<PAGE>
Registration No. 33-41858
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- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Exact name of registrant as specified in its charter)
Delaware 04-2461439
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE SUN LIFE EXECUTIVE PARK, WELLESLEY HILLS, MASSACHUSETTS 02181
(617) 237-6030
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Copies to:
BONNIE S. ANGUS, Secretary DAVID N. BROWN, ESQ.
SUN LIFE ASSURANCE COMPANY OF COVINGTON & BURLING
CANADA (U.S.) 1201 Pennsylvania Avenue N.W.
One Sun Life Executive Park P.O. Box 7566
Wellesley Hills, Massachusetts 02181 Washington, D.C. 20044
(617) 237-6030 (202) 662-5238
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Post-Effective Amendment No. 4 to
Registration Statement on Form S-2
Cross Reference Sheet Pursuant To
Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-2 Item Number
and Caption Location in Prospectus; Caption
-------------------- -------------------------------
<C> <S> <C>
1. Forepart of the Registration Cover Pages
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages; Table of Contents
Cover Pages of Prospectus
3. Summary Information, Risk Cover Pages (Summary); Expense
Factors and Ratio of Earnings Summary
to Fixed Charges
4. Use of Proceeds A Word About the Company, the
Fixed Account, the Variable
Account and the Series Fund
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of the Contracts
9. Description of Securities to be Cover Pages; A Word About the
Registered Company, the Fixed Account, the
Variable Account and the Series
Fund; Purchase Payments and
Contract Values During
Accumulation Period; Cash
Withdrawals, Withdrawal Charges
and Market Value Adjustment;
Other Contractual Provisions
10. Interests of Named Experts and Not Applicable
Counsel
11. Information with Respect to the A Word About the Company, the
Registrant Fixed Account, the Variable
Account and the Series Fund;
Other Contractual Provisions;
Additional Information About the
Company; The Company's Directors
and Executive Officers; Legal
Proceedings; Legal Opinions;
Financial Statements
</TABLE>
Regatta Reg S-2
<PAGE>
<TABLE>
<CAPTION>
Form S-2 Item Number
and Caption Location in Prospectus; Caption
-------------------- -------------------------------
<C> <S> <C>
12. Incorporation of Certain Cover Pages
Information by Reference
13. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities
</TABLE>
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated May 1, 1995.
<PAGE>
PROSPECTUS
MAY 1, 1995
MFS REGATTA
--------------------------------------------------
The master group deferred annuity contracts (the "Contracts") and related
certificates offered by this Prospectus are designed for use in connection with
retirement and deferred compensation plans, some of which may qualify as
retirement programs under Sections 401, 403, or 408 of the Internal Revenue
Code. The Contracts are issued by Sun Life Assurance Company of Canada (U.S.)
(the "Company"), a wholly-owned subsidiary of Sun Life Assurance Company of
Canada, having its Principal Executive Offices at One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02181, telephone (617) 237-6030. The Contracts
provide that annuity payments will begin on a selected future date. The
Contracts provide for the accumulation of values on either a variable basis, a
fixed basis, or a fixed and variable basis and provide for fixed and variable
annuity payments as elected.
Each Participant under a Contract will receive a Certificate evidencing such
Participant's coverage under the Contract. Only one Purchase Payment will be
accepted by the Company for each Certificate. A Purchase Payment must be at
least $5,000 and the prior approval of the Company is required before it will
accept a Purchase Payment in excess of $1,000,000.
The Participant may elect to have values under the Certificate accumulate on
a fixed basis in the Fixed Account, which pays interest at the applicable
Guaranteed Interest Rate(s) for the duration of the particular Guarantee
Period(s) selected by the Participant, or on a variable basis in Sun Life of
Canada (U.S.) Variable Account F (the "Variable Account"), a separate account of
the Company, or divided between the Fixed Account and the Variable Account. The
assets of the Variable Account are divided into Sub-Accounts. Each Sub-Account
uses its assets to purchase, at their net asset value, shares of a specific
series of MFS/Sun Life Series Trust (the "Series Fund"), a mutual fund
registered under the Investment Company Act of 1940, and advised by
Massachusetts Financial Services Company, a wholly-owned subsidiary of the
Company. Seven series are available for investment under the Contracts: (1)
Money Market Series; (2) High Yield Series; (3) Capital Appreciation Series; (4)
Government Securities Series; (5) World Governments Series; (6) Total Return
Series; and (7) Managed Sectors Series. The Series Fund pays its investment
adviser certain fees charged against the assets of each Series. The value of the
variable portion, if any, of a Participant's Account and the amount of variable
annuity payments will vary to reflect the investment performance of the series
of the Series Fund selected by the Participant and the deduction of the contract
charges described under "How the Contract Charges Are Assessed" on page 22. For
more information about the Series Fund, see "The Series Fund" on page 14 and the
accompanying Series Fund prospectus.
(CONTINUED ON NEXT PAGE)
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
MFS/SUN LIFE SERIES TRUST. YOU SHOULD RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE.
*ANY REFERENCE IN THIS PROSPECTUS TO RECEIPT BY THE COMPANY MEANS RECEIPT AT ITS
ANNUITY SERVICE MAILING ADDRESS, C/O SUN LIFE ANNUITY SERVICE CENTER, P.O. BOX
1024, BOSTON, MASSACHUSETTS 02103.
<PAGE>
If the Participant elects to have values accumulated on a fixed basis, the
Purchase Payment is allocated to one or more Guarantee Periods available in
connection with the Fixed Account with durations of from one to ten years, as
selected by the Participant. The Fixed Account is the general account of the
Company (See "The Fixed Account" on page 12). The Company will credit interest
at a rate of not less than four percent (4%) per year, compounded annually, to
amounts allocated to the Fixed Account and guarantees these amounts at various
interest rates (the "Guaranteed Interest Rates") for the duration of the
Guarantee Period elected by the Participant, subject to the imposition of any
applicable withdrawal charge, Market Value Adjustment, or account administration
fee. The Company may not change a Guaranteed Interest Rate for the duration of
the Guarantee Period; however, Guaranteed Interest Rates applicable to
subsequent Guarantee Periods cannot be predicted and will be determined at the
sole discretion of the Company (subject to the minimum guarantee of four percent
(4%)). That part of the Contract relating to the Fixed Account is registered
under the Securities Act of 1933, but the Fixed Account is not subject to the
restrictions of the Investment Company Act of 1940.
The Company does not deduct a sales charge from the Purchase Payment made
for a Certificate. However, if any part of a Participant's Account is withdrawn,
a withdrawal charge (contingent deferred sales charge) may be assessed by the
Company. This charge is intended to reimburse the Company for expenses relating
to the distribution of the Contracts and Certificates. During the first seven
Account Years up to ten percent (10%) of the Net Purchase Payment may be
withdrawn in each Account Year on a non-cumulative basis without the imposition
of the withdrawal charge by the Company. Amounts withdrawn in excess of such
amount (adjusted by an applicable Market Value Adjustment with respect to the
Fixed Account) will be subject to a withdrawal charge ranging from 6% to 0%. The
withdrawal charge is not imposed after the end of the seventh Account Year (See
"Withdrawal Charges" on page 19). In addition, for the first seven Account Years
the Company deducts a distribution expense charge at the end of each Valuation
Period equal to an annual rate of 0.15% of the daily net assets of the Variable
Account (the staff of the Securities and Exchange Commission deems this charge a
deferred sales charge). There is no deduction for the distribution expense
charge after the seventh Account Anniversary. In no event will the distribution
expense charges and the withdrawal charges assessed against a Participant's
Account exceed 9% of the Purchase Payment (See "Charges Against the Variable
Account for Mortality and Expense Risks and Distribution Expense Charges" on
page 23).
In addition, any cash withdrawal of amounts allocated to the Fixed Account,
other than a withdrawal effective within 30 days of the Expiration Date of the
applicable Guarantee Period, will be subject to a Market Value Adjustment. The
Market Value Adjustment will reflect the relationship between the Current Rate
(which is the Guaranteed Interest Rate currently declared by the Company for
Guarantee Periods equal to the balance of the Guarantee Period applicable to the
amount being withdrawn) and the Guaranteed Interest Rate applicable to the
amount being withdrawn. If the applicable Guaranteed Interest Rate is more than
.50% higher than the Current Rate, the application of the Market Value
Adjustment will result in a higher payment upon withdrawal. Otherwise, the
application of the Market Value Adjustment will result in a lower payment upon
withdrawal (See "Market Value Adjustment" on page 21).
The Company reserves the right to defer the payment of amounts withdrawn
from the Fixed Account for a period not to exceed six months from the date
written request for such withdrawal is received by the Company.
Special restrictions on withdrawals apply to Certificates used with Tax
Sheltered Annuities established pursuant to Section 403(b) of the Internal
Revenue Code (See "Section 403(b) Annuities" on page 20).
In addition, under certain circumstances withdrawals may result in tax
penalties (See "Federal Tax Status"). For a discussion of cash withdrawals,
withdrawal charges and the Market Value Adjustment see "Cash Withdrawals,
Withdrawal Charges and Market Value Adjustment" on page 18.
On each Account Anniversary and on surrender of a Certificate for full value
the Company will deduct an annual account administration fee ("Account Fee") of
$30 from the Participant's Account. After the Annuity Commencement Date the
Account Fee will be deducted pro rata from each variable annuity payment made
during the year. This charge is to reimburse the Company for administrative
expenses related to the issuance and maintenance of the Contracts and
Certificates (See "Account Fee" on page 22).
2
<PAGE>
The Company also deducts a mortality and expense risk charge at the end of
each Valuation Period equal to an annual rate of 1.25% of the daily net assets
of the Variable Account for mortality and expense risks assumed by the Company
(See "Charges Against the Variable Account for Mortality and Expense Risks and
Distribution Expense Charges" on page 23).
Under certain circumstances the Company may substitute shares of another
registered open-end investment company or unit investment trust both for Series
Fund shares already purchased by the Variable Account and as the security to be
purchased in the future. Also, upon notice to the Owner, Participant or the
Payee during the annuity period, the Company 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; or (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; or
(iii) is necessary to reflect a change in the operation of the Variable Account
or the Sub-Accounts; or (iv) provides additional Variable Account and/or fixed
accumulation options (See "Substituted Securities" and "Change in Operation of
Variable Account" on page 29 and "Modification" on page 30).
In addition, the Contracts provide that the Company may change the
withdrawal charges, Account Fee, mortality and expense risk charges,
distribution expense charges, the tables used in determining the amount of the
first monthly variable annuity payment and fixed annuity payments and the
formula used to calculate the Market Value Adjustment, provided that such
modification shall apply only with respect to Participant's Accounts established
after the effective date of such modification (See "Modification" on page 30).
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the Company will pay a death benefit to the Beneficiary. If the death of
the Annuitant occurs on or after the Annuity Commencement Date, no death benefit
will be payable except as may be provided under the Annuity Option elected (See
"Death Benefit" on page 21).
Annuity Payments will begin on the Annuity Commencement Date. The
Participant selects the Annuity Commencement Date, frequency of payments and the
Annuity Option (See "Annuity Provisions" on page 24).
Premium taxes payable to any governmental entity will be deducted from the
Participant's Account (See "Premium Taxes" on page 23).
Subject to certain conditions, and during the Accumulation Period, the
Participant may, without charge, transfer amounts among the Sub-Accounts or
Guarantee Periods available under the Contract. Transfers from or within the
Fixed Account will be subject to the Market Value Adjustment unless the transfer
is effective within 30 days of the Expiration Date of the amount transferred
(See "Transfer Privilege" on page 18).
After the Annuity Commencement Date, the Payee may, subject to certain
restrictions, exchange the value of a designated number of Annuity Units of
particular Sub-Accounts then credited with respect to the particular Payee for
other Annuity Units, the value of which would be such that the dollar amount of
an annuity payment made on the date of the exchange would be unaffected by the
fact of the exchange (See "Exchange of Variable Annuity Units" on page 26).
The Company will vote Series Fund shares held by the Sub-Accounts at
meetings of shareholders of the Series Fund, but will follow voting instructions
received from persons having the right to give voting instructions. The Owner or
Participant is the person having the right to give voting instructions prior to
the Annuity Commencement Date. On or after the Annuity Commencement Date the
Payee is the person having such voting rights. Any shares attributable to the
Company and Series Fund shares for which no timely voting instructions are
received will be voted by the Company in the same proportion as the shares for
which instructions are received from persons having such right (See "Voting of
Series Fund Shares" on page 28).
3
<PAGE>
The Company will furnish Participants and such other persons having voting
rights with certain reports and statements described under "Periodic Reports" on
page 29. Such reports, other than prospectuses, will not include the Company's
financial statements.
If a Participant is not satisfied with the Certificate it may be returned to
the Company at its Annuity Service Mailing Address within ten days after it was
delivered to the Participant. When the Company receives the returned Certificate
it will be cancelled and the Participant's Account Value at the end of the
Valuation Period during which the Certificate was received by the Company will
be refunded. However, if applicable state law so requires, the full amount of
any Purchase Payment received by the Company will be refunded, the "free look"
period may be greater than ten days and alternative methods of returning the
Certificate may be acceptable.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act"), as amended, and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. and at the Commission's Regional Offices
located at 75 Park Place, New York, New York and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed registration statements (the "Registration
Statements") with the Commission under the Securities Act of 1933 relating to
the Contracts offered by this Prospectus. This Prospectus has been filed as a
part of the Registration Statements and does not contain all of the information
set forth in the Registration Statements and exhibits thereto, and reference is
hereby made to such Registration Statements and exhibits for further information
relating to the Company and the Contracts. The Registration Statements and the
exhibits thereto may be inspected and copied, and copies can be obtained at
prescribed rates, in the manner set forth in the preceding paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K for the year ended December 31, 1994
heretofore filed by the Company with the Commission under the 1934 Act is
incorporated by reference in this Prospectus.
Any statement contained in a document incorporated by reference herein shall
be deemed modified or superseded hereby to the extent that a statement contained
in a later-filed document or herein shall modify or supersede such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a 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 the Prospectus). Requests for such
document should be directed to Bonnie S. Angus, Secretary, Sun Life Assurance
Company of Canada (U.S.), One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181, telephone (617) 237-6030.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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Definitions 7
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Expense Summary 9
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Condensed Financial Information--Accumulation Unit Values 10
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Performance Data 11
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This Prospectus Is a Catalog of Facts 11
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Uses of the Contract 11
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A Word About the Company, the Fixed Account, the Variable Account and the Series Fund 12
The Company 12
The Fixed Account 12
The Variable Account 13
The Series Fund 14
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Purchase Payments and Contract Values During Accumulation Period 16
Purchase Payments 16
Participant's Account 16
Variable Accumulation Value 16
Fixed Accumulation Value 17
Guarantee Periods 17
Guaranteed Interest Rates 18
Transfer Privilege 18
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Cash Withdrawals, Withdrawal Charges and Market Value Adjustment 18
Cash Withdrawals 18
Withdrawal Charges 19
Section 403(b) Annuities 20
Market Value Adjustment 21
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Death Benefit 21
Death Benefit Provided by the Contract 21
Election and Effective Date of Election 21
Payment of Death Benefit 22
Amount of Death Benefit 22
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How the Contract Charges Are Assessed 22
Account Fee 22
Premium Taxes 23
Charges Against the Variable Account for Mortality and Expense Risks and Distribution Expense Charges 23
Withdrawal Charges 24
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Annuity Provisions 24
Annuity Commencement Date 24
Election--Change of Annuity Option 24
Annuity Options 25
Determination of Annuity Payments 26
Fixed Annuity Payments 26
Variable Annuity Payments 26
Variable Annuity Unit Value 26
Exchange of Variable Annuity Units 26
Annuity Payment Rates 27
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</TABLE>
5
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Other Contractual Provisions 27
Payment Limits 27
Designation and Change of Beneficiary 27
Exercise of Contract Rights 27
Change of Ownership 27
Death of Participant 28
Voting of Series Fund Shares 28
Periodic Reports 29
Substituted Securities 29
Change in Operation of Variable Account 29
Splitting Units 30
Modification 30
Discontinuance of New Participants 30
Custodian 30
Right to Return 30
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Federal Tax Status 31
Introduction 31
Tax Treatment of the Company and the Variable Account 31
Taxation of Annuities in General 31
Qualified Retirement Plans 33
Pension and Profit-Sharing Plans 33
Tax-Sheltered Annuities 34
Individual Retirement Accounts 34
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Administration of the Contracts 34
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Distribution of the Contracts 34
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Additional Information About the Company 35
Selected Financial Data 35
Management's Discussion and Analysis of Financial Condition and Results of Operations 35
Reinsurance 38
Reserves 38
Investments 38
Competition 38
Employees 38
Properties 39
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The Company's Directors and Executive Officers 39
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State Regulation 42
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Legal Proceedings 43
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Legal Matters 43
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Accountants 43
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Registration Statements 43
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Financial Statements 44
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Appendix A--Variable Accumulation Unit Value, Variable Annuity Unit Value and Variable Annuity Payment
Calculations 73
Appendix B--State Premium Taxes 73
Appendix C--Withdrawals, Withdrawal Charges and the Market Value Adjustment 74
Appendix D--Calculation of Performance Data; Advertising and Sales Literature 76
</TABLE>
6
<PAGE>
DEFINITIONS
The following terms as used in this Prospectus have the indicated meanings:
ACCOUNT YEARS AND ACCOUNT ANNIVERSARIES: The first Account Year shall be
the period of 12 months plus a part of a month as measured from the Date of
Coverage for each Participant to the first day of the calendar month which
follows the calendar month of coverage. All Account Years and Anniversaries
thereafter shall be 12 month periods based upon such first day of the calendar
month which follows the calendar month of coverage. If, for example, the Date of
Coverage is in March, the first Account Year will be determined from the Date of
Coverage but will end on the last day of March in the following year; all other
Account Years and all Account Anniversaries will be measured from April 1.
ACCUMULATION PERIOD: The period before the Annuity Commencement Date and
during the lifetime of the Annuitant.
*ANNUlTANT: The person or persons named in the Application and on whose
life the first annuity payment is to be made. The Participant may not designate
a "Co-Annuitant" unless the Participant and Annuitant are different persons. If
more than one person is so named, all provisions of the Contract which are based
on the death of the "Annuitant" will be based on the date of death of the last
survivor of the persons so named. By example, the death benefit will become due
only upon the death, prior to the Annuity Commencement Date, of the last
survivor of the persons so named. Collectively, these persons are referred to in
this Contract as "Annuitants." The Participant is not permitted to name a
"Co-Annuitant" under a Qualified Contract.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Certificate is to be made.
*ANNUITY OPTION: The method 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 each Participant that serves as his or
her application for participation under this Contract.
*BENEFICIARY: The person or entity having the right to receive the death
benefit set forth in each Certificate and, for Non-Qualified Contracts, who is
the "designated beneficiary" for purposes of Section 72(s) of the Internal
Revenue Code in the event of the Participant's death.
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 APPLICATION: The document signed by the Owner that evidences the
Owner's application for this Contract.
DATE OF COVERAGE: The date on which a Participant's Account becomes
effective.
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.
FIXED ACCOUNT: The Fixed Account consists of all assets of the Company
other than those allocated to a separate account of the Company.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
GUARANTEE AMOUNT: Any portion of a Participant's Account Value allocated to
a particular Guarantee Period with a particular Expiration Date (including
interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited. This period may be one to ten years, as elected by the Participant.
- ---------
*As specified in the Application, unless changed.
7
<PAGE>
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during any Guarantee Period.
ISSUE DATE: The date on which the Contract becomes effective.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan which does not receive favorable federal income tax treatment under
Sections 401, 403, or 408 of the Internal Revenue Code. The Participant's
interest in the Contract must be owned by a natural person or agent for a
natural person for the Contract to receive favorable income tax treatment as an
annuity.
*OWNER: The person, persons or entity entitled to the ownership rights
stated in the Contract and in whose name or names the Contract is issued. The
Owner 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
exercise all rights and privileges of ownership under the Certificate, except as
reserved by the Owner.
PARTICIPANT'S ACCOUNT: An account established for each Participant to which
the Net Purchase Payment is credited.
PARTICIPANT'S ACCOUNT VALUE: The Variable Accumulation Value, if any, plus
the Fixed Accumulation Value, if any, of a Participant's Account for any
Valuation Period.
PAYEE: A recipient of payments under the Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Annuitant.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by the Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which receives favorable federal income tax treatment under Sections 401, 403,
or 408 of the Internal Revenue Code of 1986, as amended.
RECEIPT: Receipt by the Company at its Annuity Service Mailing Address
shown on the cover of this Prospectus.
SERIES FUND: MFS/Sun Life Series Trust.
SEVEN YEAR ANNIVERSARY: The seventh Account Anniversary and each succeeding
Account Anniversary occurring at any seven year interval thereafter, for
example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific series or sub-series of the Series Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit and Annuity Unit values to the next subsequent determination
of these values. Such determination shall be made as of the close of the New
York Stock Exchange on each day the Exchange is open for trading and on such
other days on which there is a sufficient degree of trading in the portfolio
securities of the Variable Account so that the values of the Variable Account's
Accumulation Units and Annuity Units might be materially affected.
VARIABLE ACCOUNT: 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
the value of the variable portion of a Participant's Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of specified Sub-Accounts of the
Variable Account.
- ---------
*As specified in the Application, unless changed.
8
<PAGE>
EXPENSE SUMMARY
The purpose of the following table and Example is to help Participants and
prospective purchasers to understand the costs and expenses that are borne,
directly and indirectly, by Participants WHEN PAYMENTS ARE ALLOCATED TO THE
VARIABLE ACCOUNT. The table reflects expenses of the Variable Account as well as
of the Series Fund. 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 Series Fund's prospectus. In addition to the
expenses listed below, premium taxes may be applicable.
<TABLE>
<CAPTION>
CAPITAL
MONEY APPRE- GOVERNMENT WORLD TOTAL MANAGED
PARTICIPANT MARKET HIGH YIELD CIATION SECURITIES GOVERNMENTS RETURN SECTORS
TRANSACTION EXPENSES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
- ----------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases 0 0 0 0 0 0 0
Deferred Sales Load (as a
percentage of Participant's
Account Value withdrawn)(1)......
Account Year
1.............................. 6% 6% 6% 6% 6% 6% 6%
2.............................. 6% 6% 6% 6% 6% 6% 6%
3.............................. 5% 5% 5% 5% 5% 5% 5%
4.............................. 5% 5% 5% 5% 5% 5% 5%
5.............................. 4% 4% 4% 4% 4% 4% 4%
6.............................. 4% 4% 4% 4% 4% 4% 4%
7.............................. 3% 3% 3% 3% 3% 3% 3%
thereafter..................... 0% 0% 0% 0% 0% 0% 0%
Exchange fee(2).................... 0 0 0 0 0 0 0
<CAPTION>
ANNUAL ACCOUNT FEE $30 Per Participant's Account
- -----------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(as a percentage of average
separate account assets)
Mortality and Expense Risk Fees.... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Distribution Expense Charge (3).... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Other Fees and Expenses of the
Separate Account................. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Separate Account Annual
Expenses......................... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
<CAPTION>
SERIES FUND ANNUAL EXPENSES
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(as a percentage of Series Fund
average net assets)
Management Fees.................... 0.50% 0.75% 0.75% 0.55% 0.75% 0.71% 0.75%
Other Expenses..................... 0.08% 0.11% 0.08% 0.07% 0.15% 0.05% 0.12%
Total Series Fund Annual
Expenses......................... 0.58% 0.86% 0.83% 0.62% 0.90% 0.76% 0.87%
</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 the entire Participant's Account Value
may be withdrawn free of the withdrawal charge.
(2) A Market Value Adjustment may be imposed on amounts transferred from or
within the Fixed Account.
(3) The Distribution Expense Charge is imposed only during the first seven
Account Years. This charge may be deemed a deferred sales charge.
9
<PAGE>
EXAMPLE
If you surrender your Certificate at the end of the applicable time period,
you would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series $ 74 $ 107 $ 143 $ 231
High Yield Series 77 116 157 260
Capital Appreciation Series 77 115 155 256
Government Securities Series 75 108 145 235
World Governments Series 77 117 159 264
Total Return Series 76 113 152 249
Managed Sectors Series 77 115 156 258
</TABLE>
If you do not surrender your Certificate, 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 on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series $ 20 $ 62 $ 107 $ 231
High Yield Series 23 71 121 260
Capital Appreciation Series 23 70 119 256
Government Securities Series 21 63 109 235
World Governments Series 23 72 123 264
Total Return Series 22 68 116 249
Managed Sectors Series 23 70 120 258
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's financial statements included elsewehere in this Prospectus, all of
which has been audited by Deloitte & Touche LLP, independent certified public
accountants.
<TABLE>
<CAPTION>
PERIOD
ENDED
DECEMBER YEAR ENDED DECEMBER 31,
31, ----------------------------------------------------------
1989* 1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of period $ 10.0000 $ 10.1193 $ 9.0168 $ 12.5296 $ 14.0559 $ 16.3574
End of period $ 10.1193 $ 9.0168 $ 12.5296 $ 14.0559 $ 16.3574 $ 15.5512
Units outstanding end of period 264,632 3,677,247 7,517,358 8,168,037 7,272,302 6,184,731
GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of period $ 10.0000 $ 10.0333 $ 10.7567 $ 12.2849 $ 12.9408 $ 13.8738
End of period $ 10.0333 $ 10.7567 $ 12.2849 $ 12.9408 $ 13.8738 $ 13.3872
Units outstanding end of period 179,505 2,723,676 5,194,019 4,761,049 4,708,841 4,235,203
HIGH YIELD SERIES
Unit Value:
Beginning of period $ 10.0000 $ 9.8487 $ 8.3800 $ 12.1924 $ 13.8294 $ 16.0549
End of period $ 9.8487 $ 8.3800 $ 12.1924 $ 13.8294 $ 16.0549 $ 15.4801
Units outstanding end of period 24,369 247,285 795,298 1,031,001 1,087,265 839,825
MANAGED SECTORS SERIES
Unit Value:
Beginning of period $ 10.0000 $ 9.8911 $ 8.7393 $ 13.9725 $ 14.6738 $ 15.0587
End of period $ 9.8911 $ 8.7393 $ 13.9725 $ 14.6738 $ 15.0587 $ 14.5653
Units outstanding end of period 126,499 1,410,497 2,409,951 2,768,568 2,431,072 2,066,642
MONEY MARKET SERIES
Unit Value:
Beginning of period $ 10.0000 $ 10.0971 $ 10.7366 $ 11.2031 $ 11.4176 $ 11.5560
End of period $ 10.0971 $ 10.7366 $ 11.2031 $ 11.4176 $ 11.5560 $ 11.8185
Units outstanding end of period 221,039 5,562,419 6,380,774 4,115,845 3,081,737 3,873,044
TOTAL RETURN SERIES
Unit Value:
Beginning of period $ 10.0000 $ 10.1677 $ 10.2969 $ 12.3469 $ 13.2211 $ 14.7834
End of period $ 10.1677 $ 10.2969 $ 12.3469 $ 13.2211 $ 14.7834 $ 14.2495
Units outstanding end of period 391,244 8,211,655 15,599,909 16,375,301 15,806,723 14,225,539
WORLD GOVERNMENTS SERIES
Unit Value:
Beginning of period $ 10.0000 $ 10.2725 $ 11.4930 $ 13.0187 $ 12.8985 $ 15.1215
End of period $ 10.2725 $ 11.4930 $ 13.0187 $ 12.8985 $ 15.1215 $ 14.2437
Units outstanding end of period 20,710 748,280 2,220,300 2,205,650 2,300,611 1,967,375
</TABLE>
- ---------
* From July 13, 1989 (date of commencement of operations) to December 31, 1989.
