<PAGE>
Registration No. 333-13087
As filed with the Securities and Exchange Commission on April 30, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 5
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2
A. Exact name of trust: Sun Life of Canada (U.S.) Variable Account G
B. Name of depositor: Sun Life Assurance Company of Canada (U.S.)
C. Complete address of depositor's principal executive offices:
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
D. Name and complete address of agent for service:
Ellen B. King
Secretary
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
Copies to:
Josephine Cicchetti, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
Suite 400 East
1025 Thomas Jefferson St., N.W.
Washington, D.C. 20007-0805
It is proposed that this filing will become effective (check
appropriate box)
_ immediately upon filing pursuant to paragraph (b)
X on May 3, 1999 pursuant to paragraph (b)
_ 60 days after filing pursuant to paragraph (a)(1)
_ on (date) pursuant to paragraph (a)(1) of Rule 485.
E. Title of securities being registered:
Flexible Premium Variable Universal Life Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of this
registration statement.
<PAGE>
RECONCILIATION AND TIE BETWEEN
FORM N-8B-2 AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover Page
The Variable Account
2 Cover Page
About Who We Are
3 Cover Page
About Who We Are
4 Distribution of Policy.
5 The Variable Account
6 Not Applicable
7 Not Applicable
8 Other Information
Financial Statements
9 Legal Proceedings
10 Summary of Policy
The Variable Account
About the Policy
Premium Payments
Death Benefit
Account Value
Accessing Your Account Value
Cash Surrender Value Payable Upon Maturity
Charges, Deductions and Refunds
Other Policy Provisions
Addition, Deletion or Substitution of Investments
Modification
Voting Rights
Federal Tax Considerations
11 Summary of Policy
The Variable Account
The Funds
12 Summary of Policy
The Funds
13 Summary of Policy
The Funds
Fees and Expenses of the Funds
About the Policy
Charges, Deductions and Refunds
Distribution of Policy
14 About the Policy
Application and Issuance
15 About the Policy
Application and Issuance
Free Look Period
Premium Payments
Account Value
Transfer Privileges
16 About the Policy
Premium Payments
Account Value
Transfer Privileges
Accessing Your Account Value
17 About the Policy
Free Look Period
<PAGE>
Accessing Your Policy's Account Value
18 The Variable Account
About the Policy
Account Value
19 About the Policy
Other Policy Provisions
Reports to Policy owners
20 Not Applicable
21 About the Policy
Death Benefit
Policy Proceeds
Account Value
Account Value in the Loan Account
Accessing Your Account Value
Policy Loans
22 Not Applicable
23 Our Directors and Executive Officers
24 Not Applicable
25 About Who We Are
26 Not Applicable
27 About Who We Are
28 About Who We Are
Our Directors and Executive Officers
29 About Who We Are
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Distribution of Policy
36 Not Applicable
37 Not Applicable
38 Distribution of Policy
39 Distribution of Policy
40 Not Applicable
41 Distribution of Policy
42 Not Applicable
43 Not Applicable
44 About the Policy
Application and Issuance
Free Look Period
Premium Payments
Account Value
Transfer Privileges
Charges, Deductions and Refunds
Reduction of Charges
45 Not Applicable
46 About the Policy
Application and Issuance
Free Look Period
Premium Payments
Account Value
Transfer Privileges
47 Not Applicable
48 About Who We Are
The Variable Account
49 Not Applicable
50 The Variable Account
51 Cover Page
About the Policy
Premium Payments
<PAGE>
Death Benefit
Account Value
Charges, Deductions and Refunds
Accessing Your Account Value
Other Policy Provisions
52 The Variable Account
About the Policy
Other Policy Provisions
Addition, Deletion or Substitution of Investments
Modification
53 Federal Tax Considerations
Our Tax Status
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Other Information
Financial Statements
</TABLE>
<PAGE>
PART I
<PAGE>
[LOGO]
PROSPECTUS
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
(800) 432-1102 Ext. 2438
SUN LIFE CORPORATE VUL-SM-
A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
This prospectus describes a variable universal life insurance policy (the
"POLICY") issued by Sun Life Assurance Company of Canada (U.S.) ("WE" or "US")
through Sun Life of Canada (U.S.) Variable Account G (the "VARIABLE ACCOUNT"),
one of our separate accounts. The Policy allows "YOU," the policyowner, within
certain limits, to:
- Choose the life insurance coverage you need and increase or
decrease coverage as your insurance needs change;
- Choose the amount and timing of premium payments;
- Allocate net premium payments among the available investment
options and transfer amounts among these options as your
investment objectives change; and
- Access your Policy's Account Value through policy loans and
partial surrenders or a full surrender.
This prospectus contains important information you should understand before
purchasing a Policy. You should read this prospectus carefully and keep it for
future reference.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 3, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
------------------------------------------------------------ ----
<S> <C>
Summary of Policy........................................... 1
About Who We Are............................................ 7
The Variable Account........................................ 7
The Funds................................................... 8
Discontinued Funds........................................ 10
Fees and Expenses of the Funds............................ 11
Potential Conflicts....................................... 11
About the Policy............................................ 12
Application and Issuance.................................. 12
Death Benefit Compliance Test........................... 13
Initial Premium Payment................................. 13
Effective Date of Coverage.............................. 13
Insurable Interest Requirement.......................... 14
Free Look Period.......................................... 14
Premium Payments.......................................... 15
General Limitations..................................... 15
Guideline Premium Test Limitations...................... 15
Planned Periodic Premiums............................... 15
Allocation of Net Premium............................... 16
Modified Endowment Contracts............................ 16
Additional Protection Benefit Rider (APB Rider)........... 16
Death Benefit............................................. 17
Policy Proceeds......................................... 17
Death Benefit Options................................... 17
Changes in the Death Benefit Option..................... 18
APB Rider Death Benefit................................. 19
Minimum Face Amount..................................... 19
Changes in Face Amount.................................. 19
Increases in Face Amount................................ 19
Decreases in Face Amount................................ 19
Account Value............................................. 20
Account Value in the Sub-Accounts....................... 21
Net Investment Factor................................... 22
Account Value in the Loan Account....................... 22
Insufficient Value...................................... 23
Grace Period............................................ 23
Splitting Units......................................... 23
Transfer Privileges....................................... 23
Accessing Your Account Value.............................. 24
Surrender............................................... 24
</TABLE>
II SUN LIFE CORPORATE VUL-SM-
<PAGE>
<TABLE>
<CAPTION>
TOPIC PAGE
------------------------------------------------------------ ----
<S> <C>
Partial Surrenders...................................... 24
Policy Loans............................................ 25
Deferral of Payment..................................... 25
Cash Surrender Value Payable upon Maturity................ 26
Charges, Deductions and Refunds........................... 26
Expense Charges Applied to Premium...................... 26
Sales Load Refund at Surrender.......................... 27
Mortality and Expense Risk Charge....................... 27
Monthly Expense Charge.................................. 27
Monthly Cost of Insurance............................... 27
Reduction of Charges.................................... 28
Termination of Policy..................................... 28
Other Policy Provisions................................... 28
Alteration.............................................. 28
Assignments............................................. 29
Rights of Owner......................................... 29
Rights of Beneficiary................................... 29
Reports to Policyowners................................. 29
Illustrations........................................... 30
Conversion.............................................. 30
Misstatement of Age or Sex.............................. 30
Suicide................................................. 30
Incontestability........................................ 30
Addition, Deletion or Substitution of Investments....... 31
Nonparticipating........................................ 31
Modification............................................ 31
Entire Contract......................................... 31
Performance Information..................................... 32
Voting Rights............................................... 33
Distribution of Policy...................................... 34
Federal Tax Considerations.................................. 35
Our Tax Status............................................ 35
Taxation of Policy Proceeds............................... 35
Our Directors and Executive Officers........................ 39
Other Information........................................... 43
State Regulation.......................................... 43
Legal Proceedings......................................... 44
Experts................................................... 44
Accountants............................................... 44
Registration Statements................................... 44
Year 2000 Compliance...................................... 44
Financial Statements........................................ 45
</TABLE>
III SUN LIFE CORPORATE VUL-SM-
<PAGE>
<TABLE>
<CAPTION>
TOPIC PAGE
------------------------------------------------------------ ----
<S> <C>
Appendix A--Glossary of Policy Terms........................ A-1
Appendix B--Hypothetical Illustrations of Cash Surrender
Values, Account Values and Death Benefits................. B-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE
THE OFFERING WOULD NOT BE LAWFUL. YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS OR IN THE PROSPECTUS OR STATEMENT OF ADDITIONAL
INFORMATION OF THE UNDERLYING MUTUAL FUNDS. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
IV SUN LIFE CORPORATE VUL-SM-
<PAGE>
THIS SUMMARY IS SUMMARY OF POLICY
QUALIFIED BY USE OF POLICY
REFERENCE TO THIS The Policy is designed primarily to provide
PROSPECTUS IN ITS corporations and other entities life insurance coverage
ENTIRETY. on employees or other persons in whose lives they have
an insurable interest, and may be used in connection
Appendix A contains with various types of non- tax-qualified executive
a glossary of policy benefit plans.
terms used in this THE VARIABLE ACCOUNT
prospectus.
- We have established a separate account, the Variable
Account, to fund the variable insurance benefits
under the Policy.
- The assets of the Variable Account are insulated from
the claims of our general creditors.
- The Variable Account is divided into 36 Sub-Accounts,
each of which invests exclusively in shares of a
corresponding mutual fund.
INVESTMENT OPTIONS
- You may allocate your net premium payments among the
available Sub-Accounts.
- You may transfer amounts from one Sub-Account to
another.
FEES AND EXPENSES OF THE UNDERLYING FUNDS
You should read the You will indirectly bear the costs of investment
underlying funds' management fees and other expenses paid from the assets
prospectuses before of the underlying funds you select. The following table
investing. shows the fees and expenses paid by the funds as a
percentage of average net assets based on information
for the year ended December 31, 1998. This information
was provided by the funds and we have not independently
verified it. The funds' fees and expenses are more fully
described in the fund prospectuses which accompany this
prospectus. You should read them before investing.
SUN LIFE CORPORATE VUL-SM-
<PAGE>
ANNUAL FUND EXPENSES
(as a percentage of underlying fund average net assets)
<TABLE>
<CAPTION>
TOTAL
ANNUAL
FUND
MANAGEMENT OTHER OPERATING
FEES EXPENSES EXPENSES
---------- -------- --------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
- --------------------------------------------
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
AIM V.I. Value Fund 0.61% 0.05% 0.66%
DREYFUS VARIABLE INVESTMENT FUND
- --------------------------------------------
Capital Appreciation Portfolio 0.75% 0.06% 0.81%
Growth and Income Portfolio 0.75% 0.03% 0.78%
Quality Bond Portfolio 0.65% 0.08% 0.73%
Small Cap Portfolio 0.75% 0.02% 0.77%
DREYFUS STOCK INDEX FUND 0.25% 0.01% 0.26%
- --------------------------------------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- --------------------------------------------
VIP Equity-Income Portfolio 0.49% 0.08% 0.57% (1)
VIP Growth Portfolio 0.59% 0.07% 0.66% (1)
VIP High Income Portfolio 0.58% 0.12% 0.70%
VIP Money Market Portfolio 0.20% 0.10% 0.30%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- --------------------------------------------
VIP II Asset Manager: Growth Portfolio 0.59% 0.13% 0.72% (1)
VIP II Contrafund Portfolio 0.59% 0.07% 0.66%
VIP II Index 500 Portfolio 0.24% 0.04% 0.28% (1)
VIP II Investment Grade Bond Portfolio 0.43% 0.14% 0.57%
J.P. MORGAN SERIES TRUST II
- --------------------------------------------
J.P. Morgan Bond Portfolio 0.30% 0.45% 0.75% (4)
J.P. Morgan Equity Portfolio 0.40% 0.50% 0.90% (4)
J.P. Morgan Small Company Portfolio 0.60% 0.55% 1.15% (4)
MFS/SUN LIFE SERIES TRUST
- --------------------------------------------
Capital Appreciation Series 0.73% 0.04% 0.77% (5)
Emerging Growth Series 0.72% 0.06% 0.78% (5)
Global Growth Series 0.90% 0.11% 1.01% (5)
Government Securities Series 0.55% 0.07% 0.62% (5)
Massachusetts Investors Growth Stock
Series 0.75% 0.22% 0.97% (5)
Massachusetts Investors Trust Series 0.55% 0.04% 0.59% (5)
Money Market Series 0.50% 0.06% 0.56% (5)
Research Series 0.70% 0.06% 0.76% (5)
Total Return Series 0.65% 0.05% 0.70% (5)
Utilities Series 0.75% 0.11% 0.86% (5)
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- --------------------------------------------
Limited Maturity Bond Portfolio 0.65% 0.11% 0.76% (2)
Mid-Cap Growth Portfolio 0.85% 0.15% 1.00% (2)(3)
Partners Portfolio 0.78% 0.06% 0.84% (2)
SUN CAPITAL ADVISERS TRUST
- --------------------------------------------
Investment Grade Bond Fund 0.60% 0.15% 0.75% (7)
Real Estate Fund 0.95% 0.30% 1.25% (7)
</TABLE>
2 SUN LIFE CORPORATE VUL-SM-
<PAGE>
<TABLE>
<CAPTION>
TOTAL
ANNUAL
FUND
MANAGEMENT OTHER OPERATING
FEES EXPENSES EXPENSES
---------- -------- --------
<S> <C> <C> <C>
T. ROWE PRICE EQUITY SERIES, INC.
- --------------------------------------------
T. Rowe Price Equity Income Portfolio 0.85% 0.00% 0.85% (6)
T. Rowe Price New America Growth
Portfolio 0.85% 0.00% 0.85% (6)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- --------------------------------------------
Templeton Stock Fund: Class 1 0.70% 0.19% 0.89%
NOTES
- --------------------------------------------
</TABLE>
(1) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of certain
funds, have entered into arrangements with their custodian whereby credits
realized as a result of uninvested cash balances were used to reduce custodian
expenses. The total operating expenses, after reimbursement for Index 500
Portfolio reflect these reductions in the above table.
(2) 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" include all other expenses of the Portfolio and its
corresponding Series.
(3) Expenses reflect expense reimbursement. Neuberger Berman Management, Inc.
(NBMI) has undertaken to reimburse 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, 1998
would have been 1.43% for the Mid-Cap Growth Portfolio. These expense
reimbursement agreements 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.
(4) The information in the foregoing table has been restated to reflect an
agreement by Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), an
affiliate of Morgan, to reimburse the trust to the extent certain expenses
exceed in any fiscal year 0.75%, 0.90%, 1.15% of the average daily net assets of
the 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 1.02% for the J.P. Morgan Bond Portfolio, 1.48%
for the J.P. Morgan Equity Portfolio, 3.43% for the J.P. Morgan Small Company
Portfolio.
(5) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the series' expenses). Any such fee reductions are not
reflected under "Other Expenses".
(6) "Management Fees" include other operating expenses.
(7) The adviser has voluntarily agreed to limit its management fee and to
reimburse each fund's non-management expenses for an indefinite period. Each
fund's Total Annual Expenses will be capped on an annual basis at the percentage
of the fund's average daily net assets shown in the table above. To the extent
that a fund's total expense ratio falls below its limit, the adviser reserves
the right to be reimbursed for management fees waived and fund expenses paid by
it during the prior two fiscal years. The adviser may modify or eliminate this
voluntary expense limit at any time.
3 SUN LIFE CORPORATE VUL-SM-
<PAGE>
FREE LOOK PERIOD
You may return your Policy to us for any reason and
receive a refund within the later of 45 days after you
sign a policy application or the 20-day period (or a
longer period if required by applicable state law)
beginning when you receive your Policy.
PREMIUM PAYMENTS
- You must make an initial minimum premium payment, the
amount of which will vary based on the amount of life
insurance coverage you request and other factors,
including the insured's age, sex and health.
- Thereafter, you may choose the amount and timing of
premium payments, within certain limits.
- We allocate your net premium payments among the
Policy's investment options in accordance with your
instructions.
ADDITIONAL PROTECTION BENEFIT RIDER
- You may use this rider to obtain additional life
insurance coverage on the insured.
- We deduct the rider's cost from your Account Value on
a monthly basis.
DEATH BENEFIT COMPLIANCE TEST
- To be eligible to receive favorable tax treatment
under applicable federal tax law, your Policy must be
subject to one of the following legal standards--
- the Guideline Premium Test, or
- the Cash Value Accumulation Test
- You choose the applicable test, but once made, you
may not change your election.
DEATH BENEFIT
- If the Guideline Premium Test applies, you have a
choice of two death benefit options--
4 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SPECIFIED FACE - the SPECIFIED FACE AMOUNT (Option A), or
AMOUNT is the amount - the Specified Face Amount plus your Account Value
of life insurance (Option B).
coverage you - You may change your death benefit option on any
request, exclusive Policy Anniversary, subject to our underwriting rules
of any coverage then in effect.
added by rider.
- If the Cash Value Accumulation Test applies, you will
be deemed to have elected Option A, which may not be
changed.
- After the first Policy Year, you may--
- increase the Specified Face Amount
and, if applicable, the APB Rider Face
Amount, subject to satisfactory
evidence of the insured's
insurability; or
- decrease the Specified Face Amount
and, if applicable, the APB Rider Face
Amount, provided that neither the
Specified Face Amount nor the Total
Face Amount after the decrease may be
less than certain minimum amounts, as
specified in your Policy.
ACCOUNT VALUE
- Your Account Value will reflect--
- the premiums you pay;
- the investment performance of the
Sub-Accounts you select;
- any loans, loan repayments and partial
surrenders; and
- the charges we deduct under the
Policy.
ACCESSING YOUR ACCOUNT VALUE
CASH SURRENDER VALUE - You may borrow from us using your Account Value as
is your Account collateral.
Value, less any out- - You may surrender your Policy for its CASH SURRENDER
standing Policy VALUE.
Debt, plus any sales - You may make a partial surrender of only a portion of
load refund due at the Cash Surrender Value once per year after your
surrender. Policy has been in force for one year.
5 SUN LIFE CORPORATE VUL-SM-
<PAGE>
A partial surrender POLICY CHARGES, DEDUCTIONS AND REFUNDS
may cause a decrease - EXPENSE CHARGES APPLIED TO PREMIUM--We deduct from
in Total Face Amount each premium payment--
if the amount of the - a charge to cover applicable premium taxes, which
death benefit minus varies by state but is guaranteed not to exceed 4%
your Account Value for all states except Kentucky for which the
after the partial guaranteed maximum rate is 9%;
surrender exceeds - a 1.25% charge to cover our federal tax
the amount of the obligations with respect to the Policy; and
death benefit minus - a 8.75% sales load up to a specified amount of
your Account Value premium and a 2.25% sales load on amount in excess
before the partial of that target amount for premiums paid during the
surrender. first seven Policy Years, after which there is no
sales load charge.
- SALES LOAD REFUND AT SURRENDER--If you surrender your
Policy during the first three Policy Years, we will
refund a portion of the sales load charged against
premium payments made during the Policy Year in which
you surrendered your Policy.
- MORTALITY AND EXPENSE RISK CHARGES--We deduct a daily
charge from your Account Value for the mortality and
expense risks we assume with respect to the Policy.
The guaranteed maximum daily rate is equivalent to an
annual rate of 0.90% of assets. Our current daily
rates are equivalent to annual rates of--
- 0.60% for Policy Years 1 through 10;
- 0.20% for Policy Years 11 through 20;
and
- 0.10% thereafter.
- MONTHLY DEDUCTIONS--We deduct a charge each month
from your Account Value to cover administrative
expenses relating to your Policy, which is guaranteed
not to exceed $13.75 per month. Our current charges
are $13.75 per month for the first policy year and
$7.50 per month thereafter.
- MONTHLY COST OF INSURANCE--We deduct a monthly charge
from your Account Value to cover our anticipated
costs for providing your insurance coverage.
- REDUCTION OF CHARGES--We reserve the right to reduce
any of our charges and deductions with respect to
sales of the Policy involving certain group
arrangements based on our expectations of cost
savings and our claims experience.
6 SUN LIFE CORPORATE VUL-SM-
<PAGE>
WHAT IF CHARGES AND DEDUCTIONS EXCEED ACCOUNT VALUE?
Your Policy may terminate if your Account Value at
the beginning of any Policy Month is insufficient to pay
all charges and deductions then due. When and if this
occurs, we will send you written notice and allow you a
61 day grace period. If you do not make a premium payment
within the grace period, sufficient to cover all accrued
and unpaid charges and deductions, your Policy will
terminate at the end of the grace period without further
notice.
FEDERAL TAX CONSIDERATIONS
Your purchase of, and transactions under, your Policy
may have tax consequences that you should consider before
purchasing a Policy. You may wish to consult a tax
adviser. In general, the beneficiary will receive Policy
Proceeds without there being taxable income. Increases in
Account Value will not be taxable as earned, although
there may be income tax due on a full or partial
surrender of your Policy.
We are an indirect, ABOUT WHO WE ARE
wholly- owned Sun Life Assurance Company of Canada (U.S.) is a
subsidiary of Sun stock life insurance company incorporated under the laws
Life Assurance of Delaware on January 12, 1970. We are authorized to do
Company of Canada, a business in 48 states, the District of Columbia and
Canadian mutual life Puerto Rico, and anticipate that we will eventually be
insurance company. authorized to do business in all states except New York.
We issue individual and group life insurance policies
and annuity contracts.
We are an indirect, wholly-owned subsidiary of Sun
Life Assurance Company of Canada, a Canadian mutual life
insurance company located at 150 King Street West,
Toronto, Ontario, Canada.
THE VARIABLE ACCOUNT
Sun Life of Canada (U.S.) Variable Account G is one
of our separate accounts established in accordance with
Delaware law on July 25, 1996. The Variable Account may
also be used to fund benefits payable under other life
insurance policies we issue.
We own the assets of the Variable Account. The
income, gains or losses, realized or unrealized, from
assets allocated to the Variable Account are credited to
or charged against the Variable Account without regard to
our other income, gains or losses.
7 SUN LIFE CORPORATE VUL-SM-
<PAGE>
The assets of the We will at all times maintain assets in the
Variable Account are Variable Account with a total market value at least
insulated from our equal to the reserves and other liabilities relating to
general liabilities. the variable benefits under all policies participating
in the Variable Account. Those assets may not be charged
with our liabilities from our other business. The
obligations under the Policy are, however, our general
corporate obligations.
The Variable Account The Variable Account is registered with the
is registered with Securities and Exchange Commission under the Investment
the SEC. Company Act of 1940 as a unit investment trust. That
registration does not involve any supervision by the SEC
of the management or investment practices or policies of
the Variable Account.
The Variable Account may be deregistered if
registration is no longer required; however, we may
continue, at our election, to operate the Variable
Account as a unit investment trust or other form of
investment company, subject to any necessary vote by
those having voting rights. In the event of any change in
the registration status of the Variable Account, we may
amend the Policy to reflect the change and take such
other action as may be necessary and appropriate to
effect the change.
The Variable Account The Variable Account is divided into 36
has 36 Sub-Accounts. Sub-Accounts. Each Sub-Account invests exclusively in
Each Sub-Account shares of a corresponding investment portfolio of a
invests exclusively registered investment company (commonly known as a
in shares of a mutual fund). We may in the future add new or delete
corresponding mutual existing Sub-Accounts. The income, gains or losses,
fund. realized or unrealized, from assets allocated to each
Sub-Account are credited to or charged against that
Sub-Account without regard to the other income, gains or
losses of the other Sub-Accounts.
THE FUNDS
The Fund The Policy currently offers 31 mutual fund
Prospectuses which options, which are briefly described below. More
accompany this pro- comprehensive information, including a discussion of
spectus contain more potential risks, is found in the current prospectuses
information about for the Funds which accompany this prospectus (the "Fund
the funds. Prospectuses"). You should read the Fund Prospectuses
before investing.
AIM VARIABLE INSURANCE FUNDS, INC.--is advised by A I
M Advisors, Inc. The available investment portfolios
are--
- AIM V.I. Capital Appreciation Fund
- AIM V.I. Value Fund
DREYFUS STOCK INDEX FUND--is advised by the Dreyfus
Corporation.
8 SUN LIFE CORPORATE VUL-SM-
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND--is advised by the
Dreyfus Corporation. The available investment portfolios
are--
- Capital Appreciation Portfolio
- Growth and Income Portfolio
- Quality Bond Portfolio
- Small Cap Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND--is advised
by Fidelity Management & Research Company ("FMR");
affiliates of FMR may assist it in the selection of
investments for the Portfolios. The available investment
portfolios are--
- VIP High Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II--is
advised by FMR; affiliates of FMR may assist it in the
selection of investments for the Portfolios. The
available investment portfolios are--
- VIP II Asset Manager: Growth Portfolio
- VIP II Contrafund Portfolio (a growth
portfolio)
J.P. MORGAN SERIES TRUST II--is advised by J.P.
Morgan Investment Management Inc. The available
investment portfolios are--
- J.P. Morgan Bond Portfolio
- J.P. Morgan Equity Portfolio
- J.P. Morgan Small Company Portfolio
MFS/SUN LIFE SERIES TRUST--is advised by MFS
Investment Management ("MFS"), one of our affiliates. MFS
has also retained Foreign & Colonial Management Limited
("FCM") and Foreign & Colonial Emerging Markets Limited,
a subsidiary of FCM, as additional managers to the Global
Growth Series. The available investment portfolios are--
- Capital Appreciation Series
- Emerging Growth Series
- Global Growth Series
- Government Securities Series
- Massachusetts Investors Growth Stock
Series
- Massachusetts Investors Trust Series
(a conservative growth series)
9 SUN LIFE CORPORATE VUL-SM-
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- Money Market Series
- Research Series (a growth series)
- Total Return Series
- Utilities Series
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST--The
investment portfolios of the Trust invest all of their
net investable assets in a corresponding series of
Advisers Managers Trust, an open-end management
investment company advised by Neuberger Berman Management
Inc. Each of these series invests in accordance with an
investment objective, policies, and limitations identical
to those of its corresponding portfolio. The available
investment portfolios are--
- Limited Maturity Bond Portfolio
- Mid-Cap Growth Portfolio
- Partners Portfolio (a capital growth
portfolio)
SUN CAPITAL ADVISERS TRUST--is advised by Sun Capital
Advisers, Inc. The available investment portfolios are--
- Investment Grade Bond Fund
- Real Estate Fund
T. ROWE PRICE EQUITY SERIES, INC.--is advised by T.
Rowe Price Associates, Inc. The available investment
portfolios are--
- T. Rowe Price Equity Income Portfolio
- T. Rowe Price New America Growth
Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND--is advised
by Templeton Investment Counsel, Inc. The available
investment portfolio is--
- Templeton Stock Fund: Class 1 (a
global equity fund)
DISCONTINUED FUNDS
The following Funds are no longer available under the
Policy, except as described below--
- Fidelity VIP Equity-Income Portfolio
- Fidelity VIP Growth Portfolio
- Fidelity VIP Money Market Portfolio
10 SUN LIFE CORPORATE VUL-SM-
<PAGE>
- Fidelity VIP II Index 500 Portfolio
- Fidelity VIP II Investment Grade Bond
Portfolio
If you had Account Value allocated to a Sub-Account
which invests in one of the first two Funds listed above
as of May 1, 1999, you may maintain your existing
allocations and may continue to allocate additional net
premium payments or make transfers to that Sub-Account.
