<PAGE>
As filed with the Securities and Exchange Commission on September 3, 1998
Registration No. ___________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
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
(State or other jurisdiction of incorporation or organization)
------------
(I.R.S. Employer Identification No.)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
(781) 237-6030
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Margaret Hankard, Senior Associate Counsel
Sun Life Assurance Company of Canada (U.S.)
Retirement Products and Services
One Copley Place
Boston, Massachusetts, 02116
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: As soon after
effectiveness of this registration statement as practicable.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous bases pursuant to Rule 415 under the Securities Act, check
the following box.
If the registrant elects to deliver its latest annual report to security
holders, or complete and legal facsimile thereof, pursuant to Item 11(a)(1) of
this Form, check the following box.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _____________
If delivery of the prospectus if expected to be made pursuant to Rule 434, check
the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT PRICE REGISTRATION FEE
------------------- ------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Single payment deferred
fixed annuity contracts $100,000,000 Not applicable Not applicable $29,500
</TABLE>
<PAGE>
NOTE: Specific details relating to the fee calculation shall be furnished in
notes to the table, including references to provisions of Rule 457 (Section
230.457 of this chapter) relied upon, if the basis of the calculation is not
otherwise evident from the information presented in the table. If the filing fee
is calculated pursuant to Rule 457(o) under the Securities Act, only the title
of the class of securities to be registered, the proposed maximum aggregate
offering price for that class of securities and the amount of the registration
fee need to appear in the Calculation of Registration Fee table. Any difference
between the dollar amount of securities registered for such offerings and the
dollar amount of securities sold may be carried forward on a future registration
statement pursuant to Rule 429 under the Securities Act.
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated __________, 1998.
<PAGE>
PROSPECTUS
, 1998
FUTURITY
FIXED ANNUITY
--------------------------------------------------
This Prospectus describes the Futurity Fixed Annuity, a single payment
deferred annuity contract ("Contract" or "Contracts"). The Futurity Fixed
Annuity is designed for use in connection with retirement and deferred
compensation plans, some of which may qualify as retirement programs under
Sections 401, 403, 408 or 408A of the Internal Revenue Code of 1986, as amended
(the "Code"). It provides for the accumulation of values on a fixed basis, and
for annuity payments which do not vary as to dollar amount and which will begin
on a future date you select.
The Contracts are offered by Sun Life Assurance Company of Canada (U.S.)
(the "Company;" also "we," "us" or "our"). Our Principal Executive Offices are
located at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481,
telephone (781) 237-6030. We are an indirect wholly-owned subsidiary of Sun Life
Assurance Company of Canada, the largest life insurance company in Canada.
The Company issues Contracts on either an individual or a group basis,
depending on the state or other jurisdiction where a Contract is issued. A
Contract issued to an individual ("Individual Contract") is evidenced by an
Individual Contract. Participation in a Contract issued to a group ("Group
Contract"), such as a retirement plan or trust established by an employer, is
evidenced by a certificate ("Certificate") which describes the Participant's
interest under the Group Contract. Unless otherwise expressly indicated,
references in this Prospectus to "Contracts" include Individual Contracts, Group
Contracts and Certificates issued under Group Contracts, and references to
"Participants" include Individual Contract Owners and individuals participating
under Group Contracts ("Participants;" also "you," "your").
The minimum Purchase Payment for a Contract is $10,000, unless the Company
waives this requirement. If you desire to make a Purchase Payment in excess of
$1,000,000, you must obtain our prior approval. Your Purchase Payment becomes
part of the general assets of the Company. We intend generally to invest
Purchase Payments in investment-grade securities.
For the purposes of determining benefits under both Individual Contracts and
Group Contracts, an Accumulation Account is established for each Participant.
You may allocate your Net Purchase Payment to one of the available Guarantee
Periods you select in your Application. The Guarantee Periods have durations of
one to ten years. Your Purchase Payment, together with any interest credited, is
held in the Fixed Account, which is part of our general account (See "The Fixed
Account," page 10).
Values under a Contract accumulate on a fixed basis. Your Accumulation
Account is credited with interest at a rate of not less than three percent (3%)
per year, compounded annually, and we guarantee these amounts at various
interest rates ("Guaranteed Interest Rates") for the duration of the Guarantee
Period you choose, subject to any applicable withdrawal charge or Market Value
Adjustment. We may not change a Guaranteed Interest Rate during the Guarantee
Period. However, Guaranteed Interest Rates for subsequent Guarantee Periods
cannot be predicted and will be determined at our sole discretion (subject to
the 3% Minimum Average Interest Rate guarantee).
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THE CONTRACTS ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
FOR A MORE DETAILED DESCRIPTION OF THE RISKS ASSOCIATED WITH PURCHASING A
CONTRACT, PLEASE REFER TO PAGES THROUGH OF THIS PROSPECTUS.
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 CONTAINS INFORMATION ABOUT THE CONTRACTS THAT A PROSPECTIVE
PURCHASER SHOULD KNOW BEFORE INVESTING. YOU SHOULD RETAIN THIS PROSPECTUS FOR
FUTURE REFERENCE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
We do not deduct a sales charge from your Purchase Payment. Also, we assess no
withdrawal charge upon annuitization or if you make a transfer. You may withdraw
a portion (as specified in your Contract) of your Accumulation Account in each
Account Year without being subject to a withdrawal charge, and you may withdraw
your Purchase Payment without charge after the Company has held it for seven
years. However, if you otherwise withdraw any part of your Accumulation Account,
we may deduct a withdrawal charge (contingent deferred sales charge). Other
amounts withdrawn, adjusted by any applicable Market Value Adjustment, are
subject to a withdrawal charge, which ranges from 6.0% to 0%. In no event will
the withdrawal charges assessed against your Accumulation Account exceed 6% of
your Purchase Payment (See "Withdrawal Charges," page 18).
Generally, any cash withdrawal is 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. Generally, if the Guaranteed Interest Rate is lower than
our currently declared rate, the application of the Market Value Adjustment
results in a lower payment upon withdrawal. Similarly, except as described below
under the section entitled "Cash Withdrawals, Withdrawal Charges and Market
Value Adjustment -- Market Value Adjustment," if the Guaranteed Interest Rate is
higher than the currently declared rate, the application of the Market Value
Adjustment results in a higher payment upon withdrawal. The Market Value
Adjustment does not apply to a withdrawal effective within 30 days prior to the
Expiration Date of the applicable Guarantee Period or the withdrawal of interest
credited to a Guarantee Amount during the current Account Year (See "Market
Value Adjustment," page 16).
In addition, the Contracts provide that the Company may change the
withdrawal charges, transfer charges, the tables used to determine the amount of
the first monthly fixed annuity payments and the formula used to calculate the
Market Value Adjustment, provided that such modification applies only to
Accumulation Accounts established after the effective date of such modification
(See "Modification," page 23).
We reserve the right to defer the payment of any amounts withdrawn for a
period not to exceed six months from the date we receive written request for
such withdrawal.
A deduction is made for premium taxes for Contracts sold in certain states.
Premium taxes payable to any governmental entity are deducted from the
Accumulation Account (See "Premium Taxes," page 18).
Subject to certain conditions, and during the Accumulation Period, you may
transfer the entire Accumulation Account Value to another Guarantee Period
available under the Contracts. No partial transfers are permitted. Currently
there is no charge for transfers. Transfers are subject to the Market Value
Adjustment unless the transfer is effective within 30 days prior to an
Expiration Date and other restrictions may apply (See "Transfer Privilege;
Telephone Transfers," page 13).
If the Annuitant dies prior to the Annuity Commencement Date, we will pay a
death benefit to the Beneficiary. If the Annuitant dies on or after the Annuity
Commencement Date, no death benefit is payable, except as may be provided under
the Annuity Option elected (See "Death Benefit," page 17).
Annuity Payments begin on the Annuity Commencement Date. You select the
Annuity Commencement Date, frequency of payments and the Annuity Option (See
"Annuity Provisions," page 18).
We periodically furnish Owners and Participants with certain reports and
statements described under "Periodic Reports" on page 22. Such reports, other
than prospectuses, do not include the Company's financial statements.
If you are not satisfied with your Contract, you may return it to us at our
Annuity Service Mailing Address within ten days after you receive the Contract.
When we receive your Contract, it will be canceled and the Accumulation Account
Value on the date on which the Contract was received by us will be refunded to
you. However, if applicable state or federal law so requires, we will refund the
full amount of any Purchase Payment received by us, the "free look" period may
be greater than ten days and alternative methods of returning the Contract may
be acceptable.
2
<PAGE>
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. Copies of such materials
also can be obtained, at prescribed rates, from the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a WebSite that contains reports, proxy and information
statements and other information about the Company, which files documents
electronically with the Commission, at the following address:
http://www.sec.gov.
The Company has filed registration statements relating to the Contracts
offered by this Prospectus (the "Registration Statements") with the Commission
under the Securities Act of 1933. 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 the 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, 1997, the
Quarterly Reports on Form 10-Q for the Quarters Ended March 31, 1998, and June
30, 1998, and the Current Report on Form 8-K, dated January 8, 1998, which the
Company previously filed with the Commission under the 1934 Act, are
incorporated by reference in this Prospectus.
Any statement contained in a document incorporated by reference herein shall
be deemed modified or superseded by this Prospectus 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,
copies of the documents referred to above which have been incorporated by
reference in this Prospectus, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference in the Prospectus). Requests
for such documents should be directed to the Secretary, Sun Life Assurance
Company of Canada (U.S.), One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481, telephone (800) 225-3950.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms 6
Expense Summary 8
This Prospectus is a Catalog of Facts 9
Uses of the Contract 9
A Word About the Company and the Fixed Account 9
The Company 9
The Fixed Account 10
The Purchase Payment and Contract Values During Accumulation
Period 11
The Purchase Payment 11
Accumulation Account 12
Guarantee Period 12
Guaranteed Interest Rates 12
Transfer Privilege; Telephone Transfers 13
Waivers; Reduced Charges; Credits; Bonus Guaranteed
Interest Rates 13
Cash Withdrawals, Withdrawal Charges and Market Value
Adjustment 14
Cash Withdrawals 14
Withdrawal Charges 14
Amount of Withdrawal Charge 15
Section 403(b) Annuities 15
Market Value Adjustment 16
Death Benefit 17
Death Benefit Provided by the Contract 17
Election and Effective Date of Election 17
Payment of Death Benefit 18
Amount of Death Benefit 18
How the Contract Charges Are Assessed 18
Premium Taxes 18
Withdrawal Charges 18
Annuity Provisions 18
Annuity Commencement Date 18
Election--Change of Annuity Option 19
Annuity Options 20
Determination of Annuity Payments 20
Fixed Annuity Payments 20
Annuity Payment Rates 21
Other Contract Provisions 21
Designation and Change of Beneficiary 21
Exercise of Contract Rights 21
Change of Ownership 21
Death of Participant 22
Periodic Reports 22
Modification 23
Discontinuance of New Participants 23
Right to Return 23
</TABLE>
4
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Federal Tax Status 24
Introduction 24
Tax Treatment of the Company 24
Taxation of Annuities in General 24
Qualified Retirement Plans 26
Pension and Profit-Sharing Plans 26
Tax-Sheltered Annuities 26
Individual Retirement Accounts 26
Roth IRAs 26
Administration of the Contracts 27
Distribution of the Contracts 27
Additional Information About the Company--Financial
Condition June 30, 1998 28
Selected Financial Data 28
Management's Discussion and Analysis of Financial
Condition and Results of Operations 28
Liquidity 29
Year 2000 Compliance 31
Quantitative and Qualitative Disclosure About Market
Risk 31
Sun Life (Canada) 32
Reinsurance 32
Reserves 33
Investments 33
Competition 33
Employees 33
Properties 33
The Company's Directors and Executive Officers 34
State Regulation 36
Accountants 37
Registration Statements 37
Financial Statements 37
Appendix--Withdrawals, Withdrawal Charges and the Market
Value Adjustment 65
</TABLE>
5
<PAGE>
SPECIAL TERMS
Any reference in this Prospectus to "receipt" or "received" by the Company
means receipt at the Company's Annuity Service Mailing Address, Sun Life of
Canada (U.S.), Retirement Products and Services, P.O. Box 9133, Boston,
Massachusetts 02117.
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 on
which the Contract becomes effective through the last day of the calendar month
in which the Purchase Payment is received. All Account Years and Account
Anniversaries thereafter shall be 12 month periods based upon the first day of
the calendar month during which the Contract's date of effectiveness occurred.
For example, if the date on which the Contract becomes effective occurs in
March, the first Account Year will be determined from the date the Contract was
issued, 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 ACCOUNT: An account to which the Net Purchase Payment and
interest are credited.
ACCUMULATION ACCOUNT VALUE: The value of the Accumulation Account on any
date.
ACCUMULATION PERIOD: The period before the Annuity Commencement Date and
during the lifetime of the Participant.
*ANNUITANT: The person (or persons) on whose life (or lives) the first
annuity payment is to be made. If the Annuitant dies prior to the Annuity
Commencement Date, the Co-Annuitant, if any, will become the Annuitant. If the
Co-Annuitant dies or if no Co-Annuitant is named, the Owner becomes the
Annuitant upon the Annuitant's death prior to the Annuity Commencement Date.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under a Contract is to be made.
*ANNUITY OPTION: The method for making annuity payments, as selected by the
Participant.
APPLICATION: The document, if any, signed by each Participant that serves
as his or her application for participation under a Group Contract or purchase
of an Individual Contract.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit set forth in each Contact and, for
Non-Qualified Contracts, who, in the event of the Participant's death, is the
"designated beneficiary" for purposes of Section 72(s) of the Internal Revenue
Code. After the Annuity Commencement Date, the Beneficiary is the person or
entity having the right, upon the death of the Payee, to receive any remaining
payments due under the Annuity Option elected.
CERTIFICATE: The document which evidences the coverage of a Participant
under a Group Contract. Unless otherwise expressly indicated, references in this
Prospectus to "Contracts" include Certificates.
CODE: The Internal Revenue Code of 1986, as amended.
DATE OF COVERAGE: The date on which a Participant's Accumulation 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, and/or any other proof satisfactory to
the Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
FLOATING RATE: The indexed rate set forth on the Contract Specifications
Page or the Certificate Specifications Page, as applicable, as such rate is
published in The Wall Street Journal two business days prior to the Floating
Rate Reset Date. In the event the Floating Rate is no longer published in The
Wall Street Journal, the Company will use an alternate method of determining the
indexed rate.
- ------------------------
*As specified on the Contract Specifications Page, or the Certificate
Specifications Page (as appropriate), unless changed.
6
<PAGE>
FLOATING RATE GUARANTEE PERIOD: A Guarantee Period for which the Guaranteed
Interest Rate changes on each Floating Rate Reset Date.
FLOATING RATE RESET DATE: The first Floating Rate Reset Date shall be the
first business day of the first calendar quarter that begins after a Floating
Rate Guarantee Period is elected. Thereafter, a new Floating Rate Reset Date
will occur on the first business day of each subsequent calendar quarter until
the Expiration Date of the particular Floating Rate Guarantee Period.
FLOATING RATE SPREAD: The amount deducted from the Floating Rate to
determine the Guaranteed Interest Rate in effect initially and on each Floating
Rate Reset Date during a Floating Rate Guarantee Period. The Floating Rate
Spread shall remain constant throughout a Floating Rate Guarantee Period.
GUARANTEE AMOUNT: Any portion of an Accumulation 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.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during a particular Guarantee Period.
MINIMUM AVERAGE INTEREST RATE: The minimum rate of interest that may be
credited by the Company on a compound annual basis, as determined at the end of
a particular Guarantee Period, or upon surrender of the Contract, as applicable.
NET PURCHASE PAYMENT: The portion of the Purchase Payment remaining after
the deduction of any applicable premium tax or similar tax.
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, 408, or 408A of the 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 named on the Contract Specifications Page who is
entitled to exercise all rights and privileges of ownership under the Group
Contract. 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
if it is a Non-Qualified Contract. If the Contract is a Qualified Contract
(other than a Section 403 contract), the Owner must be a trustee or custodian of
a retirement plan which meets the requirements of Section 401, Section 408(c),
Section 408(k), Section 408A, or any other applicable Section of the Code, and
the Qualified Plan Endorsement must be attached and made a part of the Contract.
PARTICIPANT: In the case of an Individual Contract, the owner of the
Contract. In the case of a Group Contract, 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.
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: 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,
408, or 408A of the Code or any other applicable section of the Code.
7
<PAGE>
EXPENSE SUMMARY
The purpose of the following table is to help Participants and prospective
purchasers to understand the costs and expenses that are borne, directly and
indirectly, by Participants in connection with the Contracts. The table reflects
expenses of the Fixed Account. The information set forth should be considered
together with the narrative provided under the heading "How the Contract Charges
Are Assessed" in this Prospectus. In addition to the expenses listed below,
premium taxes may be applicable.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
PARTICIPANT TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................. $ 0
Deferred Sales Load (as a percentage of the Purchase
Payment)(1)
Number of Complete Account Years Purchase Payment in
Accumulation Account
0-1....................................................... 7%
2......................................................... 6%
3......................................................... 5%
4......................................................... 4%
5......................................................... 3%
6......................................................... 2%
7 or more................................................. 0%
Exchange fee (2)............................................ $ 0
Annual Account Fee Per Accumulation Account................. $ 0
</TABLE>
- ---------
(1) A portion of the Accumulation Account may be withdrawn each year without
being subject to any withdrawal charge, and a Purchase Payment may be
withdrawn without charge after the Company has held it for seven years.
(2) A Market Value Adjustment may be imposed on amounts transferred.
8
<PAGE>
THIS PROSPECTUS IS A CATALOG OF FACTS
This Prospectus contains information about the Group Contracts and
Individual Contracts, which each provide fixed benefits. It describes the
Contracts' uses and objectives, their benefits and costs, and the rights and
privileges of Owners and Participants, as applicable. It also contains
information about the Company and the Fixed Account. 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 Contracts have appropriate provisions relating to fixed accumulation
values and fixed annuity payments. A Fixed Annuity provides that Purchase
Payments, 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. 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, each Participant bears the risk that the Guaranteed Interest Rate to be
credited on amounts allocated to the Fixed Account may not exceed the Minimum
Average Interest Rate for any Guarantee Period.
USES OF THE CONTRACT
The Contracts are 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), Section 408(k), Section 408(p) or Section 408A
of the 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), SEP-IRAs under Section 408(k), Simple Retirement Accounts
under Section 408(p), and Roth IRAs under Section 408A (See "Federal Tax
Status").
The Contracts are also designed to be used in connection with certain
non-tax-qualified retirement plans, such as payroll savings plans and such other
groups (trusteed or nontrusteed) as may be eligible under applicable law.
A WORD ABOUT THE COMPANY AND THE FIXED ACCOUNT
THE COMPANY
Sun Life Assurance Company of Canada (U.S.) (the "Company") is a stock life
insurance company which was incorporated under the laws of Delaware on January
12, 1970. Its Executive Offices are located at One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02481, telephone (781) 237-6030. The Company
currently is authorized to do business in 48 states, the District of Columbia
and Puerto Rico, and it is anticipated that the Company will be authorized to do
business in all states except New York. The Company issues life insurance
policies and individual and group annuities. The Company has formed a
wholly-owned subsidiary, Sun Life Insurance and Annuity Company of New York,
which issues individual fixed and combination fixed/variable annuity contracts
and group life and long-term disability insurance in New York. The Company's
other active subsidiaries are: Sun Capital Advisers, Inc., a registered
investment adviser; Clarendon Insurance Agency, Inc., a registered broker-dealer
that acts as the general distributor of the Contracts and other annuity and life
insurance contracts issued by the Company and its affiliates; Sun Life of Canada
(U.S.) Distributors, Inc., a registered broker-dealer and investment adviser;
New London Trust, F.S.B., a federally chartered savings bank; Massachusetts
Casualty Insurance Company, which issues individual disability income policies;
Sun Life Financial Services Limited, which provides off-shore administrative
services to the Company and its parent company, Sun Life Assurance Company of
Canada (sometimes referred to as "Sun Life (Canada)"), and Sun Life Information
Services Ireland Limited, an offshore technology center.
The Company is a wholly-owned subsidiary of the Sun Life of Canada (U.S.)
Holdings, Inc. ("Life Holdco"). Life Holdco is a wholly-owned subsidiary of Sun
Life Assurance Company of Canada-U.S.
9
<PAGE>
Operations Holdings, Inc. ("U.S. Holdco"). U.S. Holdco is a wholly-owned
subsidiary of Sun Life (Canada), 150 King Street West, Toronto, Ontario, Canada.
Sun Life (Canada) is a mutual life insurance company incorporated pursuant to
Act of Parliament of Canada in 1865 and currently transacts business in all of
the Canadian provinces and territories, in all U.S. states except New York, and
in the District of Columbia, Puerto Rico, the Virgin Islands, Great Britain,
Ireland, Bermuda, Hong Kong, and the Philippines.
THE FIXED ACCOUNT
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to any separate account. Purchase Payments are
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 the
Participant's Accumulation Account or as subsequently changed by the
Participant. In addition, all or part of the Participant's Accumulation Account
Value may be transferred to Guarantee Periods available under the Contract (See
"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 the Contracts.
The Company invests 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) Investment grade debt
securities, I.E., those which have a rating, at the time of purchase, within the
four highest grades assigned by Moody's Investors Services, Inc. ("Moody's") or
Standard & Poor's Corporation ("Standard & Poor's") (Aaa, Aa, A or Baa and AAA,
AA, A or BBB, respectively) 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 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, in accordance with the terms of such
contracts.
Fixed annuity payments made to Annuitants under the Contracts will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. The Company assumes this "mortality risk"
by virtue of annuity rates incorporated in the Contracts which cannot be changed
(except as described under "Modification" with respect to Accumulation 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 Accumulation 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, distribution expenses and
administrative expenses borne by the Company in connection with contracts,
including the Contracts, participating in the Fixed Account. The Company expects
to derive a profit from this compensation. The amount of investment income
allocated to the
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<PAGE>
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 the Minimum Average Interest Rate specified in the Contract (not
less than 3% per year), compounded annually, to amounts allocated to the Fixed
Account under the Contracts. The Company may establish Guaranteed Interest Rates
at a rate in excess of the minimum rate; however, the Company is not obligated
to establish Guaranteed Interest Rates in excess of such rate. The Company's
general investment strategy is 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 HELD IN THE FIXED ACCOUNT IN
EXCESS OF THREE PERCENT (3%) PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION
OF THE COMPANY. THE PARTICIPANT ASSUMES THE RISK THAT INTEREST CREDITED ON
AMOUNTS HELD IN THE FIXED ACCOUNT MAY NOT EXCEED THE MINIMUM GUARANTEE FOR ANY
GIVEN GUARANTEE PERIOD.
The Company is aware of no statutory limitations on the maximum amount of
interest it may credit, and its 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 PURCHASE PAYMENT AND CONTRACT VALUES DURING ACCUMULATION PERIOD
THE PURCHASE PAYMENT
(1) PLACE AND AMOUNT
The Purchase Payment is to be paid to the Company at its Annuity Service
Mailing Address. The Company generally will not accept a Purchase Payment which
is less than $10,000. In addition, the Company's prior approval is required
before it will accept a Purchase Payment which exceeds $1,000,000.
A completed Application (and in the case of a Group Contract, a completed
Contract Application), if required, and the Purchase Payment are forwarded to
the Company for acceptance. Upon acceptance, in the case of an Individual
Contract the Contract is issued to the Participant, and in the case of a Group
Contract the Contract and Certificate(s), as applicable, are issued to the Owner
and the Participant(s), respectively. The Purchase Payment, minus any applicable
premium tax or similar tax (the "Net Purchase Payment"), becomes part of the
Company's general assets and is credited to the Accumulation Account, to be
allocated to the Guarantee Period specified in the Participant's application for
a Contract. The Company generally confirms receipt of the Purchase Payment in
writing within five business days of receipt. The Accumulation Account starts
earning interest the day the Purchase Payment is applied.
In the event that an Application or an order to purchase is not properly
completed, the Company will attempt to contact the prospective Participant in
writing or by telephone. The Company will return the Purchase Payment three
weeks after its receipt by the Company if the Application or order to purchase
has not, by that time, been properly completed.
(2) ACCOUNT CONTINUATION
An Accumulation Account is automatically continued in full force during the
lifetime of the Participant until the Annuity Commencement Date or until the
Accumulation 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 tax or similar tax. The Net
Purchase Payment will be allocated to the Guarantee Period selected by the
Participant and specified in the Application, from among such Guarantee Periods
as may be made available from time to time by the Company, or as subsequently
changed.
At any time during the Accumulation Period, the Participant may transfer the
entire Accumulation Account Value to a new Guarantee Period by giving written
notice of the change to the Company, subject to certain conditions set forth
below. Any such change takes effect after receipt of notice of the change by the
Company and continues in effect until subsequently changed.
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<PAGE>
ACCUMULATION ACCOUNT
The Company will establish an Accumulation Account for each Participant
under a Contract and will maintain the Accumulation Account during the
Accumulation Period. The Accumulation Account Value is the value of the
Accumulation Account on any date.
