<PAGE>
As Filed with the Securities Exchange Commission April 7, 2000
REGISTRATION NO. 2-99958
811-03745
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-4
POST-EFFECTIVE AMENDMENT NO. 18 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
AND
AMENDMENT NO. 18
TO
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
(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
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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. 33-41628), which became effective on November 1, 1991 (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.
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<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated May 1, 2000.
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
MAY 1, 2000
PROFILE
COMPASS G
COMBINATION FIXED/VARIABLE
GROUP ANNUITY
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING A CERTIFICATE UNDER THE CONTRACT. THE
CONTRACT AND CERTIFICATE ARE MORE FULLY DESCRIBED IN THE FULL PROSPECTUS WHICH
ACCOMPANIES THIS PROFILE. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE COMPASS G ANNUITY
The Compass G Combination Fixed/Variable Group Annuity is a master group
flexible payment deferred annuity contract ("Contract") designed for use in
connection with retirement and deferred compensation plans, some of which may
qualify for favorable federal income tax treatment. We issue the Contract to the
employer or other group that establishes the plan, which we call the "Owner." We
issue a certificate to each participant under the Contract (a "Certificate").
The Contract and Certificate are intended to help you achieve your retirement
savings or other long-term investment goals.
The Certificate has two phases: an Accumulation Phase and an Income Phase.
During the Accumulation Phase payments are made under the Certificate; any
investment earnings under your Certificate accumulate on a tax-deferred basis
and are taxed as income only when withdrawn. The Owner (or you, if permitted by
your plan) determine the length of the Accumulation Phase. During the Income
Phase, we make annuity payments in amounts determined in part by the amount of
money you have accumulated under your Certificate during the Accumulation Phase.
The Owner (or you, if permitted by your plan) may choose among a range of
variable investment options and fixed interest options. For a variable
investment return, the Owner (or you, if permitted by your plan) choose one or
more Sub-Accounts in our Variable Account, each of which invests in shares of a
corresponding series of the MFS/Sun Life Series Trust (collectively, the
"Series") or one of the mutual funds (the "Mutual Funds") listed in Section 4.
However, if you participate under a Contract that is not tax-qualified or that
is not held by a trustee or custodian on behalf of the Owner, only Sub-Accounts
that invest in the Series may be chosen. The value of any portion of your
Certificate allocated to the Sub-Accounts will fluctuate up or down depending on
the performance of the Series or Mutual Funds selected, and you may experience
losses. For a fixed interest rate, the Owner (or you, if permitted by your plan)
may choose one or more of the 1, 3, 5 or 7 year Guarantee Periods offered in our
Fixed Account, each of which earns its own Guaranteed Interest Rate if you keep
your money in that Guarantee Period for the specified length of time.
The Contract and Certificate are designed to meet your need for investment
flexibility. Until we begin making annuity payments under your Certificate, the
Owner (or you, if permitted by your plan) can, subject to certain limitations,
transfer money between options up to 12 times each year without a transfer
charge or adverse tax consequences.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Just as the Owner (or you, if permitted by your plan) can elect to have
your Certificate's value accumulate on either a variable or fixed basis, or a
combination of both, the Owner (or you, if permitted by your plan) can elect to
receive annuity payments on either a variable or fixed basis or both. Annuity
payment methods (1), (2) and (3) described below are available to provide either
a fixed or variable annuity (or a combination of both) and annuity payment
methods (4) and (5) are available only to provide a fixed annuity. If any part
of your annuity payments come from the Sub-Accounts, the dollar amount of your
annuity payments may fluctuate.
The Contract offers a variety of annuity options. The Owner (or you, if
permitted by your plan) can select from among the following methods of receiving
either variable or fixed annuity payments under your Certificate: (1) monthly
payments continuing for your lifetime; (2) monthly payments for your lifetime,
but with payments continuing to your chosen beneficiary for 5, 10, 15 or 20
years if you die before the end of the period selected; (3) monthly payments for
your lifetime and the life of
<PAGE>
another designated person (usually your spouse); (4) fixed monthly payments for
a specified number of years; and (5) a fixed payment option where we will hold
the amount applied to provide fixed annuity payments, with interest accrued at
the rate we determine from time to time, which will be at least 4% per year. We
may also agree to other annuity options at our discretion.
Once the Income Phase begins, you cannot change your choice of annuity
payment method.
3. PURCHASING A CERTIFICATE
The amount of purchase payments made under a Certificate may vary;
however, we will not accept purchase payments that, on an annualized basis, are
less than $300 in the first year of the Certificate, and each purchase payment
must be at least $25. We will not accept a purchase payment if your account
value is over $1 million, or if the purchase payment would cause your account
value to exceed $1 million, unless we have approved the payment in advance.
4. ALLOCATION OPTIONS
The Owner (or you, if permitted by your plan) may allocate money among
Sub-Accounts investing in the following Mutual Funds and the following Series of
the MFS/Sun Life Series Trust:
<TABLE>
<S> <C>
MUTUAL FUNDS SERIES
MFS Global Governments Fund Money Market Series
MFS Bond Fund High Yield Series
MFS Total Return Fund Capital Appreciation Series
Massachusetts Investors Trust Government Securities Series
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
</TABLE>
Market conditions will determine the value of an investment in any Mutual
Fund or Series. Each Mutual Fund is described in the prospectus of that Mutual
Fund and each Series is described in the prospectus of the MFS/Sun Life Series
Trust.
In addition to these variable options, the Owner (or you, if permitted by
your plan) may allocate money to one or more of the 1, 3, 5 or 7 year Guarantee
Periods we make available. For each Guarantee Period, we offer a Guaranteed
Interest Rate for the specified length of time.
5. EXPENSES
The charges under the Contracts are as follows:
We impose an annual Account Fee on your Account that ranges from $12 to
$25, depending on the total amount of purchase payments made to all Certificates
under the Contract. We also deduct insurance charges ranging from 0.95% to 1.30%
per year of the average daily value of the Certificate allocated among the
Sub-Accounts, depending on the total amount of Purchase Payments made to all
Certificates under the Contract.
There are no sales charges when you purchase your Compass G Annuity.
However, if money is withdrawn from your Account, we will, with certain
exceptions, impose a withdrawal charge. Your Certificate allows a "free
withdrawal amount," which you may withdraw before you incur the withdrawal
charge. The rest of the withdrawal is subject to a withdrawal charge equal to a
percentage of
2
<PAGE>
each purchase payment withdrawn and is determined in accordance with the table
below. The percentage varies according to the number of Account Years the
purchase payment has been held in your account, including the year in which you
made the payment, but not the year in which you withdraw it.
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS PERCENTAGE
- ---------------- ---------------
<S> <C>
0-2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 0%
</TABLE>
If the Owner withdraws, borrows, transfers, or annuitizes (for a payout
period of less than five years) money allocated to a 3, 5 or 7 year Guarantee
Period, the amount will be subject to a Market Value Adjustment. This adjustment
reflects the relationship between the Guaranteed Interest Rate we currently
declare for Guarantee Periods equal to your Guarantee Period, and the Guaranteed
Interest Rate applicable to the amount being withdrawn. Generally, if your
Guaranteed Interest Rate is lower than the rate currently declared, then the
adjustment will decrease your Account value. Conversely, if your Guaranteed
Interest Rate is higher than the current rate, the adjustment will increase your
Account value.
In addition to the charges we impose under the Contracts, there are
charges (which include management fees and operating expenses) imposed by each
Series and each Mutual Fund, which range from 0.56% to 1.32% of the average net
assets of the Series or Mutual Fund, depending upon the Series or Mutual Fund
selected.
The following chart is designed to help you understand the expenses you
will incur under your Certificate, if you invest in one or more of the
Sub-Accounts. The column "Total Annual Expenses" shows the sum of the "Total
Annual Insurance Charges," as defined just above the chart, and the total
expenses for each Series or Mutual Fund. The next two columns show two examples
of the expenses, in dollars, you would pay under a Certificate. The examples
assume that you invested $1,000 in a Certificate that earns 5% annually and that
you withdraw your money (1) at the end of one year or (2) at the end of 10
years. For the first year, the Total Annual Expenses are deducted, as well as
withdrawal charges. For year 10, the example shows the aggregate of all of the
annual expenses deducted for the 10 years, but there is no withdrawal charge.
"Total Annual Insurance Charges" of 1.60% as shown in the table below
include the insurance charges of 1.30%, plus an additional 0.30%, which is used
to represent the annual Account Fee, each of which is based on an assumed $8,333
of Purchase Payments made to all Certificates under the Contract. The actual
impact of the Account Fee may be greater or less than 0.30%, depending upon the
Contract.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL --------------------
INSURANCE SERIES ANNUAL 1 10
SUB-ACCOUNT CHARGES EXPENSES EXPENSES YEAR YEARS
- ----------- ---------------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
MFS Global Governments Fund...................... 1.60% 1.34% 2.94% $82 $307
MFS Bond Fund.................................... 1.60% 0.92% 2.52% $78 $266
MFS Total Return Fund............................ 1.60% 0.89% 2.49% $77 $263
Massachusetts Investors Trust.................... 1.60% 0.88% 2.48% $77 $262
Massachusetts Investors Growth Stock Fund........ 1.60% 0.87% 2.47% $77 $261
MFS Growth Opportunities Fund.................... 1.60% 0.80% 2.40% $76 $253
MFS/Sun Life Money Market Series................. 1.60% 0.57% 2.17% $74 $230
MFS/Sun Life High Yield Series................... 1.60% 0.83% 2.43% $76 $254
MFS/Sun Life Capital Appreciation Series......... 1.60% 0.76% 2.36% $76 $249
MFS/Sun Life Government Securities Series........ 1.60% 0.61% 2.21% $74 $234
</TABLE>
For more detailed information about Contract fees and expenses, please
refer to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
3
<PAGE>
6. TAXES
Your earnings are not taxed until you take them out of your Certificate.
If you take money out, earnings come out first and are taxed as income. If you
are younger than 59 1/2 when you take money out, you may be charged a 10%
federal penalty tax on the earnings. Annuity payments during the Income Phase
are considered in part a return of your original investment. That portion of
each payment is not taxable as income, unless your Certificate is funded with
pre-tax or tax deductible dollars (such as with a pension or IRA contribution),
in which case the entire payment will be taxable. In all cases, you should
consult with your tax adviser for specific tax information.
7. ACCESS TO YOUR MONEY
The Owner (or you, if permitted by your plan) can withdraw money from your
Certificate at any time during the Accumulation Phase. A portion of the value of
your Certificate may be withdrawn in each year without the imposition of the
withdrawal charge -- 10% of all Payments made in the last 7 years, plus any
Payment we have held for at least 7 years. We do not apply any withdrawal charge
to withdrawals made from a Certificate that has been established for at least 12
years, regardless of the amount or when any Purchase Payments were made. All
other Purchase Payments you withdraw will be subject to a withdrawal charge
ranging from 6% to 0%. You may also be required to pay income tax and possible
tax penalties on any money you withdraw.
We do not assess a withdrawal charge upon transfers or annuitization if
the payout period is at least five years.
In addition to the withdrawal charge, amounts withdraw, borrowed, transfer
or annuitized (for payout periods of less than five years) from the Fixed
Account before your Guarantee Period has ended may be subject to a Market Value
Adjustment.
We also make loans under tax-qualified Contracts.
8. PERFORMANCE
If you invest in one or more Sub-Accounts, the value of your Certificate
will increase or decrease depending upon the investment performance of the
Series or Mutual Funds chosen.
The following chart shows total returns for investment in the Sub-Accounts
where the corresponding Mutual Fund or Series has at least one full calendar
year of operations. The returns reflect all charges and deductions of the Mutual
Funds, Series and Sub-Accounts and deduction of the annual Account Fee. They do
not reflect deduction of any withdrawal charges or premium taxes. These charges,
if included, would reduce the performance numbers shown. Past performance is not
a guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFS Bond Fund........ (3.19)% 3.12% 8.88% 2.55% 19.83% (6.26)% 12.32% 4.86% 17.44% 4.99%
Capital Appreciation
Series............. 30.99% 27.02% 21.51% 19.88% 32.71% (4.89)% 16.44% 12.05% 39.08% 10.90%
MFS Global
Governments Fund... (4.66)% 2.72% (0.98)% 3.98% 13.94% (7.78)% 16.78% 0.01% 12.21% 16.29%
Government Securities
Series............. (3.14)% 7.29% 7.31% 0.26% 16.10% (3.47)% 7.26% 5.37% 14.29% 7.40%
MFS Growth
Opportunities
Fund............... 31.19% 27.49% 21.70% 20.20% 32.73% (5.40)% 14.30% 6.14% 20.91% (5.85)%
High Yield Series.... 5.51% (0.73)% 11.71% 10.62% 15.50% (3.54)% 16.18% 13.45% 45.79% (15.56)%
Massachusetts
Investors Growth
Stock Fund......... 37.07% 38.15% 46.31% 21.14% 26.76% (7.97)% 12.97% 5.08% 45.91% (5.97)%
Massachusetts
Investors Trust.... 7.51% 21.34% 29.92% 24.30% 37.46% (2.34)% 8.56% 5.98% 26.12% 1.40%
Money Market
Series............. 3.38% 3.63% 3.68% 3.52% 4.05% 2.32% 1.27% 1.97% 4.43% 6.42%
MFS Total Return
Fund............... 1.01% 10.47% 19.05% 13.22% 25.31% (3.99)% 13.64% 9.17% 20.14% (3.57)%
</TABLE>
4
<PAGE>
9. DEATH BENEFIT
If you die before your Certificate reaches the Income Phase, the
beneficiary will receive a death benefit. To calculate the death benefit, we use
a "Death Benefit Date", which is the earliest date we have both due proof of
death and a written request specifying the manner of payment.
The death benefit is equal to the greater of (1) the value of your Account
on the Death Benefit Date and (2) the total of the purchase payments made to
your Account, minus all withdrawals and loans. The death benefit also will be
reduced by any unpaid net loan interest.
10. OTHER INFORMATION
NO PROBATE. In most cases, when you die, the beneficiary will receive the
death benefit without going through probate. However, avoiding probate does not
mean that the beneficiary will not have tax liability as a result of receiving
the death benefit.
WHO SHOULD PURCHASE A CERTIFICATE? The Contract and the Certificates
issued under the Contract are designed for those seeking long-term tax deferred
accumulation of assets, generally for retirement or other long-term purposes.
The tax-deferred feature is most attractive to purchasers in high federal and
state income tax brackets. You should not buy a Certificate if you are looking
for a short-term investment or if you cannot risk a decrease in the value of
your investment.
CONFIRMATIONS AND QUARTERLY STATEMENTS. You will receive a confirmation of
each transaction within your Certificate. On an annual basis, you will receive a
complete statement of your transactions over the past year and a summary of your
Account values during that period.
11. INQUIRIES
If you would like more information about buying a Certificate, please
contact your plan administrator. If you have any other questions, please contact
us at:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE: TOLL FREE (800) 752-7215
5
<PAGE>
PROSPECTUS
MAY 1, 2000
COMPASS G
COMBINATION FIXED/VARIABLE
GROUP ANNUITY
Sun Life Assurance Company of Canada (U.S.) and Sun Life of Canada (U.S.)
Variable Account D offer the master group flexible payment deferred annuity
contracts described in this Prospectus to groups for use in connection with
employer, association and other group retirement plans.
Contract owners may choose among a range of variable investment options
and fixed options. The variable options are Sub-Accounts in the Variable
Account. Each Sub-Account invests in one of the following mutual funds (the
"Mutual Funds") advised by our affiliate Massachusetts Financial Services
Company ("MFS"), or one of the following series of the MFS/Sun Life
Series Trust (the "Series Fund"), which also is a mutual fund advised by MFS:
<TABLE>
<S> <C>
MUTUAL FUNDS SERIES OF SERIES FUND
MFS Global Governments Fund Money Market Series
MFS Bond Fund High Yield Series
MFS Total Return Fund Capital Appreciation Series
Massachusetts Investors Trust Government Securities Series
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
</TABLE>
If a Contract is not tax qualified or is not held by a trustee or
custodian on behalf of the group or entity, the Contract owner may only choose
among the Sub-Accounts that invest in the Series Fund.
The fixed account options are available for time periods of 1, 3, 5, or 7
years, called Guarantee Periods, and pay interest at a guaranteed rate for each
period. The Guarantee Periods are available for all Contracts.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
SERIES FUND. FOR TAX QUALIFIED CONTRACTS HELD BY A TRUSTEE OR CUSTODIAN, THIS
PROSPECTUS ALSO MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR EACH OF THE
MUTUAL FUNDS. PLEASE READ THIS PROSPECTUS, THE SERIES FUND PROSPECTUS, AND, IF
APPLICABLE, THE MUTUAL FUND PROSPECTUSES CAREFULLY BEFORE INVESTING AND KEEP
THEM FOR FUTURE REFERENCE. THEY CONTAIN IMPORTANT INFORMATION ABOUT THE COMPASS
G ANNUITY, THE SERIES FUND AND THE MUTUAL FUNDS.
We have filed a Statement of Additional Information dated May 1, 2000 (the
"SAI") with the Securities and Exchange Commission (the "SEC"), which is
incorporated by reference in this Prospectus. The table of contents for the SAI
is on page xx 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, material
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
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms 4
Expense Summary 4
Summary of Contract Expenses 4
Condensed Financial Information 7
The Compass G Combination Fixed/Variable Group Annuity 7
Communicating to Us About the Contract 7
Sun Life Assurance Company of Canada (U.S.) 8
The Variable Account 8
Variable Account Options: The MFS/Sun Life Series Trust 8
The Mutual Funds 9
MFS 10
The Fixed Account 10
The Fixed Account Options: The Guarantee Periods 11
The Accumulation Phase 11
Issuing Your Certificate 11
Amount and Frequency of Purchase Payments 11
Allocation of Net Purchase Payments 11
Your Account 12
Your Account Value 12
Variable Account Value 12
Fixed Account Value 13
Transfer Privilege 14
Withdrawals, Withdrawal Charge, Market Value Adjustment and
Loan Provision 14
Cash Withdrawals 14
Withdrawal Charge 15
Market Value Adjustment 17
Loans (Qualified Contracts Only) 17
Contract Charges 18
Account Fee 18
Mortality and Expense Risk Charge 19
Premium Taxes 19
Mutual Fund and Series Fund Expenses 19
Modification of Charges 19
Death Benefit 19
Amount of Death Benefit 20
Method of Paying Death Benefit 20
Non-Qualified Contracts 20
Selection and Change of Beneficiary 21
Payment of Death Benefit 21
Due Proof of Death 21
The Income Phase -- Annuity Provisions 21
Selection of the Annuity Commencement Date 21
Annuity Options 22
Selection of Annuity Option 22
Amount of Annuity Payments 23
Annuity Options as Method of Payment for Death Benefit 24
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Other Contract Provisions 24
Exercise of Contract Rights 24
Change of Ownership 25
Voting of Mutual Fund and Series Fund Shares 25
Periodic Reports 26
Substitution of Securities 26
Change in Operation of Variable Account 26
Splitting Units 27
Modification 27
Discontinuance of New Participants 27
Custodian 27
Right to Return (IRAs Only) 27
Tax Considerations 28
Texas Optional Retirement Program 32
Administration of the Contracts 32
Distribution of the Contracts 32
Available Information 33
Incorporation of Certain Documents by Reference 33
Additional Information About the Company 34
General 34
Selected Financial Data 34
Management's Discussion and Analysis of Financial
Condition and Results of Operations 35
Other Matters 42
Demutualization 42
Sale of Subsidiaries 43
Quantitative and Qualitative Disclosures About Market Risk 43
Reinsurance 45
Reserves 45
Investments 45
Competition 46
Employees 46
Properties 46
State Regulation 46
Legal Proceedings 47
Accountants 47
Financial Statements 47
Table of Contents of Statement of Additional Information 72
Appendix A -- Glossary 74
Appendix B -- Condensed Financial Information --
Accumulation Unit Values 77
Appendix C -- Withdrawals, Withdrawal Charges and the Market
Value Adjustment 78
</TABLE>
3
<PAGE>
SPECIAL TERMS
The Contract is a legal document that uses a number of specially defined
terms. We explain most of the terms that we use in this Prospectus in the
context where they arise, and some are self-explanatory. In addition, for
convenient reference, we have compiled a list of these terms in the Glossary
included at the back of this Prospectus as Appendix A. If, while you are reading
this Prospectus, you come across a term that you do not understand, please refer
to the Glossary for an explanation.
EXPENSE SUMMARY
The purpose of the following table is to help you understand the costs and
expenses that you will bear directly and indirectly under a Contract WHEN YOU
ALLOCATE MONEY TO THE VARIABLE ACCOUNT. The table reflects expenses of the
Variable Account as well as of each Series Fund and Mutual Fund. The table
should be considered together with the narrative provided under the heading
"Contract Charges" in this Prospectus, and with the Series Fund prospectus and
the Mutual Fund prospectuses. In addition to the expenses listed below, we may
deduct premium taxes.
SUMMARY OF CONTRACT EXPENSES
The purpose of the following table is to help Owners, Participants and
prospective purchasers to understand the costs and expenses that are borne,
directly and indirectly, by Owners and/or Participants WHEN PAYMENTS ARE
ALLOCATED TO THE VARIABLE ACCOUNT. The table reflects expenses of the Variable
Account as well as of the Funds. The expense information for certain Funds has
been restated to reflect current fees. The information set forth should be
considered together with the narrative provided under the heading "How the
Contract Charges Are Assessed" in this Prospectus, and with the Funds'
prospectuses. In addition to the expenses listed below, premium taxes may be
applicable.
<TABLE>
<CAPTION>
MONEY HIGH CAPITAL GOVERNMENT
MARKET YIELD APPRECIATION SECURITIES
OWNER TRANSACTION EXPENSES SERIES SERIES SERIES SERIES
- -------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases................. 0 0 0 0
Deferred Sales Load (as a percentage of Purchase
Payments withdrawn) (1)
Years Payment in Participant's Account
0-2......................................... 6% 6% 6% 6%
3........................................... 5% 5% 5% 5%
4........................................... 4% 4% 4% 4%
5........................................... 3% 3% 3% 3%
6........................................... 2% 2% 2% 2%
7........................................... 1% 1% 1% 1%
8........................................... 0% 0% 0% 0%
Exchange Fee.................................... 0 0 0 0
ANNUAL CONTRACT FEE (2) $25 per Contract
- ------------------------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES
- ------------------------------------------------
(as a percentage of average separate account assets)
Mortality and Expense Risk Fees (2)............. 1.30% 1.30% 1.30% 1.30%
Other Fees and Expenses of the Separate
Account....................................... 0.00% 0.00% 0.00% 0.00%
Total Separate Account Annual Expenses.......... 1.30% 1.30% 1.30% 1.30%
FUND ANNUAL EXPENSES
- ------------------------------------------------
(as a percentage of Fund average net assets)
Management Fees................................. 0.50% 0.75% 0.71% 0.55%
Other Expenses.................................. 0.07% 0.08% 0.05% 0.06%
Total Fund Annual Expenses (3).................. 0.57% 0.83% 0.76% 0.61%
(SEE FOOTNOTES ON NEXT PAGE)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES MWG MFB MTR MIT MIG MGO
- -------------------------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases................. 0 0 0 0 0 0
Deferred Sales Load (as a percentage of Purchase
Payments withdrawn) (1)
Years Payment in Participant's Account
0-2......................................... 6% 6% 6% 6% 6% 6%
3........................................... 5% 5% 5% 5% 5% 5%
4........................................... 4% 4% 4% 4% 4% 4%
5........................................... 3% 3% 3% 3% 3% 3%
6........................................... 2% 2% 2% 2% 2% 2%
7........................................... 1% 1% 1% 1% 1% 1%
8........................................... 0% 0% 0% 0% 0% 0%
Exchange Fee.................................... 0 0 0 0 0 0
ANNUAL CONTRACT FEE (2) $25 per Contract
- ------------------------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES
- ------------------------------------------------
(as a percentage of average separate account assets)
Mortality and Expense Risk Fees (2)............. 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
Other Fees and Expenses of the Separate
Account....................................... 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%
FUND ANNUAL EXPENSES
- ------------------------------------------------
(as a percentage of Fund average net assets)
Management Fees................................. 0.75% 0.38% 0.35% 0.33% 0.33% 0.42%
12b-1 Fees (4).................................. 0.25%(5) 0.30%(7) 0.35% 0.35% 0.35% 0.19%(5)(6)
Other Expenses (8).............................. 0.34% 0.24% 0.19% 0.20% 0.19% 0.19%
Total Fund Annual Expenses...................... 1.34% 0.92% 0.89% 0.88% 0.87% 0.80%
</TABLE>
- ------------
(1) A portion of the Participant's Account may be withdrawn each year without
imposition of any withdrawal charge, and after a Purchase Payment has been
held by the Company for seven years it may be withdrawn free of any
withdrawal charge.