10
<PAGE>
PERFORMANCE DATA
From time to time the Variable Account may publish reports to shareholders,
sales literature and advertisements containing performance data relating to the
Sub-Accounts. Performance data will consist of total return quotations which
will always include quotations for the period subsequent to the date each Sub-
Account became available for investment under the Contracts, and for recent one
year and, when applicable, five year periods. Such quotations for such periods
will be the average annual rates of return required for an initial Purchase
Payment of $1,000 to equal the actual variable accumulation value attributable
to such Purchase Payment on the last day of the period, after reflection of all
applicable withdrawal and contract charges. In addition, the Variable Account
may calculate non-standardized rates of return that do not reflect withdrawal
and contract charges. Results calculated without withdrawal and/or contract
charges will be higher. Performance figures used by the Variable Account are
based on the actual historical performance of the Series Fund for specified
periods, and the figures are not intended to indicate future performance. The
Variable Account may also from time to time compare its investment performance
to various unmanaged indices or other variable annuities and may refer to
certain rating and other organizations in its marketing materials. More detailed
information on the computations is set forth in Appendix D.
THIS PROSPECTUS IS A CATALOG OF FACTS
This Prospectus contains information about the master group deferred annuity
contract (the "Contract") which provides fixed benefits, variable benefits or a
combination of both. It describes its uses and objectives, its benefits and
costs, and the rights and privileges of the Owner and the Participant, as
applicable. It also contains information about the Company, the Variable
Account, the Fixed Account and the Series Fund. It has been carefully prepared
in non-technical language to help you decide whether the purchase of a Contract
will fit the needs of your retirement plan. We urge you to read it carefully and
retain it for future reference. The Contract has appropriate provisions relating
to variable and fixed accumulation values and variable and fixed annuity
payments. A Variable Annuity and a Fixed Annuity have certain similarities. Both
provide that the Purchase Payment, less certain deductions, will be accumulated
prior to the Annuity Commencement Date. After the Annuity Commencement Date,
annuity payments will be made to the Annuitant. The Company assumes the
mortality and expense risks under the Contract, for which it receives certain
amounts. The significant difference between a Variable Annuity and a Fixed
Annuity is that under a Variable Annuity, all investment risk is assumed by the
Participant or Payee and the amounts of the annuity payments vary with the
investment performance of the Variable Account; under a Fixed Annuity, the
investment risk is assumed by the Company (except in the case of early
withdrawals (See "Cash Withdrawals" and "Market Value Adjustment")) and the
amounts of the annuity payments do not vary. However, the Participant bears the
risk that the Guaranteed Interest Rate to be credited on amounts allocated to
the Fixed Account may not exceed the minimum guaranteed rate of 4% for any
Guarantee Period.
USES OF THE CONTRACT
The Contract is designed for use in connection with retirement plans which
meet the requirements of Section 401 (including Section 401(k)), Section 403,
Section 408(b), Section 408(c) or Section 408(k) of the Internal Revenue Code,
however, the Company may discontinue offering new Contracts in connection with
certain types of qualified plans. Certain federal tax advantages are currently
available to retirement plans which qualify as (1) self-employed individuals'
retirement plans under Section 401; (2) corporate or association retirement
plans under Section 401; (3) annuity purchase plans sponsored by certain tax
exempt organizations or public school systems under Section 403(b); or (4)
individual retirement accounts, including employer or association of employees
individual retirement accounts under Section 408(c) and SEP-IRAs under Section
408(k) (See "Federal Tax Status").
The Contract is also designed so that it may be used in connection with
non-tax-qualified retirement plans, such as deferred compensation and payroll
savings plans and such other groups (trusteed or nontrusteed) as may be eligible
under applicable law.
A Contract is issued to the Owner covering all Participants. Each
Participant receives a Certificate which evidences his or her participation
under the Contract. For the purposes of determining benefits under the Contract,
a Participant's Account is established for each Participant.
11
<PAGE>
A WORD ABOUT THE COMPANY,
THE FIXED ACCOUNT, THE VARIABLE ACCOUNT AND THE SERIES FUND
THE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Delaware on January 12, 1970. Its Executive Office mailing address is One Sun
Life Executive Park, Wellesley Hills, Massachusetts 02181, telephone (617)
237-6030. It has obtained authorization to do business in forty-eight states,
the District of Columbia and Puerto Rico, and it is anticipated that the Company
will be authorized to do business in all states except New York. The Company
issues life insurance policies and individual and group annuities. The Company
has formed a wholly-owned subsidiary, Sun Life Insurance and Annuity Company of
New York, which issues individual fixed and combination fixed/variable annuity
contracts and group life and long-term disability insurance in New York and
offers in New York contracts similar to the Contract offered by this Prospectus.
The Company's other wholly-owned subsidiaries are Massachusetts Financial
Services Company and Sun Capital Advisers, Inc., registered investment advisers,
Sun Investment Services Company, a registered broker-dealer and investment
adviser, Sun Benefit Services Company, Inc., which offers claims, administrative
and actuarial services, New London Trust, F.S.B., a federally chartered savings
bank and Massachusetts Casualty Insurance Company, which issues individual
disability income policies.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada, 150 King Street West, Toronto, Ontario, Canada. Sun Life Assurance
Company of Canada is a mutual life insurance company incorporated pursuant to
Act of Parliament of Canada in 1865 and currently transacts business in all of
the Canadian provinces and territories, all states except New York, the District
of Columbia, Puerto Rico, the Virgin Islands, Great Britain, Ireland, Hong Kong,
Bermuda and the Philippines (See "Additional Information about the Company").
THE FIXED ACCOUNT
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to any separate account. A Purchase Payment will be
allocated to Guarantee Periods available in connection with the Fixed Account to
the extent elected by the Participant at the time of the establishment of a
Participant's Account. In addition, all or part of the Participant's Account
Value may be transferred to Guarantee Periods available under the Contract as
described under "Transfer Privilege". Assets supporting amounts allocated to
Guarantee Periods become part of the Company's general account assets and are
available to fund the claims of all classes of customers of the Company,
including claims for benefits under Certificates.
The Company will invest the assets of the Fixed Account in those assets
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
The Company intends to invest the assets of the Fixed Account primarily in
debt instruments as follows: (1) Securities issued by the United States
Government or its agencies or instrumentalities, which issues may or may not be
guaranteed by the United States Government; (2) Debt securities which have an
investment grade, at the time of purchase, within the four highest grades
assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or Baa), Standard &
Poor's Corporation (AAA, AA, A or BBB) or any other nationally recognized rating
service; (3) Other debt instruments, including, but not limited to, issues of or
guaranteed by banks or bank holding companies and other corporations, which
obligations, although not rated by Moody's or Standard & Poor's, are deemed by
the Company's management to have an investment quality comparable to securities
which may be purchased as stated above; and (4) Other evidences of indebtedness
secured by mortgages or deeds of trust representing liens upon real estate.
Notwithstanding the foregoing, the Company may also invest a portion of the
Fixed Account in below investment grade debt instruments. Instruments rated Baa
and/or BBB or lower normally involve a higher risk of default and are less
liquid than higher rated instruments. If the rating of an investment grade debt
security held by the Company is
12
<PAGE>
subsequently downgraded to below investment grade, the decision to retain or
dispose of the security will be made based upon an individual evaluation of the
circumstances surrounding the downgrading and the prospects for continued
deterioration, stabilization and/or improvement.
The Company is 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. Investment income from such Fixed Account
assets will be allocated between the Company and all contracts participating in
the Fixed Account, including the Contracts offered by this Prospectus, in
accordance with the terms of such contract.
Fixed annuity payments made to Annuitants under the Contracts will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. The Company assumes this "mortality risk"
by virtue of annuity rates incorporated in the Contract which cannot be changed
(except as described under "Modification" with respect to Participant's Accounts
established after the effective date of such modification). In addition, the
Company guarantees that it will not increase charges for maintenance of the
Contracts, regardless of its actual expenses (except as described under
"Modification" with respect to Participant's Accounts established after the
effective date of such modification).
Investment income from the Fixed Account allocated to the Company includes
compensation for mortality and expense risks and distribution expense risks
borne by the Company in connection with contracts participating in the Fixed
Account. The Company expects to derive a profit from this compensation. The
amount of investment income allocated to the Contracts will vary from Guarantee
Period to Guarantee Period in the sole discretion of the Company. However, the
Company guarantees that it will credit interest at a rate of not less than 4%
per year, compounded annually, to amounts allocated to the Fixed Account under
the Contract. The Company may credit interest at a rate in excess of 4% per
year; however, the Company is not obligated to credit any interest in excess of
4% per year. There is no specific formula for the determination of excess
interest credits. Such credits, if any, will be determined by the Company based
on information as to expected investment yields. Some of the factors that the
Company may consider in determining whether to credit interest to amounts
allocated to the Fixed Account and the amount thereof, are: general economic
trends; rates of return currently available and anticipated on the Company's
investments; regulatory and tax requirements; and competitive factors. The
Company's general investment strategy will be to invest amounts allocated to the
Fixed Account in investment-grade debt securities and mortgages using
immunization strategies with respect to the applicable Guarantee Periods. This
includes, with respect to investments and average terms of investments, using
dedication (cash flow matching) and/ or duration matching to minimize the
Company's risk of not achieving the rates it is crediting under Guarantee
Periods in volatile interest rate environments. ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE PARTICIPANT ASSUMES THE RISK THAT
INTEREST CREDITED ON AMOUNTS ALLOCATED TO THE FIXED ACCOUNT MAY NOT EXCEED THE
MINIMUM GUARANTEE OF 4% FOR ANY GIVEN YEAR.
The Company is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in the Company's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and contract owners and to its sole stockholder.
THE VARIABLE ACCOUNT
The basic objective of a variable annuity contract is to provide variable
annuity payments which will be to some degree responsive to changes in the
economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The Contract is designed to
seek to accomplish this objective by providing that variable annuity payments
(1) will reflect the investment performance of the Variable Account with respect
to amounts allocated to the Variable Account before the Annuity Commencement
Date and (2) will reflect the investment performance of the Variable Account
after that date. Since the Variable Account is always fully invested in Series
Fund shares, its investment performance reflects the investment performance of
the Series Fund. Values of Series Fund shares held by the Variable
13
<PAGE>
Account fluctuate and are subject to the risks of changing economic conditions
as well as the risk inherent in the ability of the Series Fund's management to
make necessary changes in its portfolios to anticipate changes in economic
conditions. Therefore, the Participant bears the entire investment risk that the
basic objectives of the Contract may not be realized, and that the adverse
effects of inflation may not be lessened and there can be no assurance that the
aggregate amount of variable annuity payments will equal or exceed the Purchase
Payment made with respect to a particular Participant's Account for the reasons
described above or because of the premature death of a Payee.
Another important feature of the Contract related to its basic objective is
the Company's promise that the dollar amount of variable annuity payments made
during the lifetime of the Payee(s) will not be adversely affected by the actual
mortality experience of the Company or by the actual expenses incurred by the
Company in excess of expense deductions provided for in the Contract.
Sun Life of Canada (U.S.) Variable Account F (the "Variable Account") was
established by the Company as a separate account on July 13,1989 pursuant to a
resolution of its 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 such other variable annuity
contracts as may be issued by the Company and designated by it as providing
benefits which vary in accordance with the investment performance of the
Variable Account. Although the assets maintained in the Variable Account will
not be charged with any liabilities arising out of any other business conducted
by the Company, all obligations arising under the Contracts, including the
promise to make annuity payments, are general corporate obligations of the
Company.
The Variable Account meets the definition of a separate account under the
federal securities laws and is registered as a unit investment trust under the
Investment Company Act of 1940. Registration with the Securities and Exchange
Commission does not involve supervision of the management or investment
practices or policies of the Variable Account or of the Company by the
Commission.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a specific series of the Series
Fund. All amounts allocated to the Variable Account will be used to purchase
Series Fund shares as designated by the Participant at their net asset value.
Any and all distributions made by the 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, annuity payments, death benefits, Account Fees, contract charges
against the assets of the Variable Account for the assumption of mortality and
expense risks, distribution expense risks, and any applicable taxes will, in
effect, be made by redeeming the number of 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 shares at all times.
THE SERIES FUND
MFS/Sun Life Series Trust (the "Series Fund") is an open-end investment
management company registered under the Investment Company Act of 1940.
Currently shares of the Series Fund are also sold to other separate accounts
established by the Company and Sun Life Insurance and Annuity Company of New
York in connection with individual and group variable annuity contracts and
single premium variable life insurance contracts. In the future, shares of the
Series Fund may be sold to other separate accounts established by the Company or
its affiliates to fund other variable annuity or variable life insurance
contracts. The Company and its affiliates will be responsible for reporting to
the Series Fund's Board of Trustees any potential or existing conflicts between
the interests of variable annuity contract owners/participants and the interests
of owners of variable life insurance contracts that provide for investment in
shares of the Series Fund. The Board of Trustees, a majority of whom are not
"interested persons" of the Series Fund, as that term is defined in the
Investment Company Act of 1940, also intends to monitor the Series Fund to
identify the existence of any such irreconcilable material conflicts and to
determine what action, if any, should be taken by the Series Fund and/or the
Company and its affiliates (see "Management of the Series Fund" in the Series
Fund prospectus).
14
<PAGE>
The Series Fund is composed of fifteen independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Series Fund are issued in fifteen series, each corresponding to one of the
portfolios; however, the Contracts provide for investment only in shares of the
seven 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.
(1) MONEY MARKET SERIES ("MMS") 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, including U.S. government
securities and repurchase agreements collateralized by such securities,
obligations of the larger banks and prime commercial paper.
(2) HIGH YIELD SERIES ("HYS") will seek high current income and capital
appreciation by investing primarily in fixed income securities of U.S. and
foreign issuers which may be in the lower rated categories or unrated (commonly
known as "junk bonds") and which may include equity features. These securities
generally involve greater volatility of price and risk to principal and income
and less liquidity than securities in the higher rated categories. Any person
contemplating allocating Purchase Payments to the Sub-Account investing in
shares of the High Yield Series should review the risk disclosure in the Series
Fund prospectus carefully and consider the investment risks involved.
(3) CAPITAL APPRECIATION SERIES ("CAS") will seek capital appreciation by
investing in securities of all types, with a major emphasis on common stocks.
(4) GOVERNMENT SECURITIES SERIES ("GSS") will seek current income and
preservation of capital by investing in U.S. Government and Government-related
Securities.
(5) WORLD GOVERNMENTS SERIES ("WGS") will seek moderate current income and
preservation and growth of capital by investing in a portfolio of U.S. and
Foreign Government Securities.
(6) TOTAL RETURN SERIES ("TRS") will seek primarily to obtain above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with prudent employment of capital; its secondary objective is to
take advantage of opportunities for growth of capital and income. Assets will be
allocated and reallocated from time to time between money market, fixed income
and equity securities. Generally at least 40% of its assets will be invested in
equity securities.
(7) MANAGED SECTORS SERIES ("MSS") will seek capital appreciation by varying
the weighting of its portfolio of common stocks among certain industry sectors.
Dividend income, if any, is incidental to its objective of capital appreciation.
The investment adviser of the Series Fund, Massachusetts Financial Services
Company ("MFS"), is paid fees by the Series Fund for its services pursuant to
investment advisory agreements. MFS, a Delaware corporation, is a wholly-owned
subsidiary of the Company. MFS also serves as investment adviser to each of the
funds in the MFS Family of Funds, and to certain other investment companies
established or distributed by MFS and/or the Company. MFS Asset Management Inc.,
a 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 and underwriting agreements
is solely that of MFS. The Company undertakes no obligation in this respect.
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.
15
<PAGE>
PURCHASE PAYMENTS AND CONTRACT VALUES DURING ACCUMULATION PERIOD
PURCHASE PAYMENTS
(1) PLACE, AMOUNT AND FREQUENCY
All Purchase Payments are to be paid to the Company at its Annuity Service
Mailing Address. The Company will not accept a Purchase Payment to be allocated
to a Participant's Account which is less than $5,000. In addition, the prior
approval of the Company is required before it will accept a Purchase Payment in
excess of $1,000,000. Only one Purchase Payment may be made per Certificate.
A completed Application and the Purchase Payment are forwarded to the
Company for acceptance. Upon acceptance, the Contract and Certificate(s), as
applicable, are issued to the Owner and/or Participant(s), respectively, and the
Purchase Payment is then credited to the Participant's Account. A Purchase
Payment must be applied within two business days of receipt by the Company of a
completed Application. The Company may retain the Purchase Payment for up to
five business days while attempting to complete an incomplete Application. If
the Application cannot be made complete within five business days, the
prospective participant will be informed of the reasons for the delay and the
Purchase Payment will be returned immediately unless the prospective participant
specifically consents to the Company's retaining the Purchase Payment until the
Application is made complete. Thereafter, the Purchase Payment must be applied
within two business days.
(2) ACCOUNT CONTINUATION
A Participant's Account shall be continued automatically in full force
during the lifetime of the Annuitant until the Annuity Commencement Date or
until the Participant's Account is surrendered.
(3) ALLOCATION OF NET PURCHASE PAYMENT
The Net Purchase Payment is that portion of the Purchase Payment which
remains after deduction of any applicable premium or similar tax. The Net
Purchase Payment will be allocated either to Guarantee Periods available in
connection with the Fixed Account or to Sub-Accounts of the Variable Account or
to both Sub-Accounts and the Fixed Account in accordance with the allocation
factors specified in the particular Participant's Application.
PARTICIPANT'S ACCOUNT
The Company will establish a Participant's Account for each Participant
under a Contract and will maintain the Participant's Account during the
Accumulation Period. The Participant's Account Value for any Valuation Period is
equal to the sum of the variable accumulation value, if any, plus the fixed
accumulation value, if any, of the Participant's Account for that Valuation
Period.
VARIABLE ACCUMULATION VALUE
The variable accumulation value of a Participant's Account, if any, for any
Valuation Period is equal to the sum of the value of all Variable Accumulation
Units credited to the Participant's Account for such Valuation Period.
(1) CREDITING VARIABLE ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion, if
any, of the Net Purchase Payment to be allocated to any Sub-Accounts in
accordance with the allocation factors will be credited to the Participant's
Account in the form of Variable Accumulation Units. The number of particular
Variable Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Sub-Account by the Variable Accumulation Unit
value for the particular Sub-Account for the Valuation Period during which the
Purchase Payment is applied by the Company to the Participant's Account.
(2) VARIABLE ACCUMULATION UNIT VALUE
The Variable Accumulation Unit value for each Sub-Account was established at
$10.00 for the first Valuation Period of the particular Sub-Account. The
Variable Accumulation Unit value for the particular Sub-Account for any
subsequent Valuation Period is determined by methodology which is the
mathematical equivalent of multiplying the Variable Accumulation Unit value for
the particular Sub-Account for the immediately preceding Valuation Period by the
Net Investment Factor for the particular Sub-Account for such
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<PAGE>
subsequent Valuation Period. The Variable Accumulation Unit value for each
Sub-Account for any Valuation Period is the value determined as of the end of
the particular Valuation Period and may increase, decrease or remain the same
from Valuation Period to Valuation Period in accordance with the Net Investment
Factor described below. For a hypothetical example of the calculation of the
value of a Variable Accumulation Unit, see Appendix A.
(3) NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore the
value of a Variable Accumulation Unit may increase, decrease or remain the same.
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
(1) the net asset value of a Series Fund share held in the
Sub-Account determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution
declared by the Series Fund on the shares held in the Sub-Account if the
"ex-dividend" date occurs during the Valuation Period, plus or minus
(3) a per share credit or charge with respect to any taxes paid or
reserved for by the Company during the Valuation Period which are
determined by the Company to be attributable to the operation of the
Sub-Account (no federal income taxes are applicable under present law);
(b) is the net asset value of a Series Fund share held in the
Sub-Account determined as of the end of the preceding Valuation Period; and
(c) is the asset charge factor determined by the Company for the
Valuation Period to reflect the charges for assuming the mortality and
expense risks and distribution expense risk.
FIXED ACCUMULATION VALUE
The fixed accumulation value of a Participant's Account, if any, for any
Valuation Period is equal to the sum of the values of all Guarantee Amounts
credited to the Participant's Account for such Valuation Period.
GUARANTEE PERIODS
The Participant may elect one or more Guarantee Period(s) with durations of
from one to ten years. The period(s) elected will determine the Guaranteed
Interest Rate(s). The Purchase Payment, or the portion thereof (or the amount
transferred in accordance with the Transfer Privilege) allocated to a particular
Guarantee Period, less any applicable premium or similar taxes and any amounts
subsequently withdrawn, will earn interest at the Guaranteed Interest Rate
during the Guarantee Period. Initial Guarantee Periods begin on the Date of
Coverage or, in the case of a transfer, on the effective date of the transfer,
and end the number of calendar years in the Guarantee Period elected from the
end of the calendar month in which the amount was allocated to the Guarantee
Period (the "Expiration Date"). Subsequent Guarantee Periods begin on the first
day following the Expiration Date.
Any portion of a Participant's Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) will be referred to herein as a "Guarantee Amount". Interest will be
credited daily at a rate equivalent to the compound annual rate. As a result of
renewals and transfers of portions of the Participant's Account Value described
under "Transfer Privilege" below, which will begin new Guarantee Periods,
Guarantee Amounts allocated to Guarantee Periods of the same duration may have
different Expiration Dates. Thus each Guarantee Amount will be treated
separately for purposes of determining any Market Value Adjustment (see "Market
Value Adjustment").
The Company will notify the Participant in writing at least 45 and no more
than 75 days prior to the Expiration Date for any Guarantee Amount. A new
Guarantee Period of the same duration as the previous
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<PAGE>
Guarantee Period will commence automatically at the end of the previous
Guarantee Period unless the Company receives, prior to the end of such Guarantee
Period, a written election by the Participant of a different Guarantee Period
from among those being offered by the Company at such time, or instructions to
transfer all or a portion of the Guarantee Amount to one or more Sub-Accounts in
accordance with the Transfer Privilege Provision.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed Interest
Rate for each of the ten Guarantee Periods. Current Guaranteed Interest Rates
may be changed by the Company frequently or infrequently depending on interest
rates available to the Company and other factors as described below, but once
established rates will be guaranteed for the duration of the respective
Guarantee Periods. However, Participant's Account Value withdrawn from the Fixed
Account will be subject to any applicable withdrawal charge and Account Fee and
may be subject to a Market Value Adjustment on withdrawal or surrender (See
"Market Value Adjustment").
The Guaranteed Interest Rate will not be less than 4% per year compounded
annually. The Company has no specific formula for determining the rate of
interest that it will declare as a Guaranteed Interest Rate, as these rates will
be reflective of interest rates available on the types of debt instruments in
which the Company intends to invest amounts allocated to the Fixed Account (See
"The Fixed Account"). In addition, the Company's management may consider other
factors in determining Guaranteed Interest Rates for a particular duration
including: regulatory and tax requirements; sales commissions and administrative
and distribution expenses borne by the Company; general economic trends; and
competitive factors. The Participant bears the risk that the Guaranteed Interest
Rate to be credited on amounts allocated to the Fixed Account may not exceed the
minimum guaranteed rate of 4% for any Guarantee Period.
TRANSFER PRIVILEGE
During the Accumulation Period the Participant may, upon written request
received by the Company, transfer all or part of the Participant's Account Value
to one or more Sub-Accounts or Guarantee Periods available under the Contract,
subject to the following conditions: (1) not more than 12 transfers may be made
in any Account Year; (2) the amount being transferred may not be less than
$1,000, unless the total Participant's Account Value attributable to a
Sub-Account or Guarantee Amount is being transferred; and (3) any Participant's
Account Value remaining in a Sub-Account or Guarantee Amount may not be less
than $100. In addition, transfers of all or a portion of a Guarantee Amount will
be subject to the Market Value Adjustment described below unless the transfer is
effective within 30 days prior to the Expiration Date applicable to the
Guarantee Amount; and transfers involving Variable Accumulation Units shall be
subject to such terms and conditions as may be imposed by the Series Fund. A
transfer generally will be effective on the date the request for transfer is
received by the Company. Under current law, there will not be any tax liability
to the Participant if a Participant makes a transfer.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date and during the lifetime of
the Annuitant, the Participant may elect to receive a cash withdrawal payment
from the Company. Any such election shall specify the amount of the withdrawal
and will be effective on the date that it is received by the Company. Amounts
withdrawn may not be redeposited.
The Participant may request a full surrender or partial withdrawal. A full
surrender will result in a cash withdrawal payment equal to the value of the
Participant's Account at the end of the Valuation Period during which the
election becomes effective less the Account Fee, plus or minus any applicable
Market Value Adjustment, and less any applicable withdrawal charge. A request
for a partial withdrawal will result in the cancellation of a portion of the
Participant's Account Value equal to the dollar amount of the cash withdrawal
payment, plus or minus any applicable Market Value Adjustment and plus any
applicable withdrawal charge. If a partial withdrawal is requested which would
leave a Participant's Account Value of less than the
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<PAGE>
Account Fee, then such partial withdrawal will be treated as a full surrender.
