<PAGE>
As filed with the Securities and Exchange Commission on April 20, 2000
Registration No. 2-78738
811-03530
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM N-4
POST-EFFECTIVE AMENDMENT NO. 23
to
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
and
AMENDMENT NO. 23
to
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
(Exact Name of Registrant)
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Name of Depositor)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
(Address of Depositor's
Principal Executive Offices)
Depositor's Telephone Number: (781) 237-6030
Edward M. Shea, Assistant Vice President and Senior Counsel
Sun Life Assurance Company of Canada (U.S.)
Retirement Products & Services
One Copley Place
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copies of Communications to:
Joan E. Boros, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
- --------------------------------------------------------------------------------
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[X] On May 1, 2000 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
previously filed post-effective amendment.
Title of securities being registered:
Units of interest in Separate Account under variable annuity contracts.
This Post-Effective Amendment to the registration statement on Form N-4 (file
No. 2-78738), which became effective on November 18, 1982 (the "Registration
Statement"), is being filed pursuant to Rule 485(b) under the Securities
Exchange Act of 1933, as amended, to designate a new effective date for a
previously filed post-effective amendment.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated May 1,
2000.
<PAGE>
PROSPECTUS
MAY 1, 2000
COMPASS I
Sun Life Assurance Company of Canada (U.S.) ("we" or the "Company") and Sun
Life of Canada (U.S.) Variable Account C (the "Variable Account") offer the
individual flexible payment deferred annuity contracts (the "Contracts")
described in this Prospectus. The Contracts are designed for use in connection
with retirement plans that meet the requirements of Sections 401 or 408
(excluding Section 408(b)) of the Internal Revenue Code. NO CONTRACTS HAVE BEEN
ISSUED FOR USE IN CONNECTION WITH DEFERRED COMPENSATION PLANS ESTABLISHED
PURSUANT TO SECTION 457 OF THE INTERNAL REVENUE CODE SINCE MAY 1, 1990.
Contract Owners may choose among 11 variable investment options and a fixed
account option. The variable options are sub-accounts in the Variable Account,
each of which invests in shares in one of the following mutual funds advised by
our affiliate, Massachusetts Financial Services Company (the "Funds"):
<TABLE>
<CAPTION>
<S> <C>
MFS Money Market Fund Massachusetts Investors Trust
MFS Government Money Market Fund MFS Research Fund
MFS Global Governments Fund Massachusetts Investors Growth Stock Fund
MFS Bond Fund MFS Growth Opportunities Fund
MFS High Income Fund MFS Emerging Growth Fund
MFS Total Return Fund
</TABLE>
The fixed account option pays interest at a guaranteed fixed rate.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR EACH OF THE
FUNDS. PLEASE READ THIS PROSPECTUS AND THE FUND PROSPECTUSES CAREFULLY BEFORE
INVESTING AND KEEP THEM FOR FUTURE REFERENCE. THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE CONTRACTS AND THE FUNDS.
We have filed a Statement of Additional Information dated May 1, 2000 (the
"SAI"), which is incorporated by reference in this Prospectus, with the
Securities and Exchange Commission (the "SEC"). The table of contents for the
SAI is on page 20 of this Prospectus. You may obtain a copy without charge by
writing to us at the address shown below (which we sometimes refer to as our
"Annuity Mailing Address") or by telephoning (800) 752-7215. In addition, the
SEC maintains a website (HTTP://WWW.SEC.GOV) that contains the SAI, materials
incorporated by reference, and other information regarding companies that file
with the SEC.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
ANY REFERENCE IN THIS PROSPECTUS TO RECEIPT BY US MEANS RECEIPT AT THE
FOLLOWING ADDRESS:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions 2
Synopsis 3
Expense Summary 4
Condensed Financial Information--Accumulation Unit Values 6
Financial Statements 6
A Word About the Company, the Variable Account and the Funds 7
Purchase Payments and Contract Values During Accumulation Phase 9
Withdrawals 11
Death Benefit 12
Contract Charges 13
Annuity Provisions 15
Other Contract Provisions 16
Tax Considerations 18
Distribution of the Contracts 19
Legal Proceedings 20
Owner Inquiries 20
Table of Contents for Statement of Additional Information 20
</TABLE>
DEFINITIONS
The Contract is a legal document that uses a number of specially defined
terms. We explain some of the terms that we use in this Prospectus in the
context where they arise, and others are self-explanatory. In addition, for
convenient reference, we have compiled the following list of terms used in this
Prospectus. If you come across a term that you do not understand, please refer
to this list of definitions for an explanation.
Accumulation Account: An account we establish for the Contract to which we
credit net Purchase Payments in the form of Accumulation Units.
Accumulation Phase: The period before the Annuity Commencement Date and during
the lifetime of the Annuitant. The Accumulation Phase will also terminate when
the Owner surrenders the Contract.
Accumulation Unit: A unit of measure we use in the calculation of the value of
the Accumulation Account. There are two types of Accumulation Units: Variable
Accumulation Units and Fixed Accumulation Units.
Annuitant: The person or persons named in the Contract and on whose life the
first annuity payment is to be made.
Annuity Commencement Date: The date on which we are to make the first annuity
payment.
Annuity Unit: A unit of measure we use in the calculation of the amount of the
second and each subsequent Variable Annuity payment.
Beneficiary: The person who has the right to the death benefit set forth in the
Contract.
Company: Sun Life Assurance Company of Canada (U.S.) (also referred to in this
Prospectus as "we").
Contract Years and Contract Anniversaries: The first Contract Year is the period
of 12 months plus a part of a month as measured from the date we issue the
Contract to the first day of the calendar month that follows the calendar month
of issue. All Contract Years and Contract Anniversaries thereafter are 12 month
periods based upon the first day of the calendar month that follows the calendar
month of issue.
Due Proof of Death: An original certified copy of an official death certificate,
an original certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or any other proof satisfactory to us.
Fixed Account: The Fixed Account consists of all assets of the Company other
than those allocated to separate accounts of the Company.
Fixed Annuity: An annuity with payments that do not vary as to dollar amount.
Owner: The person, persons or entity entitled to the ownership rights stated in
the Contract and in whose name or names the Contract is issued. The Owner must
be the trustee or custodian of a retirement plan that meets the requirements of
Section 401 or Section 408 (excluding Section 408(b)) of the Internal Revenue
Code.
2
<PAGE>
Payee: The recipient of payments under the Contract. The term may include an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Annuitant.
Purchase Payment (Payment): An amount the Owner pays to us, or that is paid to
us on the Owner's behalf, as consideration for the benefits provided by the
Contract.
Sub-Account: That portion of the Variable Account that invests in shares of a
specific Fund.
Valuation Period: The period of time from one determination of Accumulation Unit
and Annuity Unit values to the next subsequent determination of these values.
Variable Annuity: An annuity with payments that vary as to dollar amount in
relation to the investment performance of specified Sub-Accounts of the Variable
Account.
We: Sun Life Assurance Company of Canada (U.S.).
SYNOPSIS
We allocate Purchase Payments to Sub-Accounts of the Variable Account or to
the Fixed Account option or both, as the Owner selects. Purchase Payments must
total at least $300 for the first Contract Year and each Purchase Payment must
be at least $25 (see "Purchase Payments" on page 9). During the Accumulation
Phase, the Owner may, without charge, transfer amounts among the Sub-Accounts
and between the Sub-Accounts and the Fixed Account, subject to certain
conditions (see "Transfers" on page 10).
We do not deduct a sales charge from Purchase Payments; however, if the
Owner makes a cash withdrawal, we will, with certain exceptions, deduct a 5%
withdrawal charge. The Owner may withdraw a portion of the Accumulation Account
each year before we assess the withdrawal charge and after we have held a
Purchase Payment for five years the Owner may withdraw it without charge. We do
not assess a withdrawal charge upon annuitization or upon the transfers
described above (see "Withdrawals" and "Withdrawal Charges" on pages 11 and 13,
respectively).
If the Annuitant dies before the Annuity Commencement Date, we will pay a
death benefit to the Beneficiary. If the Annuitant dies on or after the Annuity
Commencement Date, we will not pay a death benefit, except as may be provided
under the annuity option elected (see "Death Benefit" on page 12).
We deduct a contract maintenance charge of $25 on each Contract Anniversary
and on a surrender of the Contract for full value. After the Annuity
Commencement Date, we deduct this charge pro rata from each annuity payment we
make during the year. (See "Contract Maintenance Charge" on page 13.)
We also deduct a mortality and expense risk charge equal to an annual rate
of 1.30% of the daily net assets of the Variable Account (see "Mortality and
Expense Risk Charge" on page 13).
We will deduct a charge for premium taxes payable to any governmental entity
(see "Premium Taxes" on page 14).
Annuity payments will begin on the Annuity Commencement Date. The Owner
selects the Annuity Commencement Date, frequency of payments, and the annuity
option (see "Annuity Provisions" on page 15).
If the Owner is not satisfied with the Contract, the Owner may return it to
the Company at our Annuity Mailing Address within ten days after we deliver the
Contract to the Owner. When we receive the returned Contract we will cancel it
and refund the full amount of any Purchase Payment(s) we have received.
ANY PERSON CONTEMPLATING THE PURCHASE OF A CONTRACT SHOULD CONSULT A
QUALIFIED TAX ADVISER.
3
<PAGE>
EXPENSE SUMMARY
The purpose of the following table is to help you to understand the costs
and expenses that are borne, directly and indirectly, by Contract Owners. The
table reflects expenses of the Variable Account as well as of the Funds. We have
restated the expense information for certain Funds to reflect current fees. The
information set forth should be considered together with the narrative provided
under the heading "Contract Charges" in this Prospectus, and with the Funds'
prospectuses. In addition to the expenses listed below, premium taxes may be
applicable.
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION
EXPENSES MMM MMG MWG MFB MFH MTR MIT MFR MIG
- -------- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases......... 0 0 0 0 0 0 0 0 0
Deferred Sales Load (as a percentage of
Purchase Payments withdrawn)(1)
Years Payment in Account
0-5................................. 5% 5% 5% 5% 5% 5% 5% 5% 5%
more than 5......................... 0% 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee............................ 0 0 0 0 0 0 0 0 0
ANNUAL CONTRACT FEE
- ---------------------------------------- -----------------$25 per Contract -----------------
SEPARATE ACCOUNT ANNUAL EXPENSES
- ----------------------------------------
(as a percentage of average separate account assets)
Mortality and Expense Risk Fees......... 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
Other Account Fees and Expenses......... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Separate Account Annual
Expenses.............................. 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
FUND ANNUAL EXPENSES
- ----------------------------------------
(as a percentage of Fund average net assets)
Management Fees......................... 0.45% 0.50% 0.75% 0.38% 0.45% 0.35% 0.33% 0.43% 0.33%
12b-1 Fees(2)........................... -- -- 0.25%(3) 0.30%(5) 0.30%(5) 0.35% 0.35% 0.35% 0.35%
Other Expenses(6)....................... 0.24% 0.28% 0.34% 0.24% 0.23% 0.19% 0.20% 0.20% 0.19%
Total Fund Annual Expenses (6).......... 0.69% 0.78% 1.34% 0.92% 0.98% 0.89% 0.88% 0.98% 0.87%
<CAPTION>
CONTRACT OWNER TRANSACTION
EXPENSES MGO MEG
- -------- --- ---
<S> <C> <C>
Sales Load Imposed on Purchases......... 0 0
Deferred Sales Load (as a percentage of
Purchase Payments withdrawn)(1)
Years Payment in Account
0-5................................. 5% 5%
more than 5......................... 0% 0%
Exchange Fee............................ 0 0
-----------------$25 per
ANNUAL CONTRACT FEE Contract
- ---------------------------------------- -----------------
SEPARATE ACCOUNT ANNUAL EXPENSES
- ----------------------------------------
(as a percentage of average separate acc
Mortality and Expense Risk Fees......... 1.30% 1.30%
Other Account Fees and Expenses......... 0.00% 0.00%
Total Separate Account Annual
Expenses.............................. 1.30% 1.30%
FUND ANNUAL EXPENSES
- ----------------------------------------
(as a percentage of Fund average net ass
Management Fees......................... 0.42% 0.68%
12b-1 Fees(2)........................... 0.19%(3)(4) 0.25%(3)
Other Expenses(6)....................... 0.19% 0.20%
Total Fund Annual Expenses (6).......... 0.80% 1.13%
</TABLE>
- ------------
(1) A portion of the Accumulation Account value may be withdrawn each year
without imposition of any withdrawal charge, and after we have held a
Purchase Payment for five years it may be withdrawn free of any withdrawal
charge.
(2) Each of the Funds except MMM and MMG has adopted a distribution plan for its
shares in accordance with Rule 12b-1 under the Investment Company Act of
1940, as amended, which provides that it will pay distribution/service fees
aggregating up to (but not necessarily all of) 0.35% per annum of the
average daily net assets attributable to the Class A shares. See
"Information Concerning Shares of the Fund -- Distribution Plan" in the
Fund's Prospectus.
(3) Payment of the 0.10% per annum Class A distribution fee will be imposed on
such date as the Trustees of the Fund may determine.
(4) The 0.35% per annum distribution/service fee is reduced to 0.25% for shares
purchased prior to March 1, 1991.
(5) 0.05% of the Class A distribution fee is currently being paid by the Fund.
Payment of the remaining portion of the Class A distribution fee will become
payable upon such date as the Trustees of the Trust may determine.
(6) Each Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund 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 Fund's expenses). Any such reductions are not
reflected in the table. Had these fees been taken into account, "Total Fund
Annual Expenses" would be as follows: MMM, 0.67%; MMG, 0.74%; MWG, 1.31%,
MFB, 0.90%; MFH, 0.96%; MTR, 0.87%; MIT, 0.87%; MFR, 0.97%; MIG, 0.86%; MGO,
0.77%; and MEG, 1.12%.
4
<PAGE>
EXAMPLES
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming an average
Contract size of $35,000 and a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MCM..................................... $66 $110 $157 $242
MCG..................................... $67 $113 $162 $251
MWG..................................... $73 $130 $190 $307
MFB..................................... $69 $117 $169 $266
MFH..................................... $69 $119 $172 $272
MTR..................................... $68 $117 $168 $263
MIT..................................... $68 $116 $167 $262
MFR..................................... $69 $119 $172 $272
MIG..................................... $68 $116 $167 $263
MGO..................................... $67 $114 $163 $253
MEG..................................... $71 $124 $180 $287
</TABLE>
If you do NOT surrender your Contract, or if you annuitize at the end of the
applicable time period, you would pay the following expenses on a $1,000
investment, assuming an average Contract size of $35,000 and a 5% annual return
on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MCM..................................... $21 $65 $112 $242
MCG..................................... $22 $68 $117 $251
MWG..................................... $28 $85 $145 $307
MFB..................................... $24 $72 $124 $266
MFH..................................... $24 $74 $127 $272
MTR..................................... $23 $72 $123 $263
MIT..................................... $23 $71 $122 $262
MFR..................................... $24 $74 $127 $272
MIG..................................... $23 $71 $122 $261
MGO..................................... $22 $69 $118 $253
MEG..................................... $26 $79 $135 $287
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
5
<PAGE>
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's financial statements appearing in the Statement of Additional
Information, all of which has been audited by Deloitte & Touche LLP, independent
auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MIT
Unit Value:
Beginning of period $ 27.3399 $ 26.9745 $ 34.0429 $ 36.0967 $ 39.2065 $ 38.3097 $52.6746 $ 65.4965 $ 85.1160 $103.3129
End of period $ 26.9745 $ 34.0429 $ 36.0967 $ 39.2065 $ 38.3097 $ 52.6746 $65.4965 $ 85.1160 $103.3129 $109.0939
Units outstanding at end of
period 366,752 316,483 299,263 263,601 233,419 228,398 211,924 191,532 156,406 147,525
MIG
Unit Value:
Beginning of period $ 21.2145 $ 19.9645 $ 29.1252 $ 30.6143 $ 34.5944 $ 31.8549 $40.3897 $ 48.9432 $ 71.6206 $ 98.9683
End of period $ 19.9645 $ 29.1252 $ 30.6143 $ 34.5944 $ 31.8549 $ 40.3897 $48.9432 $ 71.6206 $ 98.9683 $135.5845
Units outstanding at end of
period 264,246 234,979 237,389 210,268 191,666 183,386 137,226 116,839 110,261 109,497
MTR
Unit Value:
Beginning of period $ 26.9600 $ 26.0022 $ 31.2350 $ 33.9389 $ 38.5828 $ 37.0619 $46.4569 $ 52.6180 $ 62.6622 $ 69.2493
End of period $ 26.0022 $ 31.2350 $ 33.9389 $ 38.5828 $ 37.0619 $ 46.4569 $52.6180 $ 62.6622 $ 69.2493 $ 69.9144
Units outstanding at end of
period 1,028,444 761,746 699,832 646,262 580,826 502,308 445,574 376,845 304,476 252,908
MGO
Unit Value:
Beginning of period $ 19.7926 $ 18.6788 $ 22.6160 $ 24.0443 $ 27.4921 $ 26.0211 $34.5473 $ 41.5395 $ 50.5718 $ 64.4932
End of period $ 18.6788 $ 22.6160 $ 24.0443 $ 27.4921 $ 26.0211 $ 34.5473 $41.5395 $ 50.5718 $ 64.4932 $ 84.5669
Units outstanding at end of
period 1,827,215 1,517,720 1,303,035 1,126,904 952,138 835,555 752,698 682,668 617,973 552,305
MFR
Unit Value:
Beginning of period $ 22.2941 $ 20.6700 $ 27.1037 $ 29.7380 $ 35.7429 $ 35.2820 $48.2543 $ 59.3112 $ 70.5612 $ 85.6092
End of period $ 20.6700 $ 27.1037 $ 29.7380 $ 35.7429 $ 35.2820 $ 48.2543 $59.3112 $ 70.5612 $ 85.6092 $104.6442
Units outstanding at end of
period 340,420 285,749 253,146 232,537 189,988 158,916 143,843 129,195 121,411 104,992
MFB
Unit Value:
Beginning of period $ 20.4642 $ 21.4953 $ 25.2705 $ 26.5208 $ 29.8082 $ 27.9595 $33.5161 $ 34.3871 $ 37.4559 $ 38.6443
End of period $ 21.4953 $ 25.2705 $ 26.5208 $ 29.8082 $ 27.9595 $ 33.5161 $34.3871 $ 37.4559 $ 38.6443 $ 37.3948
Units outstanding at end of
period 577,242 461,410 421,711 368,774 233,449 226,571 186,637 158,314 139,906 112,651
MMM
Unit Value:
Beginning of period $ 15.6562 $ 16.6504 $ 17.3549 $ 17.6517 $ 17.8424 $ 18.2359 $18.9505 $ 19.5956 $ 20.2949 $ 21.0291
End of period $ 16.6504 $ 17.3549 $ 17.6517 $ 17.8424 $ 18.2359 $ 18.9505 $19.5956 $ 20.2949 $ 21.0291 $ 21.7309
Units outstanding at end of
period 1,574,435 1,090,472 646,162 512,329 480,850 371,369 401,141 301,313 247,311 226,156
MCG
Unit Value:
Beginning of period $ 15.2737 $ 16.1947 $ 16.8311 $ 17.1053 $ 17.2531 $ 17.5882 $18.2642 $ 18.8643 $ 19.4875 $ 20.1619
End of period $ 16.1947 $ 16.8311 $ 17.1053 $ 17.2531 $ 17.5882 $ 18.2642 $18.8643 $ 19.4875 $ 20.1619 $ 20.7776
Units outstanding at end of
period 538,594 375,155 218,074 162,009 139,248 108,206 73,345 68,686 67,794 40,868
MFH
Unit Value:
Beginning of period $ 18.7620 $ 15.1874 $ 22.6883 $ 26.2356 $ 30.9007 $ 29.6848 $34.3557 $ 38.2245 $ 42.8235 $ 42.6829
End of period $ 15.1874 $ 22.6883 $ 26.2356 $ 30.9007 $ 29.6848 $ 34.3557 $38.2245 $ 42.8235 $ 42.6829 $ 45.0959
Units outstanding at end of
period 624,184 515,396 450,376 408,637 339,549 264,391 229,079 200,252 168,359 136,385
MWG
Unit Value:
Beginning of period $ 22.9549 $ 26.7105 $ 29.9468 $ 29.9680 $ 34.9430 $ 32.3034 $36.8194 $ 38.3007 $ 37.9444 $ 38.9935
End of period $ 26.7105 $ 29.9468 $ 29.9680 $ 34.9430 $ 32.3034 $ 36.8194 $38.3007 $ 37.9444 $ 38.9935 $ 37.1590
Units outstanding at end of
period 227,935 200,763 157,841 125,704 101,661 83,177 70,278 55,822 49,718 42,379
MEG
Unit Value:
Beginning of period $ 15.9033 $ 13.8995 $ 23.3793 $ 24.8430 $ 31.1131 $ 32.2107 $44.8831 $ 50.8597 $ 60.5646 $ 74.4225
End of period $ 13.8995 $ 23.3793 $ 24.8430 $ 31.1131 $ 32.2107 $ 44.8831 $50.8597 $ 60.5646 $ 74.4225 $110.2608
Units outstanding at end of
period 585,909 511,153 439,127 405,542 390,605 372,726 321,077 280,589 249,765 205,870
</TABLE>
FINANCIAL STATEMENTS
Financial Statements of the Variable Account and the Company are included in
the Statement of Additional Information.
