<PAGE>
Registration No. 333-13087
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
POST-EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-6
FOR REGISTRATION UNDER
THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
_______________
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
(Exact name of trust)
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Exact name of depositor)
ONE SUN LIFE EXECUTIVE PARK, WELLESLEY HILLS, MASSACHUSETTS 02181
(Address of depositor's principal executive office)
MARGARET SEARS MEAD, ASSISTANT Copies to:
VICE PRESIDENT AND SECRETARY RUTH S. EPSTEIN, ESQ.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) COVINGTON & BURLING
ONE SUN LIFE EXECUTIVE PARK 1201 PENNSYLVANIA AVENUE, N.W.
WELLESLEY HILLS, MASSACHUSETTS 02181 P.O. BOX 7566
(Name and address of agent for service) WASHINGTON, D.C. 20044
/X/ It is proposed that this filing become effective on May 1, 1998 pursuant
to paragraph (b) of Rule 485.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
REGISTRATION ON FORM S-6
CROSS-REFERENCE SHEET
REQUIRED BY RULE 404(C) UNDER THE SECURITIES ACT OF 1933
FORM N-8B-2
ITEM NO. LOCATION IN PROSPECTUS; CAPTION
- ----------- -------------------------------
1 COVER PAGE.
2 COVER PAGE; THE COMPANY, THE VARIABLE ACCOUNT AND
THE FUNDS -- THE COMPANY.
3 COVER PAGE; THE COMPANY, THE VARIABLE ACCOUNT AND
THE FUNDS -- THE COMPANY; THE COMPANY, THE VARIABLE
ACCOUNT AND THE FUNDS -- THE VARIABLE ACCOUNT.
4 DISTRIBUTION OF THE POLICIES.
5 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS --
THE VARIABLE ACCOUNT.
6 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS --
THE VARIABLE ACCOUNT.
9 LEGAL PROCEEDINGS
10 SUMMARY OF THE POLICY; THE POLICY; PREMIUM
PAYMENTS; DEATH BENEFIT; ACCOUNT VALUE; CHARGES,
DEDUCTIONS AND REFUNDS; POLICY LOANS; GENERAL
PROVISIONS -- ADDITIONS, DELETIONS OR SUBSTITUTION OF
INVESTMENTS; GENERAL PROVISIONS -- CHANGE IN THE
OPERATION OF THE VARIABLE ACCOUNT; GENERAL PROVISIONS
-- MATURITY; GENERAL PROVISIONS -- MODIFICATION;
GENERAL PROVISIONS -- VOTING RIGHTS; FEDERAL TAX
STATUS.
11 SUMMARY OF THE POLICY; THE COMPANY, THE VARIABLE
ACCOUNT AND THE FUNDS -- THE VARIABLE ACCOUNT; THE
COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS -- THE
FUNDS.
I-2
<PAGE>
FORM N-8B-2
ITEM NO. LOCATION IN PROSPECTUS; CAPTION
- ----------- -------------------------------
12 SUMMARY OF THE POLICY; THE COMPANY, THE VARIABLE
ACCOUNT AND THE FUNDS -- THE FUNDS.
13 SUMMARY OF THE POLICY; THE COMPANY, THE VARIABLE
ACCOUNT AND THE FUNDS -- THE FUNDS, CHARGES,
DEDUCTIONS AND REFUNDS; DISTRIBUTION OF THE POLICIES.
14 THE POLICY -- APPLICATION AND ISSUANCE OF A POLICY.
15 THE POLICY -- APPLICATION AND ISSUANCE OF A POLICY; THE
POLICY -- FREE LOOK PERIOD; PREMIUM PAYMENTS -- PLANNED
PERIODIC PREMIUMS; PREMIUM PAYMENTS -- ALLOCATION OF NET
PREMIUM; ACCOUNT VALUE -- ACCOUNT VALUE IN THE
SUB-ACCOUNTS; ACCOUNT VALUE -- TRANSFER PRIVILEGES.
16 PREMIUM PAYMENTS -- ALLOCATION OF NET PREMIUM; ACCOUNT
VALUE -- ACCOUNT VALUE IN THE SUB-ACCOUNTS; ACCOUNT
VALUE -- NET INVESTMENT FACTOR; ACCOUNT VALUE --
ACCOUNT VALUE IN THE LOAN ACCOUNT; ACCOUNT VALUE --
TRANSFER PRIVILEGES; ACCOUNT VALUE -- ALLOCATION OF
PARTIAL SURRENDER; POLICY LOANS.
17 THE POLICY -- FREE LOOK PERIOD; ACCOUNT VALUE --
SURRENDER; ACCOUNT VALUE -- PARTIAL SURRENDER;
ACCOUNT VALUE -- ALLOCATION OF PARTIAL SURRENDER;
POLICY LOANS.
18 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
-- THE VARIABLE ACCOUNT; ACCOUNT VALUE -- ACCOUNT
VALUE IN THE SUB-ACCOUNTS; ACCOUNT VALUE -- NET
INVESTMENT FACTOR.
I-3
<PAGE>
FORM N-8B-2
ITEM NO. LOCATION IN PROSPECTUS; CAPTION
- ----------- -------------------------------
19 GENERAL PROVISIONS -- REPORT TO OWNER; OTHER
CONTRACTUAL ARRANGEMENTS -- ADMINISTRATION.
20 NOT APPLICABLE.
21 DEATH BENEFIT -- BENEFITS AT DEATH; ACCOUNT VALUE --
ACCOUNT VALUE IN THE LOAN ACCOUNT; POLICY LOANS.
22 NOT APPLICABLE.
23 THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS.
24 NOT APPLICABLE.
25 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
-- THE COMPANY.
26 NOT APPLICABLE.
27 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
-- THE COMPANY.
28 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
-- THE COMPANY; THE COMPANY'S DIRECTORS AND EXECUTIVE
OFFICERS.
29 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
-- THE COMPANY; THE COMPANY'S DIRECTORS AND EXECUTIVE
OFFICERS.
30 NOT APPLICABLE.
31 NOT APPLICABLE.
32 NOT APPLICABLE.
33 NOT APPLICABLE.
I-4
<PAGE>
FORM N-8B-2
ITEM NO. LOCATION IN PROSPECTUS; CAPTION
- ----------- -------------------------------
34 NOT APPLICABLE.
35 DISTRIBUTION OF THE POLICIES.
37 NOT APPLICABLE.
38 DISTRIBUTION OF THE POLICIES.
39 DISTRIBUTION OF THE POLICIES.
40 NOT APPLICABLE.
41 DISTRIBUTION OF THE POLICIES.
42 NOT APPLICABLE.
43 NOT APPLICABLE.
44 THE POLICY -- APPLICATION AND ISSUANCE OF A POLICY; THE
POLICY -- FREE LOOK PERIOD; PREMIUM PAYMENTS -- PLANNED
PERIODIC PREMIUMS; PREMIUM PAYMENTS -- ALLOCATION OF NET
PREMIUM; ACCOUNT VALUE -- ACCOUNT VALUE IN THE
SUB-ACCOUNTS; ACCOUNT VALUE -- TRANSFER PRIVILEGES.
45 NOT APPLICABLE.
46 THE POLICY -- APPLICATION AND ISSUANCE OF A POLICY; THE
POLICY -- FREE LOOK PERIOD; PREMIUM PAYMENTS -- PLANNED
PERIODIC PREMIUMS; PREMIUM PAYMENTS -- ALLOCATION OF NET
PREMIUM; ACCOUNT VALUE -- ACCOUNT VALUE IN THE
SUB-ACCOUNTS; ACCOUNT VALUE -- TRANSFER PRIVILEGES.
47 NOT APPLICABLE.
48 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
-- THE COMPANY; THE COMPANY, THE VARIABLE ACCOUNT AND
THE FUNDS -- THE VARIABLE ACCOUNT.
49 NOT APPLICABLE.
50 THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
-- THE VARIABLE ACCOUNT.
51 COVER PAGE; THE POLICY; PREMIUM PAYMENTS; DEATH
BENEFIT; ACCOUNT VALUE; CHARGES, DEDUCTIONS AND
REFUNDS; POLICY LOANS; GENERAL PROVISIONS.
I-5
<PAGE>
FORM N-8B-2
ITEM NO. LOCATION IN PROSPECTUS; CAPTION
- ----------- -------------------------------
52 GENERAL PROVISIONS -- ADDITION, DELETION OR SUBSTITUTION OF
INVESTMENTS; GENERAL PROVISIONS -- CHANGE IN THE OPERATION
OF THE VARIABLE ACCOUNT; GENERAL PROVISIONS -- MODIFICATION.
53 FEDERAL TAX STATUS -- TAX TREATMENT OF THE COMPANY.
54 NOT APPLICABLE.
55 NOT APPLICABLE.
I-6
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
ATTACHED HERETO AND MADE A PART HEREOF IS THE PROSPECTUS OF SUN LIFE OF
CANADA (U.S.) VARIABLE ACCOUNT G DATED MAY 1, 1998.
<PAGE>
Sun Life
Corporate VUL-SM-
P r o s p e c t u s
DATED MAY 1, 1998
<PAGE>
PROSPECTUS
MAY 1, 1998
SUN LIFE CORPORATE VUL-SM-
--------------------------------------------------
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
- --------------------------------------------------------------------------------
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 29
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, J.P. Morgan Series Trust II,
Templeton Variable Products Series Fund, Dreyfus Variable Investment Fund and T.
Rowe Price Equity Series.
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,
J.P. MORGAN SERIES TRUST II, TEMPLETON VARIABLE PRODUCTS SERIES FUND, DREYFUS
VARIABLE INVESTMENT FUND AND T. ROWE PRICE EQUITY SERIES. 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary 1
Definitions 4
Summary of the Policy 7
Use of the Policy 8
The Company, the Variable Account and the Funds 9
The Company 9
The Variable Account 9
The Funds 10
Performance Information 13
The Policy 17
Application and Issuance of a Policy 17
Free Look Period 17
Premium Payment 18
Planned Periodic Premiums 18
General Premium Limits 18
Tax Limits on Premium Payments 18
Allocation of Net Premium 18
Modified Endowment Contracts 19
Death Benefit 19
Death Benefit Compliance Test 19
Death Benefit Options 19
Benefits at Death 20
Changes in the Death Benefit Option 20
APB Rider 20
Minimum Face Amount 21
Changes in Face Amount 21
Decreases in Face Amount 21
Increases in Face Amount 21
Account Value 22
Account Value in the Sub-Accounts 22
Net Investment Factor 23
Account Value in the Loan Account 23
Transfer Privileges 24
Surrender 24
Partial Surrender 24
Allocation of Partial Surrender 24
Insufficient Value 24
Grace Period 24
Charges, Deductions and Refunds 25
Expense Charges Deducted as a Percent of Premium 25
Sales Load Refund at Surrender 25
Expense Charges Deducted as a Percent of Assets 25
Expenses of the Underlying Funds 26
Expense Charges Deducted on a Per Policy Basis 27
Monthly Cost of Insurance 27
Reduction of Charges 27
</TABLE>
2
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Policy Loans 28
General Provisions 28
Addition, Deletion or Substitution of Investments 28
Alteration 28
Assignments 28
Change in Operation of the Variable Account 29
Conversion 29
Deferral of Payment 29
Entire Contract 29
Illustrations 29
Incontestability 29
Maturity 30
Misstatement of Age or Sex (Non-Unisex Policy) 30
Modification 30
Nonparticipating 30
Procedure 30
Report to Owner 30
Rights of Beneficiary 30
Rights of Owner 30
Splitting Units 31
Suicide 31
Termination 31
Voting Rights 31
Distribution of the Policies 32
Other Contractual Arrangements 32
Administration 32
Custodian 32
Reinsurance 32
Federal Tax Status 32
Tax Treatment of the Company and the Variable Account 33
Taxation of Policy Proceeds 33
The Company's Directors and Executive Officers 35
State Regulation 38
Legal Proceedings 38
Experts 38
Accountants 39
Registration Statements 39
Financial Statements 39
Appendix A--Illustrations of Death Benefits, Account Values
and Cash Surrender Values A-1
</TABLE>
-------------------
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.
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
SERVICE CENTER: Andesa TPA, Inc., 1605 N. Cedar Crest Blvd., Suite 502,
Allentown, Pennsylvania, 18104-2351, (610) 821-8980 or such other service center
or address as we may hereafter specify to you by written notice.
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.
6
<PAGE>
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
<TABLE>
<S> <C>
- - Capital Appreciation Series - World Growth Series
- - Emerging Growth Series - Conservative Growth Series
- - Government Securities Series - Research Series
- - Total Return Series - Utilities Series
</TABLE>
Fidelity Variable Insurance Products Fund ("VIP") and Fidelity Variable
Insurance Products Fund II ("VIP II")
<TABLE>
<S> <C>
- - VIP II Contrafund Portfolio - VIP II Index 500 Portfolio
- - VIP Equity Income Portfolio - VIP Money Market Portfolio
- - VIP Growth Portfolio - VIP II Investment Grade Bond Portfolio
- - VIP High Income Portfolio - VIP II Asset Manager: Growth Portfolio
</TABLE>
Neuberger&Berman Advisers Management Trust
<TABLE>
<S> <C>
- - Limited Maturity Bond Portfolio - Mid-Cap Growth Portfolio
- - Partners Portfolio
</TABLE>
J.P. Morgan Series Trust II (Advised by J.P. Morgan Investment Management
Inc.)
<TABLE>
<S> <C>
- - J.P. Morgan Bond Portfolio - J.P. Morgan Small Company Portfolio
- - J.P. Morgan Equity Portfolio
</TABLE>
Templeton Variable Products Series Fund
<TABLE>
<S> <C>
- - Templeton Stock Fund: Class 1
</TABLE>
Dreyfus Variable Investment Fund
<TABLE>
<S> <C>
- - Capital Appreciation Portfolio - Small Cap Portfolio
- - Growth and Income Portfolio - Quality Bond Portfolio
</TABLE>
T. Rowe Price Equity Series Inc.
<TABLE>
<S> <C>
- - Equity Income Portfolio - New America Growth Portfolio
</TABLE>
(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
7
<PAGE>
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 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.
8
<PAGE>
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 (781)
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 active subsidiaries are Sun Capital Advisers, Inc., a registered
investment adviser, Clarendon Insurance Agency, Inc., a registered broker-dealer
that acts as the general distributor of the Policies and other annuity and life
insurance contracts issued by the Company and its affiliates, Sun Life of Canada
(U.S.) Distributors, Inc., a registered broker-dealer and investment adviser,
New London Trust, F.S.B., a federally chartered savings bank, Massachusetts
Casualty Insurance Company, which issues individual disability income policies,
and Sun Life Financial Services Limited which provides off-shore administrative
services to the Company and Sun Life Assurance Company of Canada "Sun Life
(Canada)".
Effective May 1, 1997, The Company became a wholly-owned subsidiary of the
newly established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of Sun Life
Assurance Company of Canada-U.S. Operations Holdings, Inc. ("U.S. Holdco"). U.S.
Holdco is a wholly-owned subsidiary of Sun Life (Canada), 150 King Street West,
Toronto, Ontario, Canada. Sun Life (Canada) is a mutual life insurance company
incorporated pursuant to Act of Parliament of Canada in 1865 and currently
transacts business in all of the Canadian provinces and territories, all states
except New York, 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.
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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 29 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 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 page one 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"), an affiliate of the Company. In addition, MFS has
retained Foreign & Colonial Management Limited ("FCM"), and Foreign & Colonial
Emerging Markets Limited, a subsidiary of FCM, as manager to the World Growth
Series. The MFS Series Fund is composed of twenty-five independent portfolios or
securities, eight 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.
- CONSERVATIVE GROWTH SERIES seeks long-term growth of capital and future
income while providing more current dividend income than is normally
obtainable from a portfolio of only growth stocks by investing a
substantial proportion of its assets in the common stocks or securities
convertible into common stocks of companies believed to possess better
than average prospects for long-term growth and a smaller proportion of
its assets in securities whose principal characteristic is income
production.
- 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.
- RESEARCH SERIES seeks to provide long-term growth of capital and future
income.
- 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
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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.
- UTILITIES SERIES seeks capital growth and current income (income above
that available from a portfolio invested entirely in equity securities) by
investing, under normal market conditions, at least 65% of its assets in
equity and debt securities issued by both domestic and foreign utility
companies.
- 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 II FUND. 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 eight portfolios, in the aggregate, are
available for investment under the Policy.
- VIP II ASSET MANAGER: GROWTH PORTFOLIO seeks maximum total return over the
long term by allocating assets among stocks, bonds and short-term
instruments in the U.S. and abroad.
- VIP II CONTRAFUND PORTFOLIO seeks long-term capital appreciation.
Portfolio purchases will normally be common stock and securities
convertible into common stock of companies whose value FMR believes is not
fully recognized by the public.
- VIP II INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current
income as is consistent with the preservation of capital by investing
primarily in a broad range of fixed income securities.
- 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 equity securities with the flexibility to
invest the balance in all types of domestic and foreign securities
including bonds.
- VIP GROWTH PORTFOLIO seeks capital appreciation. Portfolio purchases
normally will be common stocks of both small and mid-sized 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 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
represented 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 eight separate
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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 three AMT Portfolios described below.
- LIMITED MATURITY BOND PORTFOLIO seeks the highest current income
consistent with low risk to principal and liquidity; and secondarily,
total return. AMT Limited Maturity Bond Portfolio invests in a diversified
portfolio consisting primarily of U.S. Government and Agency securities
and investment grade debt securities of financial institutions,
corporations, and others. The dollar weighted average duration of the
series will not exceed four years, although the portfolio may invest in
securities at any duration.
- MID-CAP GROWTH PORTFOLIO seeks capital appreciation by investing in a
diversified portfolio of common stocks believed by Neuberger&Berman
Management Inc. to have the maximum potential for long-term above-average
capital appreciation. Although the Series will invest primarily in the
common stocks of medium capitalization companies, investments may be made
in the securities of larger, widely traded companies as well as smaller,
less well-known companies.
- 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 a company's track record through all parts of the market cycle.
J.P. MORGAN SERIES TRUST II. The J.P. Morgan Series Trust II ("JPM") is a
mutual fund organized as a Delaware business trust. JPM is advised by J.P.
Morgan Investment Management Inc. 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.
- J.P. MORGAN 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.
- J.P. MORGAN EQUITY PORTFOLIO seeks to provide a high total return by
investing in selected equity securities. The portfolio invests primarily
in the common stock of U.S. corporations with market capitalizations above
$1.5 billion.
- J.P. MORGAN SMALL COMPANY PORTFOLIO seeks to provide a high total return
by investing in equity securities of small U.S. companies primarily with
market capitalizations of less than $1 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 several separate series, each of
which has separate investment objectives and policies. The Policy provides for
investment in the class and series of TVPSF described below.
- TEMPLETON STOCK FUND: CLASS 1 seeks capital growth through a policy of
investing primarily in common stocks issued by companies, large and small,
in various nations throughout the world. In pursuit of this objective, the
fund will normally maintain at least 65% of its assets in common and
preferred stocks.
DREYFUS VARIABLE INVESTMENT FUND. Dreyfus Variable Investment Fund is a
mutual fund organized as a Massachusetts business trust. The Dreyfus Corporation
serves as the investment fund's manager, and is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation.
- CAPITAL APPRECIATION PORTFOLIO seeks to provide long-term capital growth
consistent with the preservation of capital; current income is a secondary
goal. This Portfolio invests principally in common stocks of domestic and
foreign issuers.
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- GROWTH AND INCOME PORTFOLIO seeks to provide long-term capital growth,
current income and growth of income, consistent with reasonable investment
risk. The Portfolio invests primarily in equity securities, debt
securities and money market instruments of domestic and foreign issuers.
The proportion of the Portfolio's assets invested in each type of security
will vary from time to time in accordance with Dreyfus' assessment of
economic conditions and investment opportunities.
- SMALL CAP PORTFOLIO seeks to maximize capital appreciation by investing
principally in common stocks; under normal market conditions, the Series
will invest at least 65% of its total assets in companies with market
capitalizations of less than $1.5 billion at the time of purchase which
Dreyfus believes to be characterized by new or innovative products,
services or processes which should enhance prospects for growth in future
earnings.
- QUALITY BOND PORTFOLIO seeks to provide the maximum amount of current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity. The Portfolio invests principally in debt
obligations of corporations, the U.S. Government and its agencies and
instrumentalities, and major U.S. banking institutions.
T. ROWE PRICE EQUITY SERIES, INC. The T. Rowe Price Equity Series, Inc. is
a mutual fund organized as a Maryland business trust. T. Rowe Price Associates,
Inc. serves as investment manager to the Fund.