The Account Fee and any applicable Market Value Adjustment will be deducted from
the Participant's Account before the application of any withdrawal charge.
In the case of a partial withdrawal, the Participant may instruct the
Company as to the amounts to be withdrawn from each Sub-Account and/or Guarantee
Amount. If not so instructed, the Company will effect such withdrawal pro-rata
from each Sub-Account and Guarantee Amount in which the Participant's Account
Value is invested at the end of the Valuation Period during which the withdrawal
becomes effective. ALL CASH WITHDRAWALS OF ANY GUARANTEE AMOUNT, EXCEPT THOSE
EFFECTIVE WITHIN 30 DAYS PRIOR TO THE EXPIRATION DATE OF SUCH GUARANTEE AMOUNT,
WILL BE SUBJECT TO THE MARKET VALUE ADJUSTMENT.
Cash withdrawals from a Sub-Account will result in the cancellation of
Variable Accumulation Units attributable to the Participant's Account with an
aggregate value on the effective date of the withdrawal equal to the total
amount by which the Sub-Account is reduced. The cancellation of such units will
be based on the Variable Accumulation Unit values of the Sub-Account at the end
of the Valuation Period during which the cash withdrawal is effective.
The Company, upon request, will advise the Participant of the amounts that
would be payable in the event of a full surrender or partial withdrawal.
Any cash withdrawal payment will be paid within seven days from the date the
election becomes effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940 and applicable
state insurance law. Deferral of amounts withdrawn from the Variable Account is
currently permissible only (1) for any period (a) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings or
(b) during which trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, (2) for any period during
which an emergency exists as a result of which (a) disposal of securities held
by the Series Fund is not reasonably practicable or (b) it is not reasonably
practicable to determine the value of the net assets of the Series Fund or (3)
for such other periods as the Securities and Exchange Commission may by order
permit for the protection of security holders. The Company reserves the right to
defer the payment of amounts withdrawn from the Fixed Account for a period not
to exceed six months from the date written request for such withdrawal is
received by the Company. The Company is not required to pay interest on amounts
so deferred.
Since the Qualified Contracts offered by this Prospectus will be issued in
connection with retirement plans which meet the requirements of Sections 401,
403, and 408 of the Internal Revenue Code, reference should be made to the terms
of the particular retirement plan for any limitations or restrictions on cash
withdrawals. For special restrictions applicable to withdrawals from Contracts
used with Tax-Sheltered Annuities established pursuant to Section 403(b) of the
Internal Revenue Code, see "Section 403(b) Annuities" below.
A cash withdrawal under either a Qualified or Non-Qualified Contract offered
by this Prospectus also may result in a tax penalty. The tax consequences of a
cash withdrawal payment under both Qualified and Non-Qualified Contracts should
be carefully considered (See "Federal Tax Status").
WITHDRAWAL CHARGES
If a cash withdrawal is made, a withdrawal charge (contingent deferred sales
charge) may be assessed by the Company. During the first seven Account Years, up
to 10% of the Net Purchase Payment may be withdrawn in each Account Year on a
non-cumulative basis without the imposition of the withdrawal charge. Amounts
withdrawn from a Participant's Account in excess of such amount (adjusted by any
applicable Market Value Adjustment) will be subject to the withdrawal charge
assessed against such excess amount as follows:
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<TABLE>
<CAPTION>
ACCOUNT YEAR WITHDRAWAL CHARGE
- ------------- -------------------------
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 4%
7 3%
thereafter 0%
</TABLE>
The withdrawal charge is not imposed after the end of the seventh Account
Year, nor is the withdrawal charge imposed upon payment of the death benefit or
upon amounts applied to purchase an annuity.
The withdrawal charge is not assessed with respect to a Participant's
Account established for the personal account of an employee of the Company or of
any of its affiliates, or of a licensed insurance agent engaged in distributing
the Contracts.
In no event shall the aggregate withdrawal charges (together with the
distribution expense charge described under "How the Contract Charges Are
Assessed") assessed against a Participant's Account exceed 9% of the Purchase
Payment. The Company may, upon notice to the Owner, modify the withdrawal
charges provided that such modification shall apply only to Participant's
Accounts established after the effective date of such modification (See
"Modification").
For illustrative examples of withdrawals, surrenders, withdrawal charges and
the Market Value Adjustment, see Appendix C.
SECTION 403(B) ANNUITIES
The Internal Revenue Code imposes restrictions on cash withdrawals from
Contracts used with Section 403(b) Annuities. In order for these Contracts to
receive tax deferred treatment, the Contract must provide that cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of accumulation account value as of December 31, 1988 ("Pre-1989
Account Value")) 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 any growth
or interest on or after January 1, 1989 on Pre-1989 Account Value, salary
reduction contributions made on or after January 1, 1989, and any growth or
interest on such contributions ("Restricted Account Value").
Withdrawals of Restricted Account Value are also permitted in cases of
financial hardship, but only to the extent of contributions; earnings on
contributions cannot be withdrawn for hardship reasons. While specific rules
defining hardship have not been issued by the Internal Revenue Service, it is
expected 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 Contract (See "Federal
Tax Status").
Under the terms of a particular Section 403(b) plan, the Participant may be
entitled to transfer all or a portion of the Participant's 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.
With respect to these restrictions on withdrawals from the Variable Account,
the Company is relying upon a no-action letter dated November 28, 1988 from the
staff of the Securities and Exchange Commission to the American Council of Life
Insurance, the requirements for which have been complied with by the Company.
For information on the federal income tax withholding rules that apply to
distributions from Qualified Contracts (including Section 403(b) Annuities) see
"Federal Tax Status".
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<PAGE>
MARKET VALUE ADJUSTMENT
Any cash withdrawal of a Guarantee Amount, other than a withdrawal effective
within 30 days prior to the Expiration Date of the Guarantee Amount, will be
subject to a Market Value Adjustment ("MVA") (for this purpose, transfers,
distributions on the death of a Participant and amounts applied to purchase an
annuity are treated as cash withdrawals). The MVA will be applied to the amount
being withdrawn after deduction of any applicable Account Fee and before
deduction of any applicable withdrawal charge.
The MVA will reflect the relationship between the Current Rate (as defined
below) for the Guarantee Amount being withdrawn and the Guaranteed Interest Rate
applicable to the amount being withdrawn. It also reflects the time remaining in
the applicable Guarantee Period. If the applicable Guaranteed Interest Rate is
more than .50% higher than the Current Rate, the application of the MVA will
result in a higher payment upon withdrawal. Otherwise, the application of the
MVA will result in a lower payment upon withdrawal.
The Market Value Adjustment is determined by the application of the
following formula:
1 + I N/12
( -----------)
1 + J + .005 - 1
where,
I is the Guaranteed Interest Rate being credited to the Guarantee Amount
subject to the Market Value Adjustment,
J is the Guaranteed Interest Rate declared by the Company, as of the
effective date of the application of the Market Value Adjustment, for current
allocations to Guarantee Periods equal to the balance of the Guarantee Period of
the Guarantee Amount subject to the Market Value Adjustment, rounded to the next
higher number of complete years (the "Current Rate"), and
N is the number of complete months remaining in the Guarantee Period of the
Guarantee Amount subject to the Market Value Adjustment.
See Appendix C for examples of the application of the Market Value
Adjustment.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the Company will pay a death benefit to the Beneficiary. If there is no
designated Beneficiary living on the date of death of the Annuitant, the Company
will, upon receipt of Due Proof of Death of both the Annuitant and the
designated Beneficiary, pay the death benefit in one sum to the Participant or,
if the Annuitant was the Participant, to the estate of the
Participant/Annuitant. If the death of the Annuitant occurs on or after the
Annuity Commencement Date, no death benefit will be payable under the Contract
except as may be provided under the Annuity Option elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Participant may elect to have the death benefit applied under one or
more Annuity Options to effect a Variable Annuity or a Fixed Annuity or a
combination of both for the Beneficiary as Payee after the death of the
Annuitant. If no election of a method of settlement of the death benefit by the
Participant is in effect on the date of death of the Annuitant, the Beneficiary
may elect (a) to receive the death benefit in the form of a single cash payment;
or (b) to have the death benefit applied under one or more of the Annuity
Options (on the Annuity Commencement Date described under "Payment of Death
Benefit") to effect a Variable Annuity or a Fixed Annuity or a combination of
both for the Beneficiary as Payee. Either election described above may be made
by filing with the Company a written election in such form as `the Company may
require. Any election of a method of settlement of the death benefit by the
Participant will become effective on the date it is received by the Company. For
the purposes of the Payment of Death Benefit and Amount of Death Benefit
sections below, any election of the method of settlement of the death benefit by
the Participant which is in effect on
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<PAGE>
the date of death of the Annuitant will be deemed effective on the date Due
Proof of Death of the Annuitant is received by the Company. Any election of a
method of settlement of the death benefit by the Beneficiary will become
effective on the later of: (a) the date the election is received by the Company;
or (b) the date due proof of the death of the Annuitant is received by the
Company. If an election by the Beneficiary is not received by the Company within
60 days following the date due proof of the death of the Annuitant is received
by the Company, the Beneficiary will be deemed to have elected a cash payment as
of the last day of the 60 day period.
In all cases, no Participant or Beneficiary shall be entitled to exercise
any rights that would adversely affect the treatment of the Contract as an
annuity contract under the Internal Revenue Code (see "Other Contractual
Provisions -- Death of Participant").
PAYMENT OF DEATH BENEFIT
If the death benefit is to be paid in cash to the Beneficiary, payment will
be made within seven days of the date the election becomes effective or is
deemed to become effective, except as the Company may be permitted to defer any
such payment of amounts derived from the Variable Account in accordance with the
Investment Company Act of 1940. If the death benefit is to be paid in one sum to
the Participant or, if the Annuitant was the Participant, to the estate of the
deceased Participant/Annuitant, payment will be made within seven days of the
date due proof of the death of the Annuitant, the Participant and/or the
designated Beneficiary, as applicable, is received by the Company. If settlement
under one or more of the Annuity Options is elected the Annuity Commencement
Date will be the first day of the second calendar month following the effective
date or the deemed effective date of the election, and the Participant's Account
will be maintained in effect until the Annuity Commencement Date.
AMOUNT OF DEATH BENEFIT
The death benefit is determined as of the effective date or deemed effective
date of the death benefit election and is equal to the greatest of (1) the
Participant's Account Value for the Valuation Period during which the death
benefit election is effective or is deemed to become effective; (2) the Purchase
Payment made with respect to the Participant's Account, minus the sum of all
partial withdrawals; (3) the amount that would have been payable in the event of
a full surrender of the Participant's Account on the date the death benefit
election is effective or is deemed to become effective; and (unless prohibited
by applicable state law) (4) the Participant's Account Value on the Seven Year
Anniversary immediately preceding the date the death benefit election is
effective or is deemed to become effective, adjusted for any subsequent partial
withdrawals.
HOW THE CONTRACT CHARGES ARE ASSESSED
As more fully described below, charges under the Contract offered by this
Prospectus are assessed in three ways: (1) as deductions for administrative
expenses and, if applicable, for premium taxes; (2) as charges against the
assets of the Variable Account for the assumption of mortality and expense risks
and distribution expense charges; and (3) as withdrawal charges (contingent
deferred sales charges). In addition, certain deductions are made from the
assets of the Series Fund for investment management fees and expenses. These
fees and expenses are described in the Series Fund's Prospectus and Statement of
Additional Information.
ACCOUNT FEE
Each year on the Account Anniversary, the Company deducts from each
Participant's Account an annual account administration fee ("Account Fee") equal
to the lesser of $30 and 2% of the Participant's Account Value to reimburse it
for administrative expenses relating to the issue and maintenance of the
Contract, the Certificate and the Participant's Account. If the Participant's
Account is surrendered for its full value on other than the Account Anniversary,
the Account Fee will be deducted in full at the time of such surrender. The
Account Fee will be deducted on a pro rata basis from amounts allocated to each
Guarantee Period and each Sub-Account in which the Participant's Account is
invested at the time of such deduction. On the Annuity Commencement Date, the
value of the Participant's Account will be reduced by a proportionate amount of
the Account Fee to reflect the time elapsed between the last Account Anniversary
and the day
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<PAGE>
before the Annuity Commencement Date. After the Annuity Commencement, the
Account Fee will be deducted in equal amounts from each variable annuity payment
made during the year. No deduction will be made from fixed annuity payments.
The Contract provides that the Company may modify the Account Fee provided
that such modification shall apply only with respect to Participant's Accounts
established after the effective date of such modification (See "Modification").
The Company does not expect to make a profit from the Account Fee.
PREMIUM TAXES
A deduction, when applicable, is made for premium or similar state or local
taxes (See Appendix B). It is currently the policy of the Company to deduct the
tax from the amount applied to provide an annuity at the time annuity payments
commence; however, the Company reserves the right to deduct such taxes when
incurred.
CHARGES AGAINST THE VARIABLE ACCOUNT FOR MORTALITY AND EXPENSE RISKS AND
DISTRIBUTION EXPENSE CHARGES
The mortality risk assumed by the Company arises from the 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 assures each annuitant that neither the longevity of fellow
annuitants nor an improvement in the life expectancy generally will have an
adverse effect on the amount of any annuity payment received under the Contract.
The Company assumes this mortality risk by virtue of annuity rates incorporated
into the Contract which cannot be changed except with respect to Participant's
Accounts established after the effective date of such change, as provided in the
section of this Prospectus entitled "Modification". The expense risk assumed by
the Company is the risk that the administrative charges assessed under the
Contract may be insufficient to cover the actual total administrative expenses
incurred by the Company.
For assuming these risks, the Company makes a deduction from the Variable
Account at the end of each Valuation Period during both the Accumulation Period
and after annuity payments begin at an effective annual rate of 1.25%. If the
deduction is insufficient to cover the actual cost of the mortality and expense
risk undertaking, the Company will bear the loss. Conversely, if the deduction
proves more than sufficient, the excess will be profit to the Company and would
be available for any proper corporate purpose including, among other things,
payment of distribution expenses. The Company will recoup its expected costs
associated with registering and distributing the Contracts by the assessment of
the withdrawal charges (contingent deferred sales charges) and the distribution
expense charge described below. However, the withdrawal charges and distribution
expense charges may prove to be insufficient to cover actual distribution
expenses. If this is the case, the deficiency will be met from the Company's
general corporate funds which may include amounts derived from the mortality and
expense risk charges.
The Company assumes the risk that withdrawal charges assessed under the
Contracts may be insufficient to compensate the Company for the costs of
distributing the Contracts. For assuming such risk the Company makes a deduction
from the Variable Account at the end of each Valuation Period for the first
seven Account Years (during both the accumulation period and, if applicable,
after annuity payments begin) at an effective annual rate of 0.15% (the staff of
the Securities and Exchange Commission deems this charge a deferred sales
charge). No deduction is made after the seventh Account Anniversary. If the
distribution expense charge is insufficient to cover the actual risk assumed,
the Company will bear the loss; however, if the charge is more than sufficient,
any excess will be profit to the Company and would be available for any proper
corporate purpose. In no event will the distribution expense charges and the
withdrawal charges assessed against a Participant's Account exceed 9% of the
Purchase Payment.
The Contract provides that the Company may modify the mortality and expense
risk and distribution expense charges; however, such modification shall apply
only with respect to Participant's Accounts established after the effective date
of such modification (See "Modification"). For the year ended December 31, 1994,
mortality and expense risk and distribution expense charges were the only
expenses of the Variable Account.
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<PAGE>
WITHDRAWAL CHARGES
No deduction for sales charges is made from a Purchase Payment. However, a
withdrawal charge (contingent deferred sales charge) of up to 6% of certain
amounts withdrawn, when applicable, will be used to cover certain expenses
relating to the sale of the Contract and Certificates thereunder, including
commissions paid to sales personnel, the costs of preparation of sales
literature and other promotional costs and acquisition expenses. Gross
commissions paid on the sale of these Contracts are not more than 6.86% of the
Purchase Payment (See "Cash Withdrawals" and "Withdrawal Charges").
ANNUITY PROVISIONS
ANNUITY COMMENCEMENT DATE
Annuity payments will begin on the Annuity Commencement Date which is
selected by the Participant, as specified in the Application. The date selected
by the Participant may not be sooner than the first day of the second calendar
month following the Date of Coverage. This date may be changed by the
Participant from time to time by written notice to the Company, provided that
notice of each change is received by the Company at least 30 days prior to the
then current Annuity Commencement Date and the new Annuity Commencement Date is
a date which is: (1) at least 30 days after the date notice of the change is
received by the Company; (2) the first day of a month; and (3) not later than
the first day of the first month following the Annuitant's 85th birthday, unless
otherwise restricted, in the case of a Qualified Contract, by the particular
retirement plan or by applicable law. In most situations, current law requires
that the Annuity Commencement Date under a Qualified Contract be no later than
April 1 following the year the Annuitant reaches age 70 1/2, and the terms of
the particular retirement plan may impose additional limitations. The Annuity
Commencement Date may also be changed by an election of an Annuity Option as
described in the Death Benefit section of this Prospectus.
On the Annuity Commencement Date the Participant's Account will be cancelled
and its adjusted value will be applied to provide an annuity under one or more
of the options described below. No withdrawal charge will be imposed upon
amounts applied to purchase an annuity. However, the Market Value Adjustment may
apply, as noted under "Determination of Amount." NO PAYMENTS MAY BE REQUESTED
UNDER THE CONTRACT'S CASH WITHDRAWAL PROVISIONS ON OR AFTER THE ANNUITY
COMMENCEMENT DATE, AND NO CASH WITHDRAWAL WILL BE PERMITTED EXCEPT AS MAY BE
AVAILABLE UNDER THE ANNUITY OPTION ELECTED.
Since the Contracts offered by this Prospectus may be issued in connection
with retirement plans which meet the requirements of Section 401, 403 or 408 of
the Internal Revenue Code, as well as certain non-qualified plans, reference
should be made to the terms of the particular plan for any limitations or
restrictions on the Annuity Commencement Date.
ELECTION--CHANGE OF ANNUITY OPTION
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Participant may elect one or more of the Annuity Options described
below, or such other settlement option as may be agreed to by the Company, for
the Annuitant as Payee. The Participant may also change any election, but
written notice of any election or change of election must be received by the
Company at least 30 days prior to the Annuity Commencement Date. If no election
is in effect on the 30th day prior to the Annuity Commencement Date, Annuity
Option B, for a Life Annuity with 120 monthly payments certain, will be deemed
to have been elected. If there is no election of a sole Annuitant in effect on
the 30th day prior to the Annuity Commencement Date, the person designated as
"Co-Annuitant" will be the Payee under the applicable Annuity Option.
Any election may specify the proportion of the adjusted value of the
Participant's Account to be applied to provide a Fixed Annuity and a Variable
Annuity. In the event the election does not so specify, or if no election is in
effect on the 30th day prior to the Annuity Commencement Date, then the portion
of the adjusted value of the Participant's Account to be applied to provide a
Fixed Annuity and a Variable Annuity will be determined on a pro rata basis from
the composition of the Participant's Account on the Annuity Commencement Date.
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Annuity Options may also be elected by the Participant or the Beneficiary as
provided in the Death Benefit section of this Prospectus.
Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any limitations or restrictions on the options
which may be elected.
NO CHANGE OF ANNUITY OPTION IS PERMITTED AFTER THE ANNUITY COMMENCEMENT
DATE.
ANNUITY OPTIONS
No lump sum settlement option is available under the Contract. The
Participant may surrender a Certificate prior to the Annuity Commencement Date;
however, any applicable surrender charge will be deducted from the cash
withdrawal payment and a Market Value Adjustment, if applicable, will be
applied.
Annuity Options A, B, C and D are available to provide either a Fixed
Annuity or a Variable Annuity. Annuity Option E is available only to provide a
Fixed Annuity.
Annuity Option A. Life Annuity: Monthly payments during the lifetime of
the Payee. This option offers a higher level of monthly payments than Annuity
Options B or C because no further payments are payable after the death of the
Payee and there is no provision for a death benefit payable to a Beneficiary.
Annuity Option B. Life Annuity with 60, 120, 180 or 240 Monthly Payments
Certain: Monthly payments during the lifetime of the Payee and in any event for
60, 120, 180 or 240 months certain as elected. The election of a longer period
certain results in smaller monthly payments than would be the case if a shorter
period certain were elected. In the event of the death of the Payee under this
option, the Contract provides that if there is no designated beneficiary
entitled to the remaining payments then living, the discounted value of the
remaining payments, if any, will be calculated and paid in one sum to the
deceased Payee's estate. In addition, any beneficiary who becomes entitled to
any remaining payments under this option may elect to receive the amounts due
under this option in one sum. The discounted value for variable annuity payments
will be based on interest compounded annually at the assumed interest rate of
4%. The discounted value for payments being made on a fixed basis will be based
on the interest rate initially used by the Company to determine the amount of
each payment.
Annuity Option C. Joint and Survivor Annuity: Monthly payments payable
during the joint lifetime of the Payee and a designated second person and during
the lifetime of the survivor. During the lifetime of the survivor, variable
monthly payments, if any, will be determined using the percentage chosen at the
time of election of this option of the number of each type of Annuity Unit
credited to the Contract with respect to the Payee and fixed monthly payments,
if any, will be equal to the same percentage of the fixed monthly payment
payable during the joint lifetime of the Payee and the designated second person.
* Annuity Option D. Monthly Payments for a Specified Period
Certain: Monthly payments for a specified period of time, as elected. In the
event of the death of the Payee under this option, the Contract provides that,
as described under Annuity Option B above, in certain circumstances the
discounted value of the remaining payments, if any, will be calculated and paid
in one sum.
* Annuity Option E. Fixed Payments: The amount applied to provide fixed
payments in accordance with this option will be held by the Company at interest.
Fixed payments will be made in such amounts and at such times as may be agreed
upon with the Company and will continue until the amount held by the Company
with interest is exhausted. The final payment will be for the balance remaining
and may be less than the amount of each preceding payment. Interest will be
credited yearly on the amount remaining unpaid at a rate which shall be
determined by the Company from time to time but which shall not be less than 4%
per year, compounded annually. The rate so determined may be changed at any time
and as often as may be determined by the Company, provided, however, that the
rate may not be reduced more frequently than once during each calendar year.
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* The election of this annuity option may result in the imposition of a penalty
tax.
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DETERMINATION OF ANNUITY PAYMENTS
On the Annuity Commencement Date the Participant's Account will be cancelled
and its adjusted value will be applied to provide a Variable Annuity or a Fixed
Annuity or a combination of both. The adjusted value will be equal to the
Participant's Account Value at the end of the Valuation Period which ends
immediately preceding the Annuity Commencement Date, reduced by a proportionate
amount of the Account Fee to reflect the time elapsed between the last Account
Anniversary and the day before the Annuity Commencement Date, plus or minus any
applicable Market Value Adjustment and minus any applicable premium or similar
taxes.
If the amount to be applied under any annuity option is less than $2,000, or
if the first annuity payment payable in accordance with such option is less than
$20, the Company will pay the amount to be applied in a single payment to the
Payee.
FIXED ANNUITY PAYMENTS
The dollar amount of each fixed annuity payment will be determined in
accordance with the Annuity Payment Rates found in the Contract which are based
on a minimum guaranteed interest rate of 4% per year, or, if more favorable to
the Payee(s), in accordance with the Annuity Payment Rates published by the
Company and in use on the Annuity Commencement Date.
VARIABLE ANNUITY PAYMENTS
The dollar amount of the first variable annuity payment will be determined
in accordance with the Annuity Payment Rates found in the Contract which are
based on an assumed interest rate of 4% per year, unless these rates are changed
(See "Modification"). All variable annuity payments other than the first are
determined by means of Annuity Units credited to the Contract with respect to
the particular Payee. The number of Annuity Units to be credited in respect of a
particular Sub-Account is determined by dividing that portion of the first
variable annuity payment attributable to that Sub-Account by the Annuity Unit
value of that Sub-Account at the end of the Valuation Period which ends
immediately preceding the Annuity Commencement Date. The number of Annuity Units
of each particular Sub-Account credited with respect to the particular Payee
then remains fixed unless an exchange of Annuity Units is made as described
below. The dollar amount of each variable annuity payment after the first may
increase, decrease or remain constant, and is equal to the sum of the amounts
determined by multiplying the number of Annuity Units of a particular
Sub-Account credited with respect to the particular Payee by the Annuity Unit
value for the particular Sub-Account for the Valuation Period which ends
immediately preceding the due date of each subsequent payment. If the net
investment return on the assets of the Variable Account is the same as the
assumed interest rate of 4% per year, variable annuity payments will remain
level. If the net investment return exceeds the assumed interest rate variable
annuity payments will increase and, conversely, if it is less than the assumed
interest rate the payments will decrease.
For a hypothetical example of the calculation of a Variable Annuity Payment,
see Appendix A.
VARIABLE ANNUITY UNIT VALUE
The Annuity Unit value for each Sub-Account was established at $10.00 for
the first Valuation Period of the particular Sub-Account. The Annuity Unit Value
for the particular Sub-Account for any subsequent Valuation Period is determined
by multiplying the Annuity Unit value for the particular Sub-Account for the
immediately preceding Valuation Period by the Net Investment Factor (See
"Variable Accumulation Value, Net Investment Factor") for the particular
Sub-Account for the current Valuation Period and then multiplying that product
by a factor to neutralize the assumed interest rate of 4% per year used to
establish the Annuity Payment Rates found in the Contract. The factor is
0.99989255 for a one day Valuation Period.
For a hypothetical example of the calculation of the value of a Variable
Annuity Unit, see Appendix A.
EXCHANGE OF VARIABLE ANNUITY UNITS
After the Annuity Commencement Date the Payee may, by filing a written
request with the Company, exchange the value of a designated number of Annuity
Units of particular Sub-Accounts then credited with
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respect to the particular Payee into other Annuity Units, the value of which
would be such that the dollar amount of an annuity payment made on the date of
the exchange would be unaffected by the fact of the exchange. No more than
twelve (12) exchanges may be made within each Account Year.