GUARANTEE PERIOD
The Participant may elect one Guarantee Period of one to ten years from
among those made available from time to time by the Company. The Guarantee
Period elected will determine the Guaranteed Interest Rate. Amounts allocated to
a particular Guarantee Period, less any applicable premium taxes or similar
taxes and any amounts subsequently withdrawn, will earn interest at the
Guaranteed Interest Rate in effect during the Guarantee Period. The Initial
Guarantee Period begins on the date the Net Purchase Payment is applied. Except
for Floating Rate Guarantee Periods, the Initial Guarantee Period ends when the
number of calendar years in the Guarantee Period elected (measured from the end
of the calendar month in which the Net Purchase Payment was applied) has
elapsed. For Floating Rate Guarantee Periods, the Initial Guarantee Period ends
when the number of calendar years in the Floating Rate Guarantee Period elected
(measured from the end of the calendar quarter in which the Net Purchase Payment
was applied) has elapsed. The last day of a Guarantee Period is the Expiration
Date. Subsequent Guarantee Periods begin on the first day following the
Expiration Date. For Floating Rate Guarantee Periods, the Expiration Date will
always occur at the end of a calendar quarter. For other Guarantee Periods, the
Expiration Date will always occur at the end of a calendar month.
Any portion of the Accumulation Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) is referred to herein as a "Guarantee Account." Interest is credited
daily at a rate equivalent to the compound annual rate.
The Company will mail written notification to the Participant at least 45
and no more than 75 days prior to the Expiration Date of a Guarantee Period. A
new Guarantee Period of the same duration and type (e.g., Floating Rate) as the
previous Guarantee Period will commence automatically at the end of the previous
Guarantee Period unless the Company receives, in writing or other manner
acceptable to the Company, prior to the end of such Guarantee Period, an
election by the Participant of a different Guarantee Period from among those
being offered by the Company at such time.
The Company reserves the right to add or remove Guarantee Periods available
at any time for election by the Participant.
GUARANTEED INTEREST RATES
The Company periodically establishes an applicable Guaranteed Interest Rate
for each Guarantee Period offered by the Company. These rates are guaranteed for
the duration of the respective Guarantee Periods. Interest is credited to the
Accumulation Account at an annual effective rate of interest. However,
Accumulation Account Value withdrawn is subject to any applicable withdrawal
charge and may be subject to a Market Value Adjustment on withdrawal or
surrender (See "Market Value Adjustment").
For a Floating Rate Guarantee Period, the Guaranteed Interest Rate may
change on each Floating Rate Reset Date; however, the Floating Rate Spread used
to compute the Guaranteed Interest Rate will remain constant throughout such
Floating Rate Guarantee Period. The Company will determine a new Floating Rate
Spread at the beginning of each Floating Rate Guarantee Period.
The Minimum Average Interest Rate will not be less than three percent (3%)
per year, compounded annually. There is no specific formula for the
determination of Guaranteed Interest Rates, as these rates will be reflective of
expected investment yields and 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"). Some of the factors that the Company
may consider in establishing Guaranteed Interest Rates, are: general economic
trends; rates of return currently available and anticipated on the Company's
investments; regulatory and tax requirements; competitive factors; and sales
commissions and administrative and distribution expenses borne by the Company.
The Participant bears the risk that the Guaranteed Interest Rate to be credited
may not exceed three percent (3%) per year for any Guarantee Period.
On any Expiration Date, and on the date on which a Contract is surrendered
in full, the Accumulation Account Value (before the application of any
applicable withdrawal charge and/or Market Value Adjustment) will not be less
than the Net Purchase Payment, less any previous withdrawals accumulated at an
effective
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<PAGE>
annual rate of interest equal to the Minimum Average Interest Rate of 3%.
Subject to the above guarantees, the Guaranteed Interest Rate credited on a
particular day to a Floating Rate Guarantee Period may be less than the Minimum
Average Interest Rate of 3%.
TRANSFER PRIVILEGE; TELEPHONE TRANSFERS
At any time during the Accumulation Period the Participant may, upon request
received by the Company, transfer of the entire Accumulation Account Value to a
new Guarantee Period available under the Contract, subject to the conditions set
forth below. No partial transfers are permitted. Except as described below, a
transfer accepted by the Company generally is effective on the date the request
for transfer is received by the Company, if such request is received in good
order by 4:00 p.m. Eastern Time on any date on which the Company is open for
business.
A transfer will result in a new Guarantee Period for the amount being
transferred. Any such new Guarantee Period will begin on the effective date of
the transfer and end on the new Expiration Date. The amount transferred into
such Guarantee Period will earn interest at the Guaranteed Interest Rate
declared by the Company for that Guarantee Period as of the effective date of
the transfer.
One (1) transfer per Account Year is permitted under a Contract. In
addition, a minimum of 30 calendar days must elapse between transfers. No
transfer is allowed within 30 days after the Issue Date. A transfer will be
subject to the Market Value Adjustment described below; unless the transfer is
effective within 30 days prior to an Expiration Date. The Company reserves the
right, in its sole discretion, to delay the effective date of any transfer and
to defer the payment of amounts withdrawn for a period not to exceed six months
from the date written request for such withdrawal is received by the Company.
Under current law, there is no tax liability to the Participant if that
Participant makes a transfer.
Transfers may be requested either in writing or by telephone. This telephone
exchange privilege is made available to Participants automatically without the
Participant's election. The Company employs reasonable procedures to confirm
that instructions communicated by telephone are genuine. Such procedures may
include one or more of the following: requesting identifying information, such
as name, Contract number, Social Security Number, and/or personal identification
number; tape recording all telephone transactions; or providing written
confirmation thereof to both the Participant and any agent of record, at the
last address of record; or such other procedures as the Company may deem
reasonable. Although the Company's failure to follow reasonable procedures may
result in the Company's liability for any losses due to unauthorized or
fraudulent telephone transfers, the Company will not be liable for following
instructions communicated by telephone which it reasonably believes to be
genuine. Any losses incurred pursuant to actions taken by the Company in
reliance on telephone instructions reasonably believed to be genuine shall be
borne by the Participant.
WAIVERS; REDUCED CHARGES; CREDITS; BONUS GUARANTEED INTEREST RATES
The Company may reduce or waive the withdrawal charge, credit additional
amounts, or grant bonus Guaranteed Interest Rates in situations where selling
and/or maintenance costs associated with the Contracts are reduced, such as the
sale of several Contracts to the same Participant, sales of large Contracts, and
certain group sales. In addition, the Company may waive the withdrawal charge,
credit additional amounts, or grant bonus Guaranteed Interest Rates in
connection with Contracts sold to officers, directors and employees of the
Company or its affiliates, registered representatives and employees of
broker-dealers with a current selling agreement with the Company and their
affiliates, employees of affiliated asset management firms, and persons who have
retired from such positions ("Eligible Employees") and immediate family members
of Eligible Employees. The Company may reduce or waive such charges, credit
additional amounts, or grant bonus Guaranteed Interest Rates on any Contract
where, for example, expenses associated with the sale of the Contract and/or
costs or services associated with administering and maintaining the Contract are
reduced. Eligible Employees and their immediate family members may also purchase
a Contract without regard to minimum Purchase Payment requirements. For other
situations in which withdrawal charges may be waived, see "Withdrawal Charges."
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<PAGE>
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date, the Participant may elect
to receive a cash withdrawal payment from the Company by filing with the Company
at its Annuity Service Mailing Address, a written election in such form as the
Company may require. Any such election shall specify the amount of the
withdrawal and will be effective on the date that it is received by the Company.
The Company reserves the right to defer the payment of amounts withdrawn for a
period not to exceed six months from the date written request for such
withdrawal is received by the Company.
A Participant may request a full surrender or partial withdrawal. A full
surrender will result in a cash withdrawal payment equal to the Accumulation
Account Value as of the date the request is received by the Company, plus or
minus any applicable Market Value Adjustment, and less any applicable withdrawal
charge. Upon a full surrender, the Contract will be canceled and no further
benefits will be payable thereunder. A request for a partial withdrawal (i.e., a
payment of an amount less than that paid under a full surrender) will reduce the
Accumulation Account Value by the dollar amount of the cash withdrawal amount,
plus or minus any applicable Market Value Adjustment and plus any applicable
withdrawal charge. If a partial withdrawal is requested which would cause the
Accumulation Account Value to be less than $1,000, such partial withdrawal will
be treated as a full surrender. Any applicable Market Value Adjustment will be
deducted from the Participant's Accumulation 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 the Accumulation Account. ALL
CASH WITHDRAWALS, EXCEPT THOSE EFFECTIVE WITHIN 30 DAYS PRIOR TO THE EXPIRATION
DATE OF A GUARANTEE AMOUNT OR THE WITHDRAWAL OF THE FREE WITHDRAWAL AMOUNT, WILL
BE SUBJECT TO THE MARKET VALUE ADJUSTMENT.
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.
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, 408, and 408A 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 Contract 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 Contracts and
Non-Qualified Contracts should be carefully considered (See "Federal Tax
Status").
WITHDRAWAL CHARGES
No sales charges are deducted from the Purchase Payment. However, a
withdrawal charge (contingent deferred sales charge), when applicable, will be
assessed to reimburse the Company for certain expenses relating to the
distribution of the Contracts, including commissions, costs of preparation of
sales literature and other promotional costs and acquisition expenses. Cash
withdrawals may result in a 10% tax penalty in addition to any withdrawal charge
applicable under the Contracts (See "Federal Tax Status").
A portion of the Accumulation Account Value may be withdrawn each year
without imposition of any withdrawal charge, and after the Purchase Payment has
been held by the Company for seven years it may be withdrawn free of any
withdrawal charge. In addition, no withdrawal charge is assessed upon
annuitization, upon payment of the death benefit or upon the transfer of
Accumulation Account Value to a new Guarantee Period.
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The withdrawal charge is not assessed with respect to an Accumulation
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, and the Company may waive the withdrawal charge with respect to a
Purchase Payment derived from the surrender of other annuity contracts and/or
certificates issued by the Company.
All other full or partial withdrawals are subject to a withdrawal charge
which will be applied in accordance with the applicable methodology described
below:
The applicable withdrawal charge will be determined on the following basis:
(1) Free withdrawal amount: The free withdrawal amount in any Account Year
is equal to the greater of 10% of that Account Year's beginning Accumulation
Account Value or any amounts withdrawn to comply with any mandatory distribution
requirements applicable to Qualified Contracts under federal law.
(2) Amount subject to withdrawal charge: For a partial withdrawal or full
surrender, the amount subject to a withdrawal charge is the amount of the
partial withdrawal or full surrender less any of the current Account Year's
remaining free withdrawal amount.
(3) Withdrawal charge percentage: The withdrawal charge percentage varies
according to the number of complete Account Years between the Account Year in
which the Net Purchase Payment was credited to the Accumulation Account and the
Account Year in which it is withdrawn.
(4) Amount of withdrawal charge: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge by the
applicable withdrawal charge percentage.
No withdrawal charge is imposed upon amounts applied to purchase an annuity,
except that certain annuities of less than ten years will incur a withdrawal
charge.
No withdrawal charge is imposed on amounts withdrawn on or after the later
of (a) the end of the Initial Guarantee Period or (b) the end of the third
Account Year.
AMOUNT OF WITHDRAWAL CHARGE
The withdrawal charge percentage varies according to the number of complete
Account Years between the Account Year in which the Purchase Payment was
credited to the Accumulation Account and the Account Year in which it was
withdrawn. The amount of the withdrawal charge is determined by multiplying the
amount subject to the withdrawal charge by the withdrawal charge percentage, in
accordance with the following table:
<TABLE>
<CAPTION>
NUMBER OF COMPLETE
ACCOUNT YEARS WITHDRAWAL CHARGE
------------------ -----------------
<S> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 or more 0%
</TABLE>
In no event shall the aggregate withdrawal charges assessed against an
Accumulation Account exceed 7% of the Purchase Payment made under a Contract
(See the Appendix for examples of withdrawals, withdrawal charges and the Market
Value Adjustment). The Company may, upon notice to the Owner of a Group
Contract, modify the withdrawal charges, provided that such modification shall
apply only to Participants' Accumulation Accounts established after the
effective date of such modification (See "Modification").
SECTION 403(b) ANNUITIES
The Internal Revenue Code imposes restrictions on cash withdrawals from
Contracts used with Section 403(b) Annuities. In order for the Contracts to
receive tax deferred treatment, the Contracts 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
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<PAGE>
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 certain circumstances the 10% tax penalty may not apply if
the withdrawal is made to pay medical expenses.
Under the terms of a particular Section 403(b) plan, the Participant may be
entitled to transfer all or a portion of the Accumulation 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.
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".
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 or the
withdrawal of the free withdrawal amount, is 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 is applied to the amount being withdrawn which is subject
to the MVA, before the deduction of any applicable withdrawal charge.
The MVA reflects 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. Generally, if the Guaranteed Interest Rate is
lower than the applicable Current Rate, then the application of the MVA will
result in a lower payment upon withdrawal. Similarly, if the Guaranteed Interest
Rate is higher than the applicable Current Rate plus the "b factor" referenced
below, if applicable, the application of the MVA results in a higher payment
upon withdrawal.
The MVA is determined by multiplying the amount being withdrawn before
deduction of any applicable withdrawal charge by the market value adjustment
factor.
The market value adjustment factor for all Guarantee Periods, except
Floating Rate Guarantee Periods is:
N/12
1 + I
( --------- ) -1
1 + J + b
where,
I is the Guaranteed Interest Rate currently being credited to the
Accumulation Account,
J is the Guaranteed Interest Rate declared by the Company, as of the date of
the application of the MVA, for current allocations to Guarantee Periods equal
to the balance of the current Guarantee Period, rounded to the next higher
number of complete years (the "Current Rate"),
b is a factor which the Company will determine for a Contract and which will
not exceed 0.25%, and
N is the number of complete months remaining in the current Guarantee
Period.
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<PAGE>
In the determination of J, if the Company currently does not offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available. If
no Guarantee Periods are available to perform a linear interpolation, the
Company will use an equitable method and will inform the appropriate state
regulatory authority of such method.
The market value adjustment factor for each Floating Rate Guarantee Period
is:
N/12
1 + F - X
( ------------- ) -1
1 + F - Y + b
where,
F is the Floating Rate currently being used in determining the Floating Rate
Guarantee Period's Guaranteed Interest Rate;
X is the Floating Rate Spread in effect during the current Floating Rate
Guarantee Period,
Y is the Floating Rate Spread, as of the date of the application of the MVA,
for current allocations to new Floating Rate Guarantee Periods equal to the
balance of the current Floating Rate Guarantee Period, rounded up to the next
higher number of complete years,
b is a factor which the Company will determine for a Contract and which will
not exceed 0.25%, and
N is the number of complete months remaining in the current Floating Rate
Guarantee Period.
In the determination of Y, if the Company currently does not offer the
applicable Floating Rate Guarantee Period, then the rate will be determined by
using the next longer Floating Rate Guarantee Period that is available. If the
Company currently does not offer a longer Floating Rate Guarantee Period, the
Company will determine, in an equitable manner and in its sole discretion, the
value of Y.
See Appendix for examples of the application of the MVA.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
If the Participant dies while the Contract is in effect and prior to the
Annuity Commencement Date, the Company will, upon receipt of Due Proof of Death
of the Participant, pay a death benefit to the Beneficiary. If the Participant
is not a natural person, the Annuitant is considered the "Participant" for
purposes of the Death Benefit provided by the Contract. If there is no
designated Beneficiary living on the date of death of the Participant, the
Company will, upon receipt of Due Proof of Death of the Participant or the
Beneficiary, if applicable, pay the death benefit in one sum to the estate of
the deceased Participant. If the Annuitant dies 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 Participant and prior to the Annuity Commencement
Date, the Participant may elect to have the death benefit applied under one or
more of the Annuity Options to effect a Fixed Annuity for the Beneficiary as
Payee after the death of the Participant, provided that the Annuity Option
chosen complies with Section 72(s) of the Code. 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 Participant, 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 Fixed Annuity for
the Beneficiary as Payee. Either election described above may be made, or
subsequently revoked, by filing with the Company at its Annuity Service Mailing
Address, a written election or revocation of an election in such form as the
Company may require. Any election or revocation of an 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 a method
of settlement of the death benefit by the Participant which is in effect on the
date of death of the Participant will be deemed effective on the date Due Proof
of Death of the Participant is
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<PAGE>
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 Death of
the Participant 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 Death
of the Participant 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 Code. (See "Other Contractual Provisions--Death of
Participant").
PAYMENT OF DEATH BENEFIT
If the Owner has elected settlement under one or more of the Annuity
Options, the Annuity Commencement Date will be the first day of the calendar
month following the effective date or the deemed effective date of the election,
and the Accumulation 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. If the Participant was age 85 or less on the
Date of Coverage, the death benefit is equal to the greater of (1) the
Accumulation Account Value on the Death Benefit Date; or (2) the amount which
would have been payable in the event of a full surrender of the Contract on the
Death Benefit Date. For the purposes of determining the amount payable under
(2), the Accumulation Account Value will be adjusted by the difference between
(2) and (1). If the Participant was age 86 or older on the Issue Date, the death
benefit is equal to the amount which would have been payable in the event of a
full surrender of the Contract on the Death Benefit Date, and the Accumulation
Account Value will be adjusted to equal such amount.
HOW THE CONTRACT CHARGES ARE ASSESSED
As more fully described below, charges under the Contract are assessed in
two ways: (1) as deductions, if applicable, for premium taxes; and (2) as
withdrawal charges (contingent deferred sales charges).
PREMIUM TAXES
A deduction, when applicable, is made for premium taxes or similar state or
local taxes. The amount of such applicable tax varies by jurisdiction and is
subject to change by the legislature or other authority. In many jurisdictions,
there is no premium tax at all. The Company believes that such premium taxes or
similar taxes currently range from 0% to 3.5%. For more complete information, a
tax adviser should be consulted. 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
on or after the date they are incurred.
WITHDRAWAL CHARGES
No deduction for sales charges is made from Purchase Payments. However, a
withdrawal charge (contingent deferred sales charge) of up to 7% of certain
amounts withdrawn, when applicable, will be used to cover certain expenses
relating to the sale of the Contracts, including commissions paid to sales
personnel, the costs of preparation of sales literature and other promotional
costs and acquisition expenses. (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 in such form as
the Company may require, 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
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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 90th birthday, unless otherwise restricted, in the
case of a Qualified Contract, by the particular retirement plan or by applicable
law. If more than one person is named as Annuitant, due to the designation of a
Co-Annuitant, the Annuity Commencement Date will be no later than the first day
of the first month following the 90th birthday of the youngest of the named
Annuitants. 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 (or, for Qualified Contracts other
than IRAs, no later than April 1 following the year the Annuitant retires, if
later than the year the Annuitant reaches age 70 1/2), 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 Accumulation Account will be canceled
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; except that period certain annuities of
less than ten years may incur a withdrawal charge. A 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, 408, or
408A 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 Participant and prior to the Annuity Commencement
Date, the Participant may elect to have the adjusted value of the Accumulation
Account applied on the Annuity Commencement Date under one or more of the
Annuity Options described below [to effect a Fixed Annuity for the Beneficiary
as Payee after the death of the Participant, provided that the Annuity Option
chosen complies with Section 72(s) of the Code]. If more than one person is
named as Annuitant, due to the designation of a Co-Annuitant, the Participant
may choose to name one of such persons to be the sole Annuitant as of the
Annuity Commencement Date. This election may be made or subsequently changed by
filing with the Company at its Annuity Service Mailing Address, a written
election or change of election in such form as the Company may require. Any such
election or change of election will become effective on the date it is received
by the Company. [Any election by the Participant of a method of settlement of
the death benefit that is in effect on the date of the Participant's death will
be deemed effective on the date Due Proof of Death of the Participant is
received by the Company.]
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 Participant, the
Beneficiary may elect (a) to receive the death benefit in the form of a cash
payment, in which event this Contract will be canceled, or (b) to have the death
benefit applied under one or more of the Annuity Options a Fixed Annuity for the
Beneficiary as Payee. In no event shall any method of settlement be exercised
which would violate the mandatory distribution requirements of Section 72(s) of
the Code. Additional options available if the designated Beneficiary is the
surviving spouse are described above under "Death Benefit Provided by the
Contract."
The election of a method of settlement may be made by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any written 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
Death of the Participant is received by the Company. If a written election of a
method of settlement by the Beneficiary is not received by the Company within 60
days following the date Due Proof of Death of the Participant is received by the
Company, the Company will make a cash payment to the Beneficiary as of the last
day of such 60 day period and this Contract will be canceled upon such payment.
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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 Contract 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 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,
which will not be less than 3% per year. 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 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 (at least five years but not exceeding
30 years), 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.
DETERMINATION OF ANNUITY PAYMENTS
On the Annuity Commencement Date the Accumulation Account will be canceled
and its adjusted value will be applied to provide a Fixed Annuity. The adjusted
value will be equal to the Accumulation Account Value on the date immediately
preceding the Annuity Commencement Date, plus or minus any applicable Market
Value Adjustment and minus any applicable premium or similar taxes. Amounts
applied to provide period certain annuities of less than ten years will also be
reduced by any applicable withdrawal charges.
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 the Minimum Average Interest Rate specified in the applicable Contract (at
least 3% 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.
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In the event of the death of the Payee on or after the Annuity Commencement
Date, the Company will pay any remaining payments under any Annuity Option then
in effect to the Payee's designated beneficiary, if then living, as they become
due. If there is no such designated beneficiary entitled to any remaining
payments under an Annuity Option, the Company will pay the discounted value of
such remaining payments, in one sum, to the deceased Payee's estate. Any
Beneficiary who becomes entitled to any such remaining payments may elect to
receive the discounted value of the remaining payments in one sum. In the event
of the death of the Beneficiary who has become entitled to receive any remaining
payments under an Annuity Option, the Company will pay the discounted value of
such remaining payments, in one sum, to the deceased Beneficiary's estate. All
payments made in one lump sum by the Company are made in lieu of paying any
remaining payments under the Annuity Option then in effect.
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: the monthly fixed annuity payment, when this payment is based
on the Minimum Average Interest Rate (at least 3% per year).These rates may be
changed by the Company with respect to Accumulation 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 CONTRACT PROVISIONS
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in the Application will remain in
effect until changed.
Subject to the rights of an irrevocably designated Beneficiary, the
designation of a Beneficiary may be changed or revoked. Any change or revocation
must be filed with the Company 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 before the
Company receives 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
An Individual Contract shall belong to the individual Participant to whom
the Contract is issued. A Group Contract shall belong to the Owner. In the case
of a Group Contract, 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 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 Participant 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 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
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Section 408 of the Internal Revenue Code for the benefit of the Participants
under a Group Contract; or (5) as otherwise permitted from time to time by laws
and regulations governing the retirement or deferred compensation plans for
which a Qualified Contract may be issued. Subject to the foregoing, a Qualified
Contract may not be sold, assigned, transferred, discounted or pledged as
collateral for a loan or as security for the performance of an obligation or for
any other purpose to any person other than the Company.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract prior to the Annuity Commencement Date; and each Participant, in like
manner, may change the ownership interest in a Contract. 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 Annuity
Commencement Date, the greater of (1) the Accumulation Account Value on the
Death Benefit Date; or (2) the amount which would have been payable in the event
of a full surrender of the Contract on the Death Benefit Date, must be
distributed to the "designated beneficiary" (as defined below) either (1) within
five years after the date of death of the Participant, or (2) as an annuity over
some period not greater than the life or expected life of the designated
beneficiary, with annuity payments beginning within one year after the date of
death of the Participant. For this purpose (and for purposes of Section 72(s) of
the Internal Revenue Code), the person named as Beneficiary shall be considered
the designated beneficiary, and if no person then living has been so named, then
the Annuitant shall automatically be the designated beneficiary. If the
designated beneficiary is the surviving spouse of the deceased Participant, the
spouse can elect to continue the Contract in the spouse's own name as
Participant, in which case these mandatory distribution requirements will apply
on the spouse's death.
When the deceased Participant was also the Annuitant, the Death Benefit
provision of the Contract controls unless the deceased Participant's surviving
spouse is the designated beneficiary and elects to continue the Contract in the
spouse's own name as both Participant and Annuitant.
If the Payee dies on or after the Annuity Commencement Date and before the
entire accumulation under such Participant's Accumulation Account has been
distributed, the remaining portion of such Participant's Accumulation Account,
if any, must be distributed at least as rapidly as the method of distribution
then in effect.
In any case in which a non-natural person constitutes a holder of the
Certificate for the purposes of Section 72(s) of the Internal Revenue Code, (1)
the distribution requirements described above shall apply upon the death of any
Annuitant, and (2) a change in any Annuitant shall be treated as the death of an
Annuitant.
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.
PERIODIC REPORTS
During the Accumulation Period the Company will send to the Participant, or
such other person having voting rights, at least once during each Account Year,
a statement showing the value of the Accumulation Account. Such statement shall
be accurate as of a date not more than two months previous to the date of
mailing. The Company will also send such statements reflecting transactions in
the Participant's Accumulation Account as may be required by applicable laws,
rules and regulations.