- EQUITY INCOME PORTFOLIO seeks substantial dividend income as well as
long-term capital appreciation through investments in common stocks of
established companies.
- NEW AMERICA GROWTH PORTFOLIO seeks long-term growth of capital by
investing primarily in the common stocks of U.S. growth companies
operating in service industries.
INVESTMENT ADVISORY FEES AND EXPENSES. Each portfolio has an investment
adviser and pays an investment advisory fee, which is deducted daily from each
portfolio's net assets. In addition, each portfolio incurs operational and other
expenses that are deducted from each portfolio'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
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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 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 were first 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.
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PORTFOLIO PERFORMANCE FOR PERIOD ENDING: DECEMBER 31, 1997
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 Series Trust Capital Appreciation Series 07/19/85 23.14% 26.23% 18.00% 17.95% 16.67%
MFS/Sun Life Series Trust Emerging Growth Series 05/01/95 21.93% NA NA NA 24.90%
MFS/Sun Life Series Trust Government Securities
Series 07/19/85 8.72% 9.15% 6.69% 8.50% 8.65%
MFS/Sun Life Series Trust Total Return Series 05/02/88 21.98% 20.82% 14.35% NA 13.12%
MFS/Sun Life Series Trust World Growth Series 11/16/93 15.32% 14.79% NA NA 13.00%
MFS/Sun Life Series Trust Conservative Growth Series 12/05/86 31.94% 31.49% 19.51% 17.39% 15.27%
MFS/Sun Life Series Trust Research Series 11/07/94 20.86% 27.17% NA NA 25.24%
MFS/Sun Life Series Trust Utilities Series 11/16/93 32.71% 28.35% NA NA 18.49%
Fidelity VIP Equity-Income Portfolio 10/09/86 28.11% 25.52% 20.16% 6.72% 14.66%
Fidelity VIP Growth Portfolio 10/09/86 23.48% 24.23% 18.00% 17.19% 15.56%
Fidelity VIP High Income Portfolio 09/19/85 17.67% 17.44% 13.91% 12.81% 12.45%
Fidelity VIP Money Market Portfolio 04/01/82 5.51% 5.60% 4.85% 5.87% 6.89%
Fidelity VIP II Contrafund Portfolio 01/03/95 24.14% NA NA NA 28.16%
Fidelity VIP II Index 500 Portfolio 08/27/92 32.82% 30.76% 19.91% NA 19.87%
Fidelity VIP II Investment Grade Bond Portfolio 12/05/88 9.06% 9.70% 7.11% NA 8.29%
Fidelity VIP II Asset Manager: Growth Portfolio 01/03/95 25.07% NA NA NA 22.73%
Neuberger&Berman AMT Limited Maturity Bond Portfolio 09/10/84 6.74% 7.29% 5.63% 7.07% 8.16%
Neuberger&Berman AMT Partners Portfolio 03/22/94 31.25% 32.40% NA NA 24.18%
Neuberger&Berman AMT Mid-Cap Growth Portfolio 11/03/97 NA NA NA NA 17.20%
J.P. Morgan Bond Portfolio 01/03/95 9.38% NA NA NA 9.28%
J.P. Morgan Equity Portfolio 01/03/95 27.50% NA NA NA 27.41%
J.P. Morgan Small Company Portfolio 01/03/95 22.50% NA NA NA 25.62%
Templeton Stock Fund: Class 1 08/24/88 11.88% 19.70% 17.59% NA 13.30%
Dreyfus Capital Appreciation Portfolio 04/05/93 28.05% 29.00% NA NA 19.87%
Dreyfus Growth and Income Portfolio 05/02/94 16.21% 31.46% NA NA 24.64%
Dreyfus Small Cap Portfolio 08/31/90 16.75% 20.76% 26.14% NA 43.96%
Dreyfus Quality Bond Portfolio 08/31/90 9.42% 10.76% 8.38% NA 9.59%
T. Rowe Price Equity Income Portfolio 03/31/94 28.85% 27.57% NA NA 23.73%
T. Rowe Price New America Growth Portfolio 03/31/94 21.12% 30.01% NA NA 23.66%
</TABLE>
The annualized yield for the Fidelity VIP Money Market Portfolio for the
seven days ending December 31, 1997 was 5.56%.
SUB-ACCOUNT INVESTMENT PERFORMANCE
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%).
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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 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 PORTFOLIO
- ------------------------------------------------------- ---------- ---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
MFS/Sun Life Series Trust Capital Appreciation Series 22.22% 25.29% 17.12% 17.07% 15.89%
MFS/Sun Life Series Trust Emerging Growth Series 21.02% NA NA NA 23.97%
MFS/Sun Life Series Trust Government Securities Series 7.91% 8.34% 5.90% 7.69% 7.93%
MFS/Sun Life Series Trust Total Return Series 21.07% 19.92% 13.50% NA 12.28%
MFS/Sun Life Series Trust World Growth Series 14.46% 13.94% NA NA 12.16%
MFS/Sun Life Series Trust Conservative Growth Series 30.96% 30.51% 18.62% 16.52% 14.46%
MFS/Sun Life Series Trust Research Series 19.96% 26.22% NA NA 24.31%
MFS/Sun Life Series Trust Utilities Series 31.72% 27.40% NA NA 17.61%
Fidelity VIP Equity-Income Portfolio 27.16% 24.59% 19.27% 5.93% 13.86%
Fidelity VIP Growth Portfolio 22.56% 23.31% 17.12% 16.32% 14.75%
Fidelity VIP High Income Portfolio 16.79% 16.57% 13.06% 11.97% 11.70%
Fidelity VIP Money Market Portfolio 4.72% 4.81% 4.07% 5.08% 6.25%
Fidelity VIP II Contrafund Portfolio 23.22% NA NA NA 27.21%
Fidelity VIP II Index 500 Portfolio 31.83% 29.79% 19.02% NA 18.98%
Fidelity VIP II Investment Grade Bond Portfolio 8.25% 8.88% 6.31% NA 7.48%
Fidelity VIP II Asset Manager: Growth Portfolio 24.14% NA NA NA 21.82%
Neuberger&Berman AMT Limited Maturity Bond Portfolio 5.95% 6.49% 4.84% 6.27% 7.46%
Neuberger&Berman AMT Partners Portfolio 30.27% 31.42% NA NA 23.26%
Neuberger&Berman AMT Mid-Cap Growth Portfolio NA NA NA NA 16.33%
J.P. Morgan Bond Portfolio 8.57% NA NA NA 8.47%
J.P. Morgan Equity Portfolio 26.55% NA NA NA 26.46%
J.P. Morgan Small Company Portfolio 21.59% NA NA NA 24.69%
Templeton Stock Fund: Class 1 11.05% 18.81% 16.72% NA 12.46%
Dreyfus Capital Appreciation Portfolio 27.10% 28.04% NA NA 18.98%
Dreyfus Growth and Income Portfolio 15.35% 30.48% NA NA 23.71%
Dreyfus Small Cap Portfolio 15.88% 19.86% 25.20% NA 42.89%
Dreyfus Quality Bond Portfolio 8.61% 9.94% 7.57% NA 8.77%
T. Rowe Price Equity Income Portfolio 27.89% 26.62% NA NA 22.81%
T. Rowe Price New America Growth Portfolio 20.22% 29.04% NA NA 22.74%
</TABLE>
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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.
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.")
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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.")
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.
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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
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.
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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 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.
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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.
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.")
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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,
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,
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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
(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.
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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,
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
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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 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.
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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, 1997. 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 Series Trust Capital Appreciation Series 0.73% 0.05% 0.78%
MFS/Sun Life Series Trust Emerging Growth Series 0.73% 0.08% 0.81%
MFS/Sun Life Series Trust Government Securities Series 0.55% 0.08% 0.63%
MFS/Sun Life Series Trust Total Return Series 0.66% 0.05% 0.71%
MFS/Sun Life Series Trust World Growth Series 0.88% 0.14% 1.02%
MFS/Sun Life Series Trust Conservative Growth Series 0.55% 0.06% 0.61%
MFS/Sun Life Series Trust Research Series 0.72% 0.07% 0.79%
MFS/Sun Life Series Trust Utilities Series 0.75% 0.11% 0.86%
Fidelity VIP II Contrafund Portfolio 0.60% 0.11% 0.71%(1)
Fidelity VIP Equity-Income Portfolio 0.50% 0.08% 0.58%(1)
Fidelity VIP Growth Portfolio 0.60% 0.09% 0.69%(1)
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.71%
Fidelity VIP II Index 500 Portfolio 0.24% 0.04% 0.28%(2)
Fidelity VIP Money Market Portfolio 0.21% 0.10% 0.31%
Fidelity VIP II Investment Grade Bond Portfolio 0.44% 0.14% 0.58%
Fidelity VIP II Asset Manager: Growth Portfolio 0.60% 0.17% 0.77%
Neuberger&Berman AMT Limited Maturity Bond Portfolio 0.65% 0.12% 0.77%(3)
Neuberger&Berman AMT Partners Portfolio 0.80% 0.06% 0.86%(3)
Neuberger&Berman AMT Mid-Cap Growth Portfolio 0.60% 0.40% 1.00%(3)(4)
J.P. Morgan Bond Portfolio 0.30% 0.45% 0.75%(5)
J.P. Morgan Equity Portfolio 0.40% 0.50% 0.90%(5)
J.P. Morgan Small Company Portfolio 0.60% 0.55% 1.15%(5)
Templeton Stock Fund: Class 1 0.69% 0.19% 0.88%(6)
Dreyfus Capital Appreciation Portfolio 0.75% 0.05% 0.80%
Dreyfus Growth and Income Portfolio 0.75% 0.05% 0.80%
Dreyfus Small Cap Portfolio 0.75% 0.03% 0.78%
Dreyfus Quality Bond Portfolio 0.65% 0.10% 0.75%
T. Rowe Price Equity Income Portfolio 0.85% 0.00% 0.85%
T. Rowe Price New America Growth Portfolio 0.85% 0.00% 0.85%
</TABLE>
- ----------
(1) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented
in the table would have been .56% for VIP Equity-Income Portfolio, .67% for
VIP Growth Portfolio and .71% for VIP II Contrafund Portfolio.
(2) FMR agreed to reimburse a portion of VIP II Index 500 Portfolio's expenses
during the period. Without this reimbursement, the fund's management fee,
other expenses and total expenses would have been .28%, .15% and .43%
respectively.
(3) Neuberger&Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust. The figures
reported under "Management Fees" include the aggregate of the administration
fees paid by the Portfolio and the management fees paid by its corresponding
Series. Similarly, "Other Expenses" includes all other expenses of the
Portfolio and its corresponding Series.
(4) Expenses reflect expense reimbursement NBMI has undertaken to reimburse the
Mid-Cap Growth Portfolio for certain operating expenses, including the
compensation of NBMI and excluding taxes, interest, extraordinary expenses,
brokerage commissions and transaction costs, that exceed, in the aggregate,
1% of the Mid-Cap Growth Portfolio's average daily net asset value. Absent
such reimbursement, the Total Annual Expenses for the year ended December
31, 1997 was estimated to be 1.25% for the Mid-Cap Growth Portfolio. These
expense reimbursement policies are subject to termination upon 60 days
written notice with respect to the Mid-Cap Growth Portfolio, and there can
be no assurance that these policies will be continued thereafter. The
Mid-Cap Growth Portfolio commenced operations on November 3, 1997;
therefore, the expense figures for the Portfolio are estimated.
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<PAGE>
(5) This information reflects current fees and expenses, restated to reflect an
agreement by Morgan Guaranty Trust Company of New York, an affiliate of J.P.
Morgan Investment Management Inc., 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 J.P. Morgan Bond Portfolio, J.P. Morgan Equity
Portfolio and J.P. Morgan Small Company Portfolio, respectively. Without
such reimbursements, total fund annual expenses would have been 1.91% for
the J.P. Morgan Bond Portfolio, 2.31% for the J.P. Morgan Equity Portfolio
and 3.81% for the J.P. Morgan Small Company Portfolio.
(6) Management fees and total operating expenses have been restated to reflect
the management fee schedule approved by shareholders and effective May 1,
1997. See fund prospectus for details. Actual management fees and total fund
operating expenses during 1997 were lower.
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 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.
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<PAGE>
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.
28
<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
29
<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.
30
<PAGE>
RIGHTS OF OWNER
While the Insured is alive, unless you have assigned any of these rights,
you may:
- 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
31
<PAGE>
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.
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, Clarendon Insurance Agency, Inc. ("Clarendon"). Clarendon is a
corporation organized under the laws of Delaware, and is a wholly-owned
subsidiary of the Company. Clarendon 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. Clarendon 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
32
<PAGE>
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 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
33
<PAGE>
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.
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.
34
<PAGE>
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.
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, 64, 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; 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, 51, 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 Financial Services Company, Massachusetts Casualty Insurance
Company and Sun Life Financial Services Limited.
DAVID D. HORN, 56, Director (1985*)
56 Pinckney Street
Boston, Massachusetts 02114
He was formerly Senior Vice President and General Manager for the United
States of Sun Life Assurance Company of Canada, retiring in December, 1997. He
is a Director of Sun Life Insurance and Annuity
- ---------
* Year elected director
35
<PAGE>
Company of New York; a Trustee of MFS/Sun Life Series Trust; and a Member of the
Boards of Managers of Money Market Variable Account, High Yield Variable
Account, Capital Appreciation Variable Account, Government Securities Variable
Account, World Governments Variable Account, Total Return Variable Account and
Managed Sectors Variable Account.
ANGUS A. MACNAUGHTON, 66, 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., Varian Associates, Inc., Diversified Collection
Services, Inc., the San Francisco Opera, and Barrick Gold Corporation.
JOHN S. LANE, 63, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Senior Vice President, Investments of Sun Life Assurance Company of
Canada; and a Director of Sun Life Insurance and Annuity Company of New York.
RICHARD B. BAILEY, 71, 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.
M. COLYER CRUM, 65, Director (1986*)
104 Westcliff Street
Weston, Massachusetts 02193
He is Professor Emeritus of the Harvard Business School; and a Director of
Sun Life Assurance Company of Canada, Sun Life Insurance and Annuity Company of
New York, Cambridge Bancorp, Cambridge Trust, 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 Global 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., MuniYield Florida
Insured Fund, MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield Pennsylvania Fund, and Phaeton International/N.V.
Prior to July, 1996, he was a Professor at the Harvard Business School.
S. CAESAR RABOY, 61, Senior Vice President and Deputy General Manager and
Director (1996*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Senior Vice President and Deputy General Manager for the United States
of Sun Life Assurance Company of Canada; Senior Vice President and a Director of
Sun Life Insurance and Annuity Company of New York; Vice President and a
Director of Sun Life Financial Services Limited; and a Director of Sun Life of
Canada (U.S.) Distributors, Inc. and Clarendon Insurance Agency, Inc.
- ---------
* Year elected director
36
<PAGE>
JAMES M.A. ANDERSON, 48, Vice President, Investments (1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Investments, of Sun Life Assurance Company of Canada
and Sun Life Insurance and Annuity Company of New York; President and a Director
of Sun Capital Advisers, Inc.; Vice President and a Director of Sun Life of
Canada (U.S.) Holdings, Inc., Sun Life of Canada (U.S.) Financial Services
Holdings, Inc., and Sun Canada Financial Co.; Vice President, Investments, and a
Director of Sun Life of Canada (U.S.) Distributors, Inc; and a Director of
Massachusetts Casualty Insurance Company, New London Trust, F.S.B., and Sun
Benefit Services Company, Inc.
ROBERT A. BONNER, 53, Vice President, Individual Insurance (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.
C. JAMES PRIEUR, 47, Senior Vice President, General Manager and Director (1998*)
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; Senior Vice President and a Director of Sun
Life Insurance and Annuity Company of New York; Chairman and a Director of Sun
Life of Canada (U.S.) Distributors, Inc. and Sun Capital Advisers, Inc.;
President and a Director of Sun Life of Canada (U.S.) Holdings, Inc., Sun Life
Assurance Company of Canada -- U.S. Operations Holdings, Inc., Sun Life of
Canada (U.S.) Financial Services Holdings, Inc., Sun Canada Financial Co., Sun
Life of Canada (U.S.) SPE 97-1, Inc., and Sun Benefit Services Company; and a
Director of Clarendon Insurance Agency, Inc. and Massachusetts Casualty
Insurance Company.
L. BROCK THOMSON, 56, 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 Life of Canada
(U.S.) Distributors, Inc., Sun Benefit Services Company, Inc., Sun Life
Insurance and Annuity Company of New York, and Clarendon Insurance Agency, Inc.;
and Assistant Treasurer of Massachusetts Casualty Insurance Company.
ROBERT P. VROLYK, 44, Vice President and Actuary (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Finance of Sun Life Assurance Company of Canada; Vice
President, Controller and Actuary of Sun Life Insurance and Annuity Company of
New York; Vice President and a Director of Sun Life of Canada (U.S.) Holdings,
Inc., Sun Canada Financial Co., Sun Life of Canada (U.S.) Distributors, Inc.,
Sun Life of Canada (U.S.) Financial Services Holdings, Inc., and Sun Life
Assurance Company of Canada -- U.S. Operations Holdings, Inc.; Vice President,
Treasurer and a Director of Sun Capital Advisers, Inc.; Treasurer and a Director
of Sun Life of Canada (U.S.) SPE 97-1, Inc.; and a Director of Clarendon
Insurance Agency, Inc. and Sun Benefit Services Company, Inc.
- ---------
* Year elected director
37
<PAGE>
MARGARET SEARS MEAD, 47, Assistant Vice President and Secretary (1996)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
She is Assistant Vice President and Counsel for the United States of Sun
Life Assurance Company of Canada; Assistant Vice President and Secretary of Sun
Life Insurance and Annuity Company of New York; Secretary of Sun Life of Canada
(U.S.) Holdings, Inc., Sun Life of Canada (U.S.) Distributors, Inc., Sun Life of
Canada (U.S.) Financial Services Holdings, Inc., Sun Life Assurance Company of
Canada -- U.S. Operations Holdings, Inc., Sun Life of Canada (U.S.) SPE 97-1,
Inc., Sun Canada Financial Co., Sun Capital Advisers, Inc., and Sun Benefit
Services Company, Inc.; and Assistant Secretary of Clarendon Insurance Agency,
Inc.
The directors, officers and employees of the Company are covered under a
commercial blanket bond and a liability policy. The directors, officers and
employees of Massachusetts Financial Services Company and Clarendon Insurance
Agency, Inc. are covered under a fidelity bond and errors and omissions policy.
No shares of the Company are owned by any executive officer or director. The
Company is a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.
and an indirect 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.
38
<PAGE>
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.
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 financial statements of the Variable Account as of December 31, 1997 and
1996 and for the period then ended and the statutory financial statements of the
Company as of December 31, 1997 and 1996, and for the years ended December 31,
1997, 1996 and 1995 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, J.P. Morgan Series Trust II, Templeton Variable Products
Series Fund, Dreyfus Variable Investment Fund, T. Rowe Price Equity Series 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, TVPSF, Dreyfus, and T. Rowe Price 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.
