,719 64,535 64,535 500,000 82,616 82,616 500,000 105,603 105,603
8 126,335 74,029 74,029 500,000 97,516 97,516 500,000 128,601 128,601
9 145,881 83,314 83,314 500,000 113,039 113,039 500,000 153,994 153,994
10 166,406 92,406 92,406 500,000 129,232 129,232 500,000 182,060 182,060
11 187,956 101,678 101,678 500,000 146,682 146,682 500,000 213,923 213,923
12 210,584 110,709 110,709 500,000 164,902 164,902 500,000 249,222 249,222
13 234,343 119,502 119,502 500,000 183,943 183,943 500,000 288,090 288,090
14 259,290 128,052 128,052 500,000 203,856 203,856 500,000 330,859 330,859
15 285,484 136,404 136,404 500,000 224,739 224,739 500,000 377,956 377,956
16 312,989 144,417 144,417 500,000 246,552 246,552 500,000 429,661 429,661
17 341,868 152,125 152,125 500,000 269,395 269,395 501,922 486,444 486,444
18 372,191 159,539 159,539 500,000 293,163 293,163 532,725 548,811 548,811
19 404,031 166,616 166,616 500,000 317,799 317,799 563,520 617,238 617,238
20 437,463 173,376 173,376 500,000 343,345 343,345 594,418 692,332 692,332
Age 60 285,484 136,404 136,404 500,000 224,739 224,739 500,000 377,956 377,956
Age 65 437,463 173,376 173,376 500,000 343,345 343,345 594,418 692,332 692,332
Age 70 631,430 201,236 201,236 500,000 484,908 484,908 751,233 1,190,109 1,190,109
Age 75 878,986 216,310 216,310 500,000 650,644 650,644 914,467 1,968,491 1,968,491
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- --------- -----------
<S> <C>
1 500,000
2 500,000
3 500,000
4 500,000
5 500,000
6 500,000
7 500,000
8 500,000
9 500,000
10 500,000
11 500,000
12 529,453
13 595,687
14 666,134
15 741,247
16 821,144
17 906,317
18 997,280
19 1,094,486
20 1,198,605
Age 60 741,247
Age 65 1,198,605
Age 70 1,843,748
Age 75 2,766,675
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans have been made. Excessive loans or withdrawals
may cause this Policy to lapse due to insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICY OWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS
WERE MADE. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
A-3
<PAGE>
TABLE 2
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SUN LIFE CORPORATE VUL
MALE, PREFERRED, GI, AGE 45
$500,000 SPECIFIED FACE AMOUNT
ANNUAL PREMIUM: $12,600.00
DEATH BENEFIT OPTION A
CASH VALUE ACCUMULATION TEST
GUARANTEED POLICY CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 12%
HYPOTHETICAL 0% HYPOTHETICAL 6% GROSS INVESTMENT
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PREMIUMS NET -1.65% NET 4.30% NET 10.25%
PAID PLUS ----------------------------------- ----------------------------------- ----------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- --------- ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 9,035 8,279 500,000 9,615 8,859 500,000 10,197 9,441
2 27,121 17,037 16,281 500,000 18,715 17,959 500,000 20,466 19,710
3 41,708 24,758 24,002 500,000 28,061 27,305 500,000 31,646 30,890
4 57,023 31,441 31,441 500,000 36,906 36,906 500,000 43,081 43,081
5 73,104 38,585 38,585 500,000 46,760 46,760 500,000 56,379 56,379
6 89,989 45,429 45,429 500,000 56,875 56,875 500,000 70,904 70,904
7 107,719 51,944 51,944 500,000 67,236 67,236 500,000 86,769 86,769
8 126,335 59,203 59,203 500,000 78,995 78,995 500,000 105,337 105,337
9 145,881 66,076 66,076 500,000 91,044 91,044 500,000 125,672 125,672
10 166,406 72,536 72,536 500,000 103,376 103,376 500,000 147,969 147,969
11 187,956 78,570 78,570 500,000 116,003 116,003 500,000 172,468 172,468
12 210,584 84,159 84,159 500,000 128,935 128,935 500,000 199,442 199,442