These periodic statements contain important information concerning the
Participant's Accumulation Account transactions with respect to a Contract. It
is the obligation of the Participant to review each such statement carefully and
to report to the Company, at the address or telephone number provided on the
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statement, any errors or discrepancies in the information presented therein
within 60 days of the date of such statement. Unless the Company receives notice
of any such error or discrepancy from the Participant within such time period,
the Company may not be responsible for correcting the error.
MODIFICATION
Upon notice to the Participant, in the case of an Individual Contract, and
the Owner and Participant(s), in the case of a Group Contract (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 comply with any law or
regulation issued by a governmental agency to which the Company 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) provides additional fixed accumulation
options; or (iv) as may otherwise be in the best interests of Owners or
Participants, as applicable. 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, a Group Contract may be modified by
the Company to change the withdrawal 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 Accumulation 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 Group Contract prior to any such modification will
remain in effect permanently, unless improved by the Company, with respect to
Accumulation 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 Group Contract. Such limitation or discontinuance shall
have no effect on rights or benefits with respect to any Accumulation Accounts
established under such Group Contract prior to the effective date of such
limitation or discontinuance.
RIGHT TO RETURN
If the Participant is not satisfied with the Contract, the Contract 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. Upon receiving the returned Contract, the Company will cancel it
and the Participant's Accumulation Account Value at the end of the Valuation
Period during which the Contract 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(s) received by the Company will be refunded, the "free
look" period may be greater than ten days and alternative methods of returning
the Contract may be acceptable.
With respect to Individual Retirement Accounts, under the Internal Revenue
Code a Participant establishing an Individual Retirement Account ("IRA") must be
furnished with a disclosure statement containing certain information about the
Contract and applicable legal requirements. This statement must be furnished on
or before the date the IRA is established. If the Participant is furnished with
such disclosure statement before the seventh day preceding the date the IRA 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 IRA, then the Participant may give a notice of revocation
to the Company at any time within seven days after the date on which the
Contract becomes effective. Upon such revocation, the Company will refund the
Purchase Payment made by the Participant. The foregoing right of revocation with
respect to an IRA is in addition to the return privilege set forth in the
preceding paragraph. The Company will allow a Participant establishing an IRA a
"ten day free-look," notwithstanding the provisions of the Internal Revenue
Code.
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FEDERAL TAX STATUS
INTRODUCTION
The Contracts described in this Prospectus are designed for use by personal
retirement plans and employer, association and other group retirement plans
under the provisions of Sections 401 (including Section 401(k)), 403, 408(b),
408(c), 408(k), 408(p) and 408A of the Internal Revenue Code (the "Code"), as
well as non-qualified retirement plans. As noted above, the Company may begin
offering Participants under Contracts used in connection with individual
retirement plans under Section 408 the opportunity to convert the Contracts into
Contracts used in connection with Roth IRAs under Section 408A, and may also
begin offering new Contracts for use in connection with Roth IRAs. The ultimate
effect of federal income taxes may depend upon the type of retirement plan for
which the Contract 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 Code is not in force in the
Commonwealth of Puerto Rico, some references in this discussion will not apply
to Contracts issued in Puerto Rico. Any person contemplating the purchase of a
Contract should consult a qualified tax adviser. THE COMPANY DOES NOT MAKE ANY
GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY CONTRACT OR
ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX TREATMENT OF THE COMPANY
The Company is taxed as a life insurance company under the Code.
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
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. Also,
the Internal Revenue Service could assert that Owners or Participants under both
Qualified Contracts and Non-Qualified Contracts annually receive and are subject
to tax on a deemed distribution equal to the cost of any life insurance benefit
provided by the Contracts.
The following discussion applies both with respect to Individual Contracts
and Group Contracts. Because 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 discussion as applied to the Group Contracts 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
Accumulation Account Value) under a Non-Qualified Contract before the Annuity
Commencement Date is treated first as a withdrawal from the increase in the
Accumulation 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 an Accumulation 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 Contract.
In the case of annuity payments under a Non-Qualified Contract after the
Annuity Commencement Date, a portion of each payment is treated as a nontaxable
return of Purchase Payments. The nontaxable
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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 Contract bears to the Payee's expected return under the Contract. 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
Contract. If the Annuitant survives for his full life expectancy, so that the
Payee recovers the entire amount paid for the Contract, 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 Contracts
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 Qualified Contract, 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 hardship distribution or a
distribution that is part of a series of payments made for life or for a
specified period of ten years or more. Owners, Participants, Annuitants, Payees
and Beneficiaries should seek qualified advice about the tax consequences of
distributions, withdrawals, rollovers and payments under the retirement plans in
connection with which the Contracts are purchased.
If the Participant under a Non-Qualified Contract dies, the value of the
Contract 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 Contract 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 Contract by gift (other than to the
Participant's spouse) is treated as the receipt by the Participant of income in
an amount equal to the Accumulation Account Value minus the total amount paid
for the Contract.
The Company will withhold and remit to the U.S. Government a part of the
taxable portion of each distribution made under a Non-Qualified Contract or
under a Qualified Contract issued for use with an individual retirement account
unless the Participant or Payee provides his or her taxpayer identification
number to the Company and notifies the Company (in the manner prescribed) before
the time of the distribution that he or she chooses not to have any amounts
withheld.
In the case of distributions from a Qualified Contract (other than
distributions from a Contract issued for use with an individual retirement
account), the Company or the plan administrator must withhold and remit to the
U.S. Government 20% of each distribution that is an eligible rollover
distribution (as defined above) unless the Participant or Payee elects to make a
direct rollover of the distribution to another qualified retirement plan that is
eligible to receive the rollover. If a distribution from a Qualified Contract is
not an eligible rollover distribution, then the Participant or Payee can choose
not to have amounts withheld as described above for Non-Qualified Contracts and
Qualified Contracts issued for use with individual retirement accounts.
Amounts withheld from any distribution may be credited against the
Participant's or Payee's federal income tax liability for the year of the
distribution.
THE 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
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<PAGE>
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. These
terms and conditions may include restrictions on, among other things, ownership,
transferability, assignability, contributions and distributions. Any person
contemplating the purchase of a Qualified Contract should consult a qualified
tax adviser. In addition, Owners, Participants, Payees, Beneficiaries and
administrators of qualified retirement plans should consider and consult their
tax adviser concerning whether the death benefit payable under the Contract
affects the qualified status of their retirement plan. Following are brief
descriptions of various types of qualified retirement plans and the use of the
Qualified Contracts in connection therewith.
PENSION AND PROFIT-SHARING PLANS
Sections 401(a), 401(k) and 403(a) of the Code permit business employers and
certain associations to establish various types of retirement plans for
employees. The Tax Equity and Fiscal Responsibility Act of 1982 eliminated most
differences between qualified retirement plans of corporations and those of
self-employed individuals. The Contract may be purchased by those who would have
been covered under the rules governing old H.R. 10 (Keogh) Plans as well as by
corporate plans. Such retirement plans may permit the purchase of the Qualified
Contracts to provide benefits under the plans. Employers intending to use the
Qualified Contracts in connection with such plans should seek qualified advice
in connection therewith.
TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts and, subject to
certain limitations, exclude the amount of purchase payments from gross income
for tax purposes. 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
(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, Employer/Association of Employees Established Individual Retirement
Account Trusts, and Simple Retirement Accounts, known as an Individual
Retirement Account ("IRA"). These IRAs are subject to limitations on the amount
that may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, certain distributions from some other
types of retirement plans may be placed on a tax-deferred basis in an IRA. Sales
of the Contracts for use with IRAs may be subject to special requirements
imposed by the Internal Revenue Service. Purchasers of the Contracts for such
purposes will be provided with such supplementary information as may be required
by the Internal Revenue Service or other appropriate agency, and will have the
right to revoke the Contract under certain circumstances as described in the
section of this Prospectus entitled "Right to Return Contract."
ROTH IRAS
Section 408A of the Code permits an individual to contribute to an
individual retirement program called a Roth IRA. Unlike contributions to a
regular IRA under Section 408 of the Code, contributions to a Roth IRA are not
made on tax-deferred basis, but distributions are tax-free if certain
requirements are satisfied. Like
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<PAGE>
regular IRAs, Roth IRAs are subject to limitations on the amount that may be
contributed and the time when distributions may commence. A regular IRA may be
converted into a Roth IRA, and the resulting income may be spread over four
years if the conversion occurs before January 1, 1999. If and when Contracts are
made available for use with Roth IRAs, they may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contracts for this purpose will be provided with such supplementary information
as may be required by the Internal Revenue Service or other appropriate agency.
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts and the Accumulation Accounts. These functions include, but are not
limited to, maintaining records of the name, address, taxpayer identification
number, Contract number, Accumulation Account number and type, the status of
each Accumulation Account and other pertinent information necessary to the
administration and operation of the Contracts; processing Applications, the
Purchase Payment, transfers and full and partial surrenders; issuing Contracts
and Certificates; administering annuity payments; furnishing accounting and
valuation services; reconciling and depositing cash receipts; providing
confirmations; providing toll-free customer service lines; and furnishing
telephonic transfer services.
DISTRIBUTION OF THE CONTRACTS
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"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481, a wholly-owned subsidiary of the Company. Clarendon
is registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Clarendon also acts as the general
distributor of 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
% of the Purchase Payment. In addition, after the first Account Year,
broker-dealers who have entered into distribution agreements with the Company
may receive an annual renewal commission of no more than % of the
Accumulation Account Value. In addition to commissions, the Company may, from
time to time, pay or allow additional promotional 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 other
contracts offered by the Company. Commissions will not be paid with respect to
Accumulation 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, or of immediate family members of such employees or persons. In
addition, commissions may be waived or reduced in connection with certain
transactions described under "Waivers, Reduced Charges; Credits; Bonus
Guaranteed Interest Rates."
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<PAGE>
ADDITIONAL INFORMATION ABOUT THE COMPANY
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the statutory financial statements of the Company and notes
thereto included in this Prospectus beginning on page 38.
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE YEARS ENDED DECEMBER 31,
ENDED --------------------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
--------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(IN 000'S)
Revenues
Premiums, annuity
deposits and other
revenue............ $ 1,133,302 $ 2,513,741 $ 2,131,939 $ 1,883,901 $ 1,997,525 $ 2,443,310
Net investment
income and realized
gains.............. 154,036 301,524 312,870 315,966 312,583 311,322
--------------- ------------ ------------ ------------ ------------ ------------
1,287,338 2,815,265 2,444,809 2,199,867 2,310,108 2,754,632
--------------- ------------ ------------ ------------ ------------ ------------
Benefits and expenses
Policyholder
benefits........... 855,349 2,469,215 2,149,145 1,995,208 2,102,290 2,515,320
Other expenses...... 365,440 206,066 175,342 150,937 186,892 232,365
--------------- ------------ ------------ ------------ ------------ ------------
1,220,789 2,675,281 2,324,487 2,146,145 2,289,182 2,747,685
--------------- ------------ ------------ ------------ ------------ ------------
Operating gain........ 46,641 139,984 120,322 53,722 20,926 6,947
Federal income tax
expense (benefit)... 14,554 10,742 (2,702) 17,807 19,469 3,691
--------------- ------------ ------------ ------------ ------------ ------------
Net income............ $ 35,202 $ 129,242 $ 123,024 $ 35,915 $ 1,457 $ 3,256
--------------- ------------ ------------ ------------ ------------ ------------
--------------- ------------ ------------ ------------ ------------ ------------
Assets................ $ 17,185,798 $ 15,927,045 $ 13,621,952 $ 12,359,683 $ 10,117,822 $ 9,179,090
--------------- ------------ ------------ ------------ ------------ ------------
--------------- ------------ ------------ ------------ ------------ ------------
Surplus notes......... $ 565,000 $ 565,000 $ 315,000 $ 650,000 $ 335,000 $ 335,000
--------------- ------------ ------------ ------------ ------------ ------------
--------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
See Note 1 to financial statements for the effect of the reinsurance agreements
on net income.
See Note 1 to financial statements for changes in accounting principles and
reporting.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
JUNE 30, 1998
ASSETS
The general account invested assets declined by $390.3 million for the six
months ended June 30, 1998 due to maturities of pension and annuity contracts
exceeding fixed annuity sales net of dollar cost averaging transfers to the
separate accounts. The decrease in cash was due to the deployment of the $250
million proceeds from surplus notes issued in December 1997 and the payment of a
$46 million dividend to the Company's parent, Sun Life of Canada (U.S.)
Holdings, Inc. ("Life Holdco") and a short term note repayment of $110 million
to Sun Life Assurance Company of Canada (U.S.)-Operations Holdings, Inc. ("U.S.
Holdco").
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 and the overall quality of the bond portfolio remains high. At
June 30, 1998, 4.9% of the Company's bond holdings were rated below investment
grade (i.e. below NAIC rating "1" or "2").
The mortgage loan portfolio of $587.3 million at June 30, 1998 represents
19.2% of cash and invested assets, slightly down from 19.8% at December 31,
1997. The Company underwrites commercial mortgages with a maximum loan to value
ratio of 75%. The Company, as a rule, invests in properties that are almost
fully
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<PAGE>
leased. The portfolio is diversified by region and type. The level of arrears in
the portfolio remains substantially below the industry average. At June 30,
1998, the Company's portfolio did not contain any mortgage loans which were 60
days or more in arrears.
LIABILITIES
The majority of the Company's liabilities consist of reserves for life
insurance and annuity contracts and deposit funds. The liability for premium and
other deposits continues to decline due to net maturities exceeding sales of the
fixed contracts associated with these liabilities. During the first quarter of
1998 the Company repaid its $110 million short-term note payable to U.S. Holdco.
CAPITAL AND SURPLUS
The total capital stock and surplus of the Company at June 30, 1998 was
$817.1 million. The Company's management considers its surplus position to be
adequate.
During the second quarter of 1998 the Company declared a dividend of $50.0
million to Life Holdco, of which $46.0 million has been paid to date.
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 general account business internally in order to
better manage 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
necessary funds. Government and publicly traded bonds comprise 56% 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.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET INCOME
Net income from operations after dividends and before federal income taxes
decreased by $18.4 million from $65.0 to $46.6 million, for the six months ended
June 30, 1998 as compared to the same period in 1997. Earnings from the
Company's surplus investment in subsidiaries decreased by $19.6 million
primarily due to the transfer of the investment in Massachusetts Financial
Services Company ("MFS") to the Company's parent via a dividend in December
1997. Dividends from other subsidiaries increased by $2.4 million in 1998 as
compared to 1997 while results of operations for the same period in 1997
included dividends from MFS of $22.0 million. Net income associated with the
reinsurance agreements with SLOC decreased by $3.7 million in 1998 due to
increased death claims. Prior to reinsurance, earnings from the life line of
business remained relatively flat. The remaining earnings increase of
approximately $4.9 million is attributed to the Company's retirement products
and services lines of business, which markets combination fixed/variable
annuities. This increase in earnings reflects profits being generated from the
large in-force block of annuity business held in both the general account and
the separate accounts. The strong market performance of the separate accounts in
1997 and the first half of 1998 coupled with strong sales generated a
significant increase in mortality and expense fees, which are calculated as a
percentage of net assets. The net assets held in the unitized separate accounts
increased by over 34% at the beginning of 1998 as compared to the same period in
1997. These additional fees cover the increased general expenses associated with
growing the business. In addition, decreased sales in 1998 result in lower
strain which contributes to the increased earnings.
INCOME
Total income decreased $180.5 million for the period ended June 30, 1998 as
compared to the same period in 1997. During 1997 the Company introduced a new
variable life insurance product which resulted in
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<PAGE>
an increase of $9.9 million of premiums and annuity considerations during 1998.
Reinsurance had the effect of increasing income by approximately $7.6 million
due to increased interest income on the funds withheld. Deposits from sales of
combination fixed/variable annuities decreased by $164.5 million, reflecting the
heightened competition of the dollar cost averaging program for annuities.
Several other insurance companies offer similar programs to that of the
Company's and some offer bonus rates of interest in excess of those offered by
the Company. Under the dollar cost averaging program, deposits are made into the
fixed portion of the annuity contract and receive a bonus rate of interest for
the policy year. During the year, the fixed deposit is exchanged to the variable
portion of the contract in equal periodic installments. Net investment income
and amortization of the interest maintenance reserve decreased by $41.1 million
due to a decline in general account invested assets, an increase in interest
expense from surplus notes of $7.6 million and a decrease of $19.6 million in
dividends from subsidiaries. General account invested assets decreased by $390.1
million during the calendar year 1997 due to guaranteed interest contract and
annuity maturities exceeding fixed annuity sales. The issuance of $250 million
of 8.625% surplus notes in December 1997 resulted in a net decrease in invested
assets of $140 million for the year. General account invested assets decreased
by $390.3 million in the first half of 1998 again due to maturities of contracts
exceeding fixed annuity sales. This trend is expected to continue as current
product sales are directed to the unitized and non-unitized separate accounts.
BENEFITS AND EXPENSES
Benefits and expenses before dividends to policyholders and federal income
taxes decreased by $165.9 million from $1,386.7 to $1,220.8 million for the
period ended June 30, 1998 as compared to the same period in 1997. Reinsurance
had the effect of increasing benefits and expenses by $11.3 million, primarily
death benefits on reinsurance assumed which increased $8.8 million in 1998 as
compared to 1997 due to a few large claims. Deaths, annuity payments and
surrender benefits and fund withdrawals other than reinsurance increased by
$96.2 million, reflecting surrenders and withdrawals mostly from separate
account contracts for which the surrender charge period has expired. Sales of
this particular annuity block of business issued seven years prior totaled over
$249 million. The decrease in aggregate reserves for life contracts of $ 7.4
million was affected by the Company changing its basis of valuation of its
reinsured liabilities at December 31, 1997. This change results in lower reserve
increases in 1998 and greater earnings as compared to 1997. The change in the
liability for premium and other deposit funds decreased by $55.3 million,
reflecting the increase in surrenders of the contracts described above.
Commissions decreased by $4.5 million, reflecting the decrease in total sales of
combination fixed/variable annuities. General insurance expenses increased by
$10.9 million, reflecting increased staff, rent expense, higher guaranty fund
assessments and allocations from SLOC associated with the growth in business and
the Company's system transition to be Year 2000 compliant (see below). Net
transfers to the separate accounts decreased by $215.7 million, reflecting
decreased exchange activity out of the general account into the separate
accounts due to the maturing block of annuity business as well as the decrease
in sales.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
NET INCOME
Net income from operations after dividends and before federal income taxes
decreased by $4.7 million from $24.4 to $29.1 million, for the three months
ended June 30, 1998 as compared to the same period in 1997. Earnings from the
Company's surplus investment in subsidiaries decreased by $8.0 million primarily
due to the transfer of the investment in Massachusetts Financial Services
Company ("MFS") to the Company's parent via a dividend in December 1997. The
1997 results of operations included dividends from MFS of $11.0 million as
compared to $3.0 million from other subsidiaries in 1998. Net income associated
with the reinsurance agreements with SLOC increased by $1.5 million in 1998 due.
The Company changed its basis of valuation of its reinsured liabilities at
December 31, 1997. This change results in lower reserve increases in 1998 and
greater earnings as compared to 1997. Prior to reinsurance, earnings from the
life line of business remained relatively flat. The remaining earnings increase
of approximately $1.8 million is attributed to the Company's retirement products
and services lines of business, which markets combination fixed/variable
annuities. This increase in earnings reflects profits being generated from the
large in-force block of annuity business held in both the general account and
the separate accounts. The strong market performance of the separate accounts in
1997 and the first half of 1998 coupled with strong
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<PAGE>
sales generated a significant increase in mortality and expense fees, which are
calculated as a percentage of net assets. These additional fees cover the
increased general expenses associated with growing the business.
INCOME
Total income decreased $87.5 million for the three months ended June 30,
1998 as compared to the same period in 1997 primarily due to the decrease in
deposits of $78.5 million from sales of combination fixed/variable annuities
which reflects the increased competition of the dollar cost averaging program.
Sales from the new variable life insurance product of $2.3 million and purchases
of payout annuities of $4.3 million increased premium and annuity
considerations. Reinsurance had the effect of increasing income by approximately
$1.6 million. Net investment income and amortization of the interest maintenance
reserve decreased by $19.2 million due to the decline in general account
invested assets described prior, increased interest expense of $1.0 million from
surplus notes and the decrease in dividends of $8.0 million received from
subsidiaries.
BENEFITS AND EXPENSES
Benefits and expenses decreased by $83.4 million from $720.4 million to
$637.0 million for the three months ended June 30, 1998 as compared to the same
period in 1997. Death benefits and surrenders on reinsurance assumed increased
by $ 4.5 million in 1998 as compared to 1997 due to a few large claims while the
decrease in reserve reflected the prior year reserve adjustment causing no
change in total to benefits for reinsurance. Deaths, annuity payments and
surrender benefits and other fund withdrawals prior to reinsurance increased by
$44.4 million, reflecting surrenders and withdrawals from mostly separate
account contracts for which the surrender charge period has expired. Sales of
this particular annuity block of business issued seven years prior totaled over
$145 million. The change in the liability for premium and other deposit funds
decreased by $28.0 million, reflecting the increase in surrenders of the
contracts described above. General insurance expenses increased by $7.7 million,
reflecting increased staff, rent expense, higher guaranty fund assessments and
allocations from SLOC associated with the growth in business and cost of the
systems transition related to Year 2000. Net transfers to the separate accounts
decreased by $104.4 million, reflecting decreased exchange activity out of the
general account into the separate accounts due to the maturing block of annuity
business as well as the decrease in sales.
YEAR 2000 COMPLIANCE
The Company's business, financial condition, and results of operations could
be materially and adversely affected by the failure of its systems and
applications (or those either provided or operated by third-parties) to properly
operate or manage dates beyond the year 1999. However, the Company has
investigated the nature and extent of the work necessary to render its computer
systems capable of processing beyond the turn of the century ("Year 2000
compliant"), and has made substantial progress toward achieving this goal,
including upgrading and/or replacing existing systems. The Company expects that
its principal systems will be Year 2000 compliant by the end of 1998, leaving
1999 for extensive testing. While it is believed that these efforts do involve
substantial costs, the Company closely monitors associated costs and continues
to evaluate associated risks based on actual testing. Based on available
information, the Company believes that it will be able to manage its total Year
2000 transition without a material adverse effect on its business operations,
financial condition, or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk management activities
includes "forward-looking statements" that involve risk and uncertainties.
Assets within the general account are segmented by product or groups of
products. This allows the Company to better manage assets relative to
liabilities. Asset management for each segment is conducted within the context
of any investment policy, reviewed each quarter with business unit managers to
ensure that investment policy remains appropriate, taking into account a
segment's liability characteristics. The review of investment policy includes
cash flow estimates, liquidity requirements and targets for asset mix, duration
and quality.
Market risks associated with investment portfolios supporting products that
are funded by separate accounts where results are not guaranteed and where the
policyholder assumes the risks are not included in this discussion.
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<PAGE>
All of the Company's assets are held for other than trading purposes and
generally fixed interest rate liabilities are supported by well diversified
portfolios of fixed interest investments including publicly issued and privately
placed bonds and commercial mortgage loans. Public bonds can include Treasuries,
corporates, money market instruments, Mortgage Backed Securities. Credit risk is
managed by the Company's underwriting standards which have resulted in high
average quality portfolios. For example, the Company does not purchase below
investment grade securities. Also, as a result of investment policy, there is no
foreign currency, commodity or equity price risk exposure in the portfolios.
However, changes in the level of domestic interest rates will impact the market
value of fixed interest assets and liabilities. The management of interest rate
risk exposure and immunization strategies are discussed below.
Immunization strategies which minimize the loss from wide fluctuations in
interest rates are pursued in segments where the bulk of the liabilities arise
from the sale of products containing interest rate guarantees for certain terms.
These strategies are supported by investment and asset liability analytical
software acquired from outside vendors. The significant features of the
immunization framework include: an economic or market value basis for both
assets and liabilities; an option pricing methodology; the use of effective
duration and convexity to measure price sensitivity; the use of key rate
durations (KRDs) to capture interest rate exposure to different parts of the
yield curve and manage non-parallel curve movements; and active portfolio
management, including the use of derivatives (e.g. interest rate swaps) for
portfolio restructuring.
An Interest Rate Risk Committee meets monthly and after reviewing the
duration reports for various portfolios, market conditions and forecasts, the
committee develops asset management strategies for interest sensitive
portfolios. These strategies may involve managing assets to small intentional
mismatches, either at the total effective duration level or at certain KRDs but,
in any event, the overall duration gap between interest sensitive assets and
liabilities is managed within a tolerance range of +/- 0.25 effective duration.
The estimates presented here are from computer model simulations which,
because they are predictions about the future, contain a certain degree of
uncertainty. For example, there are algorithms for assumptions about
policyholder behavior and asset cash flows and consequently estimates of
duration and market values which may or may not represent what actually will
occur. Also there is no provision in the estimates to incorporate any management
decisions which might be taken to mitigate against adverse results. The company
is sufficiently comfortable with its interest rate risk management process to
feel the exposure to interest rate changes will not materially affect the
near-term financial position, results of operations or cash flows of the
Company.