39
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENT OF CONDITION-- December 31, 1997
<TABLE>
<CAPTION>
ASSETS:
Investments in MFS/Sun Life Series Trust: Shares Cost Value
---------- ---------- ----------
<S> <C> <C> <C>
Capital Appreciation Series ("CAS")....................................................... -- $ -- $ --
Emerging Growth Series ("EGS")............................................................ 157 2,566 2,823
Government Securities Series ("GSS")...................................................... 11,986 155,804 156,303
Total Return Series ("TRS")............................................................... -- -- --
World Growth Series ("WGO")............................................................... 14,050 195,302 206,258
Investments in Fidelity Variable Insurance Products Fund:
Equity Income Protfolio ("FEI")........................................................... 531 11,825 12,904
Growth Portfolio ("FGP").................................................................. 6,650 245,181 246,710
High Income Portfolio ("FHI")............................................................. -- -- --
Money Market Portfolio ("FMM")............................................................ 105,701 105,701 105,701
Investments in Fidelity Variable Insurance Products Fund II:
Contrafund Portfolio ("FCN").............................................................. 327 5,911 6,519
Index 500 Portfolio ("FIP")............................................................... 8,550 875,071 978,008
Investments in Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio ("NLM")................................................... 188 2,566 2,656
Partners Portfolio ("NPP")................................................................ 5,998 122,590 123,550
Investments in JPM Series Trust II:
Bond Portfolio ("JBP").................................................................... 8,788 99,309 99,214
Equity Portfolio ("JEP").................................................................. -- -- --
Small Company Portfolio ("JSC")........................................................... -- -- --
Investments in Templeton Variable Products Series Fund:
Templeton Stock Fund ("TSF").............................................................. 3,442 80,591 79,825
---------- ----------
Net Assets:........................................................................... $1,902,417 $2,020,471
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS:
Unit
Units Value Value
--------- -------- ----------
<S> <C> <C> <C>
CAS.................................................. -- $ 9.9283 $ --
EGS.................................................. 257 11.0026 2,823
GSS.................................................. 14,789 10.5688 156,303
TRS.................................................. -- 10.4715 --
WGO.................................................. 19,525 10.5640 206,258
FEI.................................................. 1,182 10.9124 12,904
FGP.................................................. 24,099 10.2373 246,710
FHI.................................................. -- 10.6343 --
FCN.................................................. 591 11.0288 6,519
FIP.................................................. 84,660 11.5522 978,008
NLM.................................................. 257 10.3519 2,656
NPP.................................................. 11,653 10.6022 123,550
JBP.................................................. 9,348 10.6129 99,214
JEP.................................................. -- 10.2235 --
JSC.................................................. -- 10.9171 --
TSF.................................................. 8,289 9.6304 79,825
----------
Net Assets Applicable to Contract Owners......... 1,914,770
----------
Net Assets Applicable to Sponsor (FMM)............... 10,000 10.5701 105,701
----------
TOTAL NET ASSETS................................ $2,020,471
----------
----------
</TABLE>
See notes to financial statements
Continued
40
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENT OF OPERATIONS-- Year Ended December 31, 1997
<TABLE>
<CAPTION>
CAS EGS GSS TRS WGO
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income and capital gain distributions received... $-- $-- $-- $-- $--
----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment transactions:
Proceeds from sales..................................... $-- $ 56 $ 58 $-- $ 5,033
Costs of investments sold............................... -- 50 56 -- 4,730
----------- ----------- ----------- ----------- -----------
Net realized gains (losses)........................... $-- $ 6 $ 2 $-- $ 303
----------- ----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) on investments:
End of year............................................. $-- $ 257 $ 499 $-- $10,956
Beginning of year....................................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation)...... $-- $ 257 $ 499 $-- $10,956
----------- ----------- ----------- ----------- -----------
Realized and unrealized gains (losses).............. $-- $ 263 $ 501 $-- $11,259
----------- ----------- ----------- ----------- -----------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS........... $-- $ 263 $ 501 $-- $11,259
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FEI FGP FHI FMM FCN
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income and capital gain distributions received... $-- $-- $-- $ 8,584 $--
----------- ----------- --------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment transactions:
Proceeds from sales..................................... $ 219 $ 10 $-- $615,415 $ 114
Costs of investments sold............................... 207 10 -- 615,415 106
----------- ----------- --------- ----------- -----------
Net realized gains (losses)........................... $ 12 $-- $-- $ -- $ 8
----------- ----------- --------- ----------- -----------
Net unrealized appreciation (depreciation) on investments:
End of year............................................. $1,079 $1,529 $-- $ -- $ 608
Beginning of year....................................... -- -- -- -- --
----------- ----------- --------- ----------- -----------
Change in unrealized appreciation (depreciation)...... $1,079 $1,529 $-- $ -- $ 608
----------- ----------- --------- ----------- -----------
Realized and unrealized gains (losses).............. $1,091 $1,529 $-- $ -- $ 616
----------- ----------- --------- ----------- -----------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS........... $1,091 $1,529 $-- $ 8,584 $ 616
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
Continued
41
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENT OF OPERATIONS-- continued
<TABLE>
<CAPTION>
FIP NLM NPP JBP JEP
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income and capital gain distributions received... $ -- $-- $-- $1,837 $ --
----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment transactions:
Proceeds from sales..................................... $ 21,118 $ 51 $ 5 $1,138 $ --
Costs of investments sold............................... 19,092 50 5 1,094 --
----------- ----------- ----------- ----------- -----------
Net realized gains (losses)........................... $ 2,026 $ 1 $-- $ 44 $ --
----------- ----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) on investments:
End of year............................................. $102,937 $ 90 $ 960 $ (95) $ --
Beginning of year....................................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation)...... $102,937 $ 90 $ 960 $ (95) $ --
----------- ----------- ----------- ----------- -----------
Realized and unrealized gains (losses).............. $104,963 $ 91 $ 960 $ (51) $ --
----------- ----------- ----------- ----------- -----------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS........... $104,963 $ 91 $ 960 $1,786 $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
JCS TSF
Sub-Account Sub-Account Total
----------- ------------- -------------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income and capital gain distributions received... $-- $-- $ 10,421
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment transactions:
Proceeds from sales..................................... $-- $ 321 643,538
Costs of investments sold............................... -- 323 641,138
----------- ------------- -------------
Net realized gains (losses)......................... $-- $ (2) $ 2,400
----------- ------------- -------------
Net unrealized appreciation (depreciation) on investments:
End of year............................................. $-- $ (766) 118,054
Beginning of year....................................... -- -- --
----------- ------------- -------------
Change in unrealized appreciation (depreciation)...... $-- $ (766) $118,054
----------- ------------- -------------
Realized and unrealized gains (losses).............. $-- $ (768) $120,454
----------- ------------- -------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS........... $-- $ (768) $130,875
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
See notes to financial statements
42
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CAS EGS GSS TRS
Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------- --------------- ------------
Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31,
------------ ------------- --------------- ------------
1997 1996 1997 1996 1997 1996 1997 1996
----- ----- ------ ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $-- $-- $ -- $-- $ -- $-- $-- $--
Net realized gains........................................ -- -- 6 -- 2 -- -- --
Net unrealized gains (losses)............................. -- -- 257 -- 499 -- -- --
----- ----- ------ ----- -------- ----- ----- -----
Increase (decrease) in net assets from operations..... $-- $-- $ 263 $-- $ 501 $-- $-- $--
----- ----- ------ ----- -------- ----- ----- -----
CONTRACT OWNER TRANSACTIONS:
Premium payments Received................................. $-- $-- $2,617 $-- $ 2,618 $-- $-- $--
Transfers between Sub-Accounts............................ -- -- -- -- 153,244 -- -- --
Policy and contract deductions............................ -- -- (57) -- (60) -- -- --
----- ----- ------ ----- -------- ----- ----- -----
Increase (decrease) in net assets from contract owner
transactions........................................... $-- $-- $2,560 $-- $155,802 $-- $-- $--
----- ----- ------ ----- -------- ----- ----- -----
Increase (decrease) in net assets..................... $-- $-- $2,823 $-- $156,303 $-- $-- $--
NET ASSETS:
Beginning of period....................................... -- -- -- -- -- -- -- --
----- ----- ------ ----- -------- ----- ----- -----
End of period............................................. $-- $-- $2,823 $-- $156,303 $-- $-- $--
----- ----- ------ ----- -------- ----- ----- -----
----- ----- ------ ----- -------- ----- ----- -----
</TABLE>
See notes to financial statements
Continued
43
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
WGO FEI FGP FHI
Sub-Account Sub-Account Sub-Account Sub-Account
------------------- -------------- --------------- ------------
Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31,
------------------- -------------- --------------- ------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- --------- ------- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ -- $ -- $ -- $-- $ -- $-- $-- $--
Net realized gains........................................ 303 -- 12 -- -- -- -- --
Net unrealized gains (losses)............................. 10,956 -- 1,079 -- 1,529 -- -- --
-------- --------- ------- ----- -------- ----- ----- -----
Increase (decrease) in net assets from operations..... $ 11,259 $ -- $ 1,091 $-- $ 1,529 $-- $-- $--
-------- --------- ------- ----- -------- ----- ----- -----
CONTRACT OWNER TRANSACTIONS:
Premium payments Received................................. $200,129 $ -- $12,040 $-- $ -- $-- $-- $--
Transfers between Sub-Accounts............................ -- -- -- -- 245,191 -- -- --
Policy and contract deductions............................ (5,130) -- (227) -- (10) -- -- --
-------- --------- ------- ----- -------- ----- ----- -----
Increase (decrease) in net assets from contract owner
transactions........................................... $194,999 $ -- $11,813 $-- $245,181 $-- $-- $--
-------- --------- ------- ----- -------- ----- ----- -----
Increase (decrease) in net assets..................... $206,258 $ -- $12,904 $-- $246,710 $-- $-- $--
NET ASSETS:
Beginning of period....................................... -- -- -- -- -- -- -- --
-------- --------- ------- ----- -------- ----- ----- -----
End of period............................................. $206,258 $ -- $12,904 $-- $246,710 $-- $-- $--
-------- --------- ------- ----- -------- ----- ----- -----
-------- --------- ------- ----- -------- ----- ----- -----
</TABLE>
See notes to financial statements
Continued
44
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
FMM FCN FIP NLM
Sub-Account Sub-Account Sub-Account Sub-Account
--------------- ------------- --------------- -------------
Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31,
--------------- ------------- --------------- -------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- ----- ------ ----- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 8,584 $-- $ -- $-- $ -- $-- $ -- $--
Net realized gains........................................ -- -- 8 -- 2,026 -- 1 --
Net unrealized gains (losses)............................. -- -- 608 -- 102,937 -- 90 --
-------- ----- ------ ----- -------- ----- ------ -----
Increase (decrease) in net assets from operations..... $ 8,584 $-- $ 616 $-- $104,963 $-- $ 91 --
-------- ----- ------ ----- -------- ----- ------ -----
CONTRACT OWNER TRANSACTIONS:
Premium payments Received................................. $612,754 $-- $6,022 $-- $897,270 $-- $2,617 $--
Transfers between Sub-Accounts............................ (612,977) -- -- -- -- -- -- --
Policy and contract deductions............................ (2,776) -- (119) -- (24,225) -- (52) --
-------- ----- ------ ----- -------- ----- ------ -----
Increase (decrease) in net assets from contract owner
transactions........................................... $ (2,999) $-- $5,903 $-- $873,045 $-- $2,565 $--
-------- ----- ------ ----- -------- ----- ------ -----
Increase (decrease) in net assets..................... $ 5,585 $-- $6,519 $-- $978,008 $-- $2,656 $--
NET ASSETS:
Beginning of period....................................... 100,116 -- -- -- -- -- -- --
-------- ----- ------ ----- -------- ----- ------ -----
End of period............................................. $105,701 $-- $6,519 $-- $978,008 $-- $2,656 $--
-------- ----- ------ ----- -------- ----- ------ -----
-------- ----- ------ ----- -------- ----- ------ -----
</TABLE>
See notes to financial statements
Continued
45
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
NPP JBP JEP JSC
Sub-Account Sub-Account Sub-Account Sub-Account
--------------- -------------- ------------ ------------
Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31,
--------------- -------------- ------------ ------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- ----- ------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ -- $-- $ 1,837 $-- $-- $-- $-- $--
Net realized gains........................................ -- -- 44 -- -- -- -- --
Net unrealized gains (losses)............................. 960 -- (95) -- -- -- -- --
-------- ----- ------- ----- ----- ----- ----- -----
Increase (decrease) in net assets from operations..... $ 960 $-- $ 1,786 $-- $-- $-- $-- $--
-------- ----- ------- ----- ----- ----- ----- -----
CONTRACT OWNER TRANSACTIONS:
Premium payments Received................................. $ -- $-- $68,356 $-- $-- $-- $-- $--
Transfers between Sub-Accounts............................ 122,595 -- 30,649 -- -- -- -- --
Policy and contract deductions............................ (5) -- (1,577) -- -- -- -- --
-------- ----- ------- ----- ----- ----- ----- -----
Increase (decrease) in net assets from contract owner
transactions........................................... $122,590 $-- $97,428 $-- $-- $-- $-- $--
-------- ----- ------- ----- ----- ----- ----- -----
Increase (decrease) in net assets..................... $123,550 $-- $99,214 $-- $-- $-- $-- $--
NET ASSETS:
Beginning of period....................................... -- -- -- -- -- -- -- --
-------- ----- ------- ----- ----- ----- ----- -----
End of period............................................. $123,550 $-- $99,214 $-- $-- $-- $-- $--
-------- ----- ------- ----- ----- ----- ----- -----
-------- ----- ------- ----- ----- ----- ----- -----
</TABLE>
See notes to financial statements
Continued
46
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
TSF
Sub-Account Total
-------------- --------------------
Period Ended Period Ended
December 31, December 31,
-------------- --------------------
1997 1996 1997 1996
------- ----- ---------- --------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ -- $-- $ 10,421 $ --
Net realized gains........................................ (2) -- 2,400 --
Net unrealized gains (losses)............................. (766) -- 118,054 --
------- ----- ---------- --------
Increase (decrease) in net assets from operations....... $ (768) $-- $ 130,875 --
------- ----- ---------- --------
CONTRACT OWNER TRANSACTIONS:
Premium payments Received................................. $19,632 $-- $1,824,055 $ --
Transfers between Sub-Accounts............................ 61,298 -- -- --
Policy and contract deductions............................ (337) -- (34,575) --
------- ----- ---------- --------
Increase (decrease) in net assets from contract owner
transactions........................................... $80,593 $-- $1,789,480 $ --
------- ----- ---------- --------
Increase (decrease) in net assets..................... $79,825 $-- $1,920,355 $ --
NET ASSETS:
Beginning of period....................................... -- -- 100,116 --
------- ----- ---------- --------
End of period............................................. $79,825 $-- $2,020,471 $100,116
------- ----- ---------- --------
------- ----- ---------- --------
</TABLE>
See notes to financial statements
47
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
NOTES TO FINANCIAL STATEMENTS
(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.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account is invested in shares of a single 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, J.P. Morgan Series Trust II and
Templeton Variable Products Series Fund.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT VALUATIONS
Investments in shares of an investment portfolio of the mutual funds are
recorded at their net asset value. Realized gains and losses on sales of shares
are determined on the identified cost basis. Dividend income and capital gain
distributions received by the Sub-Accounts are reinvested in additional shares
and are recognized on the ex-dividend date.
Exchanges between Sub-Accounts requested by contract owners are recorded in the
new Sub-Account upon receipt of the redemption proceeds.
FEDERAL INCOME TAX STATUS
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately; the Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Under existing federal income tax law, investment income and capital gains
earned by the Variable Account on contract owner reserves are not subject to
tax.
(3) CONTRACT CHARGES
The Sponsor deducts expense charges applied to premium consisting of the premium
tax, the DAC tax and the sales load. The premium tax varies by state but in
general will range from 2% to 4% of premium in most states (Kentucky charges
7%). The DAC tax is 1.25% of premium. The sales load is 8.75% of premium up to
target premium and 2.25% of premium in excess of target premium. A portion of
the sales load is refunded for surrenders in the first three policy years.
48
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
NOTES TO FINANCIAL STATEMENTS -- continued
The Sponsor deducts certain charges from the account value of each contract,
through the cancellation of units, on a monthly basis. A monthly expense charge
of $13.75 per policy at the beginning of each month during the first policy year
and $7.50 for months thereafter is deducted to recover certain administration
expenses. The Sponsor also deducts a charge at the end of each policy month for
providing life insurance protection. This charge will be based upon the
Sponsor's expectations of future mortality, persistency, interest rates,
expenses and taxes. However, the maximum rates for the base death benefit for
insureds that are not rated substandard risks will not exceed those based on the
1980 CSO Mortality Tables, and the maximum rates for the APB rider death benefit
for similar insureds will not exceed those based on 125% of the 1980 CSO
Mortality Tables.
The Sponsor deducts certain charges from the account value of each contract,
through the cancellation of units, at the end of each valuation period for the
mortality and expense risks assumed by the Sponsor. The daily deduction is
currently .0020471% (which is equivalent to an annual rate of .75%) for policies
in their first ten policy years and .0009572% (which is equivalent to an annual
rate of .35%) for policies in policy years eleven and beyond.