13 234,343 89,301 89,301 500,000 142,200 142,200 500,000 229,220 229,220
14 259,290 93,979 93,979 500,000 155,820 155,820 500,000 262,030 262,030
15 285,484 98,173 98,173 500,000 169,819 169,819 500,000 297,607 297,607
16 312,989 101,843 101,843 500,000 184,211 184,211 500,000 336,122 336,122
17 341,868 104,939 104,939 500,000 199,011 199,011 500,000 377,780 377,780
18 372,191 107,397 107,397 500,000 214,233 214,233 500,000 422,784 422,784
19 404,031 109,137 109,137 500,000 229,894 229,894 500,000 471,341 471,341
20 437,463 110,081 110,081 500,000 246,028 246,028 500,000 523,670 523,670
Age 60 285,484 98,173 98,173 500,000 169,819 169,819 500,000 297,607 297,607
Age 65 437,463 110,081 110,081 500,000 246,028 246,028 500,000 523,670 523,670
Age 70 631,430 100,172 100,172 500,000 335,833 335,833 520,281 851,335 851,335
Age 75 878,986 51,312 51,312 500,000 433,735 433,735 609,606 1,316,068 1,316,068
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- --------- -----------
<S> <C>
1 500,000
2 500,000
3 500,000
4 500,000
5 500,000
6 500,000
7 500,000
8 500,000
9 500,000
10 500,000
11 500,000
12 500,000
13 500,000
14 527,558
15 583,667
16 642,379
17 703,859
18 768,268
19 835,781
20 906,607
Age 60 583,667
Age 65 906,607
Age 70 1,318,911
Age 75 1,849,707
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans have been made. Excessive loans or withdrawals
may cause this Policy to lapse due to insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICY OWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS
WERE MADE. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
A-4
<PAGE>
TABLE 3
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SUN LIFE CORPORATE VARIABLE UNIVERSAL LIFE POLICY
MALE, PREFERRED, GI, AGE 45
$50,000 SPECIFIED FACE AMOUNT
$450,000 APB RIDER FACE AMOUNT
ANNUAL PREMIUM: $12,600.00
DEATH BENEFIT OPTION A
CASH VALUE ACCUMULATION TEST
CURRENT POLICY CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 12%
HYPOTHETICAL 0% HYPOTHETICAL 6% GROSS INVESTMENT
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PREMIUMS NET -1.50% NET 4.46% NET 10.41%
PAID PLUS ----------------------------------- ----------------------------------- ----------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- --------- ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 11,187 10,800 500,000 11,864 11,477 500,000 12,542 12,155
2 27,121 21,536 21,149 500,000 23,559 23,172 500,000 25,664 25,277
3 41,708 31,527 31,139 500,000 35,571 35,184 500,000 39,949 39,562
4 57,023 40,858 40,858 500,000 47,614 47,614 500,000 55,222 55,222
5 73,104 50,350 50,350 500,000 60,525 60,525 500,000 72,453 72,453
6 89,989 59,655 59,655 500,000 73,980 73,980 500,000 91,464 91,464
7 107,719 68,799 68,799 500,000 88,030 88,030 500,000 112,472 112,472
8 126,335 78,244 78,244 500,000 103,191 103,191 500,000 136,212 136,212
9 145,881 87,481 87,481 500,000 118,989 118,989 500,000 162,428 162,428
10 166,406 96,527 96,527 500,000 135,471 135,471 500,000 191,409 191,409
11 187,956 105,770 105,770 500,000 153,253 153,253 500,000 224,331 224,331
12 210,584 114,775 114,775 500,000 171,825 171,825 500,000 260,714 260,714
13 234,343 123,544 123,544 500,000 191,241 191,241 500,000 300,759 300,759
14 259,290 132,072 132,072 500,000 211,554 211,554 500,000 344,822 344,822
15 285,484 140,403 140,403 500,000 232,862 232,862 500,000 393,344 393,344
16 312,989 148,401 148,401 500,000 255,130 255,130 500,000 446,611 446,611