If you had Account Value allocated to a Sub-Account
which invests in one of the last three Funds listed above
as of May 1, 1999, you may maintain your existing
allocations, but may not allocate any additional net
premium payments or make any future transfers to that
Sub-Account.
FEES AND EXPENSES OF THE FUNDS
Fund shares are purchased at net asset value, which
reflects the deduction of investment management fees and
other expenses. The management fees are charged by each
Fund's investment adviser for managing the Fund and
selecting its portfolio securities. Other expenses can
include such items as interest expense on loans and
contracts with transfer agents, custodians, and other
companies that provide services to the Fund, and actual
expenses may vary.
Because they are assessed at the fund level, you will
indirectly bear the fees and expenses of the Funds you
select. The table contained in the front part of this
prospectus shows the fees and expenses paid by the Funds
as a percentage of average net assets. These fees and
expenses are more fully described in the Fund
Prospectuses which accompany this prospectus.
POTENTIAL CONFLICTS
We, as well as other affiliated and unaffiliated
insurance companies, may also purchase shares of the
Funds on behalf of other separate accounts used to fund
variable benefits payable under other variable life
insurance and variable annuity contracts. As a result, it
is possible, though we do not anticipate, that a material
conflict may arise between the interests of our
policyowners with respect to the Variable Account and
those of other variable contractowners with respect to
the other separate accounts that participate in the
Funds. The Funds have agreed to monitor themselves for
the existence of any material conflict between the
interests of variable contractowners. In the event of
such a conflict involving a Fund, we will take any steps
necessary to remedy the conflict including withdrawing
the assets of the Variable Account from the Fund. If the
Variable Account or another separate account withdraws
its assets from a Fund for
11 SUN LIFE CORPORATE VUL-SM-
<PAGE>
this reason, the Fund may be forced to sell its portfolio
securities at disadvantageous prices which would
negatively affect the investment performance of the
corresponding Sub-Account.
ABOUT THE POLICY
This prospectus describes the standard features of
the Policy. Your Policy, as issued, may differ in some
respects due to legal requirements of the state where
your Policy is issued.
APPLICATION AND ISSUANCE
To apply for a Policy, you must submit an application
to our Principal Office. We will then follow underwriting
procedures designed to determine the insurability of the
proposed insured. We offer the Policy on a regular (or
medical) underwriting, simplified underwriting, or
guaranteed issue basis. The proposed insured generally
must be less than 81 years old for a Policy to be issued
on a medical underwriting basis, less than 76 years old
for issuance on a simplified underwriting basis, and less
than 71 years old for issuance on a guaranteed issue
basis. For Policies underwritten on a medical or
simplified basis, we may require that the proposed
insured undergo one or more medical examinations and that
you provide us with such additional information as we may
deem necessary, before an application is approved. We
will issue Policies on a guaranteed basis with respect to
certain groups of insureds. Policies issued on a
guaranteed basis must be pre-approved based on
information you provide to us on a master application and
on certain other underwriting requirements which all
members of a proposed group of insureds must meet.
Proposed insureds must be acceptable risks based on our
underwriting limits and standards. We will not issue a
Policy until the underwriting process has been completed
to our satisfaction. In addition, we reserve the right to
reject any application that does not meet our
underwriting requirements or to "rate" an insured as a
substandard risk, which will result in increased Monthly
Cost of Insurance charges.
12 SUN LIFE CORPORATE VUL-SM-
<PAGE>
There are two DEATH BENEFIT COMPLIANCE TEST. Your Policy
tax-law compliance must, at all times, satisfy one of two legal standards
tests. You select for it to qualify as life insurance and thus be entitled
which applies to to receive favorable tax treatment under applicable
your Policy. federal tax law. We will refer to these standards as the
"Cash Value Accumulation Test" and the "Guideline
Premium Test." Under both tests, the Death Benefit must
effectively always equal or exceed your Account Value
multiplied by a certain percentage (the "Death Benefit
Percentage"). The Death Benefit Percentages for the
Guideline Premium Test vary by age, whereas those for
the Cash Value Accumulation Test vary by age and sex.
The Death Benefit Percentages for the Cash Value
Accumulation Test, in general, are greater than those
for the Guideline Premium Test. The Guideline Premium
Test imposes limits on the amount of premium you may pay
under your Policy, whereas the Cash Value Accumulation
Test does not.
You must specify in your policy application which of
these tests will apply to your Policy. You may not change
your selection once your Policy has been issued. In
general, if your primary objective is maximum
accumulation of Account Value during the initial Policy
Years, then the Cash Value Accumulation Test would be the
more appropriate choice. If your primary objective is the
most economically efficient method of obtaining a
specified amount of coverage, then the Guideline Premium
Test is generally more appropriate. Because your choice
of tests depends on complex factors and may not be
changed, you should consult with a qualified tax adviser
before deciding.
INITIAL PREMIUM PAYMENT. A Minimum Premium, as
specified in your Policy, will be due and payable as of
the Issue Date. The Minimum Premium will vary based on
the insured's Class, Issue Age, and sex and on the amount
of insurance coverage. Pending approval of your
application, we will allocate any premium payments you
make to our General Account. If your application is not
approved, we will promptly return your premium payments.
EFFECTIVE DATE OF COVERAGE. Upon approval of your
application, we will issue to you a Policy on the life of
the insured which will set forth your rights and our
obligations. The Effective Date of Coverage for the
Policy will be the latest of--
The ISSUE DATE is - the ISSUE DATE,
the date specified - the date we approve the application for your
as such in your Policy, or
Policy, from which - the date you pay a premium equal to or in excess
Policy of the
Anniversaries, Minimum Premium.
Policy Years and
Policy Months are
measured.
13 SUN LIFE CORPORATE VUL-SM-
<PAGE>
INSURABLE INTEREST REQUIREMENT. You must have an
insurable interest in the life of the insured up to the
full amount of insurance coverage. Otherwise, your Policy
will not qualify as life insurance under applicable state
insurance and federal tax law. You should consult with a
qualified adviser when determining the amount of coverage
and before taking any action to increase the amount of
existing coverage to ensure that you have an insurable
interest for the full amount of coverage.
FREE LOOK PERIOD
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").
If you return your Policy during the Free Look
Period, your Policy will be deemed void and you will
receive a refund equal to the sum of--
- the difference between any premium
payments made, including fees and
charges, and the amounts allocated to
the Variable Account;
- the value of the amounts allocated to
the Variable Account on the date the
cancellation request is received by us
or the sales representative through
whom you purchased the Policy, and
- any fees or charges imposed on amounts
allocated to the Variable Account.
If required by applicable state insurance law,
however, you will receive instead a refund equal to the
sum of all premium payments made, without regard to the
investment experience of the Variable Account. Unless you
are entitled to receive a full refund of premium, you
bear all of the investment risks with respect to the
amount of any net premiums allocated to the Variable
Account during the Free Look Period with respect to your
Policy.
If you are entitled under applicable state law to
receive a full refund during the Free Look Period, we
will allocate net premium payments to the MFS/Sun Life
Series Trust Money Market Series Sub-Account during that
period beginning on the Investment Start Date. Upon
expiration of the Free-Look Period, we will reallocate
your Account Value and allocate future net premium
payments in accordance with your instructions.
14 SUN LIFE CORPORATE VUL-SM-
<PAGE>
PREMIUM PAYMENTS
The frequency and In general, you may choose the frequency and
amount of your amount of any additional premium payments subject to the
premium payments may limits described below. You will be required, however,
have tax to make an initial minimum premium payment, as described
consequences. above. All premium payments should be made payable to
"Sun Life Assurance Company of Canada (U.S.)" and mailed
to our Principal Office.
GENERAL LIMITATIONS. 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 Death Benefit to increase by an amount that
exceeds the premium received and we may require
satisfactory evidence of insurability before we accept
such a premium.
GUIDELINE PREMIUM TEST LIMITATIONS. The Guideline
Premium Test limits the amount of premium you may pay per
year. We will not accept premium payments that would, in
our opinion, exceed these limits, if you have chosen this
test as the applicable Death Benefit Compliance Test. If
you make a premium payment in excess of these limits, we
will accept only that portion of the premium within those
limits and refund the remainder to you. We will inform
you of the applicable maximum premium limitations for the
coming years in our annual report to you. In contrast,
the Cash Value Accumulation Test does not impose any
additional limitations on the amount of premium you may
pay.
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. You are not required,
however, 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 reserve the right to suspend reminder
notices if premiums are not being paid (except for
notices in connection with the grace period). We will
notify you prior to suspending reminder notices. We will
also suspend reminder notices at your written request.
15 SUN LIFE CORPORATE VUL-SM-
<PAGE>
NET PREMIUM is the ALLOCATION OF NET PREMIUM. We will allocate NET
amount you pay as PREMIUM among the Sub-Accounts in accordance with your
premium minus allocation instructions, except during the Free Look
Expense Charges Period as described above. You will be required to
Applied to Premium. specify initial allocation percentages in your policy
application. You must allocate at least five percent of
Net Premium to each Sub-Account you select. All
percentages must be in whole numbers.
You may change the allocation of future Net Premium
at any time by telephoning or writing to our Service
Center. Telephone requests will be honored only if we
have a properly completed telephone authorization form
for you on file. We, our affiliates and the
representative from whom you purchased your Policy 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. You
will be required, for example, to identify yourself by
name and a personal identification number. In addition,
telephone requests may be recorded. An allocation change
will be effective as of the date our Service Center
receives your request for that change.
MODIFIED ENDOWMENT CONTRACTS. Less favorable federal
tax rules apply to life insurance policies that are
defined as "Modified Endowment Contracts." One way your
Policy could become a Modified Endowment Contract is if
you pay premiums in excess of applicable tax-law
limitations.
We will notify you if we receive a premium that
would, in our opinion, cause your Policy to become a
Modified Endowment Contract. We will not credit the
premium unless we receive specific instructions from you
to do so. If we have not received instructions within 24
hours of the date we sent notice to you, we will
immediately return the premium.
ADDITIONAL PROTECTION BENEFIT RIDER (APB RIDER)
The Policy may be issued with an APB Rider. This
rider provides life insurance coverage, annually
renewable to Attained Age 100, on the life of the insured
equal to the amount of the APB Rider Death Benefit. You
will be required to specify the initial APB Rider Face
Amount in your policy application.
The cost of the APB Rider will be included in the
Monthly Cost of Insurance deduction. The applicable
guaranteed maximum Monthly Cost of Insurance Rates for
the APB Rider Death Benefit exceed those for the Base
Death Benefit.
16 SUN LIFE CORPORATE VUL-SM-
<PAGE>
TARGET PREMIUM is Two otherwise identical Policies with the same
the amount of Total Face Amount will have different TARGET PREMIUMS
premium specified as depending on how much of the TOTAL FACE AMOUNT is
such in your Policy, attributable to the Specified Face Amount versus the APB
used to determine Rider Face Amount. Target Premium will be lower for the
our sales load Policy which has the greater APB Rider Face Amount,
charges. which will result in lower sales load deductions for
TOTAL FACE AMOUNT is that Policy.
the sum of the If you convert your Policy to a flexible premium
Specified Face universal life insurance policy, any related APB Rider
Amount and the APB will terminate automatically. An APB Rider will also
Rider Face Amount. terminate ON THE EARLIEST OF--
- our receipt of your written request
for termination,
- the lapse of your Policy because of
insufficient value, or
- the termination of the Policy.
DEATH BENEFIT
POLICY PROCEEDS. If your Policy is in force at the
time of the insured's death and we have received Due
Proof of the insured's death, we will pay your designated
beneficiary an amount equal to--
- the amount of the Base Death Benefit,
MINUS
- the amount of any outstanding Policy
Debt, PLUS
- the amount of any APB Rider Death
Benefit, PLUS
- the amount of any other supplemental
benefits.
The Amount of the Base Death Benefit depends upon the
death benefit option in effect at the time of the
insured's death.
DEATH BENEFIT OPTIONS. The Policy has two death
benefit options. You will be required to select one of
them in your policy application.
OPTION A--SPECIFIED FACE AMOUNT. Under this option,
the Base Death Benefit is THE GREATER OF--
- your Policy's Specified Face Amount,
or
- the Account Value multiplied by the
applicable Death Benefit Percentage.
OPTION B--SPECIFIED FACE AMOUNT PLUS ACCOUNT
VALUE. Under this option, the Base Death Benefit is THE
GREATER OF--
- the Specified Face Amount plus the
Account Value, or
17 SUN LIFE CORPORATE VUL-SM-
<PAGE>
- the Account Value multiplied by the
applicable Death Benefit Percentage.
Option B is not available, however, and you will be
deemed to have elected Option A, if you have chosen the
Cash Value Accumulation Test as the applicable Death
Benefit Compliance 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 minus Account
Value exceeds your Policy's 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 minus Account Value will equal the Total Face
Amount. You will not have the option of providing
evidence of insurability to maintain a higher level of
Base Death Benefit.
We will notify you in writing if we exercise our
right to distribute Account Value to you as a partial
surrender as described above. You may allocate the
partial surrender among the Sub-Accounts of the Variable
Account. If you do not specify the allocation, then we
will allocate the partial surrender 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.
CHANGES IN THE DEATH BENEFIT OPTION. If you have
chosen the Guideline Premium Test as the applicable Death
Benefit Compliance Test, then you may change the death
benefit option, subject to our underwriting rules in
effect at the time of the 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 you change from Option B to Option A, we will
increase the Specified Face Amount by the Account Value.
If you change from Option A to Option B, we will reduce
the Specified Face Amount 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 will affect
the determination of the Base Death Benefit going
forward.
A change in the death benefit option could cause
total premiums paid prior to the change to exceed the
applicable maximum premium limitations under the
Guideline Premium Test. The change could also reduce
these limitations for future premium payments. If the
requested change causes total premiums paid to exceed the
applicable maximum premium limitations, you will be
required to make a partial surrender of your Policy. You
should consult a qualified tax adviser before changing
the death benefit option.
18 SUN LIFE CORPORATE VUL-SM-
<PAGE>
APB RIDER DEATH BENEFIT. The APB Rider Death Benefit
is THE GREATER OF ZERO OR THE RESULT OF the APB Rider
Face Amount minus the excess, if any, of the Base Death
Benefit over--
- the Specified Face Amount, if the
applicable death benefit option is
Option A, or
- the Specified Face Amount plus the
Account Value, if the applicable death
benefit option is Option B.
MINIMUM FACE AMOUNT. Total Face Amount is the sum of
the Specified Face Amount and the APB Rider Face Amount.
In general, the Total Face Amount must be at least
$50,000, of which the Specified Face Amount must be at
least $5,000. We reserve the right to waive these
minimums and to offer your Policy only in conjunction
with an APB Rider with a specified 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 applicable, the APB Rider Face Amount, subject to
our underwriting rules in effect at the time of the
change. Unless you specify otherwise, we will first apply
a change to the APB Rider Face Amount to the extent
possible. You must send your request for a change to our
Service Center in writing. The Effective Date of Coverage
for changes will be--
- for any increase in coverage, the
Monthly Anniversary Day that falls on
or next follows the date we approve
the supplemental application for the
increase; and
- for any decrease in coverage, the
Monthly Anniversary Day that falls on
or next follows the date we receive
your request.
INCREASES IN FACE AMOUNT. An increase in the
Specified Face Amount and, if applicable, the APB Rider
Face Amount, is subject to our underwriting rules in
effect at the time of the increase. You may be required
to submit satisfactory evidence of the insured's
insurability.
DECREASES IN FACE AMOUNT. The Specified Face Amount
may not decrease to less than the Minimum Specified Face
Amount specified in your Policy. Similarly, a decrease in
Specified Face Amount or APB Rider Face Amount may not
decrease the Total Face Amount to an amount less than the
Minimum Total Face Amount specified in your Policy. A
decrease in face amount will be applied--
- first, to the most recent increase;
- second, to the next most recent
increases in reverse chronological
order; and
19 SUN LIFE CORPORATE VUL-SM-
<PAGE>
- finally, to the initial face amount.
A decrease in the Specified Face Amount or APB Rider
Face Amount could cause total premiums paid prior to the
change to exceed the applicable maximum premium
limitations under the Guideline Premium Test. The change
could also reduce these limitations for future premium
payments. If the requested change causes total premiums
paid to exceed the applicable maximum premium
limitations, you will be required to make a partial
surrender of your Policy. You should consult a qualified
tax adviser before decreasing the Specified Face Amount
or APB Rider Face Amount.
ACCOUNT VALUE
Your 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.
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.
A VALUATION DATE is Amounts allocated to a Sub-Account will be used
any day on which we, to purchase Units of the Sub-Account. Units are redeemed
the applicable Fund, when you make partial surrenders, undertake policy loans
and the New York or transfer amounts from a Sub-Account, and for payment
Stock Exchange are of the Mortality and Expense Risk Charge, the Monthly
open for business. Expense Charge, and the Monthly Cost of Insurance
The VALUATION PERIOD Charge. The number of Units of each Sub-Account
is the period of purchased or redeemed is determined by dividing the
time from one dollar amount of the transaction by the Unit Value for
determination of the Sub-Account. The Unit Value for each Sub-Account is
Unit Values to the set at $10.00 for its first VALUATION DATE. The Unit
next. 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 normally processed on the date we
receive a premium at our Principal Office or any
acceptable written or telephonic request is received at
our 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
Valuation Date.
20 SUN LIFE CORPORATE VUL-SM-
<PAGE>
The INVESTMENT START ACCOUNT VALUE IN THE SUB-ACCOUNTS. The Account
DATE is the date we Value attributable to each Sub-Account of the Variable
apply your first Account on the INVESTMENT START DATE equals--
premium payment, - that portion of Net Premium received and allocated to
which will be THE the
LATER OF the Issue Sub-Account, MINUS
Date, the Business - the Monthly Expense Charges due on the Issue Date and
Day we approve your subsequent Monthly Anniversary Days through the
policy application, Investment Start Date, MINUS
or the Business Day - the Monthly Cost of Insurance deductions due from the
we receive a premium Issue Date through the Investment Start Date.
equal to or in
excess of the
Minimum Premium.
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, MINUS
- 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,
PLUS
- any amounts transferred by you to the
Sub-Account from another Sub-Account
during the current Valuation Period,
PLUS
- that portion of any loan repayment
allocated to the Sub-Account during
the current Valuation Period, PLUS
- that portion of any interest credited
on the Loan Account which is allocated
to the Sub-Account during the current
Valuation Period, MINUS
- any amounts transferred by you from
the Sub-Account to another Sub-Account
during the current Valuation Period,
MINUS
- that portion of any partial surrenders
deducted from the Sub-Account during
the current Valuation Period, MINUS
- that portion of any Policy loan
transferred from the Sub-Account to
the Loan Account during the current
Valuation Period, MINUS
- if a Monthly Anniversary Day occurs
during the current Valuation Period,
that portion of the Monthly Expense
21 SUN LIFE CORPORATE VUL-SM-
<PAGE>
Charge for the Policy month just
beginning charged to the Sub-Account,
MINUS
- 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,
MINUS
- 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.
A Sub-Account's Unit NET INVESTMENT FACTOR. The Net Investment
Value on any Factor is used to measure the Sub-Account's investment
Valuation Date is performance from one Valuation Period to the next. This
equal to the Unit factor will be greater or less than or equal to one,
Value for the corresponding to a positive or negative or to a lack of
preceding Valuation change in the Sub-Account's investment performance for
Date multiplied by the preceding Valuation Period.
the Net Investment The Net Investment Factor for each Sub-Account for
Factor. any Valuation Period is determined by dividing the net
result of--
- the net asset value of a mutual fund
share held in the Sub-Account
determined as of the end of the
Valuation Period, PLUS
- 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
Although we do not - a per share credit or charge with respect to any taxes
currently take any reserved for by us, or paid by us if not previously
federal, state or reserved for, during the Valuation Period which are
local taxes into determined by us to be attributable to the operation
account when of the Sub-Account,
determining the Net
Investment Factor,
we reserve the right
to do so.
--by 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,
MINUS
22 SUN LIFE CORPORATE VUL-SM-
<PAGE>
- any loan repayments made on that day,
MINUS
- 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.
Your Policy may INSUFFICIENT VALUE. If the Account Value minus
terminate if your the outstanding Policy Debt is less than or equal to
Account Value minus zero on a Valuation Date, then your Policy will
any outstanding terminate for no value, subject to a grace period
Policy Debt drops to described below.
zero.
You will have 61 GRACE PERIOD. If, on a Valuation Date, your
days to pay enough Policy will terminate by reason of insufficient value,
premium to prevent we will allow a grace period. This grace period will
termination. allow 61 calendar days from that Valuation Date for the
payment of a Net Premium sufficient to cover the
deductions from the Account Value. 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
your policy application (or notice of assignment),
unless we have received satisfactory written notice of a
change in address. If the premium due is not paid during
the grace period, then the Policy will terminate without
value at the end of the 61 day period without further
notice. The Policy will continue to remain in force
during this grace period. If the Policy Proceeds become
payable during the grace period, then we will deduct any
overdue Monthly Cost of Insurance and Monthly Expense
Charge from the amount payable.
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.
TRANSFER PRIVILEGES
You normally may at any time transfer all or a
portion of your Account Value among Sub-Accounts. We will
make transfers pursuant to an authorized written or
telephone request to our Service Center. We will honor
telephone requests if we have a properly completed
telephone authorization form for you on file. We, our
affiliates and the representative from whom you purchase
your Policy 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. Our procedures require that you identify
yourself by name and a personal identification number.
Other procedures may also apply. In addition, telephone
requests may be recorded.
23 SUN LIFE CORPORATE VUL-SM-
<PAGE>
You may transfer a specified dollar amount or a
specified percentage of a Sub-Account's value.
Your transfer privileges are subject to our consent.
We reserve the right to impose limitations on transfers,
including, but not limited to--
- the minimum amount that may be
transferred; and
- 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.
ACCESSING YOUR ACCOUNT VALUE
SALES LOAD REFUND AT SURRENDER. You may surrender your Policy for
SURRENDER is that its Cash Surrender Value at any time. If you do, the
portion of any insurance coverage and all other benefits under the
premium paid in the Policy will terminate. The Cash Surrender Value is--
Policy Year of - the Account Value, minus
surrender that we - the outstanding balance of any outstanding Policy
will refund if you Debt, plus
surrender your - the SALES LOAD REFUND AT SURRENDER, if any.
Policy in the first
three Policy Years.
Partial surrenders PARTIAL SURRENDERS. You may make a partial
reduce your Policy's surrender of your Policy once each Policy Year after the
Total Face Amount first Policy Year by written request to our Service
and may have tax Center. The amount of any partial surrender may not
consequences. exceed the Account Value minus any outstanding Policy
Debt. Unless you provide us satisfactory evidence that
the insured remains 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 minus the Account Value immediately
after the Partial Surrender DOES NOT EXCEED
- the death benefit minus the Account Value immediately
before the Partial Surrender.
If you provide satisfactory evidence of insurability,
the death benefit will be equal to what it was
immediately prior to the partial surrender. After the
partial surrender, the Specified Face Amount may not be
lower than the minimum Specified Face Amount and the
Total Face Amount may not be lower than the minimum Total
Face Amount.
24 SUN LIFE CORPORATE VUL-SM-
<PAGE>
You may allocate a partial surrender among the
Sub-Accounts of the Variable Account. If you do not
specify the allocation, then we will allocate the partial
surrender 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.
You may borrow from POLICY LOANS. You may request a policy loan of
us using your Policy up to 90% of your Account Value, decreased by the
as collateral. balance of any outstanding Policy Debt on the date the
policy loan is made. We will transfer Account Value
equal to the amount of the policy loan 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 we will allocate the policy loan 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 an
annual rate of 5% in Policy Years one through ten and
4.25% thereafter. This interest will 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
satisfactory written notice that the funds are to be
applied to repay a policy loan. It is generally
advantageous to repay a loan rather than to make a
premium payment, because premium payments incur expense
charges but 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
we will allocate the loan repayment among the Sub-
Accounts in the same proportion that the Account Value of
each Sub-Account bears to the total Account Value minus
the Loan Account immediately prior to the loan repayment.
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
for payment or, in the case of death of the insured, Due
Proof of such death. Payment of any amount payable from
the Variable
25 SUN LIFE CORPORATE VUL-SM-
<PAGE>
Account on death, surrender, partial surrender, or policy
loan may be postponed whenever--
- the New York Stock Exchange is closed,
other than customary weekend and
holiday closing, or trading on that
exchange is otherwise restricted;
- the SEC, by order, permits
postponement for the protection of
policyowners; or
- an emergency exists as determined by
the SEC, 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.
CASH SURRENDER VALUE PAYABLE UPON MATURITY
If the insured is living and your Policy is in force
on the date of Maturity, the Cash Surrender Value is
payable to you.
CHARGES, DEDUCTIONS AND REFUNDS
EXPENSE CHARGES APPLIED TO PREMIUM. We deduct
charges from each premium payment for premium taxes and
our federal tax obligations and as a sales load.
States and a few cities and municipalities may impose
taxes on premiums paid for life insurance, which
generally range from 2% to 4% of premium but may exceed
4% in some states (for example, Kentucky). We will from
time to time determine the applicable premium tax rate
based on the rate we expect to pay in your state of
residence. The premium tax rate is guaranteed not to
exceed 4% for all states except Kentucky, in which case
it is guaranteed not to exceed 9%. If you change your
state of residence, we will adjust the premium tax rate
to reflect the rate for the new state of residence.
We deduct a 1.25% charge from each premium payment
for our federal tax obligations. This charge is
guaranteed not to exceed 1.25%.
TARGET PREMIUM We also charge a 8.75% sales load on each
varies based on the premium payment up to an amount of Target Premium
Specified Face specified in your Policy and a 2.25% sales load on
Amount and the premiums paid in excess of TARGET PREMIUM for each of
insured's Issue Age the first seven Policy Years. Sales load rates are
and sex. guaranteed not to exceed these amounts. There are no
sales load charges after the seventh Policy Year. We may
reduce or waive the sales load for certain group or
sponsored arrangements and corporate purchasers.