The Company's fixed interest investments had an aggregate fair value at June
30, 1998 of $2,909.6 million. A portion of the Company's general account
liabilities of $3,339.1 million are categorized as financial instruments. The
portion of the liabilities so categorized had a carrying value of $1,680.9
million and a fair value of $1,719.2 million at June 30, 1998. Using modeling
and analytical software, the Company performed sensitivity analysis of its
financial instruments at June 30, 1998. Assuming an immediate increase of 100
basis points in interest rates the net hypothetical decrease in the fair value
of the Company's assets is estimated to be $119.0 million. A corresponding
decrease in the fair value of the liabilities categorized as financial
instruments is estimated to be $49.9 million at June 30, 1998.
SUN LIFE (CANADA)
On January 27, 1998, the Company's ultimate parent, Sun Life (Canada),
announced that its Board of Directors had requested management to develop a plan
to convert from a mutual life insurance company into a publicly traded stock
company through demutualization. Management has put in place a full time task
force which, together with a worldwide team of actuarial, financial, and legal
advisers, has begun work on a plan. The Board of Directors will decide later in
1998 whether to proceed with demutualization, following the completion of such
plan. Demutualization would require regulatory approval and approval by
policyholders of Sun Life (Canada). Based on information known to date, the
potential demutualization of Sun Life (Canada) is not expected to have any
significant impact on the Company.
REINSURANCE
The Company has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) will reinsure the mortality risks of the individual life insurance
contracts previously sold by the Company. Under
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<PAGE>
these agreements basic death benefits and supplementary benefits are reinsured
on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements in 1997 had the effect of
decreasing net income from operations by $1,381,000.
Effective January 1, 1991 the Company entered into an agreement with Sun
Life (Canada) under which certain individual life insurance contracts issued by
Sun Life (Canada) were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with Sun Life
(Canada) which provides that Sun Life (Canada) will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. Death
benefits are reinsured on a yearly renewable term basis. These agreements had
the effect of increasing income from operations by approximately $37,050,000 for
the year ended December 31, 1997.
The life reinsurance assumed agreement requires the reinsurer to withhold
funds in an amount equal to the reserves assumed.
The Company has also executed reinsurance agreements with unaffiliated
companies. These agreements provide reinsurance of certain individual life
insurance contracts on a modified coinsurance basis under which all deficiency
reserves are ceded; as well as reinsurance for variable universal life on a
yearly renewable term basis for which the Company has a maximum retention of
$2,000,000.
RESERVES
In accordance with the life insurance laws and regulations under which the
Company operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements, these reserves are determined in accordance with statutory
regulations.
INVESTMENTS
Of the Company's total assets of $17.2 billion at June 30, 1998, ___%
consisted of unitized and non-unitized separate account assets, ___% were
invested in bonds and similar securities, ___% in mortgages, ___% in
subsidiaries, ___% in real estate, and the remaining ___% 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. According to the most recent Best's Review,
Life-Health Edition, as of December 31, 1997 the Company ranked th among all
life insurance companies in the United States based upon total assets. Its
ultimate parent company, Sun Life (Canada), ranked th. Best's Insurance
Reports, Life-Health Edition, 1998, assigned the Company and Sun Life (Canada)
its highest classification, A++, as of December 31, 1997. This rating was
affirmed by A.M. Best on November 24, 1997. Standard & Poor's and Duff & Phelps
have assigned the Company and Sun Life (Canada) their highest ratings for claims
paying ability, AAA. Moody's Investor Service, Inc. has assigned the Company an
unsolicited rating of Aa1 for financial strength.
EMPLOYEES
The Company and Sun Life (Canada) have entered into a Service Agreement
which provides that the latter will furnish the Company, as required, with
personnel as well as certain services and facilities on a cost reimbursement
basis. As of June 30, 1998 the Company had ___ direct employees who are employed
at its Principal Executive Office in Wellesley Hills, Massachusetts and its
Retirement Products and Services Division in Boston, Massachusetts.
PROPERTIES
The Company occupies office space owned by it and leased to Sun Life
(Canada), and certain unrelated parties for lease terms not exceeding five
years.
33
<PAGE>
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.
DONALD A. STEWART, 51, Chairman and Director (1996*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is President, Chief Executive Officer and a Director of Sun Life
Assurance Company of Canada; Chairman and a Director of Sun Life Insurance and
Annuity Company of New York; and a Director of Massachusetts Financial Services
Company, Massachusetts Casualty Insurance Company, Sun Life Financial Services
Limited, Spectrum United Holdings, Inc., and Sun Life of Canada UK Holdings,
plc..
C. JAMES PRIEUR, 47, President and Director (1998*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He is Senior Vice President and General Manager for the United States of Sun
Life Assurance Company of Canada; Chairman and a Director of Sun Life of Canada
(U.S.) Distributors, Inc. and Sun Capital Advisers, Inc.; President and a
Director of Sun Life of Canada (U.S.) Holdings, Inc., Sun Life Assurance Company
of Canada--U.S. Operations Holdings, Inc., Sun Life of Canada (U.S.) Financial
Services Holdings, Inc., Sun Life Insurance and Annuity Company of New York, Sun
Canada Financial Co., Sun Life of Canada (U.S.) SPE 97-1, Inc., and Sun Benefit
Services Company; and a Director of Clarendon Insurance Agency, Inc.,
Massachusetts Casualty Insurance Company, and Sun Life Information Services
Ireland Limited.
DAVID D. HORN, 57, Director (1985*)
56 Pinckney Street
Boston, Massachusetts 02114
He was formerly Senior Vice President and General Manager for the United
States of Sun Life Assurance Company of Canada, retiring in December, 1997. He
is a Director of Sun Life Insurance and Annuity Company of New York; a Trustee
of MFS/Sun Life Series Trust; and a Member of the Boards of Managers of Money
Market Variable Account, High Yield Variable Account, Capital Appreciation
Variable Account, Government Securities Variable Account, World Governments
Variable Account, Total Return Variable Account and Managed Sectors Variable
Account.
JOHN D. MCNEIL, 64, Director (1982*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Chairman and a Director of Sun Life Assurance Company of Canada;
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 Sun Life Insurance and
Annuity Company of New York; Massachusetts Financial Services Company, SLC
Services Peru, S.A., Spectrum United Holdings, Inc., Sun Life Financial
Holdings, Inc., Sun Life Trust Company, Sun Life Savings & Mortgage Corporation,
Sun Life of Canada UK Holdings, plc; Shell (Canada) Limited and Canadian
Pacific, Ltd.
- ---------
* Year Elected Director
34
<PAGE>
ANGUS A. MACNAUGHTON, 67, Director (1985*)
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404
He is President of Genstar Investment Corporation; a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Canadian Pacific, Ltd., Varian Associates, Inc., Diversified Collection
Services, Inc., the San Francisco Opera, Genstar Investment L.L.C., and Genstar
Capital Corporation; and Vice Chairman and a Director of Barrick Gold
Corporation.
JOHN S. LANE, 63, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Senior Vice President, Investments of Sun Life Assurance Company of
Canada; and a Director of Sun Life Insurance and Annuity Company of New York.
RICHARD B. BAILEY, 71, Director (1983*)
500 Boylston Street
Boston, Massachusetts 02116
He is a Director of Sun Life Insurance and Annuity Company of New York and a
Director/Trustee of certain Funds in the MFS Family of Funds.
M. COLYER CRUM, 66, Director (1986*)
104 Westcliff Street
Weston, Massachusetts 02193
He is Professor Emeritus of the Harvard Business School; a Director of Sun
Life Assurance Company of Canada, Sun Life Insurance and Annuity Company of New
York, Cambridge Bancorp, Cambridge Trust Company, Merrill Lynch Global Growth
Fund, Inc., 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 U.S. Treasury Money Fund, MuniVest Florida Fund, Inc.,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Insured Fund, Inc., and
Phaeton International/N.V.; and a Trustee of Merrill Lynch Global Resources
Trust, Merrill Lynch Ready Assets Trust, MuniYield Florida Insured Fund, and
MuniYield Pennsylvania Fund. Prior to July, 1996, he was a Professor at the
Harvard Business School.
S. CAESAR RABOY, 62, Senior Vice President and Deputy General Manager and
Director (1996*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He is Senior Vice President and Deputy General Manager for the United States
of Sun Life Assurance Company of Canada; Senior Vice President and a Director of
Sun Life Insurance and Annuity Company of New York; Vice President and a
Director of Sun Life Financial Services Limited; and a Director of Sun Life of
Canada (U.S.) Distributors, Inc. and Clarendon Insurance Agency, Inc.
JAMES M. A. ANDERSON, 48, Vice President, Investments (1998)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He is Vice President, Investments, of Sun Life Assurance Company of Canada
and Sun Life Insurance and Annuity Company of New York; President and a Director
of Sun Capital Advisers, Inc.; Vice President and a Director of Sun Life of
Canada (U.S.) Holdings, Inc., Sun Life of Canada (U.S.) Financial Services
Holdings, Inc., and Sun Canada Financial Co.; Vice President, Investments, and a
Director of Sun Life of Canada (U.S.) Distributors, Inc.; and a Director of
Massachusetts Casualty Insurance Company, New London Trust, F.S.B., Sun Benefit
Services Company, Inc., and Sun Life Information Services Ireland Limited.
- ---------
* Year Elected Director
35
<PAGE>
L. BROCK THOMSON, 57, Vice President and Treasurer (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He is Vice President, Portfolio Management for the United States of Sun Life
Assurance Company of Canada; Vice President and Treasurer of Sun Life of Canada
(U.S.) Distributors, Inc., Sun Benefit Services Company, Inc., Sun Life
Insurance and Annuity Company of New York, and Clarendon Insurance Agency, Inc.;
and Assistant Treasurer of Massachusetts Casualty Insurance Company.
ROBERT P. VROLYK, 45, Vice President and Actuary (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
He is Vice President, Finance of Sun Life Assurance Company of Canada; Vice
President, Controller and Actuary of Sun Life Insurance and Annuity Company of
New York; Vice President and a Director of Sun Life of Canada (U.S.) Holdings,
Inc., Sun Canada Financial Co., Sun Life of Canada (U.S.) Distributors, Inc.,
Sun Life of Canada (U.S.) Financial Services Holdings, Inc., and Sun Life
Assurance Company of Canada -- U.S. Operations Holdings, Inc.; Vice President,
Treasurer and a Director of Sun Capital Advisers, Inc.; Treasurer and a Director
of Sun Life of Canada (U.S.) SPE 97-1, Inc.; and a Director of Clarendon
Insurance Agency, Inc., Sun Benefit Services Company, Inc., and Sun Life
Information Services Ireland, Limited.
MARGARET SEARS MEAD, 48, Assistant Vice President and Secretary (1996)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
She is Assistant Vice President and Counsel for the United States of Sun
Life Assurance Company of Canada; Assistant Vice President and Secretary of Sun
Life Insurance and Annuity Company of New York; Secretary of Sun Life of Canada
(U.S.) Holdings, Inc., Sun Life of Canada (U.S.) Distributors, Inc., Sun Life of
Canada (U.S.) Financial Services Holdings, Inc., Sun Life Assurance Company of
Canada -- U.S. Operations Holdings, Inc., Sun Life of Canada (U.S.) SPE 97-1,
Inc., Sun Canada Financial Co., Sun Capital Advisers, Inc., and Sun Benefit
Services Company, Inc.; and Assistant Secretary of Clarendon Insurance Agency,
Inc.
The directors, officers and employees of the Company are covered under a
commercial blanket bond and a liability policy. The directors, officers and
employees of Massachusetts Financial Services Company and Clarendon Insurance
Agency, Inc. are covered under a fidelity bond and errors and omissions policy.
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 1997
totaled $824,000.
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. Bailey, Crum, Horn and MacNaughton receive compensation in
the amount of $8,000 per year, plus $1,000 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 of Canada (U.S.) Holdings,
Inc., One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, which
is in turn a wholly-owned subsidiary of Sun Life Assurance Company of Canada --
U.S. Operations Holdings, Inc., a wholly-owned subsidiary of Sun Life Assurance
Company of Canada.
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
36
<PAGE>
preceding year and its financial condition on December 31st of such year. Its
books and records are subject to review or examination by the Commissioner or
his agents at any time and a full examination of its operations is conducted at
periodic intervals.
The Company is also subject to the insurance laws and regulations of the
other states and jurisdictions in which it is licensed to operate. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business, overseeing
trade practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
it does business and its operations and accounts are subject to examination by
such agencies at regular intervals.
In addition, many states regulate affiliated groups of insurers, such as the
Company, its parent and its affiliates, under insurance holding company
legislation. Under such laws, inter-company transfers of assets and dividend
payments from insurance subsidiaries may be subject to prior notice or approval,
depending on the size of such transfers and payments in relation to the
financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for policyholder losses
incurred by insolvent companies. The amount of any future assessments of the
Company under these laws cannot be reasonably estimated. However, most of these
laws do provide that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength and many permit the deduction of
all or a portion of any such assessment from any future premium or similar taxes
payable.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies, the tax treatment
of insurance products and its impact on the relative desirability of various
personal investment vehicles.
ACCOUNTANTS
The statutory financial statements of the Company as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
included and incorporated by reference in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, which are included
and incorporated by reference herein, and have been so included and incorporated
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 Fixed Account, the Company
and the Contracts. Statements found in this Prospectus as to the terms of the
Contracts and other legal instruments are summaries, and reference is made to
such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this
Prospectus should be considered only as bearing on the ability of the Company to
meet its obligations with respect to amounts allocated to the Fixed Account and
with respect to the death benefit.
-------------------
37
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1997 AND 1996 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,910,699 $ 2,170,103
Common stocks 117,229 144,043
Mortgage loans on real estate 684,035 938,932
Properties acquired in satisfaction of debt 22,475 23,391
Investment real estate 78,426 76,995
Policy loans 40,348 40,554
Cash and short-term investments 544,418 148,059
Other invested assets 55,716 51,378
Premiums and annuity considerations due and uncollected 9,203 11,282
Investment income due and accrued 39,279 68,191
Receivable from parent, subsidiaries and affiliates 28,825 40,829
Funds withheld on reinsurance assumed 982,653 878,798
Other assets 1,841 1,343
-------------- --------------
General account assets 4,515,147 4,593,898
Separate account assets
Unitized 9,068,021 6,919,219
Non-unitized 2,343,877 2,108,835
-------------- --------------
Total Admitted Assets $ 15,927,045 $ 13,621,952
-------------- --------------
-------------- --------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 2,188,243 $ 2,099,980
Supplementary contracts 2,247 2,205
Policy and contract claims 2,460 2,108
Policyholders' dividends and coupons payable 32,500 27,500
Liability for premium and other deposit funds 1,450,705 1,898,309
Surrender values on cancelled policies 215 72
Interest maintenance reserve 33,830 28,675
Commissions to agents due or accrued 2,826 3,245
General expenses due or accrued 7,202 4,654
Transfers from Separate Accounts due or accrued (284,078) (232,743)
Taxes, licenses and fees accrued, excluding federal income taxes 105 342
Federal income taxes due or accrued 58,073 49,479
Unearned investment income 34 19
Amounts withheld or retained by company as agent or trustee 47 27
Remittances and items not allocated 1,363 1,359
Borrowed money 110,142 58,000
Asset valuation reserve 47,605 53,911
Payable for securities 27,104 22,177
Other liabilities 1,959 7,561
-------------- --------------
General account liabilities 3,682,582 4,026,880
Separate account liabilities
Unitized 9,067,891 6,919,094
Non-unitized 2,343,877 2,108,835
-------------- --------------
Total liabilities 15,094,350 13,054,809
-------------- --------------
CAPITAL STOCK AND SURPLUS
Capital stock par value $1,000; Authorized, 10,000 shares;
issued and outstanding, 5,900 shares 5,900 5,900
-------------- --------------
Surplus notes 565,000 315,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 62,440 46,888
-------------- --------------
Surplus 826,795 561,243
-------------- --------------
Total capital stock and surplus 832,695 567,143
-------------- --------------
Total Liabilities, Capital Stock and Surplus $ 15,927,045 $ 13,621,952
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
38
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 270,700 $ 282,466 $ 279,407
Deposit-type funds 2,155,298 1,775,230 1,545,542
Considerations for supplementary
contracts without life
contingencies and dividend
accumulations 1,615 2,340 1,088
Net investment income 270,249 303,753 312,872
Amortization of interest maintenance
reserve 1,166 1,557 1,025
Net gain from operations from
Separate Accounts 5 -- --
Other income 86,123 71,903 57,864
---------- ---------- ----------
Total 2,785,156 2,437,249 2,197,798
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 17,284 12,394 15,317
Annuity benefits 148,135 146,654 140,497
Surrender benefits and other fund
withdrawals 1,854,004 1,507,263 1,074,396
Interest on policy or contract funds 699 2,205 739
Payments on supplementary contracts
without life contingencies and of
dividend accumulations 1,687 2,120 1,888
Increase in aggregate reserves for
life and accident and health
policies and contracts 127,278 162,678 171,975
Increase (decrease) in liability for
premium and other deposit funds (447,603) (392,348) 13,553
Increase (decrease) in reserve for
supplementary contracts without
life contingencies and for dividend
and coupon accumulations 42 327 (663)
---------- ---------- ----------
Total 1,701,526 1,441,293 1,417,702
Commissions on premiums and annuity
considerations (direct business
only) 132,700 109,894 88,037
Commissions and expense allowances
on reinsurance assumed 17,951 18,910 22,012
General insurance expenses 47,102 37,206 34,580
Insurance taxes, licenses and fees,
excluding federal income taxes 7,790 8,431 7,685
Increase (decrease) in loading on
and cost of collection in excess of
loading on deferred and uncollected
premiums 523 901 (1,377)
Net transfers to separate accounts 734,373 678,663 551,784
---------- ---------- ----------
Total 2,641,965 2,295,298 2,120,423
---------- ---------- ----------
Net gain from operations before
dividends to policyholders and
federal income taxes 143,191 141,951 77,375
Dividends to policyholders 33,316 29,189 25,722
---------- ---------- ----------
Net gain from operations after
dividends to policyholders and
before federal income taxes 109,875 112,762 51,653
Federal income tax expense (benefit)
(excluding tax on capital gains) 10,742 (2,702) 17,807
---------- ---------- ----------
Net gain from operations after
dividends to policyholders and
federal income taxes and before
realized capital gains 99,133 115,464 33,846
Net realized capital gains less
capital gains tax and transfers to
the interest maintenance reserve 30,109 7,560 2,069
---------- ---------- ----------
NET INCOME $ 129,242 $ 123,024 $ 35,915
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
39
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Capital and surplus, beginning of year $ 567,143 $ 792,452 $ 455,489
---------- ---------- ----------
Net income 129,242 123,024 35,915
Change in net unrealized capital gains 1,153 (1,715) 2,009
Change in non-admitted assets and related items (463) 67 (2,270)
Change in reserve on account of change in valuation basis 39,016 -- --
Change in asset valuation reserve 6,306 (11,812) (13,690)
Other changes in surplus in Separate Accounts Statement -- 100 (4,038)
Change in surplus notes 250,000 (335,000) 315,000
Dividends to stockholder (159,722) -- --
Miscellaneous gains in surplus 20 27 4,037
---------- ---------- ----------
Net change in capital and surplus for the year 265,552 (225,309) 336,963
---------- ---------- ----------
Capital and surplus, end of year $ 832,695 $ 567,143 $ 792,452
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
40
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Provided
Premiums, annuity considerations and
deposit funds received $ 2,427,554 $ 2,059,577 $ 1,826,456
Considerations for supplementary
contracts and dividend accumulations
received 1,615 2,340 1,088
Net investment income received 323,199 324,914 374,398
Other income received 81,701 88,295 25,348
----------- ----------- -----------
Total receipts 2,834,069 2,475,126 2,227,290
----------- ----------- -----------
Benefits paid (other than dividends) 2,020,615 1,671,483 1,231,936
Insurance expenses and taxes paid
(other than federal income and
capital gains taxes) 203,650 172,015 150,463
Net cash transferred to Separate
Accounts 785,708 755,605 568,188
Dividends paid to policyholders 28,316 22,689 17,722
Federal income tax (recoveries)
payments (excluding tax on capital
gains) 1,397 (15,363) (20,655)
Other--net 699 2,205 739
----------- ----------- -----------
Total payments 3,040,385 2,608,634 1,948,393
----------- ----------- -----------
Net cash from operations (206,316) (133,508) 278,897
----------- ----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$750,449, $1,554,873 and $8,610,951) 1,343,803 1,768,147 1,658,655
Issuance of surplus notes 250,000 (335,000) 315,000
Other cash provided 117,297 147,956 419,446
----------- ----------- -----------
Total cash provided 1,711,100 1,581,103 2,393,101
----------- ----------- -----------
Cash Applied
Cost of long-term investments acquired 773,721 1,318,880 1,749,714
Other cash applied 334,704 177,982 796,207
----------- ----------- -----------
Total cash applied 1,108,425 1,496,862 2,545,921
----------- ----------- -----------
Net change in cash and short-term
investments 396,359 (49,267) 126,077
Cash and short term investments
Beginning of year 148,059 197,326 71,249
----------- ----------- -----------
End of year $ 544,418 $ 148,059 $ 197,326
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
41
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Sun Life Assurance Company of Canada (U.S.) (the "Company") is incorporated as a
life insurance company and is currently engaged in the sale of individual
variable life insurance, individual fixed and variable annuities, group fixed
and variable annuities and group pension contracts. The Company also underwrites
a block of individual life insurance business through a reinsurance contract
with an affiliate, Sun Life Assurance Company of Canada ("SLOC"). SLOC is a
mutual life insurance company.
Effective May 1, 1997, the Company became a wholly-owned subsidiary of the newly
established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of the Sun Life
Assurance Company of Canada - U.S. Operations Holdings, Inc. ("US Holdco"). US
Holdco is a wholly-owned subsidiary of SLOC. Prior to December 18, 1997 Life
Holdco was a direct wholly-owned subsidiary of SLOC.
The Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly-owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, which changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices as described above, vary from and are not
intended to present the Company's financial position, results of operations or
cash flow in conformity with generally accepted accounting principles. (See Note
19 for further discussion relative to the Company's basis of financial statement
presentation.) The effects on the financial statements of the variances between
the statutory basis of accounting and GAAP, although not reasonably
determinable, are presumed to be material.
INVESTED ASSETS AND RELATED RESERVES
Bonds are carried at cost adjusted for amortization of premium or accrual of
discount. Investments in non-insurance subsidiaries are carried on the equity
basis. Investments in insurance subsidiaries are carried at their statutory
surplus values. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans are carried at the amounts of the
unpaid balances. Real estate investments are carried at the lower of cost
adjusted for accumulated depreciation or appraised value, less encumbrances.
Short-term investments are carried at amortized cost, which approximates fair
value. Depreciation of buildings and improvements is calculated using the
straight-line method over the estimated useful life of the property, generally
40 to 50 years.
42
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
INCOME AND EXPENSES
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, are transferred to (from)
the general account. Accumulated gains (losses) that have not been transferred
are recorded as a payable (receivable) to (from) the general account. Amounts
payable to the general account of the Company were $284,078,000 in 1997 and
$232,743,000 in 1996.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
Prior to 1996, dividends paid to the Company by its subsidiaries and the
undistributed gains (losses) of those subsidiaries were included in net income
of the Company. For Annual Statement reporting, dividends were (and continue to
be) reported in net income while undistributed gains (losses) are reported
directly to surplus (as a separate component of unassigned surplus). As a
result, net income as reported in these financial statements is $2.5 million
less than net income reported in the Annual Statement in 1995. Effective for
1996, the Company changed its method of accounting for investments in
subsidiaries to conform with a preferable prescribed statutory accounting
practices used in the preparation of its Annual Statement. As a result of the
change, $5.7 million in undistributed losses of subsidiaries are reported
directly as a separate component of unassigned surplus rather than being
included in net income for the year ended December 31, 1996. The amounts as
reported in prior years have not been restated.
As described more fully in Note 10, during 1997 the Company changed certain
assumptions used in determining actuarial reserves.
43
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
2. INVESTMENTS IN SUBSIDIARIES:
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York ("Sun Life (N.Y.)"), Massachusetts Casualty Insurance
Company ("MCIC"), Sun Life of Canada (U.S.) Distributors, Inc. (formerly Sun
Investment Services Company) ("Sundisco"), New London Trust, F.S.B. ("NLT"), Sun
Life Financial Services Limited, ("SLFSL"), Sun Benefit Services Company, Inc.
("Sunbesco"), Sun Capital Advisers, Inc. ("Sun Capital"), and Sun Life Finance
Corporation ("Sunfinco").