(2) The Annual Contract Fee ("Account Fee") and Mortality and Expense Risk Fees
("Asset Charge") decline based on total Purchase Payments credited to all
Participant's Accounts under a Contract in accordance with the following
schedule:
<TABLE>
<CAPTION>
PURCHASE PAYMENTS ACCOUNT FEE ASSET CHARGE
- ----------------- ----------- ------------
<C> <S> <C> <C>
up to $250,000 ......................... $25 1.30%
$250,000 to $1,499,999 ......................... $18 1.25%
$1,500,000 to $4,999,999 ......................... $15 1.10%
$5,000,000 and over ......................... $12 0.95%
</TABLE>
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into such other
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected in the table. If these fees had been taken into account, "Total
Fund Expenses" would be as follows for certain of the Series:
<TABLE>
<S> <C>
Capital Appreciation Series................................. 0.75%
High Yield Series........................................... 0.82%
</TABLE>
(4) Each of the Funds 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.
(5) 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.
(6) The 0.35% per annum distribution/service fee is reduced to 0.25% for shares
purchased prior to March 1, 1991.
(7) 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.
(8) 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
5
<PAGE>
are not reflected in the table. Had these fees been taken into account,
"Total Fund Annual Expenses" would be as follows: MWG, 0.74%; MFB, 0.90%;
MTR, 0.87%; MIT, 0.87%; MIG, 0.86%; and MGO, 0.77%
6
<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 a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MFS Global Governments Fund................................. $82 $130 $172 $307
MFS Bond Fund............................................... $78 $117 $151 $266
MFS Total Return Fund....................................... $77 $117 $150 $263
Massachusetts Investors Trust............................... $77 $116 $149 $262
Massachusetts Investors Growth Stock Fund................... $77 $116 $149 $261
MFS Growth Opportunities Fund............................... $76 $114 $145 $253
Money Market Series......................................... $74 $107 $133 $230
High Yield Series........................................... $76 $114 $145 $254
Capital Appreciation Series................................. $76 $113 $143 $249
Government Securities Series................................ $74 $108 $135 $234
</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 a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MFS Global Governments Fund................................. $28 $85 $145 $307
MFS Bond Fund............................................... $24 $72 $124 $266
MFS Total Return Fund....................................... $23 $72 $123 $263
Massachusetts Investors Trust............................... $23 $72 $122 $262
Massachusetts Investors Growth Stock Fund................... $23 $71 $122 $261
MFS Growth Opportunities Fund............................... $22 $69 $118 $253
Money Market Series......................................... $20 $62 $106 $230
High Yield Series........................................... $22 $69 $118 $254
Capital Appreciation Series................................. $22 $68 $116 $249
Government Securities Series................................ $20 $63 $108 $234
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIONS OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
Ten-year historical information about the value of the units we use to
measure the variable portion of Contracts ("Variable Accumulation Units") is
included in the back of this Prospectus as Appendix B.
THE COMPASS G COMBINATION FIXED/VARIABLE GROUP ANNUITY
Sun Life Assurance Company of Canada (U.S.) (the "Company", "we" or "us")
and Sun Life of Canada (U.S.) Variable Account D (the "Variable Account") offer
the Compass G Combination Fixed/ Variable Group Annuity to employers,
associations and other groups for use in connection with their retirement plans.
We issue the Contract to the Owner. The Contract covers all individuals
participating under the Contract. Each individual receives a Certificate that
evidences his or her participation under the Contract.
In this Prospectus, unless we state otherwise, we refer to the employer,
association or other group establishing the Contract as the "Owner" even though
the legal owner of the Contract may be a trustee or custodian. We refer to
participating individuals under Contracts as "Participants" and we refer to
Participants as "you." For the purpose of determining benefits under a Contract,
we establish an Account for each Participant, which we will refer to as "your"
Account or a "Participant Account." We will only accept instructions and
elections regarding Participant Accounts from the Owner. However, under the
terms of your particular plan, you may be entitled to make certain decisions and
elections which the Owner will communicate to us on your behalf.
The Contract provides a number of important benefits for your retirement
planning. It has an Accumulation Phase, during which payments are made under the
Contract and allocated to one or more Variable Account or Fixed Account options,
and an Income Phase, during which we make payments based on the amount
accumulated. The Contract provides tax deferral, so that you do not pay taxes on
your earnings under the Contract until they are withdrawn. It provides a death
benefit if you die during the Accumulation Phase. Finally, if the Owner (or you,
if permitted by your plan) so elects, during the Income Phase we will make
payments to you for life or for another period that the Owner (or you, if
permitted by your plan) chooses.
The Owner (or you, if permitted by your plan) chooses these benefits on a
variable or fixed basis or a combination of both. When a variable investment
option or a Variable Annuity option is chosen, your benefits will be responsive
to changes in the economic environment, including inflationary forces and
changes in rates of return available from different types of investments. With
these options, you assume all investment risk under the Contract. When a
Guarantee Period in our Fixed Account or a Fixed Annuity option is chosen, we
assume the investment risk, except in the case of early withdrawals, where you
bear the risk of unfavorable interest rate changes. You also bear the risk that
the interest rates we will offer in the future and the rates we will use in
determining your Fixed Annuity may not exceed our minimum guaranteed rate, which
is 4% per year, compounded annually.
The Contracts are designed for use in connection with retirement and
deferred compensation plans, some of which qualify for favorable federal income
tax treatment under Sections 401, 403, 408(c), 408(k) or 408(p) of the Internal
Revenue Code. After May 1, 1990 we will not issue Contracts for use with
deferred compensation plans established under Section 457 of the Code. The
Contracts are also designed so that they may be used in connection with certain
non-tax-qualified retirement plans, such as payroll savings plans and such other
groups (trusteed or nontrusteed) as may be eligible under applicable law. We
refer to Contracts used with plans that receive favorable tax treatment as
"Qualified Contracts," and all others as "Non-Qualified Contracts."
COMMUNICATING TO US ABOUT THE CONTRACT
All materials sent to us, including Purchase Payments, must be sent to our
Annuity Mailing Address as set forth on the first page of this Prospectus. For
all telephone communications, you must call (800) 752-7215.
7
<PAGE>
Unless this Prospectus states differently, we will consider all materials
sent to us and all telephone communications to be received on the date we
actually receive them at our Annuity Address. However, we will consider Purchase
Payments, withdrawal requests and transfer instructions to be received on the
next Business Day if we receive them (1) on a day that is not a Business Day or
(2) after 4:00 p.m., Eastern Time.
When we specify that notice to us must be in writing, we reserve the
right, in our sole discretion, to accept notice in another form.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We are a stock life insurance company incorporated under the laws of
Delaware on January 12, 1970. We do business in 48 states, the District of
Columbia, and Puerto Rico, and we have an insurance company subsidiary that does
business in New York. Our Executive Office mailing address is 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 on August 20,
1985, pursuant to a resolution of our Board of Directors. 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. These
assets are held in relation to the Contracts described in this Prospectus and
other variable annuity contracts that provide benefits that vary in accordance
with the investment performance of the Variable Account. Although the assets
maintained in the Variable Account will not be charged with any liabilities
arising out of any other business we conduct, 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 (1) shares of one of the four Series of the
MFS/Sun Life Series Trust (the "Series Fund") that we offer for the Contracts
and (2) for Qualified Contracts held by a trustee or custodian on behalf of the
entity or group, Class A shares of one of the Mutual Funds. All amounts
allocated to the Variable Account will be used to purchase Mutual Fund or Series
Fund shares as designated by the Owner (or you, if permitted by your plan) at
their net asset value. Any and all distributions made by the Mutual Funds or
Series Fund with respect to the shares held by the Variable Account will be
reinvested to purchase additional shares at their net asset value. Deductions
from the Variable Account for cash withdrawals, loans, annuity payments, death
benefits, Account Fees, contract charges against the assets of the Variable
Account for the assumption of mortality and expense risks, administrative
expenses and any applicable taxes will, in effect, be made by redeeming the
number of Mutual Fund or Series 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 Series Fund and Mutual Fund shares at all times.
VARIABLE ACCOUNT OPTIONS:
THE MFS/SUN LIFE SERIES TRUST
The MFS/Sun Life Series Trust (the "Series Fund") is an open-end
management investment company registered under the Investment Company Act of
1940. Our affiliate Massachusetts Financial Services Company ("MFS") serves as
the investment adviser to the Series Fund.
The Series Fund is composed of 27 independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Series Fund are issued in 27 Series, each
8
<PAGE>
corresponding to one of the portfolios. The Contracts provide for investment by
the Sub-Accounts in shares of the 4 Series of the Series Fund described below.
Additional portfolios may be added to the Series Fund which may or may not be
available for investment by the Variable Account.
CAPITAL APPRECIATION SERIES will seek to maximize capital appreciation by
investing in securities of all types, with major emphasis on common stocks.
GOVERNMENT SECURITIES SERIES will seek current income and preservation of
capital by investing in U.S. Government and U.S. Government-related
securities.
HIGH YIELD SERIES will seek high current income and capital appreciation by
investing primarily in certain lower rated categories or unrated securities
(possibly with equity features) of U.S. and foreign issuers (also known as
"junk bonds").
MONEY MARKET SERIES will seek maximum current income to the extent
consistent with stability of principal by investing exclusively in money
market instruments maturing in less than 13 months.
A more detailed description of the Series Fund, its management, its
investment objectives, policies and restrictions and its expenses may be found
in the accompanying current prospectus of the Series Fund, and in the Series
Fund's Statement of Additional Information, which is available by calling
1-800-752-7215.
The Series Fund also offers its shares to other separate accounts
established by the Company and our New York subsidiary in connection with
variable annuity and variable life insurance contracts. Although we do not
anticipate any disadvantages to this arrangement, there is a possibility that a
material conflict may arise between the interests of the Variable Account and
one or more of the other separate accounts investing in the Series Fund. A
conflict may occur due to differences in tax laws affecting the operations of
variable life and variable annuity separate accounts, or some other reason. We
and the Series Fund's Board of Trustees will monitor events for such conflicts,
and, in the event of a conflict, we will take steps necessary to remedy the
conflict, including withdrawal of the Variable Account from participation in the
Series which is involved in the conflict or substitution of shares of other
Series or other mutual funds.
For Non-Qualified Contracts used for deferred compensation and payroll
savings plans and Qualified Contracts that are not held by trustees or
custodians, the Series of the Series Fund described above are the only variable
investment options available.
THE MUTUAL FUNDS
For Qualified Contracts that are held by a trustee or custodian on behalf
of the entity or group, the following Mutual Funds also are available as
variable investment options:
MFS-REGISTERED TRADEMARK- GLOBAL GOVERNMENTS FUND ("MWG") (formerly,
MFS-Registered Trademark- World Governments Fund) 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 (junk
bonds), crossover bonds, and mortgage-backed and asset-backed securities.
MFS-REGISTERED TRADEMARK- BOND FUND ("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- TOTAL RETURN FUND ("MTR") will seek 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 seek reasonable opportunity for growth of capital
and income. MTR is a "balanced fund" and invests in a combination of equity
and fixed income securities.
9
<PAGE>
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") 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.
MASSACHUSETTS INVESTORS GROWTH STOCK FUND ("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") will seek
growth of capital. MGO invests, under normal market conditions, at least
65% of its total assets in common stock and related equity 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.
A more detailed description of each Mutual Fund, its management, its
investment objectives, policies and restrictions and its expenses may be found
in the accompanying current prospectus of that Mutual Fund, and in that Mutual
Fund's Statement of Additional Information, which are available by calling
1-800-752-7215.
MFS
Each of the Mutual Funds and the Series Fund pays fees to MFS for its
services pursuant to investment advisory agreements. MFS also serves as
investment adviser to the other funds in the MFS Family of Funds, and to certain
other investment companies established by MFS and/or us. MFS Institutional
Advisers, Inc., a wholly-owned subsidiary of MFS, provides investment advice to
substantial private clients. MFS and its predecessor organizations have a
history of money management dating from 1924. MFS operates as an autonomous
organization and the obligation of performance with respect to the investment
advisory agreements is solely that of MFS. We undertake no obligation in this
regard.
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company
other than those allocated to any separate account. Amounts allocated to
Guarantee Periods become part of the Fixed Account, and are available to fund
the claims of all classes of our customers, including claims for benefits under
the Contracts.
We will invest the assets of the Fixed Account in those assets we choose
that are allowed by applicable state insurance laws. 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. We intend to invest primarily in investment-grade fixed
income securities (i.e. rated by a nationally recognized rating service within
the four highest grades) or instruments we believe are of comparable quality. We
are not obligated to invest amounts allocated to the Fixed Account according to
any particular strategy, except as may be required by applicable state insurance
laws. You will not have a direct or indirect interest in the Fixed Account
investments.
10
<PAGE>
THE FIXED ACCOUNT OPTIONS:
THE GUARANTEE PERIODS
The Owner (or you, if permitted by your plan) may elect one or more of the
1, 3, 5 or 7 year Guarantee Periods we make available for the Contracts. We
publish Guaranteed Interest Rates for each Initial Guarantee Period and
Subsequent Guarantee Period offered. We may change the Guaranteed Interest Rates
we offer from time to time, but no Guaranteed Interest Rate will ever be less
than 4% per year, compounded annually. Also, once we have accepted an allocation
to a particular Guarantee Period, we promise that the Guaranteed Interest Rate
applicable to that allocation will not change for the duration of the Guarantee
Period.
We determine Guaranteed Interest Rates at our discretion. We do not have a
specific formula for establishing the rates for different Guarantee Periods. Our
determination will be influenced by the interest rates on fixed income
investments in which we may invest with amounts allocated to the Guarantee
Periods. We will also consider other factors in determining these rates,
including regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors. We cannot
predict the level of future interest rates.
Early withdrawals from allocations to a 3, 5 or 7 year Initial Guarantee
Period or Subsequent Guarantee Period, including cash withdrawals, transfers,
loans and commencement of an annuity with a payout period of less than five
years, may be subject to a Market Value Adjustment, which could decrease or
increase the value of your Account. See "Withdrawals, Withdrawal Charge, Market
Value Adjustment and Loan Provision."
THE ACCUMULATION PHASE
During the Accumulation Phase, payments are made into your Account, and
your earnings accumulate on a tax-deferred basis. The Accumulation Phase begins
with our acceptance of your first Purchase Payment and ends the Business Day
before your Annuity Commencement Date. The Accumulation Phase will end sooner if
the Contract is surrendered, your Account is withdrawn in full or you die before
the Annuity Commencement Date.
ISSUING YOUR CERTIFICATE
To purchase a Compass G Annuity, a completed Participant Enrollment Form
and your initial Purchase Payment are sent to us for acceptance. We issue a
Certificate to you as a Participant under a Contract when we accept your
Participant Enrollment Form.
We will credit your initial Purchase Payment to your Account within 2
business days of receiving your completed Participant Enrollment Form. If your
Participant Enrollment Form is not complete, we will notify you. If we do not
have the necessary information to complete the Participant Enrollment Form
within 5 business days, we will send your money back to you or ask your
permission to retain your Purchase Payment until the Participant Enrollment Form
is made complete. Then we will apply the Purchase Payment within 2 business days
of when the Participant Enrollment Form is complete.
AMOUNT AND FREQUENCY OF PURCHASE PAYMENTS
The amount of Purchase Payments may vary; however, we will not accept
Purchase Payments that, on an annualized basis, are less than $300 for the first
Account Year, and each Purchase Payment must be at least $25. In addition, we
will not accept a Purchase Payment if your Account Value is over $1 million, or
if the Purchase Payment would cause your Account Value to exceed $1 million,
unless we have approved the Payment in advance. Within these limits, you may
make Purchase Payments at any time during the Accumulation Phase.
ALLOCATION OF NET PURCHASE PAYMENTS
Each Purchase Payment may be allocated among the different Sub-Accounts
and Initial Guarantee Periods we offer. In your Participant Enrollment Form, you
specify the percentage of each Purchase Payment to be allocated to each
Sub-Account or Guarantee Period. These percentages are called your
11
<PAGE>
allocation factors. The Owner (or you, if permitted by your plan) may change the
allocation factors for future Payments by sending us written notice of the
change, on our required form. We will use the new allocation factors for the
first Purchase Payment we receive with or after we have received notice of the
change, and for all future Purchase Payments, until we receive another change
notice.
Although it is currently not our practice, we may deduct applicable
premium taxes or similar taxes from Purchase Payments. See "Contract Charges --
Premium Taxes." In that case, we will credit the Net Purchase Payment, which is
the Purchase Payment minus the amount of those taxes.
YOUR ACCOUNT
When we accept your first Purchase Payment, we establish an Account for
you, which we maintain throughout the Accumulation Phase of your Certificate.
YOUR ACCOUNT VALUE
Your Account Value is the sum of the value of the 2 components of your
Certificate: the Variable Account portion of your Certificate ("Variable Account
Value") and the Fixed Account portion of your Certificate ("Fixed Account
Value"). These 2 components are calculated separately, as described below.
VARIABLE ACCOUNT VALUE
VARIABLE ACCUMULATION UNITS
In order to calculate your Variable Account Value, we use a measure called
a Variable Accumulation Unit for each Sub-Account. Your Variable Account Value
is the sum of your Account Value in each Sub-Account, which is the number of
your Variable Accumulation Units for that Sub-Account times the value of each
Unit.
VARIABLE ACCUMULATION UNIT VALUE
The value of each Variable Accumulation Unit in a Sub-Account reflects the
net investment performance of that Sub-Account. We determine that value once on
each day that the New York Stock Exchange is open for trading, at the close of
trading, which is currently 4:00 p.m., Eastern Time. We also may determine the
value of Variable Accumulation Units of a Sub-Account on days the Exchange is
closed if there is enough trading in securities held by that Sub-Account to
materially affect the value of the Variable Accumulation Units. Each day we make
a valuation is called a "Business Day." The period that begins at the time
Variable Accumulation Units are valued on a Business Day and ends at that time
on the next Business Day is called a Valuation Period. On days other than
Business Days, the value of a Variable Accumulation Unit does not change.
To measure these values, we use a factor -- which we call the "Net
Investment Factor" -- which represents the net return on the Sub-Account's
assets. At the end of any Valuation Period, the value of a Variable Accumulation
Unit for a Sub-Account is equal to the value of that Sub-Account's Variable
Accumulation Units at the end of the previous Valuation Period, multiplied by
the Net Investment Factor. 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 Mutual Fund share or Series 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 Mutual Fund or Series 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 us 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);
12
<PAGE>
(b) is the net asset value of a Mutual Fund share or Series 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 us for the Valuation Period to
reflect the charge for assuming the mortality and expense risks.
For a hypothetical example of how we calculate the value of a Variable
Accumulation Unit, see the Statement of Additional Information.
CREDITING AND CANCELING VARIABLE ACCUMULATION UNITS
When we receive an allocation to a Sub-Account, either from a Net Purchase
Payment or a transfer of Account Value, we credit that amount to your Account in
Variable Accumulation Units. Similarly, we cancel Variable Accumulation Units
when amounts are transferred, withdrawn or borrowed from a Sub-Account, or when
we deduct certain charges under the Contract. We determine the number of Units
credited or canceled by dividing the dollar amount by the Variable Accumulation
Unit value for that Sub-Account at the end of the Valuation Period during which
the transaction or charge is effective.
FIXED ACCOUNT VALUE
INITIAL AND SUBSEQUENT GUARANTEE PERIODS
Net Purchase Payments may be allocated to any Initial Guarantee Period we
offer. Unless, within the 30 day period before the Expiration Date of an Initial
Guarantee Period, we receive written notice from the Owner electing a different
Subsequent Guarantee Period from among those we then offer, a Subsequent
Guarantee Period of the same duration as the Initial Guarantee Period will begin
automatically for the amount then allocated to the Initial Guarantee Period on
the first day following the Expiration Date of the Initial Guarantee Period.
Each Subsequent Guarantee Period also will automatically renew for another
Subsequent Guarantee Period of the same length unless the Owner elects a
different Subsequent Guarantee Period within the 30 day period prior to the
Expiration Date of the current Subsequent Guarantee Period.
FIXED ACCUMULATION UNITS
In order to calculate your Fixed Account Value, we use a measure called a
Fixed Accumulation Unit for each Guarantee Period. Your Fixed Account Value is
the sum of the values of all Fixed Accumulation Units credited to your Account.
We determine the number of Fixed Accumulation Units credited to your
Account by dividing the dollar amount of a Net Purchase Payment allocated to an
Initial Guarantee Period by the value of the Fixed Accumulation Unit related to
that Guarantee Period for the Valuation Period during which we receive the
Purchase Payment.
FIXED ACCUMULATION UNIT VALUE
We establish the value of each type of Fixed Accumulation Unit at $10.00
for the first Valuation Period of the calendar month in which a Purchase Payment
is credited to your Account. The value of the Fixed Accumulation Unit increases
for each successive Valuation Period as interest is accrued at the applicable
Guaranteed Interest Rate. At the end of any Initial Guarantee Period we will
exchange the Fixed Accumulation Units credited to your Account 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 Subsequent Guarantee Period to which your Account is allocated as
interest is accrued at the applicable Guaranteed Interest Rate.
EARLY WITHDRAWALS
If, before its Expiration Date, an allocation to a 3, 5 or 7 year
Guarantee Period is withdrawn, transferred, borrowed or annuitized over a payout
period of less than five years, we will apply a Market Value Adjustment to the
transaction. This could result in an increase or decrease of your Account
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<PAGE>
Value, depending on interest rates at the time. You bear the risk that you will
receive less than your principal if the Market Value Adjustment applies.