6
<PAGE>
A WORD ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
THE COMPANY
Sun Life Assurance Company of Canada (U.S.) is a stock life insurance
company incorporated under the laws of Delaware on January 12, 1970. Our
Executive Office is located at One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481.
We are an indirect wholly-owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life (Canada)"). Sun Life (Canada) completed its demutualization on
March 22, 2000. As a result of the demutualization, a new holding company, Sun
Life Financial Services of Canada Inc. ("Sun Life Financial"), is now the
ultimate parent of Sun Life (Canada) and the Company. Sun Life Financial, a
corporation organized in Canada, is a reporting company under the Securities
Exchange Act of 1934 with common shares listed on the Toronto, New York, London,
and Manila stock exchanges.
THE VARIABLE ACCOUNT
We established the Variable Account as a separate account of the Company on
March 31, 1982, pursuant to a resolution of our Board of Directors. The Variable
Account meets the definition of a separate account under the federal securities
laws and is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940.
Under Delaware insurance law and the Contract, the income, gains or losses
of the Variable Account are credited to or charged against the assets of the
Variable Account without regard to the other income, gains or losses of the
Company. Although the assets maintained in the Variable Account will not be
charged with any liabilities arising out of any other business conducted by the
Company, all obligations arising under the Contracts, including the promise to
make annuity payments, are general corporate obligations of the Company.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of one of the Funds described below.
THE FUNDS
All amounts allocated to the Variable Account will be used to purchase Fund
shares as designated by the Owner at their net asset value. Any and all
distributions made by the Funds with respect to the shares held by the Variable
Account will be reinvested to purchase additional shares at their net asset
value. We will make deductions from the Variable Account for cash withdrawals,
annuity payments, death benefits, administrative charges, contract charges
against the assets of the Variable Account for the assumption of mortality and
expense risks and any applicable taxes, in effect, by redeeming the number of
Fund shares at their net asset value equal in total value to the amount to be
deducted. The Variable Account will be fully invested in Fund shares at all
times.
A summary of the investment objectives of each Fund is contained in the
description below. More detailed information may be found in the current
prospectuses of the Funds and their Statements of Additional Information. A
prospectus for each Fund must accompany this Prospectus and should be read
together with this Prospectus.
MFS-REGISTERED TRADEMARK- MONEY MARKET FUND ("MMM")
MMM seeks as high a level of current income as is considered consistent with
preservation of capital and liquidity. MMM is a money market fund, meaning it
tries to maintain a share price of $1.00 while paying income to its
shareholders. MMM invests in money market instruments, which are short-term
notes or other debt securities issued by banks or other corporations or the U.S.
Government or other governmental entities. Money market instruments purchased by
MMM have maturities of 13 months or less and the average remaining maturity of
the securities cannot be greater than 90 days.
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MFS-REGISTERED TRADEMARK- GOVERNMENT MONEY MARKET FUND ("MMG")
MMG will seek as high a level of current income as is considered consistent
with preservation of capital and liquidity. MMG is a money market fund, meaning
it tries to maintain a share price of $1.00 while paying income to its
shareholders. MMG invests its total assets in U.S. Government securities, which
are bonds or other debt obligations issued by, or whose principal and interest
payments are guaranteed by, the U.S. Government or one of its agencies or
instrumentalities, including repurchase agreements collateralized by U.S.
Government securities. U.S. Government securities purchased by MMG must have
maturities of 13 months or less and the average remaining maturity of the
securities cannot be greater than 90 days. .
MFS-REGISTERED TRADEMARK- GLOBAL GOVERNMENTS FUND ("MWG")
MWG will seek income and capital appreciation. MWG invests, under normal
conditions, at least 65% of its total assets in U.S. Government securities and
foreign government securities (including emerging market securities). MWG may
also invest in corporate bonds, including investment grade bonds, lower rated
bonds (commonly known as junk bonds), crossover bonds and mortgage-backed and
asset-backed securities.
MFS-REGISTERED TRADEMARK- BOND FUND ("MFB")
MFB will primarily seek to provide as high a level of current income as is
believed to be consistent with prudent risk. MFB's secondary objective is to
protect shareholders' capital. MFB invests, under normal market conditions, at
least 65% of its total assets in corporate bonds, U.S. Government securities and
mortgage-backed and asset-backed securities.
MFS-REGISTERED TRADEMARK- HIGH INCOME FUND ("MFH")
MFH will seek high current income by investing primarily in professionally
managed diversified portfolio of fixed income securities, some of which may
involve equity features. MFH invests, under normal market conditions, at least
80% of its total assets in high income fixed income securities. While MFH may
invest in fixed income securities with any credit rating, the securities
offering the high current income level sought by MFH generally have speculative
characteristics or are lower rated bonds (commonly known as junk bonds).
MFS-REGISTERED TRADEMARK- TOTAL RETURN FUND ("MTR")
MTR' main objective is to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. Its secondary objective is to provide reasonable
opportunity for growth of capital and income. MTR is a "balanced fund" and
invests in a combination of equity and fixed income securities. Under normal
market conditions, MTR invests: (i) at least 40%, but not more than 75%, of its
net assets in common stocks and related securities (referred to as equity
securities), such as preferred stock, bonds, warrants or rights convertible into
stock, and depositary receipts for those securities, and (ii) at least 25% of
its net assets in non-convertible fixed income securities.
MASSACHUSETTS INVESTORS TRUST ("MIT")
MIT will seek reasonable current income and long-term growth of capital and
income. MIT invests, under normal market conditions, at least 65% of its total
assets in common stocks and related securities, such as preferred stock,
convertible securities, and depositary receipts. While MIT may invest in
companies of any size, it generally focuses on companies with larger market
capitalizations that its investment adviser believes have sustainable growth
prospects and attractive valuations based on current and expected earnings or
cash flow. MIT will also seek to provide income equal to approximately 90% of
the dividend yield on the Standard & Poor's 500 Composite Index.
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MFS-REGISTERED TRADEMARK- RESEARCH FUND ("MFR")
MFR will seek long-term growth of capital and future income. MFR invests,
under normal market conditions, at least 80% of its total assets in common
stocks and related securities, such as preferred stocks, convertible securities
and depositary receipts. MFR focuses on companies that its investment adviser
believes have favorable prospects for long-term growth, attractive valuations
based on current and expected earnings or cash flow, dominant or growing market
share, and superior management.
MASSACHUSETTS INVESTORS GROWTH STOCK FUND ("MIG")
MIG will seek long-term growth of capital and future income rather than
current income. MIG invests its assets (except for working cash balances) in the
common stocks, and securities convertible into common stocks, of companies which
its investment adviser believes offer better-than-average prospects for
long-term growth.
MFS-REGISTERED TRADEMARK- GROWTH OPPORTUNITIES FUND ("MGO")
MGO will seek growth of capital. MGO invests, under normal market
conditions, at least 65% of its total assets in common stock and equity related
securities (such as preferred stock, convertible securities, and depositary
receipts) of companies which MGO's investment adviser believes possess above-
average growth opportunities. MGO also invests in fixed income securities when
relative values or economic conditions make these securities attractive.
MFS-REGISTERED TRADEMARK- EMERGING GROWTH FUND ("MEG")
MEG will seek long-term growth of capital. MEG invests in common stocks and
related securities (such as preferred stocks, convertible securities and
depositary receipts) of emerging growth companies. These companies are companies
which MEG's adviser believes are either early in their life cycle but which have
the potential to become major enterprises or are major enterprises whose rates
of earnings growth are expected to accelerate.
PURCHASE PAYMENTS AND CONTRACT VALUES DURING ACCUMULATION PHASE
PURCHASE PAYMENTS
All Purchase Payments are to be paid to us at our Annuity Mailing Address.
Purchase Payments may be made annually, semi-annually, quarterly, monthly or on
any other frequency acceptable to us. Unless the Owner has surrendered the
Contract, Purchase Payments may be made at any time during the life of the
Annuitant and before the Annuity Commencement Date.
The amount of Purchase Payments may vary; however, Purchase Payments must
total at least $300 for the first Contract Year, and each Purchase Payment must
be at least $25. In addition, our approval is required before we will accept a
Purchase Payment if the value of a Contract's Accumulation Account exceeds
$1,000,000 or if the Purchase Payment would cause the value of a Contract's
Accumulation Account to exceed $1,000,000.
Completed application forms, together with the initial Purchase Payment, are
forwarded to us. Upon acceptance, we issue the Contract to the Owner and credit
the initial Purchase Payment to the Contract in the form of Accumulation Units.
We will credit the initial Purchase Payment within two business days of our
receipt of a completed application. If an application is incomplete, we may
retain the Purchase Payment for up to five business days while we attempt to
complete the application. If we cannot complete the application within five
business days, we will inform the applicant of the reasons for the delay and
return the Purchase Payment immediately, unless the applicant specifically
consents to our retaining the Purchase Payment until the application is made
complete. Once the application is completed, we will credit the Purchase Payment
within two business days. We will apply all subsequent Purchase Payments using
the Accumulation Unit values for the Valuation Period during which we receive
the Purchase Payment.
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We will establish an Accumulation Account for each Contract. The Contract's
Accumulation Account value for any Valuation Period is equal to the variable
accumulation value, if any, plus the fixed accumulation value, if any, for that
Valuation Period. The variable accumulation value is equal to the sum of the
value of all Variable Accumulation Units credited to the Contract's Accumulation
Account.
We will allocate each net Purchase Payment to either the Fixed Account or to
Sub-Accounts of the Variable Account or to both Sub-Accounts and the Fixed
Account, in accordance with the allocation factors that the Owner specifies in
the application or as subsequently changed (see Appendix A to the Statement of
Additional Information for a description of the Fixed Account). Upon receipt of
a Purchase Payment, we will credit all or that portion, if any, of the net
Purchase Payment to be allocated to the Sub-Accounts to the Accumulation Account
in the form of Variable Accumulation Units. The number of Variable Accumulation
Units we credit is determined by dividing the dollar amount allocated to a Sub-
Account by the Variable Accumulation Unit value for that Sub-Account for the
Valuation Period during which we received the Purchase Payment.
We established the Variable Accumulation Unit value for each Sub-Account at
$10.00 for the first Valuation Period of that Sub-Account. We determine the
Variable Accumulation Unit value for the Sub-Account for any subsequent
Valuation Period by multiplying the Variable Accumulation Unit value for the
immediately preceding Valuation Period by the Net Investment Factor for the
subsequent Valuation Period. The Variable Accumulation Unit value for each
Sub-Account for any Valuation Period is determined at the end of the Valuation
Period and may increase, decrease or remain constant from Valuation Period to
Valuation Period, depending upon the investment performance of the Fund in which
the Sub-Account is invested and the expenses and charges deducted from the
Variable Account.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore the
value of a Variable Accumulation Unit may increase, decrease or remain the same.
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result,
where:
(a) is the net result of:
(1) the net asset value of a Fund share held in the Sub-Account
determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution declared
by the Fund issuing the shares held in the Sub-Account if the
"ex-dividend" date occurs during the Valuation Period, plus or minus
(3) a per share credit or charge with respect to any taxes paid, or
reserved for by the Company during the Valuation Period which are
determined to be attributable to the operation of the Sub-Account (no
federal income taxes are applicable under present law);
(b) is the net asset value of a Fund share held in the Sub-Account,
determined as of the end of the preceding Valuation Period; and
(c) is the risk charge factor determined by the Company for the Valuation
Period to reflect the charge for assuming the mortality and expense
risks.
TRANSFERS
During the Accumulation Phase, the Owner may transfer all or part of the
Contract's Accumulation Account Value to one or more Sub-Accounts then available
or to the Fixed Account, or to any combination of these options. We make these
transfers by converting the value of the Accumulation Units the Owner wishes to
transfer into Variable Accumulation Units of Sub-Accounts and/or Fixed
Accumulation
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Units of the same aggregate value, as the Owner chooses. These transfers are
subject to the following conditions:
(1) Transfers involving Fixed Accumulation Units may be made only during the
45 day period before and the 45 day period after each Contract
Anniversary;
(2) Not more than 12 transfers may be made in any Contract Year; and
(3) The value of Accumulation Units transferred may not be less than $1,000,
unless all of the Fixed Accumulation Units or all of the Variable
Accumulation Units of a particular Sub-Account credited to the
Accumulation Account are being transferred.
In addition, these transfers will be subject to such terms and conditions as
each Fund may impose. We will make these transfers using the Accumulation Unit
values for the Valuation Period during which we receive the request for
transfer. You may request transfers in writing or by telephone. The telephone
transfer privilege is available automatically, and does not require your written
election. We will require personal identifying information to process a request
for transfer made by telephone. We will not be liable for following instructions
communicated by telephone that we reasonably believe are genuine.
WITHDRAWALS
At any time during the Accumulation Phase, the Owner may elect to receive a
cash withdrawal payment under the Contract. Withdrawals may be subject to a
withdrawal charge (see "Withdrawal Charges"). Withdrawals also may have adverse
federal income tax consequences, including a 10% penalty tax (see "Tax
Considerations"). Since the Contracts will be issued only in connection with
retirement plans that meet the requirements of Section 401 or Section 408
(excluding Section 408(b)) of the Internal Revenue Code, you should refer to the
terms of the particular retirement plan for any limitations or restrictions on
cash withdrawals.
A withdrawal request will be effective on the date we receive it. If the
Owner requests a withdrawal of more than $5,000, we may require a signature
guarantee. The request must specify the amount the Owner wishes to withdraw. For
a partial withdrawal, the Owner may specify the amount to be withdrawn from the
Fixed Account and/or each Sub-Account to which the Contract's Accumulation
Account is allocated. If the Owner does not so specify, we will deduct the total
amount requested pro rata based on the allocations at the end of the Valuation
Period during which we receive the withdrawal request.
If the Owner requests a full withdrawal, we will pay the value of the
Accumulation Account at the end of the Valuation Period during which we receive
the request, minus the contract maintenance charge for the current Contract Year
and any applicable withdrawal charge. If the Owner requests a partial
withdrawal, we will pay the amount requested less any applicable withdrawal
charge and we will reduce the value of the Contract's Accumulation Account by
deducting the amount requested. If the Owner requests a partial withdrawal that
would result in the value of the Accumulation Account being reduced to an amount
less than the contract maintenance charge for the current Contract Year, we will
treat it as a request for a full withdrawal.
We will pay you the applicable amount of any full or partial withdrawal
within seven days after we receive the Owner's withdrawal request, except in
cases where we are permitted to defer payment under the Investment Company Act
of 1940 and applicable state insurance law. Currently, we may defer payment of
amounts withdrawn only for following periods:
- When the New York Stock Exchange is closed, except weekends and holidays
or when trading on the New York Stock Exchange is restricted;
- When it is not reasonably practical to dispose of securities held by the
Funds or to determine the value of the net assets of the Funds because an
emergency exists; and
- When an SEC order permits us to defer payment for the protection of
securities holders.
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DEATH BENEFIT
If the Annuitant dies before the Annuity Commencement Date, we will pay a
death benefit to the Beneficiary. If the Annuitant dies on or after the Annuity
Commencement Date, we will not pay a death benefit, except as may be provided
under Annuity Options B, D, or E, if elected. (Under these options, the
Beneficiary may choose to receive remaining payments as they become due or a
single lump sum payment of their discounted value.)
Subject to the rights of an irrevocably designated Beneficiary, the Owner
may change or revoke the designation of a Beneficiary at any time while the
Annuitant is living. Reference should be made to the terms of the particular
retirement plan and any applicable legislation for any restrictions on the
Beneficiary designation. If there is no designated Beneficiary living on the
date of death of the Annuitant, we will pay the death benefit in one lump sum to
the Owner, or if the Owner is the Annuitant, to the estate of the
Owner/Annuitant.
During the lifetime of the Annuitant and before the Annuity Commencement
Date, the Owner may elect to have the death benefit payable under one or more of
our annuity options listed under "Annuity Provisions" in this Prospectus, for
the Beneficiary as Payee. If the Owner has not elected a method of settlement of
the death benefit that is in effect on the date of death of the Annuitant, the
Beneficiary may elect to receive the death benefit in the form of either a cash
payment or one or more of our annuity options. If we do not receive an election
by the Beneficiary within 60 days after the date we receive Due Proof of Death
of the Annuitant and any required release or consent, the Beneficiary will be
deemed to have elected a cash payment as of the last day of the 60 day period.
In all cases, no Owner or Beneficiary will be entitled to exercise any
rights that would adversely affect the treatment of the Contract as an annuity
contract under the Internal Revenue Code.
You should refer to the terms of the particular retirement plan and any
applicable legislation for any limitations or restrictions on the election of a
method of settlement and payment of the death benefit.
PAYMENT OF DEATH BENEFIT
If the death benefit is to be paid in cash to the Beneficiary, we will make
payment within seven days of the date the election becomes effective or is
deemed to become effective, except as we may be permitted to defer such payment
in accordance with the Investment Company Act of 1940 under the circumstances
described under "Withdrawals." If the death benefit is to be paid in one sum to
the Owner or to the estate of the deceased Owner/Annuitant, we will make payment
within seven days of the date we receive Due Proof of Death of the Annuitant and
the Beneficiary.
If the death benefit is to be paid under one or more of our annuity options,
the Annuity Commencement Date will be the first day of the second calendar month
following the effective date or the deemed effective date of the election, and
we will maintain the Contract's Accumulation Account in effect until the Annuity
Commencement Date. The Owner or Beneficiary may elect an Annuity Commencement
Date later than that described above, provided that such date is (a) the first
day of a calendar month and (b) not later than the first day of the first month
following the 85th birthday of the Beneficiary or other Payee designated by the
Owner, as the case may be, unless otherwise restricted by the particular
retirement plan or by applicable law (see "Annuity Commencement Date").
AMOUNT OF DEATH BENEFIT
The death benefit is equal to the greatest of:
(1) the value of the Contract's Accumulation Account;
(2) the total Purchase Payments made under the Contract reduced by all
withdrawals; and
(3) the value of the Contract's Accumulation Account on the fifth Contract
Anniversary, adjusted for any Purchase Payments or cash withdrawal
payments made and contract charges assessed after the fifth Contract
Anniversary.