26 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SALES LOAD REFUND AT SURRENDER. If you surrender
your Policy during the first three Policy Years, we will
refund a portion of the sales load charged against
premium payments MADE DURING THE POLICY YEAR IN WHICH YOU
SURRENDERED YOUR POLICY. We will refund an amount equal
to 6% of premium paid up to the Target Premium, plus the
entire amount of any sales load charged against premium
paid in excess of the Target Premium.
MORTALITY AND EXPENSE RISK CHARGE. We deduct a daily
charge from the assets of the Variable Account for the
mortality and expense risks we assume with respect to the
Policy. This charge is based on the applicable Daily Risk
Percentage, which we will from time to time determine
based on our expectations of future interest, mortality
experience, persistency, expenses and taxes. Expressed as
an equivalent annual rate, the Daily Risk Percentage is
guaranteed not to exceed 0.90% (0.0024548% daily) of
assets. Our current effective annual rates as a
percentage of assets are--
- 0.60% (0.0016389% daily) for Policy
Years 1 through 10;
- 0.20% (0.0005474% daily) for Policy
Years 11 through 20; and
- 0.10% (0.0002738% daily) thereafter.
The mortality risk we assume is that the group of
lives insured under the Policies may, on average, live
for shorter periods of time than we estimated. The
expense risk we assume is that the costs of issuing and
administering Policies may be more than we estimated.
MONTHLY EXPENSE CHARGE. We deduct a flat charge at
the beginning of each month to cover administrative and
other expenses actually incurred. We will from time to
time determine the applicable Monthly Expense Charge
based on our expectations of future expenses, which will
not exceed $13.75 in any Policy Month. We will allocate
the Monthly Expense Charge 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 deduction.
Currently, the Monthly Expense Charge is $13.75 per month
for the first Policy Year and $7.50 per month thereafter.
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, we will deduct a cost of
insurance charge on a pro-rata basis. We will allocate
the Monthly Cost of Insurance deduction among
Sub-Accounts in the same
27 SUN LIFE CORPORATE VUL-SM-
<PAGE>
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 rates are based on the
length of time the Policy has been in force and on the
insured's sex (except for unisex Policies), Issue Age,
Class and table rating, if any. We will from time to time
determine the applicable rates based on our expectations
of future experience with respect to mortality,
persistency, interest rates, expenses and taxes. Our cost
of insurance rates for coverage under the Policy are
guaranteed not to exceed the applicable maximum monthly
rates shown in your Policy which are based on the 1980
Commissioner's Standard Ordinary Mortality Table A (for
males and unisex Policies) or Table G (for females),
unless the insured has been rated a substandard risk. Our
cost of insurance rates for coverage under the APB Rider
are guaranteed not to exceed the applicable maximum
monthly rates shown in your Policy. In general, the
maximum monthly rates for coverage under the APB Rider
will not exceed 125% of the monthly rates based on the
1980 CSO Mortality Table A (for males and unisex
Policies) or G (for females), unless the insured has been
rated a substandard risk. Monthly cost of insurance rates
for classes of insureds with substandard risk ratings are
based on multiples of the CSO Mortality Tables described
above.
REDUCTION OF CHARGES. We reserve the right to reduce
any of our charges and deductions in connection with the
sale of the Policy if we expect that the sale may result
in cost savings, subject to any requirements we may from
time to time impose. We may change our requirements based
on experience. We will determine the propriety and amount
of any reduction. No reduction will be unfairly
discriminatory against the interests of any class of
policyowner.
TERMINATION OF POLICY
Your Policy will terminate on the earliest of--
- the date we receive your request to
surrender,
- the expiration date of the grace
period,
- the date of insured's death, or
- the date of Maturity.
OTHER POLICY PROVISIONS
ALTERATION. Our sales representatives do not have
the authority to either alter or modify your Policy or to
waive any of its provisions. The only persons
28 SUN LIFE CORPORATE VUL-SM-
<PAGE>
with this authority are our president, actuary,
secretary, or one of our vice presidents.
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 satisfactory written form. The assignment will
then be effective as of the date you signed the form,
subject to any action taken before we receive it at our
Service Center. We are not responsible for the validity
or legal effect of any assignment.
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; and
- exercise all other rights in the
Policy.
When you transfer your rights to a new owner, you
automatically revoke any prior contingent owner
designation. You do not affect a prior beneficiary when
you merely transfer ownership, or change or revoke a
contingent owner designation. When you want to change or
revoke a prior beneficiary designation, you have to
specify that action.
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 satisfactory written form. 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 we receive it at our Service
Center.
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.
REPORTS TO POLICYOWNERS. 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
those loans.
29 SUN LIFE CORPORATE VUL-SM-
<PAGE>
ILLUSTRATIONS. Upon request, we will provide you
with a hypothetical illustration of future Account Value
and Death Benefits. This illustration will be furnished
to you for a fee not to exceed $25.
CONVERSION. You may convert your Policy into a
flexible premium universal life policy offered by an
affiliate, 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. Our
affiliate will issue the new policy with the same Class
and rating as the Policy without new evidence of the
insured's insurability. This provision does not apply to
the APB Rider, if any, or to any other supplemental
benefits that may be attached to the Policy. Any riders
or supplemental benefits will terminate automatically
when the Policy is converted.
MISSTATEMENT OF AGE OR SEX. If the age or sex
(unless a unisex Policy) of the insured is stated
incorrectly in your policy application, the amounts
payable by us will be adjusted.
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 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 sex.
SUICIDE. Unless state law otherwise requires, 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, minus the amount of any Policy Debt and
any partial surrenders.
INCONTESTABILITY. All statements made in an
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. We can
use no statement in defense of a claim unless the
statement was made in the application or in a
supplemental application. In the absence of fraud, after
a 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 premiums.
However, any increase in the Total Face Amount which is
effective after the Issue Date will be incontestable only
after the increase has been in force during the lifetime
of the insured for two years from the effective date of
coverage of the increase. Any increase in Base Death
Benefit over
30 SUN LIFE CORPORATE VUL-SM-
<PAGE>
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.
ADDITION, DELETION OR SUBSTITUTION OF
INVESTMENTS. Subject to our obtaining any necessary
regulatory approvals, shares of other registered open-end
investment companies or unit investment trusts may be
substituted both for fund shares already purchased by the
Variable Account and/or as the security to be purchased
in the future. In addition, the investment policies of
the Sub-Accounts 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 described above, we may make appropriate amendment to
the Policy to reflect the substitution.
NONPARTICIPATING. The Policy does not pay dividends.
The Policy does not share in our profits or surplus
earnings.
MODIFICATION. Upon notice to you, we may modify the
Policy if that modification--
- is necessary to make the Policy or the
Variable Account comply with any law
or regulation issued by a governmental
agency to which we are or the Variable
Account is subject;
- 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;
- 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 the
modification.
ENTIRE CONTRACT. Your entire contract with us
consists of the Policy, including your policy application
and any attached copies of supplemental applications for
increases in the face amount. Any hypothetical
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 how policy values may
be affected by different investment returns and other
factors.
31 SUN LIFE CORPORATE VUL-SM-
<PAGE>
PERFORMANCE INFORMATION
We may present the From time to time, we may advertise TOTAL RETURN
performance of the and AVERAGE ANNUAL TOTAL RETURN of the Funds. This
underlying fund performance information is based on historical earnings
options in sales and is not intended to indicate future performance.
literature.
Total return for a Fund refers to the total of the
income generated by the Fund net of total operating
expenses plus capital gains and losses, realized or
unrealized, for the Fund. Total return for the
Sub-Accounts refers to the total of the income generated
by the Fund net of total operating expenses plus capital
gains and losses, realized or unrealized, for the Fund
and net of the mortality and expense risk charge. Average
annual total return reflects the hypothetical annually
compounded return that would have produced the same
cumulative return if the Fund'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 Fund or Sub-Account, they
are not the same as actual year-by-year results.
We may compare performance information in reports and
promotional literature to--
- 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;
- 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
- 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.
32 SUN LIFE CORPORATE VUL-SM-
<PAGE>
We may provide in advertising, sales literature,
periodic publications or other materials information on
various topics of interest to policyowners and
prospective policyowners. 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 Policy and the
characteristics of and market for such
financial instruments.
The Policy was first offered to the public in 1997.
We may, however, advertise total return data based on the
period of time that the Funds have been in existence. The
results for any period prior to the time the Policy was
first publicly offered will be calculated as if the
Policy had been offered during that period of time.
VOTING RIGHTS
We will vote shares of the Funds held in the Variable
Account in accordance with instructions received from
policyowners having a voting interest in the
corresponding Sub-Accounts, to the extent required by
law. We will provide each policyowner who has a voting
interest a Sub-Account with the proxy materials of the
corresponding Fund, together with an appropriate form for
the policyowner to submit its voting instructions to us.
We will vote shares for which we receive no timely
instructions, together with shares not attributable to
any Policy, in the same proportion as those shares held
by the Sub-Account for which we receive instructions.
We will determine the number of shares for which you
are entitled to provide voting instructions as of the
record date established for the applicable 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.
33 SUN LIFE CORPORATE VUL-SM-
<PAGE>
We may, if required by state insurance regulators,
disregard voting instructions if the instructions require
shares to be voted to cause a change in the
subclassification or investment objective of one or more
of the Funds, or 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 adviser or
principal underwriter of a Fund. Our disapproval of any
such change must be reasonable and, in the case of a
change in investment policies or investment adviser,
based on a good faith determination that the change would
be contrary to state law or otherwise inappropriate in
light of the objectives and purposes of the Fund. If we
disregard voting instructions, we will include a summary
of and the reasons for that action in our next periodic
report to policyowners.
We reserve the right to vote shares held in the
Variable Account in our own right, if permitted by
applicable law.
DISTRIBUTION OF POLICY
We will offer the Policy only in jurisdictions where
the Policy may be lawfully sold. The Policy may be sold
only by persons who are licensed insurance agents under
applicable state law and who are licensed by the National
Associated of Securities Dealers, Inc. (the "NASD") to
sell variable insurance contracts as a registered
representative of a broker-dealer which has entered into
a distribution agreement with us and our general
distributor, Clarendon Insurance Agency, Inc., one of our
wholly-owned subsidiaries. Clarendon is a registered
broker-dealer and member of the NASD. Clarendon's
principal business offices are located at One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02481.
We pay registered We may pay commissions in connection with sales
broker- dealers to of the Policy, and we may pay bonuses, as well as
sell the Policy. expense and training allowances. The maximum commission
payable will be 15% of premium paid in the first Policy
Year and 9% of premium paid in Policy Years two through
seven. We may also pay a commission of--
- up to 0.10% of Account Value for
Policy Years one through seven;
- up to 0.20% of Account Value for
Policy Years eight through twenty; and
- up to 0.10% of Account Value
thereafter.
34 SUN LIFE CORPORATE VUL-SM-
<PAGE>
FEDERAL TAX CONSIDERATIONS
The following is a summary of our understanding of
current federal income tax laws and is not intended as
tax advice. You should be aware that Congress has the
power to enact legislation affecting the tax treatment of
life insurance contracts which could be applied
retroactively. New judicial or administrative
interpretation of federal income tax law may also affect
the tax treatment of life insurance contracts. The
Internal Revenue Code of 1986, as amended (the "Code"),
is not in force in the Commonwealth of Puerto Rico.
Accordingly, some references in this summary 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. WE DO NOT MAKE ANY REPRESENTATION OR PROVIDE ANY
GUARANTEE REGARDING THE FEDERAL, STATE OR LOCAL TAX
TREATMENT OF ANY POLICY OR ANY TRANSACTION INVOLVING A
POLICY.
OUR TAX STATUS
We are taxed as a life insurance company under
Subchapter L of the Code. Although we account for the
operations of the Variable Account separately from our
other operations for purposes of federal income taxation,
the Variable Account currently is not separately taxable
as a regulated investment company or other taxable
entity.
Taxes we pay, or reserve for, that are attributable
to the earnings of the Variable Account could affect the
Net Investment Factor, which in turn affects your Account
Value. 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 applied to increase reserves under the Policy, is
not taxable to us. Similarly, no state or local income
taxes are currently attributable to the earnings of the
Variable Account. Therefore, we do not take any federal,
state or local taxes into account when determining the
Net Investment Factor. We may take taxes into account
when determining the Net Investment Factor in future
years if, due to a change in law, our 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 certain tests for
whether a policy will be treated as a "life insurance
contract" for tax purposes. Provided that the owner of a
Policy has an insurable interest in the insured, we
believe that the Policy meets these tests, and thus
should receive the same federal income tax treatment as a
fixed life insurance contract. As such, the death benefit
under the Policy will be eligible for exclusion from the
gross income of the beneficiary under Section 101 of the
Code, and the owner will not be deemed to be in
35 SUN LIFE CORPORATE VUL-SM-
<PAGE>
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, until actual receipt thereof.
CORPORATE OWNERS, HOWEVER, MAY 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, the Policy must satisfy certain actuarial
requirements. Section 7702 requires that 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 we
believe 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, we cannot be
certain. It is possible that future regulations will
contain standards that would require us to modify the
mortality and other charges used in the calculations, and
we reserve 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 investment diversification rules
found in Section 817 of the Code. We believe that the
Variable Account complies with the diversification
requirements prescribed by Section 1.817-5 of the
Treasury Regulations. We also believe that the owner does
not have excessive control over the assets underlying the
Policy that would cause the owner to be treated as owning
the investments underlying the Policy for federal income
tax purposes. If guidelines are adopted which would treat
the owner as having excessive control over the
investments underlying the Policy, we 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.
The term "Investment in the Policy" means--
- the aggregate amount of any premiums
or other consideration paid for a
Policy, MINUS
- the aggregate amount received under a
Policy which is excluded from the
owner's gross income (other than loan
amounts), PLUS
36 SUN LIFE CORPORATE VUL-SM-
<PAGE>
- the amount of any loan from, or
secured by, a Policy that is a
Modified Endowment Contract (as
defined below) to the extent that such
amount is included in the owner's
gross income.
The repayment of a policy loan (or the payment of
interest on a loan) does not affect the 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.
We have undertaken measures to prevent payment of a
premium from inadvertently causing the Policy to become a
Modified Endowment Contract. In general, you should
consult a qualified tax adviser before undertaking any
transaction involving your Policy to determine whether
such a transaction would cause the Policy to become a
Modified Endowment Contract.
If 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 income earned under the
Policy, which is subject to tax. (An exception to this
general rule occurs when 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 thus are not
included in the owner's gross income.
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
37 SUN LIFE CORPORATE VUL-SM-
<PAGE>
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 when 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 are not likely to 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 us (or our affiliates) to
the same owner during any calendar year are treated as
one Modified Endowment Contract.
There are limits on the deductibility of policy loan
interest. You should consult a qualified tax adviser
regarding such deductions.
An owner generally will not recognize gain upon the
exchange of the Policy for another life insurance policy
issued by us 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 you transfer your
Policy or designate 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
your taxable income to the extent that the death benefit
exceeds the prior consideration paid for the transfer and
any premiums and other amounts paid later by the
transferee. Further, in such a case, if the consideration
received exceeds your Investment in the Policy, the
difference will be taxed to you as ordinary income.
Federal, as well as state and local, estate,
inheritance and other tax consequences of ownership or
receipt of Policy Proceeds will depend on your individual
circumstances and those of the beneficiary.
38 SUN LIFE CORPORATE VUL-SM-
<PAGE>
OUR DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers 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, those
directors and officers 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. The asterisks below denote the year
that the indicated director was elected to our board of
directors.
DONALD A. STEWART, 52, Chairman and Director (1996*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Chairman, Chief Executive Officer and a
Director of Sun Life Assurance Company of Canada;
Chairman and a Director of Sun Life Insurance and Annuity
Company of New York; and a Director of Massachusetts
Financial Services Company, Sun Life Financial Services
Limited, Spectrum United Holdings, Inc. and Sun Life of
Canada UK Holdings, plc.
C. JAMES PRIEUR, 47, President and Director (1998*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is President of Sun Life Assurance Company of
Canada; 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.; Chairman of the Board and
Executive Vice President, Sun Capital Advisers Trust,
President and a Director of Sun Life of Canada (U.S.)
Holdings, Inc., Sun Life Assurance Company of
Canada--U.S. Operations Holdings, Inc., Sun Life of
Canada (U.S.) Financial Services Holdings, Inc., Sun
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., Sun Life Financial
Services, Ltd and Sun Life Information Services Ireland
Limited.
JOHN D. MCNEIL, 65, Director (1982*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is a Director of Sun Life Assurance Company of
Canada; a Director of Massachusetts Financial Services
Company and Sun Life Insurance and Annuity Company of New
York; a Trustee of MFS/Sun Life Series Trust; Chairman
and
39 SUN LIFE CORPORATE VUL-SM-
<PAGE>
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, Canadian Pacific, Ltd. and Canadian Pacific
Securities (Ontario) Limited.
DAVID D. HORN, 57, Director (1985*)
Strong Road
New Vineyard, ME 04956
He was formerly Senior Vice President and General
Manager for the United States of Sun Life Assurance
Company of Canada, retiring in December, 1997. He is a
Director of Sun Life Insurance and Annuity Company of New
York; a Trustee of MFS/Sun Life Series Trust; and a
Member of the Boards of Managers of Money Market Variable
Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities
Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors
Variable Account.
ANGUS A. MACNAUGHTON, 67, 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,
Genstar Investment LLC and Genstar Capital Corporation;
and Vice Chairman and a Director of Barrick Gold
Corporation.
JOHN S. LANE, 64, 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.
40 SUN LIFE CORPORATE VUL-SM-
<PAGE>
RICHARD B. BAILEY, 72, Director (1983*)
63 Atlantic Ave
Boston, Massachusetts 02116
He is a Director of Sun Life Insurance and Annuity
Company of New York and a Director/Trustee of certain
Funds in the MFS Family of Funds.
M. COLYER CRUM, 66, Director (1986*)
104 Westcliff Street
Weston, Massachusetts 02193
He is Professor Emeritus of the Harvard Business
School; Chairman and a Director of Phaeton International
N.V.; a Director of Sun Life Assurance Company of Canada,
Sun Life Insurance and Annuity Company of New York,
Cambridge Bancorp, Cambridge Trust Company, Merrill Lynch
Ready Assets Trust, Merrill Lynch Basic Value Fund, Inc.,
Merrill Lynch Global Growth Fund, Inc., Merrill Lynch
U.S. Treasury Money Fund, Merrill Lynch Special Value
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch U.S.A. Government Reserves, MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey
Fund, Inc., MuniYield Michigan Insured Fund, Inc., and
MuniYield New Jersey Insured Fund, Inc.; and a Trustee of
Merrill Lynch Global Resources Trust, Merrill Lynch Ready
Assets Trust, MuniYield Florida Insured Fund, and
MuniYield Pennsylvania Fund. Prior to July, 1996, he was
a Professor at the Harvard Business School.
S. CAESAR RABOY, 62, Director (1996*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is a former Senior Vice President and Deputy
General Manager for the United States of Sun Life
Assurance Company of Canada; a Director of Sun Life
Insurance and Annuity Company of New York; Vice President
and a Director of Sun Life Financial Services Limited;
and a Director of Sun Life of Canada (U.S.) Distributors,
Inc. and Clarendon Insurance Agency, Inc.
JAMES M.A. ANDERSON, 49, Vice President, Investments
(1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 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 Chief
Executive Officer of Sun Capital Advisers Trust;
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
41 SUN LIFE CORPORATE VUL-SM-
<PAGE>
Services Holdings, Inc. and Sun Life Assurance Company of
Canada--U.S. Operations Holdings, Inc.; Vice President of
Sun Life of Canada (U.S.) Distributors, Inc. and Sun
Canada Financial Co.; and a Director of Clarendon
Insurance Agency, Inc. and Sun Benefit Services Company
Inc.
L. BROCK THOMSON, 57, 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.
ROBERT P. VROLYK, 45, Vice President, Finance 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, Actuary and Controller
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 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.) Distributors, Inc. and Sun Canada
Financial Co.; 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., Sun Benefit
Services Company, Inc. and Sun Life Information Services
Ireland, Ltd.
PETER F. DEMUTH, 41, Vice President, Chief Counsel and
Assistant Secretary (1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He is Vice President and Chief Counsel of U.S.
Operations for Sun Life Assurance Company of Canada; Vice
President and Chief Counsel for Sun Life Insurance and
Annuity Company of New York; a Director of Sun Life of
Canada (U.S.) Holdings, Inc., Sun Life of Canada (U.S.)
Financial Services Holdings, Inc. and Sun Life Assurance
Company of Canada--U.S. Operations Holdings, Inc. Prior
to February, 1998, he was a partner at the firm of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
42 SUN LIFE CORPORATE VUL-SM-
<PAGE>
ELLEN B. KING, 42, Assistant Counsel and Secretary (1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
She is Assistant Counsel and Secretary of Sun Life
Assurance Company of Canada and Secretary of Sun Life
Insurance and Annuity Company of New York.
ROBERT K. LEACH, 43, Vice President, Finance and Product
(1996)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He has been affiliated with Sun Life Assurance
Company of Canada since January, 1987 in various
management positions. In July, 1996 he was appointed Vice
President, Annuities. Prior to 1987 he was a 2nd Vice
President at New England Life Insurance Company.
EDWARD J. RONAN, 45, Vice President, Retirement Products
and Services (1997)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He has been affiliated with Sun Life Assurance
Company of Canada since August, 1997. From June, 1987 to
July, 1997 he was Vice President, Division Manager at
First Data Investor Services Group.
Our directors, officers and employees, and those of
our general distributor, Clarendon Insurance Agency,
Inc., are covered under a commercial blanket bond and a
liability policy.
OTHER INFORMATION
STATE REGULATION
We are subject to the laws of Delaware governing life
insurance companies and to regulation by Delaware's
Commissioner of Insurance, whose agents periodically
conduct an examination of our financial condition and
business operations. We are also subject to the insurance
laws and regulations of the jurisdictions in which we are
authorized to do business.
We are required to file an annual statement with the
insurance regulatory authority of those jurisdictions
where we are authorized to do business relating to our
business operations and financial condition as of
December 31st of the preceding year.
43 SUN LIFE CORPORATE VUL-SM-
<PAGE>
LEGAL PROCEEDINGS
There are no pending legal proceedings which would
have an adverse material effect on the Variable Account.
We are engaged in various kinds of routine litigation
which, in our judgment, is not material 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.
ACCOUNTANTS
The financial statements of the Variable Account for
the year ended December 31, 1998 and the statutory
financial statements of Sun Life Assurance Company of
Canada (U.S.) for the years ended December 31, 1998, 1997
and 1996 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
This prospectus is part of a registration statement
that has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended,
with respect to the Policy. It does not contain all of
the information set forth in the registration statement
and the exhibits filed as part of the registration
statement. You may refer to the registration statement
for additional information about us, the Variable
Account, the underlying Funds and the Policy.
YEAR 2000 COMPLIANCE
During the fourth quarter of 1996, we began a
comprehensive analysis of our information technology
("IT") and non-IT systems, including our hardware,
software, data, data feed products, and internal and
external supporting services, to address the ability of
these systems to process date calculations through the
year 2000 and beyond correctly. We created a full-time
year 2000 project team in early 1997 to manage this
endeavor on a company-wide basis. Our year 2000 project
is periodically reviewed by internal and external
auditors.
To date, relevant systems have been identified and
their components inventoried, needed resolutions have
been documented, timelines and project plans have been
developed, remediation and testing are in process, and
over 70% of
44 SUN LIFE CORPORATE VUL-SM-
<PAGE>
our applications have been certified as compliant.
Testing of vendor upgrades not available until late 1998
is ongoing, as is re-testing of interfaces to systems
certified as compliant and re-testing of mission critical
functions.
In mid-1997, the project team contacted all key
vendors to obtain either their certification for the
products and services provided or their plan to make
those products and services compliant. To date,
approximately 90% of these vendors have responded, and
the project team is in the process of reviewing their
responses. In addition, the project team recently has
opened communications with critical business partners,
such as third-party administrators, investment property
managers, investment mortgage correspondents and others,
with the goal that these partners will continue to be
able to support our objective of assuring year 2000
compliance.
Although we expect all critical systems to be year
2000 compliant before the end of 1999, there can be no
assurance that this result will be completely achieved.
Factors giving rise to this uncertainty include possible
loss of technical resources to perform the work, failure
to identify all susceptible systems, non-compliance by
third-parties whose systems and operations affect our
company, and other similar uncertainties. A possible
worst-case scenario might include one or more of our
significant systems being non-compliant. Such a scenario
could result in material disruption to our operations.
Consequences of such disruptions could include, among
other possibilities, the inability to update customers'
accounts; process payment and other financial
transactions; and report accurate data to management,
customers, regulators and others. Consequences could also
include business interruptions or shutdowns, reputational
harm, increased scrutiny by regulators, and litigation
related to year 2000 issues. Such potential consequences,
depending on their nature and duration, could have
material impact on our results of operations and
financial position.
In order to mitigate the risks to our company of
material adverse operational or financial impacts from
failure to achieve planned year 2000 compliance, we have
established contingency planning at the business unit and
corporate levels. By year-end 1998, we had expended,
cumulatively, approximately $7 million on our year 2000
effort, and we expect to incur a further $4.8 million on
this effort in 1999.
FINANCIAL STATEMENTS
Our financial statements, which are included in this
prospectus, should be considered only as bearing on our
ability to meet our obligations with respect to the death
benefit and our assumption of the mortality and expense
risks. They should not be considered as bearing on the
investment performance of the shares of any Fund held in
the Variable Account.