Exchanges may be made only between Sub-Accounts. Exchanges will be made
using the Annuity Unit values for the Valuation Period during which any request
for exchange is received by the Company.
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 of 4%; and (b) the monthly fixed annuity payment, when
this payment is based on the minimum guaranteed interest rate of 4% per year.
These rates may be changed by the Company with respect to Participant's Accounts
established after the effective date of such change (See "Modification").
The annuity payment rates may vary according to the Annuity Option elected
and the adjusted age of the Payee. The Contract also describes the method of
determining the adjusted age of the Payee. The mortality table used in
determining the annuity payment rates for Options A, B and C is the 1983
Individual Annuitant Mortality Table.
OTHER CONTRACTUAL PROVISIONS
PAYMENT LIMITS
Only one Purchase Payment may be made per Certificate. The single Purchase
Payment credited to each Participant's Account must be at least $5,000. In
addition, the prior approval of the Company is required before it will accept a
Purchase Payment in excess of $1,000,000.
DESIGNATION AND CHANGE OF BENEFICIARY
The beneficiary designation contained in the Application will remain in
effect until changed. The interest of any Beneficiary is subject to the
particular Beneficiary surviving the Annuitant and, in the case of a Non-
Qualified Contract, the Participant as well.
Subject to the rights of an irrevocably designated Beneficiary, the
Participant may change or revoke the designation of a Beneficiary at any time
while the Annuitant is living by filing with the Company a written beneficiary
designation or revocation in such form as the Company may require. The change or
revocation will not be binding upon the Company until it is received by the
Company. When it is so received the change or revocation will be effective as of
the date on which the beneficiary designation or revocation was signed, but the
change or revocation will be without prejudice to the Company on account of any
payment made or any action taken by the Company prior to receiving the change or
revocation.
Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any restrictions on the beneficiary designation.
EXERCISE OF CONTRACT RIGHTS
The Contract shall belong to the Owner. All Contract rights and privileges
may be expressly reserved by the Owner, failing which, each Participant shall be
entitled to exercise such rights and privileges in connection with such
Participant's Certificate. In any case, such rights and privileges can be
exercised without the consent of the Beneficiary (other than an irrevocably
designated Beneficiary) or any other person. Such rights and privileges may be
exercised only during the lifetime of the Annuitant and prior to the Annuity
Commencement Date, except as otherwise provided in the Contract.
The Annuitant becomes the Payee on and after the Annuity Commencement Date.
The Beneficiary becomes the Payee on the death of the Annuitant. Such Payees 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
Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Internal
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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
Owner; 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 Annuitant and prior to the last Annuity
Commencement Date; and each Participant, in like manner, may change the
ownership interest in a Contract evidenced by that Participant's Certificate. A
change of ownership will not be binding upon the Company until written
notification is received by the Company. When such notification is so received,
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 the Company on account of any payment made or any action
taken by the Company prior to receiving the change.
DEATH OF PARTICIPANT
If a Participant under a Non-Qualified Contract dies prior to the Annuitant
and before the Annuity Commencement Date, the Participant's Account Value, plus
or minus any applicable Market Value Adjustment, must be distributed to the
Beneficiary, if then alive, either (1) within five years after the date of death
of the Participant, or (2) over some period not greater than the life or
expected life of the Beneficiary, with annuity payments beginning within one
year after the date of death of the Participant. The person named as the
Participant's Beneficiary shall be considered the designated beneficiary for the
purposes of Section 72(s) of the Internal Revenue Code and if no person then
living has been so named, then the Annuitant shall automatically be the
designated beneficiary for this purpose.
These mandatory distribution requirements will not apply when the designated
beneficiary is the spouse of the Participant, if the spouse elects to continue
the Certificate in the spouse's own name, as Participant. When the Participant
was also the Annuitant, the surviving spouse (if the designated beneficiary) may
elect to be named as both Participant and Annuitant and continue the
Certificate, but if that election is not made, the Death Benefit provision of
the Contract shall then be controlling. In all other cases where the Participant
and the Annuitant are the same individual, the Death Benefit provision of the
Contract controls.
If the Payee dies on or after the Annuity Commencement Date and before the
entire accumulation under such Participant's Account has been distributed, the
remaining portion of such Participant's Account, if any, must be distributed at
least as rapidly as the method of distribution then in effect.
In all cases, no Participant or Beneficiary shall be entitled to exercise
any rights that would adversely affect the treatment of the Contract as an
annuity contract under the Internal Revenue Code.
Any distributions upon the death of a Participant under a Qualified Contract
will be subject to the laws and regulations governing the particular retirement
or deferred compensation plan in connection with which the Qualified Contract
was issued.
VOTING OF SERIES FUND SHARES
The Company will vote Series Fund shares held by the Sub-Accounts at
meetings of shareholders of the Series Fund, but will follow voting instructions
received from persons having the right to give voting instructions. The Owner or
Participant is the person having the right to give voting instructions prior to
the Annuity Commencement Date. On or after the Annuity Commencement Date the
Payee is the person having such voting rights. Any shares attributable to the
Company and Series Fund shares for which no timely voting instructions are
received will be voted by the Company in the same proportion as the shares for
which instructions are received from Owners, Participants and Payees.
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 which are funded by the Contracts
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may be entitled to instruct the Owners as to how to instruct the Company to vote
the 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's
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, nor any duty to inquire as to the instructions received or the
authority of Owners or others to instruct the voting of 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.
All 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 ten days prior to each meeting of the
shareholders of the Series Fund. The number of Series Fund shares as to which
each such person is entitled to give instructions will be determined by the
Company on a date not more than 90 days prior to each such meeting. Prior to the
Annuity Commencement Date, the number of 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's Account by the net asset value of one Series Fund share as of
the same date. On or after the Annuity Commencement Date, the number of 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 a Series Fund share as of the
same date. After the Annuity Commencement Date, the number of 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 the Company will send the Participant, or
such other person having voting rights, at least once during each Account Year,
a statement showing the number, type and value of Accumulation Units credited to
the Participant's Account and the Fixed Accumulation Value of such account,
which statement shall be accurate as of a date not more than two months previous
to the date of mailing. In addition, every person having voting rights will
receive such reports or prospectuses concerning the Variable Account and the
Series Fund as may be required by the Investment Company Act of 1940 and the
Securities Act of 1933. The Company will also send such statements reflecting
transactions in the Participant's Account as may be required by applicable laws,
rules and regulations.
Upon request, the Company will provide the Participant with information
regarding fixed and variable accumulation values.
SUBSTITUTED SECURITIES
Shares of any or all Series of the Series Fund may not always be available
for purchase by the Sub-Accounts of the Variable Account or the Company may
decide that further investment in any such shares is no longer appropriate in
view of the purposes of the Variable Account. In either event, shares of another
registered open-end investment company or unit investment trust may be
substituted both for Series Fund shares already purchased by the Variable
Account and/or as the security to be purchased in the future provided that these
substitutions have been approved by the Securities and Exchange Commission. In
the event of any substitution pursuant to this provision, the Company may make
appropriate endorsement to the Contract to reflect the substitution.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At the Company's election and subject to any necessary vote by persons
having the right to give instructions with respect to the voting of 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.
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Deregistration of the Variable Account requires an order by the Securities and
Exchange Commission. In the event of any change in the operation of the Variable
Account pursuant to this provision, the Company 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.
SPLITTING UNITS
The Company reserves 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 and Participant(s) (or the Payee(s) during the
annuity period), the Contract may be modified by the Company 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; or (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; or
(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, the Company may make appropriate endorsement in
the Contract to reflect such modification.
In addition, upon notice to the Owner the Contract may be modified by the
Company to change the withdrawal charges, Account Fees, mortality and expense
risk charges, distribution expense 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 shall apply only to Participant's Accounts established after the
effective date of such modification. In order to exercise its modification
rights in these particular instances, the Company 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 of mailing of the
notice of modification by the Company. 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's Accounts established prior to the effective date of such
modification.
DISCONTINUANCE OF NEW PARTICIPANTS
The Company, by giving 30 days' prior written notice to the Owner, may limit
or discontinue the acceptance of new Applications and the issuance of new
Certificates under a Contract. Such limitation or discontinuance shall have no
effect on rights or benefits with respect to any Participant's Accounts
established prior to the effective date of such limitation or discontinuance.
CUSTODIAN
The Company is the Custodian of the assets of the Variable Account. The
Company will purchase Series Fund shares at net asset value in connection with
amounts allocated to the Sub-Accounts in accordance with the instructions of the
Participant and redeemed 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.
RIGHT TO RETURN
If the Participant is not satisfied with the Certificate it may be returned
by mailing it to the Company at the Annuity Service Mailing Address on the cover
of this Prospectus within ten days after it was delivered to the Participant.
When the Company receives the returned Certificate it will be cancelled and the
Participant's Account Value at the end of the Valuation Period during which the
Certificate was received by the Company will be refunded to the Participant.
However, if applicable state law so requires, the full amount of any Purchase
Payment received by the Company will be refunded, the "free look" period may be
greater than ten days and alternative methods of returning the Certificate may
be acceptable.
With respect to Individual Retirement Accounts, under the Employee
Retirement Income Security Act of 1974 ("ERlSA") a Participant establishing an
Individual Retirement Account must be furnished with a
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disclosure statement containing certain information about the Contract and
applicable legal requirements. This statement must be furnished on or before the
date the Individual Retirement Account is established. If the Participant is
furnished with such disclosure statement before the seventh day preceding the
date the Individual Retirement Account is established, the Participant will not
have any right of revocation. If the disclosure statement is furnished after the
seventh day preceding the establishment of the Individual Retirement Account,
then the Participant may give a notice of revocation to the Company at any time
within seven days after the Date of Coverage. Upon such revocation, the Company
will refund the Purchase Payment made by the Participant. The foregoing right of
revocation with respect to an Individual Retirement Account is in addition to
the return privilege set forth in the preceding paragraph. The Company will
allow a participant establishing an Individual Retirement Account a "ten day
free-look," notwithstanding the provisions of ERISA.
FEDERAL TAX STATUS
INTRODUCTION
The Contracts and related Certificates 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(b), 408(c)
and 408(k) of the Internal Revenue Code (the "Code"), as well as non-qualified
retirement plans, such as deferred compensation plans and payroll savings plans.
The ultimate effect of federal income taxes may depend upon the type of
retirement plan for which the Contract or Certificate is purchased and a number
of different factors. This discussion is general in nature, is based upon the
Company's understanding of current federal income tax laws, and is not intended
as tax advice. Congress has the power to enact legislation affecting the tax
treatment of annuity contracts, and such legislation could be applied
retroactively to Contracts purchased before the date of enactment. Also, because
the Internal Revenue Code, as amended, is not in force in the Commonwealth of
Puerto Rico, some references in this discussion will not apply to Contracts or
Certificates issued in Puerto Rico. Any person contemplating the purchase of a
Contract or Certificate should consult a qualified tax adviser. THE COMPANY DOES
NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY
CONTRACT OR CERTIFICATE OR ANY TRANSACTION INVOLVING THE CONTRACTS OR
CERTIFICATES.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under the Code. The
operations of the Variable Account are accounted for separately from other
operations of the Company for purposes of federal income taxation, but the
Variable Account is not taxable as a regulated investment company or otherwise
as an entity separate from the Company. The income of the Variable Account
(consisting primarily of interest, dividends and net capital gains) is not
taxable to the Company to the extent that it is applied to increase reserves
under contracts participating in the Variable Account.
TAXATION OF ANNUITIES IN GENERAL
Purchase Payments made under Non-Qualified Contracts are not deductible from
the Participant's income for federal income tax purposes. Participants under
Qualified Contracts should consult a tax adviser regarding the tax treatment of
Purchase Payments.
Generally, no taxes are imposed on the increase in the value of a Contract
or Certificate until a distribution occurs, either as an annuity payment or as a
cash withdrawal or lump-sum payment prior to the Annuity Commencement Date.
However, corporate Owners and Participants and other Owners and Participants
that are not natural persons are subject to current taxation on the annual
increase in the value of a Non-Qualified Contract, unless the non-natural person
holds the Contract as agent for a natural person (such as where a bank or other
entity holds a Contract as trustee under a trust agreement). This current
taxation of annuities held by non-natural persons does not apply to earnings
accumulated under an immediate annuity, which the Code defines as a single
premium contract with an annuity commencement date within one year of the date
of purchase.
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The Code is unclear in its application to a group annuity contract where the
Owner is distinct from the individuals who receive the Contract benefits (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.
A partial cash withdrawal (that is, a withdrawal of less than the entire
Participant's Account Value) from a Certificate issued under a Non-Qualified
Contract (a "Non-Qualified Certificate") before the Annuity Commencement Date is
treated first as a withdrawal from the increase in the Participant's Account
Value, rather than as a return of Purchase Payments. The amount of the
withdrawal allocable to this increase will be includible in the Participant's
income and subject to tax at ordinary income rates. If part or all of a
Participant's Account Value is assigned or pledged as collateral for a loan, the
amount assigned or pledged must be treated as if it were withdrawn from the
Certificate.
In the case of annuity payments under a Non-Qualified Certificate after the
Annuity Commencement Date, a portion of each payment is treated as a nontaxable
return of Purchase Payments. The nontaxable portion is determined by applying to
each annuity payment an "exclusion ratio," which, in general, is the ratio that
the total amount the Participant paid for the Certificate bears to the Payee's
expected return under the Certificate. The remainder of the payment is taxable
at ordinary income rates.
The total amount that a Payee may exclude from income through application of
the "exclusion ratio" is limited to the amount the Participant paid for the
Certificate. If the Annuitant survives for his full life expectancy, so that the
Payee recovers the entire amount paid for the Certificate, any subsequent
annuity payments will be fully taxable as income. Conversely, if the Annuitant
dies before the Payee recovers the entire amount paid, the Payee will be allowed
a deduction for the amount of unrecovered Purchase Payments.
Taxable cash withdrawals and lump-sum payments from Non-Qualified
Certificates may be subject to a penalty tax equal to 10% of the amount treated
as taxable income. This 10% penalty also may apply to certain annuity payments.
This penalty will not apply in certain circumstances (such as where the
distribution is made upon the death of the Participant). The withdrawal penalty
also does not apply to distributions under an immediate annuity (as defined
above).
In the case of a Certificate issued under a Qualified Contract (a "Qualified
Certificate"), distributions generally are taxable and distributions made prior
to age 59 1/2 are subject to a 10% penalty tax, although this penalty 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 10 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 Certificates are purchased.
If the Participant under a Non-Qualified Certificate dies, the value of the
Certificate generally must be distributed within a specified period (See "Other
Contractual Provisions -- Death of Participant"). For contracts owned by
non-natural persons, a change in the Annuitant is treated as the death of the
Participant.
A purchaser of a Qualified Certificate should refer to the terms of the
applicable retirement plan and consult a tax adviser regarding distribution
requirements upon the death of the Participant.
A transfer of a Non-Qualified Certificate 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 Participant's Account Value minus the total amount paid
for the Certificate.
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 Certificate or
under a Qualified Certificate issued for use with an
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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 he or she
chooses not to have any amounts withheld.
In the case of distributions from a Qualified Certificate (other than
distributions from a Certificate 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 Certificate
is not an eligible rollover distribution, then the Participant or Payee can
choose not to have amounts withheld as described above for Non-Qualified
Certificates and 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 federal income tax purposes, and
therefore the annual increase in the value of such contracts is subject to
current taxation. 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, the
Certificate and/or the Variable Account) necessary to comply with the
guidelines.
THE FOLLOWING INFORMATION SHOULD BE CONSIDERED ONLY WHEN AN IMMEDIATE
ANNUITY CONTRACT AND A DEFERRED ANNUITY CONTRACT ARE PURCHASED TOGETHER: The
Company understands that the Treasury Department is in the process of
reconsidering the tax treatment of annuity payments under an immediate annuity
contract (as defined above) purchased together with a deferred annuity contract.
The Company believes that any adverse change in the existing tax treatment of
such immediate annuity contracts is likely to be prospective, that is, it would
not apply to contracts issued before such a change is announced. However, there
can be no assurance that any such change, if adopted, would not be applied
retroactively.
QUALIFIED RETIREMENT PLANS
The Qualified Contracts described in this Prospectus are designed for use
with several types of qualified retirement plans. 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 therewith. 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.
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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. These annuity contracts are commonly referred to as
"Tax-Sheltered Annuities." Purchasers of the Qualified Contracts for such
purposes should seek qualified advice as to eligibility, limitations on
permissible amounts of Purchase Payments and tax consequences of distributions.
Only one Purchase Payment per Certificate will be accepted (See "Section 403(b)
Annuities").
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
and Employer/Association of Employees Established Individual Retirement Account
Trusts, known as an Individual Retirement Account ("IRA"). These IRA's 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. Sale of the Contracts for use with IRA's 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."
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts, the Participant's Accounts, and the Variable Account. These functions
include, among other things, maintaining the books and records of the Variable
Account and the Sub-Accounts, and maintaining records of the name, address,
taxpayer identification number, Contract number, Participant's Account number
and type, the status of each Participant's Account and other pertinent
information necessary to the administration and operation of the Contracts.
DISTRIBUTION OF THE CONTRACTS
The offering of the Contracts is continuous. The Contracts will be 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"), 500 Boylston Street, Boston, Massachusetts
02116, a wholly-owned subsidiary of Massachusetts Financial Services Company,
which in turn is a wholly-owned subsidiary of the Company. Clarendon is
registered with the Securities and Exchange Commission 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 and will not be more than
6.86% of Purchase Payments. In addition to commissions, the Company may, from
time to time, pay or allow additional promotion incentives, in the form of cash
or other compensation. In some instances, such other incentives may be offered
only to certain broker-dealers that sell or are expected to sell, during
specified time periods, certain minimum amounts of the Contracts or Certificates
or other Contracts offered by the Company. Commissions will not be paid with
respect to Participant's Accounts established for the personal account of
employees of the Company or any of its affiliates, or of persons engaged in the
distribution of the Contracts. During 1992, 1993 and 1994 approximately
$659,835, $13,857 and $424, respectively, was paid to and retained by Clarendon
in connection with the distribution of the Contracts.
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ADDITIONAL INFORMATION ABOUT THE COMPANY
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus beginning on page 54.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(IN $ THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1993 1992 1991 1990
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits and
other revenue $ 1,391,699 $1,866,237 $ 908,933 $ (151,073) $ 796,448
Net investment income and realized
gains (losses) 334,896 243,796 209,087 162,031 225,838
----------- ---------- ---------- ---------- ----------
1,726,595 2,110,033 1,118,020 10,958 1,022,286
----------- ---------- ---------- ---------- ----------
Benefits and Expenses
Policyholder benefits 1,504,277 1,880,411 921,180 (161,110) 923,877
Other expenses 209,819 240,440 232,221 168,689 76,009
----------- ---------- ---------- ---------- ----------
1,714,096 2,120,851 1,153,401 7,579 999,886
----------- ---------- ---------- ---------- ----------
Operating Gain (Loss) 12,499 (10,818) (35,381) 3,379 22,400
Interest on Surplus Notes (31,150) (26,075) (18,000) (12,500) (50,923)
Equity in Income of Subsidiaries 62,629 62,640 49,009 42,702 34,180
Federal Income Tax Benefit (Expense) (42,521) (22,491) (4,000) (13,615) (1,150)
----------- ---------- ---------- ---------- ----------
Net Income (Loss) $ 1,457 $ 3,256 $ (8,372) $ 19,966 $ 4,507
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Assets $10,137,822 $9,199,090 $7,494,407 $6,405,599 $5,133,537
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Surplus Notes $ 335,000 $ 335,000 $ 265,000 $ 180,000 $ 125,000
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
See note to the financial statements for the effect of the reinsurance
agreements on net income.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(1) FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
FINANCIAL CONDITION
ASSETS
For management purposes it is the Company's practice to segment its general
account to facilitate the matching of assets and liabilities; however, all
general account assets stand behind all general account liabilities. A majority
of the Company's assets are income producing investments. Particular attention
is paid to the quality of these assets.
The Company's bond holdings consist of a diversified portfolio of both
public and private issues. It is the Company's policy to acquire only investment
grade securities. Private placements are rated internally with reference to the
National Association of Insurance Commissioners ("NAIC") designation issued by
the NAIC Securities Valuation Office. The overall quality of the Company's bond
portfolio remains high, despite the industry wide experience of net declines in
credit ratings. At December 31, 1994, 2.9% of the Company's holdings of bonds
were rated below investment grade (i.e. below NAIC rating "1" or "2"). Net
unrealized losses on below investment grade bonds were $977 for the year. No
bonds were written down during 1994.
The Company holds real estate primarily because such investments
historically have offered better yields over the long-term than fixed income
investments. Real estate investments are used to enhance the yield of products
with long-term liability durations. During 1994 the Company provided for losses
of $671 on its real estate where appraised market values were less than cost
adjusted for depreciation.
Significant attention is being given to insurance companies' exposure to
mortgage loans secured by real estate. The Company had a mortgage portfolio of
$1,120,981 at December 31, 1994, representing 28.9% of cash and invested assets.
At December 31, 1993 mortgage loans represented 28.1% of cash and invested
assets. The Company underwrites commercial mortgages with a maximum loan to
value ratio of 75%. The Company as a rule invests only in properties that are
almost fully leased. The portfolio is diversified by region and by property
type. The level of arrears in the portfolio is substantially below the industry
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<PAGE>
average. At December 31, 1994, 0.8% of the Company's portfolio was 60 days or
more in arrears, compared to the most recent industry delinquency ratio
published by the American Council of Life Insurance of 4.2%. The expense in the
year for the provision for losses and for losses on foreclosures was $5,689.
In 1994, the Company entered into a leveraged lease agreement under which a
fleet of rail cars was leased for a term of 9.75 years. The investment is
classified as "other invested assets" in the Company's balance sheet at December
31, 1994.
In the normal course of business, the Company makes commitments to purchase
investments at a future date. As of December 31, 1994 the Company had
outstanding mortgage commitments of $5,000, which will be funded during 1995.
LIABILITIES
The majority of the Company's liabilities consist of reserves for life
insurance and annuity contracts and deposit funds.
CAPITAL AND SURPLUS
Total capital stock and surplus of the Company was $455,489 at December 31,
1994. During 1994, the Company reduced its carrying value of Massachusetts
Casualty Insurance Company, a wholly-owned subsidiary, by $18,397, the
unamortized amount of goodwill. The reduction was accounted for as a direct
charge to surplus. The Company's management considers its surplus position to be
adequate.
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Income from operations before surplus note interest, equity in income of
subsidiaries and federal income taxes was $12,499 in 1994 versus a loss of
$10,818 in 1993. The increase in income is a result of reinsurance agreements
with the parent which decreased income from operations by approximately $31,327
in 1994 and $54,567 in 1993. The relatively flat change in income before
reinsurance results from a combination of factors: realized losses on
investments decreased by $6,237; mortality and expense risk charges increased by
$9,357; general expenses increased by $8,061; and approximately $6,000 of
additional surplus strain (selling costs and reserves required on new business
in excess of the premium) was incurred reflecting the increased volume of new
sales.
Total revenues decreased by $383,437 from $2,110,033 in 1993 to $1,726,595
in 1994. Revenues from reinsurance transactions decreased by $690,973, from
$959,536 in 1993 to $268,563 in 1994. 1993 revenues include the termination of
the reinsurance agreement under which the Company reinsured with its parent 100%
of certain fixed annuity contracts. Before the impact of the reinsurance
agreements, total revenues increased by $307,536 in 1994. Sales of individually
marketed fixed annuities increased by $582,533 as a result of improved interest
rates and product enhancements. This was offset by decreased sales of group
pension deposit contracts of $271,913 reflecting management's decision to limit
sales due to the volatility of interest rates and changes in the competitive
market place. Realized losses on investments decreased, reflecting fewer
mortgage writedowns in 1994. Mortality and expense risk charges increased,
reflecting the increase in separate account net assets.
Benefits and expenses decreased by $406,755 from $2,120,851 in 1993 to
$1,714,096 in 1994. Reinsurance had the effect of increasing benefits and
expenses by $299,890 in 1994 as compared to $1,014,957 in 1993. As noted above,
the 1993 results include the termination of the reinsurance agreement with the
parent under which 100% of certain fixed annuity contracts were reinsured.
Before the impact of reinsurance, benefits increased by $307,458. Before
reinsurance, the liability for annuity and other deposit funds and actuarial
reserves decreased as a result of lower sales of group pension deposit contracts
and increased surrender activity. Annuity and other deposit fund withdrawals
increased as a result of increased surrenders of fixed annuities for which
interest rate guarantee periods have expired. Transfers to the non-unitized
separate account increased reflecting the increase in fixed annuity sales
described above. Prior to reinsurance, commissions increased by $35,497
reflecting increased sales of individual combination fixed/ variable annuity
contracts. General expenses increased due to an increase in the amount allocated
from the
36
<PAGE>
parent under the service agreement, and costs of selling and administration
associated with the increased sales and inforce block of individually marketed
fixed/variable annuity contracts. Federal income tax expense increased as net
operating loss carryforwards were utilized in 1993.
1993 COMPARED WITH 1992
The loss from operations before surplus note interest and equity in income
of subsidiaries decreased by $24,563, from a loss of $35,381 in 1992 to a loss
of $10,818 in 1993. The decrease in loss in 1993 is a result of the impact of
reinsurance agreements with the parent, which decreased income from operations
by approximately $52,249 in 1993 and $71,282 in 1992. The decrease in this loss
is also a result of the increasing in-force block of business relative to the
new business. The strain of new sales is offset by profits on the in-force
business. Effective December 31, 1993, the annuity reinsurance agreement was
terminated resulting in an additional decrease in income of $2,318. Realized
losses on investments increased by $1,726, primarily due to the increase in
losses on real estate. Mortgage writedowns decreased minimally from $10,089 in
1992 to $9,975 in 1993. Mortality and expense risk charges increased by $9,300
from $33,681 in 1992 to $42,981 in 1993 due to the increase in separate account
net assets.