(4) UNIT ACTIVITY
<TABLE>
<CAPTION>
Units Transferred
Between Units Canceled
Units Outstanding Sub-Accounts for Contract Units Outstanding
Beginning of Year Units Purchased and Fixed Account Charges End of Year
-------------------- ---------------- ------------------ ------------------ --------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
-------------------- ---------------- ------------------ ------------------ --------------------
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
--------- --------- ------- ------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAS Sub-Account.............. -- -- -- -- -- -- -- -- -- --
EGS Sub-Account.............. -- -- 262 -- -- -- (5) -- 257 --
GSS Sub-Account.............. -- -- 262 -- 14,533 -- (6) -- 14,789 --
TRS Sub-Account.............. -- -- -- -- -- -- -- -- -- --
WGO Sub-Account.............. -- -- 20,007 -- -- -- (482) -- 19,525 --
FEI Sub-Account.............. -- -- 1,204 -- -- -- (22) -- 1,182 --
FGP Sub-Account.............. -- -- -- -- 24,100 -- (1) -- 24,099 --
FHI Sub-Account.............. -- -- -- -- -- -- -- -- -- --
FMM Sub-Account.............. -- -- 58,312 -- (58,312) -- -- -- -- --
FCN Sub-Account.............. -- -- 602 -- -- -- (11) -- 591 --
FIP Sub-Account.............. -- -- 86,851 -- -- -- (2,191) -- 84,660 --
NLM Sub-Account.............. -- -- 262 -- -- -- (5) -- 257 --
NPP Sub-Account.............. -- -- -- -- 11,654 -- (1) -- 11,653 --
JBP Sub-Account.............. -- -- 6,603 -- 2,896 -- (151) -- 9,348 --
JEP Sub-Account.............. -- -- -- -- -- -- -- -- -- --
JSC Sub-Account.............. -- -- -- -- -- -- -- -- -- --
TSF Sub-Account.............. -- -- 1,963 -- 6,360 -- (34) -- 8,289 --
Unit Activity
Applicable to Contract
Owners..................... -- -- 176,328 -- 1,231 -- (2,909) -- 174,650 --
------------------------- --------- --------- ------- ------- -------- -------- -------- -------- --------- ---------
Unit Activity from
Sponsor Transactions....... 10,000 -- -- 10,000 -- -- -- -- 10,000 10,000
------------------------- --------- --------- ------- ------- -------- -------- -------- -------- --------- ---------
Total Unit Activity......... 10,000 -- 176,328 10,000 1,231 -- (2,909) -- 184,650 10,000
</TABLE>
49
<PAGE>
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 31, 1997, the
related statement of operations for the year then ended and the statements of
changes in net assets for the year ended December 31, 1997 and the period from
December 23, 1996 (date of deposit) through December 31, 1996. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities held at December 31, 1997 by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Sun Life of Canada (U.S.) Variable Account G
at December 31, 1997, the results of its operations and the changes in its net
assets for the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
50
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1997 AND 1996 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,910,699 $ 2,170,103
Common stocks 117,229 144,043
Mortgage loans on real estate 684,035 938,932
Properties acquired in satisfaction of debt 22,475 23,391
Investment real estate 78,426 76,995
Policy loans 40,348 40,554
Cash and short-term investments 544,418 148,059
Other invested assets 55,716 51,378
Premiums and annuity considerations due and uncollected 9,203 11,282
Investment income due and accrued 39,279 68,191
Receivable from parent, subsidiaries and affiliates 28,825 40,829
Funds withheld on reinsurance assumed 982,653 878,798
Other assets 1,841 1,343
-------------- --------------
General account assets 4,515,147 4,593,898
Separate account assets
Unitized 9,068,021 6,919,219
Non-unitized 2,343,877 2,108,835
-------------- --------------
Total Admitted Assets $ 15,927,045 $ 13,621,952
-------------- --------------
-------------- --------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 2,188,243 $ 2,099,980
Supplementary contracts 2,247 2,205
Policy and contract claims 2,460 2,108
Policyholders' dividends and coupons payable 32,500 27,500
Liability for premium and other deposit funds 1,450,705 1,898,309
Surrender values on cancelled policies 215 72
Interest maintenance reserve 33,830 28,675
Commissions to agents due or accrued 2,826 3,245
General expenses due or accrued 7,202 4,654
Transfers from Separate Accounts due or accrued (284,078) (232,743)
Taxes, licenses and fees accrued, excluding federal income taxes 105 342
Federal income taxes due or accrued 58,073 49,479
Unearned investment income 34 19
Amounts withheld or retained by company as agent or trustee 47 27
Remittances and items not allocated 1,363 1,359
Borrowed money 110,142 58,000
Asset valuation reserve 47,605 53,911
Payable for securities 27,104 22,177
Other liabilities 1,959 7,561
-------------- --------------
General account liabilities 3,682,582 4,026,880
Separate account liabilities
Unitized 9,067,891 6,919,094
Non-unitized 2,343,877 2,108,835
-------------- --------------
Total liabilities 15,094,350 13,054,809
-------------- --------------
CAPITAL STOCK AND SURPLUS
Capital stock par value $1,000; Authorized, 10,000 shares;
issued and outstanding, 5,900 shares 5,900 5,900
-------------- --------------
Surplus notes 565,000 315,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 62,440 46,888
-------------- --------------
Surplus 826,795 561,243
-------------- --------------
Total capital stock and surplus 832,695 567,143
-------------- --------------
Total Liabilities, Capital Stock and Surplus $ 15,927,045 $ 13,621,952
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
51
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 270,700 $ 282,466 $ 279,407
Deposit-type funds 2,155,298 1,775,230 1,545,542
Considerations for supplementary contracts without life
contingencies and dividend accumulations 1,615 2,340 1,088
Net investment income 270,249 303,753 312,872
Amortization of interest maintenance reserve 1,166 1,557 1,025
Net gain from operations from Separate Accounts 5 -- --
Other income 86,123 71,903 57,864
---------- ---------- ----------
Total 2,785,156 2,437,249 2,197,798
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 17,284 12,394 15,317
Annuity benefits 148,135 146,654 140,497
Surrender benefits and other fund withdrawals 1,854,004 1,507,263 1,074,396
Interest on policy or contract funds 699 2,205 739
Payments on supplementary contracts without life
contingencies and of dividend accumulations 1,687 2,120 1,888
Increase in aggregate reserves for life and accident and
health policies and contracts 127,278 162,678 171,975
Increase (decrease) in liability for premium and other
deposit funds (447,603) (392,348) 13,553
Increase (decrease) in reserve for supplementary contracts
without life contingencies and for dividend and coupon
accumulations 42 327 (663)
---------- ---------- ----------
Total 1,701,526 1,441,293 1,417,702
Commissions on premiums and annuity considerations (direct
business only) 132,700 109,894 88,037
Commissions and expense allowances on reinsurance assumed 17,951 18,910 22,012
General insurance expenses 47,102 37,206 34,580
Insurance taxes, licenses and fees, excluding federal income
taxes 7,790 8,431 7,685
Increase (decrease) in loading on and cost of collection in
excess of loading on deferred and uncollected premiums 523 901 (1,377)
Net transfers to separate accounts 734,373 678,663 551,784
---------- ---------- ----------
Total 2,641,965 2,295,298 2,120,423
---------- ---------- ----------
Net gain from operations before dividends to policyholders
and federal income taxes 143,191 141,951 77,375
Dividends to policyholders 33,316 29,189 25,722
---------- ---------- ----------
Net gain from operations after dividends to policyholders and
before federal income taxes 109,875 112,762 51,653
Federal income tax expense (benefit) (excluding tax on
capital gains) 10,742 (2,702) 17,807
---------- ---------- ----------
Net gain from operations after dividends to policyholders and
federal income taxes and before realized capital gains 99,133 115,464 33,846
Net realized capital gains less capital gains tax and
transfers to the interest maintenance reserve 30,109 7,560 2,069
---------- ---------- ----------
NET INCOME $ 129,242 $ 123,024 $ 35,915
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
52
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Capital and surplus, beginning of year $ 567,143 $ 792,452 $ 455,489
---------- ---------- ----------
Net income 129,242 123,024 35,915
Change in net unrealized capital gains 1,153 (1,715) 2,009
Change in non-admitted assets and related items (463) 67 (2,270)
Change in reserve on account of change in valuation basis 39,016 -- --
Change in asset valuation reserve 6,306 (11,812) (13,690)
Other changes in surplus in Separate Accounts Statement -- 100 (4,038)
Change in surplus notes 250,000 (335,000) 315,000
Dividends to stockholder (159,722) -- --
Miscellaneous gains in surplus 20 27 4,037
---------- ---------- ----------
Net change in capital and surplus for the year 265,552 (225,309) 336,963
---------- ---------- ----------
Capital and surplus, end of year $ 832,695 $ 567,143 $ 792,452
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
53
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Provided
Premiums, annuity considerations and
deposit funds received $ 2,427,554 $ 2,059,577 $ 1,826,456
Considerations for supplementary
contracts and dividend accumulations
received 1,615 2,340 1,088
Net investment income received 323,199 324,914 374,398
Other income received 81,701 88,295 25,348
----------- ----------- -----------
Total receipts 2,834,069 2,475,126 2,227,290
----------- ----------- -----------
Benefits paid (other than dividends) 2,020,615 1,671,483 1,231,936
Insurance expenses and taxes paid
(other than federal income and
capital gains taxes) 203,650 172,015 150,463
Net cash transferred to Separate
Accounts 785,708 755,605 568,188
Dividends paid to policyholders 28,316 22,689 17,722
Federal income tax (recoveries)
payments (excluding tax on capital
gains) 1,397 (15,363) (20,655)
Other--net 699 2,205 739
----------- ----------- -----------
Total payments 3,040,385 2,608,634 1,948,393
----------- ----------- -----------
Net cash from operations (206,316) (133,508) 278,897
----------- ----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$750,449, $1,554,873 and $8,610,951) 1,343,803 1,768,147 1,658,655
Issuance of surplus notes 250,000 (335,000) 315,000
Other cash provided 117,297 147,956 419,446
----------- ----------- -----------
Total cash provided 1,711,100 1,581,103 2,393,101
----------- ----------- -----------
Cash Applied
Cost of long-term investments acquired 773,721 1,318,880 1,749,714
Other cash applied 334,704 177,982 796,207
----------- ----------- -----------
Total cash applied 1,108,425 1,496,862 2,545,921
----------- ----------- -----------
Net change in cash and short-term
investments 396,359 (49,267) 126,077
Cash and short term investments
Beginning of year 148,059 197,326 71,249
----------- ----------- -----------
End of year $ 544,418 $ 148,059 $ 197,326
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Sun Life Assurance Company of Canada (U.S.) (the "Company") is incorporated as a
life insurance company and is engaged in the sale of individual variable life
insurance, individual fixed and variable annuities, group fixed and variable
annuities and group pension contracts. The Company also underwrites a block of
individual life insurance business through a reinsurance contract with the
Company's ultimate parent, Sun Life Assurance Company of Canada ("SLOC"). SLOC
is a mutual life insurance company.
Effective May 1, 1997, the Company became a wholly-owned subsidiary of the newly
established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of the Sun Life
Assurance Company of Canada - U.S. Operations Holdings, Inc. ("US Holdco"). US
Holdco is a wholly-owned subsidiary of SLOC. Prior to December 18, 1997 Life
Holdco was a direct wholly-owned subsidiary of SLOC.
The Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly-owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, which changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices as described above, vary from and are not
intended to present the Company's financial position, results of operations or
cash flow in conformity with generally accepted accounting principles. (See Note
19 for further discussion relative to the Company's basis of financial statement
presentation.) The effects on the financial statements of the variances between
the statutory basis of accounting and GAAP, although not reasonably
determinable, are presumed to be material.
INVESTED ASSETS AND RELATED RESERVES
Bonds are carried at cost adjusted for amortization of premium or accrual of
discount. Investments in non-insurance subsidiaries are carried on the equity
basis. Investments in insurance subsidiaries are carried at their statutory
surplus values. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans are carried at the amounts of the
unpaid balances. Real estate investments are carried at the lower of cost
adjusted for accumulated depreciation or appraised value, less encumbrances.
Short-term investments are carried at amortized cost, which approximates fair
value. Depreciation of buildings and improvements is calculated using the
straight-line method over the estimated useful life of the property, generally
40 to 50 years.
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
INCOME AND EXPENSES
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, are transferred to (from)
the general account. Accumulated gains (losses) that have not been transferred
are recorded as a payable (receivable) to (from) the general account. Amounts
payable to the general account of the Company were $284,078,000 in 1997 and
$232,743,000 in 1996.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
Prior to 1996, dividends paid to the Company by its subsidiaries and the
undistributed gains (losses) of those subsidiaries were included in net income
of the Company. For Annual Statement reporting, dividends were (and continue to
be) reported in net income while undistributed gains (losses) are reported
directly to surplus (as a separate component of unassigned surplus). As a
result, net income as reported in these financial statements is $2.5 million
less than net income reported in the Annual Statement in 1995. Effective for
1996, the Company changed its method of accounting for investments in
subsidiaries to conform with a preferable prescribed statutory accounting
practices used in the preparation of its Annual Statement. As a result of the
change, $5.7 million in undistributed losses of subsidiaries are reported
directly as a separate component of unassigned surplus rather than being
included in net income for the year ended December 31, 1996. The amounts as
reported in prior years have not been restated.
As described more fully in Note 10, during 1997 the Company changed certain
assumptions used in determining actuarial reserves.
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
2. INVESTMENTS IN SUBSIDIARIES:
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York ("Sun Life (N.Y.)"), Massachusetts Casualty Insurance
Company ("MCIC"), Sun Life of Canada (U.S.) Distributors, Inc. (formerly Sun
Investment Services Company) ("Sundisco"), New London Trust, F.S.B. ("NLT"), Sun
Life Financial Services Limited, ("SLFSL"), Sun Benefit Services Company, Inc.
("Sunbesco"), Sun Capital Advisers, Inc. ("Sun Capital"), and Sun Life Finance
Corporation ("Sunfinco").
On October 30, 1997, the Company established a wholly-owned special purpose
corporation, Sun Life of Canada (U.S.) SPE 97-1, Inc. (SPE 97-1). SPE 97-1 was
organized for the purpose of engaging in activities incidental to securitizing
mortgage loans.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
Massachusetts Financial Services Company ("MFS"). On December 24, 1997, the
Company transferred all of its shares of MFS to Life Holdco in the form of a
dividend valued at $159,722,000. As a result of this transaction the Company
realized a gain of $21,195,000 of undistributed earnings.
MFS, a registered investment adviser, serves as investment adviser to the mutual
funds in the MFS family of funds as well as certain mutual funds and separate
accounts established by the Company. The MFS Asset Management Group provides
investment advice to substantial private clients.
On December 31, 1997, the Company purchased all of the outstanding shares of
Clarendon Insurance Agency, Inc. ("Clarendon") from MFS.
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in the State of New
York. MCIC issues only individual disability income policies. Sundisco is a
registered investment adviser and broker-dealer. NLT is a federally chartered
savings bank. SLFSL serves as the marketing administrator for the distribution
of the offshore products of SLOC, an affiliate. Sun Capital is a registered
investment adviser. Sunfinco and Sunbesco are currently inactive. Clarendon is a
registered broker-dealer that acts as the general distributor of certain annuity
and life insurance contracts issued by the Company and its affiliates.
On December 23, 1997, the Company issued a $110,000,000 note to US Holdco at an
interest rate of 5.80%, which is scheduled for repayment on March 1, 1998, and
is included in borrowed money. A $110,000,000 note was also issued by MFS on
December 23, 1997 to the Company at an interest rate of 5.85% due on March 1,
1998 and is included in cash and short-term investments.
On December 31, 1996, the Company issued a $58,000,000 note to SLOC which was
repaid on February 10, 1997 at an interest rate of 5.70%. Also on December 31,
1996, the Company was issued a $58,000,000 note by MFS at an interest rate of
5.76%. This note was repaid to the Company on February 10, 1997. On December 31,
1997 and 1996 the Company had an additional $20,000,000 in notes issued by MFS,
scheduled to mature in 2000.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
During 1997, 1996, and 1995, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ------------
<S> <C> <C> <C>
MCIC $ 2,000,000 $ 10,000,000 $ 6,000,000
SLFSL 1,000,000 1,500,000 --
SPE 97-1 20,377,000 -- --
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1997, 1996 and 1995 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
(IN 000'S)
<S> <C> <C> <C>
Intangible assets $ 0 $ 9,646 $ 12,174
Other assets 1,190,951 1,376,014 1,233,372
Liabilities (1,073,966) (1,241,617) (1,107,264)
------------- ------------- -------------
Total net assets $ 116,985 $ 144,043 $ 138,282
------------- ------------- -------------
------------- ------------- -------------
Total revenues $ 750,364 $ 717,280 $ 570,794
Operating expenses (646,896) (624,199) (504,070)
Income tax expense (43,987) (42,820) (31,193)
------------- ------------- -------------
Net income $ 59,481 $ 50,261 $ 35,531
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
3. BONDS:
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---------- ----------- ----------- ----------
(IN 000'S)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 126,923 $ 5,529 $ -- $ 132,452
States, provinces and political
subdivisions 22,361 2,095 -- 24,456
Public utilities 398,939 35,338 (91) 434,186
Transportation 214,130 22,000 (390) 235,740
Finance 157,891 5,885 (120) 163,656
All other corporate bonds 990,455 52,678 (5,456) 1,037,677
---------- ----------- ----------- ----------
Total long-term bonds 1,910,699 123,525 (6,057) 2,028,167
---------- ----------- ----------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances
and commercial paper 431,032 -- -- 431,032
Affiliates 110,000 -- -- 110,000
---------- ----------- ----------- ----------
Total short-term bonds 541,032 -- -- 541,032
Total bonds $2,451,731 $ 123,525 $ (6,057) $2,569,199
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. BONDS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---------- ----------- ----------- ----------
(IN 000'S)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 267,756 $ 12,272 $ (8,927) $ 271,101
States, provinces and political
subdivisions 2,253 20 -- 2,273
Foreign governments 18,812 1,351 -- 20,163
Public utilities 415,641 24,728 (1,223) 439,146
Transportation 167,937 14,107 (2,243) 179,801
Finance 290,024 7,914 (472) 297,466
All other corporate bonds 1,007,680 42,338 (14,496) 1,035,522
---------- ----------- ----------- ----------
Total long-term bonds 2,170,103 102,730 (27,361) 2,245,472
---------- ----------- ----------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances
and commercial paper 88,754 -- -- 88,754
Affiliates 58,000 -- -- 58,000
---------- ----------- ----------- ----------
Total short-term bonds 146,754 -- -- 146,754
---------- ----------- ----------- ----------
Total bonds $2,316,857 $ 102,730 $ (27,361) $2,392,226
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1997 are
shown below by contractual maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
(IN 000'S)
<S> <C> <C>
Maturities:
Due in one year or less $ 699,548 $ 700,280
Due after one year through five years 533,901 541,382
Due after five years through ten years 270,607 286,651
Due after ten years 735,624 821,002
---------- ----------
2,239,680 2,349,315
Mortgage-backed securities 212,051 219,884
---------- ----------
Total bonds $2,451,731 $2,569,199
---------- ----------
---------- ----------
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1997, 1996, and 1995 were $980,264,000, $1,554,016,000, and $1,510,553,000,
gross gains were $10,732,000, $16,975,000, and $24,757,000 and gross losses were
$2,446,000, $10,885,000, and $5,742,000, respectively.
Bonds included above with an amortized cost of approximately $2,578,000 and
$2,060,000 at December 31, 1997 and 1996, respectively, were on deposit with
governmental authorities as required by law.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. SECURITIES LENDING:
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan of New York. The custodian has
indemnified the Company against losses arising from this program. The total par
value of securities out on loan was $0 and $51,537,000 at December 31, 1997 and
1996 respectively. Income resulting from this program was $200,000, $137,000 and
$2,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
5. MORTGAGE LOANS:
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
The following table shows the geographical distribution of the mortgage loan
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN 000'S)
<S> <C> <C>
California $ 119,122 $ 154,272
Massachusetts 58,981 79,929
Michigan 42,912 57,119
New York 45,696 67,742
Ohio 51,862 75,405
Pennsylvania 97,949 115,584
Washington 54,948 75,819
All other 212,565 313,062
---------- ----------
$ 684,035 $ 938,932
---------- ----------
---------- ----------
</TABLE>
The Company has restructured mortgage loans totaling $26,284,000 and $29,261,000
at December 31, 1997 and 1996, respectively, against which there are allowances
for losses of $3,026,000 and $5,893,000, respectively.
Mortgage loans from Sun Life (U.S.)'s portfolio with an approximate book value
of $53,188,000 were included in a transaction also involving loans from the
portfolios of other SLOC entities with an aggregate book value of $256 million,
whereby such loans were securitized for sale to the public markets.
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $12,300,000
and $9,800,000 at December 31, 1997 and 1996, respectively.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. INVESTMENT GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
Net realized gains (losses)
Bonds $ 2,882 $ 5,631 $ 3,935
Common stock of affiliates 21,195 -- --
Mortgage loans 3,837 763 292
Real estate 2,912 599 391
Other invested assets (717) 567 (2,549)
--------- --------- ---------
$ 30,109 $ 7,560 $ 2,069
--------- --------- ---------
--------- --------- ---------
Changes in unrealized gains (losses):
Common stock of affiliates $ (2,894) $ (5,739) $ --
Mortgage loans 1,524 (600) (1,574)
Real estate 3,377 4,624 3,583
Other invested assets (854) -- --
--------- --------- ---------
$ 1,153 $ (1,715) $ 2,009
--------- --------- ---------
--------- --------- ---------
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve ("IMR") and amortized into income over the remaining contractual life of
the security sold. The net realized capital gains credited to the interest
maintenance reserve were $6,321,000 in 1997, $7,710,000 in 1996, and $12,714,000
in 1995. All gains and losses are transferred net of applicable income taxes.
7. NET INVESTMENT INCOME:
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $ 188,924 $ 178,695 $ 205,445
Income from investment in common stock of affiliates 41,181 50,408 35,403
Interest income from mortgage loans 76,073 92,591 99,766
Real estate investment income 17,161 16,249 14,979
Interest income from policy loans 3,582 2,790 2,777
Other (193) 1,710 2,672
---------- ---------- ----------
Gross investment income 326,728 342,443 361,042
---------- ---------- ----------
Interest on surplus notes and notes payable (42,481) (23,061) (31,813)
Investment expenses (13,998) (15,629) (16,357)
---------- ---------- ----------
Net investment income $ 270,249 $ 303,753 $ 312,872
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. DERIVATIVES:
The Company uses derivative instruments for interest risk management purposes,
including hedges against specific interest rate risk and to minimize the
Company's exposure to fluctuations in interest rates. The Company's use of
derivatives has included U.S. Treasury futures, conventional interest rate
swaps, and forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, where it is impractical to allocate gains (losses) to specific hedged
assets or liabilities, gains (losses) are deferred in IMR and amortized over the
remaining life of the hedged assets. At December 31, 1997 and 1996 there were no
futures contracts outstanding.
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
Options are used to hedge the stock market interest exposure in the mortality
and expense risk charges and guaranteed minimum death benefit features of the
Company's variable annuities. The Company's open positions are as follows:
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1997
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN 000'S)
<S> <C> <C>
Conventional interest rate swaps $ 80,000 $ (2,891)
Foreign currency swap 1,700 208
Forward spread lock swaps 50,000 274
Asian Put Option S & P 500 70,000 693
</TABLE>
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1996
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN 000'S)
<S> <C> <C>
Conventional interest rate swaps $ 429,000 $ (2,443)
Foreign currency swap 2,100 70
Forward spread lock swaps 50,000 (50)
</TABLE>
The market value of swaps is the estimated amount that the Company would receive
or pay on termination or sale, taking into account current interest rates and
the current credit worthiness of the counterparties. The Company is exposed to
potential credit loss in the event of non-performance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
9. LEVERAGED LEASES:
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994, under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
9. LEVERAGED LEASES (CONTINUED):
the purchase price was furnished by third-party long-term debt financing,
collateralized by the equipment and non-recourse to the Company. At the end of
the lease term, the Master Lessee may exercise a fixed price purchase option to
purchase the equipment.
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1997 1996
---------- ----------
(IN 000'S)
<S> <C> <C>
Lease contracts receivable $ 92,605 $ 101,244
Less non-recourse debt (92,589) (101,227)
---------- ----------
16 17
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (10,324) (11,501)
---------- ----------
Investment in leveraged leases 30,842 29,666
Less fees (163) (188)
---------- ----------
Net investment in leveraged leases $ 30,679 $ 29,478
---------- ----------
---------- ----------
</TABLE>
The net investment is included as an other invested asset.
10. REINSURANCE:
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality risks of the individual life insurance contracts sold by the Company.