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To determine the amount of the death benefit under (1) above, we will use
Accumulation Values for the Valuation Period during which we receive Due Proof
of Death of the Annuitant if the Owner has elected settlement under one or more
of the Annuity Options; if no election by the Owner is in effect, we will use
either the values for the Valuation Period during which an election by the
Beneficiary becomes or is deemed effective or, if the death benefit is to be
paid in one sum to the Owner or to the Owner/Annuitant's estate, the values for
the Valuation Period during which we receive Due Proof of Death of both the
Annuitant and the designated Beneficiary.
CONTRACT CHARGES
We will assess contract charges under the Contract as follows:
CONTRACT MAINTENANCE CHARGE
We deduct an annual contract maintenance charge of $25 as partial
reimbursement to us for administrative expenses relating to the issuance and
maintenance of the Contract. Prior to the Annuity Commencement Date, we deduct
this charge on each Contract Anniversary. We will also deduct this charge on
surrender of the Contract for full value on a date other than the Contract
Anniversary. We deduct the contract maintenance charge in equal amounts from the
Fixed Account and each Sub-Account in which the Owner has Accumulation Units at
the time of such deduction.
On the Annuity Commencement Date, we will reduce the value of the Contract's
Accumulation Account by a proportionate amount of the contract maintenance
charge to reflect the time elapsed between the last Contract Anniversary and the
day before the Annuity Commencement Date. After the Annuity Commencement Date,
we will deduct the contract maintenance charge pro rata from each annuity
payment made during the year.
We will not increase the amount of the contract maintenance charge. We
reserve the right to reduce the amount of the contract maintenance charge for
groups of participants with individual Contracts under an employer's retirement
program in situations in which the size of the group and established
administrative efficiencies contribute to a reduction in administrative
expenses. We do not expect to make a profit from the contract maintenance
charge.
MORTALITY AND EXPENSE RISK CHARGE
We assume the risk that Annuitants may live for a longer period of time than
we have estimated in establishing the guaranteed annuity rates incorporated into
the Contract, and the risk that administrative charges assessed under the
Contract may be insufficient to cover our actual administrative expenses
incurred.
For assuming these risks, we make a deduction from the Variable Account at
the end of each Valuation Period both during the Accumulation Phase and after
the annuity payments begin at an effective annual rate of 1.30%. We may change
the rate of this deduction annually but it will not exceed 1.30% on an annual
basis. If the deduction is insufficient to cover the actual cost of the
mortality and expense risk undertaking, we will bear the loss. Conversely, if
the deduction proves more than sufficient, the excess will be profit to us and
would be available for any proper corporate purpose including, among other
things, payment of distribution expenses. If the withdrawal charges described
below prove insufficient to cover expenses associated with the distribution of
the Contracts, we will meet the deficiency from our general corporate funds,
which may include amounts derived from the mortality and expense risk charges.
For the year ended December 31, 1999, mortality and expense risk charges were
the only expenses of the Variable Account.
WITHDRAWAL CHARGES
We do not deduct a sales charge from Purchase Payments. However, we will
assess a withdrawal charge (contingent deferred sales charge) on certain amounts
you withdraw as reimbursement for certain expenses relating to the distribution
of the Contracts, including commissions, costs of preparation of sales
literature and other promotional costs and acquisition expenses.
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The Owner may withdraw a portion of the Accumulation Account value each year
without imposition of any withdrawal charge, and after we have held a Purchase
Payment for five years it may be withdrawn free of any withdrawal charge. In
addition, we do not assess a withdrawal charge upon annuitization or upon the
transfer of Accumulation Account values among the Sub-Accounts or between the
Sub-Accounts and the Fixed Account.
All other full or partial withdrawals are subject to a withdrawal charge
equal to 5% of the amount withdrawn that is subject to the charge. We will apply
the charge as follows:
(1) OLD PAYMENTS, NEW PAYMENTS AND "ACCUMULATED VALUE": In a given
Contract Year, "New Payments" are Payments made in that Contract Year
or in the previous four Contract Years; "Old Payments" are Payments
made before the previous four Contract Years. The remainder of the
Accumulation Account value -- that is, the value of the Accumulation
Account minus the total of Old Payments and New Payments -- is called
the "accumulated value."
(2) ORDER OF WITHDRAWAL: When the Owner makes a full surrender or
partial withdrawal, we consider the oldest Payment not previously
withdrawn to be withdrawn first, then the next oldest, and so forth.
Once all Old Payments and New Payments have been withdrawn,
additional amounts withdrawn will be attributed to accumulated value.
(3) FREE WITHDRAWAL AMOUNT: In any Contract Year, the Owner may withdraw
the following amount before we impose a withdrawal charge: (a) any
Old Payments not previously withdrawn plus (b) 10% of any New
Payments, whether or not these New Payments have been previously
withdrawn.
(4) AMOUNT SUBJECT TO WITHDRAWAL CHARGE: We will impose the 5%
withdrawal charge on the excess, if any, of (a) Old Payments and New
Payments being withdrawn over (b) the remaining free withdrawal
amount at the time of the withdrawal. We do not impose the withdrawal
charge on amounts attributed to accumulated value.
Aggregate withdrawal charges assessed against a Contract will never exceed
5% of the total amount of Purchase Payments made under the Contract (see
Appendix C to the Statement of Additional Information for examples of
withdrawals and withdrawal charges).
PREMIUM TAXES
We will make a deduction, when applicable, for premium taxes or similar
state or local taxes. The amount of such applicable tax varies by jurisdiction
and in many jurisdictions there is no premium tax at all. We believe that such
premium taxes or similar taxes currently range from 0% to 3.5%. It is currently
our policy to deduct the tax from the amount applied to provide an annuity at
the time annuity payments commence. However, we reserve the right to deduct such
taxes on or after the date they are incurred.
CHARGES OF THE FUNDS
The Variable Account purchases shares of the Funds at net asset value. The
net asset value of these shares reflects investment management fees, Rule 12b-1
(i.e., distribution plan) fees and expenses (including, but not limited to,
compensation of trustees/directors, governmental expenses, interest charges,
taxes, fees of auditors, legal counsel, transfer agent and custodian,
transactional expenses and brokerage commissions) already deducted from the
assets of the Funds. These fees and expenses are more fully described in the
Funds' prospectuses and related statements of additional information.
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ANNUITY PROVISIONS
ANNUITY COMMENCEMENT DATE
We begin making annuity payments under a Contract on the Annuity
Commencement Date, which the Owner selects in the Contract application. The
Owner may change this date as provided in the Contract; however, the new Annuity
Commencement Date must be the first day of a month and not later than the first
day of the first month following the Annuitant's 85th birthday, unless otherwise
limited or restricted by the particular retirement plan or by applicable law. In
most situations, current law requires that certain minimum distributions
commence no later than April 1 following the year the Annuitant reaches age
70 1/2. In addition, the particular retirement plan may impose additional
limitations. The Annuity Commencement Date may also be changed by an election of
an annuity option, as described under "Death Benefit". Any new Annuity
Commencement Date must be at least 30 days after we receive notice of the
change.
On the Annuity Commencement Date, we will cancel the Contract's Accumulation
Account and apply its adjusted value to provide an annuity. The adjusted value
will be equal to the value of the Accumulation Account for the Valuation Period
that ends immediately before the Annuity Commencement Date, reduced by any
applicable premium taxes or similar taxes and a proportionate amount of the
contract maintenance charge (see "Contract Maintenance Charge"). NO CASH
WITHDRAWALS WILL BE PERMITTED AFTER THE ANNUITY COMMENCEMENT DATE EXCEPT AS MAY
BE AVAILABLE UNDER ANNUITY OPTIONS B, D, OR E, IF ELECTED. (Under these options,
the if the Annuitant dies on or after the Annuity Commencement Date, the
Beneficiary may choose to receive the remaining payments as they become due or
in a single lump sum payment of their discounted value.)
ANNUITY OPTIONS
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Owner may elect one or more of the annuity options described below or
such other settlement option as we may agree to for the Annuitant as Payee,
except as restricted by the particular retirement plan or any applicable
legislation. These annuity options may also be elected by the Owner or the
Beneficiary, as provided under "Death Benefit."
The Owner may not change any election after 30 days before the Annuity
Commencement Date, and no change of annuity option is permitted after the
Annuity Commencement Date. If no election is in effect on the 30th day before
the Annuity Commencement Date, we will deem Annuity Option B, for a Life Annuity
with 120 Monthly Payments Certain, to have been elected.
Any election may specify the proportion of the adjusted value of the
Contract's Accumulation Account to be applied to the Fixed Account and the
Sub-Accounts. If the election does not so specify, the portion of the adjusted
value of the Accumulation Account to be applied to the Fixed Account and the
Sub-Accounts will be determined on a pro rata basis from the composition of the
Accumulation Account on the Annuity Commencement Date.
Annuity Options A, B and C are available to provide either a Fixed Annuity
or a Variable Annuity. Annuity Options D and E are available only to provide a
Fixed Annuity.
Annuity Option A. Life Annuity: We make monthly payments during the lifetime of
the Payee. This option offers a higher level of monthly payments than Annuity
Options B or C because we do not make further payments after the death of the
Payee and there is no provision for a death benefit payable to a Beneficiary.
Annuity Option B. Life Annuity with 60, 120 or 240 Monthly Payments Certain: We
make monthly payments during the lifetime of the Payee and in any event for 60,
120, 180 or 240 months certain, as elected. The election of a longer period
certain results in smaller monthly payments than would be the case if a shorter
period certain was elected.
Annuity Option C. Joint and Survivor Annuity: We make monthly payments during
the joint lifetime of the Payee and a designated second person and during the
lifetime of the survivor. During the lifetime of the survivor, variable monthly
payments, if any, will be determined using the percentage chosen at
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the time this option was elected of the number of each type of Annuity Unit
credited to the Contract and each fixed monthly payment, if any, will be equal
to the same percentage of the fixed monthly payment payable during the joint
lifetime of the Payee and the designated second person.
Annuity Option D. Fixed Payments for a Specified Period Certain: We make fixed
monthly payments for a specified period of time (at least three years but not
exceeding 30 years), as elected.
Annuity Option E. Fixed Payments: We will hold the amount applied to provide
fixed payments in accordance with this option at interest. We will make fixed
payments in such amounts and at such times as we have agreed upon and will
continue until the amount we hold with interest is exhausted. We will credit
interest yearly on the amount remaining unpaid at a rate which we shall
determine from time to time but which shall not be less than 4% per year,
compounded annually. We may change the rate so determined at any time; however,
the rate may not be reduced more frequently than once during each calendar year.
DETERMINATION OF ANNUITY PAYMENTS
We will determine the dollar amount of the first Variable Annuity payment in
accordance with the annuity payment rates found in the Contract, which are based
on an assumed interest rate of 4% per year. We determine all Variable Annuity
payments other than the first by means of Annuity Units credited to the
Contract. The number of Annuity Units to be credited in respect of a particular
Sub-Account is determined by dividing that portion of the first Variable Annuity
payment attributable to that Sub-Account by the Annuity Unit value of that
Sub-Account for the Valuation Period that ends immediately before the Annuity
Commencement Date. The number of Annuity Units of each Sub-Account credited to
the Contract then remains fixed, unless an exchange of Annuity Units is made as
described below. The dollar amount of each Variable Annuity payment after the
first may increase, decrease or remain constant, depending on the investment
performance of the Sub-Accounts.
The Statement of Additional Information contains detailed disclosure
regarding the method of determining the amount of each Variable Annuity payment
and calculating the value of a Variable Annuity Unit, as well as hypothetical
examples of these calculations.
EXCHANGE OF VARIABLE ANNUITY UNITS
After the Annuity Commencement Date, the Payee may exchange Variable Annuity
Units from one Sub-Account to another, up to a maximum of 12 such exchanges each
Contract Year. We calculate the number of new Variable Account units so that the
dollar amount of an annuity payment made on the date of the exchange would be
unaffected by the fact of the exchange.
ANNUITY PAYMENT RATES
The Contract contains annuity payment rates for each annuity option
described above. The rates show, for each $1,000 applied, the dollar amount of
(a) the first monthly Variable Annuity payment based on the assumed interest
rate of 4%, and (b) the monthly Fixed Annuity payment, when this payment is
based on the minimum guaranteed interest rate of 4% per year. The annuity
payment rates may vary according to the annuity option elected and the adjusted
age of the Payee.
If net investment return of the Sub-Accounts was exactly equal to the
assumed interest rate of 4%, the amount of each Variable Annuity payment would
remain level. If a net investment return is greater than 4%, the amount of each
variable annuity payment would increase; conversely, if the net investment
return is less than 4%, the amount of each variable annuity payment would
decrease.
OTHER CONTRACT PROVISIONS
OWNER
The Owner is entitled to exercise all Contract rights and privileges without
the consent of the Beneficiary or any other person. Such rights and privileges
may be exercised only during the lifetime of the Annuitant and prior to the
Annuity Commencement Date, except as otherwise provided in the
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Contract. The Annuitant becomes the Owner on and after the Annuity Commencement
Date. The Beneficiary becomes the Owner on the death of the Annuitant. In some
qualified plans the Owner of the Contract is a Trustee and the Trust authorizes
the Annuitant/participant to exercise certain Contract rights and privileges.
Transfer of ownership of a Contract is governed by the laws and regulations
applicable to the retirement plan for which we issue the Contract. Subject to
the foregoing, a Contract may not be sold, assigned, transferred, discounted or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person other than the Company.
VOTING OF FUND SHARES
We will vote Fund shares held by the Sub-Accounts at meetings of
shareholders of the Funds or in connection with similar solicitations, but will
follow voting instructions received from persons having the right to give voting
instructions. We will vote Fund shares for which no timely voting instructions
are received in the same proportion as the shares for which instructions are
received from persons having such voting rights. The Owner is the person having
the right to give voting instructions prior to the Annuity Commencement Date. On
or after the Annuity Commencement Date, the Payee is the person having such
voting rights.
Owners of Contracts may be subject to other voting provisions of the
particular retirement plan. Employees who contribute to retirement plans which
are funded by the Contracts are entitled to instruct the Owners as to how to
instruct the Company to vote the Fund shares attributable to their
contributions. Such plans may also provide the additional extent, if any, to
which the Owners shall follow voting instructions of persons with rights under
the plans.
We will determine the number of particular Fund shares as to which each such
person is entitled to give instructions on a date not more than 90 days prior to
each such meeting. Prior to the Annuity Commencement Date, we determine the
number of particular Fund shares as to which voting instructions may be given by
dividing the value of all of the Variable Accumulation Units of the particular
Sub-Account credited to the Contract's Accumulation Account by the net asset
value of one particular Fund share as of the same date. On or after the Annuity
Commencement Date, we determine the number of particular Fund shares as to which
such instructions may be given by a Payee by dividing the reserve held by the
Company in the particular Sub-Account for the Contract by the net asset value of
a particular Fund share as of the same date.
PERIODIC REPORTS
During the Accumulation Phase, we may send the Owner, or such other person
having voting rights, at least once during each Contract Year, a statement
showing the number, type and value of Accumulation Units credited to the
Contract's Accumulation Account and the fixed accumulation value of such
account, which statement shall be accurate as of a date not more than two months
previous to the date of mailing. These periodic statements contain important
information concerning Accumulation Account transactions with respect to a
Contract. It is the obligation of the Owner to review each such statement
carefully and to report to us, at the address or telephone number provided on
the statement, any errors or discrepancies in the information presented therein
within 60 days of the date of such statement. Unless we receive notice of any
such error or discrepancy from the Owner within such time period, we may not be
responsible for correcting the error or discrepancy.
In addition, every person having voting rights will receive such reports or
prospectuses concerning the Variable Account and the Funds as may be required by
the Investment Company Act of 1940 and the Securities Act of 1933. We will also
send such statements reflecting transactions in the Contract's Accumulation
Account as may be required by applicable laws, rules and regulations.
Upon request, we will provide the Owner with information regarding fixed and
variable accumulation values.
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SUBSTITUTED SECURITIES
Shares of any of the Funds may not always be available for purchase by the
Variable Account or we may decide that further investment in any such Fund's
shares is no longer appropriate in view of the purposes of the Variable Account.
In either event, we may substitute shares of another registered open-end
investment company both for Fund shares already purchased by the Variable
Account and as the security to be purchased in the future provided that these
substitutions have been approved, if required, by the Securities and Exchange
Commission. In the event of any substitution pursuant to this provision, we may
make appropriate endorsement to the Contract to reflect the substitution.
MODIFICATION
Upon notice to the Owner, or to the Payee during the annuity period, we may
modify the Contract, but only if such modification (i) is necessary to make the
Contract or the Variable Account comply with any law or regulation issued by a
governmental agency to which we are subject, (ii) is necessary to assure
continued qualification of the Contract under the Internal Revenue Code or other
federal or state laws relating to retirement annuities or annuity contracts,
(iii) is necessary to reflect a change in the operation of the Variable Account
or the Sub-Accounts, (iv) provides additional Variable Account and/or fixed
accumulation options, or (v) may otherwise be in the best interests of Owners or
Payees, as applicable. In the event of any such modification, we may make
appropriate endorsement to the Contract to reflect such modification.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At the Company's election and subject to any necessary vote by persons
having the right to give instructions with respect to the voting of Fund shares
held by the Sub-Accounts, the Variable Account may be operated as a management
company under the Investment Company Act of 1940 or it may be deregistered under
the Investment Company Act of 1940 in the event registration is no longer
required. Deregistration of the Variable Account requires an order by the
Securities and Exchange Commission. In the event of any such change in the
operation of the Variable Account, we may make appropriate endorsement to the
Contract to reflect the change and take such action as may be necessary and
appropriate to effect the change.
SPLITTING UNITS
We reserve the right to split or combine the value of Variable Accumulation
Units, Fixed Accumulation Units, Annuity Units or any of them. In effecting any
such change of unit values, strict equity will be preserved and no change will
have a material effect on the benefits or other provisions of the Contract.
TAX CONSIDERATIONS
The Contracts are designed for use by retirement plans under the provisions
of Sections 401 and 408 (excluding Section 408(b)) of the Internal Revenue Code
(the "Code"). The ultimate effect of federal income taxes on the value of a
Contract's Accumulation Account, on annuity payments and on the economic benefit
to the Owner, the Annuitant, the Payee or the Beneficiary may depend upon the
type of retirement plan for which the Contract is purchased and upon the tax and
employment status of the individual concerned.
The following discussion of the treatment of the Contracts and of the
Company under the federal income tax laws is general in nature, is based upon
the Company's understanding of current federal income tax laws, and is not
intended as tax advice. Congress has the power to enact legislation affecting
the tax treatment of annuity contracts, and such legislation could be applied
retroactively to Contracts purchased before the date of enactment. A more
detailed discussion of the federal tax status of the Contracts is contained in
the Statement of Additional Information. Any person contemplating the purchase
of a Contract should consult a qualified tax adviser. THE COMPANY DOES NOT MAKE
ANY GUARANTEE REGARDING THE FEDERAL, STATE OR LOCAL TAX STATUS OF ANY CONTRACT
OR ANY TRANSACTION INVOLVING THE CONTRACTS.
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<PAGE>
TAX TREATMENT OF THE COMPANY
Under existing federal income tax laws, the income of the Variable Account,
to the extent that it is applied to increase reserves under the Contracts, is
not taxable to the Company.
TAXATION OF ANNUITIES IN GENERAL
The Contracts are designed for use in connection with retirement plans. All
or a portion of the contributions to such plans will be used to make Purchase
Payments under the Contracts. Generally, no tax is imposed on the increase in
the value of a Contract until a distribution occurs. Monthly annuity payments
made as retirement distributions, and lump-sum payments or cash withdrawals
(when permitted by the applicable retirement plan) under a Contract are
generally taxable to the Annuitant as ordinary income to the extent that such
payments are not deemed to come from the Owner's previously taxed investment in
the Contract. Distributions made prior to age 59 1/2 generally are subject to a
10% penalty tax, although this tax will not apply in certain circumstances.