45 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE (U.S.) VARIABLE ACCOUNT G
STATEMENT OF CONDITION-- December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C> <C>
Investments in Mutual Funds: SHARES COST VALUE
---------- ------------ ------------
Investments in MFS/Sun Life Series
Trust:
Capital Appreciation Series
("CAS")........................... 2,966 $ 121,129 $ 136,214
Emerging Growth Series ("EGS")...... 1,796 35,064 41,811
Government Securities Series
("GSS")........................... 24,574 322,312 329,048
Total Return Series ("TRS")......... 30,777 660,537 654,313
World Growth Series ("WGO")......... 49,867 752,961 780,914
Investments in Fidelity Variable
Insurance Products Fund:
Equity Income Portfolio ("FEI")..... 68,879 1,626,864 1,750,918
Growth Portfolio ("FGP")............ 56,568 2,007,509 2,538,235
High Income Portfolio ("FHI")....... 14,522 165,860 167,436
Money Market Portfolio ("FMM")...... 431,101 431,101 431,101
Investments in Fidelity Variable
Insurance Products Fund II:
Contrafund Portfolio ("FCN")........ 21,234 421,289 518,962
Index 500 Portfolio ("FIP")......... 30,984 3,678,230 4,376,542
Investments in Neuberger & Berman
Advisers Management Trust:
Limited Maturity Bond Portfolio
("NLM")........................... 2,300 31,292 31,781
Partners Portfolio ("NPP").......... 52,831 1,048,824 1,000,092
Investments in J.P. Morgan Series
Trust II
J.P. Morgan Bond Portfolio
("JBP")........................... 67,951 786,433 792,983
J.P. Morgan Equity Portfolio
("JEP")........................... 12,875 198,952 203,942
J.P. Morgan Small Company Portfolio
("JSC")........................... 27,534 337,760 326,548
Investments in Templeton Variable
Products Series Fund:
Templeton Stock Fund: Class 1
("TSF")........................... 23,045 508,245 485,561
------------ ------------
NET ASSETS.................................... $ 13,134,362 $ 14,566,401
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
UNITS UNIT VALUE VALUE
--------- ---------- ------------
<S> <C> <C> <C>
NET ASSETS:
CAS.......................................................................... 10,660 $ 12.7776 $ 136,214
EGS.......................................................................... 2,838 14.7307 41,811
GSS.......................................................................... 28,642 11.4882 329,048
TRS.......................................................................... 55,937 11.6974 654,313
WGO.......................................................................... 64,502 12.1073 780,914
FEI.......................................................................... 143,740 12.1812 1,750,918
FGP.......................................................................... 177,748 14.2799 2,538,235
FHI.......................................................................... 16,457 10.1740 167,436
FMM.......................................................................... 28,692 11.1396 319,705
FCN.......................................................................... 36,202 14.3350 518,962
FIP.......................................................................... 295,225 14.8244 4,376,542
NLM.......................................................................... 2,941 10.8064 31,781
NPP.......................................................................... 90,519 11.0484 1,000,092
JBP.......................................................................... 69,180 11.4626 792,983
JEP.......................................................................... 16,179 12.6050 203,942
JSC.......................................................................... 31,656 10.3154 326,548
TSF.......................................................................... 49,794 9.7515 485,561
------------
Net Assets Applicable to Contract Owners................................... 14,455,005
------------
Net Assets Applicable to Sponsor........................................... 10,000 11.1396 111,396
------------
Total Net Assets................................................................................ $ 14,566,401
------------
------------
</TABLE>
See notes to financial statements
46 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF OPERATIONS-- Year Ended December 31, 1998
<TABLE>
<CAPTION>
CAS EGS GSS TRS WGO FEI
SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.............. $ 7,994 $ 598 $ 8,657 $ 64,091 $39,888 $ 821
----------- ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $25,721 $1,809 $ 7,242 $254,933 $26,229 $196,092
Cost of investments sold............ 27,756 1,447 7,056 250,290 24,763 201,125
----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (loss)........... $(2,035) $ 362 $ 186 $ 4,643 $ 1,466 $ (5,033)
----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $15,085 $6,747 $ 6,736 $ (6,224) $27,953 $124,054
Beginning of year................... -- 257 499 -- 10,955 1,079
----------- ----------- ----------- ----------- ----------- -----------
Change in unrealized appreciation
(depreciation).................. $15,085 $6,490 $ 6,237 $ (6,224) $16,998 $122,975
----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gains
(losses).......................... $13,050 $6,852 $ 6,423 $ (1,581) $18,464 $117,942
----------- ----------- ----------- ----------- ----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.. $21,044 $7,450 $15,080 $ 62,510 $58,352 $118,763
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FHI
FGP SUB- FMM FCN FIP NLM
SUB-ACCOUNT ACCOUNT** SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.............. $ 34,173 $-- $ 32,102 $ 382 $ 48,449 $ 167
----------- ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS:
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $131,813 $3,615 $4,370,327 $ 7,774 $549,801 $40,211
Cost of investments sold............ 130,441 3,869 4,370,327 6,607 437,848 39,705
----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses)....... $ 1,372 $ (254) $ -- 1,167 $111,953 $ 506
----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation on
investments:
End of year......................... $530,726 $1,576 $ -- $ 97,673 $698,312 $ 489
Beginning of year................... 1,530 -- -- 609 102,939 90
----------- ----------- ----------- ----------- ----------- -----------
Change in unrealized
appreciation.................... $529,196 $1,576 $ -- 97,064 $595,373 $ 399
----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gains....... $530,568 $1,322 $ -- $ 98,231 $707,326 $ 905
----------- ----------- ----------- ----------- ----------- -----------
INCREASE IN NET ASSETS FROM
OPERATIONS............................. $564,741 $1,322 $ 32,102 $ 98,613 $755,775 $ 1,072
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
* For the period April 23, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
** For the period February 11, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
See notes to financial statements
47 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF OPERATIONS-- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
NPP JBP JEP JSC TSF
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT** SUB-ACCOUNT TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.............. $ 97,246 $ 32,711 $ 19,117 $ 12,274 $ 22,221 $ 420,891
----------- ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $253,851 $353,484 $156,221 $ 97,943 $ 84,787 $6,561,853
Cost of investments sold............ 294,613 346,482 143,195 126,054 109,596 6,521,174
----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses)......... $(40,762) $ 7,002 $ 13,026 $(28,111) $(24,809) $ 40,679
----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $(48,732) $ 6,550 $ 4,990 $(11,212) $(22,684) $1,432,039
Beginning of year................... 960 (95) -- -- (766) 118,057
----------- ----------- ----------- ----------- ----------- -----------
Change in unrealized appreciation
(depreciation).................. $(49,692) $ 6,645 $ 4,990 $(11,212) $(21,918) $1,313,982
----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gains
(losses).......................... $(90,454) $ 13,647 $ 18,016 $(39,323) $(46,727) $1,354,661
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations................... $ 6,792 $ 46,358 $ 37,133 $(27,049) $(24,506) $1,775,552
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
** For the period February 11, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
See notes to financial statements
48 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CAS EGS GSS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------------------------ ----------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------- ------------- --------------- ------------- -------------
1998* 1998 1997 1998 1997
------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $ 7,994 $ 598 $ -- $ 8,657 $ --
Net realized gains (losses)........................ (2,035) 362 6 186 2
Net unrealized gains............................... 15,085 6,490 257 6,237 499
------------- ------------- ------ ------------- -------------
Increase in net assets from operations......... $ 21,044 $ 7,450 $ 263 $ 15,080 $ 501
------------- ------------- ------ ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Purchase payments received....................... $ 69,165 $ 18,930 $ 2,617 $ 165,413 $ 2,618
Net transfers between Sub-Accounts............... 49,909 13,669 -- -- 153,244
Withdrawals, surrenders, annuitizations and
contract charges............................... (3,904) (1,061) (57) (7,748) (60)
------------- ------------- ------ ------------- -------------
Increase in net assets from contract owner
transactions..................................... $ 115,170 $ 31,538 $ 2,560 $ 157,665 $ 155,802
------------- ------------- ------ ------------- -------------
Increase in net assets........................... $ 136,214 $ 38,988 $ 2,823 $ 172,745 $ 156,303
NET ASSETS:
Beginning of year.................................. -- 2,823 -- 156,303 --
------------- ------------- ------ ------------- -------------
End of year........................................ $ 136,214 $ 41,811 $ 2,823 $ 329,048 $ 156,303
------------- ------------- ------ ------------- -------------
------------- ------------- ------ ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
TRS WGO FEI
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------- ------------- ------------- ------------- -------------
1998** 1998 1997 1998 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $ 64,091 $ 39,888 $ -- $ 821 $ --
Net realized gains (losses)........................ 4,643 1,466 303 (5,033) 12
Net unrealized gains (losses)...................... (6,224) 16,998 10,956 122,975 1,079
------------- ------------- ------------- ------------- -------------
Increase in net assets from operations......... $ 62,510 $ 58,352 $ 11,259 $ 118,763 $ 1,091
------------- ------------- ------------- ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Purchase payments received....................... $ 742,106 $ 540,355 $ 200,129 $ 1,756,032 $ 12,040
Net transfers between Sub-Accounts............... (115,350) 2,700 -- (58,426) --
Withdrawals, surrenders, annuitizations and
contract charges............................... (34,953) (26,751) (5,130) (78,355) (227)
------------- ------------- ------------- ------------- -------------
Increase in net assets from contract owner
transactions..................................... $ 591,803 $ 516,304 $ 194,999 $ 1,619,251 $ 11,813
------------- ------------- ------------- ------------- -------------
Increase in net assets........................... $ 654,313 $ 574,656 $ 206,258 $ 1,738,014 $ 12,904
NET ASSETS:
Beginning of year.................................. -- 206,258 -- 12,904 --
------------- ------------- ------------- ------------- -------------
End of year........................................ $ 654,313 $ 780,914 $ 206,258 $ 1,750,918 $ 12,904
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
*For the period April 23, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
** For the period February 11, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
See notes to financial statements
49 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
FGP FHI FMM
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ------------- ----------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------- ------------- ------------- ------------- -------------
1998 1997 1998** 1998 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $ 34,173 $ -- $ -- $ 32,102 $ 8,584
Net realized gains (losses)........................ 1,372 -- (254) -- --
Net unrealized gains............................... 529,196 1,529 1,576 -- --
------------- ------------- ------------- ------------- -------------
Increase in net assets from operations......... $ 564,741 $ 1,529 $ 1,322 $ 32,102 $ 8,584
------------- ------------- ------------- ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Purchase payments received....................... $ 1,547,362 $ -- $ 75,590 $ 1,495,810 $ 612,754
Net transfers between Sub-Accounts............... 259,472 245,191 94,193 (1,173,716) (612,977)
Withdrawals, surrenders, annuitizations and
contract charges............................... (80,050) (10) (3,669) (28,796) (2,776)
------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets from contract
owner transactions............................... $ 1,726,784 $ 245,181 $ 166,114 $ 293,298 ($ (2,999)
------------- ------------- ------------- ------------- -------------
Increase in net assets........................... $ 2,291,525 $ 246,710 $ 167,436 $ 325,400 $ 5,585
NET ASSETS:
Beginning of year.................................. 246,710 -- -- 105,701 100,116
------------- ------------- ------------- ------------- -------------
End of year........................................ $ 2,538,235 $ 246,710 $ 167,436 $ 431,101 $ 105,701
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FCN FIP NLM
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ---------------------------- ------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------- --------------- ------------- ------------- ------------- ---------------
1998 1997 1998 1997 1998 1997
------------- --------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income............... $ 382 $ -- $ 48,449 $ -- $ 167 $ --
Net realized gains.................. 1,167 8 111,953 2,026 506 1
Net unrealized gains................ 97,064 608 595,373 102,937 399 90
------------- ------ ------------- ------------- ------------- ------
Increase in net assets from
operations.................... $ 98,613 $ 616 $ 755,775 $ 104,963 $ 1,072 $ 91
------------- ------ ------------- ------------- ------------- ------
CONTRACT OWNER TRANSACTIONS:
Purchase payments received........ $ 153,403 $ 6,022 $ 2,846,625 $ 897,270 $ 26,898 $ 2,617
Net transfers between
Sub-Accounts.................... 268,273 -- 320,272 -- 2,696 --
Withdrawals, surrenders,
annuitizations and contract
charges......................... (7,846) (119) (524,138) (24,225) (1,541) (52)
------------- ------ ------------- ------------- ------------- ------
Increase in net assets from contract
owner transactions................ $ 413,830 $ 5,903 $ 2,642,759 $ 873,045 $ 28,053 $ 2,565
------------- ------ ------------- ------------- ------------- ------
Increase in net assets............ $ 512,443 $ 6,519 $ 3,398,534 $ 978,008 $ 29,125 $ 2,656
NET ASSETS:
Beginning of year................... 6,519 -- 978,008 -- 2,656 --
------------- ------ ------------- ------------- ------------- ------
End of year......................... $ 518,962 $ 6,519 $ 4,376,542 $ 978,008 $ 31,781 $ 2,656
------------- ------ ------------- ------------- ------------- ------
------------- ------ ------------- ------------- ------------- ------
</TABLE>
** For the period February 11, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
See notes to financial statements
50 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE (U.S.) VARIABLE ACCOUNT G
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
NPP JBP JEP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ---------------------------- -------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------- ------------- ------------- ------------- -------------
1998 1997 1998 1997 1998**
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $ 97,246 $ -- $ 32,711 $ 1,837 $ 19,117
Net realized gains (losses)........................ (40,762) -- 7,002 44 13,026
Net unrealized gains (losses)...................... (49,692) 960 6,645 (95) 4,990
------------- ------------- ------------- ------------- -------------
Increase in net assets from operations......... $ 6,792 $ 960 $ 46,358 $ 1,786 $ 37,133
------------- ------------- ------------- ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Purchase payments received....................... $ 829,194 $ -- $ 971,373 $ 68,356 $ 267,400
Net transfers between Sub-Accounts............... 80,931 122,595 42,894 30,649 (92,224)
Withdrawals, surrenders, annuitizations and
contract charges............................... (40,375) (5) (366,856) (1,577) (8,367)
------------- ------------- ------------- ------------- -------------
Increase in net assets from contract owner
transactions..................................... $ 869,750 $ 122,590 $ 647,411 $ 97,428 $ 166,809
------------- ------------- ------------- ------------- -------------
Increase in net assets........................... $ 876,542 $ 123,550 $ 693,769 $ 99,214 $ 203,942
NET ASSETS:
Beginning of year.................................. 123,550 -- 99,214 -- --
------------- ------------- ------------- ------------- -------------
End of year........................................ $ 1,000,092 $ 123,550 $ 792,983 $ 99,214 $ 203,942
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
JSC TSF
SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------- ------------- ------------- ------------- -------------
1998** 1998 1997 1998 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.............................. $ 12,274 $ 22,221 $ -- $ 420,891 $ 10,421
Net realized gains (losses)........................ (28,111) (24,809) (2) 40,679 2,400
Net unrealized gains (losses)...................... (11,212) (21,918) (766) 1,313,982 118,054
------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets from
operations................................... $ (27,049) $ (24,506) $ (768) $ 1,775,552 $ 130,875
------------- ------------- ------------- ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Purchase payments received....................... $ 281,469 $ 257,817 $ 19,632 $12,044,942 $ 1,824,055
Net transfers between Sub-Accounts............... 87,065 189,442 61,298 (28,200) --
Withdrawals, surrenders, annuitizations and
contract charges............................... (14,937) (17,017) (337) (1,246,364) (34,575)
------------- ------------- ------------- ------------- -------------
Increase in net assets from contract owner
transactions..................................... $ 353,597 $ 430,242 $ 80,593 $10,770,378 $ 1,789,480
------------- ------------- ------------- ------------- -------------
Increase in net assets........................... $ 326,548 $ 405,736 $ 79,825 $12,545,930 $ 1,920,355
NET ASSETS:
Beginning of year.................................. -- 79,825 -- 2,020,471 100,116
------------- ------------- ------------- ------------- -------------
End of year........................................ $ 326,548 $ 485,561 $ 79,825 $14,566,401 $ 2,020,471
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
** For the period February 11, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
See notes to financial statements
51 SUN LIFE CORPORATE VUL-SM-
<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,
Dreyfus Variable Investment Fund, T. Rowe Price Equity Series, Inc. 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 taxable, and
therefore, no provision has been made for federal income taxes.
(3) CONTRACT CHARGES
The Sponsor deducts expense charges applied to premium consisting of the premium
tax, the federal 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 charge 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.
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
52 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
NOTES TO FINANCIAL STATEMENTSCONTINUED
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. Through October of 1998, the
daily deduction was .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 year eleven and beyond. The
daily deduction is currently .0016389% (which is equivalent to an annual rate of
.60%) for policies in their first ten policy years, .0005474% (which is
equivalent to an annual rate of .20%) for the next ten policy years and
.0002738% (which is equivalent to an annual rate of .10%) for policies in policy
years twenty-one and beyond.
53 SUN LIFE CORPORATE VUL-SM-
<PAGE>
SUN LIFE (U.S.) VARIABLE ACCOUNT G
NOTES TO FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
UNITS WITHDRAWN,
UNITS TRANSFERRED SURRENDERED AND UNITS
BETWEEN ANNUITIZED AND OUTSTANDING
UNITS OUTSTANDING SUB-ACCOUNTS CANCELED FOR END OF
BEGINNING OF YEAR UNITS PURCHASED AND FIXED ACCOUNT CONTRACT CHARGES YEAR
------------------ ------------------ ----------------- ----------------- ---------
YEAR PERIOD YEAR PERIOD YEAR PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
-------- -------- --------- -------- -------- -------- -------- -------- ---------
SUB-ACCOUNTS 1998 1997 1998 1997 1998 1997 1998 1997 1998
- ------------------------------------------ -------- -------- --------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAS....................................... -- -- 6,564 -- 4,445 -- (349) -- 10,660
EGS....................................... 257 -- 1,599 262 1,067 -- (85) (5) 2,838
GSS....................................... 14,789 -- 14,555 262 -- 14,533 (702) (6) 28,642
TRS....................................... -- -- 69,056 -- (10,148) -- (2,971) -- 55,937
WGO....................................... 19,525 -- 46,090 20,007 1,282 -- (2,395) (482) 64,502
FEI....................................... 1,182 -- 155,915 1,204 (6,554) -- (6,803) (22) 143,740
FGP....................................... 24,099 -- 137,491 -- 22,870 24,100 (6,712) (1) 177,748
FHI....................................... -- -- 7,374 -- 9,430 -- (347) -- 16,457
FMM....................................... 10,000 10,000 141,043 58,312 (109,762) (58,312) (2,589) -- 38,692
FCN....................................... 591 -- 9,406 602 26,828 -- (623) (11) 36,202
FIP....................................... 84,660 -- 225,497 86,851 24,933 -- (39,865) (2,191) 295,225
NLM....................................... 257 -- 2,523 262 305 -- (144) (5) 2,941
NPP....................................... 11,653 -- 76,494 -- 6,112 11,654 (3,740) (1) 90,519
JBP....................................... 9,348 -- 89,677 6,603 3,925 2,896 (33,770) (151) 69,180
JEP....................................... -- -- 24,048 -- (7,212) -- (657) -- 16,179
JSC....................................... -- -- 27,699 -- 5,298 -- (1,341) -- 31,656
TSF....................................... 8,289 -- 27,080 1,963 16,159 6,360 (1,734) (34) 49,794
<CAPTION>
PERIOD
ENDED
DEC. 31,
-----------
SUB-ACCOUNTS 1997
- ------------------------------------------ -----------
<S> <C>
CAS....................................... --
EGS....................................... 257
GSS....................................... 14,789
TRS....................................... --
WGO....................................... 19,525
FEI....................................... 1,182
FGP....................................... 24,099
FHI....................................... --
FMM....................................... 10,000
FCN....................................... 591
FIP....................................... 84,660
NLM....................................... 257
NPP....................................... 11,653
JBP....................................... 9,348
JEP....................................... --
JSC....................................... --
TSF....................................... 8,289
</TABLE>
54 SUN LIFE CORPORATE VUL-SM-
<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 Capital Appreciation
Sub-Account, Emerging Growth Sub-Account, Government Securities Sub-Account,
Total Return Sub-Account, World Growth Sub-Account, Equity Income Sub-Account,
Growth Sub-Account, High Income Sub-Account, Money Market Sub-Account,
Contrafund Sub-Account, Index 500 Sub-Account, Limited Maturity Bond
Sub-Account, Partners Sub-Account, Bond Sub-Account, Equity Sub-Account, Small
Company Sub-Account, and Templeton Stock Fund Sub-Account of Sun Life of Canada
(U.S.) Variable Account G (the "Sub-Accounts") as of December 31, 1998, the
related statement of operations for the year then ended and the statements of
changes in net assets for the years ended December 31, 1998 and 1997. 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, 1998 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 the Sub-Accounts at December 31, 1998, the
results of their operations and the changes in their net assets for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 1999
55 SUN LIFE CORPORATE VUL-SM-
<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, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,763,468 $ 1,910,699
Common stocks 128,445 117,229
Mortgage loans on real estate 535,003 684,035
Properties acquired in satisfaction of debt 17,207 22,475
Investment real estate 78,021 78,426
Policy loans 41,944 40,348
Cash and short-term investments 265,226 544,418
Other invested assets 64,177 55,716
Life insurance premiums and annuity considerations due and uncollected -- 9,203
Investment income due and accrued 35,706 39,279
Federal income tax recoverable and interest thereon 1,110 --
Receivable from parent, subsidiaries and affiliates -- 27,136
Funds withheld on reinsurance assumed -- 982,653
Other assets 1,928 1,842
------------- -------------
General account assets 2,932,235 4,513,459
Separate account assets:
Unitized 11,774,745 9,068,021
Non-unitized 2,195,641 2,343,877
------------- -------------
Total Admitted Assets $ 16,902,621 $ 15,925,357
------------- -------------
------------- -------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,216,107 $ 2,188,243
Supplementary contracts 1,885 2,247
Policy and contract claims 369 2,460
Provision for policyholders' dividends and coupons payable -- 32,500
Liability for premium and other deposit funds 1,000,875 1,450,705
Surrender values on cancelled policies 5 215
Interest maintenance reserve 40,490 33,830
Commissions to agents due or accrued 2,615 2,826
General expenses due or accrued 5,932 6,238
Transfers from Separate Accounts due or accrued (361,863) (284,078)
Taxes, licenses and fees due or accrued, excluding FIT 401 105
Federal income taxes due or accrued 25,019 56,384
Unearned investment income 23 34
Amounts withheld or retained by company as agent or trustee 529 47
Remittances and items not allocated 5,176 1,363
Borrowed money -- 110,142
Asset valuation reserve 44,392 47,605
Payable to parent, subsidiaries, and affiliates 30,381 --
Payable for securities 428 27,104
Other liabilities 9,770 2,924
------------- -------------
General account liabilities 2,022,534 3,680,894
Separate account liabilities:
Unitized 11,774,522 9,067,891
Non-unitized 2,195,641 2,343,877
------------- -------------
Total liabilities 15,992,697 15,092,662
------------- -------------
CAPITAL STOCK AND SURPLUS
Common capital stock 5,900 5,900
------------- -------------
Surplus notes 565,000 565,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 139,669 62,440
------------- -------------
Surplus 904,024 826,795
------------- -------------
Total common capital stock and surplus 909,924 832,695
------------- -------------
Total Liabilities, Capital Stock and Surplus $ 16,902,621 $ 15,925,357
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
56 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 210,198 $ 254,066 $ 266,942
Deposit-type funds 2,140,604 2,155,297 1,775,230
Considerations for supplementary
contracts without life
contingencies and dividend
accumulations 2,086 1,615 2,340
Net investment income 184,532 270,249 303,753
Amortization of interest maintenance
reserve 2,282 1,166 1,557
Income from fees associated with
investment management and
administration and contract
guarantees from Separate Account 141,211 109,757 83,278
Net gain from operations from
Separate Account -- 5 --
Other income 87,364 102,889 87,532
---------- ---------- ----------
Total 2,768,277 2,895,044 2,520,632
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 15,335 17,284 12,394
Annuity benefits 153,636 148,135 146,654
Disability benefits and benefits
under accident and health policies 104 132 105
Surrender benefits and other fund
withdrawals 1,933,833 1,854,004 1,507,263
Interest on policy or contract funds (140) 699 2,205
Payments on supplementary contracts
without life contingencies and
dividend accumulations 2,528 1,687 2,120
Increase (decrease) in aggregate
reserves for life and accident and
health policies and contracts (972,135) 127,278 162,678
Decrease in liability for premium
and other deposit funds (449,831) (447,603) (392,348)
Increase (decrease) in reserve for
supplementary contracts without
life contingencies and for
dividend and coupon accumulations (362) 42 327
---------- ---------- ----------
Total 682,968 1,701,658 1,441,398
Commissions on premiums and annuity
considerations (direct business
only) 137,718 132,700 109,894
Commissions and expense allowances
on reinsurance assumed 13,032 17,951 18,910
General insurance expenses 58,132 46,624 37,206
Insurance taxes, licenses and fees,
excluding federal income taxes 7,388 8,267 8,431
Increase (decrease) in loading on
and cost of collection in excess
of loading on deferred and
uncollected premiums (1,663) 523 901
Net transfers to Separate Accounts 722,851 844,130 761,941
Reserve and fund adjustments on
reinsurance terminated 1,017,112 -- --
---------- ---------- ----------
Total 2,637,538 2,751,853 2,378,681
---------- ---------- ----------
Net gain from operations before
dividends to policyholders and
Federal Income Taxes 130,739 143,191 141,951
Dividends to policyholders (5,981) 33,316 29,189
---------- ---------- ----------
Net gain from operations after
dividends to policyholders and
before Federal Income Taxes 136,720 109,875 112,762
Federal income tax expense
(benefit), (excluding tax on
capital gains) 11,713 7,339 (5,400)
---------- ---------- ----------
Net gain from operations after
dividends to policyholders and
federal income taxes and before
realized capital gains 125,007 102,536 118,162
Net realized capital gains less
capital gains tax and transferred
to the IMR 394 26,706 4,862
---------- ---------- ----------
NET INCOME $ 125,401 $ 129,242 $ 123,024
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
57 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Capital and surplus, Beginning of year $ 832,695 $ 567,143 $ 792,452
---------- ----------- -----------
Net income 125,401 129,242 123,024
Change in net unrealized capital gains (losses) (384) 1,152 (1,715)
Change in non-admitted assets and related items (1,086) (463) 67
Change in reserve on account of change in valuation basis -- 39,016 --
Change in asset valuation reserve 3,213 6,307 (11,812)
Surplus (contributed to) withdrawn from Separate Accounts
during period 82 -- 100
Other changes in surplus in Separate Accounts Statements 10 -- --
Change in surplus notes -- 250,000 (335,000)
Dividends to stockholders (50,000) (159,722) --
Aggregate write-ins for gains and losses in surplus (7) 20 27
---------- ----------- -----------
Net change in capital and surplus for the year 77,229 265,552 (225,309)
---------- ----------- -----------
Capital and surplus, End of year $ 909,924 $ 832,695 $ 567,143
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
58 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash Provided by Operations:
Premiums, annuity considerations and
deposit funds received $ 2,361,669 $ 2,410,919 $ 2,059,577
Considerations for supplementary
contracts and dividend accumulations
received 2,086 1,615 2,340
Net investment income received 236,944 345,279 324,914
Other income received 253,147 208,223 88,295
----------- ----------- -----------
Total receipts 2,853,846 2,966,036 2,475,126
----------- ----------- -----------
Benefits paid (other than dividends) 2,107,736 2,020,747 1,671,483
Insurance expenses and taxes paid (other
than federal income and capital gains
taxes) 217,023 203,650 172,015
Net cash transferred to Separate
Accounts 800,636 895,465 755,605
Dividends paid to policyholders 26,519 28,316 22,689
Federal income tax payments
(recoveries),(excluding tax on capital
gains) 46,965 1,397 (15,363)
Other--net (138) 698 2,205
----------- ----------- -----------
Total payments 3,198,741 3,150,273 2,608,634
----------- ----------- -----------
Net cash used in operations (344,895) (184,237) (133,508)
----------- ----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$2,038 for 1998, $750 for 1997 and
$1,555 for 1996) 1,261,396 1,343,803 1,768,147
Issuance (repayment) of surplus notes -- 250,000 (335,000)
Other cash provided (used) (40,529) 71,095 147,956
----------- ----------- -----------
Total cash provided 1,220,867 1,664,898 1,581,103
----------- ----------- -----------
Cash Applied:
Cost of long-term investments acquired (967,901) (773,783) (1,318,880)
Other cash applied (187,263) (310,519) (177,982)
----------- ----------- -----------
Total cash applied (1,155,164) (1,084,302) (1,496,862)
Net change in cash and short-term
investments (279,192) 396,359 (49,267)
Cash and short-term investments:
Beginning of year 544,418 148,059 197,326
----------- ----------- -----------
End of year $ 265,226 $ 544,418 $ 148,059
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
59 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Sun Life Assurance Company of Canada (U.S.) (the "Company") is incorporated as a
life insurance company and is currently engaged in the sale of individual
variable life insurance, individual fixed and variable annuities, group fixed
and variable annuities and group pension contracts.