Under these agreements basic death benefits and supplementary benefits are
reinsured on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements had the effect of decreasing
income from operations by approximately $1,381,000, $1,603,000 and $2,184,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
Effective January 1, 1991, the Company entered into an agreement with SLOC under
which certain individual life insurance contracts issued by SLOC were reinsured
by the Company on a 90% coinsurance basis. During 1997 SLOC changed certain
assumptions used in determining the gross and the ceded reserve balance. The
Company reflected the effect of the changes in assumptions to its assumed
reserves as a direct credit to surplus. The effect of the change was a
$39,016,000 decrease in reserves. Also, effective January 1, 1991, the Company
entered into an agreement with SLOC which provides that SLOC will reinsure the
mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company in the reinsurance agreement
described above. Such death benefits are reinsured on a yearly renewable term
basis. These agreements had the effect of increasing income from operations by
approximately $37,050,000, $35,161,000 and $11,821,000 for the years ended
December 31, 1997,1996 and 1995, respectively. The life reinsurance assumed
agreement requires the reinsurer to withhold funds in amounts equal to the
reserves assumed.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
10. REINSURANCE (CONTINUED):
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1997, 1996 and 1995 before the effect of
reinsurance transactions with SLOC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $ 2,230,980 $ 1,858,145 $ 1,619,337
Net investment income and realized gains 300,669 312,870 315,967
------------ ------------ ------------
Subtotal 2,531,649 2,171,015 1,935,304
------------ ------------ ------------
Benefits and Expenses:
Policyholder benefits 2,240,597 1,928,720 1,760,917
Other expenses 187,591 155,531 130,302
------------ ------------ ------------
Subtotal 2,428,188 2,084,251 1,891,219
------------ ------------ ------------
Income from operations $ 103,461 $ 86,764 $ 44,085
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of decreasing income from operations by $2,658,000 in 1997, $46,000 in
1996, and by $1,599,000 in 1995.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
The withdrawal characteristics of general account and separate account annuity
reserves and deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
AMOUNT % OF TOTAL
-------------- -------------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 3,415,394 25%
At book value less surrender charges (surrender charge >5%) 7,672,211 57
At book value (minimal or no charge or adjustment) 1,259,698 9
Not subject to discretionary withdrawal provision 1,164,651 9
-------------- ---
Total annuity actuarial reserves and deposit liabilities $ 13,511,954 100%
-------------- ---
-------------- ---
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
AMOUNT % OF TOTAL
-------------- -------------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 3,547,683 31%
At book value less surrender charges (surrender charge >5%) 5,626,117 48
At book value (minimal or no charge or adjustment) 1,264,586 11
Not subject to discretionary withdrawal provision 1,218,157 10
-------------- ---
Total annuity actuarial reserves and deposit liabilities $ 11,656,543 100%
-------------- ---
-------------- ---
</TABLE>
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
12. RETIREMENT PLANS:
The Company participates with SLOC in a non-contributory defined benefit pension
plan covering essentially all employees. The benefits are based on years of
service and compensation.
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA; currently the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension cost at December 31, 1997,
1996 and 1995 was $593,000, $446,000 and $420,000, respectively. The Company's
share of net periodic pension cost was $146,000, $27,000 and $3,000, for 1997,
1996 and 1995, respectively.
The Company also participates with SLOC and certain affiliates in a 401(k)
savings plan for which substantially all employees are eligible. The Company
matches, up to specified amounts, employees' contributions to the plan. Company
contributions were $259,000, $233,000 and $185,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits, the Company provides certain health, dental,
and life insurance benefits ("post-retirement benefits") for retired employees
and dependents. Substantially all employees may become eligible for these
benefits if they reach normal retirement age while working for the Company, or
retire early upon satisfying an alternate age plus service condition. Life
insurance benefits are generally set at a fixed amount.
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN 000'S)
<S> <C> <C>
ASSETS:
Bonds $ 2,451,731 $ 2,569,199
Mortgages 684,035 706,975
LIABILITIES:
Insurance reserves $ 123,128 $ 123,128
Individual annuities 307,668 302,165
Pension products 1,527,433 1,561,108
Derivatives -- (1,716)
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN 000'S)
<S> <C> <C>
ASSETS:
Bonds $ 2,316,857 $ 2,392,226
Mortgages 938,932 958,909
LIABILITIES:
Insurance reserves $ 122,606 $ 122,606
Individual annuities 373,488 367,878
Pension products 1,911,284 1,922,602
Derivatives -- (2,423)
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk
and maturity and repayment and liquidity characteristics.
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance, annuity and pension
contracts that do not involve mortality or morbidity risks) are estimated using
discounted cash flow analyses or surrender values. Those contracts that are
deemed to have short-term guarantees have a carrying amount equal to the
estimated market value.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of derivative financial instruments are estimated using the
process described in Note 8.
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
14. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve ("IMR") and amortized into income over the remaining contractual life of
the security sold.
The tables shown below present changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
AVR IMR AVR IMR
--------- --------- --------- ---------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $ 53,911 $ 28,675 $ 42,099 $ 25,218
Net realized investment gains, net of tax 17,400 6,321 3,160 5,011
Amortization of net investment gains -- (1,166) -- (1,557)
Unrealized investment gains (losses) (2,340) -- 1,502 --
Required by formula (21,366) -- 7,150 3
--------- --------- --------- ---------
Balance, end of year $ 47,605 $ 33,830 $ 53,911 $ 28,675
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
15. FEDERAL INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $31,000,000, $19,264,000 and
$12,429,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
16. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE):
On December 22, 1997, the Company issued a $250,000,000 surplus note to Life
Holdco. This note has an interest rate of 8.625% and is due on or after November
6, 2027.
On May 9, 1997, the Company issued a short-term note of $600,000,000 to Life
Holdco at an interest rate of 5.10%, which was extended at various interest
rates. This note was repaid on December 22, 1997.
The Company had issued and outstanding surplus notes to SLOC with an aggregate
carrying value of $335,000,000, during the period 1982 through January 16, 1996
at interest rates between 7.25% and 10%. The Company repaid all principal and
interest associated with these surplus notes on January 16, 1996.
On December 19, 1995 the Company issued surplus notes totaling $315,000,000 to
an affiliate, Sun Canada Financial Co., at interest rates between 5.75% and
7.25%. Of these notes, $157,500,000 will mature in the year 2007 and
$157,500,000 will mature in the year 2015. Interest on these notes is payable
semi-annually.
Principal and interest on surplus notes are payable only to the extent that the
Company meets specified requirements regarding free surplus exclusive of the
principal amount and accrued interest, if any, on these notes and with the
consent of the Delaware Insurance Commissioner. In addition, with regard to
surplus notes outstanding through January 16, 1996, subsequent to December 31,
1994 interest payments required
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
16. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED):
the consent of the Delaware Insurance Commissioner. Payment of principal and
interest on the notes issued in 1995 and in 1997 also requires the consents of
the Delaware Insurance Commissioner and Canadian Office of the Superintendent of
Financial Institutions.
The Company obtained the required consents and expensed $42,481,000, $23,061,000
and $31,813,000 for interest on surplus notes and notes payable for the years
ended December 31, 1997, 1996 and 1995, respectively.
17. MANAGEMENT AND SERVICE CONTRACTS:
The Company has an agreement with SLOC which provides that SLOC will furnish, as
requested, personnel as well as certain services and facilities on a
cost-reimbursement basis. Expenses under this agreement amounted to
approximately $15,997,000 in 1997, $20,192,000 in 1996, and $20,293,000 in 1995.
18. RISK-BASED CAPITAL:
Effective December 31, 1993 the NAIC adopted risk-based capital requirements for
life insurance companies. The risk-based capital requirements provide a method
for measuring the minimum acceptable amount of adjusted capital that a life
insurer should have, as determined under statutory accounting practices, taking
into account the risk characteristics of its investments and products. The
Company has met the minimum risk-based capital requirements at December 31, 1997
and 1996.
19. ACCOUNTING POLICIES AND PRINCIPLES:
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the Company's surplus. Changes in the net equity value of the common stock of
all other subsidiaries are directly reflected in the Company's Asset Valuation
Reserve. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
Other differences between statutory accounting practices and GAAP include the
following: statutory accounting practices do not recognize the following assets
or liabilities which are reflected under GAAP - deferred policy acquisition
costs, deferred federal income taxes and statutory non-admitted assets. Asset
Valuation Reserves and Interest Maintenance Reserves are established under
statutory accounting practices but not under GAAP. Methods for calculating real
estate depreciation and investment valuation allowances differ under statutory
accounting practices and GAAP. Actuarial assumptions and reserving methods
differ under statutory accounting practices and GAAP. Premiums for universal
life and investment type products are recognized as income for statutory
purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting principles generally accepted in Canada in the normal
course of business, the management of Sun Life Assurance Company of Canada
(U.S.) has determined that the cost of complying with Statement No. 120
"Accounting and Reporting by Mutual Insurance Enterprises and by Insurance
Enterprises for Certain Long
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
19. ACCOUNTING POLICIES AND PRINCIPLES (CONTINUED):
Duration Participating Contracts" exceed the benefits that the Company, or the
users of its financial statements, would experience. Consequently, the Company
has elected not to apply such standards in the preparation of these financial
statements.
69
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) as of December 31, 1997 and 1996, and the related statutory
statements of operations, changes in capital stock and surplus, and cash flow
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 19 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, and capital stock and
surplus of Sun Life Assurance Company of Canada (U.S.) as of December 31, 1997
and 1996, and the results of its operations and its cash flow for each of the
three years in the period ended December 31, 1997 on the basis of accounting
described in Notes 1 and 19.
However, because of the effects of the matter discussed in the second preceding
paragraph, in our opinion, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of Sun Life Assurance Company of Canada (U.S.) as of December
31, 1997 and 1996 or the results of its operations or its cash flow for each of
the three years in the period ended December 31, 1997.
As management has stated in Note 19, because the Company's management uses
financial information prepared in accordance with accounting principles
generally accepted in Canada in the normal course of business, the management of
Sun Life Assurance Company of Canada (U.S.) has determined that the cost of
complying with Statement No. 120 would exceed the benefits that the Company, or
the users of its financial statements, would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
financial statements.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 5, 1998
70
<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 and 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 0.7579% 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 0.7579%, 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 -1.10%, 4.88%, and 10.85%, respectively, thereafter taking into
account the current Daily Risk Percentage and the assumed 0.7579% charge for the
Portfolio's advisory fees and operating expenses; and -1.64%, 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 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT 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 DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------- --------- ---------- -------- -------- ---------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 10,925 10,169 500,000 11,565 10,809 500,000 12,205 11,449 500,000
2 27,121 20,652 19,896 500,000 22,559 21,803 500,000 24,544 23,788 500,000
3 41,708 30,028 29,272 500,000 33,838 33,082 500,000 37,963 37,207 500,000
4 57,023 38,382 38,382 500,000 44,743 44,743 500,000 51,908 51,908 500,000
5 73,104 47,273 47,273 500,000 56,849 56,849 500,000 68,076 68,076 500,000
6 89,989 55,984 55,984 500,000 69,459 69,459 500,000 85,909 85,909 500,000
7 107,719 64,541 64,541 500,000 82,623 82,623 500,000 105,612 105,612 500,000
8 126,335 74,036 74,036 500,000 97,526 97,526 500,000 128,614 128,614 500,000
9 145,881 83,322 83,322 500,000 113,051 113,051 500,000 154,010 154,010 500,000
10 166,406 92,417 92,417 500,000 129,247 129,247 500,000 182,082 182,082 500,000
11 187,956 101,690 101,690 500,000 146,701 146,701 500,000 213,952 213,952 500,000
12 210,584 110,724 110,724 500,000 164,925 164,925 500,000 249,258 249,258 529,530
13 234,343 119,519 119,519 500,000 183,971 183,971 500,000 288,135 288,135 595,781
14 259,290 128,072 128,072 500,000 203,890 203,890 500,000 330,915 330,915 666,247
15 285,484 136,427 136,427 500,000 224,780 224,780 500,000 378,025 378,025 741,383
16 312,989 144,444 144,444 500,000 246,600 246,600 500,000 429,745 429,745 821,306
17 341,868 152,154 152,154 500,000 269,451 269,451 502,026 486,547 486,547 906,507
18 372,191 159,571 159,571 500,000 293,226 293,226 532,841 548,934 548,934 997,503
19 404,031 166,653 166,653 500,000 317,871 317,871 563,649 617,385 617,385 1,094,747
20 437,463 173,416 173,416 500,000 343,427 343,427 594,561 692,507 692,507 1,198,907
Age 60 285,484 136,427 136,427 500,000 224,780 224,780 500,000 378,025 378,025 741,383
Age 65 437,463 173,416 173,416 500,000 343,427 343,427 594,561 692,507 692,507 1,198,907
Age 70 631,430 201,297 201,297 500,000 485,055 485,055 751,460 1,190,498 1,190,498 1,844,351
Age 75 878,986 216,399 216,399 500,000 650,882 650,882 914,801 1,969,292 1,969,292 2,767,801
</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 partial
surrenders 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 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS NET -1.64% NET 4.30% NET 10.25%
PAID PLUS ------------------------------- ------------------------------- ----------------------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------- --------- ---------- -------- -------- ---------- -------- -------- ---------- ---------- ----------
<S> <C> <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 9,441 500,000
2 27,121 17,038 16,282 500,000 18,716 17,960 500,000 20,466 19,710 500,000
3 41,708 24,759 24,003 500,000 28,062 27,306 500,000 31,648 30,892 500,000
4 57,023 31,443 31,443 500,000 36,908 36,908 500,000 43,083 43,083 500,000
5 73,104 38,587 38,587 500,000 46,763 46,763 500,000 56,382 56,382 500,000
6 89,989 45,433 45,433 500,000 56,880 56,880 500,000 70,910 70,910 500,000
7 107,719 51,949 51,949 500,000 67,242 67,242 500,000 86,777 86,777 500,000
8 126,335 59,209 59,209 500,000 79,003 79,003 500,000 105,347 105,347 500,000
9 145,881 66,084 66,084 500,000 91,054 91,054 500,000 125,687 125,687 500,000
10 166,406 72,545 72,545 500,000 103,389 103,389 500,000 147,988 147,988 500,000
11 187,956 78,581 78,581 500,000 116,019 116,019 500,000 172,492 172,492 500,000
12 210,584 84,172 84,172 500,000 128,954 128,954 500,000 199,472 199,472 500,000
13 234,343 89,315 89,315 500,000 142,223 142,223 500,000 229,258 229,258 500,000
14 259,290 93,995 93,995 500,000 155,848 155,848 500,000 262,078 262,078 527,654
15 285,484 98,192 98,192 500,000 169,852 169,852 500,000 297,664 297,664 583,779
16 312,989 101,864 101,864 500,000 184,249 184,249 500,000 336,191 336,191 642,509
17 341,868 104,962 104,962 500,000 199,056 199,056 500,000 377,861 377,861 704,010
18 372,191 107,422 107,422 500,000 214,286 214,286 500,000 422,880 422,880 768,443
19 404,031 109,165 109,165 500,000 229,955 229,955 500,000 471,454 471,454 835,982
20 437,463 110,111 110,111 500,000 246,098 246,098 500,000 523,803 523,803 906,837
Age 60 285,484 98,192 98,192 500,000 169,852 169,852 500,000 297,664 297,664 583,779
Age 65 437,463 110,111 110,111 500,000 246,098 246,098 500,000 523,803 523,803 906,837
Age 70 631,430 100,217 100,217 500,000 335,960 335,960 520,478 851,609 851,609 1,319,336
Age 75 878,986 51,375 51,375 500,000 433,917 433,917 609,861 1,316,591 1,316,591 1,850,442
</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 partial
surrenders 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 VUL
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 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT 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 DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------- --------- ---------- -------- -------- ---------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 11,187 10,800 500,000 11,865 11,477 500,000 12,542 12,155 500,000
2 27,121 21,536 21,149 500,000 23,560 23,173 500,000 25,665 25,278 500,000
3 41,708 31,528 31,141 500,000 35,573 35,186 500,000 39,951 39,564 500,000
4 57,023 40,860 40,860 500,000 47,616 47,616 500,000 55,225 55,225 500,000
5 73,104 50,353 50,353 500,000 60,529 60,529 500,000 72,458 72,458 500,000
6 89,989 59,660 59,660 500,000 73,986 73,986 500,000 91,471 91,471 500,000
7 107,719 68,805 68,805 500,000 88,038 88,038 500,000 112,482 112,482 500,000
8 126,335 78,251 78,251 500,000 103,201 103,201 500,000 136,225 136,225 500,000
9 145,881 87,490 87,490 500,000 119,002 119,002 500,000 162,446 162,446 500,000
10 166,406 96,538 96,538 500,000 135,487 135,487 500,000 191,432 191,432 500,000
11 187,956 105,783 105,783 500,000 153,273 153,273 500,000 224,361 224,361 500,000
12 210,584 114,791 114,791 500,000 171,850 171,850 500,000 260,752 260,752 553,949
13 234,343 123,562 123,562 500,000 191,271 191,271 500,000 300,807 300,807 621,982
14 259,290 132,093 132,093 500,000 211,590 211,590 500,000 344,882 344,882 694,366
15 285,484 140,427 140,427 500,000 232,904 232,904 500,000 393,417 393,417 771,569
16 312,989 148,428 148,428 500,000 255,180 255,180 500,000 446,700 446,700 853,709
17 341,868 156,125 156,125 500,000 278,446 278,446 518,785 505,216 505,216 941,292
18 372,191 163,532 163,532 500,000 302,594 302,594 549,864 569,486 569,486 1,034,850
19 404,031 170,607 170,607 500,000 327,624 327,624 580,943 640,002 640,002 1,134,851
20 437,463 177,367 177,367 500,000 353,578 353,578 612,134 717,388 717,388 1,241,982
Age 60 285,484 140,427 140,427 500,000 232,904 232,904 500,000 393,417 393,417 771,569
Age 65 437,463 177,367 177,367 500,000 353,578 353,578 612,134 717,388 717,388 1,241,982
Age 70 631,430 205,313 205,313 500,000 497,380 497,380 770,555 1,230,362 1,230,362 1,906,110
Age 75 878,986 220,673 220,673 500,000 665,703 665,703 935,632 2,032,540 2,032,540 2,856,695
</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 partial
surrenders 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 VUL
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 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS NET -1.64% NET 4.30% NET 10.25%
PAID PLUS ------------------------------- ------------------------------- ----------------------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------- --------- ---------- -------- -------- ---------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,230 8,789 8,402 500,000 9,393 9,006 500,000 9,999 9,612 500,000
2 27,121 16,874 16,487 500,000 18,612 18,225 500,000 20,426 20,039 500,000
3 41,708 24,659 24,271 500,000 28,069 27,682 500,000 31,776 31,389 500,000
4 57,023 31,756 31,756 500,000 37,390 37,390 500,000 43,766 43,766 500,000
5 73,104 38,922 38,922 500,000 47,345 47,345 500,000 57,273 57,273 500,000
6 89,989 45,764 45,764 500,000 57,557 57,557 500,000 72,042 72,042 500,000
7 107,719 52,245 52,245 500,000 68,005 68,005 500,000 88,190 88,190 500,000
8 126,335 58,801 58,801 500,000 79,173 79,173 500,000 106,387 106,387 500,000
9 145,881 64,934 64,934 500,000 90,587 90,587 500,000 126,348 126,348 500,000
10 166,406 70,605 70,605 500,000 102,236 102,236 500,000 148,279 148,279 500,000
11 187,956 75,798 75,798 500,000 114,133 114,133 500,000 172,443 172,443 500,000
12 210,584 80,484 80,484 500,000 126,285 126,285 500,000 199,142 199,142 500,000
13 234,343 84,654 84,654 500,000 138,721 138,721 500,000 228,745 228,745 500,000
14 259,290 88,281 88,281 500,000 151,463 151,463 500,000 261,507 261,507 526,504
15 285,484 91,335 91,335 500,000 164,536 164,536 500,000 297,044 297,044 582,562
16 312,989 93,755 93,755 500,000 177,951 177,951 500,000 335,516 335,516 641,221
17 341,868 95,472 95,472 500,000 191,722 191,722 500,000 377,129 377,129 702,646
18 372,191 96,392 96,392 500,000 205,859 205,859 500,000 422,086 422,086 766,999
19 404,031 96,401 96,401 500,000 220,378 220,378 500,000 470,592 470,592 834,454
20 437,463 95,381 95,381 500,000 235,311 235,311 500,000 522,869 522,869 905,220
Age 60 285,484 91,335 91,335 500,000 164,536 164,536 500,000 297,044 297,044 582,562
Age 65 437,463 95,381 95,381 500,000 235,311 235,311 500,000 522,869 522,869 905,220
Age 70 631,430 70,356 70,356 500,000 319,053 319,053 500,000 850,224 850,224 1,317,190
Age 75 878,986 0 0 0 415,224 415,224 583,589 1,314,570 1,314,570 1,847,601
</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 partial
surrenders 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 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT 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 DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------- --------- ---------- -------- -------- ---------- -------- ---------- ---------- ---------- ----------
<S> <C> <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 11,641 511,641
2 27,121 21,090 20,334 520,334 23,017 22,261 522,261 25,023 24,267 524,267
3 41,708 30,766 30,010 530,010 34,625 33,869 533,869 38,799 38,043 538,043
4 57,023 39,423 39,423 539,423 45,871 45,871 545,871 53,129 53,129 553,129
5 73,104 48,593 48,593 548,593 58,305 58,305 558,305 69,679 69,679 569,679
6 89,989 57,638 57,638 557,638 71,305 71,305 571,305 87,965 87,965 587,965
7 107,719 66,458 66,458 566,458 84,793 84,793 584,793 108,062 108,062 608,062
8 126,335 76,142 76,142 576,142 99,943 99,943 599,943 131,374 131,374 631,374
9 145,881 85,557 85,557 585,557 115,639 115,639 615,639 156,982 156,982 656,982
10 166,406 94,688 94,688 594,688 131,888 131,888 631,888 185,107 185,107 685,107
11 187,956 103,907 103,907 603,907 149,262 149,262 649,262 216,824 216,824 716,824
12 210,584 112,775 112,775 612,775 167,226 167,226 667,226 251,719 251,719 751,719
13 234,343 121,251 121,251 621,251 185,765 185,765 685,765 290,093 290,093 790,093
14 259,290 129,306 129,306 629,306 204,870 204,870 704,870 332,287 332,287 832,287
15 285,484 136,950 136,950 636,950 224,576 224,576 724,576 378,720 378,720 878,720
16 312,989 143,954 143,954 643,954 244,672 244,672 744,672 429,609 429,609 929,609
17 341,868 150,481 150,481 650,481 265,336 265,336 765,336 485,599 485,599 985,599
18 372,191 156,541 156,541 656,541 286,604 286,604 786,604 547,251 547,251 1,047,251
19 404,031 162,058 162,058 662,058 308,417 308,417 808,417 615,092 615,092 1,115,091
20 437,463 167,047 167,047 667,047 330,816 330,816 830,816 689,805 689,805 1,189,805
Age 60 285,484 136,950 136,950 636,950 224,576 224,576 724,576 378,720 378,720 878,720
Age 65 437,463 167,047 167,047 667,047 330,816 330,816 830,816 689,805 689,805 1,189,805
Age 70 631,430 181,621 181,621 681,621 449,694 449,694 949,694 1,192,374 1,192,374 1,692,374
Age 75 878,986 172,831 172,831 672,831 574,648 574,648 1,074,647 2,004,075 2,004,075 2,504,075
</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 partial
surrenders 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 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS NET -1.64% NET 4.30% NET 10.25%
PAID PLUS ----------------------------- ------------------------------- ----------------------------------
INTEREST CASH CASH CASH
POLICY AT 5% SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH SURRENDER ACCOUNT DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------- --------- --------- ------- -------- ---------- -------- -------- ---------- ---------- ----------
<S> <C> <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 9,392 509,392
2 27,121 16,908 16,152 516,152 18,573 17,817 517,817 20,309 19,553 519,553
3 41,708 24,496 23,740 523,740 27,760 27,004 527,004 31,301 30,545 530,545
4 57,023 30,995 30,995 530,995 36,372 36,372 536,372 42,445 42,445 542,445
5 73,104 37,897 37,897 537,897 45,903 45,903 545,903 55,318 55,318 555,318
6 89,989 44,437 44,437 544,437 55,589 55,589 555,589 69,250 69,250 569,250
7 107,719 50,577 50,577 550,577 65,391 65,391 565,391 84,300 84,300 584,300
8 126,335 57,372 57,372 557,372 76,428 76,428 576,428 101,762 101,762 601,762
9 145,881 63,683 63,683 563,683 87,557 87,557 587,557 120,622 120,622 620,622
10 166,406 69,468 69,468 569,468 98,732 98,732 598,731 140,969 140,969 640,969
11 187,956 74,705 74,705 574,705 109,922 109,922 609,922 162,926 162,926 662,926
12 210,584 79,364 79,364 579,364 121,088 121,088 621,088 186,614 186,614 686,614
13 234,343 83,435 83,435 583,435 132,208 132,208 632,208 212,190 212,190 712,190
14 259,290 86,891 86,891 586,891 143,246 143,246 643,246 239,811 239,811 739,811
15 285,484 89,704 89,704 589,704 154,155 154,155 654,155 269,645 269,645 769,645
16 312,989 91,819 91,819 591,819 164,864 164,864 664,864 301,850 301,850 801,850
17 341,868 93,172 93,172 593,172 175,287 175,287 675,287 336,590 336,590 836,590
18 372,191 93,682 93,682 593,682 185,316 185,316 685,316 374,025 374,025 874,025
19 404,031 93,253 93,253 593,253 194,819 194,819 694,819 414,316 414,316 914,316
20 437,463 91,795 91,795 591,795 203,667 203,667 703,667 457,644 457,644 957,644
Age 60 285,484 89,704 89,704 589,704 154,155 154,155 654,155 269,645 269,645 769,645
Age 65 437,463 91,795 91,795 591,795 203,667 203,667 703,667 457,644 457,644 957,644
Age 70 631,430 66,612 66,612 566,612 233,730 233,730 733,730 728,320 728,320 1,228,320
Age 75 878,986 625 625 500,625 221,966 221,966 721,966 1,113,462 1,113,462 1,613,462
</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 partial
surrenders 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
<PAGE>
Sun Life
Corporate VUL-SM-
P r o s p e c t u s
DATED MAY 1, 1998
<PAGE>
This booklet contains the prospectus
for Sun Life Corporate VUL and the
prospectuses for the underlying funds.