TRANSFER PRIVILEGE
PERMITTED TRANSFERS
During the Accumulation Phase, the Owner may transfer all or part of a
Participant's Account Value to one or more Sub-Accounts or Guarantee Periods
then available, subject to the following restrictions:
- No more than 12 transfers may be made in any Account Year;
- The amount transferred from a Sub-Account or Guarantee Period must be at
least $1,000 unless the entire balance in that Sub- Account or Guarantee
Period is being transferred;
- Your Account Value remaining in a Sub-Account must be at least $1,000; and
- Transfers to or from Sub-Accounts are subject to terms and conditions that
may be imposed by the Series Fund or the applicable Mutual Fund.
There is no charge for transfers; however, transfers out of a 3-, 5- or
7-year Guarantee Period will be subject to the Market Value Adjustment. Under
current law there is no tax liability for transfers.
REQUESTS FOR TRANSFERS
Owners may request transfers in writing.
If we receive a transfer request before 4:00 p.m. Eastern Time on a
Business Day, it will be effective that day. Otherwise, it will be effective the
next Business Day.
WITHDRAWALS, WITHDRAWAL CHARGE, MARKET VALUE ADJUSTMENT
AND LOAN PROVISION
CASH WITHDRAWALS
REQUESTING A WITHDRAWAL
At any time during the Accumulation Phase the Owner may withdraw in cash
all or any portion of a Participant's Account Value. To make a withdrawal, the
Owner must send us a written request at our Annuity Service Mailing Address. We
may require a signature guarantee for withdrawals of more than $5000. In some
cases, such as withdrawals by a corporation, partnership, agent or fiduciary, we
may require additional documentation.
A request must specify whether the Owner wants to withdraw the entire
amount of a Participant Account or, if less, the amount the Owner wishes to
withdraw. Upon request we will notify the Owner of the amount we would pay in
the event of a full or partial withdrawal.
All withdrawals may be subject to a withdrawal charge (see "Withdrawal
Charge" below) and withdrawals from a Participant's Fixed Account Value also may
be subject to a Market Value Adjustment (see "Market Value Adjustment" below).
Withdrawals also may have adverse federal income tax consequences, including a
10% penalty tax (see "Tax Considerations"). You should carefully consider these
tax consequences before requesting a cash withdrawal.
FULL WITHDRAWALS
If the Owner requests a full withdrawal, we calculate the amount we will
pay as follows. We start with the total value of the Participant Account at the
end of the Valuation Period during which we receive the withdrawal request; we
deduct the Account Fee for the Account Year in which the withdrawal is made; we
deduct any applicable withdrawal charge; we deduct the amount, if any, of unpaid
Net Loan Interest; and finally, we add or subtract the amount of any Market
Value Adjustment applicable to withdrawn Fixed Account Value.
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<PAGE>
A full withdrawal results in the surrender of the Participant's
Certificate, and cancellation of all of the Participant's rights and privileges
under the Contract.
PARTIAL WITHDRAWALS
If the Owner requests a partial withdrawal from a Participant Account, we
calculate the amount we will pay as follows. We start with the amount specified
in the request; we deduct any applicable withdrawal charge; we deduct the
amount, if any, of unpaid Net Loan Interest; and finally, we add or subtract the
amount of any Market Value Adjustment applicable to amounts withdrawn from the
Fixed Account. We reduce the value of the Participant Account by deducting the
amount specified in the request. Partial withdrawals may be limited by the
maximum loan limitation.
The Owner may specify the amount to be withdrawn from each Sub-Account and
Guarantee Period to which the Participant Account is allocated. If the Owner
does not so specify, we will deduct the total amount requested pro rata, based
on allocations at the end of the Valuation Period during which we receive the
withdrawal request.
If the Owner requests a partial withdrawal that would result in the
Participant's Account Value being reduced to an amount less than the Account Fee
for the Account Year in which the withdrawal is made, we will treat it as a
request for a full withdrawal.
TIME OF PAYMENT
We will pay the applicable amount of any full or partial withdrawal within
7 days after we receive the 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 from the Variable Account 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
Mutual Funds or Series Fund or to determine the value of the net assets of
the Mutual Funds or Series Fund, because an emergency exists; and
- when an SEC order permits us to defer payment for the protection of
Participants.
We also may defer payment of amounts withdrawn from the Fixed Account for
up to 6 months from the date we receive a withdrawal request. We do not pay
interest on the amount of any payments we defer.
WITHDRAWAL RESTRICTIONS FOR QUALIFIED PLANS
If you participate under a Qualified Contract, you should carefully check
the terms of the plan for limitations and restrictions on cash withdrawals.
Special restrictions apply to withdrawals from Contracts used for
Section 403(b) annuities. See "Federal Tax Status -- Tax-Sheltered Annuities."
WITHDRAWAL CHARGE
We do not deduct any sales charge from Purchase Payments when they are
made. However, we may impose a withdrawal charge (known as a "contingent
deferred sales charge") on certain amounts withdrawn from a Participant Account.
We impose this charge to defray some of our expenses related to the sale of the
Contracts, such as commissions we pay to agents, the cost of sales literature,
and other promotional costs and transaction expenses.
ORDER OF WITHDRAWAL
We consider all amounts withdrawn from a Participant Account to be
withdrawn first from Purchase Payments that have not previously been withdrawn,
starting with the earliest Payment and
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<PAGE>
continuing until all Payments have been withdrawn. Once all Purchase Payments
have been withdrawn, we attribute additional amounts withdrawn to "accumulated
value"; that is, the portion of a Participant's Account Value that exceeds the
total of all Purchase Payments made to the Account.
For convenience, in this Prospectus we refer to Purchase Payments made
during the last 7 Account Years (including the current Account Year) as "New
Payments," and all Purchase Payments made before the last 7 Account Years as
"Old Payments."
FREE WITHDRAWAL AMOUNT
In each Account Year the Owner may withdraw the following amounts from a
Participant's Account Value before incurring the withdrawal charge: (1) all Old
Payments not previously withdrawn, plus (2) a "free withdrawal amount" equal to
10% of the amount of all New Payments. We will apply the free withdrawal amount
to reduce the amount of New Payments withdrawn that is subject to the withdrawal
charge, starting with the earliest New Payment. All New Payments withdrawn in
excess of the free withdrawal amount will be subject to the withdrawal charge.
Accumulated value may be withdrawn without the imposition of the
withdrawal charge. In addition, we do not apply any withdrawal charge to
withdrawals made from a Participant Account that has been established for at
least 12 years, regardless of the amount or when any Purchase Payments were
made.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
portion of any New Payments withdrawn, less any applicable free withdrawal
amount, by a percentage. The percentage varies according to the number of
Account Years the New Payment has been held in the Participant Account,
including the Account Year in which the Payment was made but not the Account
Year in which it was withdrawn (Payments made and withdrawn in the same year are
considered to be held for 0 years). The applicable percentages are as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS PERCENTAGE
- ------------- ----------
<S> <C>
0-2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 0%
</TABLE>
The withdrawal charge will never be greater than 6% of the aggregate
amount of Purchase Payments made to the Participant's Account.
We may modify the withdrawal charges and limits, upon notice to the Owner.
However, any modification will only apply to Accounts established after the date
of the modification.
EXAMPLE OF WITHDRAWAL CHARGE CALCULATION
Assume the Owner wishes to make a $25,000 withdrawal from a Participant
Account in Account Year 10. An initial Purchase Payment of $10,000 was made in
Account Year 1, an additional Purchase Payment of $8,000 was made in Account
Year 8, and no previous withdrawals have been made. The Participant's Account
Value in Account Year 10 is $35,000.
We attribute the withdrawal first to the oldest Purchase Payment made, the
$10,000 Payment made in Account Year 1. Because that Payment has been held in
the Participant Account for more than 7 Account Years, it is an Old Payment and
is not subject to the withdrawal charge.
We attribute the next $8,000 of the withdrawal to the Purchase Payment
made in Account Year 8, which is a New Payment. The free withdrawal amount in
Account Year 10 is $800 (10% of the $8000
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<PAGE>
Payment made in Account Year 8, the only New Payment). We apply the free
withdrawal amount to reduce the amount of the New Payment withdrawn, so only
$7,200 of the $8000 New Payment is subject to the withdrawal charge. Because the
New Payment has been held in the Participant Account for only two Account Years,
the withdrawal charge will be 5% of $7,200, or $360.
The remaining $7,000 of the withdrawal is attributed to accumulated value
and is not subject to the withdrawal charge.
For additional examples of how we calculate withdrawal charges, please see
Appendix C.
We do not impose the withdrawal charge on amounts applied to provide an
annuity with a payout period of at least five years, amounts we pay as a death
benefit, or amounts transferred among the Sub-Accounts, between the Sub-Accounts
and the Fixed Account, or within the Fixed Account.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment if the Owner withdraws, borrows or
transfers amounts from Guarantee Periods of 3, 5 or 7 years. For this purpose,
using Fixed Account Value to provide an annuity with a payout period of less
than five years is considered a withdrawal, and the Market Value Adjustment will
apply. We apply the Market Value Adjustment to each separate allocation made to
a Guarantee Period together with interest credited on that allocation.
A Market Value Adjustment may decrease, increase or have no effect on your
Account Value. This will depend on changes in interest rates since the last
allocation to the Guarantee Period and the length of time remaining in the
Guarantee Period. In general, if the Current Rate for Guarantee Periods equal to
your Guarantee Period is higher than your Guaranteed Interest Rate, the Market
Value Adjustment will decrease your Account Value. If our current Guaranteed
Interest Rate is lower, the Market Value Adjustment will increase your Account
Value.
We determine the amount of the Market Value Adjustment by multiplying the
amount that is subject to the adjustment by the following formula:
.75 (A-B) X C/12
where:
A is the Guaranteed Interest Rate applicable to the amount withdrawn,
borrowed, transferred or annuitized;
B is the Current Rate we declare at the time of the withdrawal, loan,
transfer or annuitization for the Guarantee Period equal to the length of time
of your Guarantee Period; and
C is the number of complete months remaining in your Guarantee Period.
We will apply the Market Value Adjustment to the amount being withdrawn
after deduction of any applicable Account Fee, withdrawal charge and unpaid Net
Loan Interest.
For examples of how we calculate the Market Value Adjustment, see Appendix
C.
LOANS (QUALIFIED CONTRACTS ONLY)
At any time during the Accumulation Phase, the Owner of a Qualified
Contract may request a loan from a Participant Account. The maximum amount that
may be borrowed is 80% of the Participant Account Value, less any loans
outstanding and interest on those loans. The minimum amount is $1,000. All loans
under a particular Contract are secured by a security interest we take in the
Contract.
Loans may be subject to restrictions in a particular retirement plan and
applicable legislation. You should also carefully consider the tax consequences
of a loan. See "Tax Considerations."
The Owner requests a loan by sending us a written request in the form we
specify. For loan requests of over $5,000, the Owner's signature must be
guaranteed. In some cases, such as loan requests by a corporation, partnership,
agent or fiduciary, we may require additional documentation.
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<PAGE>
When we make a loan, we deduct from the Participant Account an amount
equal to the loan amount requested plus or minus any Market Value Adjustment.
The Owner may specify the amount to be deducted from each Sub-Account and/or
Guarantee Period to which the Participant Account is allocated. If the Owner
does not so specify, we will deduct the total amount requested pro rata, based
on allocations at the end of the Valuation Period during which we receive the
loan request. We deposit an amount equal to the loan proceeds into a special
loan account, which is part of the Fixed Account. We credit interest to the
amount in the loan account at rate we specify at the time of the loan that is
lower than the interest rate we charge on the loan itself.
Interest on the loan accrues daily at the rate we set at the time of the
loan. Interest is payable on each anniversary of the date the loan is made and
whenever a loan principal payment is made. If interest is not paid when due, we
will deduct the amount of the interest from the Participant Account and add it
to the principal amount of the loan. The difference between the interest on the
loan payable to us and the interest we credit on the amount in the loan account
is called "Net Loan Interest."
The principal of the loan may be repaid in whole or in part at any time
during the Accumulation Phase. We will treat any amounts repaid as Purchase
Payments to the Participant Account that will be allocated to Guarantee Periods
and/or Sub-Accounts in accordance with the allocation factors for the Account in
effect at the time.
A loan must be repaid within five years of the date it is made, unless the
loan is used to buy, construct, reconstruct or substantially rehabilitate a
dwelling that is used as the principal residence of the Participant or a member
of the Participant's immediate family. In that case, the loan must be repaid
within ten years.
CONTRACT CHARGES
ACCOUNT FEE
During the Accumulation Phase of your Account, we will deduct from your
Account an annual Account Fee to help cover the administrative expenses we incur
related to the issuance of Contracts and the maintenance of Accounts. We deduct
the Account Fee on each Account Anniversary, which is the anniversary of the
first day of the month after we issue your Contract. We deduct the Account Fee
pro rata from each Sub-Account and each Guarantee Period, based on the
allocation of your Account Value on your Account Anniversary. The deduction of
the Account Fee from amounts allocated to the Fixed Account will never cause
your Fixed Account Value (adjusted for withdrawals and loans) to increase by
less than 4% per year.
If your Account is withdrawn in full, we will deduct the full amount of
the Account Fee at the time of the withdrawal. In addition, on the Annuity
Commencement Date we will deduct a pro rata portion of the Account Fee to
reflect the time elapsed between the last Account Anniversary and the day before
the Annuity Commencement Date. After the Annuity Commencement Date, we will
deduct the Account Fee in equal amounts from each annuity payment we make during
the year.
The Account Fee deducted from your Account is based on the total Purchase
Payments credited to all Participant Accounts under the Contract, as follows:
<TABLE>
<CAPTION>
TOTAL PURCHASE PAYMENTS ACCOUNT FEE
- ------------------------ -----------
<S> <C>
up to $250,000 $25
$250,000 to $1,499,000 $18
$1,500,000 to $4,999,999 $15
$5,000,000 and over $12
</TABLE>
We review the total Purchase Payments made under a Contract and
semi-annually determine the applicable Account Fee for the next six months. Once
total Purchase Payments under a Contract reach an amount that produces a lower
Account Fee, the Account Fee for existing Accounts will not be increased even if
subsequent withdrawals reduce the amount of total Purchase Payments.
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<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense charge from the assets of the Variable
Account during both the Accumulation Phase and the Income Phase. The mortality
risk we assume arises from our contractual obligation to continue to make
annuity payments to each Annuitant, regardless of how long the Annuitant lives
and regardless of how long all Annuitants as a group live. This obligation
assures each Annuitant that neither the longevity of fellow Annuitants nor an
improvement in life expectancy generally will have an adverse effect on the
amount of any annuity payment received under the Contract. The expense risk we
assume is the risk that the Account Fee we assess under the Contracts may be
insufficient to cover the actual total administrative expenses we incur. If the
amount of the charge is insufficient to cover the mortality and expense risks,
we will bear the loss. If the amount of the charge is more than sufficient to
cover the risks, we will make a profit on the charge. We may use this profit for
any proper corporate purpose, including the payment of marketing and
distribution expenses for the Contracts.
The mortality and expense risk charge is based on the total Purchase
Payments credited to all Participant Accounts under the Contract, and is
deducted from the assets of the Variable Account at the following effective
annual rate:
<TABLE>
<CAPTION>
TOTAL PURCHASE PAYMENTS ANNUAL RATE OF CHARGE
- ------------------------ ---------------------
<S> <C>
up to $250,000 1.30%
$250,000 to $1,499,000 1.25%
$1,500,000 to $4,999,999 1.10%
$5,000,000 and over 0.95%
</TABLE>
We review the total Purchase Payments made under a Contract and
semi-annually determine the applicable mortality and expense risk charge for the
next six months. Once total Purchase Payments under a Contract reach an amount
that produces a lower charge, the charge for existing Accounts will not be
increased even if subsequent withdrawals reduce the amount of total Purchase
Payments.
PREMIUM TAXES
Some states and local jurisdictions impose a premium tax on us that is
equal to a specified percentage of the Purchase Payments made under the
Contract. In many states there is no premium tax. We believe that the amounts of
applicable premium taxes currently range from 0% to 3.5%. You should consult a
tax adviser to find out if your state imposes a premium tax and the amount of
any tax.
In order to reimburse us for the premium tax we may pay on Purchase
Payments, our policy is to deduct the amount of such taxes from the amount
applied to provide an annuity at the time of annuitization. However, we reserve
the right to deduct the amount of any applicable tax from your Account at any
time, including at the time a Purchase Payment or full or partial withdrawal is
made. We do not make any profit on the deductions we make to reimburse premium
taxes.
MUTUAL FUND AND SERIES FUND EXPENSES
There are fees and charges deducted from each Mutual Fund and each
Series of the Series Fund. These fees and expenses are described in the
prospectuses and related Statements of Additional Information of the Mutual
Funds and the Series Fund.
MODIFICATION OF CHARGES
We may modify the Account Fee and the mortality and expense risk charge
upon notice to Owners. However, such modification will apply only with respect
to Participant Accounts established after the effective date of the
modification.
DEATH BENEFIT
If you die during the Accumulation Phase, we will pay a death benefit to
your Beneficiary, using the payment method elected (a single cash payment or one
of our Annuity Options). If the Beneficiary is not living on the date of death,
we will pay the death benefit in one sum to your estate. We do not
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<PAGE>
pay a death benefit if you die during the Income Phase. However, the Beneficiary
will receive any payments provided under an Annuity Option that is in effect.
AMOUNT OF DEATH BENEFIT
To calculate the amount of the death benefit, we use a "Death Benefit
Date." If the Owner has elected a death benefit payment method before your death
and it remains effective, the Death Benefit Date is the date we receive proof of
your death in an acceptable form ("Due Proof of Death") (unless the Beneficiary
is not living on the date of death, in which case the Death Benefit Date is date
we receive Due Proof of Death of both you and your Beneficiary). Otherwise, the
Death Benefit Date is the later of the date we receive Due Proof of Death and
any required consent or release or the date we receive the Beneficiary's
election of either payment method. If we do not receive the Beneficiary's
election within 60 days after we receive Due Proof of Death, the Death Benefit
Date will be the last day of the 60 day period.
The amount of the death benefit is determined as of the Death Benefit
Date. It is equal to greater of (1) your Account Value or (2) the total Purchase
Payments made to your Account less the sum of all withdrawals, loans and unpaid
Net Loan Interest.
METHOD OF PAYING DEATH BENEFIT
The death benefit may be paid in a single cash payment or as an annuity
(either fixed, variable or a combination) under one or more of our Annuity
Options. We describe the Annuity Options in this Prospectus under "Income
Phase -- Annuity Provisions."
During the Accumulation Phase, the Owner (or you, if permitted by your
plan) may elect the method of payment for the death benefit. If no such election
is in effect on the date of your death, the Beneficiary may elect either a
single cash payment or an annuity. These elections are made by sending us a
completed election form, which we will provide. If we do not receive the
Beneficiary's election within 60 days after we receive Due Proof of Death, we
will pay the death benefit in a single cash payment.
If we pay the death benefit in the form of an Annuity Option, the
Beneficiary becomes the Annuitant under the terms of that Annuity Option.
NON-QUALIFIED CONTRACTS
If you participate under a Non-Qualified Contract, special distribution
rules apply to the payment of the death benefit. The amount of the death benefit
must be distributed either (1) as a lump sum within 5 years after your death or
(2) if in the form of an annuity, over a period not greater than the life or
expected life of the "designated beneficiary" within the meaning of Section
72(s) of the Internal Revenue Code, with payments beginning no later than one
year after your death.
The person named as the Beneficiary under your Certificate, if any, will
be the "designated beneficiary." If the named Beneficiary is not living, the
Annuitant automatically becomes the designated beneficiary.
If the designated beneficiary is your surviving spouse, your spouse may
continue the Certificate in his or her own name as Participant. To make this
election, your spouse must give us written notification within 60 days after we
receive Due Proof of Death. In that case, we will not pay a death benefit, and
the Account Value will be increased to reflect the death benefit calculation.
The special distribution rules will then apply on the death of your spouse.
During the Income Phase, if the Annuitant dies, the remaining value of the
Annuity Option in place must be distributed at least as rapidly as the method of
distribution under that option.
Payments made in contravention of these special rules would adversely
affect the treatment of the Contracts as annuity contracts under the Internal
Revenue Code. Neither you nor the Beneficiary may exercise rights that would
have that effect.
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<PAGE>
SELECTION AND CHANGE OF BENEFICIARY
You select your Beneficiary in your Participant Enrollment Form. The Owner
may change your Beneficiary at any time during the Accumulation Phase by sending
us written notice on our required form, unless an irrevocable Beneficiary
designation previously has been made. A new Beneficiary designation is not
effective until we record the change.
PAYMENT OF DEATH BENEFIT
Payment of the death benefit in cash will be made within 7 days of the
Death Benefit Date, except if we are permitted to defer payment in accordance
with the Investment Company Act of 1940. If an Annuity Option is elected, the
Annuity Commencement Date will be the first day of the second calendar month
following the Death Benefit Date, and your Account will remain in effect until
the Annuity Commencement Date.
DUE PROOF OF DEATH
We accept any of the following as proof of any person's 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 we find satisfactory.
THE INCOME PHASE -- ANNUITY PROVISIONS
During the Income Phase, we make regular monthly payments to the
Annuitant. If you are alive on the Annuity Commencement Date, you will be the
Annuitant. When an Annuity Option has been selected as the method of paying the
death benefit, the Beneficiary is the Annuitant.
The Income Phase of your Certificate begins with the Annuity Commencement
Date. On that date, we apply your Account Value, adjusted as described below,
under the Annuity Option or Options selected, and we make the first payment.
Once the Income Phase begins, no lump sum settlement option or cash
withdrawals are permitted, and the Annuity Option selected cannot be changed.
The Owner may request a full withdrawal before the Annuity Commencement Date,
which will be subject to all charges applicable on withdrawals. See
"Withdrawals, Withdrawal Charge, Market Value Adjustment and Loan Provision."
SELECTION OF THE ANNUITY COMMENCEMENT DATE
The Owner (or you, if permitted by your plan) selects the Annuity
Commencement Date at the time your Account is established. The Owner (or you, if
permitted by your plan) may change the Annuity Commencement Date from time to
time by sending us written notice, with the following limitations:
- The Annuity Commencement Date must always be the first day of a month.
- We must receive the notice at least 30 days before the current Annuity
Commencement Date.
- The new Annuity Commencement Date must be at least 30 days after we
receive the notice.
- The latest possible Annuity Commencement Date is the first day of the
month following your 85th birthday.
There may be other restrictions on the selection of the Annuity
Commencement Date imposed by your retirement plan or applicable law. For
example, in most situations, current law requires that the Annuity Commencement
Date for a Qualified Contract must be no later than April 1 following the year
the Annuitant reaches age 70 1/2 (or, for Qualified Contracts other than IRAs,
no later than April 1 following the year the Annuitant retires, if later than
the year the Annuitant reaches age 70 1/2).
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<PAGE>
ANNUITY OPTIONS
We offer the following Annuity Options for payments during the Income
Phase. Annuity Options A, B, and C may be selected for either a Variable
Annuity, a Fixed Annuity, or a combination of both. Annuity Options D and E may
be selected only to provide a Fixed Annuity. We may also agree to other
settlement options, at our discretion.
ANNUITY OPTION A -- LIFE ANNUITY
We provide monthly payments during the lifetime of the Annuitant. Annuity
payments stop when the Annuitant dies. There is no provision for continuation of
any payments to a Beneficiary.