On October 30, 1997, the Company established a wholly-owned special purpose
corporation, Sun Life of Canada (U.S.) SPE 97-1, Inc. (SPE 97-1). SPE 97-1 was
organized for the purpose of engaging in activities incidental to securitizing
mortgage loans.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
Massachusetts Financial Services Company ("MFS") . On December 24, 1997, the
Company transferred all of its shares of MFS to Life Holdco in the form of a
dividend valued at $159,722,000. As a result of this transaction the Company
realized a gain of $21,195,000 of undistributed earnings.
On December 31, 1997, the Company purchased all of the outstanding shares of
Clarendon Insurance Agency, Inc. ("Clarendon") from MFS.
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in the State of New
York. MCIC is a life insurance company which issues only individual disability
income policies. Sundisco is a registered investment adviser and broker-dealer.
NLT is a federally chartered savings bank. SLFSL serves as the marketing
administrator for the distribution of the offshore products of SLOC, an
affiliate. Sun Capital is a registered investment adviser. Sunfinco and Sunbesco
are currently inactive. Clarendon is a registered broker-dealer that acts as the
general distributor of certain annuity and life insurance contracts issued by
the Company and its affiliates.
MFS, a registered investment adviser, serves as investment adviser to the mutual
funds in the MFS family of funds as well as certain mutual funds and separate
accounts established by the Company. The MFS Asset Management Group provides
investment advice to substantial private clients.
On December 23, 1997, the Company issued a $110,000,000 note to US Holdco. at an
interest rate of 5.80%, which is scheduled for repayment on March 1, 1998, and
is included in borrowed money. A $110,000,000 note was also issued by MFS on
December 23, 1997 to the Company at an interest rate of 5.85% due on March 1,
1998 and is included in cash and short-term investments.
On December 31, 1996, the Company issued a $58,000,000 note to SLOC which was
repaid on February 10, 1997 at an interest rate of 5.70%. Also on December 31,
1996, the Company was issued a $58,000,000 note by MFS at an interest rate of
5.76%. This note was repaid to the Company on February 10, 1997. On December 31,
1997 and 1996 the Company had an additional $20,000,000 in notes issued by MFS,
scheduled to mature in 2000.
44
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
During 1997, 1996, and 1995, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ------------
<S> <C> <C> <C>
MCIC $ 2,000,000 $ 10,000,000 $ 6,000,000
SLFSL 1,000,000 1,500,000 --
SPE 97-1 20,377,000 -- --
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1997, 1996 and 1995 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
(IN 000'S)
<S> <C> <C> <C>
Intangible assets $ 0 $ 9,646 $ 12,174
Other assets 1,190,951 1,376,014 1,233,372
Liabilities (1,073,966) (1,241,617) (1,107,264)
------------- ------------- -------------
Total net assets $ 116,985 $ 144,043 $ 138,282
------------- ------------- -------------
------------- ------------- -------------
Total revenues $ 750,364 $ 717,280 $ 570,794
Operating expenses (646,896) (624,199) (504,070)
Income tax expense (43,987) (42,820) (31,193)
------------- ------------- -------------
Net income $ 59,481 $ 50,261 $ 35,531
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
3. BONDS:
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and government agencies and
authorities $ 126,923 $ 5,529 $ -- $ 132,452
States, provinces and political subdivisions 22,361 2,095 -- 24,456
Public utilities 398,939 35,338 (91) 434,186
Transportation 214,130 22,000 (390) 235,740
Finance 157,891 5,885 (120) 163,656
All other corporate bonds 990,455 52,678 (5,456) 1,037,677
------------ ----------- ----------- ------------
Total long-term bonds 1,910,699 123,525 (6,057) 2,028,167
------------ ----------- ----------- ------------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 431,032 -- -- 431,032
Affiliates 110,000 -- -- 110,000
------------ ----------- ----------- ------------
Total short-term bonds 541,032 -- -- 541,032
Total bonds $ 2,451,731 $ 123,525 $ (6,057) $ 2,569,199
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
45
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. BONDS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and government agencies and
authorities $ 267,756 $ 12,272 $ (8,927) $ 271,101
States, provinces and political subdivisions 2,253 20 -- 2,273
Foreign governments 18,812 1,351 -- 20,163
Public utilities 415,641 24,728 (1,223) 439,146
Transportation 167,937 14,107 (2,243) 179,801
Finance 290,024 7,914 (472) 297,466
All other corporate bonds 1,007,680 42,338 (14,496) 1,035,522
------------ ----------- ----------- ------------
Total long-term bonds 2,170,103 102,730 (27,361) 2,245,472
------------ ----------- ----------- ------------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 88,754 -- -- 88,754
Affiliates 58,000 -- -- 58,000
------------ ----------- ----------- ------------
Total short-term bonds 146,754 -- -- 146,754
------------ ----------- ----------- ------------
Total bonds $ 2,316,857 $ 102,730 $ (27,361) $ 2,392,226
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1997 are
shown below by contractual maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
(IN 000'S)
Maturities:
Due in one year or less $ 699,548 $ 700,280
Due after one year through five years 533,901 541,382
Due after five years through ten years 270,607 286,651
Due after ten years 735,624 821,002
------------ ------------
2,239,680 2,349,315
Mortgage-backed securities 212,051 219,884
------------ ------------
Total bonds $ 2,451,731 $ 2,569,199
------------ ------------
------------ ------------
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1997, 1996, and 1995 were $980,264,000, $1,554,016,000, and $1,510,553,000,
gross gains were $10,732,000, $16,975,000, and $24,757,000 and gross losses were
$2,446,000, $10,885,000, and $5,742,000, respectively.
Bonds included above with an amortized cost of approximately $2,578,000 and
$2,060,000 at December 31, 1997 and 1996, respectively, were on deposit with
governmental authorities as required by law.
4. SECURITIES LENDING:
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chemical Bank of New York. The custodian has
indemnified the Company against losses arising from this
46
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. SECURITIES LENDING (CONTINUED):
program. The total par value of securities out on loan was $0 and $51,537,000 at
December 31, 1997 and 1996 respectively. Income resulting from this program was
$200,000, $137,000 and $2,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
5. MORTGAGE LOANS:
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
The following table shows the geographical distribution of the mortgage loan
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN 000'S)
<S> <C> <C>
California $ 119,122 $ 154,272
Massachusetts 58,981 79,929
Michigan 42,912 57,119
New York 45,696 67,742
Ohio 51,862 75,405
Pennsylvania 97,949 115,584
Washington 54,948 75,819
All other 212,565 313,062
---------- ----------
$ 684,035 $ 938,932
---------- ----------
---------- ----------
</TABLE>
The Company has restructured mortgage loans totaling $26,284,000 and $29,261,000
at December 31, 1997 and 1996, respectively, against which there are allowances
for losses of $3,026,000 and $5,893,000, respectively.
Mortgage loans from Sun Life (U.S.)'s portfolio with an approximate book value
of $53,188,000 were included in a transaction also involving loans from the
portfolios of other SLOC entities with an aggregate book value of $256 million,
whereby such loans were securitized for sale to the public markets.
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $12,300,000
and $9,800,000 at December 31, 1997 and 1996, respectively.
47
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. INVESTMENT GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
Net realized gains (losses)
Bonds $ 2,882 $ 5,631 $ 3,935
Common stock of affiliates 21,195 -- --
Mortgage loans 3,837 763 292
Real estate 2,912 599 391
Other invested assets (717) 567 (2,549)
--------- --------- ---------
$ 30,109 $ 7,560 $ 2,069
--------- --------- ---------
--------- --------- ---------
Changes in unrealized gains (losses):
Common stock of affiliates $ (2,894) $ (5,739) $ --
Mortgage loans 1,524 (600) (1,574)
Real estate 3,377 4,624 3,583
Other invested assets (854) -- --
--------- --------- ---------
$ 1,153 $ (1,715) $ 2,009
--------- --------- ---------
--------- --------- ---------
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve ("IMR") and amortized into income over the remaining contractual life of
the security sold. The net realized capital gains credited to the interest
maintenance reserve were $6,321,000 in 1997, $7,710,000 in 1996, and $12,714,000
in 1995. All gains and losses are transferred net of applicable income taxes.
7. NET INVESTMENT INCOME:
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $ 188,924 $ 178,695 $ 205,445
Income from investment in common stock of affiliates 41,181 50,408 35,403
Interest income from mortgage loans 76,073 92,591 99,766
Real estate investment income 17,161 16,249 14,979
Interest income from policy loans 3,582 2,790 2,777
Other (193) 1,710 2,672
---------- ---------- ----------
Gross investment income 326,728 342,443 361,042
---------- ---------- ----------
Interest on surplus notes and notes payable (42,481) (23,061) (31,813)
Investment expenses (13,998) (15,629) (16,357)
---------- ---------- ----------
Net investment income $ 270,249 $ 303,753 $ 312,872
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
48
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. DERIVATIVES:
The Company uses derivative instruments for interest risk management purposes,
including hedges against specific interest rate risk and to minimize the
Company's exposure to fluctuations in interest rates. The Company's use of
derivatives has included U.S. Treasury futures, conventional interest rate
swaps, and forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, where it is impractical to allocate gains (losses) to specific hedged
assets or liabilities, gains (losses) are deferred in IMR and amortized over the
remaining life of the hedged assets. At December 31, 1997 and 1996 there were no
futures contracts outstanding.
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
Options are used to hedge the stock market interest exposure in the mortality
and expense risk charges and guaranteed minimum death benefit features of the
Company's variable annuities. The Company's open positions are as follows:
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1997
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN 000'S)
<S> <C> <C>
Conventional interest rate swaps $ 80,000 $ (2,891)
Foreign currency swap 1,700 208
Forward spread lock swaps 50,000 274
Asian Put Option S & P 500 70,000 693
</TABLE>
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1996
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN 000'S)
<S> <C> <C>
Conventional interest rate swaps $ 429,000 $ (2,443)
Foreign currency swap 2,100 70
Forward spread lock swaps 50,000 (50)
</TABLE>
The market value of swaps is the estimated amount that the Company would receive
or pay on termination or sale, taking into account current interest rates and
the current credit worthiness of the counterparties. The Company is exposed to
potential credit loss in the event of non-performance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
9. LEVERAGED LEASES:
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994, under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of
49
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
9. LEVERAGED LEASES (CONTINUED):
the purchase price was furnished by third-party long-term debt financing,
collateralized by the equipment and non-recourse to the Company. At the end of
the lease term, the Master Lessee may exercise a fixed price purchase option to
purchase the equipment.
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1997 1996
---------- ----------
(IN 000'S)
<S> <C> <C>
Lease contracts receivable $ 92,605 $ 101,244
Less non-recourse debt (92,589) (101,227)
---------- ----------
16 17
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (10,324) (11,501)
---------- ----------
Investment in leveraged leases 30,842 29,666
Less fees (163) (188)
---------- ----------
Net investment in leveraged leases $ 30,679 $ 29,478
---------- ----------
---------- ----------
</TABLE>
The net investment is included as an other invested asset.
10. REINSURANCE:
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality risks of the individual life insurance contracts sold by the Company.
Under these agreements basic death benefits and supplementary benefits are
reinsured on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements had the effect of decreasing
income from operations by approximately $1,381,000, $1,603,000 and $2,184,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
Effective January 1, 1991, the Company entered into an agreement with SLOC under
which certain individual life insurance contracts issued by SLOC were reinsured
by the Company on a 90% coinsurance basis. During 1997 SLOC changed certain
assumptions used in determining the gross and the ceded reserve balance. The
Company reflected the effect of the changes in assumptions to its assumed
reserves as a direct credit to surplus. The effect of the change was a
$39,016,000 decrease in reserves. Also, effective January 1, 1991, the Company
entered into an agreement with SLOC which provides that SLOC will reinsure the
mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company in the reinsurance agreement
described above. Such death benefits are reinsured on a yearly renewable term
basis. These agreements had the effect of increasing income from operations by
approximately $37,050,000, $35,161,000 and $11,821,000 for the years ended
December 31, 1997,1996 and 1995, respectively. The life reinsurance assumed
agreement requires the reinsurer to withhold funds in amounts equal to the
reserves assumed.
50
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
10. REINSURANCE (CONTINUED):
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1997, 1996 and 1995 before the effect of
reinsurance transactions with SLOC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $ 2,230,980 $ 1,858,145 $ 1,619,337
Net investment income and realized gains 300,669 312,870 315,967
------------ ------------ ------------
Subtotal 2,531,649 2,171,015 1,935,304
------------ ------------ ------------
Benefits and Expenses:
Policyholder benefits 2,240,597 1,928,720 1,760,917
Other expenses 187,591 155,531 130,302
------------ ------------ ------------
Subtotal 2,428,188 2,084,251 1,891,219
------------ ------------ ------------
Income from operations $ 103,461 $ 86,764 $ 44,085
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of decreasing income from operations by $2,658,000 in 1997, $46,000 in
1996, and by $1,599,000 in 1995.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
The withdrawal characteristics of general account and separate account annuity
reserves and deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
AMOUNT % OF TOTAL
-------------- -------------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 3,415,394 25%
At book value less surrender charges (surrender charge >5%) 7,672,211 57
At book value (minimal or no charge or adjustment) 1,259,698 9
Not subject to discretionary withdrawal provision 1,164,651 9
-------------- ---
Total annuity actuarial reserves and deposit liabilities $ 13,511,954 100%
-------------- ---
-------------- ---
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
AMOUNT % OF TOTAL
-------------- -------------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 3,547,683 31%
At book value less surrender charges (surrender charge >5%) 5,626,117 48
At book value (minimal or no charge or adjustment) 1,264,586 11
Not subject to discretionary withdrawal provision 1,218,157 10
-------------- ---
Total annuity actuarial reserves and deposit liabilities $ 11,656,543 100%
-------------- ---
-------------- ---
</TABLE>
51
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
12. RETIREMENT PLANS:
The Company participates with SLOC in a non-contributory defined benefit pension
plan covering essentially all employees. The benefits are based on years of
service and compensation.
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA; currently the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension cost at December 31, 1997,
1996 and 1995 was $593,000, $446,000 and $420,000, respectively. The Company's
share of net periodic pension cost was $146,000, $27,000 and $3,000, for 1997,
1996 and 1995, respectively.
The Company also participates with SLOC and certain affiliates in a 401(k)
savings plan for which substantially all employees are eligible. The Company
matches, up to specified amounts, employees' contributions to the plan. Company
contributions were $259,000, $233,000 and $185,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits, the Company provides certain health, dental,
and life insurance benefits ("post-retirement benefits") for retired employees
and dependents. Substantially all employees may become eligible for these
benefits if they reach normal retirement age while working for the Company, or
retire early upon satisfying an alternate age plus service condition. Life
insurance benefits are generally set at a fixed amount.
52
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN 000'S)
<S> <C> <C>
ASSETS:
Bonds $ 2,451,731 $ 2,569,199
Mortgages 684,035 706,975
LIABILITIES:
Insurance reserves $ 123,128 $ 123,128
Individual annuities 307,668 302,165
Pension products 1,527,433 1,561,108
Derivatives -- (1,716)
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN 000'S)
<S> <C> <C>
ASSETS:
Bonds $ 2,316,857 $ 2,392,226
Mortgages 938,932 958,909
LIABILITIES:
Insurance reserves $ 122,606 $ 122,606
Individual annuities 373,488 367,878
Pension products 1,911,284 1,922,602
Derivatives -- (2,423)
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk
and maturity and repayment and liquidity characteristics.
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance, annuity and pension
contracts that do not involve mortality or morbidity risks) are estimated using
discounted cash flow analyses or surrender values. Those contracts that are
deemed to have short-term guarantees have a carrying amount equal to the
estimated market value.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of derivative financial instruments are estimated using the
process described in Note 8.
53
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
14. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve ("IMR") and amortized into income over the remaining contractual life of
the security sold.
The tables shown below present changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
AVR IMR AVR IMR
--------- --------- --------- ---------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $ 53,911 $ 28,675 $ 42,099 $ 25,218
Net realized investment gains, net of tax 17,400 6,321 3,160 5,011
Amortization of net investment gains -- (1,166) -- (1,557)
Unrealized investment gains (losses) (2,340) -- 1,502 --
Required by formula (21,366) -- 7,150 3
--------- --------- --------- ---------
Balance, end of year $ 47,605 $ 33,830 $ 53,911 $ 28,675
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
15. FEDERAL INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $31,000,000, $19,264,000 and
$12,429,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
16. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE):
On December 22, 1997, the Company issued a $250,000,000 surplus note to Life
Holdco. This note has an interest rate of 8.625% and is due on or after November
6, 2027. On May 9, 1997, the Company issued a short-term note of $600,000,000 to
Life Holdco at an interest rate of 5.10%, which was extended at various interest
rates. This note was repaid on December 22, 1997.
The Company had issued and outstanding surplus notes to SLOC with an aggregate
carrying value of $335,000,000, during the period 1982 through January 16, 1996
at interest rates between 7.25% and 10%. The Company repaid all principal and
interest associated with these surplus notes on January 16, 1996.
On December 19, 1995 the Company issued surplus notes totaling $315,000,000 to
an affiliate, Sun Canada Financial Co., at interest rates between 5.75% and
7.25%. Of these notes, $157,500,000 will mature in the year 2007 and
$157,500,000 will mature in the year 2015. Interest on these notes is payable
semi-annually.
Principal and interest on surplus notes are payable only to the extent that the
Company meets specified requirements regarding free surplus exclusive of the
principal amount and accrued interest, if any, on these notes and with the
consent of the Delaware Insurance Commissioner. In addition, with regard to
surplus notes outstanding through January 16, 1996, subsequent to December 31,
1994 interest payments required
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
16. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED):
the consent of the Delaware Insurance Commissioner. Payment of principal and
interest on the notes issued in 1995 and in 1997 also requires the consents of
the Delaware Insurance Commissioner and Canadian Office of the Superintendent of
Financial Institutions.
The Company obtained the required consents and expensed $42,481,000, $23,061,000
and $31,813,000 for interest on surplus notes and notes payable for the years
ended December 31, 1997, 1996 and 1995, respectively.
17. MANAGEMENT AND SERVICE CONTRACTS:
The Company has an agreement with SLOC which provides that SLOC will furnish, as
requested, personnel as well as certain services and facilities on a
cost-reimbursement basis. Expenses under this agreement amounted to
approximately $15,997,000 in 1997, $20,192,000 in 1996, and $20,293,000 in 1995.
18. RISK-BASED CAPITAL:
Effective December 31, 1993 the NAIC adopted risk-based capital requirements for
life insurance companies. The risk-based capital requirements provide a method
for measuring the minimum acceptable amount of adjusted capital that a life
insurer should have, as determined under statutory accounting practices, taking
into account the risk characteristics of its investments and products. The
Company has met the minimum risk-based capital requirements at December 31, 1997
and 1996.
19. ACCOUNTING POLICIES AND PRINCIPLES:
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the Company's surplus. Changes in the net equity value of the common stock of
all other subsidiaries are directly reflected in the Company's Asset Valuation
Reserve. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
Other differences between statutory accounting practices and GAAP include the
following: statutory accounting practices do not recognize the following assets
or liabilities which are reflected under GAAP - deferred policy acquisition
costs, deferred federal income taxes and statutory non-admitted assets. Asset
Valuation Reserves and Interest Maintenance Reserves are established under
statutory accounting practices but not under GAAP. Methods for calculating real
estate depreciation and investment valuation allowances differ under statutory
accounting practices and GAAP. Actuarial assumptions and reserving methods
differ under statutory accounting practices and GAAP. Premiums for universal
life and investment type products are recognized as income for statutory
purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting principles generally accepted in Canada in the normal
course of business, the management of Sun Life Assurance Company of Canada
(U.S.) has determined that the cost of complying with Statement No. 120
"Accounting and Reporting by Mutual Insurance Enterprises and by Insurance
Enterprises for Certain Long
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
19. ACCOUNTING POLICIES AND PRINCIPLES (CONTINUED):
Duration Participating Contracts" exceed the benefits that the Company, or the
users of its financial statements, would experience. Consequently, the Company
has elected not to apply such standards in the preparation of these financial
statements.
56
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) as of December 31, 1997 and 1996, and the related statutory
statements of operations, changes in capital stock and surplus, and cash flow
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 19 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, and capital stock and
surplus of Sun Life Assurance Company of Canada (U.S.) as of December 31, 1997
and 1996, and the results of its operations and its cash flow for each of the
three years in the period ended December 31, 1997 on the basis of accounting
described in Notes 1 and 19.
However, because of the effects of the matter discussed in the second preceding
paragraph, in our opinion, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of Sun Life Assurance Company of Canada (U.S.) as of December
31, 1997 and 1996 or the results of its operations or its cash flow for each of
the three years in the period ended December 31, 1997.
As management has stated in Note 19, because the Company's management uses
financial information prepared in accordance with accounting principles
generally accepted in Canada in the normal course of business, the management of
Sun Life Assurance Company of Canada (U.S.) has determined that the cost of
complying with Statement No. 120 would exceed the benefits that the Company, or
the users of its financial statements, would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
financial statements.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 5, 1998
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
JUNE 30, 1998 AND DECEMBER 31, 1997 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,957,581 $ 1,910,699
Common stocks 119,697 117,229
Mortgage loans on real estate 587,297 684,035
Properties acquired in satisfaction of debt 20,338 22,475
Investment real estate 77,744 78,426
Policy loans 41,193 40,348
Cash and short-term investments 198,390 544,418
Other invested assets 60,757 55,716
Life insurance premiums and annuity considerations due and uncollected 8,240 9,203
Investment income due and accrued 39,882 39,279
Receivable from parent, subsidiaries and affiliates -- 28,825
Funds withheld on reinsurance assumed 1,046,131 982,653
Other assets 2,540 1,841
-------------- --------------
General account assets 4,159,790 4,515,147
Separate account assets
Unitized 10,877,558 9,068,021
Non-unitized 2,148,450 2,343,877
-------------- --------------
Total Admitted Assets $ 17,185,798 $ 15,927,045
-------------- --------------
-------------- --------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 2,246,492 $ 2,188,243
Supplementary contracts 2,234 2,247
Policy and contract claims 3,341 2,460
Provision for policyholders' dividends and coupons payable 35,500 32,500
Liability for premium and other deposit funds 1,169,266 1,450,705
Surrender values on cancelled policies 88 215
Interest maintenance reserve 36,877 33,830
Commissions to agents due or accrued 4,362 2,826
General expenses due or accrued 7,911 7,202
Transfers from Separate Accounts due or accrued (340,547) (284,078)
Taxes, licenses and fees due or accrued, excluding FIT 76 105
Federal income taxes due or accrued 58,642 58,073
Unearned investment income 27 34
Amounts withheld or retained by company as agent or trustee 496 47
Remittances and items not allocated 1,686 1,363
Borrowed money -- 110,142
Asset valuation reserve 46,224 47,605
Payable to parent, subsidiaries, and affiliates 31,879 --
Payable for securities 29,315 27,104
Other liabilities 8,973 1,959
-------------- --------------
General account liabilities 3,342,842 3,682,582
Separate account liabilities
Unitized 10,877,377 9,067,891
Non-unitized 2,148,450 2,343,877
-------------- --------------
Total liabilities 16,368,669 15,094,350
-------------- --------------
Common capital stock 5,900 5,900
-------------- --------------
Surplus notes 565,000 565,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 46,874 62,440
-------------- --------------
Surplus 811,229 826,795
-------------- --------------
Total common capital stock and surplus 817,129 832,695
-------------- --------------
Total liabilities, capital stock and surplus $ 17,185,798 $ 15,927,045
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
INCOME:
Premiums and annuity considerations $ 136,133 $ 118,687
Deposit-type funds 996,025 1,160,500
Considerations for supplementary
contracts without life
contingencies and dividend
accumulations 1,144 550
Net investment income 99,731 141,330
Amortization of interest maintenance
reserve 923 381
Net gain from operations from
Separate Accounts Statement 3 --
Other income 53,379 46,389
---------- ----------
Total 1,287,338 1,467,837
---------- ----------
BENEFITS AND EXPENSES:
Death benefits 15,833 6,370
Annuity benefits 73,077 70,927
Surrender benefits and other fund
withdrawals 988,182 893,648
Interest on policy or contract funds 262 155
Payments on supplementary contracts
without life contingencies and of
dividend accumulations 1,199 451
Increase in aggregate reserves for
life and accident and health
policies and contracts 58,249 65,687
Decrease in liability for premium
and other deposit funds (281,439) (226,178)
Increase (decrease) in reserve for
supplementary contracts without
life contingencies and for dividend
and coupon accumulations (14) 145
---------- ----------
Total 855,349 811,205
Commissions on premiums and annuity
considerations (direct business
only) 66,615 70,987
Commissions and expense allowances
on reinsurance assumed 8,226 8,356
General insurance expenses 29,784 18,883
Insurance taxes, licenses and fees,
excluding federal income taxes 3,730 4,477
Decrease in loading on and cost of
collection in excess of loading on
deferred and uncollected premiums (233) (230)
Net transfers to Separate Accounts 257,318 473,070
---------- ----------
Total 1,220,789 1,386,748
---------- ----------
Net gain from operations before
dividends to policyholders and FIT 66,549 81,089
Dividends to policyholders 19,908 16,113
---------- ----------
Net gain from operations after
dividends to policyholders and
before FIT 46,641 64,976
Federal income tax expense
(excluding tax on capital gains) 14,554 5,360
---------- ----------
Net gain from operations after
dividends to policyholders and FIT
and before realized capital gains 32,087 59,616
Net realized capital gains less
capital gains tax and transferred
to the IMR 3,115 2,019
---------- ----------
NET INCOME $ 35,202 $ 61,635
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
INCOME:
Premiums and annuity considerations $ 65,351 $ 58,733
Deposit-type funds 527,433 605,977
Considerations for supplementary
contracts without life
contingencies and dividend
accumulations 846 182
Net investment income 50,128 69,346
Amortization of interest maintenance
reserve 352 289
Net gain from operations from
Separate Accounts Statement 2 --
Other income 27,377 24,512
---------- ----------
Total 671,489 759,039
---------- ----------
BENEFITS AND EXPENSES:
Death benefits 7,890 3,859
Annuity benefits 38,039 36,058
Surrender benefits and other fund
withdrawals 531,101 488,832
Interest on policy or contract funds 195 112
Payments on supplementary contracts
without life contingencies and of
dividend accumulations 947 247
Increase in aggregate reserves for
life and accident and health
policies and contracts 29,179 35,725
Decrease in liability for premium
and other deposit funds (164,218) (136,251)
Decrease in reserve for
supplementary contracts without
life contingencies and for dividend
and coupon accumulations (82) (44)
---------- ----------
Total 443,051 428,538
Commissions on premiums and annuity
considerations (direct business
only) 36,837 36,979
Commissions and expense allowances
on reinsurance assumed 3,984 4,314
General insurance expenses 17,770 10,079
Insurance taxes, licenses and fees,
excluding federal income taxes 1,577 2,299
Decrease in loading on and cost of
collection in excess of loading on
deferred and uncollected premiums (183) (152)
Net transfers to Separate Accounts 133,924 238,345
---------- ----------
Total 636,960 720,402
---------- ----------
Net gain from operations before
dividends to policyholders and FIT 34,529 38,637
Dividends to policyholders 10,118 9,490
---------- ----------
Net gain from operations after
dividends to policyholders and
before FIT 24,411 29,147
Federal income tax expense
(excluding tax on capital gains) 6,435 5,765
---------- ----------
Net gain from operations after
dividends to policyholders and FIT
and before realized capital gains 17,976 23,382
Net realized capital gains less
capital gains tax and transferred
to the IMR 2,301 1,779
---------- ----------
NET INCOME $ 20,277 $ 25,161
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Capital and surplus, beginning of period $832,695 $567,143
-------- --------
Net income 35,202 61,635
Change in net unrealized capital gains (1,755) 248
Change in non-admitted assets and
related items (441) (31)
Change in asset valuation reserve 1,380 (3,248)
Other changes in surplus in Separate
Accounts Statement 48 3
Dividends to stockholders (50,000) --
-------- --------
Net change in capital and surplus for
the period (15,566) 58,607
-------- --------
Capital and surplus, end of period $817,129 $625,750
-------- --------
-------- --------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash Provided
Premiums, annuity considerations and deposit funds received $1,133,357 $1,288,821
Considerations for supplementary contracts and dividend accumulations
received 1,144 550
Net investment income received 125,061 159,309
Other income received 55,654 38,671
---------- ----------
Total receipts 1,315,216 1,487,351
---------- ----------
Benefits paid (other than dividends) 1,077,539 970,455
Insurance expenses and taxes paid (other than federal income and capital
gains taxes) 109,174 102,669
Net cash transfers to Separate Accounts 313,788 531,492
Dividends paid to policyholders 16,908 13,613
Federal income tax payments (excluding tax on capital gains) 13,264 4,727
Other--net 262 155
---------- ----------
Total payments 1,530,935 1,623,111
---------- ----------
Net cash from operations (215,719) (135,760)
---------- ----------
Proceeds from long-term investments sold, matured or repaid (after deducting
taxes on capital gains of $721,800 for 1998, $1,722,195 for 1997) 757,516 604,144
Other cash provided 67,071 618,395
---------- ----------
Total cash provided 824,587 1,222,539
---------- ----------
Cash Applied
Cost of long-term investments acquired 710,436 421,879
Other cash applied 244,460 75,505
---------- ----------
Total cash applied 954,896 497,384
---------- ----------
Net change in cash and short-term investments (346,028) 589,395
Cash and short-term investments
Beginning of period 544,418 90,059
---------- ----------
End of period $ 198,390 $ 679,454
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. GENERAL:
In management's opinion all adjustments, which include only normal recurring
adjustments, necessary for a fair presentation of the financial statements have
been made.