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
SUBJECT TO THE TERMS AND CONDITIONS OF SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES TO FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION SUCH SUPPLEMENTARY AND PERIODIC
INFORMATION, DOCUMENTS AND REPORTS AS MAY BE PRESCRIBED BY ANY RULE OR
REGULATION OF THE COMMISSION HERETOFORE OR HEREAFTER DULY ADOPTED PURSUANT TO
AUTHORITY CONFERRED IN THAT SECTION.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
INSOFAR AS INDEMNIFICATION FOR LIABILITY ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS
OF THE DEPOSITOR PURSUANT TO ITS CERTIFICATE OF INCORPORATION, BY-LAWS, OR
OTHERWISE, THE DEPOSITOR HAS BEEN ADVISED THAT IN THE OPINION OF THE
SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE ACT AND IS, THEREFORE, UNENFORCEABLE. IN THE EVENT
THAT A CLAIM FOR INDEMNIFICATION AGAINST SUCH LIABILITIES (OTHER THAN THE
PAYMENT BY THE DEPOSITOR OF EXPENSES INCURRED OR PAID BY A DIRECTOR, OFFICER
OR CONTROLLING PERSON OF THE DEPOSITOR IN THE SUCCESSFUL DEFENSE OF ANY
ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH DIRECTOR, OFFICER OR
CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING REGISTERED, THE
DEPOSITOR WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER HAS BEEN
SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE
JURISDICTION THE QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE ACT AND WILL BE GOVERNED BY THE FINAL
ADJUDICATION OF SUCH ISSUE.
REPRESENTATION WITH RESPECT TO SECTION 26(e) OF THE INVESTMENT COMPANY
ACT OF 1940.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) (SUN LIFE OF CANADA (U.S.))
REPRESENTS THAT THE FEES AND CHARGES DEDUCTED UNDER THE POLICY, IN THE
AGGREGATE, ARE REASONABLE IN RELATION TO THE SERVICES RENDERED, THE EXPENSES
TO BE INCURRED, AND THE RISKS ASSUMED BY SUN LIFE OF CANADA (U.S.)
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
THIS REGISTRATION STATEMENT COMPRISES THE FOLLOWING PAPERS AND DOCUMENTS:
THE FACING SHEET
CROSS-REFERENCE SHEET
THE PROSPECTUS CONSISTING OF ___ PAGES
THE UNDERTAKING TO FILE REPORTS
THE UNDERTAKING WITH RESPECT TO INDEMNIFICATION
REPRESENTATION PURSUANT TO SECTION 26(e) OF THE
INVESTMENT COMPANY ACT OF 1940
THE SIGNATURES
WRITTEN CONSENTS OF THE FOLLOWING PERSONS:
JOHN E. COLEMAN, FSA, MAAA
DELOITTE & TOUCHE LLP
II-2
<PAGE>
THE FOLLOWING EXHIBITS:
1. THE FOLLOWING EXHIBITS CORRESPOND TO THOSE REQUIRED BY
PARAGRAPH A OF THE INSTRUCTIONS AS TO EXHIBITS IN FORM N-8B-2:
(1) RESOLUTION OF THE BOARD OF DIRECTORS OF SUN LIFE
ASSURANCE COMPANY OF CANADA (U.S.) DATED DECEMBER 3,
1985 AUTHORIZING THE ESTABLISHMENT OF CANADA (U.S.)
VARIABLE ACCOUNT G.**
(2) NOT APPLICABLE
(3) DISTRIBUTING CONTRACTS:
(A) AGREEMENT BETWEEN TRUST OR DEPOSITOR AND PRINCIPAL
UNDERWRITER. (FILED HEREWITH)
(B) SPECIMEN OF TYPICAL AGREEMENTS BETWEEN PRINCIPAL
UNDERWRITER AND DEALERS, MANAGERS, SALES
SUPERVISORS AND SALESMEN. (FILED HEREWITH)
(C) SCHEDULE OF SALES COMMISSIONS REFERRED TO IN ITEM
38(c).*
(4) NOT APPLICABLE
(5) FORM OF POLICY AND RIDER
(A) FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE
INSURANCE POLICY*
(B) ADDITIONAL PROTECTION BENEFIT RIDER*
________________
* INCORPORATED BY REFERENCE TO THE PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT OF SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
ON FORM S-6, FILE NO. 333-13087.
** INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENT OF SUN LIFE OF
CANADA (U.S.) VARIABLE ACCOUNT F ON FORM N-4, FILE NO. 33-29852.
*** INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENT OF THE DEPOSITOR ON
FORM N-4, FILE NO. 333-37907.
II-3
<PAGE>
(6) (I) CERTIFICATE OF INCORPORATION OF SUN LIFE ASSURANCE
COMPANY OF CANADA (U.S.)***
(II) BY-LAWS OF SUN LIFE ASSURANCE COMPANY OF CANADA
(U.S.)***
(7) NOT APPLICABLE
(8) FORMS OF PARTICIPATION AGREEMENTS*
(9) NOT APPLICABLE
(10) FORM OF APPLICATION FOR FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE POLICY.*
(11) MEMORANDUM DESCRIBING SUN LIFE ASSURANCE COMPANY
OF CANADA (U.S.)'S ISSUANCE, TRANSFER AND REDEMPTION
PROCEDURES FOR THE POLICIES.*
2. OPINION AND CONSENT OF COUNSEL AS TO THE LEGALITY OF THE
SECURITIES BEING REGISTERED. (FILED PREVIOUSLY)
3. NONE.
4. NOT APPLICABLE.
5. NOT APPLICABLE.
6. ACTUARIAL OPINION AND CONSENT. (FILED HEREWITH)
7. (A) POWERS OF ATTORNEY*
(B) POWER OF ATTORNEY OF C. JAMES PRIEUR (FILED HEREWITH)
8. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT. (FILED
HEREWITH)
________________
* INCORPORATED BY REFERENCE TO THE PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT OF SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
ON FORM S-6, FILE NO. 333-13087.
** INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENT OF SUN LIFE OF
CANADA (U.S.) VARIABLE ACCOUNT F ON FORM N-4, FILE NO. 33-29852.
*** INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENT OF THE DEPOSITOR ON
FORM N-4, FILE NO. 333-37907.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT, SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G, CERTIFIES THAT IT
MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS OF THIS AMENDMENT TO THE
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) AND HAS DULY CAUSED THIS
AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-6 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED AND ITS SEAL TO BE
HEREUNTO AFFIXED AND ATTESTED, ALL IN THE TOWN OF WELLESLEY, AND COMMONWEALTH
OF MASSACHUSETTS ON THE 29TH DAY OF APRIL, 1998.
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
(REGISTRANT)
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(DEPOSITOR)
BY* /s/ John D. McNeil
------------------------------------
John D. McNeil, Chairman
Attest /s/ Margaret Sears Mead
--------------------------
Margaret Sears Mead, Assistant Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* /s/ John D. McNeil Chairman and Director
- ---------------------------- (Principal Executive APRIL 29, 1998
John D. McNeil Officer)
* /s/ Robert P. Vrolyk Vice President and
- ---------------------------- Actuary (Principal APRIL 29, 1998
Robert P. Vrolyk Financial & Accounting
Officer)
*** /s/ C. James Prieur Senior Vice President
- --------------------------- and General Manager and APRIL 29, 1998
C. James Prieur Director
_______________
* By Margaret Sears Mead pursuant to Power of Attorney filed with
Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of
Canada (U.S.) Variable Account G on Form S-6, File No. 333-13087.
*** By Margaret Sears Mead pursuant to Power of Attorney filed herewith.
II-5
<PAGE>
* /s/ M. Colyer Crum Director
- ---------------------------- APRIL 29, 1998
M. Colyer Crum
* /s/ Richard B. Bailey Director
- ---------------------------- APRIL 29, 1998
Richard B. Bailey
* /s/ David D. Horn Director
- ---------------------------- APRIL 29, 1998
David D. Horn
* /s/ John S. Lane Director
- ---------------------------- APRIL 29, 1998
John S. Lane
* /s/ Angus A. MacNaughton Director
- ---------------------------- APRIL 29, 1998
Angus A. MacNaughton
* /s/ Donald A. Stewart President and Director
- ---------------------------- APRIL 29, 1998
Donald A. Stewart
** /s/ S. Caesar Raboy Senior Vice President and
- ---------------------------- Deputy General Manager APRIL 29, 1998
S. Caesar Raboy and Director
__________________________
* By Margaret Sears Mead pursuant to Power of Attorney filed with
Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of
Canada (U.S.) Variable Account G on Form S-6, File No. 333-13087.
** By Margaret Sears Mead pursuant to Power of Attorney filed with
Post-Effective Amendment No. 1 to the Registration Statement of Sun Life
of Canada (U.S.) Variable Account G on Form S-6, File No. 333-13087.
II-6
<PAGE>
EXHIBIT INDEX
1.(3) DISTRIBUTING CONTRACTS:
(A) AGREEMENT BETWEEN TRUST OR DEPOSITOR AND PRINCIPAL
UNDERWRITER.
(B) SPECIMEN OF TYPICAL AGREEMENTS BETWEEN PRINCIPAL
UNDERWRITER AND DEALERS, MANAGERS, SALES
SUPERVISORS AND SALESMEN.
(C) SCHEDULE OF SALES COMMISSIONS REFERRED TO IN ITEM
38(c).+
1.(5) FORM OF POLICY AND RIDER
(A) FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE
INSURANCE POLICY+
(B) ADDITIONAL PROTECTION BENEFIT RIDER+
1.(8) FORMS OF PARTICIPATION AGREEMENTS+
1.(10) FORM OF APPLICATION FOR FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE POLICY.+
1.(11) MEMORANDUM DESCRIBING SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.)'S ISSUANCE, TRANSFER AND REDEMPTION
PROCEDURES FOR THE POLICIES.+
2. OPINION AND CONSENT OF COUNSEL AS TO THE LEGALITY OF THE
SECURITIES BEING REGISTERED.+
6. ACTUARIAL OPINION AND CONSENT
7. (A) POWERS OF ATTORNEY.+
(B) POWER OF ATTORNEY OF C. JAMES PRIEUR
8. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT.
+ Filed Previously
II-7
<PAGE>
MARKETING COORDINATION AND ADMINISTRATIVE
SERVICE AGREEMENT
THIS AGREEMENT entered into by and between Sun Life Assurance Company of
Canada (U.S.) ("Sun Life (U.S.)"), a Delaware corporation and Clarendon
Insurance Agency, Inc., a Massachusetts corporation ("Clarendon").
WITNESSETH
WHEREAS Sun Life (U.S.) proposes to issue and offer for sale certain life
insurance products (the "Plans") which are deemed to be securities under the
Securities Act of 1933 ("33 Act"); and
WHEREAS Clarendon is registered as a broker-dealer with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934 ("34 Act")
and is a member of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS Clarendon proposes to coordinate the marketing of the Plans and to
perform certain administrative services in conjunction with the Plans.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
I
THE PLANS
A. TYPE OF PLANS
The Plans issued by Sun Life (U.S.) to which this Agreement applies are
listed in Exhibit A. Exhibit A may be amended from time to time as
agreed upon by Sun Life (U.S.) and Clarendon.
B. SUSPENSION/RESTRICTION
Sun Life (U.S.) may, at its option and at its sole discretion, suspend
or restrict in any manner the sale or method of distribution of all or
any of the Plans, including sales by all or any individuals licensed to
sell Sun Life (U.S.)'s products. If any suspension or restriction is
required by any regulatory authority having jurisdiction, written notice
shall be given to Clarendon immediately upon receipt by Sun Life (U.S.)
of notice of such required suspension or restriction. In all other
cases, Sun Life (U.S.) will provide thirty (30) days' prior written
notice to Clarendon of any such suspension or restriction.
C. PLAN CHANGES
Sun Life (U.S.) may, at its option and at its sole discretion, amend, add
or delete features
<PAGE>
2
of all or any of the Plans. In the event of any such amendment, addition
or deletion, Sun Life (U.S.) will provide written notice of such change to
Clarendon. If the change is required by any regulatory authority having
jurisdiction, written notice shall be given to Clarendon immediately upon
receipt by Sun Life (U.S.) of notice of such required change. In all other
cases, Sun Life (U.S.) will provide written notice at least thirty (30)
days' prior to the effective date of such change.
II
MARKETING COORDINATION AND SALES ADMINISTRATION
A. GENERAL DISTRIBUTOR
Clarendon is hereby appointed by Sun Life (U.S.) as the General Distributor
of the Plans. Clarendon shall, at all times, when performing its functions
under this Agreement, be registered as a securities broker-dealer with the
SEC and the NASD.
B. DISTRIBUTION AGREEMENTS
Clarendon will distribute the plans pursuant to a Corporate Markets
Variable Life Insurance Sales Agreement (the "Distribution Agreement"),
substantially in the form attached as Exhibit B. No Commission Schedule
attached to any Distribution Agreement may provide for commission payments
in excess of specified maximums established by Sun Life (U.S.) from time to
time. Sun Life (U.S.), on behalf of Clarendon, shall retain copies of all
executed Distribution Agreements and all correspondence, memoranda and
other documents relating to the Distribution Agreements.
C. SALES REPRESENTATIVES/REGISTERED REPRESENTATIVES
1. APPOINTMENT AND TERMINATION
(a) Sun Life (U.S.) hereby designates Clarendon as its agent to
appoint and dismiss individuals as sales representatives of Sun
Life (U.S.) in those jurisdictions in which Sun Life (U.S.)
transacts an insurance business. Sun Life (U.S.) reserves the
right to terminate any and all such designations and will provide
written notice of any such termination to Clarendon concurrently
with notice to the particular regulatory authority.
(b) Appointments and/or dismissals of individuals as sales
representatives of Sun Life (U.S.) shall be made on forms
supplied by regulatory authorities having jurisdiction or by Sun
Life (U.S.), as the case may be. All such appointments and
dismissals shall be subject to all applicable laws, rules and
regulations and to such written instructions and rules as Sun
Life (U.S.) may establish from time to time. Sun Life (U.S.), on
behalf of Clarendon, shall retain copies of all completed forms
appointing and/or dismissing agents and all related
correspondence, memoranda and other documents.
<PAGE>
3
(c) Sun Life (U.S.), on behalf of Clarendon, shall maintain current
lists of sales representatives of Sun Life (U.S.) which it has
appointed.
(d) Sun Life (U.S.) shall pay all necessary appointment fees (initial
and renewal) and other expenses of any type incurred by Clarendon
with respect to licensing and appointment of individuals as sales
representatives of Sun Life (U.S.).
(e) Sun Life (U.S.) shall be responsible for determining that any
individual soliciting applications for Plans is: (i) properly
licensed with state insurance regulatory authorities; (ii)
appointed as a sales representative of Sun Life (U.S.); (iii)
properly licensed under all applicable securities laws; (iv)
associated as a registered representative with a broker/dealer
registered under the 34 Act and a NASD member and which has
executed a Distribution Agreement; and (v) covered by a fidelity
bond which provides for claim payments to be made to Sun Life
(U.S.) and Clarendon, as their interests may appear.