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 Sun Life Assurance Company of Canada
("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
20 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
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 mortgage backed securities are generally carried at
amortized cost. Changes in prepayment assumptions and resulting cash flows are
evaluated periodically. The adjusted yield is used to calculate investment
income in future periods. If current book value exceeds future undiscounted cash
flows, a realized capital loss is recorded and amortized through IMR.
60 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
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.
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 as determined
by quoted market prices of the underlying investments.
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 $361,863,000 in 1998 and
$284,078,000 in 1997.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
As described more fully in Note 10, during 1997 the Company changed certain
assumptions used in determining actuarial reserves.
61 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the state of Delaware will require adoption of Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
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"), Sun Life Finance
Corporation ("Sunfinco"), Sun Life of Canada (U.S.) SPE 97-1, Inc. ("SPE 97-1"),
Clarendon Insurance Agency, Inc. ("Clarendon") and Sun Life Information Services
Ireland Ltd. ("SLISL").
On February 5, 1999, the Company finalized the sale of MCIC, a disability
insurance company which issues primarily individual disability income policies,
to Centre Solutions (U.S.) Limited, a wholly-owned subsidiary of Centre
Reinsurance Holdings Limited for approximately $34 million. The impact of this
sale to the ongoing operations of the Company is not expected to be material.
On September 28, 1998, the Company formed SLISL as an offshore technology center
for the purpose of completing systems projects for affiliates.
On October 30, 1997, the Company established a wholly-owned special purpose
corporation, SPE 97-1, for the purpose of engaging in activities incidental to
securitizing mortgage loans.
On December 31, 1997, the Company purchased from Massachusetts Financial
Services ("MFS") all of the outstanding shares of Clarendon, a registered
broker-dealer that acts as the general distributor of certain annuity and life
insurance contracts issued by the Company and its affiliates.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
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
62 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
$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.
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.
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 Sun Life Assurance Company of Canada (Bermuda), an affiliate.
Sun Capital is a registered investment adviser.
Sunfinco and Sunbesco are currently inactive.
On September 28, 1998 a $500,000 note was issued by SLISL to the Company at a
rate of 6.0%, maturing on September 28, 2002.
A $110,000,000 note was issued to the Company by MFS on February 11, 1998 at an
interest rate of 6.0% due February 11, 1999. Another $110,000,000 note was
issued to the Company by MFS on December 22, 1998 at an interest rate of 5.55%
due February 11, 1999.
On December 23, 1997, the Company issued a $110,000,000 note to US Holdco at an
interest rate of 5.80%, which was repaid on March 1, 1998. A $110,000,000 note
was also issued to the Company by MFS on December 23, 1997 at an interest rate
of 5.85% and was repaid on February 11, 1998.
On December 31, 1996, the Company issued a $58,000,000 note to SLOC at an
interest rate of 5.70% which was repaid on February 10, 1997. 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, 1998, 1997 and 1996, the Company had an additional $20,000,000 in notes
issued by MFS, scheduled to mature in 2000.
63 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
During 1998, 1997, and 1996, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
MCIC -- $ 2,000 $ 10,000
SLFSL $ 750 1,000 1,500
SPE 97-1 -- 20,377 --
Sundisco 10,000 -- --
Sun Capital 500 -- --
Clarendon 10 -- --
SLISL 502 -- --
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1998, 1997 and 1996 and for the years then ended, follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Intangible assets $ -- $ -- $ 9,646
Other assets 1,315,317 1,190,951 1,376,014
Liabilities (1,186,872) (1,073,966) (1,241,617)
------------- ------------- -------------
Total net assets $ 128,445 $ 116,985 $ 144,043
------------- ------------- -------------
------------- ------------- -------------
Total revenues $ 222,853 $ 750,364 $ 717,280
Operating expenses (221,933) (646,896) (624,199)
Income tax expense (1,222) (43,987) (42,820)
------------- ------------- -------------
Net income (loss) $ (302) $ 59,481 $ 50,261
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
On December 24, 1997, the Company transferred all of its shares of MFS to its
parent, Life Holdco.
64 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
3. BONDS
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government agencies and
authorities $ 140,417 $ 7,635 $ (177) $ 147,875
States, provinces and political subdivisions 16,632 2,219 -- 18,851
Public utilities 397,670 38,740 (238) 436,172
Transportation 197,207 22,481 (18) 219,670
Finance 144,958 12,542 (494) 157,006
All other corporate bonds 866,584 50,814 (6,419) 910,979
------------ ----------- ----------- ------------
Total long-term bonds 1,763,468 134,431 (7,346) 1,890,553
------------ ----------- ----------- ------------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and commercial
paper 43,400 -- -- 43,400
Affiliates 220,000 -- -- 220,000
------------ ----------- ----------- ------------
Total short-term bonds 263,400 -- -- 263,400
------------ ----------- ----------- ------------
Total bonds $ 2,026,868 $ 134,431 $ (7,346) $ 2,153,953
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
65 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
3. BONDS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ----------- ------------
(IN THOUSANDS)
<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>
The amortized cost and estimated fair value of bonds at December 31, 1998 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, 1998
--------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Maturities:
Due in one year or less $ 459,631 $ 460,787
Due after one year through five years 329,625 336,516
Due after five years through ten years 264,372 283,840
Due after ten years 703,341 781,253
------------ ------------
1,756,969 1,862,396
Mortgage-backed securities 269,899 291,557
------------ ------------
Total bonds $ 2,026,868 $ 2,153,953
------------ ------------
------------ ------------
</TABLE>
66 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
3. BONDS (CONTINUED):
Proceeds from sales and maturities of investments in debt securities during
1998, 1997, and 1996 were $1,016,811,000, $980,264,000, and $1,554,016,000,
gross gains were $17,025,000, $10,732,000, and $16,975,000 and gross losses were
$866,000, $2,446,000, and $10,885,000, respectively.
Bonds included above with an amortized cost of approximately $2,572,000,
$2,578,000 and $2,060,000 at December 31, 1998, 1997 and 1996, respectively,
were on deposit with governmental authorities as required by law.
Excluding investments in U.S. government and agencies securities, the Company is
not exposed to significant concentration of credit risk in its portfolio.
4. SECURITIES LENDING
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan Bank of New York. The custodian has
indemnified the Company against losses arising from this program. There were no
securities out on loan as of December 31, 1998 and 1997. Income resulting from
this program was $94,000, $200,000 and $137,000 for the years ended December 31,
1998, 1997 and 1996, 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,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
California $ 82,397 $ 119,122
Massachusetts 53,528 58,981
Michigan 34,357 42,912
New York 21,190 45,696
Ohio 36,171 51,862
Pennsylvania 93,587 97,949
Washington 36,548 54,948
All other 177,225 212,565
---------- ----------
$ 535,003 $ 684,035
---------- ----------
---------- ----------
</TABLE>
The Company has restructured mortgage loans totaling $30,743,000 and $26,284,000
at December 31, 1998 and 1997, respectively, against which there are allowances
for losses of $2,120,000 and $3,026,000, respectively.
67 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
5. MORTGAGE LOANS (CONTINUED):
The Company has made commitments of mortgage loans on real estate into the
future.The outstanding commitments for these mortgages amount to $18,005,000 and
$12,300,000 at December 31, 1998 and 1997, respectively.
6. INVESTMENT GAINS AND LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net realized gains (losses):
Bonds $ 5,659 $ 2,882 $ 5,631
Common stock of affiliates -- 21,195 --
Common stocks 48
Mortgage loans 2,374 3,837 763
Real estate 955 2,912 599
Other invested assets (3,827) (717) 567
---------- ---------- ---------
Subtotal 5,209 30,109 7,560
Capital gains tax expense 4,815 3,403 2,698
---------- ---------- ---------
Total $ 394 $ 26,706 $ 4,862
---------- ---------- ---------
---------- ---------- ---------
Changes in unrealized gains (losses):
Common stock of affiliates $ (302) $ (2,894) $ (5,739)
Mortgage loans (1,312) 1,524 (600)
Real estate 403 3,377 4,624
Other invested assets 827 (855) --
---------- ---------- ---------
Total $ (384) $ 1,152 $ (1,715)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Realized capital gains and losses on bonds and mortgages and interest rate swaps
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 $8,943,000 in 1998, $6,321,000
in 1997, and $7,710,000 in 1996. All gains and losses are transferred net of
applicable income taxes.
68 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
7. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income from bonds $ 167,436 $ 188,924 $ 178,695
Income from investment in common stock of affiliates 3,675 41,181 50,408
Interest income from mortgage loans 53,269 76,073 92,591
Real estate investment income 15,932 17,161 16,249
Interest income from policy loans 2,881 3,582 2,790
Other investment income (loss) (641) (193) 1,710
---------- ---------- ----------
Gross investment income 242,552 326,728 342,443
---------- ---------- ----------
Interest on surplus notes and notes payable (44,903) (42,481) (23,061)
Investment expenses (13,117) (13,998) (15,629)
---------- ---------- ----------
Net investment income $ 184,532 $ 270,249 $ 303,753
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
8. DERIVATIVES
The Company uses derivative instruments for interest rate 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 or losses to specific hedged
assets or liabilities, gains or losses are deferred in IMR and amortized over
the remaining life of the hedged assets. At December 31, 1998 and 1997 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 the IMR and amortized over the shorter of the remaining life of
the hedged asset sold 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.
69 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
8. DERIVATIVES (CONTINUED):
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, 1998
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $ 45,000 $ 508
Foreign currency swap 1,178 263
</TABLE>
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1997
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN THOUSANDS)
<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 75,000 693
</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 nonperformance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
9. LEVERAGED LEASES
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994, under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of the purchase price
was furnished by third-party long-term debt financing, collateralized by the
equipment and non-recourse to the Company. At the end of the lease term, the
Master Lessee may exercise a fixed price purchase option to purchase the
equipment.
70 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
9. LEVERAGED LEASES (CONTINUED):
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Lease contracts receivable $ 78,937 $ 92,605
Less non-recourse debt (78,920) (92,589)
---------- ----------
17 16
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (8,932) (10,324)
---------- ----------
Investment in leveraged leases 32,235 30,842
Less fees (138) (163)
---------- ----------
Net investment in leveraged leases $ 32,097 $ 30,679
---------- ----------
---------- ----------
</TABLE>
The net investment is included in "other invested assets" on the balance sheet.
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 $2,128,000, $1,381,000 and $1,603,000
for the years ended December 31, 1998, 1997 and 1996, 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, the agreement required SLOC to reinsure
the mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company. Such death benefits are reinsured on
a yearly renewable term basis. The life reinsurance assumed agreement required
the reinsurer to withhold funds in amounts equal to the reserves assumed. These
agreements had the effect of increasing income from operations by approximately
$24,579,000, $37,050,000 and $35,161,000 for the years ended December 31, 1998,
1997 and 1996, respectively. The Company terminated this agreement effective
October 1, 1998, resulting in an increase in income from operations of
$65,679,000 which included a cash settlement.
71 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
10. REINSURANCE (CONTINUED):
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1998, 1997 and 1996 before the effect of
reinsurance transactions with SLOC:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $ 2,377,364 $ 2,340,733 $ 1,941,423
Net investment income and realized gains 187,208 298,120 310,172
------------ ------------ ------------
Subtotal 2,564,572 2,638,853 2,251,595
------------ ------------ ------------
Benefits and Expenses:
Policyholder benefits 2,312,247 2,350,354 2,011,998
Other expenses 203,238 187,591 155,531
------------ ------------ ------------
Subtotal 2,515,485 2,537,945 2,167,529
------------ ------------ ------------
Income from operations $ 49,087 $ 100,908 $ 84,066
------------ ------------ ------------
------------ ------------ ------------
</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 increasing income from operations by $3,008,000 in 1998, and
decreasing income from operations by $2,658,000 in 1997 and $46,000 in 1996.
72 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
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, 1998
----------------------------
AMOUNT % OF TOTAL
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,896,529 19
At book value less surrender charges (surrender charge >5%) 10,227,212 66
At book value (minimal or no charge or adjustment) 1,264,453 8
Not subject to discretionary withdrawal provision 1,106,197 7
------------- ---
Total annuity actuarial reserves and deposit liabilities $ 15,494,391 100
------------- ---
------------- ---
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
AMOUNT % OF TOTAL
------------- -------------
(IN THOUSANDS)
<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>
12. SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, retirement plan services and life insurance on an individual basis.
Within these areas, the Company conducts business principally in two operating
segments and maintains a corporate segment to provide for the capital needs of
the various operating segments and to engage in other financing related
activities.
The Individual Insurance segment markets and administers a variety of life
insurance products sold to individuals and corporate owners of individual life
insurance. The products include whole life, universal life and variable life
products.
The Retirement Products and Services ("RPS") segment markets and administers
individual and group variable annuity products, individual and group fixed
annuity products which include market value adjusted annuities, and other
retirement benefit products.
73 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
12. SEGMENT INFORMATION (CONTINUED):
The following amounts pertain to the various business segments:
<TABLE>
<CAPTION>
FEDERAL
TOTAL TOTAL PRETAX INCOME TOTAL
(IN THOUSANDS) REVENUES EXPENDITURES* INCOME TAXES ASSETS
- ----------------------------------------------------- ------------ ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1998
Individual Insurance $ 229,710 $ 144,800 $ 84,910 $ (4,148) $ 199,683
RPS 2,527,608 2,483,715 43,893 12,486 16,123,905
Corporate 10,959 3,042 7,917 3,375 579,033
------------ ------------- ---------- ---------- -------------
Total $ 2,768,277 $ 2,631,557 $ 136,720 $ 11,713 $ 16,902,621
------------ ------------- ---------- ---------- -------------
1997
Individual Insurance 304,141 272,333 31,808 13,825 1,143,697
RPS 2,533,006 2,507,591 25,414 10,667 14,043,221
Corporate 57,897 5,244 52,653 (17,153) 738,439
------------ ------------- ---------- ---------- -------------
Total $ 2,895,044 $ 2,785,169 $ 109,875 $ 7,339 $ 15,925,357
------------ ------------- ---------- ---------- -------------
1996
Individual Insurance 281,309 255,846 25,463 13,931 817,115
RPS 2,174,602 2,151,126 23,476 1,203 12,057,572
Corporate 64,721 898 63,823 (20,534) 689,266
------------ ------------- ---------- ---------- -------------
Total $ 2,520,632 $ 2,407,870 $ 112,762 $ (5,400) $ 13,563,953
------------ ------------- ---------- ---------- -------------
</TABLE>
- ------------------------
* Total expenditures include dividends to policyholders of $(5,981) for 1998,
$33,316 for 1997 and $29,189 for 1996.
13. RETIREMENT PLANS
The Company participates with SLOC in a noncontributory 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 was $1,178,000 and
$593,000 at December 31, 1998 and 1997, respectively. The Company's share of net
periodic pension cost was $586,000, $146,000 and $27,000, for 1998, 1997 and
1996, 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 $231,000, $259,000 and $233,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
74 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
13. RETIREMENT PLANS (CONTINUED):
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions." SFAS No. 106 requires an accrual of the estimated cost of
retiree benefit payments during the years the employee provides services. SFAS
No. 106 allows recognition of the cumulative effect of the liability in the year
of adoption or the amortization of the obligation over a period of up to 20
years. The obligation of approximately $455,000 is recognized over a period of
ten years. The Company's cash flows are not affected by implementation of this
standard, but implementation decreased net income by $95,000, $117,000, and
$8,000 for the years ended December 31, 1998, 1997, and 1996, respectively. The
Company's post retirement health, dental and life insurance benefits currently
are not funded.
75 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
13. RETIREMENT PLANS (CONTINUED):
OTHER POST-RETIREMENT BENEFIT PLANS CONTINUED
The following table sets forth the change in the pension and other
postretirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's financial
statements at December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1998 1997 1998 1997
---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 79,684 $ 70,848 $ 9,845 $ 9,899
Service cost 4,506 4,251 240 306
Interest cost 6,452 5,266 673 725
Amendments -- 1,000 -- --
Actuarial loss (gain) 21,975 -- 308 (801)
Benefits paid (1,825) (1,681) (647) (284)
---------- ---------- ---------- ---------
Benefit obligation at end of year $ 110,792 $ 79,684 $ 10,419 $ 9,845
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
The Company's share:
Benefit obligation at beginning of year $ 5,094 $ 4,529 $ 385 $ 384
Benefit obligation at end of year $ 9,125 $ 5,094 $ 416 $ 385
Change in plan assets:
Fair value of plan assets at beginning of year $ 136,610 $ 122,807 $ -- $ --
Actual return on plan assets 16,790 15,484 -- --
Employer contribution -- -- 647 284
Benefits paid (1,825) (1,681) (647) (284)
---------- ---------- ---------- ---------
Fair value of plan assets at end of year $ 151,575 $ 136,610 $ -- $ --
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Funded status $ 40,783 $ 56,926 $ (10,419) $ (9,845)
Unrecognized net actuarial gain (loss) (2,113) (18,147) 586 257
Unrecognized transition obligation (asset) (24,674) (26,730) 185 230
Unrecognized prior service cost 7,661 8,241 -- --
---------- ---------- ---------- ---------
Prepaid (accrued) benefit cost $ 21,657 $ 20,290 $ (9,648) $ (9,358)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
The Company's share of accrued benefit cost $ (1,178) $ (593) $ (195) $ (102)
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.50% 6.75% 7.50%
Expected return on plan assets 8.00% 7.50% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
</TABLE>
76 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
13. RETIREMENT PLANS (CONTINUED):
For measurement purposes, a 10.1% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998 (5.7% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
<TABLE>
<CAPTION>
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 4,506 $ 4,251 $ 240 $ 306
Interest cost 6,452 5,266 673 725
Expected return on plan assets (10,172) (9,163) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 517 -- --
Recognized net actuarial (gain) loss (677) (789) (20) 71
---------- --------- --------- ---------
Net periodic benefit cost $ (1,367) $ (1,974) $ 938 $ 1,147
---------- --------- --------- ---------
---------- --------- --------- ---------
The Company's share of net periodic benefit cost $ 586 $ 146 $ 95 $ 117
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components $ 210 $ (170)
Effect on postretirement benefit obligation 2,026 (1,697)
</TABLE>
77 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds $ 2,026,868 $ 2,153,953
Mortgages 535,003 556,143
Derivatives -- 771
LIABILITIES:
Insurance reserves $ 121,100 $ 121,100
Individual annuities 274,448 271,849
Pension products 1,104,489 1,145,351
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds $ 2,451,731 $ 2,569,199
Mortgages 684,035 706,975
LIABILITIES:
Insurance reserves $ 123,128 $ 123,128
Individual annuities 307,668 302,165
Pension products 1,527,433 1,561,108
Derivatives -- (1,716)
</TABLE>
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.
78 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
15. STATUTORY INVESTMENT VALUATION RESERVES
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest 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 table shown below presents changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
-------------------- --------------------
AVR IMR AVR IMR
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of year $ 47,605 $ 33,830 $ 53,911 $ 28,675
Net realized investment gains, net of tax 256 8,942 17,400 6,321
Amortization of net investment gains -- (2,282) -- (1,166)
Unrealized investment losses (6,550) -- (2,340) --
Required by formula 3,081 -- (21,366) --
--------- --------- --------- ---------
Balance, end of year $ 44,392 $ 40,490 $ 47,605 $ 33,830
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
16. FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $48,144,000, $31,000,000 and
$19,264,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company is currently undergoing an audit by the Internal Revenue Service.
The Company believes that there will be no material audit adjustments for the
periods under examination.
17. 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.
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
semiannually.
79 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
17. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED):
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.
The Company accrued $4,259,000 and $ 964,000 for interest on surplus notes for
the years ended December 31, 1998 and 1997, respectively.
The Company accrued $4,259,000 and $964,000 for interest on surplus notes for
the years ended December 31, 1998 and 1997, respectively.
The Company expensed $44,903,000, $42,481,000 and $23,061,000 for interest on
surplus notes and notes payable for the years ended December 31, 1998, 1997 and
1996, respectively.
18. TRANSACTIONS WITH AFFILIATES
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 $16,344,000 in 1998, $15,997,000 in 1997, and $20,192,000 in 1996.
The Company leases office space to SLOC under lease agreements with terms
expiring in September, 1999 and options to extend the terms for each of thirteen
successive five-year terms at fair market rental not to exceed 125% of the fixed
rent for the term which is ending. Rent received by the Company under the leases
for 1998 amounted to approximately $6,856,000.
19. 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,
1998, 1997 and 1996.
20. 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
80 SUN LIFE CORPORATE VUL-SM-
<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, 1998, 1997 AND 1996
20. ACCOUNTING POLICIES AND PRINCIPLES (CONTINUED):
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 nonadmitted assets. Asset
Valuation Reserves and Interest Maintenance Reserves are established under
statutory accounting practices but not under GAAP. Methods for calculating real
estate depreciation and investment valuation allowances differ under statutory
accounting practices and GAAP. Actuarial assumptions and reserving methods
differ under statutory accounting practices and GAAP. Premiums for universal
life and investment-type products are recognized as income for statutory
purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting principles generally accepted in Canada in the normal
course of business, the management of Sun Life Assurance Company of Canada
(U.S.) has determined that the cost of complying with Statement No. 120,
"Accounting and Reporting by Mutual Insurance Enterprises and by Insurance
Enterprises for Certain Long Duration Participating Contracts", exceeds 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.
81 SUN LIFE CORPORATE VUL-SM-
<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.) (the "Company") as of December 31, 1998 and 1997, 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, 1998.
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 20 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 is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the statutory 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, 1998 and 1997, and the results of its operations and its cash flow for each
of the three years in the period ended December 31, 1998 on the basis of
accounting described in Notes 1 and 20.
However, because of the differences between the two bases of accounting referred
to in the second preceding paragraph, in our opinion, the statutory 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, 1998 and 1997 or the results of its
operations or its cash flow for each of the three years in the period ended
December 31, 1998.
As management has stated in Note 20, 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, ACCOUNTING AND REPORTING BY MUTUAL LIFE
INSURANCE ENTERPRISES AND BY INSURANCE ENTERPRISES FOR CERTAIN LONG-DURATION
PARTICIPATING CONTRACTS, 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, 1999
82 SUN LIFE CORPORATE VUL-SM-
<PAGE>
APPENDIX A
GLOSSARY OF POLICY TERMS
ACCOUNT VALUE--The sum of the amounts in each Sub-Account of the Variable
Account with respect to a Policy, and the amount of the Loan Account.
ANNIVERSARY--The same day in each succeeding year as the day of the year
corresponding to the Issue Date.
APB RIDER--An Additional Protection Benefit Rider (APB Rider) with which the
Policy may be issued to provide additional life insurance coverage under the
Policy.
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 your Application, used in determining the Death Benefit.
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.
BUSINESS DAY--Any day that we are open for business.
CASH SURRENDER VALUE--The Account Value less by the balance of any
outstanding Policy Debt, plus any Sales Load Refund at Surrender.
CLASS--The risk, underwriting, and substandard table rating, if any,
classification of the insured.
DAILY RISK PERCENTAGE--The applicable daily rate for deduction of the
mortality and expense risk charge.
DEATH BENEFIT--The sum of the Base Death Benefit and any APB Rider Death
Benefit.
DUE PROOF--Such evidence as we may reasonably require 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; and
- 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, our federal tax obligations with
respect to the Policy, 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 of our other separate accounts.
INVESTMENT START DATE--The date the first premium is applied, which will be
the later of--
<PAGE>
- 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.
ISSUE DATE--A date specified in your Policy, 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 Class, Issue
Age, and sex 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.
NET PREMIUM--The amount you pay as the premium minus 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,
02481, or such other address as we may specify to you by written notice.
POLICY DEBT--The principal amount of any outstanding loans against the
Policy, plus accrued but unpaid interest on such loans.
POLICY MONTH--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.
POLICY YEAR--A one-year period commencing on the Issue Date or any
Anniversary and ending on the next Anniversary.
SALES LOAD REFUND AT SURRENDER--The portion of any premium paid in the
Policy Year of surrender that we will refund if you surrender your Policy in the
first three Policy Years.
SEC--Securities and Exchange Commission.
A-2
<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 your Policy, exclusive of any APB Rider coverage, used in
determining the Death Benefit.
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 as such in your Policy, used
to determine our sales load charges.
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 we, the applicable
Fund, and the New York Stock Exchange are open for business and any other day as
may be required by the applicable rules and regulations of the Securities and
Exchange Commission.
VALUATION PERIOD--A period of time from one to the next 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, one of our
separate accounts established for purposes including the funding of variable
insurance benefits payable under the Policy.
A-3
<PAGE>
APPENDIX B
HYPOTHETICAL ILLUSTRATIONS OF CASH SURRENDER VALUES,
ACCOUNT VALUES AND DEATH BENEFITS
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 Funds (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 policyowners 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 Fund
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 0.60%
for the first 10 Policy Years, 0.20% for Policy Years 11 through 20, and 0.10%
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 Funds' advisory
fees and operating expenses, which are assumed to be at an annual rate of
0.7900% of the average daily net assets of each Fund. This is based upon a
simple average of the advisory fees and expenses of all the Funds for the most
recent fiscal year taking into account any applicable expense caps or expense
reimbursement arrangements. Actual fees and expenses of the Funds may be more or
less than 0.7900%, 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 Fund for more information on fund expenses.
<PAGE>
The gross annual rates of investment return of 0%, 6% and 12% correspond to
net annual rates of -1.38%, 4.58%, and 10.55%, respectively, during the first 10
Policy Years, -0.99%, 5.00%, and 10.99% for Policy Years 11 through 20, and
- -0.89%, 5.10%, and 11.10%, respectively, thereafter taking into account the
current Daily Risk Percentage and the assumed 0.7900% charge for the Funds'
advisory fees and operating expenses; and -1.66%, 4.29%, and 10.24%,
respectively taking into account the guaranteed Daily Risk Percentage.