Owners, Annuitants, Payees and Beneficiaries should seek qualified advice about
the tax consequences of distributions, withdrawals, rollovers and payments under
the retirement plans in connection with which the Contracts are purchased.
In certain circumstances, the Company is required to withhold and remit to
the U.S. Government part of the taxable portion of each distribution made under
a Contract.
RETIREMENT PLANS
The Contracts are designed for use with the following types of qualified
retirement plans: (1) Pension and Profit-Sharing Plans established by business
employers and certain associations, as permitted by Sections 401(a) and 401(k)
of the Code, including those purchasers who would have been covered under the
rules governing old H.R. 10 (Keogh) Plans; and (2) Individual Retirement
Accounts ("IRAs") permitted by Sections 219 and 408 of the Code (excluding IRAs
established as "Individual Retirement Annuities" under Section 408(b), but
including Simplified Employee Pensions established by employers pursuant to
Section 408(k)) and Simple Retirement Accounts established pursuant to
Section 408(p)).
The tax rules applicable to participants in such retirement plans vary
according to the type of plan and its terms and conditions. Therefore, no
attempt is made herein to provide more than general information about the use of
the Contracts with the various types of retirement plans. Participants in such
plans as well as Owners, Annuitants, Payees and Beneficiaries are cautioned that
the rights of any person to any benefits under these plans are subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contracts. The Company will provide purchasers of Contracts
used in connection with IRAs with such supplemental information as may be
required by the Internal Revenue Service or other appropriate agency. Any person
contemplating the purchase of a Contract should consult a qualified tax adviser.
DISTRIBUTION OF THE CONTRACTS
The Contracts are sold by licensed insurance agents in those states where
the Contracts may be lawfully sold. Such agents are registered representatives
of broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. The Contracts
are distributed by Clarendon Insurance Agency, Inc., One Sun Life Executive
Park, Wellesley Hills, Massachusetts 02481, our wholly-owned subsidiary. We will
pay commissions and other distribution compensation that will not be more than
5.11% of the Purchase Payments. In addition, after the fifth Contract Year, we
may pay broker-dealers who have entered into distribution agreements with us an
annual renewal commission of no more than 0.20% of the Contract's Accumulation
Account value.
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LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. We
are engaged in various kinds of routine litigation which, in management's
opinion, is not material with respect to the Variable Account.
OWNER INQUIRIES
All Owner inquiries should be directed to us at our Annuity Mailing Address.
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
General Information
Annuity Provisions
Other Contract Provisions
Tax Considerations
Administration of the Contracts
Distribution of the Contracts
Accountants
Financial Statements
Appendix A--The Fixed Account
Appendix B--Illustrative Examples of Variable Accumulation
Unit Value, Variable Annuity Unit Value and Variable
Annuity Payment Calculations
Appendix C--Withdrawals and Withdrawal Charges
</TABLE>
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This Prospectus sets forth information about the Contracts and the Variable
Account that a prospective purchaser should know before investing. Additional
information about the Contracts and the Variable Account has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
dated May 1, 2000 which is incorporated herein by reference. The Statement of
Additional Information is available upon request and without charge from Sun
Life Assurance Company of Canada (U.S.). To receive a copy, return this request
form to the address shown below or telephone (800) 752-7215.
- --------------------------------------------------------------------------------
To: Sun Life Assurance Company of Canada (U.S.)
c/o Retirement Products and Services
P.O. Box 1024
Boston, Massachusetts 02103
Please send me a Statement of Additional Information for
Compass I--Sun Life of Canada (U.S.) Variable Account C.
Name
- ---------------------------------------------------------------------------
Address
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
City
- --------------------------------------------------- State
- ---------------------------------- Zip
- -------------------------------------
Telephone
- ---------------------------------------------------------------------------
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<PAGE>
PROSPECTUS [LOGO]
MAY 1, 2000
COMBINATION FIXED/VARIABLE
ANNUITY FOR QUALIFIED
RETIREMENT PLANS
ISSUED IN CONNECTION WITH
SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT C
CO1US-1 5/2000
ISSUED BY
SUN LIFE INSURANCE COMPANY OF
CANADA (U.S.)
c/o Retirement Products and Services
P.O. Box 1024
Boston, Massachusetts 02103
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
Attached hereto and made a part hereof is a Statement of Additional
Information dated May 1, 2000.
<PAGE>
MAY 1, 2000
COMPASS I
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information.................................................. 2
Annuity Provisions................................................... 2
Other Contract Provisions............................................ 3
Tax Considerations................................................... 4
Administration of the Contracts...................................... 5
Distribution of the Contracts........................................ 5
Accountants.......................................................... 6
Financial Statements................................................. 7
Appendix A--The Fixed Account........................................ 41
Appendix B--Illustrative Examples of Variable Accumulation Unit
Value Calculations, Variable Annuity Unit Value Calculations and
Variable Annuity Payment Calculations............................... 43
Appendix C--Withdrawals and Withdrawal Charges....................... 44
</TABLE>
This Statement of Additional Information sets forth information which
may be of interest to prospective purchasers of Compass I Combination
Fixed/Variable Annuity Contracts (the "Contracts") issued by Sun Life
Assurance Company of Canada (U.S.) (the "Company") in connection with Sun
Life of Canada (U.S.) Variable Account C (the "Variable Account") which is
not necessarily included in the Prospectus dated May 1, 2000. This Statement
of Additional Information should be read in conjunction with the Prospectus,
a copy of which may be obtained without charge from the Company by writing to
Sun Life Assurance Company of Canada (U.S.) c/o Retirement Products and
Services, P.O. Box 1024, Boston, Massachusetts 02103 (sometimes referred to
as the "Annuity Mailing Address"), or by telephoning (800) 752-7215.
The terms used in this Statement of Additional Information have the same
meanings as in the Prospectus.
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE PURCHASERS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE>
GENERAL INFORMATION
THE COMPANY
Sun Life Assurance Company of Canada (U.S.) (the "Company") is a stock life
insurance company incorporated under the laws of Delaware on January 12, 1970.
Its Executive Office is located at One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481.
The Company is an indirect wholly-owned subsidiary of Sun Life Assurance
Company of Canada ("Sun Life (Canada)"). Sun Life (Canada) completed its
demutualization on March 22, 2000. As a result of the demutualization, a new
holding company, Sun Life Financial Services of Canada Inc. ("Sun Life
Financial"), is now the ultimate parent of Sun Life (Canada) and the Company.
Sun Life Financial, a corporation organized in Canada, is a reporting company
under the Securities Exchange Act of 1934 with common shares listed on the
Toronto, New York, London, and Manila stock exchanges.
THE VARIABLE ACCOUNT
Sun Life of Canada (U.S.) Variable Account C (the "Variable Account") is
a separate account of the Company and meets the definition of a separate
account under the federal securities laws. The Variable Account is registered
with the Securities and Exchange Commission as a unit investment trust under
the Investment Company Act of 1940.
THE FIXED ACCOUNT
If the Owner elects to have Contract values accumulated on a fixed basis,
Purchase Payments are allocated to the Fixed Account, which is the general
account of the Company. Because of exemptive and exclusionary provisions, that
part of the Contract relating to the Fixed Account is not registered under the
Securities Act of 1933 ("1933 Act") and the Fixed Account is not registered as
an investment company under the Investment Company Act of 1940 ("1940 Act").
Accordingly, neither the Fixed Account, nor any interests therein are subject to
the provisions or restrictions of the 1933 Act or the 1940 Act, and the staff of
the Securities and Exchange Commission has not reviewed the disclosures in this
Statement of Additional Information with respect to that portion of the Contract
relating to the Fixed Account. Disclosures regarding the fixed portion of the
Contract and the Fixed Account, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made herein (see "Appendix A--The Fixed
Account").
ANNUITY PROVISIONS
DETERMINATION OF ANNUITY PAYMENTS
On the Annuity Commencement Date the Contract's Accumulation Account will be
canceled and its adjusted value will be applied to provide a Variable Annuity or
a Fixed Annuity or a combination of both. The adjusted value will be equal to
the value of the Accumulation Account for the Valuation Period which ends
immediately preceding the Annuity Commencement Date, reduced by any applicable
premium taxes or similar taxes and a proportionate amount of the contract
maintenance charge to reflect the time elapsed between the last Contract
Anniversary and theday before the Annuity Commencement Date.
The dollar amount of the first variable annuity payment will be determined
in accordance with the annuity payment rates found in the Contract, which are
based on an assumed interest rate of 4% per year. All variable annuity payments
other than the first are determined by means of Annuity Units credited to the
Contract. The number of Annuity Units to be credited in respect of a particular
Sub-Account is determined by dividing that portion of the first variable annuity
payment attributable to that Sub-Account by the Annuity Unit value of that
Sub-Account for the Valuation Period which ends immediately preceding the
Annuity Commencement Date. The number of Annuity Units of each particular
Sub-Account credited to the Contract then remains fixed, unless an exchange of
Annuity Units is made as described in the Prospectus. The dollar amount of each
variable annuity payment after the first may increase, decrease or remain
constant, and is equal to the sum of the amounts determined by multiplying the
number of Annuity Units of a particular Sub-Account credited to the Contract by
the Annuity Unit value for the particular Sub-Account for the Valuation Period
which ends immediately preceding the due date of each subsequent payment.
For a description of fixed annuity payments, see Appendix A.
2
<PAGE>
For a hypothetical example of the calculation of a variable annuity payment,
see Appendix B.
ANNUITY UNIT VALUE
The Annuity Unit value for each Sub-Account was established at $10.00 for
the first Valuation Period of the particular Sub-Account. The Annuity Unit
value for the particular Sub-Account for any subsequent Valuation Period is
determined by multiplying the Annuity Unit value for the particular
Sub-Account for the immediately preceding Valuation Period by the Net
Investment Factor (see "Net Investment Factor" in the Prospectus) for the
particular Sub-Account for the current Valuation Period, and then multiplying
that product by a factor to neutralize the assumed interest rate of 4% per
year used to establish the annuity payment rates found in the Contract. The
factor is 0.99989255 for a one day Valuation Period.
For a hypothetical example of the calculation of the value of a Variable
Annuity Unit, see Appendix B.
OTHER CONTRACT PROVISIONS
RIGHT TO RETURN CONTRACT
The Owner should read the Contract carefully as soon as it is received.
If the Owner wishes to return the Contract, it must be returned to the
Company at the Company's Annuity Mailing Address within ten days after it was
delivered to the Owner. When the Company receives the returned Contract, it
will be canceled and the full amount of any Purchase Payment(s) received by
the Company will be refunded.
Under the Internal Revenue Code, an Owner establishing an Individual
Retirement Account ("IRA") must be furnished with a disclosure statement
containing certain information about the Contract and applicable legal
requirements. This statement must be furnished on or before the date the IRA
is established. If the Owner is furnished with such disclosure statement
before the seventh day preceding the date the IRA is established, the Owner
will not have any right of revocation. If the disclosure statement is
furnished after the seventh day preceding the establishment of the IRA, then
the Owner may revoke the Contract any time within seven days after the issue
date. Upon such revocation, the Company will refund all Purchase Payment(s)
made by the Owner. The foregoing right of revocation with respect to an IRA
is in addition to the return privilege set forth in the preceding paragraph.
The Company will allow an Owner establishing an IRA a "ten day free look,"
notwithstanding the provisions of the Internal Revenue Code.
OWNER AND CHANGE OF OWNERSHIP
The Contract shall belong to the Owner or to the successor Owner or
transferee of the Owner. All Contract rights and privileges may be exercised
by the Owner, the successor Owner or transferee of the Owner without the
consent of the Beneficiary (other than an irrevocably designated Beneficiary)
or any other person. Such rights and privileges may be exercised only during
the lifetime of the Annuitant and prior to the Annuity Commencement Date,
except as otherwise provided in the Contract. The Annuitant becomes the Owner
on and after the Annuity Commencement Date. The Beneficiary becomes the Owner
on the death of the Annuitant. In some qualified plans the Owner of the
Contract is a Trustee and the Trust authorizes the Annuitant/participant to
exercise certain contract rights and privileges.
Ownership of the Contract may not be transferred except to: (1) the
Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Internal Revenue Code; (3)
the trustee or custodian of an individual retirement account plan qualified
under Section 408 of the Internal Revenue Code for the benefit of the Owner;
or (4) as otherwise permitted from time to time by laws and regulations
governing the retirement plans for which the Contract may be issued. Subject
to the foregoing, the Contract may not be sold, assigned, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person other
than the Company. A change of ownership will not be binding upon the Company
until written notification is received by the Company. Once received by the
Company the change will be effective as of the date on which the request for
change was signed by the Owner, but the change will be without prejudice to
the Company on account of any payment made or any action taken by the Company
prior to receiving the change. The Company may require that the signature of
the Owner be guaranteed by a member firm of the
3
<PAGE>
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange,
or by a commercial bank (not a savings bank) which is a member of the Federal
Deposit Insurance Corporation or, in certain cases, by a member firm of the
National Association of Securities Dealers, Inc. which has entered into an
appropriate agreement with the Company.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in the Contract application will
remain in effect until changed. The interest of any Beneficiary is subject to
the particular Beneficiary surviving the Annuitant.
Subject to the rights of an irrevocably designated Beneficiary, the Owner
(or the Annuitant, as permitted by the Owner) may change or revoke the
designation of a Beneficiary at any time while the Annuitant is living by
filing with the Company a written beneficiary designation or revocation in
such form as the Company may require. The change or revocation will not be
binding upon the Company until it is received by the Company at its Annuity
Service Mailing Address. When it is so received, the change or revocation will
be effective as of the date on which the beneficiary designation or
revocation was signed by the Owner or the Annuitant, as applicable.
Reference should be made to the terms of the particular retirement plan and
any applicable legislation for any restrictions on the beneficiary designation.
CUSTODIAN
The Custodian of the assets of the Variable Account is State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. The Company
will direct the Custodian to purchase Fund shares at net asset value in
connection with amounts allocated to the particular Sub-Account in accordance
with the instructions of the Owner and to redeem Fund shares at net asset value
for the purpose of meeting the contractual obligations of the Variable Account,
paying charges relative to the Variable Account or making adjustments for
annuity reserves held in the Variable Account.
TAX CONSIDERATIONS
INTRODUCTION
The Contracts are designed for use by retirement plans under the
provisions of Sections 401 or 408 (excluding Section 408(b)) of the Internal
Revenue Code (the "Code"). The ultimate effect of federal income taxes on the
value of the Contract's Accumulation Account, on annuity payments and on the
economic benefit to the Owner, the Annuitant, the Payee or the Beneficiary
may depend upon the type of retirement plan for which the Contract is
purchased and upon the tax and employment status of the individual concerned.
The discussion contained herein is general in nature, is based upon the
Company's understanding of federal income tax laws as currently interpreted,
and is not intended as tax advice. Congress has the power to enact
legislation affecting the tax treatment of annuity contracts, and such
legislation could be applied retroactively to Contracts purchased before the
date of enactment. Any person contemplating the purchase of a Contract should
consult a qualified tax adviser. THE COMPANY DOES NOT MAKE ANY GUARANTEE
REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACTS.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under the Code. Although
the operations of the Variable Account are accounted for separately from other
operations of the Company for purposes of federal income taxation, the Variable
Account is not separately taxable as a regulated investment company or otherwise
as a taxable entity separate from the Company. Under existing federal income tax
laws, the income and capital gains of the Variable Account to the extent applied
to increase reserves under the Contracts are not taxable to the Company.
4
<PAGE>
TAXATION OF ANNUITIES IN GENERAL
A participant in a retirement plan is the individual on whose behalf a
Contract is issued. Certain federal income tax advantages are available to
participants in retirement plans which meet the requirements of Section 401
or Section 408 (excluding Section 408(b)) of the Code. The Contracts are
designed for use in connection with such retirement plans and accordingly all
or a portion of the contributions to such plans will be used to make Purchase
Payments under the Contracts. Monthly annuity payments made as retirement
distributions under a Contract are generally taxable to the Annuitant as
ordinary income under Section 72 of the Code. Distributions prior to age 59
1/2 generally are subject to a 10% penalty tax, although this tax will not
apply in certain circumstances. Certain distributions, known as "eligible
rollover distributions," if rolled over to certain other qualified retirement
plans (either directly or after being distributed to the Owner or Payee), are
not taxable until distributed from the plan to which they are rolled over. In
general, an eligible rollover distribution is any taxable distribution other
than a hardship distribution or a distribution that is part of a series of
payments made for life or for a specified period of ten years or more. Only
the plan participant or the participant's spouse may elect to roll over a
distribution to an eligible retirement plan.
Owners, Annuitants, Payees and Beneficiaries should seek qualified advice
about the tax consequences of distributions, withdrawals, rollovers and payments
under the retirement plans in connection with which the Contracts are purchased.
The Company will withhold and remit to the U.S. Government a part of the
taxable portion of each distribution made under a Contract issued in connection
with an individual retirement account unless the Owner or Payee provides his or
her taxpayer identification number to the Company and notifies the Company (in
the manner prescribed) before the time of the distribution that he or she
chooses not to have any amounts withheld.
In the case of distributions from a Contract (other than a Contract issued
for use with an individual retirement account), the Company or the plan
administrator must withhold and remit to the U.S. Government 20% of each
distribution that is an eligible rollover distribution (as defined above),
unless the Owner or Payee elects to make a direct rollover of the distribution
to another qualified retirement plan that is eligible to receive the rollover.
If a distribution from a Contract is not an eligible rollover distribution,
then the Owner or Payee can choose not to have amounts withheld as described
above for individual retirement accounts.
Amounts withheld from any distribution may be credited against the Owner's
or Payee's federal income tax liability for the year of the distribution.
The Tax Reform Act of 1984 authorizes the Internal Revenue Service to
promulgate regulations that prescribe investment diversification requirements
for segregated asset accounts underlying certain variable annuity contracts.
These regulations do not affect the tax treatment of qualified contracts, such
as the Contracts.
Due to the complex nature and frequent revisions of the federal income tax
laws affecting retirement plans, a person contemplating the purchase of a
Contract for use in connection with a retirement plan, the distribution or
surrender of a Contract held under a retirement plan, or the election of an
annuity option provided in a Contract should consult a qualified tax adviser.
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts and the Variable Account. These functions include, among other things,
maintaining the books and records of the Variable Account and the Sub-Accounts,
and maintaining records of the name, address, taxpayer identification number,
Contract number, type of Contract issued to each Owner, the status of the
Accumulation Account under each Contract, and other pertinent information
necessary to the administration and operation of the Contracts.
DISTRIBUTION OF THE CONTRACTS
The offering of the Contracts is continuous. The Contracts are sold
by licensed insurance agents in those states where the Contracts may be
lawfully sold. Such agents are registered representatives of
5
<PAGE>
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. The Contracts
will be distributed by Clarendon Insurance Agency, Inc. ("Clarendon"), One
Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, a wholly-owned
subsidiary of the Company. Commissions and other distribution compensation
will be paid by the Company and will not be more than 5.11% of the Purchase
Payments. In addition, after the fifth (5th) Contract Year, broker-dealers
who have entered into distribution agreements with the Company may receive an
annual renewal commission of no more than 0.20% of the Contract's
Accumulation Account values. During 1997, 1998 and 1999, approximately
$22,500, $19,686 and $15,662, respectively, was paid to and retained by
Clarendon in connection with the distribution of the Contracts.
ACCOUNTANTS
Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts
02116, are the Variable Account's independent auditors providing
auditing and other professional services.