2. TRAINING OF SALES REPRESENTATIVES/REGISTERED REPRESENTATIVES
If requested by Sun Life (U.S.), Clarendon shall train sales
representatives of Sun Life (U.S.) which it has appointed to properly
solicit applications for the Plans.
3. SUPERVISION OF SALES REPRESENTATIVES/REGISTERED REPRESENTATIVES
Clarendon shall coordinate the supervision of the sales
representatives of Sun Life (U.S.) associated with other
broker-dealers in connection with the offering and sale of the Plans.
All rules and procedures as may be necessary to insure proper
supervision of the sales representatives/registered representatives
shall be subject to approval by Sun Life (U.S.).
4. SALES ASSISTANCE TO SALES REPRESENTATIVES/REGISTERED REPRESENTATIVES
If requested by Sun Life (U.S.), Clarendon shall provide sales
assistance to sales representatives of Sun Life (U.S.) which it has
appointed. This sales assistance shall include, but not be limited
to, assistance from home office personnel through its
telecommunications systems. In addition, Clarendon shall provide
broker/dealers and sales representatives with sufficient quantities
of sales promotional materials, prospectuses, sample Plans,
applications and any necessary service forms.
5. PAYMENT OF COMMISSIONS
All commission payments required to be made pursuant to the
Distribution Agreements shall be made by or through Clarendon as agent
for Sun Life (U.S.) or by Sun Life (U.S.) directly. Sun Life (U.S.)
will fund a commission account to make these payments. Sun Life
(U.S.) acknowledges that this function may be delegated by Clarendon,
subject to the prior approval of Sun Life (U.S.).
<PAGE>
4
D. SALES MATERIAL AND OTHER DOCUMENTS
1. CLARENDON RESPONSIBILITIES
Clarendon shall be responsible for:
(a) the approval of promotional material prepared by Sun Life (U.S.)
or Clarendon by the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc., where required.
2. SUN LIFE (U.S.)'S RESPONSIBILITIES
Sun Life (U.S.) shall be responsible for:
(a) providing Clarendon with sufficient quantities of prospectuses
regarding Plans and separate accounts, Plans (including
endorsements), applications and sample Plans for sales training
purposes.
(b) the design and printing of all promotional material for the
Plans.
(c) the approval of promotional material by state and other insurance
regulatory authorities.
E. ADVERTISING
Clarendon shall not print, publish or distribute any advertisement,
circular or any document relating to the Plans or relating to Sun Life
(U.S.) unless such advertisement, circular or document shall have been
approved in writing by Sun Life (U.S.). Neither Sun Life (U.S.) nor any of
its agents or affiliates shall print, publish or distribute any
advertisement, circular or any document relating to the Plans or relating
to Clarendon unless such advertisement, circular or document shall have
been approved in writing by Clarendon. However, nothing herein shall
prohibit any person from advertising annuities in general or on a generic
basis.
F. SALES RECORDS - PRODUCTION REPORTS
Clarendon shall provide Sun Life (U.S.) with such reports and materials
relative to the marketing and distribution of Plans as may reasonably be
required by Sun Life (U.S.), in the furtherance of its insurance business.
G. BOOKS, RECORDS AND SUPERVISION
1. BOOKS AND RECORDS
Clarendon may request that all or some of the books and records
required to be maintained by it as a registered broker/dealer in
connection with the offer and sale of the Plans be prepared and
maintained by Sun Life (U.S.). Sun Life (U.S.) agrees to prepare and
maintain such books and records at its cost upon request, and agrees
that such books and records are the property of Clarendon, that they
will be made and preserved in accordance with Rules 17a-3 and 17a-4
under the 34 Act and that they will be subject to examination by the
SEC in accordance with Section 17(a) of the 34 Act.
<PAGE>
5
2. SUPERVISION
Clarendon has and assumes full responsibility for the securities activities
of all persons associated with Sun Life (U.S.) who maintain books and
records on its behalf. Sun Life (U.S.) acknowledges that Clarendon has
full responsibility for all such persons in connection with their training,
supervision and control as contemplated by the 34 Act.
H. ASSIGNMENT OF DUTIES
Sun Life (U.S.) acknowledges that Clarendon may assign all or any part of
its duties under this Agreement subject to the prior consent of Sun Life
(U.S.). No other assignment of Clarendon's duties under this Agreement is
permitted.
III
COMPENSATION
A. GENERAL
For performing administrative and marketing coordination services under
this Agreement, Clarendon will be compensated by Sun Life (U.S.), as may be
agreed from time to time, and at a minimum, Clarendon shall be compensated
on a cost reimbursement basis for performing its services hereunder.
B. CHANGES IN COMPENSATION
Compensation payable under this Agreement may be increased to reflect any
change in administrative or marketing coordination responsibilities.
C. INDEBTEDNESS
Nothing in this Agreement shall be construed as giving Clarendon the right
to incur any indebtedness on behalf of Sun Life (U.S.). However, Sun Life
(U.S.) may offset amounts owed it under this Agreement against amounts
payable under this Agreement for any reason; and Clarendon may offset
amounts owed by Sun Life (U.S.) under this Agreement against any amounts
payable to Sun Life (U.S.) under this Agreement for any reason, provided
that no such offset is permitted in connection with Plan premiums or
purchase payments and Plan payments.
IV
OTHER PROVISIONS
A. PRODUCT DEVELOPMENT
Clarendon shall assist Sun Life (U.S.) in the design and development of
life insurance and annuity products for distribution pursuant to the
Distribution Agreements. This assistance
<PAGE>
6
may include conducting market research studies as reasonably requested by
Sun Life (U.S.), providing consulting services with respect to product
design, and assisting in the development of sales training, sales
promotional and advertising material relating to new insurance and annuity
products. All such studies and materials are the property of Sun Life
(U.S.).
B. OWNERSHIP OF BUSINESS RECORDS
Sun Life (U.S.) shall own all business records, including but not limited
to Plan records, tax records, payment records, plan descriptions,
appointment records, agents lists, files, memoranda and other records
maintained by Clarendon either on paper or in machine-readable form
pertaining to the duties and responsibilities under this Agreement. Such
records shall be delivered to Sun Life (U.S.) promptly upon reasonable
request. Clarendon will maintain all records and accounts maintained by it
in accordance with Sun Life (U.S.)'s standards or requirements, or
otherwise, with generally accepted procedures as they apply to the
accounting and insurance industry. At Sun Life (U.S.)'s request Clarendon
will make any such records available to Sun Life (U.S.)'s auditors or to
any governmental authority having jurisdiction over Sun Life (U.S.).
C. APPROVAL OF PRACTICES AND PROCEDURES
Sun Life (U.S.) shall have the right to review and approve the standards,
practices and procedures utilized by Clarendon in fulfilling its
obligations under the Agreement. Sun Life (U.S.) reserves the rights, from
time to time, to prescribe rules and regulations respecting the conduct of
the business covered hereby.
D. COMPLAINTS
1. Clarendon shall immediately forward to Sun Life (U.S.) any information
received by Clarendon relating to any complaint relating to Sun Life
(U.S.) or the Plans.
2. In the case of complaints or inquiries relating to the Plans
distributed pursuant to the Distribution Agreements, Sun Life (U.S.)
may, at its option, request Clarendon to investigate and/or respond to
such complaints or inquiries. In such instances, Clarendon shall
promptly forward to Sun Life (U.S.) copies of all documents relating
to such investigations and/or responses.
E. LIMITATIONS ON AUTHORITY
Clarendon shall have authority only as expressly granted in this Agreement.
No party to this Agreement shall enter into any proceeding in a court of
law or before a regulatory agency in the name of any other party, without
the express written consent of that party. Further, if any legal or
administrative proceedings are commenced against any party arising out of
the obligations, duties or services performed under this Agreement by any
third party or any federal, state or other governmental or regulatory
authority, that party, as the case may be, shall immediately notify the
other parties of this fact.
<PAGE>
7
V
GENERAL PROVISIONS
A. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of
the conditions, but the same shall remain in full force and effect. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute a waiver of any other provisions, whether or not similar, nor
shall any waiver constitute a continuing waiver.
B. BOND
Clarendon will maintain whatever fidelity bond may be required by Sun Life
(U.S.), and such bond shall be of a type and amount and issued by a
reputable company, all as approved by Sun Life (U.S.).
C. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the
parties to it and their respective successors and assigns.
D. INDEMNIFICATION
Each party hereby agrees to release, indemnify and hold harmless the other
party, its officers, directors, employees, agents, servants, predecessors
or successors from any claims or liability to third parties arising out of
the breach of this Agreement or arising out of the acts or omissions of a
party to this Agreement not authorized by this Agreement.
E. NOTICES
All notices, requests, demands and other communication under this Agreement
shall be in writing, and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or
on the date of mailing, if sent by First Class Mail, Registered or
Certified, postage prepaid and properly addressed as follows:
TO SUN LIFE (U.S.)
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
Attention: Secretary SC 1335
TO Clarendon
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
Attention: Secretary SC 1335
<PAGE>
8
F. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
G. COMPLIANCE
All parties agree to observe and comply with the existing laws and rules or
regulations of applicable local, state or federal regulatory authorities,
and with those which may be enacted or adopted during the term of this
Agreement regulating the business contemplated hereby in any jurisdiction
in which business described herein is to be transacted.
H. TERMINATION
This Agreement may be terminated by any of the parties upon two (2) months'
prior written notice to the other party.
Executed to be effective this day of January, 1998.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By /s/ Margaret Sears Mead
----------------------------------------------
Margaret Sears Mead, Secretary
By /s/ Robert A. Bonner
----------------------------------------------
Robert A. Bonner, Vice President
CLARENDON INSURANCE AGENCY, INC.
By /s/ Roy P. Creedon
----------------------------------------------
Roy P. Creedon, Secretary
By /s/ Donald Kaufman
----------------------------------------------
Donald Kaufman, Vice President
<PAGE>
CORPORATE MARKETS VARIABLE LIFE INSURANCE
SALES AGREEMENT
AGREEMENT by and between SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
("the Company"), a Delaware corporation; Clarendon Insurance Agency, Inc.
("Clarendon"), a Massachusetts corporation, a broker-dealer registered with
the Securities and Exchange Commission under the Securities Exchange Act of
1934 (the "1934 Act") and a member of the National Association of Securities
Dealers, Inc. ("NASD"); _____________________________________________________
_____________________________________________ ("Selling Broker-Dealer"), also
a broker-dealer registered under the 1934 Act and a member of the NASD; and
_____________________________________________________________ ("Producer") an
insurance agency affiliate of Selling Broker-Dealer.
W I T N E S S E T H:
WHEREAS, the Company issues certain life insurance contracts listed in
Schedule A (the "Contracts"), which are registered under the Securities Act of
1933 (the "1933 Act"):
WHEREAS, the Company has authorized Clarendon to act as the general
distributor and principal underwriter of the Contracts; and in that capacity to
enter into agreements, subject to the consent of the Company, with
Broker-Dealers and such Producers to act as Special COLI Producers for the
distribution of the Contracts:
WHEREAS, Clarendon has agreed to assist in obtaining licenses,
registrations and appointments to enable the registered representatives and
sub-brokers of Producer to sell the Contracts:
WHEREAS, Selling Broker-Dealer and Producer have been selected by Clarendon
to distribute the Contracts and Selling Broker-Dealer and Producer, in an
insurance brokerage capacity, wish to participate in the distribution of the
Contracts to their clients.
NOW THEREFORE, in consideration of the promises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
I.
APPOINTMENT
Subject to the terms and conditions of this Agreement, the Company and
Clarendon hereby appoint Selling Broker-Dealer and Producer to solicit
applications for the Contracts.
Selling Broker-Dealer and Producer jointly and severally accept such
appointment and each agrees to use its best efforts to find purchasers for the
Contracts acceptable to the Company.
<PAGE>
2
II.
AUTHORITY AND DUTIES OF PRODUCER
A. Licensing and Appointment of Sub-brokers
Producer is authorized to appoint sub-broker ("Sub-brokers") to solicit
sales of the Contracts. Producer agrees to fulfill all requirements set forth
in the General Letter of Recommendation attached as Schedule B hereto in
conjunction with its submission of licensing and appointment papers for all
Sub-brokers.
Producer warrants that it and all of its Sub-brokers appointed pursuant to
this Agreement shall not solicit nor aid, directly or indirectly, in the
solicitation of any application for any Contract until fully licensed by the
proper authorities under the applicable insurance laws within the applicable
jurisdictions where Producer proposes to offer the Contracts, where the Company
is authorized to conduct business and where the Contracts may be lawfully sold.
Producer shall periodically provide the Company with a list of all
Sub-brokers appointed by Producer and the jurisdictions where such Sub-brokers
are licensed to solicit sales of the Contracts. The company shall periodically
provide Producer with a list which shows; (i) the jurisdictions where the
Company is authorized to do business; and (ii) any limitations on the
availability of the Contracts in any of such jurisdictions.
Producer shall prepare and transmit the appropriate appointment forms to
the Company. Producer shall pay all fees to state insurance regulatory
authorities in connection with obtaining necessary licenses and authorizations
for Sub-brokers to solicit and sell the Contracts. The Company will pay
appointment fees for Selling Broker-Dealer and resident appointment fees for
Sub-brokers. Non-resident appointment fees for Sub-brokers will be paid by the
Producer. The Company may refuse for any reason to apply for the appointment of
a Sub-broker and may cancel any existing appointment at any time.
B. Rejection of Sub-broker
The Company or Clarendon may refuse for any reason, by written notice to
Producer to permit any Sub-broker the right to solicit applications for the sale
of any of the Contracts. Upon receipt of such notice, Producer immediately
shall cause such Sub-broker to cease such solicitations of sales and cancel the
appointment of any Sub-broker under this agreement.
C. Supervision of Sub-broker
Producer, jointly with Selling Broker-Dealer, shall supervise all
Sub-brokers appointed pursuant to this Agreement to solicit sales of the
Contracts and bear responsibility for all acts and omissions of each Sub-broker.
Producer shall comply with and exercise all responsibilities required by
applicable federal and state law and regulations. Producer shall train and
supervise its Sub-brokers to ensure that purchase of a Contract is recommended
only to applicants where there are reasonable grounds to believe the purchase of
the Contract is suitable for that applicant.
<PAGE>
3
While not limited to the following, a determination of suitability shall be
based on information furnished to a Selling Broker-Dealer after reasonable
inquiry of such applicant concerning the applicant's insurance and investment
objectives, financial situation and needs, and the likelihood that the applicant
will continue to make any premium payments contemplated by the Contracts and
will keep the Contract in force for a sufficient period of time so that the
Company's acquisition costs are amortized over a reasonable period of time.
Nothing contained in this Agreement or otherwise shall be deemed to make
any Sub-broker appointed by Producer an employee or agent of the Company or
Clarendon. Neither the Company nor Clarendon shall have any responsibility for
the training and supervision of any Sub-broker or any employee of Producer. If
the act or omission of a Sub-broker or any employee of Producer is the proximate
cause of claim, damage or liability (including reasonable attorneys' fees) to
the Company or Clarendon, Producer and Selling Broker-Dealer shall be
responsible and liable, jointly and severally, therefor.
III.
AUTHORITY AND DUTIES OF SELLING BROKER-DEALER
Selling Broker-Dealer agrees that it has the full legal responsibility for
the training and supervision of all persons, including Sub-brokers of Producer,
associated with Selling Broker-Dealer who are engaged directly or indirectly in
the offer or sale of Contracts. All such persons shall be registered
representatives of Selling Broker-Dealer and shall be subject to the control and
supervision of Selling Broker-Dealer with respect to their securities regulated
activities. Selling Broker-Dealer shall: (i) train and supervise Sub-brokers,
in their capacity as registered representatives, in the sale of Contracts; (ii)
use its best efforts to cause such Sub-brokers to qualify under applicable
federal and state laws to engage in the sale of Contracts; (iii) provide the
Company and Clarendon to their satisfaction with evidence of Sub-brokers'
qualifications to sell Contracts; (iv) notify the Company if any of such
Sub-brokers ceases to be a registered representative of Selling Broker-Dealer;
and (v) train and supervise Sub-brokers to ensure compliance with applicable
federal and state securities laws, rules, regulations, statements of policy
thereunder and with NASD rules. Selling Broker-Dealer, jointly with Producer,
shall train and supervise Sub-brokers to ensure that purchase of a Contract is
recommended only to applicants where there are reasonable grounds to believe the
purchase of the Contract is suitable for that applicant. While not limited to
the following, a determination of suitability shall be based on information
furnished to a Sub-broker after reasonable inquiry of such applicant concerning
the applicant's other security holdings, financial situation and needs. Selling
Broker-Dealer shall ensure that any offer of a Contract made by a Sub-broker
will be made by means of a currently effective prospectus.
The Company and Clarendon shall not have any responsibility for the
supervision of any registered representative or any employee or affiliate of
Selling Broker-Dealer. If the act or omission of a registered representative or
any employee or affiliate of Selling Broker-Dealer is the
<PAGE>
4
proximate cause of any claim, damage or liability (including reasonable
attorney's fees) to the Company or Clarendon, Selling Broker-Dealer and Producer
shall be responsible and liable, jointly and severally, therefor.
Selling Broker-Dealer at all times shall be duly registered as a
broker-dealer under the 1934 Act, a member in good standing of the NASD and duly
licensed in all states and jurisdictions where required to perform pursuant to
this agreement. Selling Broker-Dealer shall fully comply with the requirements
of the 1934 Act and all other applicable federal or state laws and with the
rules of the NASD. Selling Broker-Dealer shall establish such rules and
procedures as may be necessary to cause diligent supervision of the securities
activities of the Sub-brokers including ensuring compliance with the prospectus
delivery requirements of the 1933 Act.
IV.
AUTHORITY AND DUTIES OF
PRODUCER AND SELLING BROKER-DEALER
A. Contracts
The Contracts issued by the Company to which this Agreement applies are
listed in Schedule A. This Schedule A may be amended from time to time by the
Company. The Company, in its sole discretion, with prior or concurrent written
notice to Selling Broker-Dealer and Producer, may suspend distribution of any
Contract. The Company also has the right to amend any Contract at any time.
B. Securing Applications
Each application for a Contract shall be made on an application form
provided by the Company and all payments collected by Selling Broker-Dealer,
Producer or any registered representative and Sub-broker shall be remitted
promptly in full, together with such application form and any other required
documentation, directly to the Company at the address indicated on such
application or to such other address as may be designated by the Company. All
such payments and documents shall be the property of the Company. Selling
Broker-Dealer and Producer shall review all such applications for completeness
and for compliance with the conditions herein, including the suitability and
prospectus delivery requirements set forth herein. Check or money order in
payment of such Contracts should be made payable to the order of "Sun Life
Assurance Company of Canada (U.S.)". All applications are subject to acceptance
or rejection by the Company in its sole discretion.
C. Receipt of Money
All money payable in connection with any of the Contracts, whether as
premium, purchase payment or otherwise and whether paid by or on behalf of any
contract owner or anyone else
<PAGE>
5
having an interest in the Contracts, is the property of the Company and shall be
transmitted immediately in accordance with the administrative procedures of the
Company without any deduction or offset for any reason including, but not
limited to, any deduction or offset for compensation claimed by Selling
Broker-Dealer or Producer, unless there has been a prior written arrangement for
net wire transmissions between the Company and Selling Broker-Dealer or
Producer.
D. Notice of Sub-broker's Noncompliance
Selling Broker-Dealer shall immediately notify Clarendon and Producer in
the event a Sub-broker fails or refuses to submit to the supervision of Selling
Broker-Dealer or Producer in accordance with this Agreement or any related
agreement between Selling Broker-Dealer, Producer and Sub-broker or otherwise
fails to meet the rules and standards imposed by Selling Broker-Dealer or its
registered representatives or Producer or its Sub-brokers. Selling
Broker-Dealer or Producer shall also immediately notify such Sub-broker that he
or she is no longer authorized to sell the Contracts, and both Selling
Broker-Dealer and Producer shall take whatever additional action may be
necessary to terminate the sales activities of such Sub-broker relating to the
Contracts.