17 341,868 156,095 156,095 500,000 278,388 278,388 518,677 505,109 505,109
18 372,191 163,498 163,498 500,000 302,528 302,528 549,744 569,358 569,358
19 404,031 170,569 170,569 500,000 327,549 327,549 580,809 639,848 639,848
20 437,463 177,326 177,326 500,000 353,492 353,492 611,986 717,205 717,205
Age 60 285,484 140,403 140,403 500,000 232,862 232,862 500,000 393,344 393,344
Age 65 437,463 177,326 177,326 500,000 353,492 353,492 611,986 717,205 717,205
Age 70 631,430 205,250 205,250 500,000 497,229 497,229 770,321 1,229,956 1,229,956
Age 75 878,986 220,582 220,582 500,000 665,457 665,457 935,287 2,031,707 2,031,707
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- --------- -----------
<S> <C>
1 500,000
2 500,000
3 500,000
4 500,000
5 500,000
6 500,000
7 500,000
8 500,000
9 500,000
10 500,000
11 500,000
12 553,868
13 621,883
14 694,247
15 771,426
16 853,539
17 941,092
18 1,034,616
19 1,134,579
20 1,241,666
Age 60 771,426
Age 65 1,241,666
Age 70 1,905,481
Age 75 2,855,524
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans have been made. Excessive loans or withdrawals
may cause this Policy to lapse due to insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICY OWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS
WERE MADE. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
A-5
<PAGE>
TABLE 4
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SUN LIFE CORPORATE VARIABLE UNIVERSAL LIFE POLICY
MALE, PREFERRED, GI, AGE 45
$50,000 SPECIFIED FACE AMOUNT
$450,000 APB RIDER FACE AMOUNT
ANNUAL PREMIUM: $12,600.00
DEATH BENEFIT OPTION A
CASH VALUE ACCUMULATION TEST
GUARANTEED POLICY CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 12%
HYPOTHETICAL 0% HYPOTHETICAL 6% GROSS INVESTMENT
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PREMIUMS NET -1.65% NET 4.30% NET 10.25%
PAID PLUS ----------------------------------- ----------------------------------- ----------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- --------- ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 8,788 8,401 500,000 9,393 9,006 500,000 9,999 9,612
2 27,121 16,873 16,486 500,000 18,611 18,224 500,000 20,426 20,039
3 41,708 24,657 24,270 500,000 28,068 27,681 500,000 31,775 31,388
4 57,023 31,754 31,754 500,000 37,388 37,388 500,000 43,764 43,764
5 73,104 38,919 38,919 500,000 47,342 47,342 500,000 57,270 57,270
6 89,989 45,760 45,760 500,000 57,552 57,552 500,000 72,036 72,036
7 107,719 52,240 52,240 500,000 67,999 67,999 500,000 88,182 88,182
8 126,335 58,795 58,795 500,000 79,165 79,165 500,000 106,377 106,377
9 145,881 64,926 64,926 500,000 90,576 90,576 500,000 126,333 126,333
10 166,406 70,596 70,596 500,000 102,223 102,223 500,000 148,260 148,260
11 187,956 75,787 75,787 500,000 114,117 114,117 500,000 172,418 172,418
12 210,584 80,472 80,472 500,000 126,265 126,265 500,000 199,110 199,110
13 234,343 84,639 84,639 500,000 138,697 138,697 500,000 228,705 228,705
14 259,290 88,265 88,265 500,000 151,435 151,435 500,000 261,458 261,458
15 285,484 91,316 91,316 500,000 164,502 164,502 500,000 296,985 296,985
16 312,989 93,734 93,734 500,000 177,911 177,911 500,000 335,446 335,446
17 341,868 95,449 95,449 500,000 191,675 191,675 500,000 377,045 377,045
18 372,191 96,367 96,367 500,000 205,805 205,805 500,000 421,987 421,987
19 404,031 96,373 96,373 500,000 220,315 220,315 500,000 470,476 470,476
20 437,463 95,350 95,350 500,000 235,238 235,238 500,000 522,733 522,733
Age 60 285,484 91,316 91,316 500,000 164,502 164,502 500,000 296,985 296,985