The hypothetical returns shown in the Tables do not reflect any charges for
income taxes against the Variable 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.
B-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 -1.38% NET 4.58% NET 10.55%
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 10,938 10,182 500,000 11,578 10,822 500,000 12,219 11,463 500,000
2 27,121 20,688 19,932 500,000 22,600 21,844 500,000 24,589 23,833 500,000
3 41,708 30,098 29,342 500,000 33,921 33,165 500,000 38,059 37,303 500,000
4 57,023 38,498 38,498 500,000 44,884 44,884 500,000 52,077 52,077 500,000
5 73,104 47,444 47,444 500,000 57,065 57,065 500,000 68,347 68,347 500,000
6 89,989 56,219 56,219 500,000 69,769 69,769 500,000 86,313 86,313 500,000
7 107,719 64,850 64,850 500,000 83,047 83,047 500,000 106,189 106,189 500,000
8 126,335 74,429 74,429 500,000 98,088 98,088 500,000 129,409 129,409 500,000
9 145,881 83,810 83,810 500,000 113,777 113,777 500,000 155,079 155,079 500,000
10 166,406 93,009 93,009 500,000 130,163 130,163 500,000 183,489 183,489 500,000
11 187,956 102,400 102,400 500,000 147,843 147,843 500,000 215,780 215,780 500,000
12 210,584 111,562 111,562 500,000 166,328 166,328 500,000 251,583 251,583 534,470
13 234,343 120,494 120,494 500,000 185,673 185,673 500,000 291,050 291,050 601,808
14 259,290 129,195 129,195 500,000 205,932 205,932 500,000 334,531 334,531 673,527
15 285,484 137,707 137,707 500,000 227,207 227,207 500,000 382,472 382,472 750,103
16 312,989 145,892 145,892 500,000 249,462 249,462 500,000 435,168 435,168 831,670
17 341,868 153,781 153,781 500,000 272,788 272,788 508,244 493,113 493,113 918,741
18 372,191 161,386 161,386 500,000 297,056 297,056 539,800 556,834 556,834 1,011,859
19 404,031 168,665 168,665 500,000 322,242 322,242 571,399 626,835 626,835 1,111,503
20 437,463 175,635 175,635 500,000 348,391 348,391 603,153 703,752 703,752 1,218,374
Age 60 285,484 137,707 137,707 500,000 227,207 227,207 500,000 382,472 382,472 750,103
Age 65 437,463 175,635 175,635 500,000 348,391 348,391 603,153 703,752 703,752 1,218,374
Age 70 631,430 205,724 205,724 500,000 496,198 496,198 768,723 1,221,587 1,221,587 1,892,515
Age 75 878,986 223,612 223,612 500,000 671,305 671,305 943,505 2,040,672 2,040,672 2,868,124
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums ar 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
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.
B-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 -1.67% NET 4.27% NET 10.22%
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 9,032 8,276 500,000 9,612 8,856 500,000 10,194 9,438 500,000
2 27,121 17,029 16,273 500,000 18,707 17,951 500,000 20,457 19,701 500,000
3 41,708 24,742 23,986 500,000 28,044 27,288 500,000 31,628 30,872 500,000
4 57,023 31,415 31,415 500,000 36,877 36,877 500,000 43,048 43,048 500,000
5 73,104 38,547 38,547 500,000 46,716 46,716 500,000 56,327 56,327 500,000
6 89,989 45,378 45,378 500,000 56,812 56,812 500,000 70,827 70,827 500,000
7 107,719 51,877 51,877 500,000 67,150 67,150 500,000 86,659 86,659 500,000
8 126,335 59,117 59,117 500,000 78,881 78,881 500,000 105,186 105,186 500,000
9 145,881 65,971 65,971 500,000 90,898 90,898 500,000 125,470 125,470 500,000
10 166,406 72,409 72,409 500,000 103,191 103,191 500,000 147,703 147,703 500,000
11 187,956 78,419 78,419 500,000 115,775 115,775 500,000 172,125 172,125 500,000
12 210,584 83,983 83,983 500,000 128,657 128,657 500,000 199,004 199,004 500,000
13 234,343 89,097 89,097 500,000 141,864 141,864 500,000 228,668 228,668 500,000
14 259,290 93,746 93,746 500,000 155,420 155,420 500,000 261,355 261,355 526,198
15 285,484 97,910 97,910 500,000 169,346 169,346 500,000 296,793 296,793 582,069
16 312,989 101,548 101,548 500,000 183,656 183,656 500,000 335,147 335,147 640,514
17 341,868 104,611 104,611 500,000 198,364 198,364 500,000 376,619 376,619 701,696
18 372,191 107,033 107,033 500,000 213,483 213,483 500,000 421,411 421,411 765,772
19 404,031 108,737 108,737 500,000 229,028 229,028 500,000 469,724 469,724 832,915
20 437,463 109,643 109,643 500,000 245,032 245,032 500,000 521,777 521,777 903,330
Age 60 285,484 97,910 97,910 500,000 169,346 169,346 500,000 296,793 296,793 582,069
Age 65 437,463 109,643 109,643 500,000 245,032 245,032 500,000 521,777 521,777 903,330
Age 70 631,430 99,524 99,524 500,000 334,006 334,006 517,451 847,422 847,422 1,312,849
Age 75 878,986 50,408 50,408 500,000 431,135 431,135 605,952 1,308,631 1,308,631 1,839,255
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums ar 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
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.
B-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 -1.38% NET 4.58% 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 11,200 10,813 500,000 11,879 11,492 500,000 12,558 12,170 500,000
2 27,121 21,575 21,188 500,000 23,603 23,215 500,000 25,713 25,326 500,000
3 41,708 31,603 31,216 500,000 35,660 35,273 500,000 40,052 39,665 500,000
4 57,023 40,983 40,983 500,000 47,765 47,765 500,000 55,405 55,405 500,000
5 73,104 50,534 50,534 500,000 60,759 60,759 500,000 72,745 72,745 500,000
6 89,989 59,910 59,910 500,000 74,315 74,315 500,000 91,900 91,900 500,000
7 107,719 69,134 69,134 500,000 88,489 88,489 500,000 113,095 113,095 500,000
8 126,335 78,669 78,669 500,000 103,798 103,798 500,000 137,070 137,070 500,000
9 145,881 88,007 88,007 500,000 119,771 119,771 500,000 163,580 163,580 500,000
10 166,406 97,164 97,164 500,000 136,457 136,457 500,000 192,922 192,922 500,000
11 187,956 106,531 106,531 500,000 154,479 154,479 500,000 226,294 226,294 500,000
12 210,584 115,671 115,671 500,000 173,329 173,329 500,000 263,202 263,202 559,153
13 234,343 124,584 124,584 500,000 193,061 193,061 500,000 303,874 303,874 628,324
14 259,290 133,268 133,268 500,000 213,735 213,735 500,000 348,682 348,682 702,019
15 285,484 141,765 141,765 500,000 235,450 235,450 500,000 398,086 398,086 780,726
16 312,989 149,937 149,937 500,000 258,177 258,177 500,000 452,389 452,389 864,581
17 341,868 157,817 157,817 500,000 281,904 281,904 525,228 512,098 512,098 954,114
18 372,191 165,416 165,416 500,000 306,561 306,561 557,071 577,759 577,759 1,049,883
19 404,031 172,693 172,693 500,000 332,149 332,149 588,966 649,889 649,889 1,152,383
20 437,463 179,666 179,666 500,000 358,714 358,714 621,025 729,145 729,145 1,262,336
Age 60 285,484 141,765 141,765 500,000 235,450 235,450 500,000 398,086 398,086 780,726
Age 65 437,463 179,666 179,666 500,000 358,714 358,714 621,025 729,145 729,145 1,262,336
Age 70 631,430 209,865 209,865 500,000 508,871 508,871 788,356 1,262,723 1,262,723 1,956,244
Age 75 878,986 228,068 228,068 500,000 686,711 686,711 965,159 2,106,662 2,106,662 2,960,871
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums ar 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
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.
B-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 -1.67% NET 4.27% NET 10.22%
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 8,785 8,398 500,000 9,390 9,003 500,000 9,996 9,609 500,000
2 27,121 16,865 16,478 500,000 18,602 18,215 500,000 20,416 20,029 500,000
3 41,708 24,641 24,254 500,000 28,050 27,663 500,000 31,755 31,368 500,000
4 57,023 31,727 31,727 500,000 37,358 37,358 500,000 43,730 43,730 500,000
5 73,104 38,880 38,880 500,000 47,296 47,296 500,000 57,216 57,216 500,000
6 89,989 45,707 45,707 500,000 57,487 57,487 500,000 71,956 71,956 500,000
7 107,719 52,171 52,171 500,000 67,910 67,910 500,000 88,068 88,068 500,000
8 126,335 58,707 58,707 500,000 79,047 79,047 500,000 106,220 106,220 500,000
9 145,881 64,818 64,818 500,000 90,426 90,426 500,000 126,124 126,124 500,000
10 166,406 70,466 70,466 500,000 102,033 102,033 500,000 147,984 147,984 500,000
11 187,956 75,634 75,634 500,000 113,882 113,882 500,000 172,062 172,062 500,000
12 210,584 80,292 80,292 500,000 125,979 125,979 500,000 198,656 198,656 500,000
13 234,343 84,432 84,432 500,000 138,352 138,352 500,000 228,132 228,132 500,000
14 259,290 88,029 88,029 500,000 151,023 151,023 500,000 260,757 260,757 524,994
15 285,484 91,050 91,050 500,000 164,015 164,015 500,000 296,143 296,143 580,795
16 312,989 93,436 93,436 500,000 177,339 177,339 500,000 334,441 334,441 639,166
17 341,868 95,118 95,118 500,000 191,006 191,006 500,000 375,853 375,853 700,269
18 372,191 96,001 96,001 500,000 205,027 205,027 500,000 420,580 420,580 764,262
19 404,031 95,971 95,971 500,000 219,414 219,414 500,000 468,823 468,823 831,317
20 437,463 94,910 94,910 500,000 234,198 234,198 500,000 520,801 520,801 901,640
Age 60 285,484 91,050 91,050 500,000 164,015 164,015 500,000 296,143 296,143 580,795
Age 65 437,463 94,910 94,910 500,000 234,198 234,198 500,000 520,801 520,801 901,640
Age 70 631,430 69,658 69,658 500,000 316,817 316,817 500,000 845,976 845,976 1,310,609
Age 75 878,986 0 0 0 412,159 412,159 579,281 1,306,525 1,306,525 1,836,295
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums ar 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
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.
B-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
GUARANTEED POLICY CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS NET -1.38% NET 4.58% NET 10.55%
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 11,122 10,366 510,366 11,767 11,011 511,011 12,412 11,656 511,656
2 27,121 21,126 20,370 520,370 23,058 22,302 522,302 25,068 24,312 524,312
3 41,708 30,838 30,082 530,082 34,708 33,952 533,952 38,896 38,140 538,140
4 57,023 39,540 39,540 539,540 46,014 46,014 546,014 53,301 53,301 553,301
5 73,104 48,766 48,766 548,766 58,524 58,524 558,524 69,953 69,953 569,953
6 89,989 57,876 57,876 557,876 71,619 71,619 571,619 88,375 88,375 588,375
7 107,719 66,771 66,771 566,771 85,223 85,223 585,223 108,645 108,645 608,645
8 126,335 76,541 76,541 576,541 100,512 100,512 600,512 132,178 132,178 632,178
9 145,881 86,051 86,051 586,051 116,372 116,372 616,372 158,060 158,060 658,060
10 166,406 95,287 95,287 595,287 132,812 132,812 632,812 186,522 186,522 686,522
11 187,956 104,623 104,623 604,623 150,411 150,411 650,411 218,657 218,657 718,657
12 210,584 113,617 113,617 613,617 168,633 168,633 668,633 254,059 254,059 754,059
13 234,343 122,229 122,229 622,229 187,465 187,465 687,465 293,043 293,043 793,043
14 259,290 130,428 130,428 630,428 206,901 206,901 706,901 335,963 335,963 835,963
15 285,484 138,223 138,223 638,223 226,978 226,978 726,978 383,260 383,260 883,260
16 312,989 145,386 145,386 645,386 247,488 247,488 747,488 435,169 435,169 935,169
17 341,868 152,077 152,077 652,077 268,612 268,612 768,612 492,359 492,359 992,359
18 372,191 158,309 158,309 658,309 290,387 290,387 790,387 555,418 555,418 1,055,418
19 404,031 164,001 164,001 664,001 312,761 312,761 812,761 624,902 624,902 1,124,902
20 437,463 169,170 169,170 669,170 335,774 335,774 835,774 701,529 701,529 1,201,529
Age 60 285,484 138,223 138,223 638,223 226,978 226,978 726,978 383,260 383,260 883,260
Age 65 437,463 169,170 169,170 669,170 335,774 335,774 835,774 701,529 701,529 1,201,529
Age 70 631,430 185,587 185,587 685,587 460,943 460,943 960,943 1,225,363 1,225,363 1,725,363
Age 75 878,986 178,597 178,597 678,597 595,488 595,488 1,095,488 2,082,219 2,082,219 2,582,219
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums ar 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
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.
B-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 -1.67% NET 4.27% NET 10.22%
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 8,989 8,233 508,233 9,566 8,810 508,810 10,145 9,389 509,389
2 27,121 16,900 16,144 516,144 18,564 17,808 517,808 20,299 19,543 519,543
3 41,708 24,480 23,724 523,724 27,741 26,985 526,985 31,282 30,526 530,526
4 57,023 30,968 30,968 530,968 36,341 36,341 536,341 42,411 42,411 542,411
5 73,104 37,858 37,858 537,858 45,857 45,857 545,857 55,264 55,264 555,264
6 89,989 44,383 44,383 544,383 55,523 55,523 555,523 69,169 69,169 569,169
7 107,719 50,507 50,507 550,507 65,302 65,302 565,302 84,186 84,186 584,186
8 126,335 57,284 57,284 557,284 76,311 76,311 576,311 101,607 101,607 601,607
9 145,881 63,575 63,575 563,575 87,408 87,408 587,408 120,415 120,415 620,415
10 166,406 69,338 69,338 569,338 98,545 98,545 598,545 140,700 140,700 640,700
11 187,956 74,553 74,553 574,553 109,692 109,692 609,692 162,581 162,581 662,581
12 210,584 79,188 79,188 579,188 120,811 120,811 620,811 186,179 186,179 686,179
13 234,343 83,233 83,233 583,233 131,878 131,878 631,878 211,648 211,648 711,648
14 259,290 86,664 86,664 586,664 142,856 142,856 642,856 239,144 239,144 739,144
15 285,484 89,450 89,450 589,450 153,701 153,701 653,701 268,831 268,831 768,831
16 312,989 91,538 91,538 591,538 164,339 164,339 664,339 300,864 300,864 800,864
17 341,868 92,864 92,864 592,864 174,685 174,685 674,685 335,404 335,404 835,404
18 372,191 93,348 93,348 593,348 184,629 184,629 684,629 372,609 372,609 872,609
19 404,031 92,892 92,892 592,892 194,042 194,042 694,042 412,634 412,634 912,634
20 437,463 91,408 91,408 591,408 202,793 202,793 702,793 455,656 455,656 955,656
Age 60 285,484 89,450 89,450 589,450 153,701 153,701 653,701 268,831 268,831 768,831
Age 65 437,463 91,408 91,408 591,408 202,793 202,793 702,793 455,656 455,656 955,656
Age 70 631,430 66,120 66,120 566,120 232,267 232,267 732,267 724,008 724,008 1,224,008
Age 75 878,986 103 103 500,103 219,755 219,755 719,755 1,104,772 1,104,772 1,604,772
</TABLE>
(1) Assumes a $12,600.00 premium is paid at the beginning of each Policy Year.
Values will be different if premiums ar 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
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.
B-8
<PAGE>
A complete copy of the registration statement, of which this prospectus is a
part, as well as additional information about us, the Policy, the Variable
Account and the underlying Funds which may be of interest to you, is available
on the SEC's Internet Web site (http//www.sec.gov). You may also review and copy
this information at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for more information about the operation of the Public Reference
Room. In addition, you may obtain copies of this information, upon payment of a
fee, by writing the Public Reference Section of the Securities and Exchange
Commission, Washington, D.C. 20549-6009.
<PAGE>
PART II
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
The prospectuses consisting of 98 pages.
The undertaking to file reports.
Representation of reasonableness of fees.
The Rule 484 undertaking.
The signatures.
Written consents of the following persons:
Margaret Sears Mead, Assistant Vice President and Secretary
(Exhibit 2)
John E. Coleman, FSA, MAAA (Exhibit 6)
Deloitte & Touche LLP, Independent Public Accountants (Exhibit 7)
The following exhibits:
1. Copies of all exhibits required by paragraph A of instructions for Exhibits
to Form N-8B-2:
(1) Resolution of Board of Directors of Sun Life Assurance Company of
Canada (U.S.), dated December 3, 1985, authorizing the
establishment of Sun Life of Canada (U.S.) Variable Account G (1)
(2) Not Applicable
(3)(a) Principal Underwriting Agreement (2)
(3)(b) Form of Selling Agreements (2)
(3)(c) Schedule of Sales Commissions (3)
(4) Not Applicable
(5)(a) Form of Flexible Premium Variable Universal Life Insurance Policy
(3)
(5)(b) Form of Additional Protection Benefit Rider (APB Rider) (3)
(6)(a) Certificate of Incorporation of Sun Life Assurance Company of
Canada (U.S.) (4)
(6)(b) Bylaws of Sun Life Assurance Company of Canada (U.S.) (4)
(7) Not Applicable.
(8)(a)(i) Participation Agreement, dated as of February 17, 1998, by and
among AIM Variable Insurance Funds, Inc., AIM Distributors,
Inc., Sun Life Assurance Company of Canada (U.S.), and Clarendon
Insurance Agency, Inc.
(8)(a)(ii) Amendment No. 1 to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., AIM Distributors, Inc., Sun Life
Assurance Company of Canada (U.S.), and Clarendon Insurance
Agency, Inc.
(8)(a)(iii) Amendment No. 2 to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., AIM Distributors, Inc., Sun
Life Assurance Company of Canada (U.S.), and Clarendon Insurance
Agency, Inc.
(8)(b)(i) Form of Participation Agreement by and among Sun Capital
Advisers Trust, Sun Capital Advisers, Inc., and Sun Life
Assurance Company of Canada (U.S.)
(8)(b)(ii) Amendment No. 1, effective May 1, 1999, to Participation
Agreement by and among Sun Capital Advisers Trust, Sun Capital
Advisers, Inc., and Sun Life Assurance Company of Canada (U.S.)
(8)(c) Participation Agreement, dated as of April 20, 1998, by and
among T. Rowe Price Equity Series, Inc., T. Rowe Price
Investment Services, Inc., and Sun Life of Canada (U.S.)
(8)(d) Other Participation Agreements (3)
(9) Not Applicable.
<PAGE>
(10) Form of Application for Flexible Premium Variable Universal Life
Insurance Policy (3)
(11) Memorandum describing Sun Life Assurance Company of Canada
(U.S.)'s Issuance, Transfer and Redemption Procedures (5)
2. Opinion and Consent of Counsel as to the Legality of the Securities Being
Registered (6)
3. None
4. Not Applicable
5. Not Applicable
6. Opinion and Consent of John E. Coleman, FSA, MAAA
7. Consent of Deloitte & Touche LLP, Independent Public Accountants
8. Powers of Attorney (7)
____________
(1) Incorporated herein by reference to the Registration Statement of Sun Life
of Canada (U.S.) Variable Account F on Form N-4, File No. 333-29852.
(2) Incorporated herein by reference to Post-Effective Amendment No. 2 to the
Registration Statement of Sun Life of Canada (U.S.) Variable Account G on
Form S-6, File No. 333-13087, filed with the Securities and Exchange
Commission on April 29, 1998.
(3) Incorporated herein by reference to 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, filed with the Securities and Exchange
Commission on January 22, 1997.
(4) Incorporated herein by reference to the Registration Statement of Sun Life
of Canada (U.S.) Variable Account F on Form N-4, File No. 333-37907,
filed with the Securities and Exchange Commission on October 14, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 3 to
the Registration Statement of Sun Life of Canada (U.S.) Variable Account G
on Form S-6, filed with the Securities and Exchange Commission on
February 16, 1999.
(6) Incorporated herein by reference to 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, filed with the Securities and Exchange
Commission on April 30, 1997.
(7) Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Registration Statement of Sun Life of Canada (U.S.) Variable Account G on
Form S-6, File No. 333-13087, filed with the Securities and Exchange
Commission on March 4, 1999.
<PAGE>
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.
REPRESENTATION OF REASONABLENESS OF FEES
Sun Life Assurance Company of Canada (U.S.) hereby represents that the
aggregate fees and charges under the Policy are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Sun Life Assurance Company of Canada (U.S.).
UNDERTAKING ON 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, bylaws, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it meets all of the requirements for effectiveness
of this registration statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized, and attested, all in
the Town of Wellesley, and the Commonwealth of Massachusetts, on the
30th day of April, 1999.
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT G
(Registrant)
By: SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.)
(Depositor)
By: /s/ C. James Prieur
---------------------------------------
C. James Prieur
Attest: /s/ Ellen B. King
--------------------------
Ellen B. King, Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons and in the
capacities and on the dates indicated.
/s/ C. James Prieur President and Director
- -------------------------- (Principal Executive Officer)
C. James Prieur
/s/ Robert P. Vrolyk Vice President and Actuary
- -------------------------- (Principal Financial &
Robert P. Vrolyk Accounting Officer)
* /s/ Donald A. Stewart Chairman and Director
- --------------------------
Donald A. Stewart
* /s/ John D. McNeil Director
- --------------------------
John D. McNeil
* /s/ M. Colyer Crum Director
- --------------------------
M. Colyer Crum
* /s/ Richard B. Bailey Director
- --------------------------
Richard B. Bailey
* /s/ David D. Horn Director
- --------------------------
David D. Horn
* /s/ John S. Lane Director
- --------------------------
John S. Lane
* /s/ Angus A. MacNaughton Director
- --------------------------
Angus A. MacNaughton
* /s/ S. Caesar Raboy
- -------------------------- Director
S. Caesar Raboy
By: /s/ Ellen B. King April 30, 1999
--------------------------------
Ellen B. King, Attorney-In-Fact
* By Ellen B. King pursuant to Powers of Attorney filed with Post-Effective
Amendment No. 4 to the Registration Statement of Sun Life of Canada (U.S.)
Variable Account G on Form S-6, File No. 333-13087, filed with the
Securities and Exchange Commission on March 4, 1999.
<PAGE>
EXHIBIT INDEX
<TABLE>
EXHIBIT NO.
<S> <C>
1.A(1) Resolution of Board of Directors of Sun Life Assurance Company of
Canada (U.S.), dated December 3, 1985, authorizing the establishment
of Sun Life of Canada (U.S.) Variable Account G*
1.A(3)(a) Principal Underwriting Agreement*
1.A(3)(b) Form of Selling Agreements*
1.A(3)(c) Schedule of Sales Commissions*
1.A(5)(a) Form of Flexible Premium Variable Universal Life Insurance Policy*
1.A(5)(b) Form of Additional Protection Benefit Rider (APB Rider)*
1.A(6)(a) Certificate of Incorporation of Sun Life Assurance Company of Canada
(U.S.)*
1.A(6)(b) Bylaws of Sun Life Assurance Company of Canada (U.S.)*
1.A(8)(a)(i) Participation Agreement, dated as of February 17, 1998, by and
among AIM Variable Insurance Funds, Inc., AIM Distributors,
Inc., Sun Life Assurance Company of Canada (U.S.), and Clarendon
Insurance Agency, Inc.
1.A(8)(a)(ii) Amendment No. 1 to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., AIM Distributors Inc., Sun
Life Assurance Company of Canada (U.S.), and Clarendon
Insurance Agency, Inc.
1.A(8)(a)(iii) Amendment No. 2 to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., AIM Distributors, Inc., Sun Life
Assurance Company of Canada (U.S.), and Clarendon Insurance Agency,
Inc.
1.A(8)(b)(i) Form of Participation Agreement by and among Sun Capital
Advisers Trust, Sun Capital Advisers, Inc., and Sun Life Assurance
Company of Canada (U.S.)
1.A(8)(b)(ii) Amendment No. 1, effective May 1, 1999, to Participation
Agreement by and among Sun Capital Advisers Trust, Sun Capital
Advisers, Inc., and Sun Life Assurance Company of Canada (U.S.)
1.A(8)(c) Participation Agreement, dated as of April 20, 1998, by and
among T. Rowe Price Equity Series, Inc., T. Rowe Price Investment
Services, Inc., and Sun Life of Canada (U.S.)
1.A(8)(d) Other Participation Agreements*
1.A(10) Form of Application for Flexible Premium Variable Universal Life
Insurance Policy*
1.A(11) Memorandum describing Sun Life Assurance Company of Canada (U.S.)'s
Issuance, Transfer and Redemption Procedures*
2. Opinion and Consent of Counsel as to the Legality of the Securities Being
Registered*
6. Opinion and Consent of John E. Coleman, FSA, MAAA
7. Consent of Deloitte & Touche LLP, Independent Public Accountants
8. Powers of Attorney*
</TABLE>
__________
* Incorporated herein by reference.