E. Sales Promotion, Advertising and Prospectuses
No sales promotion materials, circulars, documents or any advertising
relating to any of the Contracts shall be used by Selling Broker-Dealer,
Producer or any Sub-brokers unless the specific item has been approved in
writing by Clarendon and the Company prior to use. Selling Broker-Dealer shall
be provided, without any expense to Selling Broker-Dealer, with prospectuses
relating to Contracts. Selling Broker-Dealer and Producer shall be provided
with such other material as Clarendon determines necessary or desirable for use
in connection with sales of the Contracts. Nothing in these provisions shall
prohibit Selling Broker-Dealer or Producer from advertising life insurance and
annuities on a generic basis.
Selling Broker-Dealer, Producer and Sub-brokers shall make no material
representations relating to the Contracts, other than those contained in the
relevant registration statement, as may be amended, or in sales promotion or
other materials approved by the Company and Clarendon as provided herein.
F. Confidentiality
The Company, Clarendon, Selling Broker-Dealer and Producer shall keep
confidential all information obtained pursuant to this Agreement, including,
without limitation, names of the purchasers of the Contracts, and shall disclose
such information, only if authorized to make such disclosure in writing, or if
such disclosure is expressly required by applicable federal or state regulatory
authorities.
<PAGE>
6
G. Records
Selling Broker-Dealer and Producer shall have the responsibility for
maintaining the records of its Sub-brokers and representatives licensed,
registered and otherwise qualified to sell the Contracts. Selling Broker-Dealer
and Producer shall maintain such other records as are required of them by
applicable laws and regulations. The books, accounts and records of Selling
Broker-Dealer and Producer relating to the sale of the Contracts shall be
maintained so as to clearly and accurately disclose the nature and details of
the transactions. Selling Broker-Dealer and Producer each agree to make the
books and records relating to the sale of the Contracts available to the Company
or Clarendon upon their written request.
H. Sub-Broker Agreements
Before a Sub-broker is permitted by Producer and Selling Broker-Dealer to
offer the Contracts, Sub-broker shall have entered into a written agreement with
Producer and Selling Broker-Dealer pursuant to which (i) Sub-broker is appointed
as a Sales representative of Producer and a registered representative of Selling
Broker-Dealer; (ii) Sub-broker agrees that his or her selling activities
relating to Contracts shall be under the supervision and control of Selling
Broker-Dealer and Producer, and (iii) that Sub-brokers right to continue to sell
such Contracts is subject to his or her continued compliance with such agreement
and any procedures, rules or regulations implemented by Selling Broker-Dealer or
Producer. At the request of the Company, a copy of each such written agreement
shall be mailed to the Company.
V.
COMPENSATION
A. Commissions and Fees
Commissions and fees payable to Selling Broker-Dealer or any Sub-broker in
connection with the Contracts shall be paid by the Company through Clarendon, as
paying agent for the Company to Producer, or otherwise permitted by law or
regulation. Selling Broker-Dealer shall pay Sub-broker. Clarendon will provide
Selling Broker-Dealer and Producer with a copy of its current Compensation
Schedule(s), attached hereto as Schedule C. Unless otherwise provided in
Schedule C. compensation will be paid as a percentage of premiums or purchase
payments (collectively, "Payments") received and accepted by the Company on
applications obtained by the various Sub-brokers appointed by Producer
hereunder. Upon termination of this Agreement, all compensation to Selling
Broker-Dealer and Sub-broker hereunder shall cease. However, Selling
Broker-Dealer or Sub-broker shall be entitled to receive compensation for all
new and additional premium payments which are in process at the time of
termination in accordance with Schedule C, and shall continue to be liable for
any charge-backs pursuant to the provisions of said Schedule C,
<PAGE>
7
or for any other amount advanced by or otherwise due the Company or Clarendon
hereunder. The Company reserves the right not to pay compensation on a Contract
for which the premium is paid in whole or in part by the loan or surrender value
of any other life insurance policy or annuity contract issued by the Company or
any direct or indirect affiliated company.
Clarendon, at the direction of the Company, shall deduct any charge backs
from compensation otherwise due Selling Broker-Dealer or Sub-broker. If any
amount to be deducted exceeds compensation otherwise due, Selling Broker-Dealer
and/or Sub-broker shall promptly pay back the amount of the excess following a
written demand by Clarendon or the Company. Selling Broker-Dealer, Producer and
Sub-broker are jointly and severally liable for such charge backs.
The Company recognizes the Contract Owners' right on issued Contracts to
terminate its agent of record status with Producer and/or change a Selling
Broker-Dealer, provided that the Contract Owner notifies Clarendon in writing.
When a Contract Owner terminates its agent of record, no further service fees
nor compensation on any payments due or received on any increases in face amount
in the existing policy after termination, shall be payable to Selling
Broker-Dealer or Producer in accordance with Schedule C after the notice of
termination is received and accepted by Clarendon. However, when a Contract
Owner designates a new Selling Broker-Dealer other than those of record,
compensation on any payments due or received on any increases in face amount in
the existing Contract after the change, shall be payable to the new Selling
Broker-Dealer in accordance with Schedule C in effect at the time of issuance of
the Contract.
A change of Selling Broker-Dealer request by a Contract Owner shall be
honored by the Company only if there exists a valid similar Corporate Markets
Variable Life Insurance Sales Agreement between the Company, Clarendon and the
new Selling Broker-Dealer and (1) the Contract Owner(s) requests in writing that
the Sub-broker remains as representative of record, or (2) both the former and
future Selling Broker-Dealers direct the Company and Clarendon in a joint
writing to transfer all policies and future compensation to the new Selling
Broker-Dealer, or (3) the NASD approves and effects a bulk transfer of all
representatives to a new Selling Broker-Dealer.
B. Time of Payment
Clarendon will pay any commissions due Producer in accordance with Schedule
C of this Agreement, as it may be amended from time to time.
C. Amendment of Schedules
Clarendon may amend Schedule C upon at least ten (10) days' prior written
notice to Selling Broker-Dealer and Producer. The submission of an application
for the Contracts by Selling Broker-Dealer or Producer after the effective date
of any such amendment shall constitute
<PAGE>
8
agreement to such amendment. Any such amendment shall apply to compensation due
on applications received by the Company after the effective date of such notice.
D. Prohibition Against Rebates
The Company or Clarendon may terminate this Agreement if Selling
Broker-Dealer, Producer or any Sub-broker rebates, offers to rebate or withholds
any part of any Payment on the Contracts. If Selling Broker-Dealer, Producer or
any Sub-broker shall at any time induce or endeavor to induce any Owner of any
Contract issued hereunder to discontinue payments or to relinquish any such
Contract, except under circumstances where there is reasonable grounds for
believing the Contract is not suitable for such person, any and all compensation
due Producer hereunder shall cease and terminate.
E. Indebtedness and Right of Set Off
Nothing contained in this Agreement shall be construed as giving Selling
Broker-Dealer or Producer the right to incur any indebtedness on behalf of the
Company or Clarendon. Selling Broker-Dealer and Producer hereby authorize
Clarendon and the Company to set off liabilities of Selling Broker-Dealer and
Producer to the Company and Clarendon against any and all amounts otherwise
payable to Selling Broker-Dealer or Producer.
VI.
GENERAL PROVISIONS
A. Waiver
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed to be, or shall
constitute, a waiver of any other provisions, whether or not similar, nor shall
any waiver constitute a continuing waiver.
B. Limitations
The Selling Broker-Dealer and Producer are independent contractors with
respect to the Company and Clarendon. No sub-broker is a party to this
Agreement nor is any sub-broker entitled to claim the status of a third party
beneficiary with respect to this Agreement. No party other than the Company and
or Clarendon, as the case may be, shall have the authority to: (i) make, alter
or discharge any Contract issued by the Company; (ii) waive any forfeiture or
extend the time of making any payments; (iii) enter into any proceeding in a
court of law or before a regulatory agency in the name of or on behalf of the
Company or Clarendon; (iv) contract for the
<PAGE>
9
expenditure of funds of the Company or Clarendon; (v) alter the forms which the
Company prescribes, or substitute other forms in place of those prescribed by
Clarendon.
C. Fidelity Bond and Other Liability Coverage
Selling Broker-Dealer and Producer each represent that all directors,
officers, agents, employees and brokers who are licensed pursuant to this
Agreement as brokers for the Company for state insurance law purposes or who
have access to funds of the Company, including but not limited to, funds
submitted with applications for the Contracts are and shall be covered by a
blanket fidelity bond, including coverage for larceny and embezzlement issued by
a reputable bonding company. This bond shall be maintained by Selling
Broker-Dealer or Producer at their expense and shall be, at a minimum, of the
form, type and amount required under NASD Rules endorsed to extend coverage to
transactions relating to the Contracts. The Company may require evidence
satisfactory to it, that such coverage is in force and Selling Broker-Dealer or
Producer, as the case may be, shall give prompt written notice to the Company of
any notice of cancellation of the bond or change of coverage.
Selling Broker-Dealer and Producer hereby assign any proceeds received from
a fidelity bonding company, error and omissions or other liability coverage, to
the Company or Clarendon as their interest may appear, to the extent of their
loss due to activities covered by the bond, policy or other liability coverage.
If there is any deficiency amount, whether due to a deductible or otherwise,
Selling Broker-Dealer or Producer shall promptly pay such amounts on demand.
Selling Broker-Dealer and Producer hereby indemnify and hold harmless the
Company and Clarendon from any such deficiency and from the costs of collection
thereof (including reasonable attorneys' fees).
D. Binding Effect
This Agreement shall be binding on and shall inure to the benefit of the
parties to it and their respective successors and assigns provided that neither
Selling Broker-Dealer nor Producer may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company.
E. Regulations
All parties agree to observe and comply with the existing laws and rule or
regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted.
<PAGE>
10
F. Indemnification
The Company and Clarendon agree to indemnify and hold harmless Selling
Broker-Dealer and Producer, their officers, directors, agents and employees,
against any and all losses, claims, damages or liabilities to which they may
become subject under the 1933 Act, the 1934 Act, or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact or any omission or alleged omission to state a material fact required to be
stated or necessary to make the statements made not misleading in the
registration statement for the Contracts filed pursuant to the 1933 Act, or any
prospectus included as a part thereof, as from time to time amended and
supplemented, or in any advertisement or sales literature approved in writing by
the Company and Clarendon pursuant to this Agreement.
Selling Broker-Dealer and Producer agree to indemnify and hold harmless the
Company and Clarendon, their officers, directors, agents and employees, against
any and all losses, claims, damages or liabilities to which they may become
subject under the 1933 Act, the 1934 Act, or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (a) any oral or written misrepresentation by Selling Broker-Dealer or
Producer or their officers, directors, employees or agents unless such
misrepresentation is contained in the registration statement for the Contracts,
any prospectus included as a part thereof, as from time to time amended and
supplemented, or any advertisement or sales literature approved in writing by
the Company and Clarendon pursuant to this Agreement, (b) the failure of Selling
Broker-Dealer or Producer or their officers, directors, employees or agents to
comply with any applicable provisions of this Agreement or (c) claims by brokers
or employees of Producer or Selling Broker-Dealer for payments of compensation
or remuneration of any type. Selling Broker-Dealer and Producer will reimburse
the Company or Clarendon or any director, officer, agent or employee of either
entity for any legal or other expenses reasonable incurred by the Company,
Clarendon, or such office, director, agent or employee in connection with
investigating or defending any such loss, claims, damages, liability or action.
This indemnity agreement will be in addition to any liability which
Broker-Dealer may otherwise have.
G. Notices
All notices or communications shall be sent to the following address for
the Company or Clarendon, or to such other address as the Company or Clarendon
may request by giving written notice to the other parties:
Sun Life Assurance Co. Of Canada (U.S.) Clarendon Insurance Agency, Inc.
One Sun Life Executive Park, SC 2145 One Sun Life Executive Park, SC 1335
Wellesley Hills, MA 02181 Wellesley Hills, MA 02181
<PAGE>
11
All notices or communications to the Selling Broker-Dealer or Producer
shall be sent to the last address known to the Company for that party, or to
such other address as Selling Broker-Dealer or Producer may request by giving
written notice to the other parties.
H. Governing Law
This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
I. Amendment of Agreement
Clarendon may amend this Agreement upon at least ten (10) days' prior
written notice to Selling Broker-Dealer and Producer. The submission of an
application for the Contracts by Selling Broker-Dealer or Producer after the
effective date of any such amendment shall constitute agreement to such
amendment.
J. Producer as Broker-Dealer
Selling Broker-Dealer and Producer shall not have the other entity's
authority and shall not be responsible for the other entity's duties hereunder
unless Selling Broker-Dealer and Producer are the same entity, subject to their
acceptance of joint and several responsibility under this Agreement. If Selling
Broker-Dealer and Producer are the same person or legal entity, such person or
legal entity shall have the rights and obligations hereunder of both Selling
Broker-Dealer and Producer and this Agreement shall be binding and enforceable
by and against such person or legal entity in both capacities.
K. Complaints and Investigations
The Company, Clarendon, Selling Broker-Dealer and Producer agree to
cooperate fully in any insurance regulatory investigation or proceeding or
judicial proceeding arising in connection with the Contracts distributed under
this Agreement. The Company, Clarendon, Selling Broker-Dealer and Producer
further agree to cooperate fully in any securities regulatory investigation or
proceeding with respect to the Company, Clarendon, Selling Broker-Dealer and
Producer, their affiliates and their agents or representatives to the extent
that such investigation or proceeding is in connection with the Contracts
distributed under this Agreement. Without limiting the foregoing:
(a) Selling Broker-Dealer or Producer will be notified promptly of any
customer complaint or notice of any regulatory investigation or proceeding
or judicial proceeding received by the Company or Clarendon with respect to
Selling Broker-Dealer or Producer or any Sub-broker or which may affect the
Company's issuance of any contracts sold under this Agreement; and
<PAGE>
12
(b) Selling Broker-Dealer and Producer will promptly notify the Company
and Clarendon of any customer complaint or notice of any regulatory
investigation or proceeding received by Selling Broker-Dealer, Producer or
their affiliates with respect to Selling Broker-Dealer, Producer or any
Sub-broker in connection with any Contracts distributed under this
Agreement or any activity in connection with any such policies.
In the case of a substantive customer complaint, the Company, Clarendon,
Selling Broker-Dealer and Producer will cooperate in investigating such
complaint and any response will be sent to the other party to this Agreement for
approval not less than five business days prior to its being sent to the
customer or regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or telegraph.
L. Termination
This Agreement may be terminated, without cause, by any party upon thirty
(30) days' prior written notice. This Agreement also may be terminated
immediately if Clarendon or Selling Broker-Dealer shall cease to be a registered
Broker-Dealer under the 1934 Act or a member in good standing of the NASD, or if
there occurs the dissolution, bankruptcy or insolvency of Selling Broker-Dealer
or Producer. Sections VI, F and K shall survive termination of this Agreement.
Upon termination of this Agreement, Selling Broker-Dealer and Producer
shall each use their best efforts to have all property of the Company and
Clarendon in Selling Broker-Dealer, Producer or Sub-brokers' possession promptly
returned to the Company or Clarendon, as the case may be. Such property
includes illustration software, prospectuses, applications and other literature
supplied by the Company or Clarendon.
M. Exclusivity
Selling Broker-Dealer and Producer each agree that no territory is assigned
exclusively hereunder and that the Company and Clarendon reserve the right in
their discretion to establish one or more agencies in any jurisdiction in which
Selling Broker-Dealer and Producer transact business hereunder.
<PAGE>
13
This Agreement shall be effective as of___________________________________.
Sun Life Assurance Company of Canada (U.S.) __________________________________.
(Selling Broker-Dealer)
By:___________________________________ By:________________________________.
(Signature) (Signature)
Title:________________________________ Title:______________________________
Date: ________________________________ Date:_______________________________
By:___________________________________
(Signature)
Title:________________________________
Date:_________________________________
Clarendon Insurance Agency, Inc. ___________________________________
(Producer)
By:__________________________________ By:________________________________
(Signature) (Signature)
Title:_______________________________ Title:______________________________
Date: _______________________________ Date:_______________________________
By:___________________________________
(Signature)
Title:________________________________
Date:_________________________________
<PAGE>
EXHIBIT A
TYPES OF PLANS
* Sun Life Corporate VUL-SM-
(flexible premium variable universal life insurance policy)
<PAGE>
SCHEDULE B
General Letter of Recommendation
PRODUCER hereby certifies to Sun Life of Canada (U.S.) and Clarendon that
all the following requirements will be fulfilled in conjunction with the
submission of licensing/appointment papers for all applicants as sub-brokers
submitted by PRODUCER. PRODUCER will, upon request, forward proof of compliance
with same to Sun Life of Canada (U.S.) in a timely manner.
1. We have made a thorough and diligent inquiry and investigation
relative to each applicant's identity, residence and business
reputation and declare that each applicant is personally known to us,
has been examined by us, is known to be of good moral character, has a
good business reputation, is reliable, is financially responsible and
is worthy of a license. Each individual is trustworthy, competent and
qualified to act as a sales representative for Sun Life of Canada
(U.S.) to hold himself out in good faith to the general public. We
vouch for each applicant.
2. We have on file a B-300, B-301, or U-4 form which was completed by
each applicant. We have fulfilled all the necessary investigative
requirements for the registration of each applicant as a registered
representative through our NASD member firm, and each applicant is
presently registered as an NASD registered representative with our
NASD member firm.
The above information in our files indicates no fact or condition
which would disqualify the applicant from receiving a license and all
the findings of all investigative information is favorable.
3. We certify that all educational requirements have been met for the
specific state each applicant is requesting a license in, and that,
all such persons have fulfilled the appropriate examination, education
and training requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a
license, we certify that those items forwarded to Sun Life of Canada
(U.S.) are those of the applicant and the securities registration is a
true copy of the original.
5. We hereby warrant that the applicant is not applying for a license
with Sun Life of Canada (U.S.) in order to place insurance chiefly and
solely on his life or property, lives or property of his relatives, or
property or liability of his associates.
6. We certify that each applicant will receive close and adequate
supervision, and that we will make inspection when needed of any or
all risks written by these applicants, to the end that the insurance
interest of the public will be properly protected.
<PAGE>
7. We will not permit any applicant to transact insurance until duly
licensed therefore. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to write,
or solicit business in any capacity, and they will not be so permitted
until the certificate of authority or license applied for is received.
We acknowledge that the applicant, when licensed, shall be a broker
for Sun Life of Canada (U.S.) and not an agent or sub-agent of Sun
Life of Canada (U.S.).
<PAGE>
[LOGO]
SUN LIFE OF CANADA (U.S.) ONE SUN LIFE EXECUTIVE PARK
A MEMBER OF SUN FINANCIAL GROUP WELLESLEY HILLS, MA 02181
TEL. (781) 237-6030
April 25, 1998
Gentlemen:
In my capacity as Product Officer for Sun Life Assurance Company of Canada, I
have provided actuarial advice concerning: (a) the preparation of a
registration statement for Sun Life of Canada (U.S.) Variable Account G filed
on Form S-6 with the Securities and Exchange Commission under the Securities
Act of 1933 (the "Registration Statement") regarding the offer and sale of
flexible premium variable universal life insurance policies (the "Policies");
and (b) the preparation of policy forms for the Policies described in the
Registration Statement.
It is my professional opinion that:
The illustrations of cash surrender values, account values, death
benefits and accumulated premiums in the Appendix to the prospectus
contained in the Registration Statement, are based on the assumptions
stated in the illustrations, and are consistent with the provisions of
the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown
in the illustrations, appear to be more favorable to prospective
purchasers of Policies aged 45 in the rate classes illustrated than to
prospective purchasers of Policies, for males or females, at other ages.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the heading "Experts"
in the prospectus.
Very truly yours,
/s/ John E. Coleman
John E. Coleman, FSA, MAAA
Product Officer
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that C. James Prieur, whose signature
appears below, constitutes and appoints Margaret Sears Mead, Magaret E.
Hankard and David N. Brown, and each of them, his attorneys-in-fact, each
with the power of substitution, for him in any and all capacities, to sign
Registration Statements on Form S-6 and N-8B-2 of Sun Life of Canada (U.S.)
Variable Account G, and any amendments thereto, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact or his substitute or substitutes, may do or
cause to be done by virtue hereof.
/s/ C. James Prieur
--------------------
C. James Prieur
April 9, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 2 to Registration
Statement No. 333-13087 of Sun Life of Canada (U.S.) Variable Account G on
Form S-6 of our report dated February 6, 1998 accompanying the financial
statements of Sun Life of Canada (U.S.) Variable Account G and to the use of
our report dated February 5, 1998 accompanying the statutory financial
statements of Sun Life Assurance Company of Canada (U.S.) appearing in the
Prospectus, which is a part of such Registration Statement.
We also consent to the references to us under the heading "Accountants" in
such Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
April 27, 1998