6
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,221,970 $ 1,763,468
Common stocks 75,283 128,445
Mortgage loans on real estate 528,911 535,003
Properties acquired in satisfaction of debt 15,641 17,207
Investment real estate 79,182 78,021
Policy loans 40,095 41,944
Cash and short-term investments 316,971 265,226
Other invested assets 67,938 64,177
Investment income due and accrued 25,303 35,706
Federal income tax recoverable and interest thereon -- 1,110
Other assets 5,807 1,928
----------- -----------
General account assets 2,377,101 2,932,235
Separate account assets
Unitized 15,490,328 11,774,745
Non-unitized 2,080,726 2,195,641
----------- -----------
Total admitted assets $19,948,155 $16,902,621
=========== ===========
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,153,642 $ 1,216,107
Supplementary contracts 3,182 1,885
Policy and contract claims 962 369
Liability for premium and other deposit funds 564,820 1,000,875
Surrender values on cancelled policies 16 5
Interest maintenance reserve 41,771 40,490
Commissions to agents due or accrued 3,253 2,615
General expenses due or accrued 14,055 5,932
Transfers from Separate Accounts due or accrued (467,619) (361,863)
Taxes, licenses and fees due or accrued, excluding FIT 379 401
Federal income taxes due or accrued 89,031 25,019
Unearned investment income 22 23
Amounts withheld or retained by company as agent or
trustee (442) 529
Remittances and items not allocated 1,078 5,176
Asset valuation reserve 44,071 44,392
Payable to parent, subsidiaries, and affiliates 26,284 30,381
Payable for securities -- 428
Other liabilities 16,674 9,770
----------- -----------
General account liabilities 1,491,179 2,022,534
Separate account liabilities:
Unitized 15,489,908 11,774,522
Non-unitized 2,080,726 2,195,641
----------- -----------
Total liabilities 19,061,813 15,992,697
----------- -----------
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 116,087 139,669
----------- -----------
Surplus 880,442 904,024
----------- -----------
Total common capital stock and surplus 886,342 909,924
----------- -----------
Total liabilities, capital stock and surplus $19,948,155 $16,902,621
=========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
7
<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, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 69,492 $ 210,198 $ 254,066
Deposit-type funds 2,598,265 2,140,604 2,155,297
Considerations for supplementary
contracts without life
contingencies and dividend
accumulations 3,461 2,086 1,615
Net investment income 167,035 184,532 270,249
Amortization of interest maintenance
reserve 3,702 2,282 1,166
Income from fees associated with
investment management and
administration and contract
guarantees from Separate Account 173,417 141,211 109,757
Net gain from operations from
Separate Account 61 -- 5
Other income 24,554 87,364 102,889
---------- ---------- ----------
Total Income 3,039,987 2,768,277 2,895,044
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 4,386 15,335 17,284
Annuity benefits 155,387 153,636 148,135
Disability benefits and benefits
under accident and health policies -- 104 132
Surrender benefits and other fund
withdrawals 2,313,179 1,933,833 1,854,004
Interest on policy or contract funds 237 (140) 699
Payments on supplementary contracts
without life contingencies and
dividend accumulations 2,345 2,528 1,687
Increase (decrease) in aggregate
reserves for life and accident and
health policies and contracts (62,465) (972,135) 127,278
Decrease in liability for premium
and other deposit funds (436,055) (449,831) (447,603)
Increase (decrease) in reserve for
supplementary contracts without
life contingencies and for
dividend and coupon accumulations 1,296 (362) 42
---------- ---------- ----------
Total Benefits 1,978,310 682,968 1,701,658
---------- ---------- ----------
Commissions on premiums and annuity
considerations (direct business
only) 155,381 137,718 132,700
Commissions and expense allowances
on reinsurance assumed -- 13,032 17,951
General insurance expenses 75,046 58,132 46,624
Insurance taxes, licenses and fees,
excluding federal income taxes 8,710 7,388 8,267
Increase (decrease) in loading on
and cost of collection in excess
of loading on deferred and
uncollected premiums -- (1,663) 523
Net transfers to Separate Accounts 727,811 722,851 844,130
Reserve and fund adjustments on
reinsurance terminated -- 1,017,112 --
---------- ---------- ----------
Total Benefits and Expenses $2,945,258 $2,637,538 $2,751,853
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
8
<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 (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net gain from operations before dividends to
policyholders and federal income tax expense $94,729 $130,739 $143,191
Dividends to policyholders -- (5,981) 33,316
------- -------- --------
Net gain from operations after dividends to
policyholders and before federal income tax
expense 94,729 136,720 109,875
Federal income tax expense, (excluding tax on
capital gains) 24,479 11,713 7,339
------- -------- --------
Net gain from operations after dividends to
policyholders and federal income taxes and
before realized capital gains 70,250 125,007 102,536
Net realized capital gains less capital gains
tax and transferred to the Interest
Maintenance Reserve 20,108 394 26,706
------- -------- --------
NET INCOME $90,358 $125,401 $129,242
======= ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
9
<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, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----------
<S> <C> <C> <C>
Capital and Surplus, Beginning of Year $909,924 $832,695 $567,143
-------- -------- --------
Net Income 90,358 125,401 129,242
Change in net unrealized capital gains
(losses) (36,111) (384) 1,152
Change in non-admitted assets and
related items 1,715 (1,086) (463)
Change in reserve due to change in
valuation basis -- 39,016
Change in asset valuation reserve 320 3,213 6,307
Surplus (contributed to) withdrawn from
Separate Accounts during period 136 82 --
Other changes in surplus in Separate
Accounts Statements -- 10 --
Change in surplus notes -- -- 250,000
Dividends to stockholders (80,000) (50,000) (159,722)
Aggregate write-ins for gains and
(losses) in surplus -- (7) 20
-------- -------- --------
Net change in capital and surplus for
the year (23,582) 77,229 265,552
-------- -------- --------
Capital and Surplus, End of Year $886,342 $909,924 $832,695
======== ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
10
<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, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Provided by Operations:
Premiums, annuity considerations and
deposit funds received $ 2,667,756 $ 2,361,669 $ 2,410,919
Considerations for supplementary
contracts and dividend accumulations
received 3,461 2,086 1,615
Net investment income received 225,038 236,944 345,279
Fees associated with investment
management, administration, and
contract guarentees from Separate
Accounts 173,417 141,211 --
Other income received 24,555 111,936 208,223
----------- ----------- -----------
Total receipts 3,094,227 2,853,846 2,966,036
----------- ----------- -----------
Benefits paid (other than dividends) 2,474,693 2,107,736 2,020,747
Insurance expenses and taxes paid
(other than federal income and
capital gains taxes) 230,744 217,023 203,650
Net cash transferred to Separate
Accounts 833,567 800,636 895,465
Dividends paid to policyholders -- 26,519 28,316
Federal income tax payments
(recoveries),(excluding tax on
capital gains) (40,644) 46,965 1,397
Other--net 237 (138) 698
----------- ----------- -----------
Total payments 3,498,597 3,198,741 3,150,273
----------- ----------- -----------
Net cash used in operations (404,370) (344,895) (184,237)
----------- ----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains
(losses) of $(1,768) for 1999, $2,038
for 1998, and $750 for 1997) 1,065,307 1,261,396 1,343,803
Issuance of surplus notes -- -- 250,000
Other cash provided (used) 13,797 (40,529) 71,095
----------- ----------- -----------
Total cash provided 1,079,104 1,220,867 1,664,898
----------- ----------- -----------
Cash Applied:
Cost of long-term investments acquired (484,417) (967,901) (773,783)
Other cash applied (138,572) (187,263) (310,519)
----------- ----------- -----------
Total cash applied (622,989) (1,155,164) (1,084,302)
Net change in cash and short-term
investments 51,745 (279,192) 396,359
Cash and short-term investments:
Beginning of year 265,226 544,418 148,059
----------- ----------- -----------
End of year $ 316,971 $ 265,226 $ 544,418
=========== =========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
11
<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, 1999, 1998 AND 1997
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 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"), a mutual insurance company.
The Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly-owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, which changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices, as described above, vary from and are not
intended to present the Company's financial position, results of operations or
cash flow in conformity with generally accepted accounting principles. (See Note
19 for further discussion relative to the Company's basis of financial statement
presentation.) The effects on the financial statements of the variances between
the statutory basis of accounting and GAAP, although not reasonably
determinable, are presumed to be material.
INVESTED ASSETS
Bonds are carried at cost, adjusted for amortization of premium or accrual of
discount. Investments in mortgage backed securities are generally carried at
amortized cost. Changes in prepayment assumptions and resulting cash flows are
confirmed retrospectively. 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 the Interest
Maintenance Reserve (IMR). Investments in non-insurance subsidiaries are carried
on the equity basis. Investments in insurance subsidiaries are carried at their
statutory surplus values. Mortgage loans acquired at a premium or discount are
carried at amortized values and other mortgage loans are carried at the amounts
of the unpaid balances. Real estate investments are carried at the lower of
cost, adjusted for accumulated depreciation or appraised value, less
encumbrances. Short-term investments are carried at amortized cost, which
approximates fair value. Depreciation of buildings and improvements is
calculated using the straight-line method over the estimated useful life of the
property, generally 40 to 50 years.
12
<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, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts are computed in
accordance with presently accepted actuarial standards, and are based on
actuarial assumptions and methods (including use of published mortality
tables and prescribed interest rates) which produce 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.
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.
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.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, and accrued expense
allowances recognized in reserves are receivable from or payable to the general
account. Accumulated amounts 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 $467,619,000 in 1999 and $361,863,000 in
1998.
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.
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.
13
<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, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES
The Company owns all of the outstanding shares of the following subsidiaries:
Sun Life Insurance and Annuity Company of New York ("Sun Life (N.Y.)") is
engaged in the sale of individual fixed and variable annuity contracts and group
life and group long term disability insurance contracts in the State of New
York;
Sun Life of Canada (U.S.) Distributors, Inc. (formerly Sun Investment Services
Company) ("Sundisco"), is a registered broker-dealer;
Sun Life Financial Services Limited ("SLFSL"), serves as the marketing
administrator for the distribution of the offshore products of SLOC (Bermuda
branch), an affiliate;
Sun Benefit Services Company, Inc. ("Sunbesco") receives renewal commissions on
a disability product and is currently inactive;
Sun Capital Advisers, Inc. ("Sun Capital") is a registered investment adviser;
Sun Life Finance Corporation ("Sunfinco") is a finance company and currently
inactive;
Sun Life of Canada (U.S.) SPE 97-1, Inc. ("SPE 97-1") is a special purpose
corporation engaging in activities incidental to securitizing mortgage loans;
Clarendon Insurance Agency, Inc. ("Clarendon") is a registered broker-dealer
that acts as the general distributor of certain annuity and life insurance
contracts issued by the Company and its affiliates;
Sun Life Information Services Ireland Limited ("SLISL") is an offshore
technology services center for affiliates.
On October 29,1999, the Company sold New London Trust F.S.B. ("NLT") to an
unaffiliated party for $30,254,000. The Company realized a post tax gain of
$13,170,000.
On February 5, 1999, the Company sold Massachusetts Casualty Insurance Company
("MCIC"), a disability insurance company, to an unaffiliated party. The net
proceeds of this sale were $33,965,000. The Company realized a post tax gain of
$4,900,000.
The impact of the sales of NLT and MCIC on continuing operations of the Company
is not expected to be material.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
Massachusetts Financial Services Company ("MFS"), a registered investment
adviser. On December 24, 1997, the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. As a result of
this transaction, the Company realized a gain of $21,195,000 of undistributed
earnings.
14
<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, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED)
During 1999, 1998, and 1997, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
MCIC $ -- $ -- $ 2,000
SLFSL 1,000 750 1,000
SPE 97-1 -- -- 20,377
Sundisco 19,000 10,000 --
Sun Capital -- 500 --
Clarendon -- 10 --
SLISL -- 502 --
</TABLE>
During 1999, 1998, and 1997, the Company received dividends from the following
subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SUN Life (N.Y.) $ 6,500 $ 3,000 $ --
NLT 19,319 -- 7,500
MFS -- -- 33,110
SPE 97-1 -- 675 --
SUNDISCO -- -- 571
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1999, 1998 and 1997 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets $ 877,939 $ 1,315,317 $ 1,190,951
Liabilities (802,656) (1,186,872) (1,073,966)
----------- ----------- -----------
Total net assets $ 75,283 $ 128,445 $ 116,985
=========== =========== ===========
Total revenues $ 82,443 $ 222,853 $ 750,364
Operating expenses (90,318) (221,933) (646,896)
Income tax expense 3,249 (1,222) (43,987)
----------- ----------- -----------
Net income (loss) $ (4,626) $ (302) $ 59,481
=========== =========== ===========
</TABLE>
15
<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, 1999, 1998 AND 1997
3. BONDS
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
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 $ 78,161 $ 2,091 $ (2,454) $ 77,798
States, provinces and political subdivisions 20,428 69 (57) 20,440
Public utilities 181,466 6,854 (5,907) 182,413
Transportation 188,285 7,689 (2,709) 193,265
Finance 88,517 4,631 (518) 92,630
All other corporate bonds 665,113 18,353 (17,152) 666,314
---------- -------- -------- ----------
Total long-term bonds 1,221,970 39,687 (28,797) 1,232,860
---------- -------- -------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 312,585 -- -- 312,585
---------- -------- -------- ----------
Total short-term bonds 312,585 -- -- 312,585
---------- -------- -------- ----------
Total bonds $1,534,555 $ 39,687 $(28,797) $1,545,445
========== ======== ======== ==========
</TABLE>
<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>
16
<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, 1999, 1998 AND 1997
3. BONDS (CONTINUED)
The amortized cost and estimated fair value of bonds at December 31, 1999 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, 1999
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
(IN THOUSANDS)
<S> <C> <C>
Maturities:
Due in one year or less $ 376,761 $ 376,823
Due after one year through five years 184,077 182,788
Due after five years through ten years 259,042 263,321
Due after ten years 542,678 543,301
---------- ----------
1,362,558 1,366,233
Mortgage-backed securities 171,997 179,212
---------- ----------
Total bonds $1,534,555 $1,545,445
========== ==========
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1999, 1998, and 1997 were $740,081,000, $1,016,811,000 and $980,264,000, gross
gains were $7,688,000, $17,025,000, and $10,732,000 and gross losses were
$4,477,000, $866,000, and $2,446,000, respectively.
Bonds included above with an amortized cost of approximately $2,604,000,
$2,572,000, and $2,578,000 at December 31, 1999, 1998 and 1997, 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 concentrations 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 on loan as of December 31, 1999, 1998 or 1997. Income resulting from
this program was $20,000, $94,000, and $200,000 for the years ended
December 31, 1999, 1998 and 1997, 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.
17
<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, 1999, 1998 AND 1997
5. MORTGAGE LOANS (CONTINUED)
The following table shows the geographical distribution of the mortgage loan
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
California $ 72,693 $ 82,397
Massachusetts 38,083 53,528
Michigan 32,941 34,357
New York 22,912 21,190
Ohio 31,914 36,171
Pennsylvania 92,825 93,587
Washington 30,265 36,548
All other 207,278 177,225
-------- --------
$528,911 $535,003
======== ========
</TABLE>
The Company has restructured mortgage loans totaling $15,644,000 and $30,743,000
and corresponding allowances for losses of $1,043,000 and $2,120,000 at December
31, 1999 and 1998, respectively.
On December 22, 1999, the Company acquired 28 mortgages from SLOC at a cost of
$118,091,637. The Company in turn sold a 90% participation in these 28 plus an
additional 11 existing mortgage loans to a third party as part of two mortgage
participation agreements, for which the Company received proceeds of
$146,974,851.
The Company has outstanding mortgage loan commitments on real estate totaling
$2,384,000 and $18,005,000 at December 31, 1999 and 1998, respectively.
6. INVESTMENT GAINS AND LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net realized gains (losses):
Bonds $ 70 $ 5,659 $ 2,882
Common stock of affiliates 15,290 -- 21,195
Common stocks -- 48 --
Mortgage loans 787 2,374 3,837
Real estate (481) 955 2,912
Other invested assets -- (3,827) (717)
-------- ------- -------
Subtotal 15,666 5,209 30,109
Capital gains tax expense (benefit) (4,442) 4,815 3,403
-------- ------- -------
Total $ 20,108 $ 394 $26,706
======== ======= =======
Changes in unrealized gains (losses):
Bonds $ (6,689) $ -- $ --
Common stock of affiliates (30,966) (302) (2,894)
Mortgage loans 83 (1,312) 1,524
Real estate 1,461 403 3,377
Other invested assets -- 827 (855)
-------- ------- -------
Total $(36,111) $ (384) $ 1,152
======== ======= =======
</TABLE>
18
<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, 1999, 1998 AND 1997
6. INVESTMENT GAINS AND LOSSES (CONTINUED)
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 $4,965,000 in 1999, $8,943,000
in 1998, and $6,321,000 in 1997. All gains and losses are transferred net of
applicable income taxes.
7. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income from bonds $128,992 $167,436 $188,924
Income from investment in common stock of affiliates 25,819 3,675 41,181
Interest income from mortgage loans 50,327 53,269 76,073
Real estate investment income 15,696 15,932 17,161
Interest income from policy loans 3,118 2,881 3,582
Other investment income (loss) (1,700) (641) (193)
-------- -------- --------
Gross investment income 222,252 242,552 326,728
-------- -------- --------
Interest on surplus notes and notes payable (43,266) (44,903) (42,481)
Investment expenses (11,951) (13,117) (13,998)
-------- -------- --------
Net investment income $167,035 $184,532 $270,249
======== ======== ========
</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 and foreign currency
exchange rates. The Company's use of derivatives has included U.S. Treasury
futures, conventional interest rate swaps, and currency and interest rate swap
agreements structured as 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, 1999 and 1998, there
were no futures contracts outstanding.
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
19
<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, 1999, 1998 AND 1997
8. DERIVATIVES (CONTINUED)
The Company's open positions are as follows:
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1999
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $20,000 $249
Foreign currency swap 648 113
</TABLE>
<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>
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 creditworthiness 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.
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Lease contracts receivable $ 69,766 $ 78,937
Less non-recourse debt (69,749) (78,920)
-------- --------
Net receivable 17 17
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (7,808) (8,932)
-------- --------
Investment in leveraged leases 33,359 32,235
Less fees (113) (138)
-------- --------
Net investment in leveraged leases $ 33,246 $ 32,097
======== ========
</TABLE>
The net investment is included in "Other invested assets" on the balance sheet.
20
<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, 1999, 1998 AND 1997
10. REINSURANCE
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality risks of the individual life insurance contracts sold by the Company.
Under these agreements basic death benefits and supplementary benefits are
reinsured on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements had the effect of decreasing
income from operations by approximately $1,527,000, $2,128,000 and $1,381,000
for the years ended December 31, 1999, 1998 and 1997, 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, and $37,050,000 for the years ended December 31, 1998 and 1997,
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.
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1999, 1998 and 1997 before the effect of
reinsurance transactions with SLOC:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $2,874,513 $2,377,364 $2,340,733
Net investment income and realized gains 190,845 187,208 298,120
---------- ---------- ----------
Subtotal 3,065,358 2,564,572 2,638,853
---------- ---------- ----------
Benefits and Expenses:
Policyholder benefits 2,709,712 2,312,247 2,350,354
Other expenses 239,282 203,238 187,591
---------- ---------- ----------
Subtotal 2,948,994 2,515,485 2,537,945
---------- ---------- ----------
Income from operations $ 116,364 $ 49,087 $ 100,908
========== ========== ==========
</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 $193,000 in 1999, $3,008,000 in
1998, and decreasing income from operations by $2,658,000 in 1997.
During 1999 the Company entered into an agreement with an unrelated company
which provides reinsurance on certain fixed group annuity contracts. The net
effect of this agreement was to increase income from operations by approximately
$3,400,000. Also during 1999, the Company entered into three agreements with two
unrelated companies for the purpose of obtaining stop-loss coverage of
guaranteed minimum death benefit exposure with respect to the Company's variable
annuity business. The net effect of these agreements was to increase income from
operations by approximately $157,000.