Total revenues increased by $992,013 from $1,118,020 in 1992 to $2,110,033
in 1993. Reinsurance had the effect of increasing revenues by $960,431 for 1993
as compared to $25,239 for 1992. This increase in revenues for 1993 includes
$803,079 reflecting the recapture of annuity premiums and deposits previously
ceded to the parent. Before the impact of the reinsurance agreements total
revenues increased by $63,966 in 1993. Sales of group pension contracts
increased by $82,277 from $374,081 for the year ended December 31, 1992 to
$456,358 for the year ended December 31, 1993. While total combination fixed/
variable annuity sales increased in 1993, amounts allocated to the fixed account
decreased. This change in allocation is associated with the decline in fixed
interest rate guarantees during the year. The increase in mortality and expense
risk charges discussed above is the result of the increase in separate account
assets.
Benefits and expenses increased by $967,450 from $1,153,401 for the year
ended December 31, 1992 to $2,120,851 for the year ended December 31, 1993.
Reinsurance had the effect of increasing benefits and expenses by $1,014,957 in
1993 as compared to $105,109 in 1992. Included in this increase in benefits is
$805,397 resulting from the recapture of the annuity deposit liabilities and
reserves that had previously been ceded to the parent. Before the impact of the
reinsurance agreements, benefits and expenses increased by $57,602 from
$1,048,292 in 1992 to $1,105,894 in 1993. This is directly related to the change
in the mix of deferred annuity sales from fixed to variable. The increase in
sales of group pension contracts noted above results in the increase in policy
reserves and liability for annuity and other deposit funds.
General expenses increased by $2,392 from $21,778 for 1992 to $24,170 for
1993 as a result of an increase in the amount allocated from the parent under
the service agreement. Commissions increased in line with the increase in sales
of annuity contracts. Taxes, licenses and fees decreased by $1,916 as a result
of lower premium taxes, guaranty association assessments and examination fees.
(2) LIQUIDITY
The Company's cash inflow consists primarily of premiums on insurance and
annuity products, income from investments, repayments of investment principal
and sales of investments. The Company's cash outflow is primarily to meet death
and other maturing insurance and annuity contract obligations, to pay out on
contract terminations, to fund investment commitments and to pay normal
operating expenses and taxes. Cash outflows are met from the normal net cash
inflows.
The Company segments its business internally and matches projected cash
inflows and outflows within each segment. Targets for money market holdings are
established for each segment, which in the aggregate meet the day to day cash
needs of the Company. If greater liquidity is required, government issued bonds,
which are highly liquid, are sold to provide the necessary funds. Government and
publicly traded corporate bonds comprise 54.7% of the Company's long-term bond
holdings.
Management believes that the Company's sources of liquidity are more than
adequate to meet its anticipated needs.
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<PAGE>
REINSURANCE
The Company has agreements with its parent company which provide that the
parent company will reinsure the mortality risks of the individual life
insurance contracts sold by the Company. Under these agreements basic death
benefits and supplementary benefits are reinsured on a yearly renewable term
basis and coinsurance basis, respectively.
Effective January 1, 1991 the Company entered into an agreement with the
parent company under which 100% of certain fixed annuity contracts issued by the
Company were reinsured. This agreement was terminated effective December 31,
1993.
Effective January 1, 1991 the Company entered into an agreement with the
parent company under which certain individual life insurance contracts issued by
the parent were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with the parent
which provides that the parent 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. Death benefits are
reinsured on a yearly renewable term basis. The life reinsurance assumed
agreement requires the reinsurer to withhold funds in an amount equal to the
reserves assumed.
The Company also has executed a reinsurance agreement with an unaffiliated
company which provides reinsurance of certain individual life insurance
contracts on a modified coinsurance basis and under which all deficiency
reserves are ceded.
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 which are generally accepted accounting principles for the Company.
INVESTMENTS
Of the Company's total assets of $10.1 billion at December 31, 1994, 54.1%
consisted of separate account assets, 24.4% were invested in bonds and similar
securities, 11.1% in mortgages, 1.3% in subsidiaries, 0.9% in real estate, and
the remaining 8.2% in cash and other assets.
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. There are approximately 1,800 stock, mutual and
other types of insurers in the life insurance business in the United States.
According to the most recent Best's Review, Life-Health Edition, as of December
31, 1993 the Company ranked 45th among all life insurance companies in the
United States based upon total assets. Its parent company, Sun Life Assurance
Company of Canada, ranked 15th. Best's Insurance Reports, Life-Health Edition,
1994, assigned the Company and the parent company its highest classification,
A++, as of December 31, 1993. Standard & Poor's and Duff & Phelps have assigned
the Company and the parent company their highest ratings for claims paying
ability, AAA. These ratings should not be considered as bearing on the
investment performance of the Series Fund shares held in the Sub-Accounts of the
Variable Account. However, the ratings are relevant to the Company's ability to
meet its general corporate obligations under the Contracts.
EMPLOYEES
The Company and Sun Life Assurance Company of Canada have entered into a
Service Agreement which provides that the latter will furnish the Company, as
required, with personnel as well as certain
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<PAGE>
services and facilities on a cost reimbursement basis. As of December 31, 1994
the Company had 225 direct employees who are employed at its Principal Executive
Office in Wellesley Hills, Massachusetts and its Annuity Service Center in
Boston, Massachusetts.
PROPERTIES
The Company occupies office space owned by it and leased to its parent, Sun
Life Assurance Company of Canada, and certain unrelated parties for lease terms
not exceeding five years.
THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
The directors and principal officers of the Company are listed below,
together with information as to their ages, dates of election and principal
business occupations during the last five years (if other than their present
business occupations). Except as otherwise indicated, the directors and officers
of the Company who are associated with Sun Life Assurance Company of Canada
and/or its subsidiaries have been associated with Sun Life Assurance Company of
Canada for more than five years either in the position shown or in other
positions.
JOHN D. MCNEIL, 61, Chairman and Director (1982*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Chairman and a Director of Sun Life Assurance Company of Canada and
Sun Life Insurance and Annuity Company of New York; a Director of Massachusetts
Financial Services Company; President and a Director of Sun Growth Variable
Annuity Fund, Inc.; Chairman and a Trustee of MFS/Sun Life Series Trust;
Chairman and a Member of the Boards of Managers of Money Market Variable
Account, High Yield Variable Account, Capital Appreciation Variable Account,
Government Securities Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors Variable Account; and a
Director of Shell (Canada) Limited and Canadian Pacific, Ltd.
JOHN R. GARDNER, 57, President and Director (1986*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is President and a Director of Sun Life Assurance Company of Canada, and
Sun Life Insurance and Annuity Company of New York; and a Director of
Massachusetts Financial Services Company.
DAVID D. HORN, 53, Senior Vice President and General Manager and Director (1970,
1985*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Senior Vice President and General Manager for the United States of Sun
Life Assurance Company of Canada; Chairman and President and a Director of Sun
Investment Services Company; Senior Vice President and a Director of Sun Life
Insurance and Annuity Company of New York; Vice President and a Director of Sun
Growth Variable Annuity Fund, Inc.; President and a Director of Sun Benefit
Services Company, Inc.; a Director of Sun Capital Advisers, Inc.; Chairman and a
Director of Massachusetts Casualty Insurance Company; a Trustee of MFS/Sun Life
Series Trust; and a Member of the Boards of Managers of Money Market Variable
Account, High Yield Variable Account, Capital Appreciation Variable Account,
Government Securities Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors Variable Account.
- ---------
* Year Elected Director
39
<PAGE>
ANGUS A. MACNAUGHTON, 63, Director (1985*)
Metro Tower, Suite 1170,
950 Tower Lane
Foster City, California 94404
He is President of Genstar Investment Corporation and a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Canadian Pacific, Ltd., Stelco, Inc. and Varian Associates, Inc.
JOHN S. LANE, 60, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Senior Vice President, Investments of Sun Life Assurance Company of
Canada; and a Director of Sun Investment Services Company, Sun Capital Advisers,
Inc. and Sun Life Insurance and Annuity Company of New York.
RICHARD B. BAILEY, 68, Director (1983*)
500 Boylston Street
Boston, Massachusetts 02116
He is a Director of Sun Life Insurance and Annuity Company of New York and a
Director/Trustee of the Funds in the MFS Family of Funds. Prior to October 1,
1991, he was Chairman and a Director of Massachusetts Financial Services
Company.
A. KEITH BRODKIN, 59, Director (1990*)
500 Boylston Street
Boston, Massachusetts 02116
He is Chairman and a Director of Massachusetts Financial Services Company; a
Director of Sun Life Insurance and Annuity Company of New York; and a
Director/Trustee and/or Officer of the Funds in the MFS Family of Funds.
M. COLYER CRUM, 62, Director (1986*)
Harvard Business School
Soldiers Field Road
Boston, Massachusetts 02163
He is a Professor at the Harvard Business School; and a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Merrill Lynch Ready Assets Trust, Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch Special Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
U.S.A. Government Reserves, Merrill Lynch Natural Resources Trust, Merrill Lynch
U.S. Treasury Money Fund, MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, Inc., MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey
Fund, Inc., MuniVest New York Insured Fund, Inc., MuniYield Florida Insured
Fund, MuniYield Insured Fund II, Inc., MuniYield Michigan Insured Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund III,
Inc. and MuniYield Pennsylvania Fund.
ROBERT A. BONNER, 50, Vice President, Pensions (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Pensions for the United States of Sun Life Assurance
Company of Canada.
ROBERT E. MCGINNESS, 53, Vice President and Counsel (1983)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
- ---------
* Year Elected Director
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<PAGE>
He is Vice President and Counsel for the United States of Sun Life Assurance
Company of Canada; Vice President and Counsel and a Director of Sun Investment
Services Company and Sun Benefit Services Company, Inc.; and a Director of New
London Trust, F.S.B. and Massachusetts Casualty Insurance Company.
C. JAMES PRIEUR, 43, Vice President, Investments (1993)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Investments for the United States of Sun Life
Assurance Company of Canada; Vice President, Investments of Sun Investment
Services Company and Sun Life Insurance and Annuity Company of New York; and a
Director of Sun Capital Advisers, Inc.
S. CAESAR RABOY, 58, Vice President, Individual Insurance (1991)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Individual Insurance for the United States of Sun Life
Assurance Company of Canada; and Vice President of Sun Life Insurance and
Annuity Company of New York. Prior to 1990 he was President and Chief Operating
Officer of Connecticut Mutual Life Insurance Company.
ROBERT P. VROLYK, 42, Vice President and Actuary (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Finance for the United States of Sun Life Assurance
Company of Canada; Vice President, Controller and Actuary of Sun Life Insurance
and Annuity Company of New York; and a Director of Massachusetts Casualty
Insurance Company.
BONNIE S. ANGUS, 53, Secretary (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
She is Assistant Secretary for the United States of Sun Life Assurance
Company of Canada; and Secretary of Sun Investment Services Company, Sun Benefit
Services Company, Inc., MFS/Sun Life Series Trust, Sun Growth Variable Annuity
Fund, Inc., Money Market Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities Variable Account, World
Governments Variable Account, Total Return Variable Account, Managed Sectors
Variable Account, Sun Life Insurance and Annuity Company of New York, Sun
Capital Advisers, Inc. and New London Trust, F.S.B.
L. BROCK THOMSON, 53, Vice President and Treasurer (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Portfolio Management for the United States of Sun Life
Assurance Company of Canada; Vice President and Treasurer of Sun Investment
Services Company, Sun Capital Advisers, Inc., Sun Benefit Services Company, Inc.
and Sun Life Insurance and Annuity Company of New York; and Assistant Treasurer
of Massachusetts Casualty Insurance Company.
The directors, officers and employees of the Company are covered under a
commercial blanket bond and a liability policy. The directors, officers and
employees of Massachusetts Financial Services Company and Clarendon Insurance
Agency, Inc. are covered under a fidelity bond and errors and omissions policy.
41
<PAGE>
EXECUTIVE COMPENSATION
All of the executive officers of the Company also serve as officers of Sun
Life Assurance Company of Canada and receive no compensation directly from the
Company. Allocations have been made as to such officers' time devoted to duties
as executive officers of the Company and its subsidiaries. The allocated cash
compensation of all executive officers of the Company as a group for services
rendered in all capacities to the Company and its subsidiaries during 1994
totalled $602,252. The allocated compensation of the named executive officers is
as follows:
<TABLE>
<CAPTION>
ALLOCATED
COMPENSATION
-----------------
NAME/POSITION YEAR SALARY BONUS
----------------------------------------------------- ---- -------- -------
<S> <C> <C> <C>
John D. McNeil, Chairman 1994 $ 59,189 $12,284
1993 $ 16,655 $ 3,482
1992 $ 14,756 $ 4,132
Robert A. Bonner, Vice President, Pensions 1994 $111,325 $15,708
1993 $ 97,160 $18,877
1992 $ 85,402 $21,028
Robert P. Vrolyk, Vice President, Finance 1994 $ 90,026 $17,552
1993 $ 67,587 $16,897
1992 $ 82,958 $20,740
C. James Prieur, Vice President, Investments 1994 $100,803 $17,398
1993 $ 80,621 $20,155
1992 N/A N/A
</TABLE>
Directors of the Company who are also officers of Sun Life Assurance Company
of Canada or its affiliates receive no compensation in addition to their
compensation as officers of Sun Life Assurance Company of Canada or its
affiliates. Messrs. Crum and MacNaughton receive compensation in the amount of
$5,000 per year, plus $800 for each meeting attended, plus expenses.
No shares of the Company are owned by any executive officer or director. The
Company is a wholly-owned subsidiary of Sun Life Assurance Company of Canada,
150 King Street West, Toronto, Ontario, Canada M5H 1J9.
STATE REGULATION
The Company is subject to the laws of the State of Delaware governing life
insurance companies and to regulation by the Commissioner of Insurance of
Delaware. An annual statement is filed with the Commissioner of Insurance on or
before March 1st in each year relating to the operations of the Company for the
preceding year and its financial condition on December 31st of such year. Its
books and records are subject to review or examination by the Commissioner or
his agents at any time and a full examination of its operations is conducted at
periodic intervals.
The Company is also subject to the insurance laws and regulations of the
other states and jurisdictions in which it is licensed to operate. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business, overseeing
trade practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
it does business and its operations and accounts are subject to examination by
such agencies at regular intervals.
42
<PAGE>
In addition, many states regulate affiliated groups of insurers, such as the
Company, its parent and its affiliates, under insurance holding company
legislation. Under such laws, inter-company transfers of assets and dividend
payments from insurance subsidiaries may be subject to prior notice or approval,
depending on the size of such transfers and payments in relation to the
financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for policyholder losses
incurred by insolvent companies. The amount of any future assessments of the
Company under these laws cannot be reasonably estimated. However, most of these
laws do provide that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength and many permit the deduction of
all or a portion of any such assessment from any future premium or similar taxes
payable.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies, the tax treatment
of insurance products and its impact on the relative desirability of various
personal investment vehicles, and proposed legislation to prohibit the use of
gender in determining insurance and pension rates and benefits.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. The
Company and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, is not of material importance to their
respective total assets or material with respect to the Variable Account.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contracts and
the validity of the form of the Contracts have been passed upon by David D.
Horn, Esq., Senior Vice President and General Manager of the Company. Covington
& Burling, Washington, D.C., has advised the Company on certain legal matters
concerning federal securities laws applicable to the issue and sale of the
Contracts and federal income tax laws applicable to the Contracts.
ACCOUNTANTS
The financial statements of the Variable Account and the financial
statements of the Company for the years ended December 31, 1994, 1993 and 1992
included in this Prospectus have been audited by Deloitte & Touche LLP,,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 as amended, with
respect to the Contracts offered by this Prospectus. This Prospectus does not
contain all the information set forth in the registration statements and the
exhibits filed as part of the registration statements, to all of which reference
is hereby made for further information concerning the Variable Account, the
Fixed Account, the Company, the Series Fund, the Contract and the Certificates.
Statements found in this Prospectus as to the terms of the Contracts, the
Certificates and other legal instruments are summaries, and reference is made to
such instruments as filed.
43
<PAGE>
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 Series Fund shares held in the Sub-Accounts of the Variable
Account. The Variable Account value of the interests of Owners, Participants,
Annuitants, Payees and Beneficiaries under the Contracts is affected primarily
by the investment results of the Series Fund. The financial statements of the
Variable Account reflect units outstanding and expenses incurred under the
Contracts and other contracts participating in the Variable Account which impose
certain contract charges that are different from those imposed under the
Contracts.
-------------------
44
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1994
<TABLE>
<CAPTION>
Assets:
Investments in MFS/Sun Life Series Trust: Shares Cost Value
----------- -------------- --------------
<S> <C> <C> <C>
Capital Appreciation Series ("CAS").............................................. 15,546,045 $ 403,897,954 $ 379,444,897
Conservative Growth Series ("CGS")............................................... 7,957,852 130,831,761 130,956,442
Government Securities Series ("GSS")............................................. 22,228,132 283,100,445 269,446,089
High Yield Series ("HYS")........................................................ 8,802,267 72,547,050 72,055,389
Managed Sectors Series ("MSS")................................................... 5,436,296 114,133,313 108,085,836
Money Market Series ("MMS")...................................................... 203,157,645 203,157,645 203,157,645
Research Series ("RES").......................................................... 391,744 3,860,071 3,871,280
Total Return Series ("TRS")...................................................... 51,588,442 765,334,785 778,274,442
Utilities Series ("UTS")......................................................... 2,242,118 21,759,297 21,338,798
World Asset Allocation Series ("WAA")............................................ 298,587 2,985,338 3,003,118
World Governments Series ("WGS")................................................. 11,025,415 133,357,787 125,434,887
World Growth Series ("WGR")...................................................... 9,061,390 100,025,165 99,157,984
World Total Return Series ("WTR")................................................ 137,844 1,379,853 1,384,031
-------------- --------------
$2,236,370,464 $2,195,610,838
--------------
--------------
Liability:
Payable to sponsor.............................................................................................. 90,053
--------------
Net assets................................................................................................ $2,195,520,785
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
Deferred Variable Annuity Contracts Reserve for
-------------------------------------- Variable
NET ASSETS APPLICABLE TO CONTRACT OWNERS: Units Unit Value Value Annuities Total
---------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
MFS Regatta Contracts:
CAS.................................... 6,184,731 $ 15.5512 $ 96,173,392 $ 175,427 $ 96,348,819
GSS.................................... 4,235,203 13.3872 56,697,536 220,353 56,917,889
HYS.................................... 839,825 15.4801 13,003,889 14,775 13,018,664
MSS.................................... 2,066,642 14.5653 30,099,533 7,760 30,107,293
MMS.................................... 3,873,044 11.8185 45,769,935 415,189 46,185,124
TRS.................................... 14,225,539 14.2495 202,696,964 1,043,621 203,740,585
WGS.................................... 1,967,375 14.2437 28,026,156 79,501 28,105,657
-------------- ----------- --------------
$ 472,467,405 $1,956,626 $ 474,424,031
-------------- ----------- --------------
MFS Regatta Gold Contracts:
CAS.................................... 19,909,649 $ 14.2064 $ 282,812,710 $ 351,131 $ 283,163,841
CGS.................................... 10,979,711 11.9036 130,689,597 261,584 130,951,181
GSS.................................... 18,784,262 11.2891 212,061,058 498,271 212,559,329
HYS.................................... 4,605,818 12.7475 58,706,581 317,905 59,024,486
MSS.................................... 6,351,641 12.2606 77,873,569 102,524 77,976,093
MMS.................................... 14,774,386 10.5878 156,416,560 332,228 156,748,788
RES.................................... 392,528 9.8615 3,871,280 -- 3,871,280
TRS.................................... 48,270,556 11.8694 572,914,204 1,556,142 574,470,346
UTS.................................... 2,273,439 9.3739 21,310,879 27,920 21,338,799
WAA.................................... 299,210 10.0367 3,003,118 -- 3,003,118
WGS.................................... 8,334,019 11.6151 96,801,492 529,315 97,330,807
WGR.................................... 9,182,555 10.7803 98,992,127 161,187 99,153,314
WTR.................................... 138,126 10.0195 1,384,031 -- 1,384,031
-------------- ----------- --------------
$1,716,837,206 $4,138,207 $1,720,975,413
-------------- ----------- --------------
NET ASSETS APPLICABLE TO SPONSOR................................... $ 121,341 $ -- $ 121,341
-------------- ----------- --------------
Net assets................................................. $2,189,425,952 $6,094,833 $2,195,520,785
-------------- ----------- --------------
-------------- ----------- --------------
</TABLE>
See notes to financial statements
45
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1994
<TABLE>
<CAPTION>
CAS CGS GSS HYS MSS MMS RES
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account*
------------- ------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and
capital gain
distributions
received.............. $ 32,730,984 $ 1,648,699 $ 14,102,493 $ 4,285,200 $ 11,772,826 $ 6,481,559 $ --
Mortality and expense
risk charges.......... 4,379,608 1,339,985 3,179,715 832,178 1,251,222 2,136,254 3,602
Distribution expense
risk charges.......... 157,578 -- 89,979 21,274 47,903 64,702 --
Administrative expense
charges............... 367,975 160,798 291,587 78,588 102,244 191,648 432
------------- ------------ ------------- ------------ ------------- ------------ ------------
Net investment
income
(expense)......... $ 27,825,823 $ 147,916 $ 10,541,212 $ 3,353,160 $ 10,371,457 $ 4,088,955 $ (4,034)
------------- ------------ ------------- ------------ ------------- ------------ ------------
------------- ------------ ------------- ------------ ------------- ------------ ------------
REALIZED AND UNREALIZED
GAINS (LOSSES):
Realized gains (losses)
on investment
transactions:
Proceeds from
sales............... $ 168,229,693 $ 3,936,598 $ 46,912,933 $ 82,182,013 $ 30,253,463 $309,203,050 $167,790
Cost of investments
sold................ 155,579,765 3,467,188 45,923,619 84,017,597 27,940,553 309,203,050 171,667
------------- ------------ ------------- ------------ ------------- ------------ ------------
Net realized gains
(losses).......... $ 12,649,928 $ 469,410 $ 989,314 $ (1,835,584) $ 2,312,910 $ -- $ (3,877)
------------- ------------ ------------- ------------ ------------- ------------ ------------
Net unrealized
appreciation
(depreciation) on
investments:
End of period........ $ (24,453,057) $ 124,681 $ (13,654,356) $ (491,661) $ (6,047,477) $ -- $ 11,209
Beginning of
period.............. 33,543,210 4,020,954 6,278,438 2,862,574 10,136,236 -- --
------------- ------------ ------------- ------------ ------------- ------------ ------------
Change in
unrealized
appreciation
(depreciation).... $ (57,996,267) $(3,896,273) $ (19,932,794) $ (3,354,235) $ (16,183,713) $ -- $ 11,209
------------- ------------ ------------- ------------ ------------- ------------ ------------
Realized and unrealized
gains (losses)........ $ (45,346,339) $(3,426,863) $ (18,943,480) $ (5,189,819) $ (13,870,803) $ -- $ 7,332
------------- ------------ ------------- ------------ ------------- ------------ ------------
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS............ $ (17,520,516) $(3,278,947) $ (8,402,268) $ (1,836,659) $ (3,499,346) $ 4,088,955 $ 3,298
------------- ------------ ------------- ------------ ------------- ------------ ------------
------------- ------------ ------------- ------------ ------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
TRS UTS WAA WGS WGR WTR
Sub-Account Sub-Account Sub-Account* Sub-Account Sub-Account Sub-Account* Total
------------- ----------- ------------ ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and
capital gain
distributions
received.............. $ 29,511,760 $ 4,930 $-- $ 11,284,999 $ 15,288 $-- $ 111,838,738
Mortality and expense
risk charges.......... 9,221,405 182,729 2,648 1,610,896 808,859 1,291 24,950,392
Distribution expense
risk charges.......... 325,266 -- -- 45,713 -- -- 752,415
Administrative expense
charges............... 781,302 21,927 318 147,595 97,063 155 2,241,632
------------- ----------- ------------ ------------- ------------- ------------ --------------
Net investment
income
(expense)......... $ 19,183,787 $ (199,726) $(2,966) $ 9,480,795 $ (890,634) $(1,446) $ 83,894,299
------------- ----------- ------------ ------------- ------------- ------------ --------------
------------- ----------- ------------ ------------- ------------- ------------ --------------
REALIZED AND UNREALIZED
GAINS (LOSSES):
Realized gains (losses)
on investment
transactions:
Proceeds from
sales............... $ 53,301,147 $2,993,532 $17,410 $ 28,274,119 $ 24,070,900 $33,296 $ 749,575,944
Cost of investments
sold................ 44,169,598 3,115,564 17,557 29,147,452 22,575,486 33,233 725,362,329
------------- ----------- ------------ ------------- ------------- ------------ --------------
Net realized gains
(losses).......... $ 9,131,549 $ (122,032) $ (147) $ (873,333) $ 1,495,414 $ 63 $ 24,213,615
------------- ----------- ------------ ------------- ------------- ------------ --------------
Net unrealized
appreciation
(depreciation) on
investments:
End of period........ $ 12,939,657 $ (420,499) $17,780 $ (7,922,900) $ (867,181) $ 4,178 $ (40,759,626)
Beginning of
period.............. 69,149,939 22,690 -- 8,502,641 716,829 -- 135,233,511
------------- ----------- ------------ ------------- ------------- ------------ --------------
Change in
unrealized
appreciation
(depreciation).... $ (56,210,282) $ (443,189) $17,780 $ (16,425,541) $ (1,584,010) $ 4,178 $ (175,993,137)
------------- ----------- ------------ ------------- ------------- ------------ --------------
Realized and unrealized
gains (losses)........ $ (47,078,733) $ (565,221) $17,633 $ (17,298,874) $ (88,596) $ 4,241 $ (151,779,522)
------------- ----------- ------------ ------------- ------------- ------------ --------------
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS............ $ (27,894,946) $ (764,947) $14,667 $ (7,818,079) $ (979,230) $ 2,795 $ (67,885,223)
------------- ----------- ------------ ------------- ------------- ------------ --------------
------------- ----------- ------------ ------------- ------------- ------------ --------------
</TABLE>
*For the period from November 7, 1994 (commencement of investment operations) to
December 31, 1994.