2. MANAGEMENT AND SERVICE CONTRACTS:
The Company has an agreement with its ultimate parent, Sun Life Assurance
Company of Canada ("SLOC") which provides that SLOC will furnish, as requested,
personnel as well as certain services and facilities on a cost-reimbursement
basis. Expenses under this agreement amounted to approximately $6,401,000 and
$10,685,000 for the three and six month periods in 1998 and $4,189,000 and
$7,352,000 for the same periods in 1997.
3. INVESTMENTS IN SUBSIDIARIES:
The following is combined unaudited summarized financial information of the
subsidiaries as of June 30, 1998 and 1997 for the six months then ended:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(IN 000'S)
<S> <C> <C>
Intangible assets $ -- $ 10,449
Other assets 1,264,155 1,527,141
Liabilities (1,144,451) (1,388,512)
----------- -----------
Total net assets $ 119,704 $ 149,078
----------- -----------
----------- -----------
Total revenue $ 126,152 $ 428,535
Operating expenses (124,389) (380,489)
Income tax expense (1,795) (21,641)
----------- -----------
Net income $ (32) $ 26,405
----------- -----------
----------- -----------
</TABLE>
The following is combined unaudited summarized financial information of the
subsidiaries as of June 30, 1998 and 1997 for the three months then ended:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
(IN 000'S)
<S> <C> <C>
Total revenue $ 63,685 $ 220,985
Operating expenses (64,453) (193,614)
Income tax expense (730) (12,082)
-------- ---------
Net income $ (1,498) $ 15,289
-------- ---------
-------- ---------
</TABLE>
In determining the equity in income of subsidiaries for the periods, the Company
has excluded expenses of approximately $868,000 and $1,973,000 for the three and
six month periods in 1998 and $9,167,000 and $16,624,000 for the same periods in
1997, representing payables to the Company in lieu of federal income taxes.
On December 24, 1997, the Company transferred all of its shares of Massachusetts
Financial Services Company ("MFS") to its parent Sun Life of Canada (U.S.)
Holdings, Inc. ("Life Holdco").
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT INCOME:
Net investment income consisted of:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
(IN 000'S)
<S> <C> <C>
Interest income from bonds $ 88,078 $ 91,026
Income from investment in common stocks of affiliates 3,000 22,641
Interest income from mortgage loans 27,885 41,216
Real estate investment income 7,881 6,270
Interest income from policy loans 1,392 1,496
Other 242 (90)
--------- ---------
Gross investment income 128,478 162,559
--------- ---------
Interest on surplus notes and borrowed money 23,271 15,648
Investment expenses 5,476 5,581
--------- ---------
$ 99,731 $ 141,330
--------- ---------
--------- ---------
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
(IN 000'S)
<S> <C> <C>
Interest income from bonds $ 41,555 $ 48,211
Income from investment in common stocks of affiliates 3,000 11,040
Interest income from mortgage loans 13,505 19,897
Real estate investment income 3,914 3,426
Interest income from policy loans 858 871
Other 433 (532)
--------- ---------
Gross investment income 63,265 82,913
--------- ---------
Interest on surplus notes and borrowed money 10,817 10,222
Investment expenses 2,320 3,345
--------- ---------
$ 50,128 $ 69,346
--------- ---------
--------- ---------
</TABLE>
64
<PAGE>
APPENDIX
EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
1. The MVA factor for all Guarantee Periods, except Floating Rate Guarantee
Periods, is:
<TABLE>
<S> <C>
N/12
1 + I
( ----- ) -1
1 + J
</TABLE>
These examples assume the following:
1) the Guarantee Amount was allocated to a five year Guarantee Period
with a Guaranteed Interest Rate of 6% or .06 (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
$11,910.16.
4) the interest earned in the current Account Year is $674.16.
5) no transfers or partial withdrawals affecting this Guarantee Amount
have been made.
6) withdrawal charges, if any, are calculated in the same manner
described in the Prospectus. (See "Withdrawal Charges".)
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 8% or .08
<TABLE>
<C> <S> <C> <C>
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
24/12
1 + .06
= ( ------ ) -1
1 + .08
= (.981)2 -1
= .963 -1
= - .037
</TABLE>
The value of the Guarantee Amount less interest credited to the Guarantee
Amount in the current Account Year is multiplied by the MVA factor to determine
the MVA
($11,910.16 - $674.16) X (-.037) = -$415.73
-$415.73 represents the MVA that will be deducted from the value of the
Guarantee Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA would
be ($2,000.00 - $674.16) X (-.037) = -$49.06. -$49.06 represents the MVA that
will be deducted from the partial withdrawal amount before the deduction of any
withdrawal charge.
<PAGE>
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of surrender, the current rate (J) is 5% or .05.
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)2 -1
= 1.019 -1
= .019
The value of the Guarantee Amount less interested credited to the Guarantee
Amount in the current Account Year is multiplied by the MVA factor to determine
the MVA
($11,910.16 - $674.16) X .019 = $213.48
$213.48 represents the MVA that would be added to the value of the Guarantee
Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA would
be ($2,000.00 - $674.16) X .019 = $25.19.
$25.19 represents the MVA that would be added to the value of the partial
withdrawal amount before the deduction of any withdrawal charge.
2. The MVA factor for Floating Rate Guarantee Periods is calculated
similarly applying the following formula:
[(1 + F - X)/(1 + F - Y + b)]N/12 - 1
where,
F is the Floating Rate currently being used in determining the Floating Rate
Guarantee Period's Guaranteed Interest Rate;
X is the Floating Rate Spread in effect during the current Floating Rate
Guarantee Period,
Y is the Floating Rate Spread, as of the date of the application of the MVA,
for current allocations to new Floating Rate Guarantee Periods equal to the
balance of the current Floating Rate Guarantee Period, rounded up to the next
higher number of complete years,
b is a factor which the Company will determine for a Contract and which will
not exceed 0.25%, and
N is the number of complete months remaining in the current Floating Rate
Guarantee Period.
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TELEPHONE:
Toll Free (888) 388-8748
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
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
FUTFIX1 10/98
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not Applicable
Item 15. INDEMNIFICATION
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 or 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 expense 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.
(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 int
he performance of his durt 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 Chanceery 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 to 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 corporations 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 be contract, vote of 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
<PAGE>
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 by subject by reason of wilful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.
Item 16. EXHIBITS
(1) Underwriting Agreement *
(3) (a) Certificate of Incorporation *
(b) By-laws *
(4) (a) Single Payment Deferred Fixed Individual Annuity Contract **
(b) Single Payment Deferred Fixed Group Annuity Contract **
(c) Certificate to be used in connection with Contract filed as
Exhibit 4(b) **
(5) Opinion re Legalilty ***
(23) Independent Auditor's Consent **
(24) Powers of Attorney **
* Incorporated by reference from Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form S-2, File
No. 333-45923.
** Filed herewith.
*** To be filed by amendment.
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;
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.
<PAGE>
(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.
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 indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the 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 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.
Item 18. FINANCIAL STATEMENTS AND SCHEDULES
The following Financial Statements are included in the Registration Statement:
Included in Part I:
Financial Statements of the Depositor:
1. Statutory Statements of Admitted Assets, Liabilities and Capital
Stock and Surplus, Period Ended June 30, 1998 and Years Ended
December 31, 1997 and 1996;
2. Statutory Statements of Operations, Period Ended June 30, 1998
and Years Ended December 31, 1997, 1996 and 1995;
3. Statutory Statements of Changes in Capital Stock and Surplus,
Period Ended June 30, 1998 and Years Ended December 31, 1997,
1996 and 1995;
4. Statutory Statements of Cash Flow, Period Ended June 30, 1998
and Years Ended December 31, 1997, 1996 and 1995;
5. Notes to Statutory Financial Statements; and
6. Independent Auditors' Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts on the 28th
day of August, 1998.
Sun Life Assurance Company of Canada (U.S.)
(Registrant)
By:* /s/ DONALD A. STEWART
-----------------------
Donald A. Stewart
Chairman
Attest:/s/ MARGARET HANKARD
--------------------
Margaret Hankard
Senior Associate Counsel
Pursuant to the requirements of the Securities Act of 1933, this
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>
* /s/ DONALD A. STEWART Chairman and Director August 28, 1998
- ------------------------- (Principal Executive Officer)
* /s/ ROBERT P. VROLYK Vice President and Actuary August 28, 1998
- ------------------------- (Principal Financial and
Robert P. Vrolyk Accounting Officer)
* /s/ RICHARD B. BAILEY Director August 28, 1998
- -------------------------
Richard B. Bailey
* /s/ M. COLYER CRUM Director August 28, 1998
- -------------------------
M. Colyer Crum
* /s/ DAVID D. HORN Director August 28, 1998
- -------------------------
David D. Horn
* /s/ JOHN S. LANE Director August 28, 1998
- -------------------------
John S. Lane
Director
- -------------------------
Angus A. MacNaughton
</TABLE>
- ------------
* By Margaret Hankard pursuant to Power of Attorney filed herewith.
<PAGE>
<TABLE>
<S> <C> <C>
Director
- -------------------------
John D. McNeil
* /s/ C. JAMES PRIEUR President and Director August 28, 1998
- -------------------------
C. James Prieur
* /s/ S. CAESAR RABOY Senior Vice President August 28, 1998
- ------------------------- and Deputy General Manager and
S. Caesar Raboy Director
</TABLE>
- ------------
* By Margaret Hankard pursuant to Power of Attorney filed herewith.
<PAGE>
[LOGO]
Sun Life Assurance Company of Canada (U.S.)
<TABLE>
<S> <C> <C>
Executive Office: Home Office: Annuity Service Mailing Address:
[ONE SUN LIFE EXECUTIVE PARK [1209 ORANGE STREET SUN LIFE OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS 02481] WILMINGTON, DELAWARE 19801] [RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117]
</TABLE>
Sun Life Assurance Company of Canada (U.S.)(the "Company") will pay an
annuity commencing on the Annuity Commencement Date, by applying the adjusted
value of the Accumulation Account in accordance with the settlement provisions.
If the Owner dies while this Contract is in effect and before the Annuity
Commencement Date, the Company will, subject to the provisions set forth herein,
pay a death benefit to the Beneficiary upon receipt of Due Proof of Death of the
Owner. Under certain circumstances, if the Owner dies prior to the Annuity
Commencement Date, a distribution is required by law.
All payments will be made to the persons and in the manner set forth in
this Contract. Provisions and endorsements printed or written by the Company on
the following pages form part of this Contract.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Issue Date.
C. James Prieur Margaret Sears Mead
President Secretary
SINGLE PAYMENT DEFERRED FIXED INDIVIDUAL ANNUITY CONTRACT
NONPARTICIPATING
PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO THE OWNER. THE MARKET VALUE ADJUSTMENT APPLIES
TO WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY; HOWEVER,
SUCH PAYMENTS MADE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD AND
PAYMENT OF THE FREE WITHDRAWAL AMOUNT ARE NOT SUBJECT TO A MARKET VALUE
ADJUSTMENT.
RIGHT TO RETURN CONTRACT. PLEASE READ THIS CONTRACT. If not satisfied with it,
the Owner may, within 10 days after its receipt, return it by mailing it to the
Annuity Service Mailing Address shown above. Immediately upon receipt of this
Contract by the Company, the Contract will be deemed void as though it had never
been applied for, and the Accumulation Account Value on the date this Contract
is received by the Company will be refunded to the Owner.
IMPORTANT NOTICE:
It is not necessary to employ any person to collect any payment or benefit
provided by this Contract. When you require assistance, write directly to the
Company at the Annuity Service Mailing Address shown above.
This Contract contains many benefits. In your own best interest you should
consult the Company if anyone advises you to surrender this Contract or to
replace it with a new contract.
FUT-INF-CONT-98-1 1
<PAGE>
TABLE OF CONTENTS
CONTRACT SPECIFICATIONS PAGE
DEFINITIONS
PURCHASE PAYMENT
CONTRACT VALUES DURING ACCUMULATION PERIOD
Accumulation Account
Guarantee Periods
Guaranteed Interest Rates
Transfer Privilege
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
Cash Withdrawals
Withdrawal Charges
Market Value Adjustment
DEATH BENEFIT
Death Benefit Provided by this Contract
Election and Effective Date of Election
Payment of Death Benefit
Amount of Death Benefit
SETTLEMENT PROVISIONS
General
Election and Effective Date of Election
Determination of Amount
Effect of Annuity Commencement Date on Accumulation Account
Annuity Commencement Date
Fixed Annuity Payments
Annuity Options
Amounts Payable on Death of Payee
Annuity Payment Rates
OWNERSHIP PROVISIONS
Exercise of Contract Rights
Periodic Reports
Designation and Change of Beneficiary
GENERAL PROVISIONS
Age and Sex Misstatement
This Contract
Incontestability
Modification
Payments by the Company
Proof of Age
Proof of Survival
FUT-INF-CONT-98-1 2
<PAGE>
CONTRACT SPECIFICATIONS PAGE
<TABLE>
<S> <C>
Contract Number [79-7900-123456]
Owner [John J. Doe]
Annuitant [Mary Doe]
Age of Owner [35]
Age of Annuitant [35]
Issue Date [June 21, 1998]
Account Anniversary Date [June 30, 1999]
Purchase Payment Amount [$100,000]
Minimum Purchase Payment Amount [$10,000]
Maximum Purchase Payment Amount [$1,000,000]
(without prior approval of the Company)
Beneficiary (Relationship) [Susan J. Doe (Daughter)]
Annuity Commencement Date [July 1, 2050]
Annuity Option [Deferred]
Minimum Annuity Purchase Amount [$10,000]
Minimum Annuity Payment Amount [$50]
[Front-end Sales Load [$0]
</TABLE>
<TABLE>
<CAPTION>
[Number of Complete Withdrawal Charge
Withdrawal Charges Account Years Percentage
- ------------------ ------------- ----------
<S> <C> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 or More 0%]]
</TABLE>
<TABLE>
<S> <C>
Initial Guarantee Period [1-10 Year]
Renewal Guarantee Period(s) [1-10 Year]
Floating Rate [three month London Interbank Offered Rate ("LIBOR"), or 90 Day T-Bill ("T-Bill")
Rate]
Guaranteed Interest Rate [3 Year-4.5%, or LIBOR minus 1.25%, or T- Bill minus .60%]
Minimum Average Interest Rate [3%]
Market Value Adjustment ("b" factor) [.25% for any Guarantee Period exceeding 7 years in length which was in effect on
the Issue Date and also for any Floating Rate Guarantee Period; 0% for all other
Guarantee Periods] Maximum 0.25%
Maximum Number of Transfers Per Account Year [1]
Amount of Death Benefit [[If the Owner was age 85 or less on the Issue Date, the amount of the Death
Benefit is the greater of:
(1) the Accumulation Account Value on the Death Benefit Date; or
(2) the amount which would have been payable in the event of a full
surrender of the Contract on the Death Benefit Date
If (2) is operative, the Accumulation Account Value will be adjusted by the
difference between (2) and (1).]
or
[If the Owner was age 86 or older on the Issue Date, the Death Benefit will
equal the amount which would have been payable in the event of a full surrender
of the Contract on the Death Benefit Date, and the Accumulation Account Value
will be adjusted to equal this amount.]]
</TABLE>
FUT-INF-CONT-98-1 3
<PAGE>
DEFINITIONS
Any reference in this Contract to "RECEIPT" and "RECEIVED" by the Company means
receipt at the Company's Annuity Service Mailing Address shown on the first page
of this Contract.
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 Issue Date
through the last day of the calendar month in which the Purchase Payment is
received. All Account Years and Account Anniversaries thereafter shall be 12
month periods based upon the first day of the calendar month that follows the
calendar month during which the Issue Date occurred. For example, if the Issue
Date occurs in March, the first Account Year will be determined from the Issue
Date but will end on the last day of March in the following year; all subsequent
Account Years and all Account Anniversaries will be measured from April 1.
ACCUMULATION ACCOUNT: An account to which the Net Purchase Payment and interest
are credited.
ACCUMULATION ACCOUNT VALUE: The value of the Accumulation Account on any date.
ACCUMULATION PERIOD: The period before the Annuity Commencement Date and during
the lifetime of the Owner.
ANNUITANT: The person (or persons) named on the Contract Specifications Page on
whose life (or lives) the first annuity payment is to be made. If the Annuitant
dies prior to the Annuity Commencement Date, the Co- Annuitant, if any, will
become the Annuitant. If the Co-Annuitant dies or if no Co-Annuitant is named,
the Owner becomes the Annuitant upon the Annuitant's death prior to the Annuity
Commencement Date.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment is to be
made.
*ANNUITY OPTION: The method for making annuity payments.
APPLICATION: The document, if any, signed by the Owner that serves as his or her
application for this Contract, a copy of which may be attached to and made a
part of this Contract.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit set forth in this Contract, and,
for a Non-Qualified Contract, who, in the event of the Owner's death, is the
designated Beneficiary for purposes of Section 72(s) of the Code. After the
Annuity Commencement Date, the Beneficiary is the person or entity having the
right, upon the death of the Payee, to receive any remaining payments due under
the Annuity Option elected.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
DEATH BENEFIT DATE: The date on which the Company receives Due Proof of Death.
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, and/or any other proof of death satisfactory to the
Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ANNUITY: An annuity with payments that do not vary as to dollar amount.
FLOATING RATE: The indexed rate set forth on the Contract Specifications Page,
as such rate is published in The Wall Street Journal two business days prior to
the Floating Rate Reset Date. In the event the Floating Rate is no longer
published in The Wall Street Journal, the Company will use an alternate method
of determining the indexed rate.
FLOATING RATE GUARANTEE PERIOD: A Guarantee Period for which the Guaranteed
Interest Rate changes on each Floating Rate Reset Date.
FUT-INF-CONT-98-1 4
<PAGE>
FLOATING RATE RESET DATE: The first Floating Rate Reset Date shall be the first
business day of the first calendar quarter that begins after a Floating Rate
Guarantee Period is elected. Thereafter, a new Floating Rate Reset Date will
occur on the first business day of each subsequent calendar quarter until the
Expiration Date of the particular Floating Rate Guarantee Period.
FLOATING RATE SPREAD: The amount deducted from the Floating Rate to determine
the Guaranteed Interest Rate in effect initially and on each Floating Rate Reset
Date during a Floating Rate Guarantee Period. The Floating Rate Spread shall
remain constant throughout a Floating Rate Guarantee Period.
FRONT-END SALES LOAD: A sales charge, if applicable, which the Company may
deduct from the Purchase Payment, in such amount as set forth on the Contract
Specifications Page.
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during a particular Guarantee Period.
ISSUE DATE: The date on which the Contract becomes effective.
MINIMUM AVERAGE INTEREST RATE: The minimum rate of interest that may be credited
by the Company on a compound annual basis, as determined at the end of a
particular Guarantee Period, or upon surrender of this Contract, as applicable.
NET PURCHASE PAYMENT: The portion of the Purchase Payment remaining after the
deduction of any applicable Front-End Sales Load or premium tax or similar tax.
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, 408, 408A, or any other applicable Section of the Code.
*OWNER: The person named on the Contract Specifications Page who is entitled to
exercise all rights and privileges of ownership under this Contract. This
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 if it is a
Non-Qualified Contract. If this Contract is a Qualified Contract (other than a
Section 403 contract), the Owner must be a trustee or custodian of a retirement
plan which meets the requirements of Section 401, Section 408(c), Section
408(k), Section 408A, or any other applicable Section of the Code, and the
Qualified Plan Endorsement must be attached and made a part of the Contract.
PAYEE: A recipient of payments relating to this Contract.
PURCHASE PAYMENT: The amount paid to the Company as consideration for the
benefits provided by this Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan which
may receive favorable federal income tax treatment under Sections 401, 403, 408,
408A, or any other applicable Section of the Code.
- ------------
*As specified on the Contract Specifications Page, unless changed.
FUT-INF-CONT-98-1 5
<PAGE>
PURCHASE PAYMENT
The Purchase Payment is to be paid to the Company at its Annuity Service
Mailing Address. The Company generally will not accept a Purchase Payment for
any Contract which is less than the Minimum Purchase Payment Amount specified on
the Contract Specifications Page. In addition, the prior approval of the Company
is required before it will accept a Purchase Payment which would exceed the
Maximum Purchase Payment Amount specified on the Contract Specifications Page.
The Net Purchase Payment will, upon receipt and acceptance by the
Company, be credited to the Accumulation Account and allocated to the
Guarantee Period specified in the Application.
CONTRACT VALUES DURING ACCUMULATION PERIOD
ACCUMULATION ACCOUNT
The Company will establish an Accumulation Account for this Contract and
will maintain the Accumulation Account during the Accumulation Period. The
Accumulation Account shall be continued automatically in full force during the
lifetime of the Owner until the Annuity Commencement Date or until the Contract
is surrendered.