21
<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, 1999, 1998 AND 1997
10. REINSURANCE (CONTINUED)
The Company is contingently liable for the portion of the policies reinsured
under each of its existing reinsurance agreements in the event the reinsurance
companies are unable to pay their portion of any reinsured claim. Management
believes that any liability from this contingency is unlikely. However, to limit
the possibility of such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.
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, 1999
------------------------
AMOUNT % OF TOTAL
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,346,853 13
At market value 15,010,696 81
At book value less surrender charges (surrender charge
>5%) 45,722 --
At book value (minimal or no charge or adjustment) 104,539 1
Not subject to discretionary withdrawal provision 1,015,108 5
----------- ---
Total annuity actuarial reserves and deposit liabilities $18,522,918 100
=========== ===
</TABLE>
<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 market value 11,368,059 73
At book value less surrender charges (surrender charge
>5%) 62,404 --
At book value (minimal or no charge or adjustment) 111,757 1
Not subject to discretionary withdrawal provision 1,055,642 7
----------- ---
Total annuity actuarial reserves and deposit liabilities $15,494,391 100
=========== ===
</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 Protection 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
Wealth Management 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.
22
<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, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED)
The following amounts pertain to the various business segments:
<TABLE>
<CAPTION>
FEDERAL
TOTAL TOTAL PRETAX INCOME TOTAL
REVENUES EXPENDITURES* INCOME TAX ASSETS
---------- ------------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Protection $ 33,236 $ 41,030 $ (7,794) $ (2,661) $ 136,127
Wealth Management 2,979,450 2,898,158 81,292 18,593 19,015,394
Corporate 27,301 6,070 21,231 8,547 796,634
---------- ---------- -------- -------- -----------
Total $3,039,987 $2,945,258 $ 94,729 $ 24,479 $19,948,155
---------- ---------- -------- -------- -----------
1998
Protection $ 229,710 $ 144,800 $ 84,910 $ (4,148) $ 199,683
Wealth Management 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
Protection $ 304,141 $ 272,333 $ 31,808 $ 13,825 $ 1,143,697
Wealth Management 2,533,006 2,507,592 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
---------- ---------- -------- -------- -----------
</TABLE>
- ------------------------
* Total expenditures includes dividends to policyholders of $0 for 1999,
$(5,981) for 1998, and $33,316 for 1997.
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 obligation was $1,914,000,
and $1,178,000 at December 31, 1999 and 1998, respectively. The Company's share
of net periodic pension cost was $736,000, $586,000, and $146,000 for 1999, 1998
and 1997, 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 $284,000, $231,000, and $259,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
23
<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, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
The Company records an accrual of the estimated cost of retiree benefit payments
during the years the employee provides services, and amortizes an obligation of
approximately $400,000 over a period of ten years. The Company's cash flows are
not affected by this method, however the net effect decreased income by
$185,000, $95,000, and $117,000, for the years ended December 31, 1999, 1998,
and 1997, respectively. The Company's post-retirement health, dental and life
insurance benefits currently are not funded.
The following table sets forth the change in the pension and other
post-retirement 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
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $110,792 $ 79,684 $ 10,419 $ 9,845
Service cost 5,632 4,506 413 240
Interest cost 6,952 6,452 845 673
Actuarial loss (gain) (21,480) 21,975 1,048 308
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Benefit obligation at end of year $ 99,520 $110,792 $ 12,217 $ 10,419
======== ======== ======== ========
The Company's share:
Benefit obligation at beginning of year $ 9,125 $ 5,094 $ 416 $ 385
Benefit obligation at end of year $ 8,816 $ 9,125 $ 743 $ 416
Change in plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610 $ -- $ --
Actual return on plan assets 9,072 16,790 -- --
Employer contribution -- -- 508 647
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Fair value of plan assets at end of year $158,271 $151,575 $ -- $ --
======== ======== ======== ========
Funded status $ 58,752 $ 40,783 $(12,217) $(10,419)
Unrecognized net actuarial gain (loss) (20,071) (2,113) 1,469 586
Unrecognized transition obligation (asset) (22,617) (24,674) 140 185
Unrecognized prior service cost 7,081 7,661 -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 23,145 $ 21,657 $(10,608) $ (9,648)
======== ======== ======== ========
The Company's share of accrued benefit cost $ (1,914) $ (1,178) $ (381) $ (195)
Weighted-average assumptions as of December 31:
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 8.75% 8.00% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
</TABLE>
24
<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, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
For measurement purposes, a 10.9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999 (5.6% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506 $ 413 $ 240
Interest cost 6,952 6,452 845 673
Expected return on plan assets (12,041) (10,172) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 580 -- --
Recognized net actuarial (gain) loss (554) (677) 164 (20)
-------- ------- ------ ------
Net periodic benefit cost $ (1,487) $(1,367) $1,467 $ 938
======== ======= ====== ======
The Company's share of net periodic benefit cost $ 736 $ 586 $ 185 $ 95
======== ======= ====== ======
</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 $ 288 $ (518)
Effect on postretirement benefit obligation 2,754 (2,279)
</TABLE>
25
<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, 1999, 1998 AND 1997
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:
<TABLE>
<CAPTION>
1999
-------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds (including short-term) $1,534,555 $1,545,445
Mortgages 528,911 526,608
Derivatives -- 362
Other Invested Assets 67,938 67,938
Policy loans 40,095 40,095
LIABILITIES:
Insurance reserves $ 120,536 $ 120,536
Individual annuities 247,619 238,229
Pension products 661,806 665,830
<CAPTION>
1998
-------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
ASSETS:
<S> <C> <C>
Bonds (including short-term) $2,026,868 $2,153,953
Mortgages 535,003 556,143
Derivatives -- 771
Policy loans 41,944 41,944
LIABILITIES:
Insurance reserves $ 121,100 $ 121,100
Individual annuities 274,448 271,849
Pension products 1,104,489 1,145,351
</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 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 policy loans approximate carrying amounts.
The fair values of derivative financial instruments are estimated using the
process described in Note 8.
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 fair value.
26
<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, 1999, 1998 AND 1997
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 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,
1999 1998
------------------- -------------------
AVR IMR AVR IMR
--- --- --- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of year $44,392 $40,490 $47,605 $33,830
Net realized investment gains, net of tax 9,950 4,983 256 8,942
Amortization of net investment gains -- (3,702) -- (2,282)
Unrealized investment losses (9,705) -- (6,550) --
Required by formula (566) -- 3,081 --
------- ------- ------- -------
Balance, end of year $44,071 $41,771 $44,392 $40,490
======= ======= ======= =======
</TABLE>
16. FEDERAL INCOME TAXES
The Company, its subsidiaries and certain other affiliates 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 $3,000,000,
$48,144,000, and $31,000,000 for the years ended December 31, 1999, 1998 and
1997, 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. RELATED PARTY TRANSACTIONS
A. 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.
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 $4,259,000 for interest on surplus notes for
the years ended December 31, 1999 and 1998, respectively.
27
<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, 1999, 1998 AND 1997
17. RELATED PARTY TRANSACTIONS
A. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED)
The Company expensed $43,266,000, $44,903,000, and $42,481,000 for interest on
surplus notes and notes payable for the years ended December 31, 1999, 1998 and
1997, respectively.
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 on December 22, 1998 at an interest rate of 5.55% due
February 11, 1999. These two notes and an additional $10,000,000 were combined
into a new note of $230,000,000 with a floating interest rate based on the six
month LIBOR rate plus 25 basis points. The $230,000,000 note was repaid to the
Company on December 21, 1999.
On January 14, 2000, the Company purchased $200,000,000 of notes from MFS.
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, the Company had an additional $20,000,000 in notes issued
by MFS, scheduled to mature in 2000. These notes were repaid to the Company on
December 21,1999.
B. STOCKHOLDER DIVIDENDS
The maximum amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of Delaware is subject to
restrictions relating to statutory surplus. In 1999, a dividend in the amount of
$80,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Board of Directors, but did not require
approval of the Insurance Commissioner. In 1998, a dividend in the amount of
$50,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Insurance Commissioner and the Board of
Directors. On December 24, 1997 the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. This dividend
was approved by the Insurance Commissioner and the Board of Directors.
C. SERVICE AGREEMENTS
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 $28,700,000 in 1999, $16,344,000 in 1998, and $15,997,000 in 1997.
The Company leases office space to SLOC under lease agreements with terms
expiring in December, 2004 and options to extend the terms for each of twelve
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 1999 amounted to approximately $6,943,000.
18. RISK-BASED CAPITAL
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting
28
<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, 1999, 1998 AND 1997
18. RISK-BASED CAPITAL (CONTINUED)
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, 1999, 1998 and 1997.
19. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition or operating results of the Company.
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred it it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company and its subsidiaries pursuant to these laws may be used as
credits for a portion of the associated premium taxes. The Company incurred
guaranty fund assessments of approximately $3,500,000, $3,500,000, and
$3,083,000 in 1999, 1998 and 1997, respectively.
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 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 items. 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.
Investments in fixed maturity securities classified as available-for-sale are
carried at aggregate fair value with changes in unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity for GAAP
and generally at amortized cost under statutory accounting practices.
29
<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, 1999 and 1998, 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, 1999.
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, 1999 and 1998, and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1999 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, 1999 and 1998 or the results of its
operations or its cash flow for each of the three years in the period ended
December 31, 1999.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 2000
30
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENT OF CONDITION -- December 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C> <C>
Investments in mutual funds: Shares Cost Value
--------- ------------ ------------
Massachusetts Investors Trust ("MIT")*........ 776,325 $ 11,227,735 $ 16,264,647
Massachusetts Investors Growth Stock Fund
("MIG")*.................................... 734,451 9,602,557 14,933,573
MFS Total Return Fund ("MTR")*................ 1,299,434 18,909,464 18,034,943
MFS Growth Opportunities Fund ("MGO")*........ 2,476,355 32,299,542 47,233,168
MFS Reseach Fund ("MFR")*..................... 381,690 6,607,728 11,015,314
MFS Bond Fund ("MFB")*........................ 359,526 4,742,783 4,379,212
MFS Money Market Fund ("MCM")................. 4,976,511 4,976,511 4,976,511
MFS Government Money Market Fund ("MCG")...... 851,549 851,549 851,549
MFS High Income Fund ("MFH")*................. 1,230,464 6,481,135 6,136,419
MFS Global Governments Fund ("MGG")*.......... 175,044 1,956,793 1,647,647
MFS Emerging Growth Fund ("MEG")*............. 342,299 9,374,914 22,792,777
------------ ------------
$107,030,711 $148,265,760
============
LIABILITY:
Payable to sponsor....................................................... (94,655)
------------
Net assets......................................................... $148,171,105
============
</TABLE>
NET ASSETS OF CONTRACT OWNERS:
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
------------------------------------ Variable
Units Unit Value Value Annuities Total
--------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
MIT......................... 147,525 $109.0939 $ 16,090,651 $ 199,882 $ 16,290,533
MIG......................... 109,497 135.5845 14,838,324 112,670 14,950,994
MTR......................... 252,908 69.9144 17,650,690 97,550 17,748,240
MGO......................... 552,305 84.5669 47,010,702 279,167 47,289,869
MFR......................... 104,992 104.6442 10,989,885 42,739 11,032,624
MFB......................... 112,651 37.3948 4,301,166 96,649 4,397,815
MCM......................... 226,156 21.7309 4,909,941 75,395 4,985,336
MCG......................... 40,868 20.7776 848,758 3,121 851,879
MFH......................... 136,385 45.0959 6,067,080 115,623 6,182,703
MGG......................... 42,379 37.1590 1,574,609 32,434 1,607,043
MEG......................... 205,870 110.2608 22,698,426 135,643 22,834,069
------------ ---------- ------------
Net assets...................................... $146,980,232 $1,190,873 $148,171,105
============ ========== ============
</TABLE>
*Investments are made in Class A shares of the Fund.
See notes to financial statements
31
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENT OF OPERATIONS -- Year Ended December 31, 1999
<TABLE>
<CAPTION>
MIT MIG MTR MGO MFR MFB
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............... $ 527,155 $1,101,617 $1,813,007 $ 4,353,777 $ 807,108 $ 338,530
Mortality and expense risk charges.... (207,718) (156,876) (252,661) (514,379) (132,294) (62,694)
----------- ---------- ----------- ----------- ----------- ------------
Net investment income (loss)...... $ 319,437 $ 944,741 $1,560,346 $ 3,839,398 $ 674,814 $ 275,836
----------- ---------- ----------- ----------- ----------- ------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $1,793,532 $1,848,097 $4,078,883 $ 5,733,796 $ 1,828,184 $ 1,331,422
Cost of investments sold............ (1,016,452) (1,027,874) (3,524,306) (3,661,393) (866,982) (1,319,311)
----------- ---------- ----------- ----------- ----------- ------------
Net realized gains (losses)....... $ 777,080 $ 820,223 $ 554,577 $ 2,072,403 $ 961,202 $ 12,111
----------- ---------- ----------- ----------- ----------- ------------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $5,036,912 $5,331,016 $ (874,521) $14,933,626 $ 4,407,586 $ (363,571)
Beginning of year................... 5,241,530 2,986,945 1,059,509 9,382,084 3,943,515 91,488
----------- ---------- ----------- ----------- ----------- ------------
Change in unrealized appreciation
(depreciation).................. $ (204,618) $2,344,071 $(1,934,030) $ 5,551,542 $ 464,071 $ (455,059)
----------- ---------- ----------- ----------- ----------- ------------
Realized and unrealized gains
(losses).......................... $ 572,462 $3,164,294 $(1,379,453) $ 7,623,945 $ 1,425,273 $ (442,948)
----------- ---------- ----------- ----------- ----------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 891,899 $4,109,035 $ 180,893 $11,463,343 $ 2,100,087 $ (167,112)
=========== ========== =========== =========== =========== ============
<CAPTION>
MCM MCG MFH MGG MEG
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
----------- ----------- ----------- ----------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Dividend income and capital gain
distributions received............... $ 237,964 $ 51,843 $ 634,514 $ 126,439 $ 108,037
Mortality and expense risk charges.... (66,645) (15,633) (88,130) (22,606) (235,099)
----------- ---------- ----------- ----------- -----------
Net investment income (loss)...... $ 171,319 $ 36,210 $ 546,384 $ 103,833 $ (127,062)
----------- ---------- ----------- ----------- -----------
Realized and unrealized gains
(losses):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $3,930,042 $ 779,756 $1,877,769 $ 307,305 $ 5,618,789
Cost of investments sold............ (3,930,042) (779,756) (1,759,865) (377,837) (1,789,411)
----------- ---------- ----------- ----------- -----------
Net realized gains (losses)....... $ -- $ -- $ 117,904 $ (70,532) $ 3,829,378
----------- ---------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $ -- $ -- $ (344,716) $ (309,146) $13,417,863
Beginning of year................... -- -- (73,232) (186,081) 9,373,097
----------- ---------- ----------- ----------- -----------
Change in unrealized appreciation
(depreciation).................. $ -- $ -- $ (271,484) $ (123,065) $ 4,044,766
----------- ---------- ----------- ----------- -----------
Realized and unrealized gains
(losses).......................... $ -- $ -- $ (153,580) $ (193,597) $ 7,874,144
----------- ---------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 171,319 $ 36,210 $ 392,804 $ (89,764) $ 7,747,082
=========== ========== =========== =========== ===========
</TABLE>
See notes to financial statements
32
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MIT MIG
Sub-Account Sub-Account
-------------------------- --------------------------
Year Ended Year Ended
December 31, December 31,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ 319,437 $ 821,334 $ 944,741 $ 764,771
Net realized gains (losses)........... 777,080 1,505,282 820,223 360,064
Net unrealized gains (losses)......... (204,618) 912,011 2,344,071 1,979,540
----------- ----------- ----------- -----------
Increase (Decrease) in net assets
from operations................. $ 891,899 $ 3,238,627 $ 4,109,035 $ 3,104,375
----------- ----------- ----------- -----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.......... $ 167,331 $ 250,927 $ 122,298 $ 182,818
Net transfers between Sub-Accounts
and Fixed Account.................. 294,781 175,482 1,240,969 520,045
Withdrawals, surrenders,
annuitizations and contract
charges............................ (1,407,400) (3,770,189) (1,510,781) (1,231,561)
----------- ----------- ----------- -----------
Net accumulation activity......... $ (945,288) $(3,343,780) $ (147,514) $ (528,698)
----------- ----------- ----------- -----------
Annuitization activity:
Annuitizations...................... $ -- $ -- $ -- $ --
Annuity payments.................... (37,372) (33,722) (35,111) (28,970)
Adjustments to annuity reserve...... 339 3,919 3,462 3,506
----------- ----------- ----------- -----------
Net annuitization activity........ $ (37,033) $ (29,803) $ (31,649) $ (25,464)
----------- ----------- ----------- -----------
Increase (Decrease) in net assets from
participant transactions............. $ (982,321) $(3,373,583) $ (179,163) $ (554,162)
----------- ----------- ----------- -----------
Increase (Decrease) in net assets... $ (90,422) $ (134,956) $ 3,929,872 $ 2,550,213
NET ASSETS:
Beginning of year..................... 16,380,955 16,515,911 11,021,122 8,470,909
----------- ----------- ----------- -----------
End of year........................... $16,290,533 $16,380,955 $14,950,994 $11,021,122
=========== =========== =========== ===========
<CAPTION>
MTR
Sub-Account
--------------------------
Year Ended
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ 1,560,346 $ 3,142,843
Net realized gains (losses)........... 554,577 1,530,473
Net unrealized gains (losses)......... (1,934,030) (2,387,460)
----------- -----------
Increase (Decrease) in net assets
from operations................. $ 180,893 $ 2,285,856
----------- -----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.......... $ 195,625 $ 289,514
Net transfers between Sub-Accounts
and Fixed Account.................. (1,348,674) (1,127,992)
Withdrawals, surrenders,
annuitizations and contract
charges............................ (2,450,106) (3,913,196)
----------- -----------
Net accumulation activity......... $(3,603,155) $(4,751,674)
----------- -----------
Annuitization activity:
Annuitizations...................... $ -- $ 50,954
Annuity payments.................... (18,350) (9,910)
Adjustments to annuity reserve...... (7,275) (30,175)
----------- -----------
Net annuitization activity........ $ (25,625) $ 10,869
----------- -----------
Increase (Decrease) in net assets from
participant transactions............. $(3,628,780) $(4,740,805)
----------- -----------
Increase (Decrease) in net assets... $(3,447,887) $(2,454,949)
NET ASSETS:
Beginning of year..................... 21,196,127 23,651,076
----------- -----------
End of year........................... $17,748,240 $21,196,127
=========== ===========
</TABLE>
See notes to financial statements
33
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MGO MFR MFB
Sub-Account Sub-Account Sub-Account
-------------------------- -------------------------- ------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
-------------------------- -------------------------- ------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ 3,839,398 $ 3,869,361 $ 674,814 $ 255,014 $ 275,836 $ 330,300
Net realized gains (losses)........... 2,072,403 1,590,905 961,202 583,552 12,111 (61,406)
Net unrealized gains (losses)......... 5,551,542 3,674,762 464,071 1,032,200 (455,059) (81,188)
----------- ----------- ----------- ----------- ----------- ----------
Increase (Decrease) in net assets
from operations................. $11,463,343 $ 9,135,028 $ 2,100,087 $ 1,870,766 $ (167,112) $ 187,706
----------- ----------- ----------- ----------- ----------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.......... $ 319,690 $ 511,586 $ 56,994 $ 92,604 $ 36,226 $ 229,930
Net transfers between Sub-Accounts