<PAGE>
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.),
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
CLARENDON INSURANCE AGENCY, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Availability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Addition, Deletion or Modification of Funds. . . . . . . . . . . . . 2
1.3 No Sales to the General Public . . . . . . . . . . . . . . . . . . . 2
Section 2. Processing Transactions. . . . . . . . . . . . . . . . . . . . . . 2
2.1 Timely Pricing and Orders. . . . . . . . . . . . . . . . . . . . . . 2
2.2 Timely Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Applicable Price . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Dividends and Distributions. . . . . . . . . . . . . . . . . . . . . 4
2.5 Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Parties To Cooperate . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Insurance and Certain Other Laws . . . . . . . . . . . . . . . . . . 7
4.3 Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Notice of Certain Proceedings and Other Circumstances. . . . . . . . 9
4.5 Sun Life To Provide Documents; Information About AVIF. . . . . . . . 9
4.6 AVIF To Provide Documents; Information About Sun Life. . . . . . . .10
Section 5. Mixed and Shared Funding . . . . . . . . . . . . . . . . . . . . .11
5.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.2 Disinterested Directors. . . . . . . . . . . . . . . . . . . . . . .12
5.3 Monitoring for Material Irreconcilable Conflicts . . . . . . . . . .12
5.4 Conflict Remedies. . . . . . . . . . . . . . . . . . . . . . . . . .13
5.5 Notice to Sun Life . . . . . . . . . . . . . . . . . . . . . . . . .14
5.6 Information Requested by Board of Directors. . . . . . . . . . . . .14
5.7 Compliance with SEC Rules. . . . . . . . . . . . . . . . . . . . . .14
5.8 Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . .15
Section 6. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.1 Events of Termination. . . . . . . . . . . . . . . . . . . . . . . .15
6.2 Notice Requirement for Termination . . . . . . . . . . . . . . . . .16
6.3 Funds To Remain Available. . . . . . . . . . . . . . . . . . . . . .17
i
<PAGE>
6.4 Survival of Warranties and Indemnifications. . . . . . . . . . . . .17
6.5 Continuance of Agreement for Certain Purposes. . . . . . . . . . . .17
Section 7. Parties To Cooperate Respecting Termination. . . . . . . . . . . .17
Section 8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 9. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . . .18
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . . .19
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . .19
12.1 Of AVIF and AIM by Sun Life and Clarendon. . . . . . . . . . . . . .19
12.2 Of Sun Life and Clarendon by AVIF and AIM. . . . . . . . . . . . . .21
12.3 Effect of Notice . . . . . . . . . . . . . . . . . . . . . . . . . .24
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Section 13. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . .24
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . .24
Section 15. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .24
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . .24
Section 17. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . .25
Section 19. Trademarks and Fund Names . . . . . . . . . . . . . . . . . . . .25
Section 20. Parties to Cooperate. . . . . . . . . . . . . . . . . . . . . . .27
Section 21. Access to Information by Sun Life . . . . . . . . . . . . . . . .27
</TABLE>
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 17th day of February, 1998
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM");
Sun Life Assurance Company of Canada (U.S.), a Delaware life insurance company
("Sun Life"), on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and Clarendon Insurance
Agency, Inc. ("Clarendon"), a Massachusetts corporation, a subsidiary of Sun
Life and the principal underwriter of the Contracts (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"), shares
("Shares") of each of which are registered under the Securities Act of 1933, as
amended (the "1933 Act") and are currently sold to one or more separate accounts
of life insurance companies to fund benefits under variable annuity contracts
and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, Sun Life will be the issuer of certain variable annuity contracts
and variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law, will
be registered under the 1933 Act; and
WHEREAS, Sun Life will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, Sun Life will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
1
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Sun Life intends to purchase Shares of one or more of the Funds on
behalf of the Accounts to fund the Contracts; and
WHEREAS, Clarendon is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to Sun Life for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide Sun
Life with the net asset value per Share for each Fund by 5:30 p.m. Central Time
on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock Exchange is open for
2
<PAGE>
regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) Sun
Life is open for business.
(b) Sun Life will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. Sun Life will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; PROVIDED, however, that AVIF
shall provide additional time to Sun Life in the event that AVIF is unable to
meet the 5:30 p.m. Central Time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to Sun Life.
(c) With respect to payment of the purchase price by Sun Life and of
redemption proceeds by AVIF, Sun Life and AVIF shall net purchase and redemption
orders with respect to each Fund and shall transmit one net payment per Fund in
accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), Sun Life shall be entitled to
an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to Sun Life.
2.2 TIMELY PAYMENTS.
Sun Life will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by Sun Life by 1:00 p.m. Central Time on
the same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable Sun Life to pay redemption proceeds within the time specified in Section
22(e) of the 1940 Act or such shorter period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that Sun Life receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), Sun Life shall be the designated agent of AVIF
for receipt of orders relating to Contract transactions on each Business Day and
receipt by such designated agent shall constitute receipt by AVIF; PROVIDED that
AVIF receives notice of such orders by 9:00 a.m. Central Time on the next
following Business Day or such later time as computed in accordance with Section
2.1(b) hereof. AVIF will acknowledge and verify receipt of such orders by 12:00
p.m. Central Time on each business day on which orders are received.
3
<PAGE>
(b) All other Share purchases and redemptions by Sun Life will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to Sun Life of any income
dividends or capital gain distributions payable on the Shares of any Fund. Sun
Life hereby elects to reinvest all dividends and capital gains distributions in
additional Shares of the corresponding Fund at the ex-dividend date net asset
values until Sun Life otherwise notifies AVIF in writing, it being agreed by the
Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. Sun Life reserves the
right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to Sun Life. Shares ordered from AVIF will be
recorded in an appropriate title for Sun Life, on behalf of its Account, as
directed by Sun Life.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear all expenses incident to its
performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts. Except as otherwise
specifically provided herein, each Party will bear all expenses incident to its
performance under this Agreement.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
4
<PAGE>
(a) AVIF represents and warrants that each Fund is currently qualified as
a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will
qualify and maintain qualification of each Fund as a RIC. AVIF will notify Sun
Life immediately upon having a reasonable basis for believing that a Fund has
ceased to so qualify or that it might not so qualify in the future.
(b) AVIF represents that it will comply and maintain each Fund's
compliance with the diversification requirements set forth in Section 817(h) of
the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will
notify Sun Life immediately upon having a reasonable basis for believing that a
Fund has ceased to so comply or that a Fund might not so comply in the future.
In the event of a breach of this Section 4.1(b) by AVIF, it will take all
reasonable steps to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Section 1.817-5 of the regulations under the
Code.
(c) Notwithstanding Section 12.2 of this Agreement, Sun Life agrees that
if the Internal Revenue Service ("IRS") asserts in writing in connection with
any governmental audit or review of Sun Life or, to Sun Life's knowledge, of any
Participant, that any Fund has failed to comply with the diversification
requirements of Subchapter M or Section 817(h) of the Code or Sun Life otherwise
becomes aware of any facts that could give rise to any claim against AVIF or its
affiliates as a result of such a failure or alleged failure:
(i) Sun Life shall promptly notify AVIF of such assertion or
potential claim (subject to the confidentiality provisions of
Section 18 as to any Participant);
(ii) Sun Life shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(iii) Sun Life shall, in good faith and to the extent not
inconsistent with its fiduciary duties to its Contract owners,
use its best efforts to minimize any liability of AVIF or its
affiliates resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS that
such failure was inadvertent;
(iv) Sun Life shall permit AVIF, its affiliates and their legal and
accounting advisors to participate, at their sole expense, in
any conferences, settlement discussions or other
administrative or judicial proceeding or contests (including
judicial appeals thereof) with the IRS, any Participant or any
other claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a
failure or alleged failure; PROVIDED, however, that Sun Life
will retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by Sun Life to the IRS,
any Participant or any other claimant in connection with any
of the foregoing proceedings or
5
<PAGE>
contests (including, without limitation, any such materials to
be submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by Sun Life to
AVIF (together with any supporting information or analysis);
subject to the confidentiality provisions of Section 18, at
least ten (10) business days or such shorter period to which
the Parties hereto agree prior to the day on which such
proposed materials are to be submitted, and (b) shall not be
submitted by Sun Life to any such person without the express
written consent of AVIF which shall not be unreasonably
withheld; PROVIDED, that in any event, each Party shall use
its best efforts to make, as promptly as possible, the
submissions to the Commissioner of the IRS contemplated by
paragraph (c)(iii) above;
(vi) Sun Life shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of Sun Life) in order
to facilitate review by AVIF or its advisors of any written
submissions provided to it pursuant to the preceding clause or
its assessment of the validity or amount of any claim against
its arising from such a failure or alleged failure;
(vii) Sun Life shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or
its affiliates (a) compromise or settle any claim, (b) accept
any adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the express
written consent of AVIF or its affiliates, which shall not be
unreasonably withheld, PROVIDED, that after exhausting all
administrative remedies, in the event of an adverse judicial
decision, Sun Life shall either (a) appeal such decision,
PROVIDED, that to the extent requested by Sun Life, AVIF or
its affiliates provides an opinion of independent counsel to
the effect that a reasonable basis exists for taking such
appeal, in which case the costs of such appeal shall be borne
equally by the Parties hereto, or (b) permit AVIF and its
affiliates to act in the name of Sun Life and to control the
conduct of such appeal pursuant to the last paragraph of this
Section 4.1(c), in which case the costs of such appeal shall
be borne by AVIF or its affiliates pursuant to that paragraph;
and
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if Sun Life fails to comply
with any of the foregoing clauses (i) through (vii), and such
failure could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, Sun Life may,
in its discretion, authorize AVIF or its affiliates to act in the name of Sun
Life in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and
6
<PAGE>
in that event AVIF or its affiliates shall bear the fees and expenses associated
with the conduct of the proceedings that it is so authorized to control;
PROVIDED, that in no event shall Sun Life have any liability resulting from
AVIF's refusal to accept the proposed settlement or compromise with respect to
any failure to comply with the requirements of Subchapter M or Section 817(h) of
the Code caused by AVIF. As used in this Agreement, the term "affiliates" shall
have the same meaning as "affiliated person" as defined in Section 2(a)(3) of
the 1940 Act.
(d) AVIF agrees to cooperate with Sun Life with respect to the matters
described in paragraphs (c)(i) through (vii) above. AVIF further agrees that it
shall provide or cause to be provided to Sun Life, on a quarterly basis, written
confirmation of each Fund's compliance with the diversification requirements of
Subchapter M and Section 817(h) of the Code.
(e) Sun Life represents and warrants that the Contracts currently are and
will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will maintain such treatment; Sun
Life will notify AVIF immediately upon having a reasonable basis for believing
that any of the Contracts have ceased to be so treated or that they might not be
so treated in the future.
(f) Sun Life represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. Sun Life will continue to meet such definitional requirements, and
it will notify AVIF immediately upon having a reasonable basis for believing
that such requirements have ceased to be met or that they might not be met in
the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested by Sun Life,
including, the furnishing of information not otherwise available to Sun Life
which is required by state insurance law to enable Sun Life to obtain the
authority needed to issue the Contracts in any applicable state.
(b) Sun Life represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Delaware law and the regulations
thereunder, and (iii) the Contracts comply in all material respects with all
other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
7
<PAGE>
4.3 SECURITIES LAWS.
(a) Sun Life represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Delaware law, (iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act, (iv) each Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) Sun Life will amend the
registration statement for its Contracts under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond
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includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify Sun Life of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by Sun Life. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) Sun Life will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Sun Life will make every reasonable effort to prevent the issuance
of any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
4.5 SUN LIFE TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) Sun Life will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) Sun Life will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least ten (10)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within ten (10) Business Days after receipt
of such material or such shorter period
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as the Parties hereto may, from time to time, agree upon. AVIF hereby
designates AIM as the entity to receive such sales literature, until such time
as AVIF appoints another designated agent by giving notice to Sun Life in the
manner required by Section 9 hereof.
(c) Neither Sun Life nor any of its affiliates, will give any information
or make any representations or statements on behalf of or concerning AVIF or its
affiliates in connection with the sale of the Contracts other than (i) the
information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) Sun Life shall adopt and implement procedures reasonably designed to
ensure that information concerning AVIF and its affiliates that is intended for
use only by brokers or agents selling the Contracts (I.E., information that is
not intended for distribution to Participants) ("broker only materials") is so
used, and neither AVIF nor any of its affiliates shall be liable for any losses,
damages or expenses relating to the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (E.G.,
on-line networks such as the Internet or other electronic messages), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT SUN LIFE.
(a) AVIF will provide to Sun Life at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, statements of additional
information reports, any preliminary and final proxy material, applications for
exemptions, exemptive orders, requests for no-action letters, and all amendments
to any of the above, that relate to AVIF or the Shares of a Fund,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) AVIF will provide to Sun Life or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which Sun Life, or any of its respective affiliates is named, or
that refers to the Contracts, at least ten (10) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if Sun Life or its designated agent objects to
such use within ten (10) Business
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Days after receipt of such material or such shorter period as the Parties hereto
may, from time to time, agree upon. Sun Life shall receive all such sales
literature until such time as it appoints a designated agent by giving notice to
AVIF in the manner required by Section 9 hereof.
(c) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning Sun Life, each
Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by Sun Life for distribution; or (iii) in sales literature or other
promotional material approved by Sun Life or its affiliates, except with the
express written permission of Sun Life.
(d) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning Sun Life,
and its respective affiliates that is intended for use only by brokers or agents
selling the Contracts (I.E., information that is not intended for distribution
to Participants) ("broker only materials") is so used, and neither Sun Life, nor
any of its respective affiliates shall be liable for any losses, damages or
expenses relating to the improper use of such broker only materials.
(e) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (E.G.,
on-line networks such as the Internet or other electronic messages), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article)), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with Sun Life,
and trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below
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shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby
notifies Sun Life that, in the event that AVIF implements Mixed and Shared
Funding, it may be appropriate to include in the prospectus pursuant to which a
Contract is offered disclosure regarding the potential risks of Mixed and Shared
Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). Sun Life agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
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Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, Sun Life will assist the Board of
Directors in carrying out its responsibilities by providing the Board of
Directors with all information reasonably necessary for the Board of Directors
to consider any issue raised, including information as to a decision by Sun Life
to disregard voting instructions of Participants. Sun Life's responsibilities in
connection with the foregoing shall be carried out with a view only to the
interests of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Sun Life will, if it is a Participating
Insurance Company for which a material irreconcilable conflict is relevant, at
its own expense and to the extent reasonably practicable (as determined by a
majority of the Disinterested Directors), take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps may
include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets in
a different investment medium, including another Fund of AVIF,
or submitting the question whether such segregation should be
implemented to a vote of all affected Participants and, as
appropriate, segregating the assets of any particular group
(E.G., annuity Participants, life insurance Participants or
all Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of making
such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940
Act or a new separate account that is operated as a management
company.
(b) If the material irreconcilable conflict arises because of Sun Life's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Sun Life may
be required, at AVIF's election, to withdraw each Account's investment in AVIF
or any Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six (6) months after
AVIF gives notice to Sun Life that this provision is being implemented, and
until such withdrawal AVIF shall continue to accept and implement orders by Sun
Life for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Sun Life conflicts with the
majority of other state regulators, then Sun Life will withdraw each Account's
investment in AVIF within six (6) months after AVIF's Board of Directors informs
Sun Life that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal AVIF shall continue to accept
and implement orders by Sun Life for the purchase and redemption of Shares of
AVIF. No charge or penalty will be imposed as a result of such withdrawal.
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(d) Sun Life agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. Sun
Life will not be required by the terms hereof to establish a new funding medium
for any Contracts if an offer to do so has been declined by vote of a majority
of Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO SUN LIFE.
AVIF will promptly make known in writing to Sun Life the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Sun Life and AVIF (or its investment adviser) will at least annually submit
to the Board of Directors of AVIF such reports, materials or data as the Board
of Directors may reasonably request so that the Board of Directors may fully
carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
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AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to the
Fund, upon one (1) year's advance written notice to the other parties, or, if
later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings against
Sun Life or its affiliates by the NASD, the SEC, any state insurance regulator
or any other regulatory body regarding Sun Life's obligations under this
Agreement or related to the sale of the Contracts, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF reasonably determines
that such proceedings, or the facts on which such proceedings would be based,
have a material likelihood of imposing material adverse consequences on the Fund
with respect to which the Agreement is to be terminated; or
(c) at the option of Sun Life upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, Sun Life
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Sun Life, or the Subaccount corresponding to the Fund
with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by Sun Life; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of Sun Life if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
Sun Life reasonably believes that the Fund may fail to so qualify; or
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(g) at the option of Sun Life if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if Sun Life
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by Sun Life cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement; or
(j) at the option of Sun Life or AVIF upon receipt of any necessary
regulatory approvals and/or the vote of the Contract owners having an interest
in the account (or any Subaccount) to substitute the shares of another
investment for the corresponding AVIF Shares in accordance with the terms of the
Contracts for which those Shares had been selected to serve as the underlying
investment media. Sun Life will give thirty (30) days' prior written notice to
AVIF of the date of any proposed vote or other action taken to replace the AVIF
Shares; or
(k) at the option of Sun Life, if Sun Life determines in its sole
judgment exercised in good faith, that either AVIF or AVIF's investment adviser
has suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of Sun Life; or
(l) at the option of AVIF, if AVIF determines in its sole judgment
exercised in good faith, that Sun Life has suffered a material adverse change in
its business, operations or financial condition since the date of this Agreement
or is the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of AVIF.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
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(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the option
of Sun Life, continue to make available additional shares of the Fund pursuant
to the terms and conditions of this Agreement, for all Contracts in effect on
the effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the Fund (as
in effect on such date), redeem investments in the Fund and/or invest in the
Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 6.3 will not apply to any
terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date
as of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that Sun Life may, by written notice shorten said six (6) month period in the
case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
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This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
CLARENDON INSURANCE AGENCY, INC.
One Copley Place, Suite 200
Boston, Massachusetts 02116
Facsimile: (617) 348-1586
Attn: Margaret Hankard, Esq.
Senior Associate Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
Sun Life will distribute all proxy material furnished by AVIF to Participants to
whom pass-through voting privileges are required to be extended and will solicit
voting instructions from Participants. Sun Life will vote Shares in accordance
with timely instructions received from Participants. Sun Life will vote Shares
that are (a) not attributable to Participants to whom pass-through voting
privileges are extended, or (b) attributable to Participants, but for which no
timely instructions have been received, in the same proportion as Shares for
which said instructions have been received from Participants, so long as and to
the extent that the SEC continues to interpret the 1940 Act to require pass
through voting privileges for Participants. Neither Sun Life nor any of its
affiliates will in any way recommend
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action in connection with or oppose or interfere with the solicitation of
proxies for the Shares held for such Participants. Sun Life reserves the right
to vote shares held in any Account in its own right, to the extent permitted by
law. Sun Life shall be responsible for assuring that each of its Accounts
holding Shares calculates voting privileges in a manner consistent with that of
other Participating Insurance Companies in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify Sun Life of
any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with Sun Life concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY SUN LIFE AND CLARENDON.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
Sun Life and Clarendon agree to indemnify and hold harmless AVIF, its
affiliates, and each person, if any, who controls AVIF or its affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective directors
and officers, (collectively, the "Indemnified Parties" for purposes of this
Section 12.1) against any and all losses, costs, expenses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
Sun Life and Clarendon) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise;
PROVIDED, the Account owns shares of the Fund and insofar as such losses,
costs, expenses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising
for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; PROVIDED, that this
agreement to indemnify shall not
19
<PAGE>
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
Sun Life or Clarendon by or on behalf of AVIF or AIM for use
in any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising
or otherwise for use in connection with the sale of Contracts
or Shares (or any amendment or supplement to any of the
foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied
for use therein by or on behalf of Sun Life, Clarendon or
their respective affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of Sun Life, Clarendon or their respective affiliates
or persons under their control (including, without limitation,
their employees and "Associated Persons," as that term is
defined in paragraph (m) of Article I of the NASD's By-Laws),
in connection with the sale or distribution of the Contracts
or Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to any
of the foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its
affiliates by or on behalf of Sun Life, Clarendon or their
respective affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the foregoing;
or
(iv) arise as a result of any failure by Sun Life or Clarendon to
perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement,
or any material breach of any representation and/or warranty
made by Sun Life or Clarendon in this Agreement or arise out
of or result from any other material breach of this Agreement
by Sun Life or Clarendon; or
(v) arise as a result of failure by the Contracts issued by Sun
Life to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section 817(h)
of the Code.
(b) Neither Sun Life nor Clarendon shall be liable under this Section
12.1 with respect to any losses, costs, expenses, claims, damages, liabilities
or actions to which an Indemnified Party
20
<PAGE>
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties
or by reason of that Indemnified Party's reckless disregard of obligations or
duties (i) under this Agreement, or (ii) to AVIF.
(c) Neither Sun Life nor Clarendon shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF or AIM
shall have notified Sun Life and Clarendon in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Sun Life and Clarendon of any such action shall
not relieve Sun Life and Clarendon from any liability which they may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this Section 12.1. Except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, Sun Life and Clarendon shall be
entitled to participate, at their own expense, in the defense of such action and
also shall be entitled to assume the defense thereof, with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from Sun Life or Clarendon to such
Indemnified Party of Sun Life's or Clarendon's election to assume the defense
thereof, the Indemnified Party will cooperate fully with Sun Life and Clarendon
and shall bear the fees and expenses of any additional counsel retained by it,
and neither Sun Life nor Clarendon will be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
12.2 OF SUN LIFE AND CLARENDON BY AVIF AND AIM.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless Sun Life,
Clarendon, their respective affiliates, and each person, if any, who controls
Sun Life, Clarendon or their respective affiliates within the meaning of Section
15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, costs, expenses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of AVIF and/or
AIM ) or actions in respect thereof (including, to the extent reasonable, legal
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law, or otherwise; PROVIDED, the Account owns
shares of the Fund and insofar as such losses, costs, expenses, claims,
damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus or sales
literature or advertising of AVIF (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
PROVIDED, that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to AVIF
21
<PAGE>
or its affiliates by or on behalf of Sun Life, Clarendon or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement,
any Account Prospectus, sales literature or advertising for
the Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
AVIF or AIM or their affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF or AIM or their affiliates or persons under
its control (including, without limitation, their employees
and "Associated Persons" as that term is defined in Section
(n) of Article I of the NASD By-Laws), in connection with the
sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon and in
conformity with information furnished to Sun Life, Clarendon
or their respective affiliates by or on behalf of AVIF or AIM
for use in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising covering
the Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
AVIF in this Agreement or arise out of or result from any
other material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF and/or AIM) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M of
the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related interest and penalties, rescission charges, liability under
22
<PAGE>
state law to Participants asserting liability against Sun Life pursuant to the
Contracts, the costs of any ruling and closing agreement or other settlement
with the IRS, and the cost of any substitution by Sun Life of Shares of another
investment company or portfolio for those of any adversely affected Fund as a
funding medium for each Account that Sun Life reasonably deems necessary or
appropriate as a result of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, costs, expenses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of such Indemnified Party's
reckless disregard of its obligations and duties (i) under this Agreement, or
(ii) to Sun Life, Clarendon, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF
and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the
defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM
and shall bear the fees and expenses of any additional counsel retained by it,
and AVIF will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
(e) In no event shall either AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Sun Life, Clarendon or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by Sun Life or
Clarendon hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants; (ii)
the failure by Sun Life or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Fund) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the failure by Sun Life or any Participating
Insurance Company to maintain its variable annuity or life insurance contracts
(with respect to which any Fund serves as an underlying funding vehicle) as
annuity contracts or life insurance contracts under applicable provisions of the
Code.
23
<PAGE>
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
24
<PAGE>
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of Sun Life or any
of its affiliates (collectively, the "Sun Life Protected Parties" for purposes
of this Section 18), information maintained regarding those customers, and all
computer programs and procedures or other information developed by the Sun Life
Protected Parties or any of their employees or agents in connection with Sun
Life's performance of its duties under this Agreement are the valuable property
of the Sun Life Protected Parties. AVIF agrees that if it comes into possession
of any list or compilation of the identities of or other information about the
Sun Life Protected Parties' customers, or any other information or property of
the Sun Life Protected Parties, other than such information as may be
independently developed or compiled by AVIF from information supplied to it by
the Sun Life Protected Parties' customers who also maintain accounts directly
with AVIF, AVIF will hold such information or property in confidence and refrain
from using, disclosing or distributing any of such information or other property
except: (a) with Sun Life's prior written consent; or (b) as required by law or
judicial process. Sun Life acknowledges that the identities of the customers of
AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
AVIF Protected Parties or any of their employees or agents in connection with
AVIF's performance of its duties under this Agreement are the valuable property
of the AVIF Protected Parties. Sun Life agrees that if it comes into possession
of any list or compilation of the identities of or other information about the
AVIF Protected Parties' customers or any other information or property of the
AVIF Protected Parties, other than such information as may be independently
developed or compiled by Sun Life from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with Sun Life,
Sun Life will hold such information or property in confidence and refrain from
using, disclosing or distributing any of such information or other property
except: (a) with AVIF's prior written consent; or (b) as required by law or
judicial process. Each party acknowledges that any breach of the agreements in
this Section 18 would result in immediate and irreparable harm to the other
parties for which there would be no adequate remedy at law and agree that in the
event of such a breach, the other parties will be entitled to equitable relief
by way of temporary and permanent injunctions, as well as such other relief as
any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other tradenames, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to Sun Life (the "AIM licensed marks" or the "licensor's licensed
marks") and is authorized to use and to license other persons to use such marks.
Sun Life and its affiliates are hereby granted a non-exclusive license to use
the AIM licensed marks in
25
<PAGE>
connection with Sun Life's performance of the services contemplated under this
Agreement, subject to the terms and conditions set forth in this Section 19.
(b) The grant of license to Sun Life and its affiliates ( the "licensee")
shall terminate automatically upon termination of this Agreement. Upon
automatic termination, the licensee shall cease to use the licensor's licensed
marks, except that Sun Life shall have the right to continue to service any
outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's
elective termination of this license, Sun Life and its affiliates shall
immediately cease to issue any new annuity or life insurance contracts bearing
any of the AIM licensed marks and shall likewise cease any activity which
suggests that it has any right under any of the AIM licensed marks or that it
has any association with AIM, except that Sun Life shall have the right to
continue to service outstanding Contracts bearing any of the AIM licensed marks
and to use AIM licensed marks in such materials as may be necessary for filing
with any regulatory authority where required by law or regulation or to enable
Sun Life to quote performance to existing Contract owners.
(c) The licensee shall obtain the prior written approval of the licensor
for the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approvals shall not be unreasonably withheld and
may be obtained in connection with approval of sales materials as provided in
Section 4.5(b) hereof (i.e., approvals obtained under Section 4.5 hereof shall
be deemed approval pursuant to this Section 19).
(d) During the term of this grant of license, a licensor may request that
a licensee submit samples of any materials bearing any of the licensor's
licensed marks which were previously approved by the licensor but, due to
changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials, upon receiving notice
of such failure by the licensor. The licensor's approval shall not be
unreasonably withheld, and the licensor, when requesting reconsideration of a
prior approval, shall assume the reasonable expenses of withdrawing and
replacing such disapproved materials. The licensee shall obtain the prior
written approval of the licensor for the use of any new materials developed to
replace the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates, based upon
the representations of the licensor set forth herein and without making any
independent inquiry thereof, that, to the best of the knowledge of the licensee,
the licensor's licensed marks are valid and enforceable trademarks and/or
service marks; (ii) acknowledges and stipulates that such licensee does not own
the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (iii) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (iv) acknowledges and agrees that the
use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance
26
<PAGE>
regulators) and will permit each other and such authorities reasonable access to
its books and records (including copies thereof) in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
SECTION 21. ACCESS TO INFORMATION BY SUN LIFE
During ordinary business hours, AVIF shall afford Sun Life, directly or
through its authorized representatives, reasonable access to all files, books,
records and other materials of AVIF (except for confidential or proprietary
materials) which directly relate to transactions arising in connection with this
Agreement and to make available appropriate personnel familiar with such items
for the purpose of explaining the form and content of such items. This Section
21 shall survive the termination of this Agreement.