ANNUITY OPTION B -- LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY PAYMENTS
CERTAIN
We make monthly payments during the lifetime of the Annuitant. In
addition, we guarantee that the Beneficiary will receive monthly payments for
the remainder of the period certain, if the Annuitant dies during that period.
The election of a longer period results in smaller monthly payments. If no
Beneficiary is designated, we pay the discounted value of the remaining payments
in one sum to the Annuitant's estate. The Beneficiary may also elect to receive
the discounted value of the remaining payments in one sum. The discount rate for
Variable Annuity payments will be 4%; the discount rate for a Fixed Annuity will
be based on the interest rate we used to determine the amount of each payment.
ANNUITY OPTION C -- JOINT AND SURVIVOR ANNUITY
We make monthly payments during the lifetime of the Annuitant and another
designated person and during the lifetime of the survivor of the two. We stop
making payments when the survivor dies. There is no provision for continuance of
any payments to a Beneficiary.
ANNUITY OPTION D -- FIXED MONTHLY PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
We make monthly payments for a specified period of time from 5 years to 30
years for Non-Qualified Contracts and 3 years to 30 years for Qualified
Contracts, as elected. In addition, we guarantee that the Beneficiary will
receive monthly payments for the remainder of the period certain, if the
Annuitant dies during that period. If no Beneficiary is designated, we pay the
discounted value of the remaining payments in one sum to the Annuitant's estate.
The Beneficiary may also elect to receive the discounted value of the remaining
payments in one sum. The discount rate for this purpose will be based on the
interest rate we used to determine the amount of each payment. The election of
this Annuity Option may result in the imposition of a penalty tax.
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 (at least over a period of five years for Non-Qualified Contracts) 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 will determine from time to time but which will 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. In addition, we guarantee that the Beneficiary will receive any
remaining payments if the Annuitant dies before the amount we hold is exhausted.
If no Beneficiary is designated, we pay the amount remaining unpaid in one sum
to the Annuitant's estate. The Beneficiary may also elect to receive the amount
remaining unpaid in one sum. The election of this Annuity Option may result in
the imposition of a penalty tax.
SELECTION OF ANNUITY OPTION
The Owner (or you, if permitted by your plan) selects one or more of the
Annuity Options, which the Owner (or you, if permitted by your plan) may change
from time to time during the Accumulation Phase, as long as we receive the
selection or change in writing at least 30 days before the
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Annuity Commencement Date. If we have not received a written selection on the
30th day before the Annuity Commencement Date, you will receive Annuity Option
B, for a life annuity with 120 monthly payments certain.
The Owner (or you, if permitted by your plan) may specify the proportion
of your Adjusted Account Value that will provide a Variable Annuity or a Fixed
Annuity. Under a Variable Annuity, the dollar amount of payments will vary,
while under a Fixed Annuity, the dollar amount of payments will remain the same.
If a Variable Annuity or a Fixed Annuity is not specified, your Adjusted Account
Value will be divided between Variable Annuities and Fixed Annuities in the same
proportions as your Account Value was divided between the Variable and Fixed
Accounts on the Annuity Commencement Date. Your Adjusted Account Value applied
to a Variable Annuity may be allocated among the Sub-Accounts, or we will use
the existing allocations.
There may be additional limitations on the options that may be elected
under your particular retirement plan or applicable law.
REMEMBER THAT THE ANNUITY OPTIONS MAY NOT BE CHANGED ONCE ANNUITY PAYMENTS
BEGIN.
AMOUNT OF ANNUITY PAYMENTS
ADJUSTED ACCOUNT VALUE
The Adjusted Account Value is the amount we apply to provide a Variable
Annuity and/or a Fixed Annuity. We calculate Adjusted Account Value by taking
your Account Value on the Business Day just before the Annuity Commencement Date
and making the following adjustments:
- We deduct a proportional amount of the Account Fee, based on the fraction
of the current Account Year that has elapsed;
- If applicable, we deduct the withdrawal charge and any unpaid Net Loan
Interest;
- If applicable, we apply the Market Value Adjustment to your Account Value
in the Fixed Account, which may result in a deduction, an addition, or no
change; and
- We deduct any applicable premium tax or similar tax if not previously
deducted.
VARIABLE ANNUITY PAYMENTS
Variable Annuity payments may vary each month. We determine the dollar
amount of the first payment using the portion of your Adjusted Account Value
applied to a Variable Annuity and the Annuity Payment Rates in your Contract,
which are based on an assumed interest rate of 4% per year, compounded annually.
See "Annuity Payment Rates."
To calculate the remaining payments, we convert the amount of the first
payment into Annuity Units for each Sub-Account; we determine the number of
those Annuity Units by dividing the portion of the first payment attributable to
the Sub-Account by the Annuity Unit Value of that Sub-Account for the Valuation
Period ending just before the Annuity Commencement Date. This number of Annuity
Units for each Sub-Account will remain constant (unless the Annuitant requests
an exchange of Annuity Units). However, the dollar amount of the next Variable
Annuity payment-- which is the sum of the number of Annuity Units for each
Sub-Account times its Annuity Unit Value for the Valuation Period ending just
before the date of the payment-- will increase, decrease, or remain the same,
depending on the net investment return of the Sub-Accounts.
If the net investment return of the Sub-Accounts selected is the same as
the assumed interest rate of 4%, compounded annually, the payments will remain
level. If the net investment return exceeds the assumed interest rate, payments
will increase and, conversely, if it is less than the assumed interest rate,
payments will decrease.
Please refer to the Statement of Additional Information for more
information about calculating Variable Annuity Units and Variable Annuity
payments, including examples of these calculations.
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FIXED ANNUITY PAYMENTS
Fixed Annuity payments are the same each month. We determine the dollar
amount of each Fixed Annuity payment using the fixed portion of your Adjusted
Account Value and the applicable Annuity Payment Rates. These will be either
(1) the rates in your Contract, which are based on a minimum guaranteed interest
rate of 4% per year, compounded annually, or (2) new rates we have published and
are using on the Annuity Commencement Date, if they are more favorable. See
"Annuity Payment Rates."
EXCHANGE OF VARIABLE ANNUITY UNITS
During the Income Phase, the Annuitant may exchange Annuity Units from one
Sub-Account to another, up to 12 times each Account Year. To make an exchange,
the Annuitant sends us, at our Annuity Service Mailing Address, a written
request stating the number of Annuity Units in the Sub-Account he or she wishes
to exchange and the new Sub-Account for which Annuity Units are requested. The
number of new Annuity Units will be calculated so the dollar amount of an
annuity payment on the date of the exchange would not be affected. To calculate
this number, we use Annuity Unit values for the Valuation Period during which we
receive the exchange request.
We permit only exchanges among Sub-Accounts. No exchanges to or from a
Fixed Annuity are permitted.
ACCOUNT FEE
During the Income Phase, we deduct the applicable Account Fee in equal
amounts from each annuity payment.
ANNUITY PAYMENT RATES
The Contract contains Annuity Payment Rates for each Annuity Option
described in this Prospectus. 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 specified in the applicable Contract (at least 4% per
year, compounded annually); and (b) the monthly Fixed Annuity payment, when this
payment is based on the minimum guaranteed interest rate specified in the
Contract (at least 4% per year, compounded annually). We may change these rates
for Accounts established after the effective date of such change (See "Other
Contract Provisions -- Modification").
The Annuity Payment Rates may vary according to the Annuity Option elected
and the adjusted age of the Annuitant. The Contract also describes the method of
determining the adjusted age of the Annuitant. The mortality table used in
determining the Annuity Payment Rates for Options A, B and C is the 1971
Individual Annuitant Mortality Table with ages reduced by one year for Annuity
Commencement Dates occurring during the 1980s, two years for Annuity
Commencement Dates occurring during the 1990s, and so on.
ANNUITY OPTIONS AS METHOD OF PAYMENT FOR DEATH BENEFIT
The Owner or your Beneficiary may also select one or more Annuity Options
to be used in the event of your death before the Income Phase, as described
under the "Death Benefit" section of this Prospectus. In that case, your
Beneficiary will be the Annuitant. The Annuity Commencement Date will be the
first day of the second month beginning after the Death Benefit Date.
OTHER CONTRACT PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract belongs to the Owner. All Contract rights and privileges can
be exercised by the Owner without the consent of the Participant, the
Beneficiary or any other person, except as the Owner
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may provide under the plan or other applicable documents. Such rights and
privileges may be exercised, with respect to a particular Participant, only
during the lifetime of the Participant before the Annuity Commencement Date,
except as the Contract otherwise provides.
The Annuitant becomes the Payee on and after the Annuity Commencement
Date. The Beneficiary becomes the Payee on the death of the Participant prior to
the Annuity Commencement Date, or on the death of the Annuitant after the
Annuity Commencement Date. Such Payee may thereafter exercise such rights and
privileges, if any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Contract may not be transferred except to:
(1) the Participant or Beneficiary; (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 employer of the Annuitant, provided that the
Qualified Contract after transfer is maintained under the terms of a retirement
plan qualified under Section 403(a) of the Internal Revenue Code for the benefit
of the Annuitant; (4) the trustee of an individual retirement account plan
qualified under Section 408 of the Internal Revenue Code for the benefit of the
participants under a group contract; or (5) as otherwise permitted from time to
time by laws and regulations governing the retirement or deferred compensation
plans for which a Qualified Contract may be issued. Subject to the foregoing, a
Qualified 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.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract during the lifetime of any Participant and prior to the last remaining
Participant's Annuity Commencement Date. A change of ownership will not be
binding on us until we receive written notification. When we receive such
notification, the change will be effective as of the date on which the request
for change was signed by the Owner or Participant, as appropriate, but the
change will be without prejudice to us on account of any payment we make or any
action we take before receiving the change.
VOTING OF MUTUAL FUND AND SERIES FUND SHARES
We will vote Mutual Fund and Series Fund shares held by the Sub-Accounts
at meetings of shareholders of the Mutual Funds and Series Fund or in connection
with similar solicitations, but will follow voting instructions received from
persons having the right to give voting instructions. During the Accumulation
Phase, the Owner will have the right to give voting instructions. During the
Income Phase, the Payee -- that is the Annuitant or Beneficiary entitled to
receive benefits -- is the person having such voting rights. We will vote any
shares attributable to us and Mutual Fund and Series Fund shares for which no
timely voting instructions are received in the same proportion as the shares for
which we receive instructions from Owners and Payees, as applicable.
Owners of Qualified Contracts may be subject to other voting provisions of
the particular plan and of the Investment Company Act of 1940. Employees who
contribute to plans that are funded by the Contracts may be entitled to instruct
the Owners as to how to instruct us to vote the Mutual Fund and Series 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. If no voting instructions are received
from any such person with respect to a particular Participant Account, the Owner
may instruct the Company as to how to vote the number of Series Fund shares for
which instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Investment Company
Act of 1940, or any duty to inquire as to the instructions received or the
authority of Owners, Participants or others, as applicable, to instruct the
voting of Mutual Fund or Series Fund shares. Except as the Variable Account or
the Company has actual knowledge to the contrary, the instructions given by
Owners and Payees will be valid as they affect the Variable Account, the Company
and any others having voting instruction rights with respect to the Variable
Account.
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All Mutual Fund and Series Fund proxy material, together with an
appropriate form to be used to give voting instructions, will be provided to
each person having the right to give voting instructions at least 10 days prior
to each meeting of the shareholders of the particular Mutual Fund or Series
Fund. We will determine the number of Mutual Fund or Series Fund shares as to
which each such person is entitled to give instructions as of a record not more
than 90 days prior to each such meeting. Prior to the Annuity Commencement Date,
the number of Mutual Fund or Series Fund shares as to which voting instructions
may be given to the Company is determined by dividing the value of all of the
Variable Accumulation Units of the particular Sub-Account credited to the
Participant Account by the net asset value of one of the shares of the
applicable Mutual Fund or Series Fund as of the same date. On or after the
Annuity Commencement Date, the number of Mutual Fund or Series Fund shares as to
which such instructions may be given by a Payee is determined by dividing the
reserve held by the Company in the Sub-Account with respect to the particular
Payee by the net asset value of one of the shares of the applicable Mutual Fund
or Series Fund as of the same date. After the Annuity Commencement Date, the
number of Mutual Fund or Series Fund shares as to which a Payee is entitled to
give voting instructions will generally decrease due to the decrease in the
reserve.
PERIODIC REPORTS
During the Accumulation Period we will send you and the Owner, at least
once during each Account Year, a statement showing the number, type and value of
Accumulation Units credited to your Account and the Fixed Accumulation Value of
your Account, which statement will be accurate as of a date not more than 2
months previous to the date of mailing. These periodic statements contain
important information concerning your transactions with respect to a Contract.
It is your obligation 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
you within such 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, the Mutual Funds and the
Series Fund 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 your Account as may be required by applicable laws, rules and
regulations.
SUBSTITUTION OF SECURITIES
Shares of any or all Series of the Series Fund or any particular Mutual
Fund may not always be available for investment under the Contract. We may add
or delete Mutual Funds or Series of the Series Fund or other investment
companies as variable investment options under the Contracts. We may also
substitute for the shares held in any Sub-Account shares of another Mutual Fund
or Series of the Series Fund or shares of another registered open-end investment
company or unit investment trust, provided that the substitution has been
approved, if required, by the SEC. In the event of any substitution pursuant to
this provision, we may make appropriate endorsement to the Contract to reflect
the substitution.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At our election and subject to any necessary vote by persons having the
right to give instructions with respect to the voting of Mutual Fund and Series
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 SEC. In the event of any change in the operation of the Variable Account
pursuant to this provision, we may make appropriate endorsement to the Contract
to reflect the change and take such other action as may be necessary and
appropriate to effect the change.
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SPLITTING UNITS
We reserve the right to split or combine the value of Variable
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.
MODIFICATION
Upon notice to the Owner (or the Payee(s) during the Income Phase), we may
modify the Contract 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 the Company or the Variable Account is 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-Account(s) (See "Change in
Operation of Variable Account"); or (iv) provides additional Variable Account
and/or fixed accumulation options. In the event of any such modification, we may
make appropriate endorsement in the Contract to reflect such modification.
In addition, upon notice to the Owner, we may modify a Contract to change
the withdrawal charges, Account Fees, mortality and expense risk charges, the
tables used in determining the amount of the first monthly Variable Annuity and
Fixed Annuity payments and the formula used to calculate the Market Value
Adjustment, provided that such modification applies only to Participant Accounts
established after the effective date of such modification. In order to exercise
our modification rights in these particular instances, we must notify the Owner
of such modification in writing. The notice shall specify the effective date of
such modification which must be at least 60 days following the date we mail
notice of modification. All of the charges and the annuity tables which are
provided in the Contract prior to any such modification will remain in effect
permanently, unless improved by the Company, with respect to Participant
Accounts established prior to the effective date of such modification.
DISCONTINUANCE OF NEW PARTICIPANTS
We may limit or discontinue the acceptance of new Participant Enrollment
Forms and the issuance of new Certificates under a Contract by giving 30 days
prior written notice to the Owner. This will not affect rights or benefits with
respect to any Participant Accounts established under such Contract prior to the
effective date of such limitation or discontinuance.
CUSTODIAN
We are the custodian of the assets of the Variable Account. We will
purchase Mutual Fund and Series 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 redeem Mutual Fund and Series Fund shares at net
asset value for the purpose of meeting the contractual obligations of the
Variable Account, paying charges relating to the Variable Account or making
adjustments for annuity reserves in the Variable Account.
RIGHT TO RETURN (IRAS ONLY)
If the Owner is establishing an Individual Retirement Account ("IRA"), the
Internal Revenue Code requires that we give the Owner a disclosure statement
containing certain information about the Contract and applicable legal
requirements. We must give the Owner this statement on or before the date the
IRA is established. If we give the Owner the disclosure statement before the
seventh day preceding the date the IRA is established, the Owner will not have
any right of revocation under the Code. If we give the Owner the disclosure
statement at a later date, then the Owner may give us a notice of revocation at
any time within 7 days after the date the IRA is established. Upon such
revocation, we will refund all Purchase Payments made to the Contract.
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TAX CONSIDERATIONS
The Contracts described in this Prospectus are designed for use by
employer, association and other group retirement plans under the provisions of
Sections 401 (including Section 401(k), 403, 408(c), 408(k) and 408(p)) of the
Internal Revenue Code (the "Code"), as well as certain non-qualified retirement
plans, such as payroll savings plans. The ultimate effect of federal income
taxes on the Contract's Accumulation Account and the Participant Account, on an
annuity payments and on the economic benefit to the Owner, the Participant, the
Annuitant, the Payee or the Beneficiary may depend upon the type of Plan for
which the Contract is purchased and a number of different factors. The
discussion contained herein is general in nature, is based upon the Company's
understanding of current federal income tax laws (including recently enacted
amendments), and is not intended as tax advice. Legislation affecting the tax
treatment of annuity contracts could be enacted in the future and could apply
retroactively to Contracts purchased before the date of enactment. Also, because
the Internal Revenue Code, as amended, is not in force in the commonwealth of
Puerto Rico, some references herein will not be applicable to Contracts issued
in Puerto Rico. An 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.
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.
TAXATION OF ANNUITIES IN GENERAL
Generally, no taxes are imposed on the increases in the value of a
Contract until a distribution occurs, either as annuity payments under the
Annuity Option elected or in the form of cash withdrawals or lump-sum payments
prior to the Annuity Commencement Date. Corporate Owners and other Owners that
are not natural persons (other than the estate of a decedent Owner) are subject
to current taxation on the annual increase in the value of a Non-Qualified
Contract's Accumulation Account. This rule does not apply where a non-natural
person holds the Contract as agent for a natural person (such as where a bank
holds a Contract as trustee under a trust agreement). This provision does not
apply to earnings accumulated where the Annuity Commencement Date occurs within
one year of the Date of Coverage. This provision applies to earnings on Purchase
Payments made after February 28, 1986.
The following discussion of annuity taxation applies only to contributions
(and attributable earnings) made to Non-Qualified Contracts after August 13,
1982. If an Owner has made contributions before August 14, 1982 to another
annuity contract and exchanges that contract for the Contract offered by this
Prospectus, then different tax treatment will apply to the contributions (and
attributable earnings) made before August 14, 1982. For example, non-taxable
principal may be withdrawn before taxable earnings and the ten percent (10%)
penalty tax for early withdrawal is not applicable.
The Code is unclear in its application to a group annuity contract where
the Owner is distinct from the individuals with respect to whom the Contract
benefits are accumulated (the Participants). The following discussion is the
Company's best understanding of the operation of the Code in the context of
group contracts. However, Owners and Participants should consult a qualified tax
adviser.
For Contracts offered by this Prospectus (other than Contracts issued in
exchange for contracts issued prior to August 14, 1982, as described above), in
the case of a Non-Qualified Contract a partial cash withdrawal (that is, a
withdrawal of less than the entire value of the Participant's Account) must be
treated first as a withdrawal from the increase in the Participant's Account's
value over the Contract's cost basis. The amount of the withdrawal so allocable
will be includible in the Participant's income. Similarly, if a Participant
receives a loan under a Contract or if part or all of a Participant's
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Account is assigned or pledged as collateral for a loan, the amount of the loan
or the amount assigned or pledged must be treated as if withdrawn from the
Contract. For Non-Qualified Contracts entered into after October 21, 1988 (or
any annuity contract entered into on or before such date that is exchanged for a
Non-Qualified Contract issued after such date), any withdrawal or loan amount
that is includible in the Participant's income will increase the Contract's cost
basis. Repayment of a loan or payment of interest on a loan will not affect the
Contract's cost basis. For these purposes the Participant's Account value will
not be reduced by the amount of any loan, assignment or pledge of the Contract.
In addition, all non-qualified deferred annuity certificates or other
non-qualified deferred annuity contracts that are issued by the Company to the
same Participant during any calendar year will be treated as a single annuity
contract. Therefore, the proceeds of a withdrawal from, or assignment or pledge
of, one or more such contracts or certificates will be fully includible in the
Participant's income to the extent of the aggregate excess of the accumulation
account values over the cost bases of all such contracts or certificates entered
into during the calendar year.)
The taxable portion of a cash withdrawal or a lump-sum payment prior to
the Annuity Commencement Date is subject to tax at ordinary income rates. In the
case of payments after the Annuity Commencement Date under the Annuity Option
elected, a portion of each payment generally is taxable at ordinary income
rates. The nontaxable portion is determined by applying to each payment an
"exclusion ratio" which is the ratio that the Participant's cost basis in the
Contract bears to the Payee's expected return under the Contract. The remainder
of the payment is taxable.
The total amount that a Payee may exclude from income through application
of the "exclusion ratio" is limited to the cost basis in the Contract. If the
Payee survives for his full life expectancy, and thereby recovers the entire
basis in the Contract, any subsequent annuity payment after basis recovery will
be fully taxable as income. Conversely, if the Payee dies prior to recovering
the entire basis, he will be allowed a deduction on his final income tax return
for the amount of the unrecovered basis. This limitation applies to
distributions made under a Contract with an Annuity Commencement Date after
December 31, 1986.
In the case of Non-Qualified Contracts, taxable cash withdrawals and
lump-sum payments will be subject to a ten percent (10%) penalty, except in the
circumstances described below. This ten percent (10%) penalty also affects
certain annuity payments. In a situation where this penalty applies, the
recipient's tax for the tax year in which the amount is received shall be
increased by an amount equal to ten percent (10%) of the portion of the amount
which is includible in the recipient's gross income. The circumstances in which
this penalty will not apply are distributions which are: (a) made upon the death
of the Participant; or (b) allocable to Purchase Payments made before
August 14, 1982. Further, in the case of Contracts issued prior to January 18,
1985, the ten percent (10%) penalty on taxable cash withdrawals and lump-sum
distributions will not apply if the amount withdrawn is allocable to a Purchase
Payment made prior to the preceding ten (10) year period. For this purpose, a
"first in, first out" rule is used, so that the earliest Purchase Payment with
respect to which amounts have not been previously fully allocated will be deemed
to be the source of the amount.
In the case of the Non-Qualified Contracts, if the Participant dies before
the Annuity Commencement Date the entire value of the Participant's account must
be either (1) distributed within 5 years after the date of death of the
Participant, or (2) distributed over some period not greater than the expected
life of the designated Beneficiary, with annuity payments beginning within one
year after the date of death of the Participant. If a Payee dies on or after the
Annuity Commencement Date and before the entire Participant's Account has been
distributed, the remaining portion of such accumulation, if any, must be
distributed at least as rapidly as the method of distribution then in effect.
These distribution requirements will not apply where the Beneficiary is the
spouse of the Participant; rather, in such a case, the Contract may be continued
in the name of the spouse as Participant or Payee. In the case of the Contracts
issued prior to January 18, 1985, these rules regarding distributions upon the
death of the Participant or the Annuitant will not apply. In the case of
Contracts issued after April 22, 1987, a chance in the Participant would be
treated as the death of the Participant. Distributions required due to the death
of the Participant will not be subject to the ten percent (10%) penalty on
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premature distributions. A purchaser of a Qualified Contract should refer to the
terms of the applicable retirement plan and contact a tax adviser regarding
distribution requirements upon the death of the Participant.
A transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse) is treated as the receipt by the Participant of income in
an amount equal to the excess of the cash surrender value over the Contract's
cost basis. This provision applies to Contracts issued after April 22, 1987.