GUARANTEE PERIODS
The Owner elects one Guarantee Period from among those made available from
time to time by the Company. The period elected will determine the Guaranteed
Interest Rate. Amounts allocated to a particular Guarantee Period, less any
applicable Front-End Sales Load, premium taxes or similar taxes and any amounts
subsequently withdrawn, will earn interest at the Guaranteed Interest Rate in
effect during the Guarantee Period. The Initial Guarantee Period begins on the
date the Net Purchase Payment is applied. Except for Floating Rate Guarantee
Periods, the Initial Guarantee Period ends when the number of calendar years in
the Guarantee Period elected (measured from the end of the calendar month in
which the Net Purchase Payment was applied) has elapsed. For Floating Rate
Guarantee Periods, the Initial Guarantee Period ends when the number of calendar
years in the Floating Rate Guarantee Period elected (measured from the end of
the calendar quarter in which the Net Purchase Payment was applied) has elapsed.
The last day of a Guarantee Period is the Expiration Date. Subsequent Guarantee
Periods begin on the first day following the Expiration Date. For Floating Rate
Guarantee Periods, the Expiration Date will always occur at the end of a
calendar quarter. For other Guarantee Periods, the Expiration Date will always
occur at the end of a calendar month.
The Company will mail written notice to the Owner at least 45 and no more
than 75 days prior to the Expiration Date of a Guarantee Period. A new Guarantee
Period of the same duration as the previous Guarantee Period will commence
automatically at the end of the previous Guarantee Period unless the Company
receives, in writing (or other manner acceptable by the Company) prior to the
end of such Guarantee Period, an election by the Owner of a different Guarantee
Period from among those being offered by the Company at such time.
The Company reserves the right to add or remove Guarantee Periods available
at any time for election by the Owner.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed Interest
Rate for each Guarantee Period offered by the Company. These rates will be
guaranteed for the duration of the respective Guarantee Periods. Interest is
credited to the Accumulation Account at an annual effective rate of interest.
For a Floating Rate Guarantee Period, the Guaranteed Interest Rate may
change on each Floating Rate Reset Date; however, the Floating Rate Spread used
to compute the Guaranteed Interest Rate will remain constant throughout such
Floating Rate Guarantee Period. The Company will determine a new Floating Rate
Spread at the beginning of each Floating Rate Guarantee Period.
On any Expiration Date, and on any date on which the Contract is
surrendered in full, the Accumulation Account Value (before the application of
any applicable withdrawal charge and/or market value adjustment) will not be
less than the Purchase Payment, less any previous withdrawals, accumulated at an
effective annual rate of interest equal to the Minimum Average Interest Rate set
forth on the Contract Specifications Page. Subject to the above guarantees, the
Guaranteed Interest Rate credited on a particular day to a Floating Rate
Guarantee Period may be less than the Minimum Average Interest Rate set forth on
the Contract Specifications Page.
FUT-INF-CONT-98-1 6
<PAGE>
TRANSFER PRIVILEGE
At any time during the Accumulation Period, the Owner may transfer the
entire Accumulation Account Value to a new Guarantee Period, subject to the
conditions set forth below. No partial transfers are permitted. Except as
described below, a transfer accepted by the Company generally will be effective
on the date the request for transfer is received by the Company if such request
is received in good order by 4:00 p.m. eastern time on any date on which the
Company is open for business.
A transfer will result in a new Guarantee Period for the amount being
transferred. Any such new Guarantee Period will begin on the effective date of
the transfer and end on the new Expiration Date. The amount transferred into
such Guarantee Period will earn interest at the Guaranteed Interest Rate
declared by the Company for that Guarantee Period as of the effective date of
the transfer.
The maximum number of transfers per Account Year is set forth on the
Contract Specifications Page. In addition, a minimum of 30 calendar days must
elapse between transfers. No transfers are allowed within 30 days after the
Issue Date. Transfers will be subject to the market value adjustment described
below unless the transfer is effective within 30 days prior to an Expiration
Date. The Company reserves the right in its sole discretion to delay the
effective date of any transfer. The Company also reserves the right in its sole
discretion to refuse or delay all transfer requests initiated on behalf of an
Owner by any third party authorized by the Owner to make such transfer requests.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date, the Owner may elect to
receive a cash withdrawal payment from the Company by filing with the Company at
its Annuity Service Mailing Address, a written election in such form as the
Company may require. Any such election shall specify the amount of the
withdrawal and will be effective on the date that it is received by the Company.
The Company reserves the right to defer the payment of amounts withdrawn for a
period not to exceed six months from the date written request for such
withdrawal is received by the Company.
The Owner may request a full surrender or a partial withdrawal. A full
surrender will result in a cash withdrawal payment equal to the Accumulation
Account Value as of the date the request is received by the Company, plus or
minus any applicable market value adjustment, and less any applicable withdrawal
charge. Upon a full surrender, this Contract will be canceled and no further
benefits will be payable hereunder. A partial withdrawal (I.E., a payment of an
amount less than that paid under a full surrender) will reduce the Accumulation
Account Value by the dollar amount of the cash withdrawal payment, plus or minus
any applicable market value adjustment and plus any applicable withdrawal
charge. Any request for a partial withdrawal which would cause the Accumulation
Account Value to be less than $1,000 will be treated as a request for a full
surrender.
All cash withdrawals, except those effective within 30 days prior to the
Expiration Date of a Guarantee Period or the withdrawal of the current "free
withdrawal amount," will be subject to the market value adjustment described
below.
WITHDRAWAL CHARGES
If a cash withdrawal is made, the Company may assess a withdrawal charge,
as set forth on the Contract Specifications Page. The amount of any withdrawal
charge is determined as follows:
Free withdrawal amount: The free withdrawal amount in any Account Year
is equal to the greater of 10% of that Account Year's beginning
Accumulation Account Value, or any amounts withdrawn to comply with
any mandatory distribution requirements applicable to Qualified
Contracts under federal law.
Amount subject to withdrawal charge: For a partial withdrawal or full
surrender, the amount subject to a withdrawal charge is the amount of
the partial withdrawal or full surrender less any of the current
Account Year's remaining free withdrawal amount.
FUT-INF-CONT-98-1 7
<PAGE>
Withdrawal charge percentage: The withdrawal charge percentage varies
according to the number of complete Account Years between the Account
Year in which the Net Purchase Payment was credited to the
Accumulation Account and the Account Year in which it is withdrawn.
Amount of withdrawal charge: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge by
the applicable withdrawal charge percentage set forth on the Contract
Specifications Page.
No withdrawal charge is imposed upon amounts applied to purchase an
annuity, except that period certain annuities of less than ten years will incur
a withdrawal charge.
No withdrawal charge is imposed on amounts withdrawn on or after the later
of (a) the end of the Initial Guarantee Period shown on the Contract
Specifications Page or (b) the end of the third Account Year.
MARKET VALUE ADJUSTMENT
Any cash withdrawal (which for purposes of this section includes transfers
and amounts applied to purchase an annuity), other than a withdrawal effective
within 30 days prior to the Expiration Date of a Guarantee Period, or the
withdrawal of the "free withdrawal amount," will be subject to a market value
adjustment.
The market value adjustment will reflect the relationship between the
current interest rate (as described in the formula below) for the 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.
The market value adjustment will be determined by multiplying the amount
being withdrawn before deduction of any applicable withdrawal charge by the
market value adjustment factor.
The market value adjustment factor for all Guarantee Periods except
Floating Rate Guarantee Periods is:
N/12
[(1 + I)/(1 + J + B)] -1
where,
I is the Guaranteed Interest Rate currently being credited to the
Accumulation Account,
J is the Guaranteed Interest Rate declared by the Company, as of the date
of the application of the market value adjustment, for current allocations to a
Guarantee Period equal to the balance of the current Guarantee Period, rounded
up to the next higher number of complete years,
b is a factor which the Company will determine for this Contract and which
is set forth on the Contract Specifications Page and which will not exceed .25%,
and
N is the number of complete months remaining in the current Guarantee
Period.
In the determination of J, if the Company currently does not offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available. If
no Guarantee Periods are available to perform a linear interpolation, the
Company will use an equitable method and will inform the appropriate state
regulatory authority of such method.
The market value adjustment factor for each Floating Rate Guarantee Period
is:
N/12
[(1 + F - X)/(1 + F - Y + B)] -1
where,
F is the Floating Rate currently being used in determining the Floating
Rate Guarantee Period's Guaranteed Interest Rate,
X is the Floating Rate Spread in effect during the current Floating Rate
Guarantee Period,
FUT-INF-CONT-98-1 8
<PAGE>
Y is the Floating Rate Spread, as of the date of the application of the
market value adjustment, for current allocations to new Floating Rate
Guarantee Periods equal to the balance of the current Floating Rate
Guarantee Period, rounded up to the next higher number of complete years,
b is a factor which the Company will determine for this Contract and which
is set forth on the Contract Specifications Page and which will not exceed
.25%, and
N is the number of complete months remaining in the current Floating Rate
Guarantee Period.
In the determination of Y, if the Company currently does not offer the
applicable Floating Rate Guarantee Period, then the rate will be determined by
using the next longer Floating Rate Guarantee Period that is available. If the
Company currently does not offer a longer Floating Rate Guarantee Period, then
the Company will determine, in an equitable manner determined in its sole
discretion, the value of Y.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
If the Owner dies while this Contract is in effect and before the Annuity
Commencement Date, the Company will pay, upon receipt of Due Proof of Death of
the Owner, a death benefit to the Beneficiary in accordance with this death
benefit provision. If the Owner is not a natural person, the Annuitant is
considered the "Owner" for purposes of this provision.
If an Owner of a Non-Qualified Contract dies prior to the Annuity
Commencement Date, the death benefit must be distributed to the "designated
Beneficiary" (as defined below) either (1) as a lump sum within five years after
the date of death of the Owner, or (2) as an annuity over some period not
greater than the life or expected life of the designated Beneficiary, with
annuity payments beginning within one year after the date of death of the Owner.
For this purpose (and for purposes of Section 72(s) of the Code), the person
named as the Beneficiary shall be considered the designated Beneficiary, and if
no person then living has been so named, then the Annuitant shall automatically
be the designated Beneficiary. If the designated Beneficiary is the surviving
spouse of the deceased Owner, the spouse can elect to continue the Contract in
the spouse's own name as Owner, in which case the mandatory distribution
requirements will apply upon the death of the spouse. As designated Beneficiary,
the surviving spouse may also choose to have the Accumulation Account
distributed as an annuity over some period not greater than his or her life or
expected life, with annuity payments beginning within one year after the date of
death of the Owner. If there is no designated Beneficiary living on the date of
death of the Owner, the Company will pay, upon receipt of Due Proof of Death of
the Owner and/or the Beneficiary, if applicable, the death benefit in one sum to
the estate of the deceased Owner. If the Owner dies on or after the Annuity
Commencement Date, no death benefit will be payable under the Contract, except
as may be provided under the form of annuity elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Owner and prior to the Annuity Commencement
Date, the Owner may elect to have the death benefit applied under one or more of
the Annuity Options in accordance with the settlement provisions herein to
effect a Fixed Annuity for the Beneficiary as Payee after the death of the
Owner, provided that the Annuity Option chosen complies with Section 72(s) of
the Internal Revenue Code of 1986, as amended. This election may be made or
subsequently revoked by filing with the Company at its Annuity Service Mailing
Address, a written election or revocation of an election in such form as the
Company may require. Any election or revocation of an election of a method of
settlement of the death benefit by the Owner will become effective on the date
it is received by the Company. For the purposes of the "Payment of Death
Benefit" section below, any election by the Owner of a method of settlement of
the death benefit that is in effect on the date of the Owner's death will be
deemed effective on the date Due Proof of Death of the Owner is received by the
Company.
If no election of a method of settlement of the death benefit by the Owner
is in effect on the date of death of the Owner, the Beneficiary may elect (a) to
receive the death benefit in the form of a cash payment, in which event this
Contract will be canceled, or (b) to have the death benefit applied under one or
more of the Annuity Options in accordance with the settlement provisions, to
effect a Fixed Annuity for the Beneficiary as Payee. In no event shall any
method of settlement be exercised which would violate the mandatory distribution
requirements of Section 72(s) of the Code. Additional options available if the
designated Beneficiary is the surviving spouse are described above under "Death
Benefit Provided by the Contract."
FUT-INF-CONT-98-1 9
<PAGE>
The election of a method of settlement may be made by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any written 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
Death of the Owner is received by the Company. If a written election of a method
of settlement by the Beneficiary is not received by the Company within 60 days
following the date Due Proof of Death of the Owner is received by the Company,
the Company will make a cash payment to the Beneficiary as of the last day of
such 60 day period and this Contract will be canceled upon such payment.
PAYMENT OF DEATH BENEFIT
If the Owner has so instructed, the Company will pay the death benefit in
cash. If the Owner has elected settlement under one or more of the Annuity
Options, annuity payments will begin on the first day of the calendar month
following the Death Benefit Date and the Accumulation Account will be maintained
in effect until the first annuity payment is made.
AMOUNT OF DEATH BENEFIT
The amount of the death benefit is determined as of the Death Benefit Date
and is calculated as shown on the Certificate Specifications Page.
SETTLEMENT PROVISIONS
GENERAL
On the Annuity Commencement Date, the adjusted value of the Accumulation
Account, as determined in accordance with the "Determination of Amount"
provision below, will be applied, as specified by the Owner, under one or more
of the Annuity Options provided in this Contract or under such other settlement
option as may be agreed to by the Company. However, if the amount to be applied
under any Annuity Option is less than the Minimum Annuity Purchase Amount set
forth on the Contract Specifications Page, or if the first annuity payment
payable in accordance with such option is less than the Minimum Annuity Payment
Amount also set forth on the Contract Specifications Page, the Company will pay
the amount to be applied in a single payment to the Payee and this Contract will
terminate.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the "Cash Withdrawals"
provision of this Contract.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the Owner's lifetime and prior to the Annuity Commencement Date, the
Owner may elect to have the adjusted value of the Accumulation Account applied
on the Annuity Commencement Date under one or more of the Annuity Options
provided in this Contract. If more than one person is named as Annuitant, due to
the designation of a Co-Annuitant, the Owner may choose to name one of such
persons to be the sole Annuitant as of the Annuity Commencement Date.
The Owner may also change any election; however, any election or change of
election must be effective at least 30 days prior to the Annuity Commencement
Date. Such election or change of election may be made by filing with the Company
at its Annuity Service Mailing Address, a written election or change of election
in such form as the Company may require. Any such election or change of election
will become effective on the date it is received by the Company. If no such
election is in effect on the 30th day prior to the Annuity Commencement Date,
the adjusted value of the Accumulation Account will be applied under Annuity
Option B, for a life annuity with 120 monthly payments certain. 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.
The Annuity Options in this Contract may also be elected as provided in the
"Death Benefit" section of this Contract.
DETERMINATION OF AMOUNT
The amount applied to provide a Fixed Annuity is the Accumulation Account
Value on the date immediately preceding the Annuity Commencement Date, plus or
minus any applicable market value adjustment and minus any applicable premium
tax or similar tax. Amounts applied to provide period certain annuities of less
than 10 years will
FUT-INF-CONT-98-1 10
<PAGE>
also be reduced by any applicable withdrawal charges.
EFFECT OF ANNUITY COMMENCEMENT DATE ON ACCUMULATION ACCOUNT
The Accumulation Account will be canceled on the Annuity Commencement Date.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is set forth on the Contract Specifications
Page. If no such date has been specified, the Annuity Commencement Date will be
the first day of the first month following the Annuitant's 90th birthday. This
date may be changed from time to time by the Owner, provided that each change is
effective 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 effective date of the change; (2) the first day of a month; and (3)
not later than the first day of the first month following the Annuitant's 90th
birthday unless, in the case of a Qualified Contract, otherwise restricted by
the particular retirement plan or by applicable law. If more than one person is
named as Annuitant, due to the designation of a Co-Annuitant, the Annuity
Commencement Date will be no later than the first day of the first month
following the 90th birthday of the youngest of those persons so named. Any
change of the Annuity Commencement Date may be made by filing with the Company
at its Annuity Service Mailing Address, a written designation of a new Annuity
Commencement Date in such form as the Company may require. Any such change will
become effective on the date the designation is received by the Company.
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the "Death Benefit" section of this Contract.
FIXED ANNUITY PAYMENTS
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown in the tables below, which are
based on the Minimum Average Interest Rate set forth on the Contract
Specifications Page 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.
ANNUITY OPTIONS
Annuity Option A. Life Annuity: Monthly payments during the lifetime of the
Payee. These payments will terminate at the death of the Payee, without any
provision for continuation of payments 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 sixty (60), one hundred twenty (120), one hundred eighty (180) or two
hundred forty (240) months certain as elected.
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, monthly
payments will be determined using the percentage (chosen at the time of the
election of this option) 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 any specified period of time (at least five (5) years but not
exceeding thirty (30) years) as elected.
AMOUNTS PAYABLE ON DEATH OF PAYEE
In the event of the death of the Payee on or after the Annuity Commencement
Date, the Company will pay any remaining payments under any Annuity Option then
in effect to the Payee's designated Beneficiary, if then living, as they become
due. If there is no such designated Beneficiary entitled to any remaining
payments under an Annuity Option, the Company will pay the discounted value of
such remaining payments, in one sum, to the deceased Payee's estate. Any
Beneficiary who becomes entitled to any such remaining payments may elect to
receive the discounted value of the remaining payments in one sum. In the event
of the death of a Beneficiary who has become entitled to receive any remaining
payments under an Annuity Option, the Company will pay the discounted value of
such remaining payments, in one sum to the deceased Beneficiary's estate. All
payments made in one lump sum by the Company, as provided in this paragraph, are
made in lieu of paying any remaining payments under the Annuity Option then in
effect.
FUT-INF-CONT-98-1 11
<PAGE>
If the Payee dies on or after the Annuity Commencement Date and before the
entire adjusted value of the Accumulation Account that was applied under the
applicable Annuity Option has been distributed, the remaining portion of such
value, if any, must be distributed at least as rapidly as the method of
distribution then in effect.
ANNUITY PAYMENT RATES
The annuity payment rate tables below show, for each $1,000 applied, the
dollar amount of the monthly Fixed Annuity payment, when the payment is based on
the Minimum Average Interest Rate set forth on the Contract Specifications Page.
The mortality table used in determining the annuity payment rates for
Annuity Options A, B and C is the 1983 Individual Annuitant Mortality Table A.
In using this mortality table, ages of Annuitants will be reduced by one year
for Annuity Commencement Dates occurring during the 1990s, reduced by two years
for Annuity Commencement Dates occurring during the decade 2000-2009, and so on.
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the 1990s.
Thus, for Annuity Commencement Dates occurring in the decade 2000-2009 the term
ADJUSTED AGE as used in the tables below, means actual age less one year.
ADJUSTED AGE shall mean actual age less two years for Annuity Commencement Dates
occurring in the decade 2010-2019, and so on.
ADJUSTED AGES will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months, as of the Annuity Commencement
Date. The tables below show annuity payment rates for exact ADJUSTED AGES, rates
for ADJUSTED AGES expressed in completed years and months will be based on
straight line interpolation between the appropriate annuity payment rates.
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company upon request.
FUT-INF-CONT-98-1 12
<PAGE>
AMOUNT OF MONTHLY ANNUITY PAYMENT PER $1,000
SINGLE LIFE ANNUITY
<TABLE>
<CAPTION>
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
60 PAYMENTS 120 PAYMENTS 180 PAYMENTS 240 PAYMENTS
ADJUSTED MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
-------- ---- ------ ---- ------ ---- ------ ---- ------ ---- ------
AGE
---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.02 2.92 3.02 2.92 3.01 2.92 3.01 2.91 3.01 2.91
25 3.12 3.00 3.12 3.00 3.12 3.00 3.11 3.00 3.11 2.99
30 3.25 3.10 3.25 3.10 3.24 3.10 3.24 3.10 3.23 3.09
35 3.41 3.23 3.41 3.23 3.40 3.23 3.39 3.22 3.38 3.22
40 3.61 3.39 3.61 3.39 3.60 3.38 3.58 3.38 3.56 3.37
45 3.87 3.59 3.86 3.59 3.85 3.58 3.82 3.57 3.77 3.55
50 4.19 3.84 4.18 3.84 4.15 3.83 4.10 3.81 4.03 3.77
55 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04
60 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.64 4.37
65 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72
70 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06
75 8.45 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32
80 10.55 9.07 9.80 8.69 8.17 7.69 6.62 6.48 5.48 5.45
85 13.46 11.79 11.72 10.74 8.86 8.59 6.79 6.74 5.51 5.50
90 17.33 15.74 13.66 12.99 9.30 9.18 6.85 6.84 5.51 5.51
</TABLE>
<TABLE>
<CAPTION>
OPTION C
JOINT AND SURVIVOR ANNUITY
(ASSUMED ELECTION OF JOINT AND TWO-THIRDS SURVIVOR)
ADJUSTED AGE OF FEMALE
----------------------
ADJUSTED AGE 55 60 65 70 75
OF MALE -- -- -- -- --
-------
<S> <C> <C> <C> <C> <C>
55 4.17 4.38 4.62 4.87 5.15
60 4.36 4.60 4.89 5.20 5.55
65 4.56 4.85 5.19 5.58 6.02
70 4.77 5.11 5.52 6.01 6.57
75 4.99 5.38 5.86 6.45 7.16
</TABLE>
<TABLE>
<CAPTION>
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.91 12 8.24 19 5.73 26 4.59
6 15.14 13 7.71 20 5.51 27 4.47
7 13.16 14 7.26 21 5.32 28 4.37
8 11.68 15 6.87 22 5.15 29 4.27
9 10.53 16 6.53 23 4.99 30 4.18
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
</TABLE>
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
This Contract shall belong to the Owner and the Owner shall be entitled to
exercise all Contract rights and privileges without the consent of the
Beneficiary (other than an irrevocable Beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the Owner and
prior to the Annuity Commencement Date, except as otherwise provided in this
Contract. In all cases, no person shall be entitled to exercise any rights that
would adversely affect the treatment of this Contract as an annuity contract
under the Code.
FUT-INF-CONT-98-1 13
<PAGE>
The Annuitant becomes the Payee on the Annuity Commencement Date. The
Beneficiary becomes the Payee upon the death of the Owner prior to the Annuity
Commencement Date, or upon the death of the Annuitant after the Annuity
Commencement Date. Such Payees may thereafter exercise such rights and
privileges of ownership, if any, which continue.
PERIODIC REPORTS
During the Accumulation Period the Company will send to the Owner, at least
once during each Account Year, a statement showing the value of the Accumulation
Account, which statement shall be accurate as of a date not more than two months
previous to the date of mailing. The Company will also send such statements
reflecting transactions in the Accumulation Account as may be required by
applicable laws, rules and regulations.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in the Application, if any, will
remain in effect until changed.
Subject to the rights of an irrevocable Beneficiary, the Beneficiary
designation may be changed or revoked. Any change or revocation must be filed
with the Company at its Annuity Service Mailing Address 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 before the Company receives the change or revocation.
GENERAL PROVISIONS
AGE AND SEX MISSTATEMENT
If any date of birth or sex, or both, has been misstated in the
Application, if any, or elsewhere, the amounts payable under this Contract will
be the amounts that would have been paid using the correct age or sex, or both.
Any deficiency in payments already made by the Company shall be paid promptly
and any excess in the payments already made by the Company shall be charged
against the benefits falling due after the adjustment.
THIS CONTRACT
This Contract is issued in consideration of the Application, if any, and
payment of the Purchase Payment. All statements made in any Application will be
deemed representations and not warranties, and no statement will void the
Contract or be used in defense to a claim unless it is contained in such
Application, if any, or in a similar document, and a copy is attached to the
Contract at issue. Only the President, a Vice President, the Actuary or the
Secretary of the Company has authority to agree on behalf of the Company to any
alteration of this Contract or to any waiver of the rights or requirements of
the Company.
This Contract is nonparticipating and will not share in any profits or
surplus earnings of the Company, and therefore, no dividends are payable.
INCONTESTABILITY
This Contract is incontestable, subject to the "Age and Sex Misstatement",
"Proof of Age" and "Proof of Survival" provisions contained herein.
MODIFICATION
Upon notice to the Owner (or to the Payee(s) after the Annuity Commencement
Date), this Contract may be modified by the Company, but only if such
modification (a) is necessary to make the Contract comply with any law or
regulation issued by a governmental agency to which the Company is subject; or
(b) is necessary to assure continued qualification of the Contract under the
Code or other federal or state laws relating to retirement annuities or annuity
contracts; or (c) may otherwise be in the best interests of Owners and/or
Payees, as applicable. In the event of any such modification, the Company may
make appropriate endorsement in the Contract to reflect such modification.
FUT-INF-CONT-98-1 14
<PAGE>
PAYMENTS BY THE COMPANY
All sums payable by the Company pursuant to this Contract are payable only
at the Company's Executive Office or such other place as the Company may
designate. The Company may require surrender of this Contract upon final payment
of all sums payable by the Company pursuant to the Contract.