and Fixed Account................. (56,754) (246,517) 39,394 251,933 (136,413) (137,088)
Withdrawals, surrenders,
annuitizations and contract
charges........................... (4,743,125) (3,973,370) (1,597,218) (930,243) (930,409) (795,428)
----------- ----------- ----------- ----------- ----------- ----------
Net accumulation activity......... $(4,480,189) $(3,708,301) $(1,500,830) $ (585,706) $(1,030,596) $ (702,586)
----------- ----------- ----------- ----------- ----------- ----------
Annuitization activity:
Annuitizations...................... $ -- $ 57,163 $ -- $ -- $ -- $ --
Annuity payments.................... (36,385) (31,779) (10,702) (9,455) (11,120) (11,729)
Adjustments to annuity reserve...... 16,995 (29,875) 3,738 1,832 (286) 1,001
----------- ----------- ----------- ----------- ----------- ----------
Net annuitization activity........ $ (19,390) $ (4,491) $ (6,964) $ (7,623) $ (11,406) $ (10,728)
----------- ----------- ----------- ----------- ----------- ----------
Increase (Decrease) in net assets from
participant transactions............... $(4,499,579) $(3,712,792) $(1,507,794) $ (593,329) $(1,042,002) $ (713,314)
----------- ----------- ----------- ----------- ----------- ----------
Increase (Decrease) in net assets... $ 6,963,764 $ 5,422,236 $ 592,293 $ 1,277,437 $(1,209,114) $ (525,608)
NET ASSETS:
Beginning of year..................... 40,326,105 34,903,869 10,440,331 9,162,894 5,606,929 6,132,537
----------- ----------- ----------- ----------- ----------- ----------
End of year........................... $47,289,869 $40,326,105 $11,032,624 $10,440,331 $ 4,397,815 $5,606,929
=========== =========== =========== =========== =========== ==========
</TABLE>
See notes to financial statements
34
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MCM MCG MFH
Sub-Account Sub-Account Sub-Account
------------------------- ------------------------ ---------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------------------- ------------------------ ---------------------------
1999 1998 1999 1998 1999 1998
----------- ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ 171,319 $ 198,300 $ 36,210 $ 42,390 $ 546,384 $ 590,763
Net realized gains (losses)........... -- -- -- -- 117,904 148,907
Net unrealized gains (losses)......... -- -- -- -- (271,484) (728,276)
---------- ----------- ----------- ----------- ------------ -------------
Increase (Decrease) in net assets
from operations................. $ 171,319 $ 198,300 $ 36,210 $ 42,390 $ 392,804 $ 11,394
---------- ----------- ----------- ----------- ------------ -------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.......... $ 89,384 $ 95,793 $ 19,501 $ 172,988 $ 56,022 $ 47,917
Net transfers between Sub-Accounts
and Fixed Account................. 859,466 1,099,327 12,828 92,742 (227,923) (234,750)
Withdrawals, surrenders,
annuitizations and contract
charges........................... (1,404,142) (2,304,486) (586,196) (279,549) (1,258,452) (1,213,505)
---------- ----------- ----------- ----------- ------------ -------------
Net accumulation activity......... $ (455,292) $(1,109,366) $ (553,867) $ (13,819) $(1,430,353) $ (1,400,338)
---------- ----------- ----------- ----------- ------------ -------------
Annuitization activity:
Annuitizations...................... $ -- $ -- $ -- $ 3,544 $ -- $ --
Annuity payments.................... (8,327) (8,378) (941) (990) (15,524) (18,033)
Adjustments to annuity reserve...... 210 102 54 78 5,459 2,893
---------- ----------- ----------- ----------- ------------ -------------
Net annuitization activity........ $ (8,117) $ (8,276) $ (887) $ 2,632 $ (10,065) $ (15,140)
---------- ----------- ----------- ----------- ------------ -------------
Increase (Decrease) in net assets from
participant transactions............... $ (463,409) $(1,117,642) $ (554,754) $ (11,187) $(1,440,418) $ (1,415,478)
---------- ----------- ----------- ----------- ------------ -------------
Increase (Decrease) in net assets... $ (292,090) $ (919,342) $ (518,544) $ 31,203 $(1,047,614) $ (1,404,084)
NET ASSETS:
Beginning of year..................... 5,277,426 6,196,768 1,370,423 1,339,220 7,230,317 8,634,401
---------- ----------- ----------- ----------- ------------ -------------
End of year........................... $4,985,336 $ 5,277,426 $ 851,879 $1,370,423 $ 6,182,703 $ 7,230,317
========== =========== =========== =========== ============ =============
</TABLE>
See notes to financial statements
35
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MGG MEG
Sub-Account Sub-Account
------------------------ -------------------------
Year Ended Year Ended
December 31, December 31,
------------------------ -------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ 103,833 $ 106,741 $ (127,062) $ (53,760)
Net realized gains (losses)........... (70,532) (14,845) 3,829,378 2,192,749
Net unrealized gains (losses)......... (123,065) (32,164) 4,044,766 1,544,153
---------- ---------- ----------- -----------
Increase (Decrease) in net assets
from operations................. $ (89,764) $ 59,732 $ 7,747,082 $ 3,683,142
---------- ---------- ----------- -----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.......... $ 5,219 $ 10,731 $ 155,477 $ 297,252
Net transfers between Sub-Accounts
and Fixed Account.................. (86,025) (79,290) (771,150) 87,481
Withdrawals, surrenders,
annuitizations and contract
charges............................ (196,101) (167,294) (2,988,579) (2,456,028)
---------- ---------- ----------- -----------
Net accumulation activity......... $ (276,907) $ (235,853) $(3,604,252) $(2,071,295)
---------- ---------- ----------- -----------
Annuitization activity:
Annuitizations...................... $ -- $ -- $ -- $ --
Annuity payments.................... (5,326) (5,614) (17,562) (17,582)
Adjustments to annuity reserve...... 1,607 (1,687) 15,977 6,854
---------- ---------- ----------- -----------
Net annuitization activity........ $ (3,719) $ (7,301) $ (1,585) $ (10,728)
---------- ---------- ----------- -----------
Increase (Decrease) in net assets from
participant transactions............ $ (280,626) $ (243,154) $(3,605,837) $(2,082,023)
---------- ---------- ----------- -----------
Increase (Decrease) in net assets... $ (370,390) $ (183,422) $ 4,141,245 $ 1,601,119
NET ASSETS:
Beginning of year..................... 1,977,433 2,160,855 18,692,824 17,091,705
---------- ---------- ----------- -----------
End of year........................... $1,607,043 $1,977,433 $22,834,069 $18,692,824
========== ========== =========== ===========
</TABLE>
See notes to financial statements
36
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life of Canada (U.S.) Variable Account C (the "Variable Account"), a
separate account of Sun Life Assurance Company of Canada (U.S.) (the "Sponsor"),
was established on March 31, 1982 as a funding vehicle for individual variable
annuities issued in connection with qualified retirement plans. 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 specific mutual fund or series thereof
selected by contract owners from available mutual funds (the "Funds") advised by
Massachusetts Financial Services Company ("MFS"), an affiliate of the Sponsor.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Sponsor's 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
INVESTMENT VALUATIONS
Investments in the Funds are recorded at their net asset value. Realized gains
and losses on sales of shares of the Funds are determined on the identified cost
basis. Dividend income and capital gain distributions received by the
Sub-Accounts are reinvested in additional Fund 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;
therefore, no provision has been made for federal income taxes.
(3) CONTRACT CHARGES
A mortality and expense risk charge based on the value of the Variable Account
is deducted from the Variable Account at the end of each valuation period for
the mortality and expense risks assumed by the Sponsor. The deduction is at an
effective annual rate of 1.3%.
37
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS -- continued
Each year on the contract anniversary, a contract maintenance charge of $25 is
deducted from each contract's accumulation account to cover administrative
expenses relating to the contract. After the annuity commencement date the
charge is deducted pro rata from each annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) may be deducted to cover
certain expenses relating to the sale of the contract. In no event shall the
aggregate withdrawal charges exceed 5% of the purchase payments made under
the contract.
A deduction, when applicable, is made for premium taxes or similar state or
local taxes. It is currently the policy of the Sponsor to deduct the taxes
from the amount applied to provide an annuity at the time annuity payments
commence; however, the Sponsor reserves the right to deduct such taxes when
incurred.
(4) ANNUITY RESERVES
Annuity reserves for contracts with annuity commencement dates prior to
February 1, 1987 are calculated using the 1971 Individual Annuitant Mortality
Table. Annuity reserves for contracts with annuity commencement dates on or
after February 1, 1987 are calculated using the 1983 Individual Annuitant
Mortality Table. All annuity reserves are calculated using an assumed
interest rate of 4%. Required adjustments to the reserve are accomplished by
transfers to or from the Sponsor.
38
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<TABLE>
<CAPTION>
MIT MIG MTR
Sub-Account Sub-Account Sub-Account
------------------ ------------------ ------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year.... 156,406 191,532 110,261 116,839 304,876 376,845
Units purchased....................... 1,635 2,680 1,135 2,161 2,773 4,393
Units transferred between Sub-
Accounts and Fixed Account.......... 2,877 1,444 11,474 5,819 (19,641) (16,851)
Units withdrawn, surrendered and
annuitized.......................... (13,393) (39,250) (13,373) (14,558) (35,100) (59,511)
-------- -------- -------- -------- -------- --------
Units outstanding, end of year........ 147,525 156,406 109,497 110,261 252,908 304,876
======== ======== ======== ======== ======== ========
<CAPTION>
MGO MFR MFB
Sub-Account Sub-Account Sub-Account
------------------ ------------------ ------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year.... 617,973 682,668 121,411 129,195 139,906 158,314
Units purchased....................... 4,824 9,055 647 1,193 941 6,031
Units transferred between Sub-
Accounts and Fixed Account.......... (1,021) (4,580) 497 3,013 (3,556) (3,600)
Units withdrawn, surrendered and
annuitized.......................... (69,471) (69,170) (17,563) (11,990) (24,640) (20,839)
-------- -------- -------- -------- -------- --------
Units outstanding, end of year........ 552,305 617,973 104,992 121,411 112,651 139,906
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MCM MCG MFH
Sub-Account Sub-Account Sub-Account
------------------ ------------------ ------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year.... 247,311 301,313 67,794 68,686 168,359 200,252
Units purchased....................... 4,169 4,643 1,063 8,633 1,309 1,084
Units transferred between Sub-
Accounts and Fixed Account.......... 40,396 53,161 528 4,580 (5,090) (5,278)
Units withdrawn, surrendered and
annuitized.......................... (65,720) (111,806) (28,517) (14,105) (28,193) (27,699)
-------- -------- -------- -------- -------- --------
Units outstanding, end of year........ 226,156 247,311 40,868 67,794 136,385 168,359
======== ======== ======== ======== ======== ========
<CAPTION>
MGG MEG
Sub-Account Sub-Account
------------------ ------------------
Year Year Year Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Units outstanding, beginning of year.... 49,718 55,822 249,765 280,589
Units purchased....................... 149 277 2,037 4,313
Units transferred between Sub-
Accounts and Fixed Account.......... (2,280) (2,074) (9,296) 1,703
Units withdrawn, surrendered and
annuitized.......................... (5,208) (4,307) (36,636) (36,840)
-------- -------- -------- --------
Units outstanding, end of year........ 42,379 49,718 205,870 249,765
======== ======== ======== ========
</TABLE>
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Participants in Sun Life of Canada (U.S.) Variable Account C
and the Board of Directors of Sun Life Assurance Company of Canada (U.S.):
We have audited the accompanying statement of condition of Massachusetts
Investors Trust Sub-Account, Massachusetts Investors Growth Stock Sub-Account,
MFS Total Return Sub-Account, MFS Growth Opportunities Sub-Account, MFS Research
Sub-Account, MFS Bond Sub-Account, MFS Money Market Sub-Account, MFS Government
Money Market Sub-Account, MFS High Income Sub-Account, MFS Global Governments
Sub-Account, and MFS Emerging Growth Sub-Account of Sun Life of Canada (U.S.)
Variable Account C (the "Sub-Accounts") as of December 31, 1999, the related
statement of operations for the year then ended and the statements of changes in
net assets for the years ended December 31, 1999 and December 31, 1998. 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, 1999 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 as of December 31, 1999,
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 10, 2000
40
<PAGE>
APPENDIX A
THE FIXED ACCOUNT
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE IN THIS APPENDIX A HAS NOT BEEN REVIEWED BY THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION. HOWEVER, THE FOLLOWING DISCLOSURE ABOUT THE
FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE
FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF DISCLOSURE.
A WORD ABOUT THE FIXED ACCOUNT
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to any separate account. Purchase Payments will be
allocated to the Fixed Account as elected by the Owner at the time of purchase
or as subsequently changed. The Company will invest the assets of the Fixed
Account in those assets chosen by the Company and allowed by applicable state
law regarding the nature and quality of investments that may be made by life
insurance companies and the percentage of their assets that may be committed to
any particular type of investment. In general, these laws permit investments,
within specified limits and subject to certain qualifications, in federal, state
and municipal obligations, corporate bonds, preferred and common stocks, real
estate mortgages, real estate and certain other investments. Investment income
from such Fixed Account assets will be allocated between the Company and the
contracts participating in the Fixed Account, in accordance with the terms of
such contracts.
Fixed annuity payments made to Annuitants under the Contracts will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. The Company assumes this "mortality risk"
by virtue of annuity rates incorporated in the Contracts which cannot be
changed. In addition, the Company guarantees that it will not increase charges
for maintenance of the Contracts regardless of its actual expenses.
Investment income from the Fixed Account allocated to the Company includes
compensation for mortality and expense risks, distribution expenses and
administrative expenses borne by the Company in connection with Fixed Account
Contracts. The Company expects to derive a profit from this compensation. The
amount of investment income allocated to the Contracts will vary from year to
year in the sole discretion of the Company. However, the Company guarantees that
it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the Fixed Account under the Contracts. The
Company may credit interest at a rate in excess of 4% per year; however, the
Company is not obligated to credit any interest in excess of 4% per year. There
is no specific formula for the determination of excess interest credits. Such
credits, if any, will be determined by the Company based on information as to
expected investment yields. Some of the factors that the Company may consider in
determining whether to credit interest to amounts allocated to the Fixed Account
and the amount thereof are: general economic trends; rates of return currently
available and anticipated on the Company's investments; regulatory and tax
requirements; and competitive factors. ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES THE RISK THAT INTEREST
CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
41
<PAGE>
The Company is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in the Company's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and contract owners and to its sole stockholder.
Excess interest, if any, will be credited on the fixed accumulation value.
The Company guarantees that, at any time, the fixed accumulation value will not
be less than the amount of Purchase Payments allocated to the Fixed Account,
plus interest at the rate of 4% per year, compounded annually, plus any
additional interest which the Company may, in its discretion, credit to the
Fixed Account, less the sum of all administrative or withdrawal charges, any
applicable premium taxes, and less any amounts surrendered. If the Owner
surrenders the Contract, the amount available from the Fixed Account will be
reduced by any applicable withdrawal charge (See "Withdrawal Charges" in the
Prospectus).
If on any Contract Anniversary the rate at which the Company credits
interest to amounts allocated to the Fixed Account under the Contract is less
than 80% of the average discount rate on 52-week United States Treasury Bills
for the most recent auction prior to the Contract Anniversary on which the
declared interest rate becomes applicable, then during the 45-day period after
the Contract Anniversary the Owner may elect to receive the value of the
Contract's Accumulation Account without assessment of a withdrawal charge. Such
withdrawal may, however, result in adverse tax consequences. (See "Federal Tax
Status").
The Company reserves the right to defer the payment of amounts withdrawn
from the Fixed Account for a period not to exceed six months from the date
written request for such withdrawal is received by the Company.
FIXED ACCUMULATION VALUE
(1) CREDITING FIXED ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion, if
any, of the net Purchase Payment to be allocated to the Fixed Account in
accordance with the allocation factor will be credited to the Accumulation
Account in the form of Fixed Accumulation Units. The number of Fixed
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the Fixed Account by the Fixed Accumulation Unit value for the
Contract for the Valuation Period during which the Purchase Payment is received
by the Company.
(2) FIXED ACCUMULATION UNIT VALUE
A Fixed Accumulation Unit value is established at $10.00 for the first
Valuation Period of the calendar month in which the Contract is issued and will
increase for each successive Valuation Period as interest is accrued. All
Contracts issued in a particular calendar month and at a particular rate of
interest, as specified in advance by the Company from time to time, will use the
same series of Fixed Accumulation Unit values throughout the first Contract
Year.
At the first Contract Anniversary the Fixed Accumulation Units credited to a
Contract's Accumulation Account will be exchanged for a second type of Fixed
Accumulation Unit with an equal aggregate value. The value of this second type
of Fixed Accumulation Unit will increase for each Valuation Period during each
Contract Year as interest is accrued at a rate which shall have been determined
by the Company prior to the first day of each Contract Year.
The Company will credit interest to the Contract's Fixed Accumulation
Account at a rate of not less than 4% per year, compounded annually. Once the
rate applicable to a specific Contract is established by the Company, it may not
be changed for the balance of the Contract Year. Additional Payments made during
the Contract Year will be credited with interest for the balance of the Contract
Year at the rate applicable at the beginning of that Contract Year. The Fixed
Accumulation Unit value for the Contract for any Valuation Period is the value
determined as of the end of such Valuation Period.
(3) FIXED ACCUMULATION VALUE
The fixed accumulation value of a Contract, if any, for any Valuation Period
is equal to the value of the Fixed Accumulation Units credited to the
Accumulation Account for such Valuation Period.
42
<PAGE>
LOANS FROM THE FIXED ACCOUNT
Loans will be permitted from the Contract's Fixed Accumulation Account (to
the extent permitted by the retirement plan for which the Contract is
purchased). The maximum loan amount is the amount determined under the Company's
maximum loan formula for qualified plans. The minimum loan amount is $1,000.
Loans will be secured by a security interest in the Contract. Loans are subject
to applicable retirement program legislation and their taxation is determined
under the federal income tax laws. The amount borrowed will be transferred to a
fixed minimum guarantee accumulation account in the Company's general account
where it will accrue interest at a specified rate below the then current loan
interest rate. Generally, loans must be repaid within five years.
The amount of the death benefit, the amount payable on a full surrender and
the amount applied to provide an annuity on the Annuity Commencement Date will
be reduced to reflect any outstanding loan balance (plus accrued interest
thereon). Partial withdrawals may be restricted by the maximum loan limitation.
FIXED ANNUITY PAYMENTS
The dollar amount of each fixed annuity payment will be determined in
accordance with the annuity payment rates found in the Contract which are based
on a minimum guaranteed interest rate of 4% per year, or, if more favorable to
the Payee(s), in accordance with the Single Premium Immediate Settlement Rates
published by the Company and in use on the Annuity Commencement Date.
APPENDIX B
ILLUSTRATIVE EXAMPLES
ILLUSTRATIVE EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATIONS
Suppose the net asset value of a Fund share at the end of the current
Valuation Period is $18.38; at the end of the immediately preceding Valuation
Period is $18.32; the Valuation Period is one day; no dividends or distributions
caused Fund shares to go "ex-dividend" during the current Valuation Period.
$18.38 divided by $18.32 is 1.00327511. Subtracting the one day risk factor for
mortality and expense risks of .00003539 (the daily equivalent of the current
charge of 1.3% on an annual basis) gives a net investment factor of 1.00323972.
If the value of the Variable Accumulation Unit for the immediately preceding
Valuation Period had been 14.5645672, the value for the current Valuation Period
would be 14.6117523 (14.5645672 x 1.00323972).
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY UNIT VALUE CALCULATIONS
Suppose the circumstances of the first example exist, and the value of an
Annuity Unit for the immediately preceding Valuation Period had been 12.3456789.
If the first variable annuity payment is determined by using an annuity payment
based on an assumed interest rate of 4% per year, the value of the Annuity Unit
for the current Valuation Period would be 12.3843446 (12.3456789 x 1.00323972 x
0.99989255).