See notes to financial statements
46
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CAS CGS GSS
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
----------------------------- ----------------------------- -----------------------------
1994 1993 1994 1993 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(expense).................. $ 27,825,823 $ 4,701,566 $ 147,916 $ 479,271 $ 10,541,212 $ 8,564,805
Net realized gains
(losses)................... 12,649,928 17,949,555 469,410 132,124 989,314 1,805,405
Net unrealized gains
(losses)................... (57,996,267) 11,962,856 (3,896,273) 2,308,898 (19,932,794) (546,544)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from operations... $ (17,520,516) $ 34,613,977 $ (3,278,947) $ 2,920,293 $ (8,402,268) $ 9,823,666
------------- ------------- ------------- ------------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................. $ 131,738,032 $ 110,564,332 $ 54,704,628 $ 42,500,009 $ 81,307,573 $ 91,253,868
Net transfers between
Sub-Accounts and Fixed
Account.................. (30,000,160) 7,715,689 5,906,300 5,360,043 (10,559,956) 13,443,082
Withdrawals, surrenders,
annuitizations and
contract charges......... (22,127,701) (16,673,990) (4,909,494) (1,703,557) (18,857,834) (10,411,003)
------------- ------------- ------------- ------------- ------------- -------------
Net accumulation
activity............... $ 79,610,171 $ 101,606,031 $ 55,701,434 $ 46,156,495 $ 51,889,783 $ 94,285,947
------------- ------------- ------------- ------------- ------------- -------------
Annuitization Activity:
Annuitizations............ $ 325,123 $ 292,314 $ 131,189 $ 114,686 $ 519,211 $ 440,410
Annuity payments.......... (135,087) (52,288) (58,514) (15,802) (131,378) (122,454)
Net transfers between
Sub-Accounts............. (13,777) (19,251) 68,480 26 (128,389) 13,596
Adjustments to annuity
reserve.................. (138,996) 207,885 (3,424) (997) 41,563 (6,793)
------------- ------------- ------------- ------------- ------------- -------------
Net annuitization
activity............... $ 37,263 $ 428,660 $ 137,731 $ 97,913 $ 301,007 $ 324,759
------------- ------------- ------------- ------------- ------------- -------------
Increase in net assets from
participant transactions... $ 79,647,434 $ 102,034,691 $ 55,839,165 $ 46,254,408 $ 52,190,790 $ 94,610,706
------------- ------------- ------------- ------------- ------------- -------------
Increase in net assets.... $ 62,126,918 $ 136,648,668 $ 52,560,218 $ 49,174,701 $ 43,788,522 $ 104,434,372
NET ASSETS:
Beginning of year........... 317,385,742 180,737,074 78,390,963 29,216,262 225,688,696 121,254,324
------------- ------------- ------------- ------------- ------------- -------------
End of year................. $ 379,512,660 $ 317,385,742 $ 130,951,181 $ 78,390,963 $ 269,477,218 $ 225,688,696
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
HYS MSS MMS
Sub-Account Sub-Account Sub-Account
--------------------------- ---------------------------- -----------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
--------------------------- ---------------------------- -----------------------------
1994 1993 1994 1993 1994 1993
------------ ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(expense).................... $ 3,353,160 $ 2,150,049 $ 10,371,457 $ (1,099,073) $ 4,088,955 $ 1,145,352
Net realized gains (losses)... (1,835,584) 2,256,839 2,312,910 5,045,999 -- --
Net unrealized gains
(losses)..................... (3,354,235) 1,858,458 (16,183,713) (1,426,592) -- --
------------ ------------ ------------- ------------ ------------- -------------
Increase (decrease) in net
assets from operations... $ (1,836,659) $ 6,265,346 $ (3,499,346) $ 2,520,334 $ 4,088,955 $ 1,145,352
------------ ------------ ------------- ------------ ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................... $ 25,863,588 $ 20,601,720 $ 29,286,189 $ 26,489,524 $ 169,065,890 $ 100,938,073
Net transfers between
Sub-Accounts and Fixed
Account.................... (10,800,800) 11,179,745 (4,775,869) (3,338,814) (47,970,496) (81,687,693)
Withdrawals, surrenders,
annuitizations and contract
charges.................... (6,561,955) (2,962,687) (7,012,701) (4,617,864) (21,288,054) (11,024,797)
------------ ------------ ------------- ------------ ------------- -------------
Net accumulation
activity................. $ 8,500,833 $ 28,818,778 $ 17,497,619 $ 18,532,846 $ 99,807,340 $ 8,225,583
------------ ------------ ------------- ------------ ------------- -------------
Annuitization Activity:
Annuitizations.............. $ 143,700 $ 122,694 $ 68,728 $ 57,305 $ 559,738 $ 6,213
Annuity payments............ (71,050) (28,444) (32,033) (14,084) (103,980) (44,011)
Net transfers between
Sub-Accounts............... 119,221 5,187 976 3,147 122,710 (109,126)
Adjustments to annuity
reserve.................... (8,871) (1,378) (388) (508) 96,065 (189,635)
------------ ------------ ------------- ------------ ------------- -------------
Net annuitization
activity................. $ 183,000 $ 98,059 $ 37,283 $ 45,860 $ 674,533 $ (336,559)
------------ ------------ ------------- ------------ ------------- -------------
Increase in net assets from
participant transactions..... $ 8,683,833 $ 28,916,837 $ 17,534,902 $ 18,578,706 $ 100,481,873 $ 7,889,024
------------ ------------ ------------- ------------ ------------- -------------
Increase in net assets...... $ 6,847,174 $ 35,182,183 $ 14,035,556 $ 21,099,040 $ 104,570,828 $ 9,034,376
NET ASSETS:
Beginning of year............. 65,195,976 30,013,793 94,047,830 72,948,790 98,484,425 89,450,049
------------ ------------ ------------- ------------ ------------- -------------
End of year................... $ 72,043,150 $ 65,195,976 $ 108,083,386 $ 94,047,830 $ 203,055,253 $ 98,484,425
------------ ------------ ------------- ------------ ------------- -------------
------------ ------------ ------------- ------------ ------------- -------------
</TABLE>
See notes to financial statements
47
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
RES TRS UTS
Sub-Account Sub-Account Sub-Account
------------ ----------------------------- ---------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ----------------------------- ---------------------------
1994** 1994 1993 1994 1993*
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense)....... $ (4,034) $ 19,183,787 $ 9,193,215 $ (199,726) $ (2,032)
Net realized gains (losses)........... (3,877) 9,131,549 6,721,382 (122,032) (93)
Net unrealized gains (losses)......... 11,209 (56,210,282) 33,455,673 (443,189) 22,690
------------ ------------- ------------- ------------ ------------
Increase (decrease) in net assets
from operations.................. $ 3,298 $ (27,894,946) $ 49,370,270 $ (764,947) $ 20,565
------------ ------------- ------------- ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $1,223,399 $ 222,713,883 $ 232,135,192 $ 17,617,955 $ 1,907,801
Net transfers between Sub-Accounts
and Fixed Account.................. 2,663,995 (7,151,070) 32,557,862 2,488,460 870,567
Withdrawals, surrenders,
annuitizations and contract
charges............................ (19,412) (51,917,624) (33,138,008) (828,336) (1,194)
------------ ------------- ------------- ------------ ------------
Net accumulation activity......... $3,867,982 $ 163,645,189 $ 231,555,046 $ 19,278,079 $ 2,777,174
------------ ------------- ------------- ------------ ------------
Annuitization Activity:
Annuitizations...................... $ -- $ 816,949 $ 998,805 $ 27,927 $ --
Annuity payments.................... -- (624,252) (426,277) -- --
Net transfers between
Sub-Accounts....................... -- (63,499) 71,007 -- --
Adjustments to annuity reserve...... -- 21,464 (39,612) 1 --
------------ ------------- ------------- ------------ ------------
Net annuitization activity........ $ -- $ 150,662 $ 603,923 $ 27,928 $ --
------------ ------------- ------------- ------------ ------------
Increase in net assets from
participant transactions............. $3,867,982 $ 163,795,851 $ 232,158,969 $ 19,306,007 $ 2,777,174
------------ ------------- ------------- ------------ ------------
Increase in net assets.............. $3,871,280 $ 135,900,905 $ 281,529,239 $ 18,541,060 $ 2,797,739
NET ASSETS:
Beginning of year..................... -- 642,310,026 360,780,787 2,797,739 --
------------ ------------- ------------- ------------ ------------
End of year........................... $3,871,280 $ 778,210,931 $ 642,310,026 $ 21,338,799 $ 2,797,739
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
WAA WGS WGR
Sub-Account Sub-Account Sub-Account
------------ ----------------------------- ---------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ----------------------------- ---------------------------
1994** 1994 1993 1994 1993*
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense)....... $ (2,966) $ 9,480,795 $ 4,381,253 $ (890,634) $ (18,478)
Net realized gains (losses)........... (147) (873,333) 1,651,717 1,495,414 6,570
Net unrealized gains (losses)......... 17,780 (16,425,541) 7,866,536 (1,584,010) 716,829
------------ ------------- ------------- ------------ ------------
Increase (decrease) in net assets
from operations.................... $ 14,667 $ (7,818,079) $ 13,899,506 $ (979,230) $ 704,921
------------ ------------- ------------- ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $1,457,362 $ 37,946,650 $ 37,269,033 $ 62,712,792 $ 5,340,380
Net transfers between Sub-Accounts
and Fixed Account.................. 1,534,984 (17,688,160) 10,516,383 21,605,891 12,894,684
Withdrawals, surrenders,
annuitizations and contract
charges............................ (3,895) (8,869,406) (4,652,823) (3,238,104) (49,858)
------------ ------------- ------------- ------------ ------------
Net accumulation activity......... $2,988,451 $ 11,389,084 $ 43,132,593 $ 81,080,579 $ 18,185,206
------------ ------------- ------------- ------------ ------------
Annuitization Activity:
Annuitizations...................... $ -- $ 303,841 $ 258,892 $ 139,258 $ --
Annuity payments.................... -- (162,696) (130,055) (9,292) --
Net transfers between
Sub-Accounts....................... -- (142,264) 35,414 36,542 --
Adjustments to annuity reserve...... -- (338) (2,731) (4,670) --
------------ ------------- ------------- ------------ ------------
Net annuitization activity........ $ -- $ (1,457) $ 161,520 $ 161,838 $ --
------------ ------------- ------------- ------------ ------------
Increase in net assets from
participant transactions............. $2,988,451 $ 11,387,627 $ 43,294,113 $ 81,242,417 $ 18,185,206
------------ ------------- ------------- ------------ ------------
Increase in net assets.............. $3,003,118 $ 3,569,548 $ 57,193,619 $ 80,263,187 $ 18,890,127
NET ASSETS:
Beginning of year..................... -- 121,866,916 64,673,297 18,890,127 --
------------ ------------- ------------- ------------ ------------
End of year........................... $3,003,118 $ 125,436,464 $ 121,866,916 $ 99,153,314 $ 18,890,127
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
</TABLE>
*For the period from November 16, 1993 (commencement of investment operations)
to December 31, 1993.
**For the period from November 7, 1994 (commencement of investment operations)
to December 31, 1994.
See notes to financial statements
48
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
WTR
Sub-Account TOTAL
------------ ---------------------------------
Year Ended Year Ended
December 31, December 31,
------------ ---------------------------------
1994** 1994 1993
------------ --------------- ---------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (expense)....... $ (1,446) $ 83,894,299 $ 29,491,687
Net realized gains (losses)........... 63 24,213,615 35,569,561
Net unrealized gains (losses)......... 4,178 (175,993,137) 56,222,982
------------ --------------- ---------------
Increase (decrease) in net assets
from operations.................... $ 2,795 $ (67,885,223) $ 121,284,230
------------ --------------- ---------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 756,005 $ 836,393,946 $ 668,999,932
Net transfers between Sub-Accounts
and Fixed Account.................. 626,641 (94,120,240) 9,511,548
Withdrawals, surrenders,
annuitizations and contract
charges............................ (1,410) (145,635,926) (85,235,781)
------------ --------------- ---------------
Net accumulation activity......... $1,381,236 $ 596,637,780 $ 593,275,699
------------ --------------- ---------------
Annuitization Activity:
Annuitizations...................... $ -- $ 3,035,664 $ 2,291,319
Annuity payments.................... -- (1,328,282) (833,415)
Net transfers between
Sub-Accounts....................... -- -- --
Adjustments to annuity reserve...... -- 2,406 (33,769)
------------ --------------- ---------------
Net annuitization activity........ $ -- $ 1,709,788 $ 1,424,135
------------ --------------- ---------------
Increase in net assets from
participant transactions............. $1,381,236 $ 598,347,568 $ 594,699,834
------------ --------------- ---------------
Increase in net assets.............. $1,384,031 $ 530,462,345 $ 715,984,064
NET ASSETS:
Beginning of year..................... -- 1,665,058,440 949,074,376
------------ --------------- ---------------
End of year........................... $1,384,031 $ 2,195,520,785 $ 1,665,058,440
------------ --------------- ---------------
------------ --------------- ---------------
</TABLE>
**For the period from November 7, 1994 (commencement of investment operations)
to December 31, 1994.
See notes to financial statements
49
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life of Canada (U.S.) Variable Account F (the "Variable Account"), a
separate account of Sun Life Assurance Company of Canada (U.S.), the Sponsor,
was established on July 13, 1989 as a funding vehicle for the variable portion
of certain group combination fixed/variable annuity contracts. The Variable
Account is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 as a unit investment trust.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account is invested in shares of a specific series of MFS/Sun Life Series
Trust (the "Series Trust"), an open-end management investment company registered
under the Investment Company Act of 1940. Massachusetts Financial Services
Company, a wholly-owned subsidiary of the Sponsor, is investment adviser to the
Series Trust.
(2) SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS
Investments in shares of the Series Trust are recorded at their net asset value.
Realized gains and losses on sales of shares of the Series Trust are determined
on the identified cost basis. Dividend income and capital gain distributions
received by the Sub-Accounts are reinvested in additional Series Trust shares
and are recognized on the ex-dividend date.
Exchanges between Sub-Accounts requested by contract owners are recorded in the
new Sub-Account upon receipt of the redemption proceeds.
FEDERAL INCOME TAX STATUS
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately; the Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Under existing federal income tax law, investment income and capital gains
earned by the Variable Account on contract owner reserves are not subject to
tax.
(3) CONTRACT CHARGES
A mortality and expense risk charge based on the value of the Variable Account
is deducted from the Variable Account at the end of each valuation period for
the mortality and expense risks assumed by the Sponsor. The deductions are
transferred periodically to the Sponsor. Currently, the deduction is at an
effective annual rate of 1.25%.
Each year on the contract anniversary, an account administration fee ("Account
Fee") equal to the lesser of $30 and 2% of the participant's account value is
deducted from the participant's account to reimburse the Sponsor for certain
administrative expenses. After the annuity commencement date the Account Fee
will be deducted pro rata from each variable 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) of up to 6% of certain
amounts withdrawn, when applicable, may be deducted to cover certain expenses
relating to the sale of the contracts and certificates.
For assuming the risk that withdrawal charges may be insufficient to compensate
it for the costs of distributing the MFS Regatta contracts, the Sponsor makes a
deduction from the Variable Account at the
50
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
end of each valuation period for the first seven account years at an effective
annual rate of 0.15% of the net assets attributable to such contracts. No
deduction for the distribution expense charge is made after the seventh account
anniversary.
As reimbursement for administrative expenses attributable to MFS Regatta Gold
contracts which exceed the revenues received from the Account Fees described
above derived from such contracts, the Sponsor makes a deduction from the
Variable Account at the end of each valuation period at an effective annual rate
of 0.15% of the net assets attributable to such contracts.
(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 reserves
are accomplished by transfers to or from the Sponsor.
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<TABLE>
<CAPTION>
Units Transferred
Between Sub-Accounts and
Units Outstanding Fixed Accumulation
Beginning of Year Units Purchased Account
---------------------- ---------------------- -------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
---------------------- ---------------------- -------------------------
1994 1993 1994 1993 1994 1993
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
MFS REGATTA CONTRACTS
------------------------------
CAS Sub-Account............... 7,272,302 8,168,037 9,333 11,880 (455,183) (147,448)
GSS Sub-Account............... 4,708,841 4,761,049 10,633 8,662 (21,084) 309,527
HYS Sub-Account............... 1,087,265 1,031,001 -- 2,109 (47,560) 157,473
MSS Sub-Account............... 2,431,072 2,768,568 1,536 3,137 (134,616) (150,604)
MMS Sub-Account............... 3,081,737 4,115,845 4,866 18,404 1,706,748 (390,320)
TRS Sub-Account............... 15,806,723 16,375,301 10,133 68,466 (92,067) 678,654
WGS Sub-Account............... 2,300,611 2,205,650 2,332 2,657 (73,063) 214,539
MFS REGATTA GOLD CONTRACTS
------------------------------
CAS Sub-Account............... 13,245,124 5,131,355 9,091,150 7,157,645 (1,559,101) 1,323,916
CGS Sub-Account............... 6,412,270 2,557,065 4,513,854 3,126,934 483,956 869,119
GSS Sub-Account............... 13,661,303 5,447,047 7,175,667 7,297,390 (868,594) 1,399,121
HYS Sub-Account............... 3,599,473 1,380,530 1,996,981 1,488,977 (717,869) 841,473
MSS Sub-Account............... 4,525,423 2,614,510 2,365,855 2,058,010 (238,446) 7,969
MMS Sub-Account............... 6,055,673 4,101,024 16,275,632 9,046,083 (6,440,721) (6,769,998)
RES Sub-Account............... -- -- 124,868 -- 269,642 --
TRS Sub-Account............... 32,979,812 12,952,314 18,470,599 17,772,619 (520,442) 3,423,684
UTS Sub-Account............... 279,796 -- 1,824,507 175,364 258,454 104,544
WAA Sub-Account............... -- -- 145,953 -- 153,647 --
WGR Sub-Account............... 1,778,644 -- 5,802,910 448,238 1,954,152 1,338,071
WGS Sub-Account............... 7,008,613 3,405,280 3,238,912 2,872,676 (1,467,047) 989,303
WTR Sub-Account............... -- -- 75,613 -- 62,654 --
</TABLE>
51
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS -- continued
<TABLE>
<CAPTION>
Units Withdrawn,
Surrendered and Units Outstanding
Annuitized End of Year
------------------------- ----------------------
Year Ended Year Ended
December 31, December 31,
------------------------- ----------------------
1994 1993 1994 1993
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
MFS REGATTA CONTRACTS
------------------------------
CAS Sub-Account............... (641,721) (760,167) 6,184,731 7,272,302
GSS Sub-Account............... (463,187) (370,397) 4,235,203 4,708,841
HYS Sub-Account............... (199,880) (103,318) 839,825 1,087,265
MSS Sub-Account............... (231,350) (190,029) 2,066,642 2,431,072
MMS Sub-Account............... (920,307) (662,192) 3,873,044 3,081,737
TRS Sub-Account............... (1,499,250) (1,315,698) 14,225,539 15,806,723
WGS Sub-Account............... (262,505) (122,235) 1,967,375 2,300,611
MFS REGATTA GOLD CONTRACTS
------------------------------
CAS Sub-Account............... (867,524) (367,792) 19,909,649 13,245,124
CGS Sub-Account............... (430,369) (140,848) 10,979,711 6,412,270
GSS Sub-Account............... (1,184,114) (482,255) 18,784,262 13,661,303
HYS Sub-Account............... (272,767) (111,507) 4,605,818 3,599,473
MSS Sub-Account............... (301,191) (155,066) 6,351,641 4,525,423
MMS Sub-Account............... (1,116,198) (321,436) 14,774,386 6,055,673
RES Sub-Account............... (1,982) -- 392,528 --
TRS Sub-Account............... (2,659,413) (1,168,805) 48,270,556 32,979,812
UTS Sub-Account............... (89,318) (112) 2,273,439 279,796
WAA Sub-Account............... (390) -- 299,210 --
WGR Sub-Account............... (353,151) (7,665) 9,182,555 1,778,644
WGS Sub-Account............... (446,459) (258,646) 8,334,019 7,008,613
WTR Sub-Account............... (141) -- 138,126 --
</TABLE>
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Participants in Sun Life of Canada (U.S.) Variable Account F
and the Board of Directors of Sun Life Assurance Company of Canada (U.S.):
We have audited the accompanying statement of condition of Sun Life of Canada
(U.S.) Variable Account F (the "Variable Account") as of December 31, 1994 and
the related statement of operations for the year then ended and the statements
of changes in net assets for the years ended December 31, 1994 and 1993. 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 with the custodian of securities held for the Variable Account as
of December 31, 1994. 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 Variable Account as of December 31,
1994, the results of its operations and the changes in its net assets for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 3, 1995
53
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------------ -----------
<S> <C> <C>
(IN 000'S)
ASSETS
Bonds $ 2,471,152 $ 2,584,870
Mortgage loans 1,120,981 1,116,889
Investments in subsidiaries 134,807 146,176
Real estate 89,487 87,289
Other invested assets 26,036 0
Policy loans 36,584 34,222
Cash (11,459) 2,056
Investment income due and accrued 86,836 84,100
Funds withheld on reinsurance
assumed 535,953 336,126
Due from separate accounts 145,099 101,007
Other assets 15,080 12,219
------------ -----------
General account assets 4,650,556 4,504,954
------------ -----------
Unitized separate account assets 4,061,821 3,719,762
Non-unitized separate account assets 1,425,445 974,374
------------ -----------
$ 10,137,822 $ 9,199,090
------------ -----------
------------ -----------
LIABILITIES
Policy reserves $ 1,765,327 $ 1,545,993
Annuity and other deposits 2,277,104 2,346,645
Policy benefits in process of
payment 5,796 2,301
Accrued expenses and taxes 12,386 19,318
Other liabilities 50,086 10,227
Due to parent and affiliates--net 41,881 50,124
Interest maintenance reserve 18,140 31,414
Asset valuation reserve 28,409 20,033
------------ -----------
General account liabilities 4,199,129 4,026,055
------------ -----------
Unitized separate account
liabilities 4,057,759 3,715,473
Non-unitized separate account
liabilities 1,425,445 974,374
------------ -----------
9,682,333 8,715,902
------------ -----------
CAPITAL STOCK AND SURPLUS
Capital Stock--Par value $1,000:
Authorized 10,000 shares,
issued and outstanding 5,900
shares 5,900 5,900
Surplus 449,589 477,288
------------ -----------
Total capital stock and surplus 455,489 483,188
------------ -----------
$ 10,137,822 $ 9,199,090
------------ -----------
------------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
(IN 000'S)
INCOME
Premiums and annuity considerations $ 313,025 $ 469,157 $ 267,388
Annuity and other deposit funds 992,958 1,299,522 574,088
Net investment income 337,747 253,496 218,970
Amortization of interest maintenance
reserve 3,316 2,703 794
Realized losses on investments (6,166) (12,403) (10,677)
Expense allowance on reinsurance
ceded 0 8,475 10,030
Mortality and expense risk charges 52,338 42,981 33,681
Other income--net 33,377 46,102 23,746
----------- ----------- -----------
1,726,595 2,110,033 1,118,020
BENEFITS AND EXPENSES
Increase (decrease) in liability for
annuity and other deposit funds (69,542) 894,128 341,594
Increase in policy reserves 219,334 589,559 170,766
Death, surrender benefits, and
annuity payments 166,889 128,902 81,498
Annuity and other deposit fund
withdrawals 731,908 239,752 201,378
Transfers to non-unitized separate
account 455,688 28,070 125,944
----------- ----------- -----------
1,504,277 1,880,411 921,180
General expenses 32,231 24,170 21,778
Commissions 150,011 204,016 197,202
Dividends 22,928 8,074 7,145
Taxes, licenses and fees 4,649 4,180 6,096
----------- ----------- -----------
1,714,096 2,120,851 1,153,401
----------- ----------- -----------
Net income (loss) from operations
before surplus note interest and
equity in income of subsidiaries 12,499 (10,818) (35,381)
Surplus note interest (31,150) (26,075) (18,000)
----------- ----------- -----------
Net loss from operations before
equity in income of subsidiaries
and federal income tax (18,651) (36,893) (53,381)
Equity in income of subsidiaries 62,629 62,640 49,009
Federal income tax expense (42,521) (22,491) (4,000)
----------- ----------- -----------
NET INCOME (LOSS) $ 1,457 $ 3,256 $ (8,372)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
(IN 000'S)
CAPITAL STOCK $ 5,900 $ 5,900 $ 5,900
PAID-IN SURPLUS 199,355 199,355 199,355
SURPLUS NOTES
Balance, beginning of year 335,000 265,000 180,000
Issued during year 0 70,000 85,000
--------- --------- ---------
Balance, end of year 335,000 335,000 265,000
--------- --------- ---------
UNASSIGNED SURPLUS
Balance, beginning of year (57,067) (57,485) (47,092)
Net income (loss) 1,457 3,256 (8,372)
Recapture (writedown) of goodwill (18,397) 0 5,132
Increase in non-admitted assets (1,485) (191) (788)
Unrealized loss on investments (671) (4,440) (9,357)
Earnings on and transfers of
separate account surplus (227) 117 0
Change in asset valuation reserve (8,376) 1,676 2,992
--------- --------- ---------
Balance, end of year (84,766) (57,067) (57,485)
--------- --------- ---------
TOTAL SURPLUS 449,589 477,288 406,870
--------- --------- ---------
TOTAL CAPITAL AND SURPLUS $ 455,489 $ 483,188 $ 412,770
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ----------- ---------
<S> <C> <C> <C>
(IN 000'S)
Cash flows from operating activities:
Net income (loss) from operations
before equity in income of
subsidiaries $ 12,499 $ (10,818) $ (35,381)
Adjustments to reconcile net income
(loss) to net cash:
Increase (decrease) in liability for
annuity and other deposit funds (69,542) 894,128 341,594
Increase in policy reserves 219,334 589,559 170,766
Increase in investment income due and
accrued (2,736) (21,746) (9,869)
Net accrual and amortization of
discount and premium on investments 7,272 5,911 2,770
Realized losses on investments 6,166 12,403 10,677
Increase in non-admitted assets (1,485) (191) (788)
Change in funds withheld on
reinsurance (199,826) (1,087,862) (244,439)
Other (71,746) 24,953 7,542
----------- ----------- ---------
Net cash (used in) provided by operating
activities (100,064) 406,337 242,872
----------- ----------- ---------
Cash flows from investing activities:
Proceeds from sale and maturity of
investments 1,596,851 1,173,345 535,495
Purchase of investments (1,491,159) (1,618,587) (889,399)
Net change in short-term investments (20,543) (38,782) 15,544
Dividends from subsidiaries 37,444 42,520 31,400
Investments in subsidiaries (4,894) (15,250) (6,000)
----------- ----------- ---------
Net cash provided by (used in) investing
activities 117,699 (456,754) (312,960)
----------- ----------- ---------
Cash flows from financing activities:
Interest paid on surplus notes (31,150) (26,075) (18,000)
Recapture of goodwill 0 0 5,132
Issue of surplus notes 0 70,000 85,000
----------- ----------- ---------
Net cash provided by (used in) financing
activities (31,150) 43,925 72,132
----------- ----------- ---------
Increase (decrease) in cash during the
year (13,515) (6,492) 2,044
Cash balance, beginning of year 2,056 8,548 6,504
----------- ----------- ---------
Cash balance, end of year $ (11,459) $ 2,056 $ 8,548
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL--
Sun Life Assurance Company of Canada (U.S.) (the Registrant) is incorporated as
a life insurance company and is currently engaged in the sale of individual
fixed and variable annuities, group fixed and variable annuities and group
pension contracts. Sun Life Assurance Company of Canada (the parent company) is
a mutual life insurance company. The Registrant, which is domiciled in the State
of Delaware, prepares its financial statements in accordance with accounting
practices prescribed by the State of Delaware Insurance Department. Prescribed
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Registrant are not material to the financial
statements.