In the case of Qualified Contracts, distributions made prior to age 59 1/2
generally are subject to a ten percent (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 Participant 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 distribution that is part of a series of payments made for life or for a
specified period of ten years or more. Owners, Participants, 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 Non-Qualified Contract or
under a Qualified Contract issued for use with an individual retirement account
unless the Participant 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 the Participant or Payee chooses not to have
any amounts withheld.
In the case of distributions from a Qualified Contract (other than
distributions from 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 Participant 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 Qualified Contract is
not an eligible rollover distribution, then the Participant or Payee can choose
not to have amounts withheld as described above for Non-Qualified Contracts and
Qualified Contracts issued for use with individual retirement accounts.
Amounts withheld from any distribution may be credited against the
Participant's or Payee's federal income tax liability for the year of the
distribution.
The Internal Revenue Service has issued regulations that prescribe
investment diversification requirements for mutual fund series underlying
nonqualified variable contracts. Contracts that do not comply with these
regulations do not qualify as annuities for income tax purposes. The Company
believes that each Series of the Series Fund complies with the regulations.
The preamble to the regulations states that the Internal Revenue Service
may promulgate guidelines under which a variable contract will not be treated as
an annuity for tax purposes if the owner has excessive control over the
investments underlying the contract. It is not known whether such guidelines, if
in fact promulgated, would have retroactive effect. If guidelines are
promulgated, the Company will take any action (including modification of the
Contract or the Variable Account) necessary to comply with the guidelines.
QUALIFIED RETIREMENT PLANS
The Qualified Contracts described in this Prospectus are designed for use
with several types of qualified retirement plans. Following are brief
descriptions of various types of qualified retirement plans and the use of the
Qualified Contracts in connection therewith. The tax rules applicable to
participants in such qualified 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 Qualified Contracts
with the various types of qualified retirement plans. Participants under such
plans, as well as Owners, Annuitants, Payees and Beneficiaries, are cautioned
that the rights of any person to any benefits under these plans may be subject
to the terms and conditions of the plans themselves, regardless of the terms and
conditions of the Qualified Contracts issued in connection
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therewith. These terms and conditions may include restrictions on, among other
things, ownership, transferability, assignability, contributions and
distributions. Any person contemplating the purchase of a Qualified Contract
should consult a qualified tax advisor. In addition, Owners, Participants,
Payees, Beneficiaries and administrators of qualified retirement plans should
consider and consult their tax advisor concerning whether the death benefit
payable under the Contract affects the qualified status of their retirement
plan. Following are brief descriptions of various types of qualified retirement
plans and the use of the Qualified Contracts in connection therewith.
PENSION AND PROFIT-SHARING PLANS
Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of retirement plans for
employees. The Tax Equity and Fiscal Responsibility Act of 1982 eliminated most
differences between qualified retirement plans of corporations and those of
self-employed individuals. The Contract may be purchased by those who would have
been covered under the rules governing old H.R. 10 (Keogh) Plans, as well as by
corporate plans. Such retirement plans may permit the purchase of the Qualified
Contracts to provide benefits under the plans. Employers intending to use the
Qualified Contracts in connection with such plans should seek qualified advice
in connection therewith.
TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees
of certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code to purchase annuity contracts and,
subject to certain limitations, exclude the amount of purchase payments from
gross income for tax purposes. The Code imposes restrictions on cash withdrawals
from Section 403(b) annuities.
If the Contracts are to receive tax deferred treatment, cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of accumulation account value as of December 31, 1988) may be made
only when the Participant attains age 59 1/2, separates from service with the
employer, dies or becomes disabled (within the meaning of Section 72(m)(7) of
the Code). These restrictions apply to (i) any post-1988 salary reduction
contributions, (ii) any growth or interest on post-1988 salary reduction
contributions, and (iii) any growth or interest on pre-1989 salary reduction
contributions that occurs on or after January 1, 1989. It is permissible,
however, to withdraw post-1988 salary reduction contributions in cases of
financial hardship. While the Internal Revenue Service has not issued specific
rules defining financial hardship, we expect that to qualify for a hardship
distribution, the Participant must have an immediate and heavy bona fide
financial need and lack other resources reasonably available to satisfy the
need. Hardship withdrawals (as well as certain other premature withdrawals) will
be subject to a 10% tax penalty, in addition to any withdrawal charge applicable
under the Contracts. Under certain circumstances the 10% tax penalty will not
apply if the withdrawal is for medical expenses.
Under the terms of a particular Section 403(b) plan, the Participant may
be entitled to transfer all or a portion of the Account Value to one or more
alternative funding options. Participants should consult the documents governing
their plan and the person who administers the plan for information as to such
investment alternatives.
INDIVIDUAL RETIREMENT ACCOUNTS
Sections 219 and 408 of the Code permit eligible individuals to contribute
to an individual retirement program, including Simplified Employee Pension
Plans, Employer/Association of Employees Established Individual Retirement
Account Trusts and Simple Retirement Accounts, known as an individual Retirement
Account ("IRA"). These IRAs are subject to limitations on the amount that may be
contributed, the persons who may be eligible, and on the time when distributions
may commence. In addition, certain distributions from some other types of
retirement plans may be placed on a tax-deferred basis in an IRA. Contracts are
offered by this Prospectus for IRA Trusts, but not for IRAs
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<PAGE>
established as "Individual Retirement Annuities" under Section 408(b) of the
Code. Sale of the Contracts for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contracts for such purposes will be provided with such supplementary information
as may be required by the Internal Revenue Service or other appropriate agency,
and will have the right to revoke the Contract under certain circumstances as
described in the section of this Prospectus entitled "Right to Return Contract."
TEXAS OPTIONAL RETIREMENT PROGRAM
Under the terms of the Optional Retirement Program, if a participant makes
the required contribution, the State of Texas will contribute a specified amount
to the participant's retirement account. If a participant does not commence the
second year of participation in the plan as a "faculty member" as defined in
Title 110B of the State of Texas Statutes, the Company will return the state's
contribution. If a participant does begin a second year of participation, the
employer's first year contributions will then be applied as a Purchase Payment
under the Qualified Contract, as will the employer's subsequent contributions.
The Attorney General of the State of Texas has ruled that under
Title 110B of the State of Texas Statutes, withdrawal benefits of contracts
issued under the Optional Retirement Program are available only in the event of
a participant's death, retirement, termination of employment due to total
disability, or other termination of employment in a Texas public institution of
higher education. A participant will not, therefore, be entitled to exercise the
right of withdrawal in order to receive the cash values credited to such
participant under the Qualified Contract unless one of the foregoing conditions
has been satisfied. The value of such Qualified Contracts may, however, be
transferred to other contracts or other carriers during the period of
participation in the Program.
ADMINISTRATION OF THE CONTRACTS
We perform certain administrative functions relating to the Contracts,
Participant Accounts, and the Variable Account. These functions include, but are
not limited to, maintaining the books and records of the Variable Account and
the Sub-Accounts; maintaining records of the name, address, taxpayer
identification number, Contract number, Participant Account number and type, the
status of each Participant Account and other pertinent information necessary to
the administration and operation of the Contracts; processing Contract
applications, Participant Enrollment Forms, Purchase Payments, transfers and
full and partial withdrawals; issuing Contracts and Certificates; administering
annuity payments; furnishing accounting and valuation services; reconciling and
depositing cash receipts; providing confirmations; providing toll-free customer
service lines; and furnishing telephonic transfer services.
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are sold by
licensed insurance agents in those states where the Contracts may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the general distributor, Clarendon
Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481. Clarendon, a wholly-owned subsidiary of the Company,
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. Clarendon also acts as the general distributor of other individual and
group combination fixed/variable annuity contracts issued by the Company and its
wholly-owned subsidiary, Sun Life Insurance and Annuity Company of New York, and
variable life insurance contracts issued by the Company.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 5.5% of Purchase
Payments. During 1997, 1998 and 1999, approximately $312,588, $189,326 and
$ , respectively, was paid to and retained by Clarendon in connection with
the distribution of the Contracts.
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AVAILABLE INFORMATION
The Company and the Variable Account have filed with the SEC registration
statements under the Securities Act of 1933 relating to the Contracts. This
Prospectus does not contain all of the information contained in the registration
statements and their exhibits. For further information regarding the Variable
Account, the Company and the Contracts, please refer to the registration
statements and their exhibits.
In addition, the Company is subject to the informational requirements of
the Securities Exchange Act of 1934. We file reports and other information with
the SEC to meet these requirements. You can inspect and copy this information
and our registration statements at the SEC's public reference facilities at the
following locations: WASHINGTON, D.C. 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; CHICAGO, ILLINOIS 500 West Madison Street, Chicago, IL
60661; NEW YORK, NEW YORK 7 World Trade Center, 13th Floor, New York, NY 10048.
The Washington, D.C. office will also provide copies by mail for a fee. You may
also find these materials on the SEC's website (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1999 filed with the SEC is incorporated by reference in this Prospectus. Any
statement contained in a document we incorporate by reference is deemed modified
or superceded to the extent that a later filed document, including this
Prospectus, shall modify or supercede that statement. Any statement so modified
or superceded shall not be deemed, except as so modified or superceded, to
constitute part of this Prospectus.
The Company will furnish, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of the document referred to above which has been incorporated by reference
in this Prospectus, other than exhibits to such document (unless such exhibits
are specifically incorporated by reference in this Prospectus). Requests for
such document should be directed to the Secretary, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481, telephone (800) 225-3950.
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ADDITIONAL INFORMATION ABOUT THE COMPANY
GENERAL
The Company is engaged in the sale of individual variable life insurance
and individual and group fixed and variable annuities. These contracts are sold
in both the tax-qualified and non-tax-qualified markets. These products are
distributed through individual insurance agents, insurance brokers and
broker-dealers.
The following table sets forth premiums and deposits by major product
categories for each of the last 3 years. See the Notes to the Statutory
Financial Statements of the Company included in this Prospectus for industry
segment information.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN $ THOUSANDS)
<S> <C> <C> <C>
Protection $ 16,509 $ 155,907 $ 204,671
Wealth Management $2,651,247 $2,194,895 $2,204,693
---------- ---------- ----------
$2,667,756 $2,350,802 $2,409,364
========== ========== ==========
</TABLE>
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the Statutory Financial Statements and the Notes thereto
included in this Prospectus beginning on page .
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN $ THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits
and other revenue $ 2,869,250 $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901
Net investment income and
realized gains 190,844 187,208 298,121 310,172 315,966
----------- ----------- ----------- ----------- -----------
3,060,094 2,768,671 2,921,750 2,525,494 2,199,867
----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 2,706,121 2,416,950 2,579,104 2,232,528 1,995,208
Other expenses 239,136 214,607 206,065 175,342 150,937
----------- ----------- ----------- ----------- -----------
2,945,257 2,631,557 2,785,169 2,407,870 2,146,145
----------- ----------- ----------- ----------- -----------
Operating gain 114,837 137,114 136,581 117,624 53,722
Federal income tax expense
(benefit) 24,479 11,713 7,339 (5,400) 17,807
----------- ----------- ----------- ----------- -----------
Net income $ 90,358 $ 125,401 $ 129,242 $ 123,024 $ 35,915
=========== =========== =========== =========== ===========
Assets $19,948,155 $16,902,621 $15,925,357 $13,621,952 $12,359,683
=========== =========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 315,000 $ 650,000
=========== =========== =========== =========== ===========
</TABLE>
See "Reinsurance," below, for the effect of the reinsurance agreements on 1999
net income.
See Note 1 to the Statutory Financial Statements for changes in accounting
principles and reporting.
See discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY STATEMENT
This Prospectus includes forward-looking statements by the Company under
the Private Securities Litigation Reform Act of 1995. These statements are not
matters of historical fact; they relate to such topics as future product sales,
volume growth, market share, market risk and financial goals. It is important to
understand that these forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those that the statements anticipate. These risks and uncertainties may concern,
among other things:
- Heightened competition, particularly in terms of price, product features,
and distribution capability, which could constrain the Company's growth
and profitability.
- Changes in interest rates and market conditions.
- Regulatory and legislative developments.
- Developments in consumer preferences and behavior patterns.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998:
NET INCOME
Net income decreased by $35.0 million to $90.4 million in 1999, reflecting
a decrease of $54.7 million in income from operations and an increase of
$19.7 million in net realized capital gains. (In the following discussion,
"income from operations" refers to the statutory statements of operations line
item, "net gain from operations after dividends to policyholders and federal
income tax and before realized capital gains.")
Income from operations decreased from $125.0 million in 1998 to
$70.3 million in 1999, mainly as a result of the following factors:
- A $32.3 million increase, to $63.7 million in 1999, in the income from
operations from the Company's Wealth Management segment. (See "1999
Compared to 1998 -- Wealth Management Segment," below.)
- The effect of terminating certain reinsurance agreements with the
Company's ultimate parent in 1998. The termination of these agreements was
the predominant factor in the $94.2 million decrease in income from
operations for the Company's Protection segment. (See "1999 Compared to
1998 -- Protection Segment," below.)
- An increase of $7.2 million in income from operations from the Corporate
segment, mainly reflecting dividends from a subsidiary. (See "1999
Compared to 1998 -- Corporate Segment," below.)
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its 3
business segments: the Wealth Management segment, the Protection segment and the
Corporate segment.
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The following table provides a summary of income from operations by
segment, which is discussed more fully below.
INCOME FROM OPERATIONS BY SEGMENT*
($ IN MILLIONS)
<TABLE>
<CAPTION>
% CHANGE
---------------------
1999 1998 1997 1999/1998 1998/1997
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Wealth Management 63.7 31.4 14.7 102.9% 113.6%
Protection (5.1) 89.1 18.0 (105.7)% 395.0%
Corporate 11.7 4.5 69.8 160.0% (93.6)%
---- ----- ----- ------ -----
70.3 125.0 102.5 (43.8)% 22.0%
==== ===== ===== ====== =====
</TABLE>
* Before net realized capital gains
WEALTH MANAGEMENT SEGMENT
The Wealth Management segment focuses on the savings and retirement needs
of individuals preparing for retirement or who have already retired. It
primarily markets to upscale consumers in the U.S., selling individual and group
fixed and variable annuities. Its major product lines, "Regatta" and "Futurity,"
are combination fixed/variable annuities. In these combination annuities,
contract holders have the choice of allocating payments either to a fixed
account, which provides a guaranteed rate of return, or to variable accounts.
Withdrawals from the fixed account are subject to market value adjustment. In
the variable accounts, the contract holder can choose from a range of investment
options and styles. The return depends upon investment performance of the
options selected. Investment funds available under Regatta products are managed
by Massachusetts Financial Services Company ("MFS"), an affiliate of the
Company. Investment funds available under Futurity products are managed by
several investment managers, including MFS and Sun Capital Advisers, Inc., a
subsidiary of the Company.
The Company distributes its annuity products through a variety of
channels. For the Regatta products, about half are sold through securities
brokers; a further one-fourth through financial institutions, and the remainder
through insurance agents and financial planners. The Futurity products,
introduced in February 1998, are primarily distributed through a dedicated
wholesaler network, including Sun Life of Canada (U.S.) Distributors, Inc., a
subsidiary of the Company.
Although new pension products are not currently sold, there has been a
substantial block of group retirement business in-force, including guaranteed
investment contracts ("GICs"), pension plans and group annuities. A significant
portion of these pension contracts are non-surrenderable, with the result that
the Company's liquidity exposure is limited. GICs were marketed directly in the
U.S. through independent managers. In 1997, the Company decided to no longer
market group pension and GIC products.
Following are the major factors affecting this segment's results in 1999
as compared to 1998.
- - Deposit-type funds, which primarily comprised annuity deposits, increased by
$457.7 million, or 21%, to $2,598.3 million in 1999. Fixed annuity account
deposits were higher by approximately $625 million in 1999, which management
believes is mainly a result of the success of the Company's introduction,
during the fourth quarter of 1998, of a higher Dollar Cost Averaging ("DCA")
rate and a new 6-month DCA program. Under these programs, which were
redesigned in late 1996, deposits are made into the fixed portion of the
annuity contract and receive a bonus rate of interest for the policy year.
During the year, the fixed deposit is systematically transferred to the
variable portion of the contract in equal periodic installments. While fixed
annuity account deposits increased, deposits directly into variable accounts
declined by approximately 13% in 1999. The Company believes this decline was a
consequence of the heightened interest in the DCA programs in 1999.
Sales of the Futurity line of products, introduced in February 1998,
represented approximately 9% of total annuity deposits in 1999. The Company
expects that sales of the Futurity products will continue to increase in the
future, based on management's beliefs that market demand is growing for multi-
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manager variable annuity products, such as Futurity; that the productivity of
Futurity's wholesale distribution network, established in 1998, will continue
to grow; and that the marketplace will respond favorably to introductions of
new Futurity products and product enhancements.
- - Fee income increased as a result of higher variable annuity account balances.
Fee income was higher by approximately $32 million in 1999. The factors
driving this growth in account balances have been market appreciation and net
deposit activity. This growth has generated corresponding increases in fee
income, since fees are determined based on the average assets held in these
accounts. Other income increased by approximately $5 million in 1999, mainly
reflecting a reinsurance agreement entered into in July 1999 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 $3.4 million.
- - The net year-over-year change in aggregate reserves on policies and contracts
for the Wealth Management segment had the effect of increasing income from
operations for this segment. This change reflected lower reserves related to
minimum guaranteed death benefit product features as well as a variety of
other factors.
- - There has been a shift in demand to variable account products from general
account products. As a consequence, there has been a decline in average
general account invested assets and, in turn, net investment income has
declined. Net investment income reflects only income earned on invested assets
of the general account. In 1999, net investment income for the Wealth
Management segment decreased by $44.0 million, to $114.0 million. This decline
in average general account assets primarily reflects the Company's decision in
1997 to no longer market group pension and GIC products and as a consequence,
a declining block of in-force business as GICs mature and are surrendered.
- - Policyholder benefits (the major elements of which are surrenders and
withdrawals, changes in the liability for premium and other deposit funds, and
related separate account transfers) were higher by approximately $430 million
in 1999, mainly as a result of higher variable annuity surrenders. The
increase in variable annuity surrenders primarily related to a block of
separate account contracts that had been issued seven or more years previously
and for which the surrender charge periods had expired. The Company expects
that as the separate account block of business continues to grow and as an
increasing number of accounts are no longer subject to surrender charges,
surrenders will tend to increase. The Company is implementing a conservation
program with the aim of improving asset retention.
- - Operational expenses, which include general insurance expenses and insurance
taxes, licenses and fees, excluding federal income taxes, increased by
$5.4 million, or 9%, in 1999. This increase reflected costs associated with
operations and technology improvements to support the growth of the Company's
in-force business. Commissions of $153.6 million were higher by $17.7 million
in 1999, mainly as a result of higher sales.
PROTECTION SEGMENT
The Protection Segment comprises two main elements, internal reinsurance
and variable life products.
INTERNAL REINSURANCE
In recent years, the Company has had various reinsurance agreements with
Sun Life (Canada). In some of these arrangements, Sun Life (Canada) has
reinsured the mortality risks of individual life policies sold in prior years by
the Company. These agreements, in the aggregate, had an immaterial effect on net
income in the years 1998 and 1999. Under another reinsurance agreement, which
became effective January 1, 1991 and terminated October 1, 1998, the Company
reinsured certain individual life insurance contracts issued by Sun Life
(Canada). This agreement had the effect of increasing income from operations by
$24.6 million in 1998. In addition, the effect of terminating this agreement was
to further increase 1998 net income by $65.7 million as the termination payment
was less than the
37
<PAGE>
reserves held under the agreement. Because this agreement terminated in 1998, it
had no effect on income from operations in 1999.
VARIABLE LIFE PRODUCTS
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997. The Company's
management expects that the Company's variable life business will grow and
become more significant in the future. In September 1999, the Company introduced
a new variable universal life product as part of the Futurity product portfolio.
Costs related to developing this product were primarily responsible for the
decrease of approximately $4 million in income from operations for this portion
of the Protection segment.
CORPORATE SEGMENT
The Corporate segment includes the capital of the Company, its investments
in subsidiaries and items not otherwise attributable to either the Wealth
Management segment or the Protection segment.
In 1999, income from operations for this segment increased by
$7.2 million to $11.7 million. This increase reflected higher net investment
income, mainly from dividends of $19.3 million received during the 4th quarter
from a subsidiary, New London Trust, F.S.B. Partially offsetting this change in
net investment income were higher operational expenses and higher federal income
taxes attributable to this segment.
1998 COMPARED TO 1997:
NET INCOME
Net income decreased by $3.8 million to $125.4 million in 1998, reflecting
an increase of $22.5 million in income from operations and a decrease of
$26.3 million in net realized capital gains.
Income from operations increased from $102.5 million in 1997 to
$125.0 million in 1998, mainly as a result of the following factors:
- - A $16.7 million increase, to $31.4 million in 1998, in the income from
operations from the Company's Wealth Management segment. (See "1998 Compared
to 1997 -- Wealth Management Segment," below.)
- - The effect of terminating certain reinsurance agreements with Sun Life
(Canada). The termination of these agreements was the predominant factor in
the $71.1 million increase in income from operations for the Company's
Protection segment.
- - The effects of the Company's December 1997 reorganization (described in
"Corporate Segment," below), as a result of which MFS is no longer a
subsidiary of the Company. As a result of this reorganization, dividends from
subsidiaries were lower in 1998 than in 1997 and certain subsidiary tax
benefits were no longer available to the Company. Also affecting income from
operations for the Corporate segment in 1998 was that income earned on the
proceeds of a December 1997 issuance of a $250 million surplus note was lower
than the related interest expense.
Net realized capital gains decreased from $26.7 million in 1997 to
$0.4 million in 1998. This decrease was also due to the Company's December
1997 reorganization which resulted in a realized capital gain of
$21.2 million in 1997.
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<PAGE>
INCOME FROM OPERATIONS BY SEGMENT
WEALTH MANAGEMENT SEGMENT
Following are the major factors affecting the Wealth Management segment's
results in 1998 as compared to 1997:
- Annuity deposits declined by about $27 million, or 1%, to $2.2 billion in
1998. Fixed annuity account deposits were lower by approximately 7% in
1998, while deposits into variable annuity accounts increased in total and
as a proportion of total annuity deposits. These trends reflected market
conditions and competitive factors.
Deposits into the DCA programs, a feature of the Company's combination
fixed/variable annuity products, were a significant element of account
deposits. Under these programs, which were redesigned in late 1996,
deposits are made into the fixed portion of the annuity contract and
receive a bonus rate of interest for the policy year. During the year, the
fixed deposit is systematically transferred to the variable portion of the
contract in equal periodic installments. DCA deposits overall were flat in
1998 compared to 1997. This pattern resulted, in part, from heightened
competition, as other companies introduced similar DCA programs within in
1998. During the fourth quarter of 1998, the Company introduced a higher
DCA rate and a new six-month DCA program. DCA deposits for that quarter
were higher, compared to the preceding 1998 quarters.
An increase in variable account deposits in 1998 reflected both the
continuing strong growth in equity markets generally and the continuing
strong performance of the investment funds underlying the Company's
variable annuity products. The continuing strong equity markets, low
interest rate environment, and demographic trends, among other factors,
increased the demand and market for wealth accumulation products in the
U.S., particularly for variable annuities. These factors contributed to the
growth in the Company's variable account deposits in 1998, despite
heightened competition.
The Company introduced its Futurity line of products in February 1998.
Related deposits represented about 6% of the total for the Wealth
Management segment in 1998.