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATIONS
Suppose that the Accumulation Account of a deferred Contract is credited
with 8,765.4321 Variable Accumulation Units of a particular Sub-Account but is
not credited with any Fixed Accumulation Units; that the Variable Accumulation
Unit value and the Annuity Unit value for the particular Sub-Account for the
Valuation Period which ends immediately preceding the Annuity Commencement Date
are 14.5645672 and 12.3456789, respectively; that the annuity payment rate for
the age and option elected is $6.78 per $1,000; and that the Annuity Unit value
on the day prior to the second variable annuity payment date is 12.3843446. The
first variable annuity payment would be $865.57 (8,765.4321 x 14.5645672 x 6.78
divided by 1,000). The number of Annuity Units credited would be 70.1112
($865.57 divided by 12.3456789) and the second variable annuity payment would be
$868.28 (70.1112 x 12.3843446).
43
<PAGE>
APPENDIX C
WITHDRAWALS AND WITHDRAWAL CHARGES
Suppose, for example, that the initial Purchase Payment under a Contract was
$2,000, and that $2,000 Purchase Payments were made on each Contract Anniversary
thereafter. The maximum free withdrawal amount would be $200, $400, $600, $800,
and $1,000 in Contract Years 1, 2, 3, 4, and 5, respectively; these amounts are
determined as 10% of the new Payments (as new Payments are defined in each
Contract Year).
In Contract Years after the 5th, the maximum free withdrawal amount will
be increased by any old Payments which have not already been liquidated.
Continuing the example, consider a partial withdrawal of $4,500 made during
the 7th Contract Year. Let us consider this withdrawal under two sets of
circumstances: first where there were no previous partial withdrawals, and
second where there had been an $800 cash withdrawal payment made in the 5th
Contract Year.
1. In the first instance, there were no previous partial withdrawals. The
maximum free withdrawal amount in the 7th Contract Year is then $5,000,
which consists of $4,000 in old Payments ($2,000 from each of the first
two Contract Years) and $1,000 as 10% of the new Payments in years 3-7.
Because the $4,500 partial withdrawal is less than the maximum free
withdrawal amount of $5,000, no withdrawal charge would be imposed.
This withdrawal would liquidate the Purchase Payments which were made in
Contract Years 1 and 2, and would liquidate $500 of the Purchase Payment
which was made in Contract Year 3.
2. In the second instance, an $800 cash withdrawal payment had been made in
the 5th Contract Year. Because the cash withdrawal payment was less than
the $1,000 maximum free withdrawal amount in the 5th Contract Year, no
surrender charge would have been imposed. The $800 cash withdrawal
payment would have liquidated $800 of the Purchase Payment in the 1st
Contract Year.
As a consequence, the maximum free withdrawal amount in the 7th Contract
Year is only $4,200, consisting of $3,200 in old Payments ($1,200
remaining from Contract Year 1 and $2,000 from Contract Year 2) and
$1,000 as 10% of new Payments. A $4,500 partial withdrawal exceeds the
maximum free withdrawal amount by $300. Therefore the amount subject to
the withdrawal charge is $300 and the withdrawal charge is $300 X 0.05,
or $15. The amount of the cash withdrawal payment is the $4,500 partial
withdrawal, minus the $15 withdrawal charge, or $4,485. The $4,500
partial withdrawal would be charged to the Contract's Accumulation
Account in the form of canceled Accumulation Units.
This withdrawal would liquidate the remaining $1,200 from the Purchase
Payment in Contract Year 1, the full $2,000 Purchase Payment from
Contract Year 2, and $1,300 of the Payment from Contract Year 3.
Suppose that the Owner of the Contract wanted to make a full surrender of
the Contract in Contract Year 7 instead of a $4,500 partial withdrawal. The
consequences would be as follows:
1. In the first instance, where there were no previous cash withdrawal
payments, we know from above that the maximum free withdrawal amount in
the 7th Contract Year is $5,000. The sum of the old and new Payments not
previously liquidated is $14,000 ($2,000 from each Contract Year). The
amount subject to the withdrawal charge is thus $9,000. The withdrawal
charge on full surrender would then be $9,000 X 0.05 or $450.
2. In the second instance, where $800 had previously been withdrawn, we know
from above that the maximum free withdrawal amount in the 7th Contract
Year is $4,200. The sum of old and new Payments not previously liquidated
is $14,000 less the $800 which was previously liquidated, or $13,200. The
amount subject to the withdrawal charge is still $9,000 ($13,200 -
$4,200). The withdrawal charge on full surrender would thus be the same
as in the first example.
44
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
45
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following Financial Statements are included in the Registration
Statement:
Included in Part A:
A. Condensed Financial Information -- Accumulation Unit Values
Included in Part B:
A. Financial Statements of the Registrant:
1. Statement of Condition, December 31, 1999;
2. Statement of Operations, Year Ended December 31, 1999;
3. Statements of Changes in Net Assets, Years Ended December 31, 1999
and 1998;
4. Notes to Financial Statements;
5. Independent Auditors' Report;
B. Financial Statements of the Depositor:
1. Statutory Statements of Admitted Assets, Liabilities and Capital
Stock and Surplus, December 31, 1999 and 1998;
2. Statutory Statements of Operations, Years Ended December 31, 1999,
1998 and 1997;
3. Statutory Statements of Changes in Capital Stock and Surplus, Years
Ended December 31, 1999, 1998 and 1997;
4. Statutory Statements of Cash Flow, Years Ended December 31, 1999,
1998 and 1997;
5. Notes to Statutory Financial Statements; and
6. Independent Auditors' Report.
<PAGE>
(b) The following Exhibits are incorporated in this Amendment to the
Registration Statement by reference unless otherwise indicated:
(1) Resolution of Board of Directors of the depositor dated March 31, 1982
authorizing the establishment of the Registrant (Incorporated by
reference to the Registration Statement of the Registrant on Form N-4,
File No. 333-37907, filed on October 14, 1997);
(2) Custodian Agreement between State Street Bank and Trust Company and
the depositor dated November 1, 1982 (Filed as Exhibit A.(2) to
Amendment No. 1 to the Registration Statement on Form N-8B-2);
(3) (a) Form of Marketing Coordination and Administrative Services
Agreement between the depositor, Massachusetts Financial Services
Company and Clarendon Insurance Agency, Inc. (Incorporated by
reference to Pre-Effective Amendment No. 1 to the Registration
Statement of the Registrant on Form N-4, File No. 333-37907,
filed on January 16, 1998);
(b)(i) Specimen Sales Operations and General Agent Agreement
(Incorporated by reference to Pre-Effective Amendment No. 1
to the Registration Statement of the Registrant on Form N-4,
File No. 333-37907, filed on January 16, 1998);
(b)(ii) Specimen Broker-Dealer Supervisory and Service Agreement
(Incorporated by reference to Pre-Effective Amendment No. 1
to the Registration Statement of the Registrant on Form N-4,
File No. 333-37907, filed on January 16, 1998);
(b)(iii) Specimen General Agent Agreement (Incorporated by reference
to Pre-Effective Amendment No. 1 to the Registration
Statement of the Registrant on Form N-4, File No. 333-37907,
filed on January 16, 1998);
(4) Flexible Payment Deferred Combination Variable and Fixed Annuity
Contract (Incorporated by reference to Post-Effective Amendment No. 20
to the Registration Statement of the Registrant on Form N-4, File No.
2-78738, filed on April 16, 1998);
(5) Not Applicable;
(6) Certificate of Incorporation and By-laws of the Depositor
(Incorporated by reference to the Registration Statement of the
Registrant on Form N-4, File No. 333-37907, filed on October 14,
1997);
(7) Not Applicable;
(8) None;
(9) Previously filed;
(10) (a) Consent of Deloitte & Touche*;
(b) Representation of Counsel*
<PAGE>
(11) None;
(12) Not Applicable;
(13) Not Applicable;
(14) Not Applicable; and
(15) (a) Powers of Attorney (Incorporated by reference to the
Registration Statement on Form S-6 File No. 333-94359, filed
January 10, 2000);
(b) Power of Attorney of David D. Horn (Incorporated by reference to
Post-Effective Amendment No. 1 to the Registration Statement on
Form N-4, File No. 333-82957, filed February 3, 2000);
(c) Power of Attorney of Richard B. Bailey (Incorporated by
reference to Post-Effective Amendment No. 6 to the Registration
Statement in Form N-4, File No. 333-05227, filed April 5,
2000);
(d) Power of Attorney of William W. Stinson*; and
(16) Organizational Chart (Incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-4 File No.
333-82957, filed March 31, 2000).
* Filed herewith.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ---------------------
Donald A. Stewart Chairman and Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
C. James Prieur Vice Chairman and Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
James A. McNulty, III President and Director
One Sun Life Executive Park
Wellesley Hills, MA 02481
Richard B. Bailey Director
63 Atlantic Avenue
Boston, MA 02110
Gregory W. Gee Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
David D. Horn Director
Strong Road
New Vineyard, ME 04956
Angus A. MacNaughton Director
Genstar Investment Corporation
555 California Street, Suite 4850
San Francisco, CA 94104
S. Caesar Raboy Director
220 Boylston Street
Boston, MA 02110
William W. Stinson Director
Canadian Pacific Limited
1800 Bankers Hall, East Tower
855 - 2nd Street S.W.
Calgary, Alberta
Canada T2P 4Z5
James M.A. Anderson Vice President, Investments
One Sun Life Executive Park
Wellesley Hills, MA 02481
<PAGE>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ---------------------
Peter F. Demuth Vice President and Chief
One Sun Life Executive Park Counsel and Assistant Secretary
Wellesley Hills, MA 02481
Ronald J. Fernandes Vice President, Retirement
One Copley Place Products and Services
Boston, MA 02116
Ellen B. King Counsel and Secretary
One Sun Life Executive Park
Wellesley Hills, MA 02481
Davey S. Scoon Vice President, Finance and
One Sun Life Executive Park Treasurer
Wellesley Hills, MA 02481
Robert P. Vrolyk Vice President and Actuary
One Sun Life Executive Park
Wellesley Hills, MA 02481
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is directly or indirectly controlled by the Registrant. The
Registrant is a separate account of Sun Life Assurance Company of Canada (U.S.),
an indirect wholly-owned subsidiary of Sun Life Financial Series of Canada Inc.
The organizational chart of Sun Life Financial Services of Canada Inc. is
incorporated herein by reference to Exhibit 16 to Post-Effective Amendment No.
2 to the Registrant's Registration Statement on Form N-4, File No. 333-82957,
filed March 31, 2000.
<PAGE>
None of the companies listed in such Exhibit 16 is a subsidiary of the
Registrant; therefore the only financial statements being filed are those of
Sun Life Assurance Company of Canada (U.S.).
Item 27. NUMBER OF CONTRACT OWNERS:
As of April 3, 2000 there were 4,058 Contracts, all of which were
established pursuant to qualified plans, issued and outstanding pursuant to
this Registration Statement.
Item 28. INDEMNIFICATION
Pursuant to Section 145 of the Delaware Corporation Law, Article 8 of the
By-laws of Sun Life Assurance Company of Canada (U.S.), a copy of which was
filed as Exhibit A.(6)(b) to Form N-8B-2, provides for the indemnification of
directors, officers and employees of Sun Life Assurance Company of Canada
(U.S.).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of Sun
Life Assurance Company of Canada (U.S.) pursuant to the certificate of
incorporation, by-laws, or otherwise, Sun Life of Canada (U.S.) 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 Sun Life of Canada (U.S.)
of expenses incurred or paid by a director, officer, controlling person of Sun
Life of Canada (U.S.) 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, Sun Life of Canada (U.S.)
will, unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by them is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. PRINCIPAL UNDERWRITERS
(a) Clarendon Insurance Agency, Inc., which is a wholly-owned
subsidiary of Sun Life of Canada (U.S.), acts as general distributor for the
Registrant, Sun Life of Canada (U.S.) Variable Accounts D, E, F, G, H and I,
Sun Life (N.Y.) Variable Accounts A, B and C and 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.
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with Underwriter
---------------- ----------------
<S> <C>
Anne M. Georges.................... President and Director
Davey S. Scoon..................... Treasurer and Director
James M.A. Anderson................ Director
Ronald J. Fernandes................ Director
James A. McNulty, III.............. Director
Maura A. Murphy.................... Secretary
Roy P. Creedon..................... Assistant Secretary
Donald E. Kaufman.................. Vice President
Brian A. Krivitsky................. Vice President
Cynthia M. Orcutt.................. Vice President
Laurie Lennox...................... Vice President
</TABLE>
- -------------
* The principal business address of all directors and officers of the
principal underwriter except Ms. Georges, Ms. Lennox and Messrs. Fernandes
and Krivitsky is One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481. The principal business address of Ms. Georges, Ms. Lennox and Messrs.
Fernandes and Krivitsky is One Copley Place, Boston, Massachusetts 02116.
(c) Inapplicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained, in whole or part, by Sun Life Assurance Company of
Canada (U.S.), at its offices at One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481 and One Copley Place, Boston, Massachusetts 02116,
or at the offices of the custodian, State Street Bank and Trust Company, at
either 225 Franklin Street, Boston, Massachusetts 02110 or 5-West, North
Quincy, Massachusetts 02171.
Item 31. MANAGEMENT SERVICES
Not Applicable.
Item 32. UNDERTAKINGS
The Registrant hereby undertakes:
(a) To file a post-effective amendment to this Registration Statement as
frequently as is necessary to ensure that the audited financial statements in
the Registration Statement are never more than 16 months old for so long as
payments under the variable annuity Contracts may be accepted;
(b) To include either (1) as part of any application to purchase a Contract
offered by the prospectus, a space that an Applicant can check to request a
Statement of Additional Information, or (2) a post card or simiilar written
communication affixed to or included in the prospectus that the Applicant can
remove to send for a Statement of Additional Information;
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under SEC Form N-4 promptly upon
written or oral request.
(d) Representation with respect to Section 26(e)of the Investment Company
Act of 1940: Sun Life Assurance Company of Canada (U.S.) represents that the
fees and charges deducted under the Contracts, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance company.
The Registrant is relying on the no-action letter issued by the Division
of Investment Management of the Securities and Exchange Commission to
American Council of Life Insurance, Ref. No. IP-6-88, dated November 28,
1988, the requirements for which have been complied with by the Registrant.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets all of the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 23 to the Registration Statement and has caused this Post-Effective
Amendment to be signed on its behalf, in the Town of Wellesley Hills, and
Commonwealth of Massachusetts on this 20th day of April, 2000.
Sun Life of Canada (U.S.)
Variable Account C
(Registrant)
Sun Life Assurance Company of
Canada (U.S.)
(Depositor)
By: /s/ JAMES A. McNULTY, III
------------------------------
James A. McNulty, III
President
Attest: /s/ EDWARD M. SHEA
--------------------------------
Edward M. Shea
Assistant Vice President and
Senior Counsel
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following
persons in the capacities with the Depositor, Sun Life Assurance Company of
Canada (U.S.), and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ JAMES A. McNULTY, III President and Director April 20, 2000
- --------------------------- (Principal Executive
James A. McNulty Officer)
/s/ DAVEY S. SCOON Vice President, Finance
- --------------------------- and Treasurer
Davey S. Scoon (Principal Financial & April 20, 2000
Accounting Officer)
<PAGE>
Signatures Title Date
---------- ------ ----
* /s/ DONALD A. STEWART Chairman and April 20, 2000
- ---------------------------- Director
Donald A. Stewart
* /s/ C. JAMES PRIEUR Vice Chairman and April 20, 2000
- ---------------------------- Director
C. James Prieur
*** /s/ RICHARD B. BAILEY Director April 20, 2000
- ----------------------------
Richard B. Bailey
* /s/ GREGORY W. GEE Director April 20, 2000
- ----------------------------
Gregory W. Gee
** /s/ DAVID D. HORN Director April 20, 2000
- ----------------------------
David D. Horn
* /s/ ANGUS A. MacNAUGHTON Director April 20, 2000
- ----------------------------
Angus A. MacNaughton
* /s/ S. CAESAR RABOY Director April 20, 2000
- ----------------------------
S. Caesar Raboy
**** /s/ WILLIAM W. STINSON Director April 20, 2000
- ----------------------------
William W. Stinson
- --------------------------
* By Edward M. Shea pursuant to Power of Attorney filed as an Exhibit to
the Registration Statement Form S-6, File No. 333-94359, filed January
10, 2000.
** By Edward M. Shea pursuant to Power of Attorney filed as an Exhibit to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-4,
File No. 333-82957, filed February 3, 2000.
*** By Edward M. Shea pursuant to Power of Attorney filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registration Statement on Form N-4,
File No. 333-05227, filed April 5, 2000.
**** By Edward M. Shea pursuant to Power of Attorney filed herewith.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 23 to Registration
Statement No. 2-78738 of Sun Life of Canada (U.S.) Variable Account C on Form
N-4 of our report dated February 10, 2000 accompanying the financial
statements of Sun Life of Canada (U.S.) Variable Account C, and to the use of
our report dated February 10, 2000 accompanying the statutory financial
statements of Sun Life Assurance Company of Canada (U.S.), which includes
explanatory paragraphs relating to the use of statutory accounting practices
which differ from generally accepted accounting principles, appearing in the
Statement of Additional Information, which is part of such Registration
Statement, and to the incorporation by reference of our report dated February
10, 2000, appearing in the Annual Report on Form 10-K of Sun Life Assurance
Company of Canada (U.S.) for the year ended December 31, 1999, which includes
explanatory paragraphs relating to the use of statutory accounting practices
which differ from generally accepted accounting principles.
We also consent to the reference to us under the heading "Condensed
Financial Information -- Accumulation Unit Values" appearing in the
Prospectus which is part of such Registration Statement, and under the
heading "Accountants" in such Statement of Additional Information.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 20, 2000
<PAGE>
Exhibit 10(b)
REPRESENTATION OF COUNSEL
I, Sandra M. DaDalt, in my capacity as counsel to Sun Life of Canada (U.S.)
Variable Account C (the "Account") have reviewed this Post-Effective
Amendment to the Registration Statement of the Account which is being filed
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933. Based
on my review of this Post-Effective Amendment and such other material
relating to the operations of the Account as I deemed relevant, I hereby
certify as of the date of filing this Post-Effective Amendment, that the
Post-Effective Amendment does not contain disclosure which would render it
ineligible to become effective pursuant to paragraph (b) of Rule 485.
I hereby consent to the filing of this representation as part of this
Post-Effective Amendment to the Registration Statement of the Account.
/s/ SANDRA M. DADALT
-----------------------
Sandra M. DaDalt, Esq.
April 20, 2000
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that William W. Stinson, whose signature
appears below, constitutes and appoints Edward M. Shea, Sandra DaDalt, Ellen
B. King, Peter F. Demuth, C. James Prieur, and James A. McNulty, III, and
each of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign:
(i) the Registration Statements on Form S-6 of Sun Life Assurance
Company of (U.S.) Variable Account I, to be filed with the
Securities and Exchange Commission on or about January 6, 2000,
and any amendments thereto.
(ii) any Registration Statements under the Securities Act of 1933 and
the Investment Company Act of 1940 of any of Sun Life of Canada
(U.S.) Variable Account C, Sun Life of Canada (U.S.) Variable
Account D, Sun Life of Canada (U.S.) Variable Account F, Sun Life
of Canada (U.S.) Variable Account G, and Sun Life of Canada (U.S.)
Variable Account I or any other variable account established by
Sun Life Assurance Company of Canada (U.S.) (the "Company"), and
(iii) any and all instruments, including applications for exemptions
from such Acts, which said attorneys-in-fact deem necessary and
advisable to enable the Company or any variable account of the
Company to comply with the Securities Act of 1933, as amended,
the Investment Company Act of 1940, as amended, and the rules and
regulations and requirements of the Securities and Exchange
Commission in respect thereof;
and to file the same, with exhibits thereto, and other amendments in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact or his
substitute or substitutes may do or cause to be done by virtue hereof.
/s/ WILLIAM W. STINSON
------------------------
William W. Stinson
Dated: March 20, 2000