Assets in the balance sheets are stated at values prescribed or permitted to be
reported by state regulatory authorities. Bonds are carried at cost adjusted for
amortization of premium or accrual of discount. Investments in subsidiaries are
carried on the equity basis. Mortgage loans acquired at a premium or discount
are carried at amortized values and other mortgage loans at the amounts of the
unpaid balances. Real estate investments are carried at the lower of cost or
appraised value, adjusted for accumulated depreciation, less encumbrances.
Depreciation of buildings and improvements is calculated using the straight line
method over the estimated useful life of the property. For life and annuity
contracts, premiums are recognized as revenues over the premium paying period,
whereas commissions and other costs applicable to the acquisition of new
business are charged to operations as incurred. Furniture and equipment
acquisitions are capitalized but treated as nonadmitted assets. Furniture and
equipment depreciation is calculated on a straight line basis over the useful
life of the assets.
MANAGEMENT AND SERVICE CONTRACTS--
The Registrant has an agreement with its parent company which provides that the
parent company will furnish, as requested, personnel as well as certain services
and facilities on a cost reimbursement basis. Expenses under this agreement
amounted to approximately $18,452,000 in 1994, $13,883,000 in 1993, and
$11,049,000 in 1992.
REINSURANCE--
The Registrant has agreements with the parent company which provide that the
parent company will reinsure the mortality risks of the individual life
insurance contracts sold by the Registrant. Under these agreements basic death
benefits and supplementary benefits are reinsured on a yearly renewable term
basis and coinsurance basis, respectively. Reinsurance transactions under these
agreements had the effect of decreasing income from operations by approximately
$2,138,000, $1,046,000, and $1,443,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
Effective January 1, 1991, the Registrant entered into an agreement with the
parent company under which 100% of certain fixed annuity contracts issued by the
Registrant were reinsured. Effective December 31, 1993 this agreement was
terminated. This agreement had the effect of decreasing income from operations
by approximately $9,930,000 in 1993 and $2,925,000 in 1992.
Effective January 1, 1991, the Registrant entered into an agreement with the
parent company under which certain individual life insurance contracts issued by
the parent company were reinsured by the Registrant on a 90% coinsurance basis.
Also, effective January 1, 1991, the Registrant entered into an agreement with
the parent company which provides that the parent company will reinsure the
mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Registrant in the reinsurance
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
agreement described above. Such death benefits are reinsured on a yearly
renewable term basis. These agreements had the effect of decreasing income from
operations by approximately $29,188,000, $43,591,000, and $68,357,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
The life reinsurance assumed agreement requires the reinsurer to withhold funds
in amounts equal to the reserves assumed.
The following are summarized pro-forma results of operations of the Registrant
for the years ended December 31, 1994, 1993 and 1992 before the effect of
reinsurance transactions with the parent company.
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
(IN 000'S)
Income:
Premiums, annuity deposits and other
revenues $1,153,877 $ 856,045 $ 804,539
Net investment income and realized
gains 304,155 293,557 281,097
---------- ---------- ----------
1,458,032 1,149,602 1,085,636
---------- ---------- ----------
Benefits and Expenses:
Policyholder benefits 1,283,749 1,020,319 966,091
Other expenses 130,457 85,575 82,201
---------- ---------- ----------
1,414,206 1,105,894 1,048,292
---------- ---------- ----------
Income from operations $ 43,826 $ 43,708 $ 37,344
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Registrant 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 $1,854,000 in 1994, decreasing
income by $390,000 in 1993 and increasing income by $237,000 in 1992.
SEPARATE ACCOUNTS--
The Registrant has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market values.
Deposits to all separate accounts are reported as increases in separate account
liabilities and are not reported as revenues. Mortality and expense charges and
surrender fees incurred by the separate accounts are included in income of the
Registrant.
The Registrant has established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Any difference between the net assets and reserves of the separate accounts is
treated as payable to or receivable from the general account of the Registrant.
Amounts payable to the general account of the Registrant were $138,255,000 in
1994 and $101,007,000 in 1993.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
OTHER--
Income on investments is recognized on the accrual method.
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
Net income reported in the Registrant's statutory Annual Statement differs from
net income reported in these financial statements. Dividends from subsidiaries
are included in income and undistributed income (losses) of subsidiaries are
included as gains (losses) in unassigned surplus in the statutory Annual
Statement. Equity in income of subsidiaries is included in net income in these
financial statements.
Certain reclassifications have been made in the 1993 and 1992 financial
statements to conform to the classifications used in 1994.
2. INVESTMENTS IN SUBSIDIARIES:
The Registrant owns all of the outstanding shares of Massachusetts Financial
Services Company (MFS), Sun Life Insurance and Annuity Company of New York (Sun
Life (N.Y.)), Sun Investment Services Company (Sunesco), Sun Benefit Services
Company, Inc. (Sunbesco), Massachusetts Casualty Insurance Company (MCIC), New
London Trust F.S.B. (NLT) and Sun Capital Advisers, Inc. (Sun Capital).
Effective January 1, 1994, The New London Trust Company acquired all of the
outstanding shares of Danielson Federal Savings and Loan Association of
Danielson, Connecticut. These two banks have been merged into a newly formed
federally chartered savings bank now called New London Trust, F.S.B.
MFS, a registered investment adviser, serves as investment adviser to the mutual
funds in the MFS family of funds and certain mutual funds and separate accounts
established by the Registrant, and the MFS Asset Management Group provides
investment advice to substantial private clients. Clarendon Insurance Agency,
Inc., a wholly-owned subsidiary of MFS, serves as the distributor of certain
variable contracts issued by the Registrant and Sun Life (N.Y.). Sun Life (N.Y.)
is engaged in the sale of individual fixed and combination fixed/ variable
annuity contracts and group life and disability insurance contracts in the state
of New York. Sunesco is a registered investment adviser and broker-dealer.
Sunbesco provides administrative, claims and actuarial services to employee
benefits plans. MCIC is a life insurance company which issues only individual
disability income policies. Sun Capital, a registered investment adviser, and
Sunbesco are currently inactive.
In 1994, the Registrant reduced its carrying value of MCIC by $18,397,000, the
unamortized amount of goodwill. The reduction was accounted for as a direct
charge to surplus.
During 1994, 1993 and 1992, the Registrant contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
MCIC $6,000,000 $6,000,000 $6,000,000
Sun Capital 0 250,000 0
New London Trust 0 9,000,000 0
</TABLE>
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
Summarized combined financial information of the Registrant's unconsolidated
subsidiaries as of December 31, 1994, 1993 and 1992 and for the years then ended
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
Goodwill (net of amortization of
$10,277,
$10,277 and $7,075) $ 0 $ 0 $ 3,202
Other intangible assets 13,485 14,891 17,298
Other assets, net of liabilities 121,321 112,332 92,492
--------- --------- ---------
Total net assets $ 134,806 $ 127,223 $ 112,992
--------- --------- ---------
--------- --------- ---------
Total income $ 495,097 $ 424,324 $ 429,180
Operating expenses (425,891) (355,679) (374,145)
Income tax expense (29,374) (24,507) (26,250)
--------- --------- ---------
Net income $ 39,832 $ 44,138 $ 28,785
--------- --------- ---------
--------- --------- ---------
</TABLE>
3. STOCK, SURPLUS NOTES, CONTRIBUTIONS AND NOTE PAYABLE:
Prior to 1994, the Registrant issued to the parent a $70,000,000 surplus note
bearing interest at 7.25% per annum, a total of $180,000,000 of surplus notes
bearing interest at 10% per annum and $85,000,000 of surplus notes bearing
interest at 9.5% per annum. Included in these amounts are $70,000,000 and
$85,000,000 of surplus notes issued on December 31, 1993 and 1992, respectively.
Principal and interest on surplus notes are payable only to the extent that the
Registrant meets specified requirements as regards free surplus exclusive of the
principal amount and accrued interest, if any, on these notes; and, in the case
of principal repayments, with the consent of the Delaware Insurance
Commissioner. After December 31, 1993, interest payments require the consent of
the Delaware Insurance Commissioner. The Registrant expensed $31,150,000,
$26,075,000, and $18,000,000 in respect of interest on surplus notes for the
years 1994, 1993 and 1992, respectively.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
4. BONDS:
The amortized cost, gross unrealized gains and losses, and estimated market
values of investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 444,100 $5,017 $11,010 $ 438,107
States, provinces and political
subdivisions 252 0 17 235
Foreign governments 20,965 147 187 20,925
Public utilities 458,839 11,414 11,619 458,633
Transportation 215,478 5,099 9,444 211,133
Finance 193,355 3,734 4,010 193,080
All other corporate bonds 1,055,455 15,785 31,171 1,040,069
---------- ------- ------- ----------
Total long-term bonds 2,388,444 41,196 67,458 2,362,182
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 82,708 0 0 82,708
---------- ------- ------- ----------
$2,471,152 $41,196 $67,458 $2,444,890
---------- ------- ------- ----------
---------- ------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- -------- ------ ----------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 412,551 $22,436 $1,407 $ 433,580
States, provinces and political
subdivisions 252 20 0 272
Foreign governments 65,478 3,714 358 68,834
Public utilities 524,309 60,018 272 584,055
Transportation 232,012 30,132 441 261,703
Finance 208,200 18,838 131 226,907
All other corporate bonds 1,079,903 94,732 1,909 1,172,726
---------- -------- ------ ----------
Total long-term bonds 2,522,705 229,891 4,518 2,748,077
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 62,165 0 0 62,165
---------- -------- ------ ----------
$2,584,870 $229,891 $4,518 $2,810,242
---------- -------- ------ ----------
---------- -------- ------ ----------
</TABLE>
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
4. BONDS (CONTINUED):
The amortized cost and estimated fair value of bonds at December 31, 1994 and
1993 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
(IN 000'S)
Maturities are:
Due in one year or less $ 209,875 $ 209,527
Due after one year through five
years 953,222 930,578
Due after five years through ten
years 319,858 311,360
Due after ten years 877,062 885,462
---------- ----------
$2,360,017 $2,336,927
Mortgage-backed securities 111,135 107,963
---------- ----------
$2,471,152 $2,444,890
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
(IN 000'S)
Maturities are:
Due in one year or less $ 139,693 $ 141,811
Due after one year through five
years 792,203 819,545
Due after five years through ten
years 539,943 575,868
Due after ten years 927,359 1,082,036
---------- ----------
$2,399,198 $2,619,260
Mortgage-backed securities 185,672 190,982
---------- ----------
$2,584,870 $2,810,242
---------- ----------
---------- ----------
</TABLE>
Long-term bonds at December 31, 1994 and 1993 included $20,000,000 of bonds
issued to the Registrant by MFS during 1987.
Bonds included above with an amortized cost of approximately $1,561,000 and
$1,523,000 at December 31, 1994 and 1993, respectively, were on deposit with
governmental authorities as required by law.
5. MORTGAGE LOANS:
The Registrant invests in non-residential mortgage loans throughout the United
States. The return on and the ultimate recovery of these loans is generally
dependent on the successful operation, sale or refinancing of the real estate.
The Registrant employs a system to monitor the effects of current and expected
market conditions and other factors on the collectability of real estate loans.
When, in management's judgement, these assets are impaired, appropriate losses
are recorded. Such estimates necessarily include assumptions, which may often
include anticipated improvements in market conditions for real estate which may
or may not occur. The
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
5. MORTGAGE LOANS (CONTINUED):
more significant assumptions management considers involve estimates of the
following: lease, absorption and sales rates; real estate values and rates of
return; operating expenses; inflation; and sufficiency of collateral independent
of the real estate including, in limited instances, personal guarantees.
Significant concentrations of mortgage loans in various states at amortized cost
were:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
---------- -----------
(IN 000'S)
<S> <C> <C>
California $ 131,953 $ 144,615
Massachusetts 101,932 92,414
Pennsylvania 136,778 138,967
Ohio 79,478 85,700
Washington 90,422 88,241
Michigan 75,592 77,416
New York 93,178 81,132
All other 411,648 408,404
---------- -----------
$1,120,981 $1,116,889
---------- -----------
---------- -----------
</TABLE>
The Registrant has restructured mortgage loans totalling approximately
$43,381,000 and there are two loans in the process of foreclosure at December
31, 1994.
The Registrant has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $5,000,000 at
December 31, 1994.
6. INVESTMENTS--GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
Realized gains (losses): 1994 1993 1992
------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Stocks $ 0 $ 445 $ 0
Bonds 0 0 107
Mortgage loans (5,689) (9,975) (10,089)
Real estate (334) (2,873) (695)
Other assets (143) 0 0
------- -------- --------
$(6,166) $(12,403) $(10,677)
------- -------- --------
------- -------- --------
Changes in unrealized gains (losses):
Bonds $ 0 $ 84 $ 740
Real estate (671) (4,113) (10,508)
Stocks 0 (411) 411
------- -------- --------
$ (671) $ (4,440) $ (9,357)
------- -------- --------
------- -------- --------
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to
interest rate risk are charged or credited to an interest maintenance reserve
and amortized into income over the remaining historical life of the security
sold. The amounts charged were capital losses of $14,070,000 in 1994; the
amounts credited were capital gains of $40,993,000 and $12,715,000 in 1993 and
1992.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
7. INVESTMENT INCOME:
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $200,339 $204,405 $197,981
Interest income from mortgage loans 106,347 99,790 92,203
Interest income from policy loans 2,670 2,503 2,118
Real estate investment income 8,649 8,593 8,634
Interest income on funds withheld 30,741 19,420 7,894
Other 1,418 645 1,169
-------- -------- --------
Gross investment income 350,614 335,356 309,999
Investment expenses 12,417 12,679 11,125
Interest expense on funds withheld 0 69,181 79,904
-------- -------- --------
$337,747 $253,496 $218,970
-------- -------- --------
-------- -------- --------
</TABLE>
8. DERIVATIVES:
Periodically, the Registrant uses derivative instruments for risk management
purposes, including the management of interest rate exposure and for
asset-liability immunization purposes. The Registrant's exposure to derivatives
has included U.S. Treasury note futures and interest rate and currency swap
agreements structured as forward spread lock contracts.
The strategy in utilizing interest rate futures is to hedge against interest
rate risk and to match investment maturities with insurance liabilities. The
futures contracts are marked to market daily. Gains and 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, deferred gains or losses are amortized over the remaining life of the
hedged assets. At December 31, 1994, the notional principal amounts outstanding
are $100,093,000.
The forward spread lock contracts protect the Registrant against the gap between
corporate and treasury interest rates for reinvestment risk purposes. Interest
rate and currency swap agreements are also used solely for the purpose of
minimizing the Registrant's exposure to fluctuations in interest rates and
foreign currency exchange rates. Gains and losses on spread lock transactions
are deferred until the swap has been terminated or completed. At that time, the
deferred gains or losses are amortized over the remaining life of the hedged
asset. The notional principal amounts of swaps outstanding at December 31, 1994,
are $99,905,000. The counterparties to hedge agreements are major financial
institutions and management believes that the risk of incurring losses related
to credit risk is remote. The estimated fair value of the Registrant's open swap
agreements at December 31, 1994, shows a potential amount due to counterparties
of $94,867.
9. LEVERAGED LEASES:
The Registrant is a lessor in a leveraged lease agreement entered into in
October, 1994 under which a fleet of rail cars having an estimated economic life
of 25-40 years was leased for a term of 9.75 years. The Registrant's equity
investment represented 22.9% of the purchase price of the railcar equipment. The
balance of the purchase price was furnished by third party long-term debt
financing, secured by the rail equipment and non-recourse to the Registrant. The
Master Lessee's obligations under the lease are
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
9. LEVERAGED LEASES (CONTINUED):
unconditionally guaranteed by a third party. At the end of the lease term, the
Master Lessee may exercise a fixed price purchase option to purchase the
equipment. If such option is not exercised, the Registrant has the right to
require the Master Lessee to manage the fleet for 20 years. For federal income
tax purposes, the Registrant has the benefit of tax deductions for depreciation
on the entire leased asset and for interest on the long-term debt. Since during
the early years of the lease those deductions exceed the lease rental income,
substantial excess deductions are available to be applied against the
Registrant's other income. In later years, when rental income exceeds
deductions, taxes will be payable.
The Registrant's net investment in leveraged leases at December 31, 1994, is
composed of the following elements:
<TABLE>
<CAPTION>
(IN 000'S)
<S> <C>
Lease contracts receivable $ 121,716
Less non-recourse debt (121,699)
----------
17
Estimated residual value of leased assets 41,150
Less unearned and deferred income (15,292)
----------
Investment in leveraged leases 25,875
Less fees (237)
----------
Net investment in leveraged leases $ 25,638
----------
----------
</TABLE>
Such amount is classified as other invested assets in the accompanying balance
sheets.
10. LOAN-BACKED AND STRUCTURED SECURITIES (CMO'S):
Loan-backed and structured securities are recorded at purchase cost with the
discount or premium amortized over the full term to maturity as an adjustment to
investment income. This results in the recognition of a constant rate of return
equal to the prevailing rate at the time of purchase.
The NAIC's Accounting Practices and Procedures Task Force has adopted new
accounting requirements which became effective January 1, 1995. This will
require that securities be revalued using prepayment assumptions resulting from
annual or quarterly review of prepayment experience. The effective yield on the
new basis is calculated using anticipated cash flows of the security based on an
assumption of prepayment rates of the underlying loans.
As of December 31, 1994, the Registrant had not yet determined which of two
acceptable adjustment methods (prospective or retrospective) would be
implemented for each security type when revaluing these investments. The impact
on investment income is not, however, expected to be significant under either
method.
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary
withdrawal--with adjustment
-- with market value adjustment $3,083,623 35.98%
-- at book value less surrender
charges (surrender charge > 5%) 2,915,460 34.02
-- at book value (minimal or no
charge or adjustment) 1,252,843 14.62
Not subject to discretionary withdrawal
provision 1,318,092 15.38
---------- ----------
Total annuity actuarial reserves and
deposit liabilities $8,570,018 100.00%
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal --
with adjustment
-- with market value adjustment $2,429,921 30.67%
-- at book value less surrender
charges (surrender charge > 5%) 2,584,520 32.62
-- at book value (minimal or no
charge or adjustment) 1,506,264 19.01
Not subject to discretionary withdrawal
provision 1,402,856 17.70
---------- ----------
Total annuity actuarial reserves and
deposit liabilities $7,923,561 100.00%
---------- ----------
---------- ----------
</TABLE>
12. RETIREMENT PLANS:
The Registrant participates with its parent company in a non-contributory
defined benefit pension plan covering essentially all employees. The benefits
are based on years of service and compensation.
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA. The Registrant is charged
for its share of the pension cost based upon its covered participants. Pension
plan assets consist principally of an immediate participation guaranteed
investment contract issued by the parent company.
On January 1, 1994, the Registrant adopted Statement of Financial Accounting
Standards No. 87, "Employers Accounting for Pensions." As a result, the net
pension expense was $417,000 in 1994. There was no pension expense in 1993 and
1992.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
12. RETIREMENT PLANS (CONTINUED):
The following table sets forth the pension plan's funded status (for the parent
company and its participating subsidiaries and affiliates), as well as the
Registrant's share at December 31, 1994:
<TABLE>
<CAPTION>
TOTAL
PENSION REGISTRANT'S
PLAN SHARE
--------- --------
(IN 000'S)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligations,
including vested benefits of $(38,157)
and $(1,662) $ (39,686) $(1,741)
--------- --------
--------- --------
Projected benefit obligations for
service rendered to date (53,494) (3,205)
Plan assets at fair value 101,833 1,935
--------- --------
Difference between assets and projected
benefit obligation 48,339 (1,270)
Unrecognized net loss since January 1,
1994 (1,238) (22)
Unrecognized net asset/liability at
January 1, 1994, being recognized over
17 years (32,898) 875
--------- --------
(Accrued) Prepaid pension cost included
in other assets $ 14,203 $ (417)
--------- --------
--------- --------
</TABLE>
The components of the 1994 pension cost for the pension plan, as well as the
Registrant's share were:
<TABLE>
<CAPTION>
TOTAL
PENSION REGISTRANT'S
PLAN SHARE
-------- -----
(IN 000'S)
<S> <C> <C>
Service cost $ 2,847 $272
Interest cost 3,769 225
Actual return on plan assets (8,294) (156)
Net amortization and deferral (817) 76
-------- -----
Net pension cost (income) $ (2,495) $417
-------- -----
-------- -----
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
7.5% and 4.5%, respectively. The expected long-term rate of return on assets was
7.5%.
The Registrant also participates with its parent and certain affiliates in a
401(k) savings plan for which substantially all employees are eligible. The
Registrant matches, up to specified amounts, employees' contributions to the
plan. Employer contributions were $152,000, $124,000 and $87,000 for the years
ended December 31, 1994, 1993, and 1992, respectively.
13. OTHER POST-RETIREMENT BENEFIT PLANS:
In addition to pension benefits the Registrant 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 Registrant,
or retire early upon satisfying an alternate age plus service condition. Life
insurance benefits are generally set at a fixed amount.
Effective January 1, 1993, the Registrant adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers Accounting for Post-retirement
Benefits other than Pensions." SFAS No. 106 requires
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
13. OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED):
the Registrant to accrue the estimated cost of retiree benefit payments during
the years the employee provides services. SFAS No. 106 allows recognition of the
cumulative effect of the liability in the year of adoption or the amortization
of the obligation over a period of up to 20 years. The Registrant has elected to
recognize this obligation of approximately $400,000 over a period of ten years.
The Registrant's cash flows are not affected by implementation of this standard,
but implementation decreased net income by $114,000 in 1994 and $120,000 in
1993. The Registrant's post-retirement health care plans currently are not
funded.
The following table sets forth the plan's funded status, reconciled with amounts
recognized in the Registrant's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
---------- ----------
(IN 000'S)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $ 0 $ 0
Fully eligible active plan participants 0 0
Other active plan participants (444) (480)
----- -----
Total (444) (480)
Plan assets at fair value 0 0
----- -----
Accumulated post-retirement benefit obligation in excess of
plan assets (444) (480)
Unrecognized gains from past experience (110) 0
Unrecognized transition obligation 320 360
----- -----
Accrued post-retirement benefit cost $ (234) $ (120)
----- -----
----- -----
Net periodic post-retirement benefit cost components:
Service cost--benefits earned $ 49 $ 44
Interest cost on accumulated post-retirement benefit
obligation 33 36
Amortization of transition obligation 40 40
Net amortization and deferral (8) 0
----- -----
Net periodic post-retirement benefit cost $ 114 $ 120
----- -----
----- -----
</TABLE>
The discount rate used in determining the accumulated post-retirement benefit
obligation was 8.0% and the assumed health care cost trend rate was 12.0% graded
to 6% over 10 years after which it remains constant.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the post-retirement
benefit obligation as of December 31, 1994 by $111,000 and the estimated service
and interest cost components of the net periodic post-retirement benefit cost
for 1994 by $22,000.
Since substantially all services to the Registrant are provided by employees of
Sun Life Assurance Company of Canada pursuant to the service agreement, their
benefits are covered under the parent company's plan.
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and fair values of the
Registrant's financial instruments at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
CARRYING
AMOUNT FAIR VALUE
---------- ----------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $2,471,152 $2,444,890
Mortgages 1,120,981 1,107,012
Derivatives relating to assets* 200,000 199,999
LIABILITIES
Insurance reserves $ 129,302 $ 129,302
Individual annuities 475,557 476,570
Pension products 2,772,618 2,668,382
<CAPTION>
DECEMBER 31, 1993
----------------------
CARRYING
AMOUNT FAIR VALUE
---------- ----------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $2,584,870 $2,810,242
Mortgages 1,116,889 1,162,549
Derivatives relating to assets* 100,000 99,787
LIABILITIES
Insurance reserves $ 123,711 $ 123,711
Individual annuities 637,877 645,244
Pension products 2,035,265 2,130,236
*Represents off-balance sheet notional amounts pertaining to
interest rate futures and interest rate and current swap
agreements.
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
using prices for publicly traded bonds of similar credit risk and maturity and
repayment characteristics.
The fair values of the Registrant's general account reserves and liabilities
under investment-type contracts (insurance, annuity and pension contracts that
do not involve mortality or morbidity risks) are estimated using discounted cash
flow analyses or surrender values.
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.
70
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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 gains and losses on bonds and mortgages, which relate to interest rate
risk, are charged to an interest maintenance reserve (IMR) and amortized into
income over the remaining historical life of the security sold.