- Fee income increased as a result of higher variable annuity account
balances. The main factors driving this growth in account balances were
market appreciation and net deposit activity. This growth generated
corresponding increases in fee income, since fees are determined based on
the average assets held in these accounts. Fee income increased by
approximately $43 million, or 39%, in 1998.
- Because there was a shift to variable accounts from the general account,
net investment income declined. Net investment income reflects only income
earned on invested assets of the general account. In 1998, net investment
income for the Wealth Management segment decreased by about $40 million,
or 20%, compared to 1997, mainly as a result of the decline in average
invested assets in the Company's general account. This decline in average
general account assets mainly reflected the shift in deposits in recent
years from the fixed account to variable accounts. It also reflected the
Company's decision in 1997 to no longer market group pension and GICs.
- Policyholder benefits were lower, mainly reflecting lower surrender
activity compared to 1997. During 1997 and into the first half of 1998,
surrender and withdrawal activity had been high. This activity primarily
related to a block of separate account contracts that had been issued 7 or
more years previously and for which the surrender charge periods had
expired. While variable account surrenders continued to rise, general
account surrenders declined in 1998. As a result of this pattern of
activity, policyholder benefits (of which surrenders and withdrawals, the
related changes in the liability for premium and other deposit funds, and
related separate account transfers are the major elements) increased in
1997 and were lower in 1998.
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<PAGE>
- As a result of investments in technology and infrastructure to enhance
annuity operations, operational expenses increased by approximately $12
million, or 25%, in 1998 compared to 1997. These increases reflected 3
main factors:
- Higher volumes of annuity business, requiring greater administrative
support.
- Improvements to the computer systems and technology that support the
annuity business. These improvements involved information systems
supporting the growth of the Company's in-force business, particularly
its combination fixed/variable annuities.
- Costs associated with the product design and implementation of the new
Futurity multi-manager annuity product and the development of a new
product within the Regatta product line.
PROTECTION SEGMENT
The reinsurance arrangements in which Sun Life (Canada) has reinsured the
mortality risks of individual life policies sold in prior years by the Company
had an immaterial effect, in the aggregate, on net income in 1997 and 1998.
Under another agreement, which became effective January 1, 1991 and terminated
October 1, 1998, the Company reinsured certain individual life insurance
contracts issued by Sun Life (Canada). This agreement had the effect of
increasing income from operations by $37.1 million in 1997. Income from
operations decreased to $24.6 million in 1998, because the agreement was in
place only through the first 9 months of 1998. In addition, the effect of
terminating this agreement was to further increase 1998 net income by $65.7
million. This termination-related increase in 1998 represented a reasonable
approximation of the value of the stream of future earnings that the agreement
would have generated had it remained in effect.
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997.
CORPORATE SEGMENT
In 1998, income from operations decreased by $65.3 million to
$4.5 million for the Corporate segment. This decrease reflected 2 main factors:
- Dividends from subsidiaries were lower than in 1997 by $37.5 million. This
decrease mainly resulted from a December 1997 reorganization, in which the
Company transferred its ownership of MFS to its parent company, Sun Life
of Canada (U.S.) Holdings, Inc. ("Sun Life (U.S.) Holdings.") As a result
of this reorganization, the Company received no dividends from MFS in
1998. By comparison, it received $33.1 million of MFS dividends in 1997.
- Net investment income, other than dividends from subsidiaries, decreased
by $5.9 million in 1998 over 1997, reflecting the effect of the Company's
December 1997 issuance of a $250 million surplus note to Sun Life (U.S.)
Holdings. Interest expense exceeded investment earnings on the related
funds.
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts and their assets are of 2 main types:
- Those assets held in a "fixed" separate account, which the Company
established for amounts that contract holders allocate to the fixed
portion of their combination fixed/variable deferred annuity contracts.
Fixed separate account assets are available to fund general account
liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The
40
<PAGE>
Company manages the assets of this fixed separate account according to
general account investment policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
separate accounts as investment vehicles for the Company's variable life
and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their
individual needs and preferences. Policyholders assume the investment
risks associated with these choices. General account and fixed separate
account assets are not available to fund the liabilities of these variable
accounts.
The following table summarizes significant changes in asset balances
during 1999, 1998 and 1997. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS % CHANGE
1999 1998 1997 1999/1998 1998/1997
--------- --------- --------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General account assets.................. $ 2,377.1 $ 2,932.2 $ 4,513.5 (18.9)% (35.0)%
Fixed separate account assets........... 2,080.7 2,195.6 2,343.9 (5.2)% (6.3)%
--------- --------- --------- ----- -----
$ 4,457.8 $ 5,127.8 $ 6,857.4 (13.1)% (25.2)%
Variable separate account assets........ 15,490.3 11,774.8 9,068.0 31.6% 29.9%
--------- --------- --------- ----- -----
Total assets............................ $19,948.1 $16,902.6 $15,925.4 18.0% 6.1%
========= ========= ========= ===== =====
</TABLE>
General account and fixed separate account assets, taken together,
decreased by 13.2% in 1999; but variable separate account assets increased by
31.6%. In 1998, the combined general account and fixed separate account
decreased by 25.2%, while variable separate account assets increased by 29.9%.
This growth in variable accounts relative to the general and fixed accounts
reflects 2 main factors: (1) appreciation of the funds held in the variable
separate accounts has exceeded that of the funds held in the general and fixed
separate accounts; and (2) annuity deposits and exchanges into variable accounts
have increased, while annuity deposits into fixed accounts have slowed. The
Company believes this pattern has reflected a shift in the preferences of
policyholders, which is largely attributable to the strong performance of equity
markets in general and of the Company's variable account funds in particular.
The assets of the general account are available to support general account
liabilities. For management purposes, it is the Company's practice to segment
its general account to facilitate the matching of assets and liabilities.
General account assets primarily comprise cash and invested assets, which
represented essentially all of general account assets at year-end 1999. Major
types of invested asset holdings included bonds, mortgages, real estate and
common stock. The Company's bond holdings comprised 51.5% of the Company's
portfolio at year-end 1999. Bonds included both public and private issues. It is
the Company's policy to acquire only investment-grade securities. As a result,
the overall quality of the bond portfolio is high. At year-end 1999, only 0.5%
were rated below-investment-grade; i.e., they had National Association of
Insurance Commissioners ("NAIC") ratings lower than "1" or "2." The Company's
mortgage holdings amounted to $528.9 million at year-end 1999, representing
22.3% of the total portfolio. All mortgage holdings at year-end 1999 were in
good standing. The Company believes that the high quality of its mortgage
portfolio is largely attributable to its stringent underwriting standards. At
year-end 1999, investment real estate amounted to $79.2 million, representing
about 3.3% of the total portfolio. The Company invests in real estate to enhance
yields and, because of the long-term nature of these investments, the Company
uses them for purposes of matching with products having long-term liability
durations. Common stock holdings amounted to $75.3 million, representing about
3.2% of the portfolio. These holdings comprised the Company's ownership shares
in subsidiaries.
41
<PAGE>
LIABILITIES
As with assets, the proportion of variable separate account liabilities to
total liabilities has been increasing. Most of the Company's liabilities
comprise reserves for life insurance and for annuity contracts and deposit
funds. The Company expects the declining trend in general account liabilities to
continue, because it believes that net maturities will continue to exceed sales
for the fixed contracts associated with these liabilities. This trend stems
mainly from the Company's 1997 decision to discontinue selling group pension and
GIC contracts and to focus its marketing efforts on its combination
fixed/variable annuity products.
CAPITAL MARKETS RISK MANAGEMENT
See "Quantitative and Qualitative Disclosures About Market Risk," below,
for a discussion of the Company's capital markets risk management.
CAPITAL RESOURCES
CAPITAL ADEQUACY
The National Association of Insurance Commissioners ("NAIC") adopted
regulations at the end of 1993 that established minimum capitalization
requirements for insurance companies, based on risk-based capital ("RBC")
formulas. These requirements are intended to identify undercapitalized
companies, so that specific regulatory actions can be taken on a timely basis.
The RBC formula for life insurance companies calculates capital requirements
related to asset, insurance, interest rate, and business risks. According to the
RBC calculation, the Company's capital was well in excess of its required
capital at year-end 1999.
LIQUIDITY
The Company's liquidity requirements are generally met by funds from
operations. The Company's main uses of funds are to pay out death benefits and
other maturing insurance and annuity contract obligations; to make pay-outs on
contract terminations; to purchase new investments; to fund new business
ventures; and to pay normal operating expenditures and taxes. The Company's main
sources of funds are premiums and deposits on insurance and annuity products;
proceeds from the sale of investments; income from investments; and repayments
of investment principal.
In managing its general account and fixed separate account assets in
relation to its liabilities, the Company has segmented these assets by product
or by groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. Among other matters,
this investment policy considers liquidity requirements and provides cash flow
estimates. The Company reviews these policies quarterly.
The Company's liquidity targets are intended to enable it to meet its
day-to-day cash requirements. On a quarterly basis, the Company compares its
total "liquifiable" assets to its total demand liabilities. Liquifiable assets
comprise cash and assets that could quickly be converted to cash should the need
arise. These assets include short-term investments and other current assets and
investment-grade bonds. The Company's policy is to maintain a liquidity ratio in
excess of 100%, and it did so throughout 1999. Based on its ongoing liquidity
analyses, the Company believes that its available liquidity is more than
sufficient to meet its liquidity needs.
OTHER MATTERS
DEMUTUALIZATION
On January 27, 1998, Sun Life (Canada) announced that its Board of
Directors had requested that management develop a plan to demutualize.
Demutualization would involve converting from a mutual structure, with ownership
by policyholders, to a shareholder-owned company. It would provide that the
ownership interest currently held by policyholders be distributed to them in the
form of shares, without affecting their interests as policyholders. In
June 1999, the Sun Life (Canada)'s Board of
42
<PAGE>
Directors approved the demutualization timetable recommended by management, and
on September 28, 1999, Sun Life (Canada)'s Board of Directors approved the
demutualization plan. On December 6, 1999, Sun Life (Canada) received approval
for its demutualization plan from the Michigan Commissioner of Insurance. At a
Special Meeting on December 15, 1999, eligible policyholders of Sun Life
(Canada) voted in favor of the Company's plans to demutualize. Sun Life (Canada)
completed its demutualization on March 22, 2000 and its Initial Public Offering
("IPO") on March 29, 2000. The demutualization of Sun Life (Canada) is not
expected to have any significant impact on the Company.
SALE OF SUBSIDIARIES
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 $34.0 million and the Company realized a post tax
gain of $4.9 million.
On October 29, 1999, the Company completed the sale of its wholly-owned
subsidiary, New London Trust F.S.B. ("NLT"), for approximately $30.3 million to
an unaffiliated party. The Company realized a post-tax gain of $13.2 million
from this sale. This transaction is not expected to have a significant effect on
the ongoing operations of the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion covers market risks associated with investment portfolios
that support the Company's general account liabilities. This discussion does not
cover market risks associated with those investment portfolios that support
separate account products. For these products, the policyholder, rather than the
Company, assumes these market risks.
GENERAL
The assets of the general account are available to support general account
liabilities. For purposes of managing these assets in relation to these
liabilities, the Company notionally segments these assets by product or by
groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. The policy covers
the segment's liability characteristics and liquidity requirements, provides
cash flow estimates, and sets targets for asset mix, duration, and quality. Each
quarter, investment and business unit managers review these policies to ensure
that the policies remain appropriate, taking into account each segment's
liability characteristics.
TYPES OF MARKET RISKS
The Company's stringent underwriting standards and practices have resulted
in high-quality portfolios and have the effect of limiting credit risk. It is
the Company's policy, for example, not to purchase below-investment-grade
securities. Also, as a matter of investment policy, the Company assumes no
foreign currency or commodity risk; nor does it assume equity price risk except
to the extent that it holds real estate in its portfolios. (At year-end 1999,
investment real estate holdings represented less than 4% of its total general
account portfolio.) The management of interest rate risk exposure is discussed
below.
INTEREST RATE RISK MANAGEMENT
The Company's fixed interest rate liabilities are primarily supported by
well-diversified portfolios of fixed interest investments. They are also
supported by holdings of real estate and floating rate notes. All of these fixed
interest investments are held for other than trading purposes and can include
publicly issued and privately placed bonds and commercial mortgage loans. Public
bonds can include Treasury bonds, corporate bonds, and money market instruments.
The Company's fixed income portfolios also hold securitized assets, including
mortgage-backed securities ("MBS") and asset-backed securities. These securities
are subject to the same standards applied to other portfolio investments,
including relative value criteria and diversification guidelines. In portfolios
backing interest-sensitive liabilities, the Company's policy is to limit MBS
holdings to less than 10% of total portfolio assets. In all portfolios, the
Company restricts MBS investments to pass-through securities issued by U.S.
government agencies
43
<PAGE>
and to collateralized mortgage obligations, which are expected to exhibit
relatively low volatility. The Company does not engage in lever-aged
transactions and it does not invest in the more speculative forms of these
instruments such as the interest-only, principal-only, inverse floater, or
residual tranches.
Changes in the level of domestic interest rates affect the market value of
fixed interest assets and liabilities. Segments whose liabilities mainly arise
from the sale of products containing interest rate guarantees for certain terms
are sensitive to changes in interest rates. In these segments, the Company uses
"immunization" strategies, which are specifically designed to minimize the loss
from wide fluctuations in interest rates. The Company supports these strategies
using analytical and modeling software acquired from outside vendors.
Significant features of the Company's immunization models include:
- an economic or market value basis for both assets and liabilities;
- an option pricing methodology;
- the use of effective duration and convexity to measure interest rate
sensitivity;
- the use of key rate durations to estimate interest rate exposure at
different parts of the yield curve and to estimate the exposure to
non-parallel shifts in the yield curve.
The Company's Interest Rate Risk Committee meets monthly. After reviewing
duration analyses, market conditions and forecasts, the Committee develops
specific asset management strategies for the interest-sensitive portfolios.
These strategies may involve managing to achieve small intentional mismatches,
either in terms of total effective duration or for certain key rate durations,
between the liabilities and related assets of particular segments. The Company
manages these mismatches to a tolerance range of plus or minus 0.5.
Asset strategies may include the use of Treasury futures or interest rate
swaps to adjust the duration profiles for particular portfolios. All derivative
transactions are conducted under written operating guidelines and are marked to
market. Total positions and exposures are reported to the Board of Directors on
a monthly basis. The counterparties to hedging transactions are major highly
rated financial institutions, with respect to which the risk of the Company's
incurring losses related to credit exposures is considered remote.
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1999 had a fair value of $1,024.6 million. Fixed
income investments supporting those liabilities had a fair value of $2,072.1
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1999. The analysis
showed that if there were an immediate increase of 100 basis points in interest
rates, the fair value of the liabilities would show a net decrease of $30.6
million and the corresponding assets would show a net decrease of $80.5 million.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1998 had a fair value of
$1,538.3 million. Fixed income investments supporting those liabilities had a
fair value of $2,710.1 million at that date. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31,
1998. The analysis showed that if there were an immediate increase of 100 basis
points in interest rates, the fair value of the liabilities would show a net
decrease of $46.3 million and the corresponding assets would show a net decrease
of $113.2 million.
The Company produced these estimates using computer models. Since these
models reflect assumptions about the future, they contain an element of
uncertainty. For example, the models contain assumptions about future
policyholder behavior and asset cash flows. Actual policyholder behavior and
asset cash flows could differ from what the models show. As a result, the
models' estimates of duration and market values may not reflect what actually
will occur. The models are further limited by the fact that they do not provide
for the possibility that management action could be taken to mitigate adverse
results. The Company believes that this limitation is one of conservatism; that
is, it will tend to cause
44
<PAGE>
the models to produce estimates that are generally worse than one might actually
expect, all other things being equal.
Based on its processes for analyzing and managing interest rate risk, the
Company believes its exposure to interest rate changes will not materially
affect its near-term financial position, results of operations, or cash flows.
REINSURANCE
The Company has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) 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
in 1999 had the effect of decreasing net income from operations by approximately
$1,527,000.
Effective January 1, 1991, the Company entered into an agreement with Sun
Life (Canada) under which certain individual life insurance contracts issued by
Sun Life (Canada) were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with Sun Life
(Canada) which provides that Sun Life (Canada) will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. Such death
benefits are reinsured on a yearly renewable term basis. The life reinsurance
assumed agreement requires 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 for the year ended December 31, 1998.
The Company terminated these agreements effective October 1, 1998, resulting in
an increase in income from operations in 1998 of $65,679,000 which included a
cash settlement.
The Company has also executed reinsurance agreements with unrelated
companies which provide reinsurance of certain individual life insurance
contracts on a modified coinsurance basis under which all deficiency reserves
are ceded. Reinsurance transactions under this agreement had the effect of
increasing income from operations by $193,000 in 1999.
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.
RESERVES
In accordance with the life insurance laws and regulations under which the
Company operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements, these reserves are determined in accordance with statutory
regulations.
INVESTMENTS
Of the Company's total assets of $19.9 billion at December 31, 1999, 88.1%
($17.6 billion) consisted of unitized and non-unitized separate account assets,
6.1% ($1.2 billion) was invested in bonds and similar securities, 2.7%
($528 million) was invested in mortgages, 0.4% ($75.3 million) was invested in
subsidiaries, 0.4% ($94.8 million) was invested in real estate, and the
remaining 2.3% ($456.1 million) was invested in cash and other assets.
45
<PAGE>
COMPETITION
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. According to a 1999 statistical study published by
A.M. Best, the Company ranked 36th among North American life insurance companies
based upon total assets as of December 31, 1998.
EMPLOYEES
The Company and Sun Life (Canada) have entered into a service agreement
which provides that the latter will furnish the Company, as required, with
personnel as well as certain services and facilities on a cost reimbursement
basis. As of March 31, 2000, the Company had direct employees who are
employed at its Principal Executive Office in Wellesley Hills, Massachusetts and
at its Retirement Products and Services Division in Boston, Massachusetts.
PROPERTIES
The Company occupies office space owned by it and leased to Sun Life
(Canada), and certain unrelated parties for lease terms not exceeding 5 years.
The Company also occupies office space which it leases from unaffiliated parties
for various lease terms.
STATE REGULATION
The Company is subject to the laws of the State of Delaware governing life
insurance companies and to regulation by the Commissioner of Insurance of
Delaware. An annual statement is filed with the Commissioner of Insurance on or
before March lst in each year relating to the operations of the Company for the
preceding year and its financial condition on December 31st of such year. Its
books and records are subject to review or examination by the Commissioner or
his agents at any time and a full examination of its operations is conducted at
periodic intervals.
The Company is also subject to the insurance laws and regulations of the
other states and jurisdictions in which it is licensed to operate. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business, overseeing
trade practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the fire jurisdictions in
which it does business and its operations and accounts are subject to
examination by such agencies at regular intervals.
In addition, many states regulate affiliated groups of insurers, such as
the Company, Sun Life (Canada) and its affiliates, under insurance holding
company legislation. Under such laws, inter-company transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in relation to
the financial positions of the companies involved. Under insurance guaranty fund
laws in most states, insurers doing business therein can be assessed (up to
prescribed limits) for policyholder losses incurred by insolvent companies. The
amount of any future assessments of the Company under these laws cannot be
reasonably estimated. However, most of these laws do provide that an assessment
may be excused or deferred if it would threaten an insurer's own financial
strength and many permit the deduction of all or a portion of any such
assessment from any future premium or similar taxes payable.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies, the tax treatment
of insurance products and its impact on the relative desirability of various
personal investment vehicles.
46
<PAGE>
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. We
and our subsidiaries are engaged in various kinds of routine litigation which,
in management's judgment, is not of material importance to our respective total
assets or material with respect to the Variable Account.
ACCOUNTANTS
The financial statements of the Variable Account for the year ended
December 31, 1999 included in the Statement of Additional Information and the
statutory financial statements of the Company for the years ended December 31,
1999, 1998 and 1997 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this
Prospectus should be considered only as bearing on the ability of the Company to
meet its obligations with respect to amounts allocated to the Fixed Account and
with respect to the death benefit and the Company's assumption of the mortality
and expense risks. They should not be considered as bearing on the investment
performance of the Fund shares held in the Sub-Accounts of the Variable Account.
The financial statements of the Variable Account for the year ended
December 31, 1999 are included in the Statement of Additional Information.
47
<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.
48
<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.
49
<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.
50
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF 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.
51
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF 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.
52
<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.
53
<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.
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (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.
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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>
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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>
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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>
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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>
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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>
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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.
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 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
69
<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.
70
<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
Boston, Massachusetts
February 10, 2000
71
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Calculations
Example of Variable Accumulation Unit Value Calculation
Example of Variable Annuity Unit Calculation
Example of Variable Annuity Payment Calculation
Distribution of the Contracts
Designation and Change of Beneficiary
Custodian
Financial Statements
</TABLE>
72
<PAGE>
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 or (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 G Combination Fixed/Variable Group Annuity
Sun Life of Canada (U.S.) Variable Account D.
<TABLE>
<S> <C> <C> <C> <C> <C>
Name
-----------------------------------------------------------------
Address
-----------------------------------------------------------------
-----------------------------------------------------------------
City State Zip
---------------------------- -------------- -------
Telephone
-----------------------------------------------------------------
</TABLE>
73
<PAGE>
APPENDIX A
GLOSSARY
The following terms as used in this Prospectus have the indicated
meanings:
ACCOUNT or PARTICIPANT ACCOUNT: An account established for each
Participant to which Net Purchase Payments are credited.
ACCOUNT VALUE: The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of your Account for any Valuation Period.
ACCOUNT YEAR and ACCOUNT ANNIVERSARY: Your first Account Year is the
period of (a) 12 full calendar months plus (b) the part of the calendar month in
which we issue your Certificate (if not on the first day of the month),
beginning with the Contract Date. Your Account Anniversary is the first day
immediately after the end of an Account Year. Each Account Year after the first
is the 12 calendar month period that begins on your Account Anniversary. If, for
example, the Contract Date is in March, the first Account Year will be
determined from the Contract Date but will end on the last day of March in the
following year; your Account Anniversary is April 1 and all Account Years after
the first will be measured from April 1.
ACCUMULATION ACCOUNT: An account established for the Contract.
ACCUMULATION PHASE: The period before the Annuity Commencement Date and
during the lifetime of the Annuitant during which you Purchase Payments are made
under the Contract. This is called the "Accumulation Period" in the Contract.
*ANNUITANT: The Participant.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Certificate is to be made.
*ANNUITY OPTION: The method chosen for making annuity payments.
ANNUITY UNIT: A unit of measure used in the calculation of the amount of
the second and each subsequent variable annuity payment from the Variable
Account.
APPLICATION: The document signed by the Owner or other evidence acceptable
to us that serves as the Owner's application for the Contract.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit and, for Non-Qualified Contracts,
who, in the event of the Participant's death, is the "designated beneficiary"
for purposes of Section 72(s) of the Internal Revenue Code. After the Annuity
Commencement Date, the person or entity having the right to receive any payments
due under the Annuity Option elected, if applicable, upon the death of the
Payee.
BUSINESS DAY: Any day the New York Stock Exchange is open for trading or
any other day on which there is enough trading in securities held by a
Sub-Account to materially affect the value of the Variable Accumulation Units.
CERTIFICATE: The document for each Participant which evidences the
coverage of the Participant under the Contract.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT DATE: The date on which we issue your Certificate. This is called
the "Date of Coverage" in the Contract.