Age 65 437,463 95,350 95,350 500,000 235,238 235,238 500,000 522,733 522,733
Age 70 631,430 70,310 70,310 500,000 318,907 318,907 500,000 849,945 849,945
Age 75 878,986 0 0 0 415,023 415,023 583,306 1,314,042 1,314,042
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- --------- -----------
<S> <C>
1 500,000
2 500,000
3 500,000
4 500,000
5 500,000
6 500,000
7 500,000
8 500,000
9 500,000
10 500,000
11 500,000
12 500,000
13 500,000
14 526,405
15 582,446
16 641,086
17 702,490
18 766,820
19 834,248
20 904,985
Age 60 582,446
Age 65 904,985
Age 70 1,316,758
Age 75 1,846,860
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans have been made. Excessive loans or withdrawals
may cause this Policy to lapse due to insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICY OWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS
WERE MADE. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
A-6
<PAGE>
TABLE 5
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SUN LIFE CORPORATE VUL
MALE, PREFERRED, MI, AGE 45
$500,000 SPECIFIED FACE AMOUNT
ANNUAL PREMIUM: $12,600.00
DEATH BENEFIT OPTION B
GUIDELINE PREMIUM TEST
CURRENT POLICY CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 12%
HYPOTHETICAL 0% HYPOTHETICAL 6% GROSS INVESTMENT
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PREMIUMS NET -1.50% NET 4.46% NET 10.41%
PAID PLUS ----------------------------------- ------------------------------------- ----------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 11,109 10,353 510,353 11,753 10,997 510,997 12,397 11,641
2 27,121 21,089 20,333 520,333 23,017 22,261 522,261 25,022 24,266
3 41,708 30,765 30,009 530,009 34,623 33,867 533,867 38,798 38,042
4 57,023 39,420 39,420 539,420 45,869 45,869 545,869 53,126 53,126
5 73,104 48,590 48,590 548,590 58,301 58,301 558,301 69,675 69,675
6 89,989 57,633 57,633 557,633 71,300 71,300 571,300 87,959 87,959
7 107,719 66,452 66,452 566,452 84,786 84,786 584,786 108,053 108,053
8 126,335 76,135 76,135 576,135 99,933 99,933 599,933 131,361 131,361
9 145,881 85,548 85,548 585,548 115,627 115,627 615,627 156,965 156,965
10 166,406 94,677 94,677 594,677 131,873 131,873 631,873 185,085 185,085
11 187,956 103,894 103,894 603,894 149,243 149,243 649,243 216,795 216,795
12 210,584 112,759 112,759 612,759 167,202 167,202 667,202 251,682 251,682
13 234,343 121,234 121,234 621,234 185,736 185,736 685,736 290,047 290,047
14 259,290 129,286 129,286 629,286 204,836 204,836 704,836 332,229 332,229
15 285,484 136,927 136,927 636,927 224,536 224,536 724,536 378,650 378,650
16 312,989 143,928 143,928 643,928 244,625 244,625 744,625 429,522 429,522
17 341,868 150,452 150,452 650,452 265,282 265,282 765,282 485,494 485,494
18 372,191 156,510 156,510 656,510 286,541 286,541 786,541 547,124 547,124
19 404,031 162,023 162,023 662,023 308,345 308,345 808,345 614,939 614,939
20 437,463 167,009 167,009 667,009 330,733 330,733 830,733 689,623 689,623
Age 60 285,484 136,927 136,927 636,927 224,536 224,536 724,536 378,650 378,650
Age 65 437,463 167,009 167,009 667,009 330,733 330,733 830,733 689,623 689,623
Age 70 631,430 181,567 181,567 681,567 449,545 449,545 949,545 1,191,958 1,191,958
Age 75 878,986 172,760 172,760 672,760 574,400 574,400 1,074,400 2,003,188 2,003,188
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- --------- -----------
<S> <C>
1 511,641
2 524,266
3 538,042
4 553,126
5 569,675
6 587,959
7 608,053
8 631,361
9 656,965
10 685,085
11 716,795
12 751,682
13 790,047
14 832,229
15 878,650
16 929,522