The tables shown below present changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
1994 1993
---------------- ---------------
AVR IMR AVR IMR
------- ------- ------- ------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $20,033 $31,414 $21,709 $7,471
Realized investment gains (losses), net
of tax (1,320) (9,146) (8,432) 26,646
Amortization of investment (gains)
losses 0 (4,128) 0 (2,703)
Unrealized investment gains (losses) (3,537) 0 (5,351) 0
Required by formula 13,233 0 12,107 0
------- ------- ------- ------
Balance, end of year $28,409 $18,140 $20,033 $31,414
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
16. FEDERAL INCOME TAXES:
The Registrant and its subsidiaries file a consolidated federal income tax
return. Federal income taxes are calculated for the consolidated group based
upon amounts determined to be payable as a result of operations within the
current year. No provision is recognized for timing differences which may exist
between financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $43,200,000, $25,000,000 and
$12,000,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
17. RISK-BASED CAPITAL:
Effective December 31, 1993 the NAIC adopted risk-based capital requirements for
life insurance companies. The risk-based capital requirements provide a method
for measuring the minimum acceptable amount of adjusted capital that a life
insurer should have, as determined under statutory accounting practices, taking
into account the risk characteristics of its investments and products. The
Registrant has met the minimum risk-based capital requirements for 1994 and
1993.
18. NEW ACCOUNTING PRONOUNCEMENT:
In April, 1993, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual LIfe Insurance and Other Enterprises." Under this
interpretation, annual financial statements of mutual life insurance enterprises
for fiscal years beginning after December 15, 1992, shall provide a brief
description that financial statements prepared on the basis of statutory
accounting practices will no longer be described as prepared in conformity with
generally accepted accounting principles. In January, 1995, Statement of
Financial Accounting Standards No. 120 (SFAS No. 120) "Accounting and Reporting
by Mutual Life Insurance Enterprises for Certain Long Duration Participating
Contracts" was issued. SFAS No. 120 delays the effective date of Interpretation
No. 40 until fiscal years beginning after December 15, 1995.
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
18. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED):
The Registrant has not yet determined whether it will continue to file statutory
financial statements with the Securities and Exchange Commission as permitted by
Regulation S-X, Rule 7-02(b) or file financial statements prepared in accordance
with all applicable authoritative accounting pronouncements that define
generally accepted accounting principles for all enterprises.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS
We have audited the accompanying balance sheets of Sun Life Assurance Company of
Canada (U.S.) (wholly-owned subsidiary of Sun Life Assurance Company of Canada)
as of December 31, 1994 and 1993, and the related statements of operations,
capital stock and surplus, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Registrant's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Registrant as of December 31, 1994 and
1993, and the results of its operations, its capital stock and surplus and its
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 31, 1995
72
<PAGE>
APPENDIX A
ILLUSTRATIVE EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATIONS:
Suppose the net asset value of a Series 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; and no dividends or
distributions caused Series 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 and the distribution expense
charge of .00003809 (the daily equivalent of the current maximum charge of 1.40%
on an annual basis) gives a net investment factor of 1.00323702. 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
14.6117130 (14.5645672 X 1.00323702).
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY UNIT VALUE CALCULATIONS:
Suppose the circumstances of the first example exist, and the value of an
annuity unit for the immediately preceding valuation period had been 12.3456789.
If the first variable annuity payment is determined by using an annuity payment
based on an assumed interest rate of 4% per year, the value of the annuity unit
for the current valuation period would be 12.3843113 (12.3456789 X 1.00323702
(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.
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATIONS:
Suppose that a Participant's Account is credited with 8,765.4321 variable
accumulation units of a particular Sub-Account but is not credited with any
fixed accumulation units; that the variable accumulation unit value and the
annuity unit value for the particular Sub-Account for the valuation period which
ends immediately preceding the annuity commencement date are 14.5645672 and
12.3456789 respectively; that the annuity payment rate for the age and option
elected is $6.78 per $1,000; and that the annuity unit value on the day prior to
the second variable annuity payment date is 12.3843113. The first variable
annuity payment would be $865.57 (8,765.4321 X 14.5645672 X 6.78 divided by
1,000). The number of annuity units credited would be 70.1112 ($865.57 divided
by 12.3456789) and the second variable annuity payment would be $868.28 (70.1112
X 12.3843113).
APPENDIX B
STATE PREMIUM TAXES
The amount of applicable tax varies depending on the jurisdiction and is
subject to change by the legislature or other authority. In many jurisdictions
there is no tax at all. The Company believes that as of April 30, 1995 premium
taxes will be imposed with respect to Contracts offered by this Prospectus only
by the jurisdictions listed below at the rates indicated. For information
subsequent to April 30, 1995 a tax adviser should be consulted.
<TABLE>
<CAPTION>
RATE OF TAX
-----------------------------
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- ------------------------------ ---------- --------------
<S> <C> <C>
California .50% 2.35%
District of Columbia 2.25% 2.25%
Kansas -- 2.00%
Kentucky 2.00% 2.00%
Maine -- 2.00%
Mississippi -- 1.00%*
Nevada -- 3.50%
Pennsylvania -- 2.00%
South Dakota -- 1.25%
West Virginia 1.00% 1.00%
Wyoming -- 1.00%
</TABLE>
- ---------
*No tax on purchase payments received on or after July 1, 1995.
73
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
These examples assume the following:
1) The Purchase Payment was $10,000
2) The date of full surrender or partial withdrawal occurs during the
3rd Account Year and
a) the Participant's Account Value is $12,000 and is attributable to
the value of Variable Accumulation Units of one Sub-Account,
b) no previous partial withdrawals have been made.
EXAMPLE A--FULL SURRENDER:
1) 10% or .10 of the Purchase Payment is available without imposition
of a withdrawal charge: (.10 X $10,000 = $1,000).
2) The balance of the full surrender ($12,000 - $1,000 = $11,000) is
subject to the withdrawal charge applicable during the 3rd Account Year (5%
or .05).
3) The amount of the withdrawal charge is .05 X $11,000 = $550.
4) The amount of the full surrender is $12,000 - $550 = $11,450.
EXAMPLE B--PARTIAL WITHDRAWAL (IN THE AMOUNT OF $2,000):
1) 10% or .10 of the Purchase Payment is available without imposition
of a withdrawal charge: (.10 X $10,000 = $1,000).
2) The balance of the partial withdrawal ($2,000 - $1,000 = $1,000) is
subject to the withdrawal charge applicable during the 3rd Account Year (5%
or .05).
3) The amount of the withdrawal charge is equal to the amount required
to complete the partial withdrawal ($2,000 - $1,000 = $1,000) divided by 1 -
.05 or .95 less the amount required to complete the balance of the partial
withdrawal.
Withdrawal Charge = $1,000 - $1,000
---------------
.95
= $52.63
In this example, in order for the Participant to receive the amount
requested ($2,000), a gross withdrawal of $2052.63 must be processed with $52.63
representing the withdrawal charge calculated above.
PART 2--FIXED ACCOUNT--EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The MVA factor is:
N/12
( 1 + I
------------
1 + J + .005 ) -1
These examples assume the following:
1) the Guarantee Amount was allocated to a four year Guarantee Period
with a Guaranteed Interest Rate of 5% or .05 (l).
2) the date of surrender is two years from the Expiration Date (N =
24).
3) the value of the Guarantee Amount on the date of surrender is
$11,025 and,
4) no transfers or partial withdrawals affecting this Guarantee Amount
have been made
74
<PAGE>
5) withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 7% or .07.
N/12
The MVA factor = ( 1 + l
--------------
1 + J + .005 ) -1
24/12
= ( 1 + .05
--------------
1 + .07 + .005 ) -1
= (.977)2 -1
= .954 -1
= - .046
The value of the Guarantee Amount is multiplied by the MVA factor to
determine the MVA
$11,025 X (-.046) = -$507.15
-$507.15 represents the MVA that will be deducted from the value of the
Guarantee Amount before the application of any withdrawal charge.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of surrender, the current rate (J) is 4% or .04.
N/12
The MVA factor = ( 1 + l
--------------
1 + J + .005 ) -1
24/12
= ( 1 + .05
--------------
1 + .04 + .005 ) -1
= (1.005)2 -1
= 1.010 -1
= .010
The value of the Guarantee Amount is multiplied by the MVA factor to
determine the MVA
$11,025 X .010 = $110.25
$110.25 represents the MVA that would be added to the value of the
Guarantee Amount before the application of any withdrawal charge.
If the above examples had been for partial withdrawals, the MVA's would be
reduced proportionally. For example, if only 25% of the value of the Guarantee
Amount were being surrendered, the MVA would be -$126.79 and $27.56 for the
negative MVA and positive MVA, respectively.
75
<PAGE>
APPENDIX D
CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account, the
Average Annual Total Return for the stated periods, based upon a hypothetical
initial Purchase Payment of $1,000, calculated in accordance with the formula
set out below the table.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1994
<TABLE>
<CAPTION>
1 YEAR 5 YEAR
PERIOD PERIOD LIFETIME*
------- ------- -------
<S> <C> <C> <C>
Capital Appreciation Series.................. -10.38 % 7.85 % 7.77 %
Government Securities Series................. -8.89 % 4.98 % 4.87 %
High Yield Series............................ -8.82 % 8.54 % 8.15 %
Managed Sectors Series....................... -8.63 % 7.10 % 6.61 %
Total Return Series.......................... -9.33 % 5.70 % 5.77 %
World Governments Series..................... -10.98 % 5.86 % 6.28 %
</TABLE>
- ---------
*From October 27, 1989 (date of commencement of sales of the Contracts) to
December 31, 1994.
The Average Annual Total Return for each period in the table above was
determined by finding the average annual compounded rate of return over each
period that would equate the initial amount invested to the ending redeemable
value for that period, in accordance with the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical Purchase Payment of $1,000
T = average annual total return for the period
n = number of years
ERV = redeemable value (as of the end of the period) of a
hypothetical $1,000 Purchase Payment made at the beginning
of the period.
The formula assumes that: 1) all recurring fees have been deducted from the
Participant's Account; 2) all applicable non-recurring Contract charges are
deducted at the end of the period; and 3) there will be a full surrender at
the end of the period.
The $30 annual Account Fee will be allocated among the Sub-Accounts so that
each Sub-Account's allocated portion of the Account Fee is proportional to the
percentage of the number of Certificates that have amounts allocated to that
Sub-Account. Because the impact of Account Fees on a particular Certificate may
differ from those assumed in the computation due to differences between actual
allocations and the assumed ones, the total return that would have been
experienced by an actual Certificate over these same time periods may have been
different from that shown above.
NON-STANDARDIZED INVESTMENT PERFORMANCE:
The Variable Account may illustrate its results over various periods and
compare its results to indices and other variable annuities in sales materials
including advertisements, brochures and reports. Such results may be computed on
a "cumulative" and/or "annualized" basis.
"Cumulative" quotations are arrived at by calculating the change in the
Accumulation Unit value of a Sub-Account between the first and last day of the
base period being measured, and expressing the difference as a percentage of the
Accumulation Unit value at the beginning of the base period.
"Annualized" quotations (described in the following table as "Compound
Growth Rate") are calculated by applying a formula which determines the level
rate of return which, if earned over the entire base period, would produce the
cumulative return.
76
<PAGE>
NON-STANDARDIZED INVESTMENT PERFORMANCE:
$10,000 INVESTED IN
...WOULD HAVE GROWN TO THIS AMOUNT ON
THIS SUB-ACCOUNT UNDER
A
DECEMBER 31, 1994*
REGATTA CONTRACT
THIS MANY YEARS AGO...
<TABLE>
<CAPTION>
CAPITAL APPRECIATION SERIES GOVERNMENT SECURITIES SERIES HIGH YIELD SERIES
--------------------------------- --------------------------------- ---------------------------------
NUMBER CUMULATIVE COMPOUND CUMULATIVE COMPOUND CUMULATIVE COMPOUND
OF GROWTH GROWTH GROWTH GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE RATE AMOUNT RATE RATE AMOUNT RATE RATE
- -------- ----------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1/1/94-12/31/94 $ 9,507.12 -4.93% -4.93% $ 9,649.21 -3.51% -3.51% $ 9,641.97 -3.58% -3.58%
2 1/1/93-12/31/94 $11,063.78 10.64% 5.18% $10,344.93 3.45% 1.71% $11,193.66 11.94% 5.80%
3 1/1/92-12/31/94 $12,411.49 24.11% 7.47% $10,897.27 8.97% 2.91% $12,696.53 26.97% 8.28%
4 1/1/91-12/31/94 $17,246.81 72.47% 14.60% $12,445.48 24.45% 5.62% $18,472.82 84.73% 16.58%
5 1/1/90-12/31/94 $15,367.82 53.68% 8.97% $13,342.79 33.43% 5.94% $15,676.72 56.77% 9.41%
Lifetime 10/27/89-12/31/94 $15,551.16 55.51% 8.93% $13,387.17 33.87% 5.83% $15,480.14 54.80% 9.00%
<CAPTION>
MANAGED SECTORS SERIES TOTAL RETURN SERIES WORLD GOVERNMENTS SERIES
--------------------------------- --------------------------------- ---------------------------------
CUMULATIVE COMPOUND CUMULATIVE COMPOUND CUMULATIVE COMPOUND
GROWTH GROWTH GROWTH GROWTH GROWTH GROWTH
AMOUNT RATE RATE AMOUNT RATE RATE AMOUNT RATE RATE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1/1/94-12/31/94 $ 9,672.33 -3.28% -3.28% $ 9,638.83 -3.61% -3.61% $ 9,419.46 -5.81% -5.81%
2 1/1/93-12/31/94 $ 9,926.02 -0.74% -0.37% $10,777.83 7.78% 3.82% $11,042.65 10.43% 5.08%
3 1/1/92-12/31/94 $10,424.26 4.24% 1.39% $11,540.95 15.41% 4.89% $10,940.89 9.41% 3.04%
4 1/1/91-12/31/94 $16,666.51 66.67% 13.62% $13,838.65 36.39% 8.46% $12,393.31 23.93% 5.51%
5 1/1/90-12/31/94 $14,725.65 47.26% 8.05% $14,014.42 40.14% 6.98% $13,865.87 38.66% 6.76%
Lifetime 10/27/89-12/31/94 $14,565.28 45.65% 7.55% $14,249.46 42.49% 7.10% $14,243.65 42.44% 7.18%
</TABLE>
- ---------
*For purposes of determining these investment results, the actual investment
performance of each Series of MFS/Sun Life Series Trust is reflected from
October 27, 1989, the date of commencement of sales of the Contracts. The
charges imposed under the Contract against the assets of the Variable Account
for mortality and expense risks and distribution expense risks have been
deducted. However, the annual Account Fee is not reflected and these examples
do not assume surrender at the end of the period.
77
<PAGE>
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, the Company may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM is designed to evaluate the various factors
affecting the overall performance of an insurance company in order to provide an
opinion as to an insurance company's relative financial strength and ability to
meet its contractual obligations. The procedure includes both a quantitative and
qualitative review of each company.
DUFF & PHELPS CREDIT RATING COMPANY's Insurance Company Claims Paying
Ability Rating is an independent evaluation by a nationally accredited rating
organization of an insurance company's ability to meet its future obligations
under the contracts and products it sells. The rating takes into account both
quantitative and qualitative factors.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a
publisher of statistical data covering the investment company industry in the
United States and overseas. Lipper is recognized as the leading source of data
on open-end and closed-end funds. Lipper currently tracks the performance of
over 5,000 investment companies and publishes numerous specialized reports,
including reports on performance and portfolio analysis, fee and expense
analysis.
STANDARD & POOR's insurance claims-paying ability rating is an opinion of an
operating insurance company's financial capacity to meet obligations of its
insurance policies in accordance with their terms.
VARDS (Variable Annuity Research Data Service) provides a comprehensive
guide to variable annuity contract features and historical fund performance. The
service also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable contracts.
STANDARD & POOR'S INDEX--broad-based measurement of changes in stock-market
conditions based on the average performance of 500 widely held common stocks;
commonly known as the Standard & Poor's 500 (S&P 500). The selection of stocks,
their relative weightings to reflect differences in the number of outstanding
shares, and publication of the index itself are services of Standard & Poor's
Corporation, a financial advisory, securities rating, and publishing firm. The
index tracks 400 industrial company stocks, 20 transportation stocks, 40
financial company stocks, and 40 public utilities.
NASDAQ-OTC Price Index--this index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA)--price-weighted average of 30 actively
traded blue chip stocks, primarily industrials, but including American Express
Company and American Telephone and Telegraph Company. Prepared and Published by
Dow Jones & Company, it is the oldest and most widely quoted of all the market
indicators. The average is quoted in points, not dollars.
In its advertisements and other sales literature for the Variable Account
and the Series Fund, the Company intends to illustrate the advantages of the
Contracts in a number of ways:
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of
the variable annuity contract. For example, but not by way of limitation, the
literature may emphasize the potential savings through tax deferral; the
potential advantage of the Variable Account over the fixed account; and the
compounding effect when a Participant makes regular deposits to his or her
Account.
DOLLAR COST AVERAGING ILLUSTRATIONS. These illustrations will generally
discuss the price-leveling effect of making regular investments in the same
Sub-Accounts over a period of time, to take advantage of the trends in market
prices of the portfolio securities purchased by those Sub-Accounts.
SYSTEMATIC WITHDRAWAL PROGRAM. A service provided by the Company, through
which a Participant may take any distribution allowed by Code Section 401(a)(9)
in the case of Qualified Contracts, or permitted under Code Section 72 in the
case of Non-Qualified Contracts, by way of a series of partial withdrawals.
Withdrawals under this program may be fully or partially includible in income
and may be subject to a 10% penalty tax. Consult your tax adviser.
THE COMPANY'S OR MFS'S CUSTOMERS. Sales literature for the Variable Account
and the Series Fund may refer to the number of clients which they serve. As of
the date of this Prospectus, MFS was serving over 1.6 million investor accounts.
THE COMPANY'S OR MFS'S ASSETS, SIZE. The Company may discuss its general
financial condition (see, for example, the references to Standard & Poor's, Duff
& Phelps and A.M. Best Company above); it may refer to its assets; it may also
discuss its relative size and/or ranking among companies in the industry or
among any sub-classification of those companies, based upon recognized
evaluation criteria. For example, at year-end 1993 the Company was the 45th
largest U.S. life insurance company based upon overall assets and its parent
company, Sun Life Assurance Company of Canada, was the 15th largest.
78
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
C/O SUN LIFE ANNUITY SERVICE CENTER
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
500 Boylston Street
Boston, Massachusetts 02116
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
REGUS-1 5/95
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated May 1, 1995.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS.
Item 14. Other Expenses of Issuance and Distribution
Not applicable.
Item 15. Indemnification of Directors and Officers
Article 8 of the By-Laws of Sun Life Assurance Company of Canada
(U.S.) provides for indemnification of directors and officers as follows:
"Section 8.01 (a). Every person who is or was a director, officer
or employee of this corporation or of any other corporation which he served
at the request of this corporation and in which this corporation owns or owned
shares of capital stock or of which it is or was a creditor shall have a right
to be indemnified by this corporation against all liability and reasonable
expenses incurred by him in connection with or resulting from any claim,
action, suit or proceeding in which he may become involved as a party or
otherwise by reason of his being or having been a director, officer or
employee of this corporation or such other corporation, provided (1) said
claim, action, suit or proceeding shall be prosecuted to a final determination
and he shall be vindicated on the merits, or (2) in the absence of such a
final determination vindicating him on the merits, the board of directors
shall determine that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful; said determination to be made by
the board of directors acting through a quorum of disinterested directors, or
in its absence on the opinion of counsel.
(b) For purposes of the preceding subsection: (1) "liability and
reasonable expenses" shall include but not be limited to reasonable counsel
fees and disbursements, amounts of any judgment, fine or penalty, and
reasonable amounts paid in settlement; (2) "claim, action, suit or proceeding"
shall include every such claim, action, suit or proceeding, whether civil or
criminal, derivative or otherwise, administrative, judicial or legislative,
any appeal relating thereto, and shall include any reasonable apprehension or
threat of such a claim, action, suit or proceeding; (3) a settlement, plea of
nolo contendere, consent judgment, adverse civil judgment, or conviction shall
not of itself create a presumption that the conduct of the person seeking
indemnification did not meet the standard of conduct set forth in subsection
(a)(2) hereof.
II-1
<PAGE>
(c) Notwithstanding the foregoing, the following limitations shall
apply with respect to any action by or in the right of the Corporation: (1) no
indemnification shall be made in respect of any claim, issue or matter as to
which the person seeking indemnification shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper; and (2) indemnification shall extend only to
reasonable expenses, including reasonable counsel's fees and disbursements.
(d) The right of indemnification shall extend to any person
otherwise entitled to it under this by-law whether or not that person
continues to be a director, officer or employee of this corporation or such
other corporation at the time such liability or expense shall be incurred. The
right of indemnification shall extend to the legal representative and heirs of
any person otherwise entitled to indemnification. If a person meets the
requirements of this by-law with respect to some matters in a claim, action,
suit or proceeding, but not with respect to others, he shall be entitled to
indemnification as the former. Advances against liability and expenses may be
made by the corporation on terms fixed by the board of directors subject to an
obligation to repay if indemnification proves unwarranted.
(e) This by-law shall not exclude any other rights of
indemnification or other rights to which any director, officer or employee may
be entitled to by contract, vote of the stockholders or as a matter of law. If
any clause, provision or application of this section shall be determined to be
invalid, the other clauses, provisions or applications of this section shall
not be affected but shall remain in full force and effect. The provisions of
this by-law shall be applicable to claims, actions, suits or proceedings made
or commenced after the adoption hereof, whether arising from acts or omissions
to act occurring before or after the adoption hereof.
(f) Nothing contained in this by-law shall be construed to protect
any director or officer of the corporation against any liability to the
corporation or its security holders to which he would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office."
II-2
<PAGE>
Item 16. Exhibits
Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
1 Underwriting Agreement **
3(a) Certificate of Incorporation *
3(b) By-laws *
4(a) Combination Fixed/Variable Group
Annuity Contract **
4(b) Certificate to be used in connection
with Contract filed as
Exhibit 4(a) **
5 Opinion re: Legality **
23 Consents of Experts and Counsel
(a) Independent Auditors' Consent Filed Herewith
(b) Consent of Counsel Filed Herewith
24 Powers of Attorney ***
<FN>
* Filed with the Registration Statement of the Registrant on
Form S-1, File No. 33-29851.
** Filed with Pre-effective Amendment No. 1 to the Registration
Statement of the Registrant on Form S-2, File No. 33-29851.
*** Filed with Post-effective Amendment No. 3 to the Registration
Statement of the Registrant on Form S-2, File No. 33-41858.
</TABLE>
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
II-3
<PAGE>
Provided, however, that paragraphs (a)(1)(i) and
a(1)(ii) do not apply if the registration statement is on
Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indem-nification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Sun Life Assurance Company of Canada (U.S.), certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-2 and has duly caused this Post-effective Amendment No. 4 to its
Registration Statement on Form S-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Wellesley, Commonwealth
of Massachusetts, on the 28th day of April, 1995.
Sun Life Assurance Company of
Canada (U.S.)
(Registrant)
By:* /s/ JOHN D. McNEIL
-------------------
John D. McNeil
Chairman
Attest: /s/ BONNIE S. ANGUS
--------------------
Bonnie S. Angus
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 4 to the Registration Statement has been signed
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
Chairman and
Director
(Principal
* /s/ JOHN D. McNEIL Executive Officer) April 28, 1995
- ----------------------------
John D. McNeil
Vice President and Actuary
(Principal Financial &
/s/ ROBERT P. VROLYK Accounting Officer) April 28, 1995
- -----------------------------
Robert P. Vrolyk
* /s/ RICHARD B. BAILEY Director April 28, 1995
- -----------------------------
Richard B. Bailey
<FN>
- -----------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed with Post-effective
Amendment No. 3 to the Registration Statement of the Registrant on
Form S-2, File No. 33-41858.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* /s/ A. KEITH BRODKIN Director April 28, 1995
- -----------------------------
A. Keith Brodkin
* /s/ M. COLYER CRUM Director April 28, 1995
- -----------------------------
M. Colyer Crum
* /s/ JOHN R. GARDNER President and April 28, 1995
- ----------------------------- Director
John R. Gardner
Senior Vice President
* /s/ DAVID D. HORN and General Manager April 28, 1995
- ----------------------------- and Director
David D. Horn
* /s/ JOHN S. LANE Director April 28, 1995
- -----------------------------
John S. Lane
* /s/ ANGUS A. MacNAUGHTON Director April 28, 1995
- -----------------------------
Angus A. MacNaughton
<FN>
- ------------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed with Post-effective
Amendment No. 3 to the Registration Statement of the Registrant on
Form S-2, File No. 33-41858.
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number
- ------- ----
<S> <C>
1 Underwriting Agreement.................... **
3(a) Certificate of Incorporation.............. *
3(b) By-Laws................................... *
4(a) Combination Fixed/Variable Group Annuity
Contract................................ **
4(b) Certificate to be issued in connection with
Contract Filed as Exhibit 4(a).......... **
5 Opinion Re: Legality...................... **
23(a) Independent Auditors' Consent.............
23(b) Consent of Counsel........................
24 Powers of Attorney........................ ***
<FN>
- -----------------------
* Filed with the Registration Statement of the Registrant on Form S-1,
File No. 33-29851.
** Filed with Pre-effective Amendment No. 1 to the Registration Statement
of the Registrant on Form S-2, File No. 33-29851.
*** Filed with Post-effective Amendment No. 3 to the Registration
Statement of the Registrant on Form S-2, File No. 33-41858.
</TABLE>
II-7
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in Post-Effective Amendment No. 4 to the Registration
Statement No. 33-41858 on Form S-2 of Sun Life Assurance Company of Canada
(U.S.) of our report dated February 3, 1995 accompanying the financial
statements of Sun Life of Canada (U.S.) Variable Account F and to the use of
our report dated January 31, 1995 accompanying the financial statements of
Sun Life Assurance Company of Canada (U.S.) appearing in the Prospectus, which
is part of such Registration Statement, and to the incorporation by reference
of our reports dated January 31, 1995 appearing in the Annual Report on Form
10-K of Sun Life Assurance Company of Canada (U.S.) for the year ended
December 31, 1994.
We also consent to the references to us under the headings "Condensed Financial
Information - Accumulation Unit Values" and "Accountants" in such Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 1995
<PAGE>
Exhibit 23(b)
CONSENT OF COUNSEL
I hereby consent to the reference to me in Post-effective Amendment No.
4 to the Registration Statement on Form S-2 of Sun Life Assurance Company of
Canada (U.S.) under the caption "Legal Matters" in the Prospectus contained
therein.
DAVID D. HORN, ESQ.
April 28, 1995
s-2regatta5/95