CURRENT RATE: As of a particular date, the interest rate for a Guarantee
Period that would be credited on a compound annual basis on Payments allocated
to the Fixed Account on that date. We determine the Current rate from time to
time but it will never be less than 4%.
* These items are specified in the Participant Enrollment Form, and may be
changed as we describe in this Prospectus.
74
<PAGE>
DEATH BENEFIT DATE: If the Owner has elected a death benefit payment
option before your death that remains in effect, the date on which we receive
Due Proof of Death. If the Beneficiary is not living on the date of your death,
the date on which we receive Due Proof of Death of you and the Beneficiary. If
your Beneficiary elects the death benefit payment option, the later of (a) the
date on which we receive the Beneficiary's election and (b) the date on which we
receive Due Proof of Death. If we do not receive the Beneficiary's election
within 60 days after we receive Due Proof of Death, the Death Benefit Date will
be the last day of the 60 day period and we will pay the death benefit in cash.
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 the
Company.
EXPIRATION DATE: The last day of any Guarantee Period.
FIXED ACCOUNT: The general account of the Company, consisting of all
assets of the Company other than those allocated to a separate account of the
Company.
FIXED ACCOUNT VALUE: The value of that portion of your Account allocated
to the Fixed Account.
FIXED ACCUMULATION UNIT: A unit of measure used in the calculation of
Fixed Account Value.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited, which may be 1, 3, 5 or 7 years. There are two types of Guarantee
Periods : Initial Guarantee Periods and Subsequent Guarantee Periods.
GUARANTEED INTEREST RATE: The rate of interest we credit on a compound
annual basis during any Initial or Subsequent Guarantee Period.
INCOME PHASE: The period on and after the Annuity Commencement Date and
during the lifetime of the Annuitant during which we make annuity payments under
the Contract.
NET LOAN INTEREST: Loan interest payable to us, less any interest credited
by us on amounts in the loan account established for the loan.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan that does not receive favorable federal income tax treatment under Sections
401, 403, or 408 of the Internal Revenue Code.
*OWNER: The employer, association or other group entitled to the ownership
rights stated in the Contract and in whose name or names the Contract is issued.
The Owner may designate a trustee or custodian of a retirement plan which meets
the requirements of Section 401, Section 408(c), or Section 408(k) of the
Internal Revenue Code to serve as legal owner of assets of a retirement plan,
but the term "Owner," as used herein, shall refer to the organization entering
into the Contract.
PARTICIPANT: The person named in the Certificate who is entitled to
benefits under the plan as determined and reported to the Company by the Owner.
PARTICIPANT ENROLLMENT FORM: The document signed by you that serves as
your application for participation under the Contract.
PAYEE: A recipient of payments under a Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Participant.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by a Contract.
* These items are specified in the Participant Enrollment Form, and may be
changed as we describe in this Prospectus.
75
<PAGE>
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which may receive favorable federal income tax treatment under Sections 401,
403, 408(c), 408(k) or 408(p) of the Internal Revenue Code of 1986, as amended.
SERIES FUND: MFS/Sun Life Series Trust.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific Mutual Fund or a specific series of the Series Fund.
VALUATION PERIOD: The period of time from one determination of
Accumulation Unit or Annuity Unit values to the next subsequent determination of
these values. Value determinations are made as of the close of the New York
Stock Exchange on each day that the Exchange is open for trading and [WHEN?] on
other Business Days.
VARIABLE ACCOUNT: Variable Account D of the Company, which is a separate
account of the Company consisting of assets set aside by the Company, the
investment performance of which is kept separate from that of the general assets
of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of
Variable Account Value.
VARIABLE ACCOUNT VALUE: The value of that portion of your Account
allocated to the Variable Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of the Variable Account.
76
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Accounts' financial statements appearing elsewhere in this Prospectus, all of
which has been audited by Deloitte & Touche LLP, independent certified public
accountants.
<TABLE>
<CAPTION>
1997 1998 1999 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MIT MGG
Unit Value: Unit Value:
Beginning of period $33.9934 $44.1981 $53.6738 Beginning of period $21.7932 $21.6012 $22.2095
End of period $44.1981 $53.6738 $57.7053 End of period $21.6012 $22.2095 $21.1751
Units outstanding end Units outstanding end of
of period 668,603 567,275 465,628 period 50,083 35,699 27,807
CAPITAL APPRECIATION
MIG SERIES
Unit Value: Unit Value:
Beginning of period $29.9956 $43.9157 $67.2231 Beginning of period $35.6224 $43.3190 $55.0679
End of period $43.9157 $67.2213 $83.2189 End of period $43.3190 $55.0679 $72.1308
Units outstanding end Units outstanding end of
of period 225,178 165,654 149,986 period 680,351 628,268 582,574
GOVERNMENT SECURITIES
MTR SERIES
Unit Value: Unit Value:
Beginning of period $29.9279 $33.2755 $36.7917 Beginning of period $18.7159 $20.1019 $21.5873
End of period $33.2755 $36.7917 $37.1635 End of period $20.1019 $21.5873 $20.9090
Units outstanding end Units outstanding end of
of period 759,684 628,337 520,185 period 377,706 317,889 244,048
MGO HIGH YIELD SERIES
Unit Value: Unit Value:
Beginning of period $26.5992 $32.3990 $41.3383 Beginning of period $22.0500 $24.6550 $24.4991
End of period $32.3990 $41.3383 $54.2319 End of period $24.6550 $24.4991 $25.8500
Units outstanding end Units outstanding end of
of period 100,623 95,086 91,428 period 161,891 147,334 125,543
MFB MONEY MARKET SERIES
Unit Value: Unit Value:
Beginning of period $19.3773 $21.1171 $21.7979 Beginning of period $15.2586 $15.8347 $16.4256
End of period $21.1171 $21.7979 $21.1036 End of period $15.8347 $16.4256 $16.9810
Units outstanding end Units outstanding end of
of period 86,309 76,030 51,937 period 246,919 254,576 211,856
</TABLE>
77
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
A. FIXED ACCOUNT--3, 5 AND 7 YEAR GUARANTEE PERIODS:
For the purposes of this illustration, the following assumptions have been made:
1. 100% of Purchase Payments have been allocated to the Fixed Account and
the Owner has elected Initial Guarantee Periods of five (5) years.
2. The date of full surrender or partial withdrawal is the last day of the
12th month following the Date of Coverage.
3. The Guarantee Rate being credited on Payments allocated to the five (5)
year Guarantee Period on the date of full surrender or partial withdrawal
is 4.40%.
4. The Account Fee is $25.
PLEASE REFER TO THE TABLE BELOW.
TABLE 1*
<TABLE>
<CAPTION>
1 2 3 4 5 6 7 8
- - - - - - ------------------- -
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 100 4.25% $ 104.25 -- $ 0.00 $ 104.25($79.25) -0.45%
2 100 4.25 103.90 6.00% 4.80 99.10 -0.46
3 100 4.50 103.75 6.00 6.00 97.75 0.31
4 100 4.50 103.38 6.00 6.00 97.38 0.32
5 100 4.70 103.13 6.00 6.00 97.13 0.98
6 100 4.70 102.74 6.00 6.00 96.74 0.99
7 100 4.70 102.35 6.00 6.00 96.35 1.01
8 100 4.50 101.88 6.00 6.00 95.88 0.34
9 100 4.50 101.50 6.00 6.00 95.50 0.35
10 100 4.50 101.13 6.00 6.00 95.13 0.36
11 100 4.50 100.75 6.00 6.00 94.75 0.36
12 100 4.40 100.37 6.00 6.00 94.37 0.00
------ --------- ------ ----------
$1,200 $1,229.11 $64.80 $ 1,164.31
====== ========= ====== ==========
($1,139.31)
<CAPTION>
1 9 10
- ------------------------------ -------------------
<S> <C> <C>
1 -($ 0.47)(-$0.36) $ 103.78($78.89)
2 -(0.46) 98.64
3 0.31 98.06
4 0.31 97.69
5 0.95 98.08
6 0.96 97.70
7 0.98 97.33
8 0.33 96.20
9 0.33 95.83
10 0.34 95.46
11 0.34 95.09
12 0.00 94.37
-------------- ----------
$ 3.92 $ 1,168.23
============== ==========
($4.03) ($1,143.34)
</TABLE>
*See "Explanation of Columns in Table 1."
EXPLANATION OF COLUMNS IN TABLE 1.
COLUMNS 1 AND 2:
Represent Payments and Payment amounts, respectively. Each Payment of $100 was
made on the first (1st) day of each month for one year (12 payments).
COLUMN 3:
Represents the Initial Guarantee Rate being credited to each Payment.
COLUMN 4:
Represents the value of each Payment on the date of full surrender or partial
withdrawal before the imposition of any Withdrawal Charge and Market Value
Adjustment.
COLUMN 5:
Represents the Withdrawal Charge percentage that is applied to each Payment on
the date of full surrender or partial withdrawal.
The percentage is 6% for Payments 2-12 because these Payments have been in the
Account for less than one year. No Withdrawal Charge is imposed on Payment 1
because up to ten percent (10%) of Payments credited to a Participant's Account
may be withdrawn each Account Year without imposition of this charge. In this
example, 10% represents (10% x $1,200) = $120. The 10% amount is applied to the
oldest previously unliquidated Payment, then the next oldest and so forth. This
results in no Withdrawal Charge being imposed on Payment 1 and a Withdrawal
Charge imposed on $80 of
Payment 2.
78
<PAGE>
COLUMN 6:
Represents the amount of Withdrawal Charge imposed on each Payment. It is
calculated by multiplying the Payment in Column 2 by the Withdrawal Charge
percentage in Column 5.
For example, the Withdrawal Charge imposed on Payment 8 = $100 X 6% = $6.00.
The Withdrawal Charge imposed on Payment 2 = ($100 - $20) X 6% = $4.80. The $20
represents the portion of the Payment on which no Withdrawal Charge is imposed
as described under the explanation of Column 5 above.
COLUMN 7:
Represents the value of each Payment in Column 4 on the date of full surrender
or partial withdrawal after the imposition of the Withdrawal Charge in Column 6.
In the case of a full surrender, the Account Fee is deducted from the oldest
unliquidated payment. This deduction is reflected in the Table by the amount in
parentheses beside Column 7, $79.25.
COLUMN 8:
Represents the Market Value Adjustment (MVA) percentage applied to the value of
each Payment on the date of full surrender or partial withdrawal after
imposition of the Withdrawal Charge.
FOR EXAMPLE:
The MVA% applied to Payment 3 = .75 (A - B) X C/12
<TABLE>
<S> <C> <C> <C>
Where A = The Guarantee Rate of the Payment being surrendered (Column
3)
= 4.50%,
B = The Guarantee Rate being credited to Payments allocated to
the five (5) year
Guarantee Period on the date of full surrender or partial
withdrawal
= 4.40% and
C = The number of months remaining in the Guarantee Period of
the Payment being surrendered
= 60 (5 years) - 10
= 50
MVA% = .75 (A - B) X C/12
= .75 (4.50 - 4.40) X 50/12
= .75 (.10) X 50/12
= .31%
</TABLE>
COLUMN 9:
Represents the dollar amount of the MVA. For each Payment, it is determined by
multiplying the value in Column 7 by the MVA percentage in Column 8.
For example, the MVA for Payment 3
<TABLE>
<C> <S> <C> <C>
= Column 7 X Column 9
= $97.75 X .31%
= $0.31
</TABLE>
COLUMN 10:
Represents the values of Payments on the date of full surrender or partial
withdrawal after deducting the Withdrawal Charge and either deducting or adding
the MVA. For any Payment, the amount in Column 10 is determined by adding the
amounts in Columns 7 and 9.
In each of Columns 9 and 10, the amounts in parentheses, -$.36 and $78.89,
respectively, reflect the deduction of the Account Fee, in the case of a full
surrender.
FULL SURRENDER:
The total of Column 10, in parentheses ($1,143.34), reflects the amount of a
full surrender after imposition of Withdrawal Charges, Account Fee and Market
Value Adjustments.
PARTIAL WITHDRAWAL:
The sum of amounts in Column 10 for as many payments as are liquidated reflects
the amount of a partial withdrawal.
79
<PAGE>
For example, if $1,000 of Payments were withdrawn, the amount of the withdrawal
would be the sum of the amounts in Column 10 for Payments 1 through 10 which is
$978.77.
B. VARIABLE ACCOUNT AND FIXED ACCOUNT--1 YEAR GUARANTEE PERIOD (NO MARKET VALUE
ADJUSTMENT APPLICABLE):
For the purposes of this illustration, the following assumptions have been made:
1. Purchase Payments have been allocated to either the Variable Account,
the Fixed Account--one (1) Year Guarantee Period or to a combination of
both.
2. The date of full surrender or partial withdrawal is during the ninth
(9th) Account Year.
PLEASE REFER TO THE TABLE BELOW.
<TABLE>
<CAPTION>
TABLE 2*
1 2 3 4 5 6
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
1 $ 1,000 $1,000 $ 0 0% $ 0
2 1,200 1,200 0 0 0
3 1,400 1,280 120 1 1.20
4 1,600 0 1,600 2 32.00
5 1,800 0 1,800 3 54.00
6 2,000 0 2,000 4 80.00
7 2,000 0 2,000 5 100.00
8 2,000 0 2,000 6 120.00
9 2,000 0 2,000 6 120.00
------- ------ ------- -------
$15,000 $3,480 $11,520 $507.20
======= ====== ======= =======
</TABLE>
* See "Explanation of Columns in Table 2."
EXPLANATION OF COLUMNS IN TABLE 2
COLUMNS 1 AND 2:
Represent Payments and amounts of Payments. Each Payment was made at the
beginning of each Account Year.
COLUMN 3:
Represents the amounts that may be withdrawn without the imposition of
withdrawal charges, as follows:
a) Payments 1 and 2, $1,000 and $1,200, respectively, have been credited to the
Participant's Account for more than seven (7) years.
b) $1,280 of Payment 3 represents 10% of Payments that have been credited to
the Participant's Account for less than seven (7) years. The 10% amount is
applied to the oldest unliquidated Payment, then the next oldest and so
forth.
COLUMN 4:
Represents the amount of each Payment that is subject to a withdrawal charge. It
is determined by subtracting the amount in Column 3 from the Payment in Column
2.
COLUMN 5:
Represents the withdrawal charge percentages imposed on the amounts in Column 4.
COLUMN 6:
Represents the withdrawal charge imposed on each Payment. It is determined by
multiplying the amount in Column 4 by the percentage in Column 5.
For example, the withdrawal charge imposed on Payment 8
<TABLE>
<C> <S>
= Payment 8 Column 4 X Payment 8 Column 5
= $2,000 X 6%
= $120
</TABLE>
80
<PAGE>
FULL SURRENDER:
The total of Column 6, $507.20, represents the total amount of withdrawal
charges imposed on Payments in this illustration.
PARTIAL WITHDRAWAL:
The sum of amounts in Column 6 for as many Payments as are liquidated reflects
the withdrawal charges imposed in the case of a partial withdrawal.
For example, if $7,000 of Payments (Payments 1, 2, 3, 4 and 5) were withdrawn,
the amount of the withdrawal charges imposed would be the sum of amounts in
Column 6 for Payments 1, 2, 3, 4 and 5 which is $87.20.
81
<PAGE>
<TABLE>
<S> <C>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
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
COG-1 5/2000
</TABLE>
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
Attached hereto and made a part hereof is the Statement of
Additional Information dated May 1, 2000.
<PAGE>
May 1, 2000
COMPASS-G
COMBINATION FIXED VARIABLE GROUP ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
TABLE OF CONTENTS
Calculations ............................................................... 2
Example of Variable Accumulation Unit Value Calculation................ 2
Example of Variable Annuity Unit Calculation .......................... 2
Example of Variable Annuity Payment Calculation ....................... 2
Distribution of the Contracts .............................................. 2
Designation and Change of Beneficiary ...................................... 3
Custodian .................................................................. 3
Financial Statements ....................................................... 3
The Statement of Additional Information sets forth information
which may be of interest to prospective purchasers of Compass-G Combination
Fixed/Variable Group 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 D (the "Variable Account") which is
not 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, 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>
-2-
CALCULATIONS
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 was $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 maximum 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).
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 (the Net Investment Factor) X 0.99989255).
0.99989255 is the factor, for a one day valuation period, that neutralizes
the assumed interest rate of four percent (4%) per year used to establish the
Annuity Payment Rates found in the Contract.
EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATIONS:
Suppose that a Participant's Account is credited with 8,756.4321
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 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 14.564572 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).
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are
sold by licensed insurance agents in those states where the Contracts may be
lawfully sold. Such agents will be registered representatives of
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. and who have
entered into distribution agreements with the Company and the general
distributor and principal underwriter of the Contracts, Clarendon Insurance
Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481. Clarendon is a wholly-owned subsidiary of the Company.
Clarendon is registered with the SEC under the Securities Exchange Act of
1934 as broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Clarendon also acts as the general distributor of
certain other annuity contracts issued by the Company and its wholly-owned
subsidiary, Sun Life Insurance and Annuity Company of New York, and variable
life insurance contracts issued by the Company.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 5.5% of Purchase
Payments.
<PAGE>
-3-
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation in the Application will remain in effect
until changed.
Subject to the rights of an irrevocably designated Beneficiary, you
may change or revoke the designation of Beneficiary by filing the change or
revocation with us in the form we require. The change or revocation will not be
binding on us until we receive it. When we receive it, the change or revocation
will be effective as of the date on which it was signed, but the change or
revocation will be without prejudice to us on account of any payment we make or
any action we take before receiving the change or revocation.
Please refer to the terms of your particular retirement plan and any
applicable legislation for any restrictions on the beneficiary designation.
CUSTODIAN
We are the Custodian of the assets of the Variable Account. We
will purchase Series Fund shares at net asset value in connection with
amounts allocated to the Sub-Accounts in accordance with your instructions,
and we will redeem Series 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.