17 985,494
18 1,047,124
19 1,114,939
20 1,189,623
Age 60 878,650
Age 65 1,189,623
Age 70 1,691,958
Age 75 2,503,188
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans have been made. Excessive loans or withdrawals
may cause this Policy to lapse due to insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICY OWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS
WERE MADE. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
A-7
<PAGE>
TABLE 6
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SUN LIFE CORPORATE VUL
MALE, PREFERRED, MI, AGE 45
$500,000 SPECIFIED FACE AMOUNT
ANNUAL PREMIUM: $12,600.00
DEATH BENEFIT OPTION B
GUIDELINE PREMIUM TEST
GUARANTEED POLICY CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 12%
HYPOTHETICAL 0% HYPOTHETICAL 6% GROSS INVESTMENT
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PREMIUMS NET -1.65% NET 4.30% NET 10.25%
PAID PLUS ----------------------------------- ----------------------------------- ----------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- --------- ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 8,992 8,236 508,236 9,569 8,813 508,813 10,148 9,392
2 27,121 16,908 16,152 516,152 18,572 17,816 517,816 20,308 19,552
3 41,708 24,495 23,739 523,739 27,758 27,002 527,002 31,300 30,544
4 57,023 30,993 30,993 530,993 36,370 36,370 536,370 42,443 42,443
5 73,104 37,894 37,894 537,894 45,900 45,900 545,900 55,315 55,315
6 89,989 44,434 44,434 544,434 55,585 55,585 555,585 69,244 69,244
7 107,719 50,572 50,572 550,572 65,386 65,386 565,386 84,292 84,292
8 126,335 57,366 57,366 557,366 76,421 76,421 576,421 101,752 101,752
9 145,881 63,676 63,676 563,676 87,548 87,548 587,548 120,608 120,608
10 166,406 69,459 69,459 569,459 98,719 98,719 598,719 140,952 140,952
11 187,956 74,695 74,695 574,695 109,907 109,907 609,907 162,903 162,903
12 210,584 79,353 79,353 579,353 121,070 121,070 621,070 186,585 186,585
13 234,343 83,421 83,421 583,421 132,187 132,187 632,187 212,154 212,154
14 259,290 86,876 86,876 586,876 143,220 143,220 643,220 239,767 239,767
15 285,484 89,687 89,687 589,687 154,125 154,125 654,125 269,592 269,592
16 312,989 91,800 91,800 591,800 164,829 164,829 664,829 301,785 301,785
17 341,868 93,152 93,152 593,152 175,248 175,248 675,248 336,512 336,512
18 372,191 93,660 93,660 593,660 185,271 185,271 685,271 373,932 373,932
19 404,031 93,229 93,229 593,229 194,768 194,768 694,768 414,205 414,205
20 437,463 91,769 91,769 591,769 203,610 203,610 703,610 457,514 457,514
Age 60 285,484 89,687 89,687 589,687 154,125 154,125 654,125 269,592 269,592
Age 65 437,463 91,769 91,769 591,769 203,610 203,610 703,610 457,514 457,514
Age 70 631,430 66,580 66,580 566,580 233,634 233,634 733,634 728,037 728,037
Age 75 878,986 590 590 500,590 221,821 221,821 721,821 1,112,891 1,112,891
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- --------- -----------
<S> <C>
1 509,392
2 519,552
3 530,544
4 542,443
5 555,315
6 569,244
7 584,292
8 601,752
9 620,608
10 640,952
11 662,903
12 686,585
13 712,154
14 739,767
15 769,592
16 801,785
17 836,512
18 873,932
19 914,205
20 957,514
Age 60 769,592
Age 65 957,514
Age 70 1,228,037
Age 75 1,612,891
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans have been made. Excessive loans or withdrawals
may cause this Policy to lapse due to insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICY OWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS
WERE MADE. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
A-8