----------------------------------------
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
------------------------------- -----------------------------------
Nancy L. Martin
Assistant Secretary Name:
---------------------------------
Title:
--------------------------------
A I M DISTRIBUTORS, INC.
Attest: By:
------------------------------- -----------------------------------
Nancy L. Martin
Assistant Secretary Name:
---------------------------------
Title:
--------------------------------
SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.), on behalf of itself and
its separate accounts
Attest: By:
------------------------------- -----------------------------------
27
<PAGE>
Name: Name:
--------------------------------- ---------------------------------
Title: Title:
-------------------------------- --------------------------------
CLARENDON INSURANCE AGENCY, INC.
Attest: By:
------------------------------- -----------------------------------
Name: Name:
--------------------------------- ---------------------------------
Title: Title:
-------------------------------- --------------------------------
28
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- - AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International
SEPARATE ACCOUNTS UTILIZING THE FUNDS
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
FUTURITY VARIABLE ANNUITY CONTRACT
29
<PAGE>
SCHEDULE B
- - AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International
- - AIM and Design
[LOGO]
30
<PAGE>
SCHEDULE C
EXPENSE ALLOCATIONS
- --------------------------------------------------------------------------------
SUN LIFE AVIF / AIM
preparing and filing the Account's preparing and filing the Fund's
registration statement registration statement
text composition for Account text composition for Fund
prospectuses and supplements prospectuses and supplements
text alterations of prospectuses text alterations of prospectuses
(Account) and supplements (Account) (Fund) and supplements (Fund)
printing Account and Fund a camera ready Fund prospectus
prospectuses and supplements
text composition and printing Account text composition and printing Fund
SAIs (if any) SAIs
mailing and distributing Account SAIs mailing and distributing Fund SAIs to
(if any) to policy owners upon policy owners upon request by policy
request by policy owners owners
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners
of record as required by or
appropriate under the Federal
Securities Laws and to prospective
purchasers
text composition (Account), printing,
mailing, and distributing annual and text composition and printing of
semi-annual reports for Account annual and semi-annual reports (Fund)
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction statements and voting instruction
solicitation materials to policy solicitation materials to policy
owners with respect to proxies owners with respect to proxies
related to the Account related to the Fund
preparation, printing and
distributing sales material and
advertising relating to the Funds,
insofar as such materials relate to
the Contracts and filing such
materials with and obtaining approval
from, the SEC, the NASD, any state
insurance regulatory authority, and
any other appropriate regulatory
authority, to the extent required
- --------------------------------------------------------------------------------
31
<PAGE>
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated February 17, 1998, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, Sun Life Assurance Company of Canada
(U.S.), a Delaware life insurance company and Clarendon Insurance Agency, Inc. a
Massachusetts corporation, is hereby amended as follows:
Section 5 of the Agreement is hereby deleted in its entirety and replaced
with the following:
SECTION 9. NOTICES.
Notices and communications required or permitted by Section 9 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
CLARENDON INSURANCE AGENCY, INC.
One Sun Life Executive Park
Wellesley Hills, MA 02481
Facsimile: (781) 237-0707
Attention Maura A. Murphy, Esq.
AIM VARIABLE INSURANCE FUNDS, INC.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attention: Nancy L. Martin, Esq.
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
SCHEDULE A
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FUNDS AVAILABLE UNDER THE SEPARATE ACCOUNTS CONTRACTS FUNDED BY THE SEPARATE
POLICIES UTILIZING THE FUNDS ACCOUNTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund Sun Life of Canada (U.S.) - FUTURITY VARIABLE ANNUITY
AIM V.I. Growth Fund Variable Account F CONTRACT
AIM V.I. Growth and Income Fund - FUTURITY II VARIABLE ANNUITY
AIM V.I. International Equity Fund CONTRACT
- ----------------------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date:
--------------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
------------------------------- --------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
(SEAL)
1 of 2
<PAGE>
A I M DISTRIBUTORS, INC.
Attest: By:
------------------------------- --------------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
(SEAL)
SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.)
Attest: By:
------------------------------- -----------------------------
Name: Name:
------------------------------- -----------------------------
Title: Title:
------------------------------- -----------------------------
(SEAL)
CLARENDON INSURANCE AGENCY, INC.
Attest: By:
------------------------------- -----------------------------
Name: Name:
------------------------------- -----------------------------
Title: Title:
------------------------------- -----------------------------
(SEAL)
2 of 2
<PAGE>
AMENDMENT NO. 2
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated February 17, 1998, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, Sun Life Assurance Company of Canada
(U.S.), a Delaware life insurance company and Clarendon Insurance Agency, Inc. a
Massachusetts corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
SCHEDULE A
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FUNDS AVAILABLE UNDER THE SEPARATE ACCOUNTS CONTRACTS FUNDED BY THE SEPARATE
POLICIES UTILIZING THE FUNDS ACCOUNTS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund Sun Life of Canada (U.S.) - FUTURITY VARIABLE ANNUITY
AIM V.I. Growth Fund Variable Account F CONTRACT
AIM V.I. Growth and Income Fund - FUTURITY II VARIABLE ANNUITY
AIM V.I. International Equity Fund CONTRACT
- FUTURITY FOCUS VARIABLE ANNUITY
CONTRACT
- ---------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund Sun Life of Canada (U.S.) - FUTURITY VARIABLE UNIVERSAL LIFE
AIM V.I. Growth Fund Variable Account I INSURANCE POLICIES
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
- ---------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund Sun Life of Canada (U.S.) - SUN LIFE CORPORATE
AIM V.I. Value Fund Variable Account G VARIABLE UNIVERSAL LIFE
INSURANCE POLICIES
- ---------------------------------------------------------------------------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: March 15, 1999
--------------------
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
------------------------------- -------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
(SEAL)
A I M DISTRIBUTORS, INC.
Attest: By:
------------------------------- -------------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
(SEAL)
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SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.)
Attest: By:
------------------------------- -------------------------------
Name: Maura A. Murphy Name: Robert K. Leach
Title: Secretary Title: Vice President, Retirement
Products and Services Division
(SEAL)
CLARENDON INSURANCE AGENCY, INC.
Attest: By:
------------------------------- -------------------------------
Name: Maura A. Murphy Name: Jane M. Mancini
Title: Secretary Title: President
(SEAL)
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PARTICIPATION AGREEMENT
Among
SUN CAPITAL ADVISERS TRUST,
SUN CAPITAL ADVISERS, INC.
and
_________________ INSURANCE COMPANY
THIS AGREEMENT, made and entered into this ____ day of ______, 19__ by and
among _________________ INSURANCE COMPANY (hereinafter the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth on Schedule A hereto as may be amended from time to time (each such
account hereinafter referred to as the "Account"), SUN CAPITAL ADVISERS TRUST, a
Delaware business trust (hereinafter the "Fund"), and SUN CAPITAL ADVISERS, INC.
(hereinafter the "Adviser"), a _____________ corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for certain
qualified pension or retirement plans ("Qualified Plans") and (ii) the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively, the "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements with the Fund and the Adviser (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interests in the Fund are divided into several
series of shares (each designated a "Portfolio"), each representing the interest
in a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated __________, ____ (File No. ________), granting Participating
<PAGE>
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies and to Qualified Plans (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an Investment Adviser under the
Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts ("Contracts") under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to one or more variable life insurance or
variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the Contracts,
NOW, THEREFORE, in consideration of their mutual promises the Company, the
Fund and the Adviser agree as follows:
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ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the Fund which
each Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt by the Fund or its designee of the order for
the shares of the Fund. For purposes of this Section 1.1, the Company shall be
the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by [9:00 a.m. Eastern time] on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission (the
"Commission").
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Commission, and the Fund shall use reasonable efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interest of the shareholders of such Portfolio.
1.3. The Fund and the Adviser agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts and
certain Qualified Plans, in accordance with the terms of the Mixed and Shared
Funding Exemptive Order. No shares of any Portfolio will be sold to the general
public.
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1.4. The Fund will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III, V, and VII of this Agreement is in effect to govern
such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption by [9:00 a.m. Eastern time] on the next following
Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares by 11:00 a.m. Eastern time on
the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke
4
<PAGE>
this election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practicable
after the net asset value per share is calculated (normally 6:30 p.m. Eastern
time) and shall use its best efforts to make such net asset value per share
available by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section ___ of the ________ Insurance Code of the state of _______________
and has registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with
5
<PAGE>
the laws of the various states if and to the extent deemed advisable by the Fund
or the Adviser.
2.3. The Fund represents that it intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the in the future.
2.4. The Company represents that each Account is properly treated as a
"segregated asset account" for purposes of Treasury Regulation Section
1.817-5(f), that the Contracts are currently treated as endowment, annuity or
life insurance contacts under applicable provisions of the Code and that it will
maintain such treatment and that it will notify the Fund and the Adviser
immediately upon having a reasonable basis for believing that any Account or
Contract has ceased to be so treated or might not be so treated in the future.
2.5. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
polices) complies with the insurance laws or regulations of the various states
except that the Fund and the Adviser represent that their respective operations
are and shall at all times remain in material compliance with applicable laws of
the State of Delaware to the extent required to perform this Agreement.
2.6. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.7. The Adviser represents and warrants that the Adviser is and shall
remain duly registered as an investment adviser in all material respects under
all applicable federal and state securities laws and that the Adviser shall
perform its obligations for
6
<PAGE>
the Fund in compliance in all material respects with applicable state and
federal securities laws.
2.8. The Fund and Adviser represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund, in an amount not less than the minimal coverage as required currently
by entities subject to the requirements of Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Adviser shall provide the Company (at the Company's expense) with
as many copies of the Fund's current prospectus as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final "camera ready" or diskette copy of the new
prospectus as set in type at the Fund's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the
7
<PAGE>
Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Adviser (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Adviser (or the Fund), at its expense, shall provide a copy of
such Statement free of charge to the Company and to any owner of a Contract or
prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Portfolio for which instructions have been received:
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for owners of Variable Insurance
Products. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Fund calculates voting privileges
in a manner consistent with this Section and with each other.
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<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund, the Adviser or one of their respective affiliates is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee objects to such use within fifteen Business
Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Adviser, except with the permission of the Fund or the
Adviser or the designee of either.
4.3. The Fund and the Adviser, or its designee, shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee object to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Adviser shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company
9
<PAGE>
for distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the
Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as materials published, or designed for use in, in a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
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ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Adviser shall pay no fee or other compensation to the
Company under this Agreement, except that: (a) if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Adviser may make payments to the Company for the Contracts if
and in amounts agreed to by the Adviser in writing; and (b) the Adviser may make
payments out of existing fees otherwise payable to the Adviser, past profits of
the Adviser or other resources available to the Adviser, to the extent permitted
by law.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including, if so elected, the costs of
printing a prospectus that constitutes an annual report), and the preparation of
all statements and notices required by any federal or state law.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. Each Portfolio of the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation Section 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, to the extent such
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requirements apply to the Portfolio's investments pursuant to Treasury
Regulation Section 1.817-5(f), and any amendments or other modifications to such
Section or Regulations.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict among the interests of the contract owners of all
separate accounts investing in the Fund and determine what action is to be
taken. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract owners, variable life insurance contract owners and Plan
trustees; (f) a decision by an insurer to disregard the voting instructions of
contract owners; or (g) if applicable, a decision by a Qualified Plan to
disregard the voting instructions of Plan participants. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company and the Adviser will assist the Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order by providing the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever contract owner voting
instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees that a material irreconcilable conflict exists, the
Company and
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other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or series thereof or managed separate
account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. No charge
or penalty will be imposed as a result of the withdrawal. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six (6) month period the Adviser and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
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7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six (6) months after the Board informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six (6) month period, the Adviser
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the contracts if an offer to do so has been (a) declined by
vote of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict or (b) pursuant to governing Qualified Plan
documents and applicable law, the Qualified Plan makes the decision without a
vote of its participants. In the event that the Board determines that any
proposed action does not adequately remedy any irreconcilable material conflict,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each of its directors and officers and each person, if any, who controls the
Fund or the Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contract or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement,
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prospectus or sales literature of the Fund not supplied by the Company, or
persons under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the
16
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summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operations of
the Fund.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses,
17
<PAGE>
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Adviser or Fund by or on behalf of the Company
specifically for use in the Registration Statement or prospectus for the
Fund or in sales literature (or any amendment or supplement) or otherwise
specifically for use in connection with the sale of the Contracts or Fund
shares: or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by
the Adviser or persons under its control) or wrongful conduct of the Fund
or Adviser or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with
18
<PAGE>
information furnished to the Company by or on behalf of the Fund
specifically for inclusion therein; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure of any Portfolio, whether unintentional or in good
faith or otherwise, to invest in a manner that complies with the
diversification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Adviser; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or Account, whichever, is applicable.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the
19
<PAGE>
Indemnified Parties, the Adviser will be entitled to participate, at its own
expense, in the defense thereof. The Adviser also shall be entitled to assume
the defense thereof with counsel satisfactory to the party named in the action.
After notice from the Adviser to such party of the Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Commission may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
20
<PAGE>
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written notice
to the other parties unless otherwise agreed in a separate written agreement
among the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule B are not reasonably available to meet the requirements
of the Contracts as determined by the Company within ten (10) days of notice by
Company to Fund of such fact; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the Commission, the insurance or securities
commission or division of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the Contracts,
the administration of the Contracts, the operation of the Account, or the
purchase of the Fund shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the Commission, or any state
securities or insurance department or any other regulatory body; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contract owners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days' prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
21
<PAGE>
(f) at the option of the Company or the Fund upon a determination by
a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists from the Company's
continued investment in the Fund; or
(g) at the option of the Company if any Portfolio of the Fund ceases
to qualify as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code, or under any successor or similar provision, or if the Company
reasonably believes that the Portfolio may fail to so qualify; or
(h) at the option of the Company if any Portfolio of the Fund fails
to meet the diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund or the Adviser has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company; or
(k) at the option of the Fund or Adviser, if the Fund or Adviser
respectively, shall determine in its sole judgment exercised in good faith, that
the Company has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Fund or Adviser; or
(l) at the option of the Fund or Adviser in the event any of the
Contracts are not issued or sold in accordance with applicable federal and/or
state law or if any Account or Contract ceased to qualify as annuity contracts
or life insurance
22
<PAGE>
contracts, as applicable, under the Code or if the Fund or Adviser reasonably
believes the Account or Contract may fail to so qualify.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written notice
of the election to terminate this Agreement for cause shall be furnished by the
party terminating the Agreement to the non-terminating parties, with said
termination to be effective: (x) upon receipt of such notice by the
non-terminating parties in the case of terminations based on Sections
10.1(b) - (d); or (y) in the event of terminations based on Sections
10.1(g) - (i) if the breaching party has not cured such breach.
(c) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
(d) In the event that any termination of this Agreement is based upon
the provisions of Section 10.1(l), termination shall be effective immediately
upon such occurrence without notice.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
23
<PAGE>
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund may, at its option, or in the event of
termination of this Agreement by the Fund or the Adviser pursuant to Section
10.1(a) of this Agreement, the Company may require the Fund and the Adviser to,
continue to make available additional shares of the Fund for so long after the
termination of this Agreement as the Fund or the Company, if the Company is so
requiring, desires pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Fund so elects to make
available additional shares of the Fund, pursuant to instructions from the
owners of the Existing Contracts, the Company shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest in the
Fund upon the making by such owners of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.4 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
(b) In the event of a termination of this agreement pursuant to
Section 10.1 of this Agreement, the Fund shall promptly notify the Company
whether the Fund will continue to make available shares of the Fund after such
termination, except that, with respect to a termination by the Fund or the
Adviser pursuant to Section 10.1(a) of this Agreement, the Company shall
promptly notify the Fund whether it wishes the Fund to continue to make
available additional shares of the Fund. If shares of the Fund continue to be
made available after such termination, the provisions of this Agreement shall
remain in effect except for Section 10.1(a) and thereafter the Fund or the
Company may terminate the Agreement, as so continued pursuant to this Section
10.4 upon
24
<PAGE>
written notice to the other party, such notice to be for a period that is
reasonable under the circumstances.
10.5. Except as necessary to implement contract owner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets), and the Company
shall not prevent contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts, until 90 days after the Company
shall have notified the Fund or Adviser of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Sun Capital Advisers Trust
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
Attn: President
If to the Company:
-------------------------
-------------------------
-------------------------
If to the Adviser:
Sun Capital Advisers, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
Attn: President
25
<PAGE>
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property
of the Fund, or in the case of a claim relating to a Portfolio, the assets of
that Portfolio for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund. No Portfolio shall be subject
to liability for the allegations of any other Portfolio.
12.2. Except as otherwise required by law, legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement shall not disclose disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provision hereof or
otherwise affect their construction or effect.
12.4. This Agreement maybe executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its
26
<PAGE>
books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
REMAINDER OF PAGE INTENTIONALLY BLANK
27
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
Company:
----------------------------------------
----------------------------------------
By its authorized officer
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
Fund:
-----------------------------------
----------------------------------------
SUN CAPITAL ADVISERS TRUST:
By its authorized officer
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
Adviser:
SUN CAPITAL ADVISERS, INC.
By its authorized officer
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
28
<PAGE>
SCHEDULE A
__________ Insurance Company
on behalf of its segregated accounts
ACCOUNT DATE OF ORGANIZATION
------- --------------------
1
<PAGE>
SCHEDULE B
SUN CAPITAL ADVISERS TRUST
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Real Estate Fund
2
<PAGE>
AMENDMENT NUMBER 1 TO THE PARTICIPATION AGREEMENT
Pursuant to the Participation Agreement dated February 17, 1999 among Sun Life
Assurance Company of Canada (U.S.), Sun Capital Advisers Trust, and Sun Capital
Advisers, Inc., the parties hereby agree to the amendment set forth below:
1. The third WHEREAS clause, which begins on page 1 of the Participation
Agreement is deleted in its entirety and replaced with the following:
WHEREAS, the Fund has received an order from the Securities and Exchange
Commission, that grants Participating Insurance Companies and variable annuity
and variable life insurance separate accounts exemptions from the provisions of
Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as
amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Funds to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and to Qualified Plans
(hereinafter the "Mixed and Shared Funding Exemptive Order"); and
2. SCHEDULE A is deleted in its entirety and replaced with the following:
SCHEDULE A
<TABLE>
<CAPTION>
ACCOUNT DATE OF ORGANIZATION
------- --------------------
<S> <C>
Sun Life of Canada (U.S.) Variable Account F July 13, 1989
Sun Life of Canada (U.S.) Variable Account G July 25, 1996
Sun Life of Canada (U.S.) Variable Account I December 1, 1998
</TABLE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
Number 1 to the Participation Agreement to be executed in its name and on its
behalf by its duly authorized representative. This Amendment shall take effect
on May 1, 1999.
SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.)
By:
-----------------------------------------------
Donald E. Kaufman
Title: Vice President
<PAGE>
SUN CAPITAL ADVISERS TRUST
By:
-----------------------------------------------
James M.A. Anderson
Title: President
SUN CAPITAL ADVISERS, INC.
By:
-----------------------------------------------
C. James Prieur
Title: Executive Vice President
<PAGE>
PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
SUN LIFE OF CANADA (U.S.)
THIS AGREEMENT, made and entered into as of this 20th day of April, 1998
by and among Sun Life of Canada (U.S.) (hereinafter, the "Company"), a Delaware
insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), and the
undersigned funds, each, a corporation organized under the laws of Maryland
(each hereinafter referred to as the "Fund") and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933,
<PAGE>
-2-
as amended (hereinafter the "1933 Act"); and
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC, and the Fund shall use its best efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
<PAGE>
-3-
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt
of an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
<PAGE>
-4-
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such net
asset value per share available by 7 p.m. Baltimore time. If the net asset
value is materially incorrect through no fault of the Company, the Company on
behalf of each Account, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value in
accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative or
other costs or losses incurred for correcting underlying Contract owner accounts
shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under
Delaware insurance laws and has registered or, prior to any issuance or sale of
the Contracts, will register the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution
<PAGE>
-5-
expenses pursuant to Rule 12b-1 under the 1940 Act, although it may make such
payments in the future. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund will undertake to have the Board, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Delaware to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and any applicable state
and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for the Fund in
compliance in all material respects with the laws of the State of Delaware and
any applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies. The Company agrees to exercise its best efforts to
ensure that other individuals/entities not employed or controlled by the Company
and dealing with the money and/or securities of the Fund maintain a similar bond
or coverage in a reasonable amount.
<PAGE>
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ARTICLE III. PROSPECTUSES, STATEMENTS OF ADDITIONAL INFORMATION, AND PROXY
STATEMENTS; VOTING
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and
semi-annual reports to shareholders in such quantity as the Company shall
reasonably request for use in connection with offering the Variable Contracts
issued by the Company. If requested by the Company in lieu thereof, the
Underwriter shall provide such documentation (which may include a final copy of
the Fund's annual and semi-annual reports as set in type or on diskette) and
other assistance as is reasonably necessary in order for the Company (at the
Company's expense) to print such shareholder communications for distribution to
Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated
Portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
<PAGE>
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3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least ten calendar days
prior to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within ten calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
<PAGE>
-8-
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, within a
reasonable time after the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
<PAGE>
-9-
5.3 The Company shall bear the expenses of printing the Fund's
prospectus (in accordance with 3.1) and of distributing the Fund's prospectus,
proxy materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1 The Fund will invest the assets of each Designated Portfolio in such
a manner as to ensure that the Contracts will be treated as annuity, endowment,
or life insurance contracts, whichever is appropriate, under the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations issued
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, each Designated Portfolio of the Fund will comply with Section 817(h)
of the Code and Treasury Regulation '1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Code (or any successor or similar provision), shall
identify such contract as a modified endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
<PAGE>
-10-
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to
<PAGE>
-11-
establish a new funding medium for the Contracts. The Company shall not be
required by Section 7.3 to establish a new funding medium for the Contract if an
offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested members of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information ("SAI") for the Contracts or contained
in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information
<PAGE>
-12-
furnished to the Company by or on behalf of the Fund for use
in the Registration Statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature or other
promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or
other promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of
the Company or persons under its authorization or control,
with respect to the sale or distribution of the Contracts or
Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature or other promotional
material of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the qualification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such
<PAGE>
-13-
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against an Indemnified Party, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action and to settle the claim at
its own expense; provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact
contained in the Registration Statement or prospectus
or SAI or sales literature or other promotional
material of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund
by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or
in sales literature or other promotional material (or
any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration
<PAGE>
-14-
Statement, prospectus or sales literature or other
promotional material for the Contracts not supplied by
the Underwriter or persons under its control) or
wrongful conduct of the Fund or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
Registration Statement, prospectus, SAI, or sales
literature or other promotional material of the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statement or statements
therein not misleading, if such statement or omission
was made in reliance upon information furnished to the
Company by or on behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund
to provide the services and furnish the materials
under the terms of this Agreement (including a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and
other qualification requirements specified in Article
VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to
<PAGE>
-15-
assume the defense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Underwriter to such party of the Underwriter's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Underwriter will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund
to provide the services and furnish the materials
under the terms of this Agreement (including a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and
other qualification requirements specified in Article
VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in
this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with
<PAGE>
-16-
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve the
Fund from any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
the Fund will be entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the expense thereof, with
counsel satisfactory to the party named in the action and to settle the claim at
its own expense; provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Fund to such
party of the Fund's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Fund will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio
based upon the Company's determination that shares of the
Fund are not reasonably available to meet the requirements of
the Contracts; provided that such termination shall apply
only to the Designated Portfolio not reasonably
<PAGE>
-17-
available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any
Account, or the purchase of the Fund shares; provided,
however, that the Fund or Underwriter determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its
obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Designated Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so
qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Section 6.3 hereof; or if the
Fund or Underwriter reasonably believes that such Contracts
may fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
<PAGE>
-18-
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund
and the Underwriter the opinion of counsel for the Company (which counsel shall
be reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 30 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
<PAGE>
-19-
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Sun Life of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02181
Attn: John Scanlan, J.D.
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. MISCELLANEOUS
12.1 All references herein to the Fund are to each of the undersigned
Funds as if this agreement were between such individual Fund and the Underwriter
and the Company. All references herein to the Adviser relate solely to the
Adviser of such individual Fund, as appropriate. All persons dealing with a
Fund must look solely to the property of such Fund, and in the case of a series
company, the respective Designated Portfolio listed on Schedule A hereto as
though such Designated Portfolio had separately contracted with the Company and
the Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts,
<PAGE>
-20-
each of which taken together shall constitute one and the same instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any),
as soon as practical and in any event within 90 days after
the end of each fiscal year.
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days
after the end of each quarterly period.
12.10. The Underwriter shall use its best efforts furnish or cause to be
furnished to the Company cumulative and annualized performance data for the Fund
within 10 days of the close of each month, which performance data shall include,
where applicable, year-to-date, 1, 3, 5, and 10 years (or since inception) data
or such other data as shall be mutually agreed by the parties hereto.
<PAGE>
-21-
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: SUN LIFE OF CANADA (U.S.)
By its authorized officer
By:
--------------------------------------------
Title:
--------------------------------------------
Date:
--------------------------------------------
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By:
--------------------------------------------
Title: Vice President
--------------------------------------------
Date:
--------------------------------------------
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:
--------------------------------------------
Title: Vice President
--------------------------------------------
Date:
--------------------------------------------
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
- -------------------------------------- ---------------- ---------------------
<S> <C> <C>
Variable Account G Sun Life Corporate T. Rowe Price Equity Series, Inc.
(Established 7/25/96) VUL ---------------------------------
- Equity Income Portfolio
- New America Growth Portfolio
</TABLE>
<PAGE>
Exhibit 6
[Letterhead of Sun Life of Canada]
April 30, 1999
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 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>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post-Effective Amendment No. 5 to the Registration
Statement on Form S-6 of Sun Life of Canada (U.S.) Variable Account G (Reg.
No. 333-13087) of our report dated February 4, 1999 accompanying the
financial statements of the Sun Life of Canada (U.S.) Variable Account G and
to the use of our report dated February 5, 1999 accompanying the financial
statements of Sun Life Assurance Company of Canada (U.S.) appearing in the
Prospectus, which is part of such Registration Statement, and the
incorporation by reference of our reports dated February 5, 1999 appearing in
the Annual Report on Form 10-K of Sun Life Assurance Company of Canada (U.S.)
for the year ended December 31, 1998.
We also consent to the reference to us under the heading "Accountants" appearing
in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 30, 1999