FINANCIAL STATEMENTS
The Financial Statements of Sun Life of Canada (U.S.) Variable
Account D for the year ended December 31, 1999 included in this Statement of
Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
<PAGE>
-4-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENT OF CONDITION
-- December 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C> <C>
Investments in mutual funds: Shares Cost Value
--------- ------------ ------------
Massachusetts Investors Trust
(MIT)*............................... 1,697,160 $ 28,704,601 $ 35,556,867
Massachusetts Investors Growth Stock
Fund (MIG)*.......................... 949,976 13,684,303 19,315,840
MFS Total Return Fund (MTR)*.......... 1,749,395 26,445,364 24,279,987
MFS Growth Opportunities Fund
(MGO)*............................... 332,879 4,959,648 6,349,221
MFS Bond Fund (MFB)*.................. 124,537 1,642,269 1,516,924
MFS Global Governments Fund (MGG)*.... 78,265 843,786 736,693
MFS/Sun Life Series Trust:
Capital Appreciation Series (CAS)... 1,251,355 49,318,393 67,718,018
Government Securities Series
(GSS).............................. 656,963 8,345,165 8,196,928
High Yield Series (HYS)............. 489,217 4,478,219 4,410,862
Money Market Series (MMS)........... 5,374,271 5,374,271 5,374,271
------------ ------------
$143,796,019 $173,455,611
============
LIABILITY:
Payable to sponsor............................................... (7,594)
------------
Net Assets................................................. $173,448,017
============
</TABLE>
NET ASSETS:
<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> <C>
MIT-Level 2................... 465,628 $57.7053 $ 26,391,503 $ 107,209 $ 26,498,712
MIT-Level 3................... 130,779 57.3100 7,385,119 -- 7,385,119
MIT-Level 4................... 39,282 42.5116 1,671,047 -- 1,671,047
MIG-Level 2................... 149,986 83.2189 12,481,832 -- 12,481,832
MIG-Level 3................... 52,563 92.2740 4,847,829 -- 4,847,829
MIG-Level 4................... 41,629 47.7261 1,986,179 -- 1,986,179
MTR-Level 2................... 520,185 37.1635 19,270,520 -- 19,270,520
MTR-Level 3................... 109,723 33.9969 3,715,582 -- 3,715,582
MTR-Level 4................... 49,629 26.0389 1,293,885 -- 1,293,885
MGO-Level 2................... 91,428 54.2319 4,990,759 -- 4,990,759
MGO-Level 3................... 21,491 58.4225 1,260,166 -- 1,260,166
MGO-Level 4................... 2,443 39.0855 98,296 -- 98,296
MFB-Level 2................... 51,937 21.1036 1,127,894 -- 1,127,894
MFB-Level 3................... 16,174 21.4275 361,582 -- 361,582
MFB-Level 4................... 803 17.7753 27,448 -- 27,448
MGG-Level 2................... 27,807 21.1751 588,578 -- 588,578
MGG-Level 3................... 4,822 18.8106 90,879 -- 90,879
MGG-Level 4................... 4,339 13.2346 57,236 -- 57,236
CAS-Level 2................... 582,574 72.1308 42,006,756 183,689 42,190,445
CAS-Level 3................... 102,101 76.9872 7,852,631 3,780 7,856,411
CAS-Level 4................... 234,710 75.3209 17,667,295 -- 17,667,295
GSS-Level 2................... 244,048 20.9090 5,100,752 2,867 5,103,619
GSS-Level 3................... 100,588 20.4157 2,055,873 1,522 2,057,395
GSS-Level 4................... 51,168 20.2049 1,034,035 -- 1,034,035
HYS-Level 2................... 125,543 25.8500 3,245,453 2,597 3,248,050
HYS-Level 3................... 29,465 24.1576 712,263 1,416 713,679
HYS-Level 4................... 18,908 23.7071 449,195 -- 449,195
MMS-Level 2................... 211,856 16.9810 3,590,866 2,500 3,593,366
MMS-Level 3................... 74,923 15.8614 1,186,553 -- 1,186,553
MMS-Level 4................... 38,024 15.6123 594,431 -- 594,431
------------ -------- ------------
Net Assets $173,142,437 $ 305,580 $173,448,017
============ ======== ============
</TABLE>
* Investments are made in Class A shares of the Fund
See notes to financial statements
<PAGE>
-5-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENT OF OPERATIONS
-- Year Ended December 31, 1999
<TABLE>
<CAPTION>
MIT MIG MTR MGO MFB MGG
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............... $ 1,226,792 $1,509,560 $ 2,586,765 $ 589,813 $ 148,468 $ 56,411
Mortality and expense risk charges.... (484,413) (216,603) (362,178) (65,839) (25,053) (14,987)
----------- ----------- ------------ ----------- ----------- -----------
Net investment income (loss)...... $ 742,379 $1,292,957 $ 2,224,587 $ 523,974 $ 123,415 $ 41,424
----------- ----------- ------------ ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $14,561,104 $8,520,345 $ 12,804,508 $1,426,391 $1,287,515 $ 1,092,443
Cost of investments sold............ (10,439,707) (5,721,364) (12,994,319) (1,196,553) (1,363,549) (1,179,952)
----------- ----------- ------------ ----------- ----------- -----------
Net realized gains (losses)....... $ 4,121,397 $2,798,981 $ (189,811) $ 229,838 $ (76,034) $ (87,509)
----------- ----------- ------------ ----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $ 6,852,266 $5,631,537 $ (2,165,377) $1,389,573 $ (125,345) $ (107,093)
Beginning of year................... 9,682,996 3,947,317 (559,144) 606,768 (4,549) (82,136)
----------- ----------- ------------ ----------- ----------- -----------
Change in unrealized appreciation
(depreciation)................... $(2,830,730) $1,684,220 $ (1,606,233) $ 782,805 $ (120,796) $ (24,957)
----------- ----------- ------------ ----------- ----------- -----------
Realized and unrealized gains
(losses)........................... $ 1,290,667 $4,483,201 $ (1,796,044) $1,012,643 $ (196,830) $ (112,466)
----------- ----------- ------------ ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 2,033,046 $5,776,158 $ 428,543 $1,536,617 $ (73,415) $ (71,042)
=========== =========== ============ =========== =========== ===========
<CAPTION>
CAS GSS HYS MMS
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............... $ 6,455,363 $ 473,835 $ 383,875 $ 273,757
Mortality and expense risk charges.... (658,857) (106,902) (55,610) (70,964)
----------- ----------- ------------ -----------
Net investment income (loss)...... $ 5,796,506 $ 366,933 $ 328,265 $ 202,793
----------- ----------- ------------ -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $11,456,990 $2,877,093 $ 1,368,628 $5,613,109
Cost of investments sold............ (8,838,975) (2,796,203) (1,323,619) (5,613,109)
----------- ----------- ------------ -----------
Net realized gains (losses)....... $ 2,618,015 $ 80,890 $ 45,009 $ --
----------- ----------- ------------ -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $18,399,625 $ (148,237) $ (67,357) $ --
Beginning of year................... 10,408,666 597,563 41,951 --
----------- ----------- ------------ -----------
Change in unrealized appreciation
(depreciation)................... $ 7,990,959 $ (745,800) $ (109,308) $ --
----------- ----------- ------------ -----------
Realized and unrealized gains
(losses)........................... $10,608,974 $ (664,910) $ (64,299) $ --
----------- ----------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $16,405,480 $ (297,977) $ 263,966 $ 202,793
=========== =========== ============ ===========
</TABLE>
See notes to financial statements
<PAGE>
-6-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MIT MIG MTR
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).......... $ 742,379 $ 2,158,411 $ 1,292,957 $ 1,293,592 $ 2,224,587 $ 5,114,145
Net realized gains (losses)........... 4,121,397 5,509,297 2,798,981 1,702,339 (189,811) 2,000,585
Net unrealized gains (losses)......... (2,830,730) 702,599 1,684,220 2,483,740 (1,606,233) (3,555,136)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in net assets from
operations........................... $ 2,033,046 $ 8,370,307 $ 5,776,158 $ 5,479,671 $ 428,543 $ 3,559,594
------------ ------------ ------------ ------------ ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 3,466,618 $ 4,615,049 $ 1,776,775 $ 1,648,663 $ 2,409,795 $ 3,371,244
Net transfers between Sub-Accounts
and Fixed Account.................. (850,973) (179,472) 1,475,098 583,305 (1,161,027) (1,254,402)
Withdrawals, surrenders,
annuitizations and contract
charges............................ (13,807,883) (13,124,763) (8,189,434) (4,889,909) (11,448,302) (9,074,024)
------------ ------------ ------------ ------------ ------------ ------------
Net accumulation activity......... $(11,192,238) $ (8,689,186) $ (4,937,561) $ (2,657,941) $(10,199,534) $ (6,957,182)
------------ ------------ ------------ ------------ ------------ ------------
Annuitization Activity:
Annuitizations...................... $ -- $ 117,436 $ -- $ -- $ -- $ --
Annity payments and contract
charges............................ (29,851) (6,831) -- -- -- --
Adjustments to annuity reserve...... (1,550) (439) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net annuitization activity........ $ (31,401) $ 110,166 $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in net assets from
participant transactions............. $(11,223,639) $ (8,579,020) $ (4,937,561) $ (2,657,941) $(10,199,534) $ (6,957,182)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in net assets... $ (9,190,593) $ (208,713) $ 838,597 $ 2,821,730 $ (9,770,991) $ (3,397,588)
NET ASSETS:
Beginning of year..................... 44,745,471 44,954,184 18,477,243 15,655,513 34,050,978 37,448,566
------------ ------------ ------------ ------------ ------------ ------------
End of year........................... $ 35,554,878 $ 44,745,471 $ 19,315,840 $ 18,477,243 $ 24,279,987 $ 34,050,978
============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
-7-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
-- continued
<TABLE>
<CAPTION>
MGO MFB MGG
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).......... $ 523,974 $ 514,502 $ 123,415 $ 148,154 $ 41,424 $ 91,080
Net realized gains (losses)........... 229,838 246,705 (76,034) 48,083 (87,509) (38,711)
Net unrealized gains (losses)......... 782,805 391,771 (120,796) (116,828) (24,957) 5,053
---------- ---------- ----------- ---------- ------------ ----------
Increase (Decrease) in net assets
from operations.................. $1,536,617 $1,152,978 $ (73,415) $ 79,409 $ (71,042) $ 57,422
---------- ---------- ----------- ---------- ------------ ----------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 663,514 $ 497,233 $ 245,793 $ 314,355 $ 122,908 $ 257,208
Net transfers between Sub-Accounts
and Fixed Account.................. 82,341 225,820 (220,519) (108,141) (85,033) (382,786)
Withdrawals, surrenders,
annuitizations and contract
charges............................ (1,264,444) (860,467) (1,023,830) (461,894) (986,749) (317,138)
---------- ---------- ----------- ---------- ------------ ----------
Net accumulation activity......... $ (518,589) $ (137,414) $ (998,556) $ (255,680) $ (948,874) $ (442,716)
---------- ---------- ----------- ---------- ------------ ----------
Increase (Decrease) in net assets
from participant transactions...... $ (518,589) $ (137,414) $ (998,556) $ (255,680) $ (948,874) $ (442,716)
---------- ---------- ----------- ---------- ------------ ----------
Increase (Decrease) in net assets... $1,018,028 $1,015,564 $(1,071,971) $ (176,271) $ (1,019,916) $ (385,294)
NET ASSETS:
Beginning of year..................... 5,331,193 4,315,629 2,588,895 2,765,166 1,756,609 2,141,903
---------- ---------- ----------- ---------- ------------ ----------
End of year........................... $6,349,221 $5,331,193 $ 1,516,924 $2,588,895 $ 736,693 $1,756,609
========== ========== =========== ========== ============ ==========
</TABLE>
See notes to financial statements
<PAGE>
-8-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
-- continued
<TABLE>
<CAPTION>
CAS GSS HYS MMS
Sub-Account Sub-Account Sub-Account Sub-Account
------------------------ ------------------------ ----------------------- ------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
------------------------ ------------------------ ----------------------- ------------------------
1999 1998 1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................. $ 5,796,506 $ 5,538,986 $ 366,933 $ 481,238 $ 328,265 $ 309,508 $ 202,793 $ 238,825
Net realized gains
(losses)............... 2,618,015 7,762,453 80,890 138,735 45,009 269,156 -- --
Net unrealized gains
(losses)............... 7,990,959 (725,520) (745,800) 165,097 (109,308) (593,830) -- --
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
Increase (Decrease)
in net assets from
operations......... $16,405,480 $12,575,919 $ (297,977) $ 785,070 $ 263,966 $ (15,166) $ 202,793 $ 238,825
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments
received............. $ 3,444,322 $ 4,587,562 $ 557,289 $ 924,333 $ 368,095 $ 507,550 $ 484,411 $ 802,246
Net transfers between
Sub-Accounts and
Fixed Account........ (539,704) (174,891) 42,123 (179,536) (147,327) (454,744) 1,766,578 1,431,968
Withdrawals,
surrenders,
annuitizations and
contract charges..... (9,183,402) (9,072,386) (2,407,705) (3,281,848) (970,623) (1,191,705) (3,577,347) (2,316,756)
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
Net accumulation
activity........... $(6,278,784) $(4,659,715) $(1,808,293) $(2,537,051) $ (749,855) $(1,138,899) $(1,326,358) $ (82,542)
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
Annuitization Activity:
Annuitizations........ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Annity payments and
contract charges..... (15,883) (13,867) (2,092) (2,138) (1,882) (1,925) (220) (221)
Adjustments to annuity
reserve.............. (2,645) (1,562) 67 (133) 28 7 (2) (7)
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
Net annuitization
activity........... $ (18,528) $ (15,429) $ (2,025) $ (2,271) $ (1,854) $ (1,918) $ (222) $ (228)
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
Increase (Decrease) in
net assets from
participant
transactions........... $(6,297,312) $(4,675,144) $(1,810,318) $(2,539,322) $ (751,709) $(1,140,817) $(1,326,580) $ (82,770)
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
Increase (Decrease) in
net assets........... $10,108,168 $ 7,900,775 $(2,108,295) $(1,754,252) $ (487,743) $(1,155,983) $(1,123,787) $ 156,055
NET ASSETS
Beginning of year....... 57,605,983 49,705,208 10,303,344 12,057,596 4,898,667 6,054,650 6,498,137 6,342,082
----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
End of year............. $67,714,151 $57,605,983 $ 8,195,049 $10,303,344 $4,410,924 $ 4,898,667 $ 5,374,350 $6,498,137
=========== =========== =========== =========== ========== =========== =========== ==========
</TABLE>
See notes to financial statements
<PAGE>
-9-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life of Canada (U.S.) Variable Account D (the "Variable Account"), a
separate account of Sun Life Assurance Company of Canada (U.S.) (the "Sponsor"),
was established on August 20, 1985 as a funding vehicle for the variable portion
of group combination fixed/variable annuities. 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 among 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 revenues 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 and,
therefore, no provision has been made for federal income taxes.
<PAGE>
-10-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS -- continued
(3) CONTRACT CHARGES
A mortality and expense risk charge is deducted from the Variable Account at the
end of each valuation period for the mortality and expense risks assumed by the
Sponsor. These deductions are transferred periodically to the Sponsor. The rate
of this deduction varies, based on total purchase payments credited to all
participants' accounts under a contract as follows:
<TABLE>
<CAPTION>
Mortality
and Expense
Level Purchase Payments Risk Charge
- ----- ----------------- -----------
<S> <C> <C>
1 up to $250,000 1.30 %
2 $250,000 to $1,499,999 1.25 %
3 $1,500,000 to $4,999,999 1.10 %
4 $5,000,000 and over 0.95 %
</TABLE>
Since 1987, the Sponsor has reduced the Level 1 mortality and expense risk
charge to 1.25% and, therefore, has been accounting for all Level 1 units as
Level 2 units.
Each year on the account anniversary, an account administration fee is deducted
from the participant's account to cover administrative expenses relating to the
contract and the participant's account. The amount of the fee varies from $12 to
$25 and is based on total purchase payments credited to all participants'
accounts under a contract. After the annuity commencement date, the account fee
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 6% 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 are calculated using the 1983 Individual Annuitant Mortality
Table and an assumed interest rate of 4%. Required adjustments to the reserve
are accomplished by transfers to or from the Sponsor.
<PAGE>
-11-
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<TABLE>
<CAPTION>
Units Transferred
Units Outstanding Between Sub-Accounts
Beginning of Year Units Purchased and Fixed Account
----------------- ---------------- --------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
----------------- ---------------- --------------------
Sub-Accounts 1999 1998 1999 1998 1999 1998
- ------------ -------- -------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
MIT-Level 2 567,275 668,603 44,337 62,980 (12,590) (16,795)
MIT-Level 3 196,235 347,926 13,588 17,821 (6,224) (45,958)
MIT-Level 4 90,975 -- 13,148 18,926 (785) 77,367
MIG-Level 2 165,654 225,178 13,201 15,127 17,140 112
MIG-Level 3 89,584 118,801 8,105 9,647 2,290 (20,150)
MIG-Level 4 69,102 -- 10,657 11,428 2,394 60,010
MTR-Level 2 628,337 759,684 43,886 63,621 (18,021) (29,130)
MTR-Level 3 206,850 403,015 14,979 17,807 (12,441) (115,565)
MTR-Level 4 157,727 17 16,875 23,626 (8,784) 141,628
MGO-Level 2 95,086 100,623 8,656 9,995 1,152 1,211
MGO-Level 3 23,225 29,668 5,359 2,401 2,088 (2,227)
MGO-Level 4 11,370 -- 2,041 1,670 47 9,880
MFB-Level 2 76,030 86,309 6,257 8,189 (2,595) (4,987)
MFB-Level 3 23,254 41,360 3,408 3,535 (5,387) (14,129)
MFB-Level 4 19,478 -- 2,141 3,393 (2,840) 16,625
MGG-Level 2 35,699 50,083 2,182 4,145 (1,759) (9,529)
MGG-Level 3 16,947 55,415 782 2,132 (2,786) (34,966)
MGG-Level 4 45,525 -- 5,753 9,171 (740) 37,118
CAS-Level 2 628,268 680,351 34,983 52,252 (9,439) (7,521)
CAS-Level 3 111,749 431,268 4,961 13,268 1,153 (280,709)
CAS-Level 4 284,604 5,247 23,210 27,865 (4,525) 288,727
GSS-Level 2 317,889 377,706 19,457 27,776 (11,993) (8,985)
GSS-Level 3 107,677 225,343 5,826 13,066 15,145 (71,055)
GSS-Level 4 56,137 2,450 4,795 4,162 (4,404) 71,003
HYS-Level 2 147,334 161,891 10,902 14,548 (9,140) (13,379)
HYS-Level 3 32,554 89,331 2,861 3,878 423 (38,390)
HYS-Level 4 24,009 102 2,604 2,247 1,468 33,560
MMS-Level 2 254,576 246,919 19,791 32,188 67,567 55,799
MMS-Level 3 113,042 158,492 8,292 17,325 16,457 (8,342)
MMS-Level 4 39,132 6,803 2,910 1,532 23,818 44,744
<CAPTION>
Units Withdrawn,
Surrendered and Units Outstanding
Annuitized End of Year
----------------- -----------------
Year Ended Year Ended
December 31, December 31,
----------------- -----------------
Sub-Accounts 1999 1998 1999 1998
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
MIT-Level 2 (133,394) (147,513) 465,628 567,275
MIT-Level 3 (72,820) (123,554) 130,779 196,235
MIT-Level 4 (64,056) (5,318) 39,282 90,975
MIG-Level 2 (46,009) (74,763) 149,986 165,654
MIG-Level 3 (47,416) (18,714) 52,563 89,584
MIG-Level 4 (40,524) (2,336) 41,629 69,102
MTR-Level 2 (134,017) (165,838) 520,185 628,337
MTR-Level 3 (99,665) (98,407) 109,723 206,850
MTR-Level 4 (116,189) (7,544) 49,629 157,727
MGO-Level 2 (13,466) (16,743) 91,428 95,086
MGO-Level 3 (9,181) (6,617) 21,491 23,225
MGO-Level 4 (11,015) (180) 2,443 11,370
MFB-Level 2 (27,755) (13,481) 51,937 76,030
MFB-Level 3 (5,101) (7,512) 16,174 23,254
MFB-Level 4 (17,976) (540) 803 19,478
MGG-Level 2 (8,315) (9,000) 27,807 35,699
MGG-Level 3 (10,121) (5,634) 4,822 16,947
MGG-Level 4 (46,199) (764) 4,339 45,525
CAS-Level 2 (71,238) (96,814) 582,574 628,268
CAS-Level 3 (15,762) (52,078) 102,101 111,749
CAS-Level 4 (68,579) (37,235) 234,710 284,604
GSS-Level 2 (81,305) (78,608) 244,048 317,889
GSS-Level 3 (28,060) (59,677) 100,588 107,677
GSS-Level 4 (5,360) (21,478) 51,168 56,137
HYS-Level 2 (23,553) (15,726) 125,543 147,334
HYS-Level 3 (6,373) (22,265) 29,465 32,554
HYS-Level 4 (9,173) (11,900) 18,908 24,009
MMS-Level 2 (130,078) (80,330) 211,856 254,576
MMS-Level 3 (62,868) (54,433) 74,923 113,042
MMS-Level 4 (27,836) (13,947) 38,024 39,132
</TABLE>
<PAGE>
-12-
INDEPENDENT AUDITORS' REPORT
To the Participants in Sun Life of Canada (U.S.) Variable Account D
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 Bond
Sub-Account, MFS Global Governments Sub-Account, MFS Capital Appreciation
Sub-Account, MFS Government Securities Sub-Account, MFS High Yield Sub-Account,
and MFS Money Market Sub-Account of Sun Life of Canada (U.S.) Variable Account D
(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 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
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
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 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--Accumulated Unit Values
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.
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
December 31, 1998;
4. Notes to Financial Statements; and
5. Independent Auditors' Report.
<PAGE>
(b) The following Exhibits are incorporated in 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 (Filed as an
Exhibit to Post-Effective Amendment No. 16 to the Registration
Statement on Form N-4, File No. 2-99958, filed on April 17, 1998
and incorporated herein by reference);
(2) Not Applicable;
(3) (a) Form of Marketing Coordination and Administrative Services
Agreement between the depositor, Massachusetts Financial
Services Company and Clarendon Insurance Agency, Inc. (Filed
as an Exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4, File No. 333-37907,
filed on January 16, 1998 and incorporated herein by
reference);
(b) (i) Specimen Sales Operations and General Agent Agreement
(Filed as an Exhibit to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-4, File
No. 333-37907, filed on January 16, 1998 and
incorporated herein by reference);
(b) (ii) Specimen Broker-Dealer Supervisory and Service
Agreement (Filed as an Exhibit 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 and incorporated herein by
reference.); and
(b)(iii) Specimen Registered Representatives Agent Agreement
(Filed as an Exhibit to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-4, File
No. 333-37907, filed on January 16, 1998 and
incorporated herein by reference);
(4) Form of Flexible Payment Deferred Combination Variable and Fixed
Group Annuity Contract (Filed as an Exhibit to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4, File
No. 333-37907, filed on January 16, 1998 and incorporated herein
by reference);
(5) Form of Application used with the annuity contract filed as
Exhibit (4) (Filed as an Exhibit to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-4, File No. 333-37907,
filed on January 16, 1998 and incorporated herein by reference);
(6) Certificate of Incorporation and By-laws of the Depositor (Filed
as an Exhibit to the Registration Statement on Form N-4, File
No. 333-37907, filed on October 14, 1997 and incorporated herein
by reference);
(7) Not Applicable;
(8) None;
<PAGE>
(9) Previously filed;
(10) (a) Consent of Deloitte & Touche, LLP*;
(b) Representation of Counsel*;
(11) Financial Statement Schedules I and VI (Incorporated by reference
from the Annual Report of the Depositor on Form 10-K for the
fiscal year ended December 31, 1999) ;
(12) Not Applicable;
(13) Not Applicable;
(14) Not Applicable; and
(15) (a) Powers of Attorney (Incorporated by reference from the
Registration Statement on Form S-6, File No. 333-94359,
filed on 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 on Form N-4, File No. 333-05227,
filed April 5, 2000); 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 Place
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
<PAGE>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ---------------------
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 42H
Davey S. Scoon Vice President, Finance and Treasurer
One Sun Life Executive Park
Wellesley Hills, MA 02481
James M.A. Anderson Vice President, Investments
One Sun Life Executive Park
Wellesley Hills, MA 02481
Peter F. Demuth Vice President and Chief Counsel and
One Sun Life Executive Park Assistant Secretary
Wellesley Hills, MA 02481
Ronald J. Fernandes Vice President, Retirement Products
One Sun Life Executive Park and Services
Wellesley Hills, MA 02481
Ellen B. King Counsel and Secretary
One Sun Life Executive Park
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.), wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.,
a wholly-owned subsidiary of Sun Life Assurance Company of Canada - U.S.
Operation Holdings, Inc., which is in turn a wholly-owned subsidiary of Sun
Life Assurance Company of Canada.
The organizational chart of Sun Life Assurance Company of Canada is
incorporated herein by reference to Exhibit 16 to Post-Effective Amendment
No. 2 to the 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 22,456 qualified and 237 non-qualified
Contracts issued by the Depositor with respect to the securities registered
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 3(b) to the Registration Statement of the Depositor on Form S-
1, File No. 33-29851, 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 (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 (U.S.) of expenses incurred or paid by a director,
officer, controlling person of Sun Life (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 (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 Assurance Company of Canada (U.S.), acts as general
distributor for the Registrant, Sun Life of Canada (U.S.) Variable Accounts
C, 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 Scoon........................ Treasurer and Director
James M.A. Anderson................ Director
Ronald J. Fernandes................ Director
James A. McNulty, III.............. Director
Donald E. Kaufman.................. Vice President
Brian Krivitsky.................... Vice President
Cynthia M. Orcutt.................. Vice President
Laurie Lennox...................... Vice President
Maura A. Murphy.................... Secretary
Roy P. Creedon..................... Assistant Secretary
</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 by Sun Life Assurance Company of Canada (U.S.), in
whole or in part, 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 Massachusetts Financial Services Company at 500
Boylston Street, Boston, Massachusetts 02116.
Item 31. MANAGEMENT SERVICES
Not Applicable.
Item 32. UNDERTAKINGS
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 18 to the Registration Statement and has caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf, in the
Town of Wellesley Hills, and Commonwealth of Massachusetts on the 7th day of
April, 2000.
Sun Life of Canada (U.S.)
Variable Account D
(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 and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<S> <C> <C>
/s/ JAMES A. McNULTY, III President and Director April 7, 2000
- ------------------------------- (Principal Executive
James A. McNulty, III Officer)
/s/ DAVEY SCOON Vice President, Finance April 7, 2000
- ------------------------------- and Treasurer
Davey Scoon (Principal Financial
and Accounting
Officer)
<PAGE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* /s/ DONALD A. STEWART Chairman and April 7, 2000
- ------------------------------- Director
Donald A. Stewart
* /s/ C. JAMES PRIEUR Vice Chairman April 7, 2000
- ------------------------------- and Director
C. James Prieur
*** /s/ RICHARD B. BAILEY Director April 7, 2000
- -------------------------------
Richard B. Bailey
* /s/ GREGORY W. GEE Director April 7, 2000
- -------------------------------
Gregory W. Gee
** /s/ DAVID D. HORN Director April 7, 2000
- -------------------------------
David D. Horn
* /s/ ANGUS A. MacNAUGHTON Director April 7, 2000
- -------------------------------
Angus A. MacNaughton
* /s/ S. CAESAR RABOY Director April 7, 2000
- -------------------------------
S. Caesar Raboy
- ------------------------------- Director
William W. Stinson
</TABLE>
- ---------------------------
* By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 8 to the
Registration Statement on Form S-6, File No. 333-94359, filed January 10,
2000.
** By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15(b) 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 Exhibit 15(c) to
Post-Effective Amendment No. 6 to the Registration Statement on Form N-4,
File No. 333-05227, filed April 5, 2000.
<PAGE>
Exhibit 10(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 18 to the
Registration Statement on Form N-4 (Reg. No. 2-99958) of Sun Life of Canada
(U.S.) Variable Account D of our report dated February 10, 2000 accompanying
the financial statements of Sun Life of Canada (U.S.) Variable Account D
appearing in the Statement of Additional Information, which is part of such
Registration Statement, 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 Prospectus, 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 Decemeber 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 references to us under the headings "Accountants"
and "Appendix B-Condensed Financial Information--Accumulation Unit Values"
in such Prospectus and under the heading "Financial Statements" in such
Statement of Additional Information.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 7, 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 D (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 7, 2000