PROOF OF AGE
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
PROOF OF SURVIVAL
The Company shall have the right to require evidence of the survival of any
Payee under Annuity Options A, B and C at the time any payment payable to such
Payee is due.
FUT-INF-CONT-98-1 15
<PAGE>
[LOGO]
Sun Life Assurance Company of Canada (U.S.)
<TABLE>
<S> <C> <C>
Executive Office: Home Office: Annuity Service Mailing Address:
[ONE SUN LIFE EXECUTIVE PARK [1209 ORANGE STREET [SUN LIFE OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS 02481] WILMINGTON, DELAWARE 19801] RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117]
</TABLE>
SINGLE PAYMENT DEFERRED FIXED INDIVIDUAL ANNUITY CONTRACT
NONPARTICIPATING
PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO THE OWNER. THE MARKET VALUE ADJUSTMENT APPLIES
TO WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY; HOWEVER,
SUCH PAYMENTS MADE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD AND
PAYMENT OF THE FREE WITHDRAWAL AMOUNT ARE NOT SUBJECT TO A MARKET VALUE
ADJUSTMENT.
FUT-INF-CONT-98-1 16
<PAGE>
[LOGO]
Sun Life Assurance Company of Canada (U.S.)
<TABLE>
<S> <C> <C>
Executive Office: Home Office: Annuity Service Mailing Address:
[ONE SUN LIFE EXECUTIVE PARK [1209 ORANGE STREET SUN LIFE OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS 02481] WILMINGTON, DELAWARE 19801] [RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117]
</TABLE>
Sun Life Assurance Company of Canada (U.S.) (the "Company") will pay an
annuity commencing on the Annuity Commencement Date, by applying the adjusted
value of the Accumulation Account in accordance with the settlement provisions.
If the Participant dies while the Contract is in effect and the applicable
Certificate is in force and before the Annuity Commencement Date, the Company
will, subject to the provisions set forth herein, pay a death benefit to the
Beneficiary upon receipt of Due Proof of Death of the Participant. Under certain
circumstances, if the Participant dies prior to the Annuity Commencement Date, a
distribution is required by law. This Contract is the legal contract. If there
is any conflict between the provisions of this Contract and those of the
Certificates evidencing participation hereunder, the Contract is the controlling
document.
All payments will be made to the persons and in the manner set forth in
this Contract. Provisions and endorsements printed or written by the Company on
the following pages form part of this Contract.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Issue Date.
C. James Prieur Margaret Sears Mead
President Secretary
SINGLE PAYMENT DEFERRED FIXED GROUP ANNUITY CONTRACT
NONPARTICIPATING
PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT. THE MARKET VALUE ADJUSTMENT
APPLIES TO WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY;
HOWEVER, SUCH PAYMENTS MADE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE
PERIOD AND PAYMENT OF THE FREE WITHDRAWAL AMOUNT ARE NOT SUBJECT TO A MARKET
VALUE ADJUSTMENT.
FUT-GRF-CONT-98-1 1
<PAGE>
TABLE OF CONTENTS
CONTRACT SPECIFICATIONS PAGE
DEFINITIONS
PURCHASE PAYMENT
CONTRACT VALUES DURING ACCUMULATION PERIOD
Accumulation Account
Guarantee Periods
Guaranteed Interest Rates
Transfer Privilege
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
Cash Withdrawals
Withdrawal Charges
Market Value Adjustment
DEATH BENEFIT
Death Benefit Provided by this Contract
Election and Effective Date of Election
Payment of Death Benefit
Amount of Death Benefit
SETTLEMENT PROVISIONS
General
Election and Effective Date of Election
Determination of Amount
Effect of Annuity Commencement Date on Accumulation Account
Annuity Commencement Date
Fixed Annuity Payments
Annuity Options
Amounts Payable on Death of Payee
Annuity Payment Rates
OWNERSHIP PROVISIONS
Exercise of Contract Rights
Periodic Reports
Designation and Change of Beneficiary
GENERAL PROVISIONS
Age and Sex Misstatement
This Contract
Discontinuance of New Participants
Incontestability
Modification
Payments by the Company
Proof of Age
Proof of Survival
FUT-GRF-CONT-98-1 2
<PAGE>
CONTRACT SPECIFICATIONS PAGE
Owner [Trustees of ABC Profit Sharing Plan]
Contract Number [79-7900-123456]
Issue Date [June 21, 1998]
FUT-GRF-CONT-98-1 3
<PAGE>
DEFINITIONS
Any reference in this Contract to "RECEIPT" and "RECEIVED" by the Company means
receipt at the Company's Annuity Service Mailing Address shown on the first page
of this Contract.
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 through the last day of the calendar month in which the
Purchase Payment is received. All Account Years and Account Anniversaries
thereafter shall be 12 month periods based upon the first day of the calendar
month that follows the calendar month during which the Date of Coverage
occurred. For example, if the Date of Coverage occurs 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 subsequent Account Years and all
Account Anniversaries will be measured from April 1.
ACCUMULATION ACCOUNT: An account established for each Participant to which the
Net Purchase Payment and interest are credited.
ACCUMULATION ACCOUNT VALUE: The value of the Accumulation Account on any date.
ACCUMULATION PERIOD: The period before the Annuity Commencement Date and during
the lifetime of the Participant.
ANNUITANT: The person (or persons) named on the Certificate Specifications Page
on whose life (or lives) the first annuity payment is to be made. If the
Annuitant dies prior to the Annuity Commencement Date, the Co- Annuitant, if
any, will become the Annuitant. If the Co-Annuitant dies or if no Co-Annuitant
is named, the Participant becomes the Annuitant upon the Annuitant's death prior
to the Annuity Commencement Date.
ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment is to be
made.
ANNUITY OPTION: The method for making annuity payments.
APPLICATION: The document, if any, signed by each Participant that serves as his
or her application for participation under this Contract.
BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity having
the right to receive the death benefit set forth in the Certificate, and, for a
Certificate issued under a Non-Qualified Contract, who, in the event of the
Participant's death, is the designated Beneficiary for purposes of Section 72(s)
of the Code. After the Annuity Commencement Date, the Beneficiary is the person
or entity having the right, upon the death of the Payee, to receive any
remaining payments due under the Annuity Option elected.
CERTIFICATE: The document for each Participant which evidences the coverage of
the Participant under this Contract.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT APPLICATION: The document, if any, signed by the Owner that evidences
the Owner's application for this Contract.
DATE OF COVERAGE: The date on which a Certificate becomes effective.
DEATH BENEFIT DATE: The date on which the Company receives Due Proof of Death.
DUE PROOF OF DEATH: An original certified copy of an official death certificate,
an original certified copy of a decree
FUT-GRF-CONT-98-1 4
<PAGE>
of a court of competent jurisdiction as to the finding of death, and/or any
other proof of death satisfactory to the Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ANNUITY: An annuity with payments that do not vary as to dollar amount.
FLOATING RATE: The indexed rate set forth on the Certificate Specifications
Page, as such rate is published in The Wall Street Journal two business days
prior to the Floating Rate Reset Date. In the event the Floating Rate is no
longer published in The Wall Street Journal, the Company will use an alternate
method of determining the indexed rate.
FLOATING RATE GUARANTEE PERIOD: A Guarantee Period for which the Guaranteed
Interest Rate changes on each Floating Rate Reset Date.
FLOATING RATE RESET DATE: The first Floating Rate Reset Date shall be the first
business day of the first calendar quarter that begins after a Floating Rate
Guarantee Period is elected. Thereafter, a new Floating Rate Reset Date will
occur on the first business day of each subsequent calendar quarter until the
Expiration Date of the particular Floating Rate Guarantee Period.
FLOATING RATE SPREAD: The amount deducted from the Floating Rate to determine
the Guaranteed Interest Rate in effect initially and on each Floating Rate Reset
Date during a Floating Rate Guarantee Period. The Floating Rate Spread shall
remain constant throughout a Floating Rate Guarantee Period.
FRONT-END SALES LOAD: A sales charge, if applicable, which the Company may
deduct from the Purchase Payment in such amount as set forth on the Certificate
Specifications Page.
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during a particular Guarantee Period.
ISSUE DATE: The date on which the Contract becomes effective.
MINIMUM AVERAGE INTEREST RATE: The minimum rate of interest that may be credited
by the Company on a compound annual basis, as determined at the end of a
particular Guarantee Period, or upon surrender of a Certificate, as applicable.
NET PURCHASE PAYMENT: The portion of the Purchase Payment remaining after the
deduction of any applicable Front-End Sales Load or premium tax or similar tax.
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, 408, 408A, or any other applicable Section of the Code.
OWNER: The person, persons or entity entitled to the ownership rights stated in
the Contract and in whose name or names this Contract is issued. The
Participant's interest in this 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 if it is a Non-Qualified Contract. If the Contract is a
Qualified Contract (other than a Section 403 contract), the Participant's
interest in the Contract must be owned by a trustee or custodian of a retirement
plan which meets the requirements of Section 401, Section 408(c), Section
408(k), Section 408A, or any other applicable Section of the Code, and the
Qualified Plan Endorsement must be attached to and made a part of the Contract
and Certificate.
PARTICIPANT: The person named in the Certificate who is entitled to exercise all
rights and privileges of ownership under this Contract, except as reserved by
the Owner.
FUT-GRF-CONT-98-1 5
<PAGE>
PAYEE: A recipient of payments relating to this Contract.
PURCHASE PAYMENT: The amount paid to the Company as consideration for the
benefits provided by this Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan which
may receive favorable federal income tax treatment under Sections 401, 403, 408,
408A, or any other applicable Section of the Code.
FUT-GRF-CONT-98-1 6
<PAGE>
PURCHASE PAYMENT
All Purchase Payments are to be paid to the Company at its Annuity Service
Mailing Address. The Company generally will not accept a Purchase Payment for
any Certificate which is less than the minimum Purchase Payment amount specified
on the applicable Certificate Specifications Page. In addition, the prior
approval of the Company is required before it will accept a Purchase Payment
which would exceed the maximum Purchase Payment amount specified on the
Certificate Specifications Page.
The Net Purchase Payment will, upon receipt and acceptance by the
Company, be credited to the Participant's Accumulation Account and allocated
to the Guarantee Period specified in the Application.
CONTRACT VALUES DURING ACCUMULATION PERIOD
ACCUMULATION ACCOUNT
The Company will establish an Accumulation Account for each Participant and
will maintain the Accumulation Account during the Accumulation Period. The
Accumulation Account shall be continued automatically in full force during the
lifetime of the Participant until the Annuity Commencement Date or until the
Participant's Certificate is surrendered.
GUARANTEE PERIOD
The Participant elects one Guarantee Period from among those made available
from time to time by the Company. The period elected will determine the
Guaranteed Interest Rate. Amounts allocated to a particular Guarantee Period,
less any applicable Front-End Sales Load, premium taxes or similar taxes and any
amounts subsequently withdrawn, will earn interest at the Guaranteed Interest
Rate in effect during the Guarantee Period. The Initial Guarantee Period begins
on the date the Net Purchase Payment is applied. Except for Floating Rate
Guarantee Periods, the Initial Guarantee Period ends when the number of calendar
years in the Guarantee Period elected (measured from the end of the calendar
month in which the Net Purchase Payment was applied) has elapsed. For Floating
Rate Guarantee Periods, the Initial Guarantee Period ends when the number of
calendar years in the Floating Rate Guarantee Period elected (measured from the
end of the calendar quarter in which the Net Purchase Payment was applied) has
elapsed. The last day of a Guarantee Period is the Expiration Date. Subsequent
Guarantee Periods begin on the first day following the Expiration Date. For
Floating Rate Guarantee Periods, the Expiration Date will always occur at the
end of a calendar quarter. For other Guarantee Periods, the Expiration Date will
always occur at the end of a calendar month.
The Company will mail written notice to the Participant at least 45 and no
more than 75 days prior to the Expiration Date of a Guarantee Period. A new
Guarantee Period of the same duration as the previous Guarantee Period will
commence automatically at the end of the previous Guarantee Period unless the
Company receives, in writing (or other manner acceptable by the Company) prior
to the end of such Guarantee Period, an election by the Participant of a
different Guarantee Period from among those being offered by the Company at such
time.
The Company reserves the right to add or remove Guarantee Periods available
at any time for election by a Participant.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed Interest
Rate for each Guarantee Period offered by the Company. These rates will be
guaranteed for the duration of the respective Guarantee Periods. Interest is
credited to the Accumulation Account at an annual effective rate of interest.
For a Floating Rate Guarantee Period, the Guaranteed Interest Rate may
change on each Floating Rate Reset Date; however, the Floating Rate Spread used
to compute the Guaranteed Interest Rate will remain constant throughout such
Floating Rate Guarantee Period. The Company will determine a new Floating Rate
Spread at the
FUT-GRF-CONT-98-1 7
<PAGE>
beginning of each Floating Rate Guarantee Period.
On any Expiration Date, and on any date on which a Certificate is
surrendered in full, the Certificate's Accumulation Account Value (before the
application of any applicable withdrawal charge and/or market value adjustment)
will not be less than the Purchase Payment, less any previous withdrawals,
accumulated at an effective annual rate of interest equal to the Minimum Average
Interest Rate set forth on the Certificate Specifications Page. Subject to the
above guarantees, the Guaranteed Interest Rate credited on a particular day to a
Floating Rate Guarantee Period may be less than the Minimum Average Interest
Rate set forth on the Certificate Specifications Page.
TRANSFER PRIVILEGE
At any time during the Accumulation Period, a Participant may transfer the
entire Accumulation Account Value to a new Guarantee Period, subject to the
conditions set forth below. No partial transfers are permitted. Except as
described below, a transfer accepted by the Company generally will be effective
on the date the request for transfer is received by the Company if such request
is received in good order by 4:00 p.m. eastern time on any date on which the
Company is open for business.
A transfer will result in a new Guarantee Period for the amount being
transferred. Any such new Guarantee Period will begin on the effective date of
the transfer and end on the new Expiration Date. The amount transferred into
such Guarantee Period will earn interest at the Guaranteed Interest Rate
declared by the Company for that Guarantee Period as of the effective date of
the transfer.
The maximum number of transfers per Account Year is set forth on the
Certificate Specifications Page. In addition, a minimum of 30 calendar days must
elapse between transfers. No transfers are allowed within 30 days after the Date
of Coverage. Transfers will be subject to the market value adjustment described
below unless the transfer is effective within 30 days prior to an Expiration
Date. The Company reserves the right in its sole discretion to delay the
effective date of any transfer. The Company also reserves the right in its sole
discretion to refuse or delay all transfer requests initiated on behalf of a
Participant by any third party authorized by the Participant to make such
transfer requests.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date, the Participant may elect
to receive a cash withdrawal payment from the Company by filing with the Company
at its Annuity Service Mailing Address, a written election in such form as the
Company may require. Any such election shall specify the amount of the
withdrawal and will be effective on the date that it is received by the Company.
The Company reserves the right to defer the payment of amounts withdrawn for a
period not to exceed six months from the date written request for such
withdrawal is received by the Company.
The Participant may request a full surrender or a partial withdrawal. A
full surrender will result in a cash withdrawal payment equal to the
Accumulation Account Value as of the date the request is received by the
Company, plus or minus any applicable market value adjustment, and less any
applicable withdrawal charge. Upon a full surrender, the Participant's
Certificate will be canceled and no further benefits will be payable hereunder.
A partial withdrawal (I.E., a payment of an amount less than that paid under a
full surrender) will reduce the Accumulation Account Value by the dollar amount
of the cash withdrawal payment, plus or minus any applicable market value
adjustment and plus any applicable withdrawal charge. Any request for a partial
withdrawal which would cause the Accumulation Account Value to be less than
$1,000 will be treated as a request for a full surrender.
All cash withdrawals, except those effective within 30 days prior to the
Expiration Date of a Guarantee Period or the withdrawal of the current "free
withdrawal amount," will be subject to the market value adjustment described
below.
FUT-GRF-CONT-98-1 8
<PAGE>
WITHDRAWAL CHARGES
If a cash withdrawal is made, the Company may assess a withdrawal charge,
as set forth on the Certificate Specifications Page. The amount of any
withdrawal charge is determined as follows:
Free withdrawal amount: The free withdrawal amount in any Account Year
is equal to the greater of 10% of that Account Year's beginning
Accumulation Account Value, or any amounts withdrawn to comply with
any mandatory distribution requirements applicable to Qualified
Contracts under federal law.
Amount subject to withdrawal charge: For a partial withdrawal or full
surrender, the amount subject to a withdrawal charge is the amount of
the partial withdrawal or full surrender less any of the current
Account Year's remaining free withdrawal amount.
Withdrawal charge percentage: The withdrawal charge percentage varies
according to the number of complete Account Years between the Account
Year in which the Net Purchase Payment was credited to the
Accumulation Account and the Account Year in which it is withdrawn.
Amount of withdrawal charge: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge by
the applicable withdrawal charge percentage set forth on the
Certificate Specifications Page.
No withdrawal charge is imposed upon amounts applied to purchase an
annuity, except that period certain annuities of less than ten years may incur a
withdrawal charge.
No withdrawal charge is imposed on amounts withdrawn on or after the later
of (a) the end of the Initial Guarantee Period shown on the Certificate
Specifications Page or (b) the end of the third Account Year.
MARKET VALUE ADJUSTMENT
Any cash withdrawal (which for purposes of this section includes transfers
and amounts applied to purchase an annuity), other than a withdrawal effective
within 30 days prior to the Expiration Date of a Guarantee Period, or the
withdrawal of the "free withdrawal amount," will be subject to a market value
adjustment.
The market value adjustment will reflect the relationship between the
current interest rate (as described in the formula below) for the 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.
The market value adjustment will be determined by multiplying the amount
being withdrawn before deduction of any applicable withdrawal charge by the
market value adjustment factor.
The market value adjustment factor for all Guarantee Periods except
Floating Rate Guarantee Periods is:
N/12
[(1 + I)/(1 + J + B)] -1
where,
I is the Guaranteed Interest Rate currently being credited to the
Accumulation Account,
J is the Guaranteed Interest Rate declared by the Company, as of the date
of the application of the market value adjustment, for current allocations to a
Guarantee Period equal to the balance of the current Guarantee Period, rounded
up to the next higher number of complete years,
b is a factor which the Company will determine for each Certificate and
which is set forth on the Certificate
FUT-GRF-CONT-98-1 9
<PAGE>
Specifications Page and which will not exceed .25%, and
N is the number of complete months remaining in the current Guarantee
Period.
In the determination of J, if the Company currently does not offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available. If
no Guarantee Periods are available to perform a linear interpolation, the
Company will use an equitable method and will inform the appropriate state
regulatory authority of such method.
The market value adjustment factor for each Floating Rate Guarantee Period
is:
N/12
[(1 + F - X)/(1 + F - Y + B)] -1
where,
F is the Floating Rate currently being used in determining the
Floating Rate Guarantee Period's Guaranteed Interest Rate,
X is the Floating Rate Spread in effect during the current Floating
Rate Guarantee Period,
Y is the Floating Rate Spread, as of the date of the application of
the market value adjustment, for current allocations to new Floating Rate
Guarantee Periods equal to the balance of the current Floating Rate
Guarantee Period, rounded up to the next higher number of complete years,
b is a factor which the Company will determine for each Certificate
and which is set forth on the Certificate Specifications Page and which
will not exceed .25%, and
N is the number of complete months remaining in the current Floating
Rate Guarantee Period.
In the determination of Y, if the Company currently does not offer the
applicable Floating Rate Guarantee Period, then the rate will be determined by
using the next longer Floating Rate Guarantee Period that is available. If the
Company currently does not offer a longer Floating Rate Guarantee Period, then
the Company will determine, in an equitable manner determined in its sole
discretion, the value of Y.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
If the Participant dies while this Contract and the applicable Certificate
are in effect and before the Annuity Commencement Date, the Company will pay,
upon receipt of Due Proof of Death of the Participant, a death benefit to the
Beneficiary in accordance with this death benefit provision. If the Participant
is not a natural person, the Annuitant is considered the "Participant" for
purposes of this provision.
If a Participant under a Non-Qualified Contract dies prior to the Annuity
Commencement Date, the death benefit must be distributed to the "designated
Beneficiary" (as defined below) either (1) as a lump sum within five years after
the date of death of the Participant, or (2) as an annuity over some period not
greater than the life or expected life of the designated Beneficiary, with
annuity payments beginning within one year after the date of death of the
Participant. For this purpose (and for purposes of Section 72(s) of the Code),
the person named as the Beneficiary shall be considered the designated
Beneficiary, and if no person then living has been so named, then the Annuitant
shall automatically be the designated Beneficiary. If the designated Beneficiary
is the surviving spouse of the deceased Participant, the spouse can elect to
continue the Certificate in the spouse's own name as Participant, in which case
the mandatory distribution requirements will apply upon the death of the spouse.
As designated Beneficiary, the surviving spouse may also choose to have the
Accumulation Account distributed as an annuity over some period not greater than
his or her life or expected life, with annuity payments beginning within one
year after
FUT-GRF-CONT-98-1 10
<PAGE>
the date of death of the Participant. If there is no designated Beneficiary
living on the date of death of the Participant, the Company will pay, upon
receipt of Due Proof of Death of the Participant and/or the Beneficiary, if
applicable, the death benefit in one sum to the estate of the deceased
Participant. If the Participant dies on or after the Annuity Commencement Date,
no death benefit will be payable under this Contract, except as may be provided
under the form of annuity elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Participant and prior to the Annuity
Commencement Date, the Participant may elect to have the death benefit applied
under one or more of the Annuity Options in accordance with the settlement
provisions herein to effect a Fixed Annuity for the Beneficiary as Payee after
the death of the Participant, provided that the Annuity Option chosen complies
with Section 72(s) of the Internal Revenue Code of 1986, as amended. This
election may be made or subsequently revoked by filing with the Company at its
Annuity Service Mailing Address, a written election or revocation of an election
in such form as the Company may require. Any election or revocation of an
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" section below, any election by the Participant of
a method of settlement of the death benefit that is in effect on the date of the
Participant's death will be deemed effective on the date Due Proof of Death of
the Participant is received by the Company.
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 Participant, the
Beneficiary may elect (a) to receive the death benefit in the form of a cash
payment, in which event the Certificate will be canceled, or (b) to have the
death benefit applied under one or more of the Annuity Options in accordance
with the settlement provisions, to effect a Fixed Annuity for the Beneficiary as
Payee. In no event shall any method of settlement be exercised which would
violate the mandatory distribution requirements of Section 72(s) of the Code.
Additional options available if the designated Beneficiary is the surviving
spouse are described above under "Death Benefit Provided by the Contract."
The election of a method of settlement may be made by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any written 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
Death of the Participant is received by the Company. If a written election of a
method of settlement by the Beneficiary is not received by the Company within 60
days following the date Due Proof of Death of the Participant is received by the
Company, the Company will make a cash payment to the Beneficiary as of the last
day of such 60 day period and this Contract will be canceled upon such payment.
PAYMENT OF DEATH BENEFIT
If the Participant has so instructed, the Company will pay the death
benefit in cash. If the Participant has elected settlement under one or more of
the Annuity Options, annuity payments will begin on the first day of the
calendar month following the Death Benefit Date and the Accumulation Account
will be maintained in effect until the first annuity payment is made.
AMOUNT OF DEATH BENEFIT
The amount of the death benefit is determined as of the Death Benefit Date
and is calculated as shown on the Certificate Specifications Page.
SETTLEMENT PROVISIONS
GENERAL
On the Annuity Commencement Date, the adjusted value of the Accumulation
Account, as determined in accordance with the "Determination of Amount"
provision below, will be applied, as specified by the Participant,
FUT-GRF-CONT-98-1 11
<PAGE>
under one or more of the Annuity Options provided in this Contract or under such
other settlement option as may be agreed to by the Company. However, if the
amount to be applied under any Annuity Option is less than the Minimum Annuity
Purchase Amount set forth on the Certificate Specifications Page, or if the
first annuity payment payable in accordance with such option is less than the
Minimum Annuity Payment Amount also set forth on the Certificate Specifications
Page, the Company will pay the amount to be applied in a single payment to the
Payee and the Certificate will terminate.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the "Cash Withdrawals"
provision of the Contract.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the Participant's lifetime and prior to the Annuity Commencement
Date, the Participant may elect to have the adjusted value of the Accumulation
Account applied on the Annuity Commencement Date under one or more of the
Annuity Options provided in the Contract. If more than one person is named as
Annuitant, due to the designation of a Co-Annuitant, the Participant may choose
to name one of such persons to be the sole Annuitant as of the Annuity
Commencement Date.
The Participant may also change any election; however, any election or
change of election must be effective at least 30 days prior to the Annuity
Commencement Date. Such election or change of election may be made by filing
with the Company at its Annuity Service Mailing Address, a written election or
change of election in such form as the Company may require. Any such election or
change of election will become effective on the date it is received by the
Company. If no such election is in effect on the 30th day prior to the Annuity
Commencement Date, the adjusted value of the Accumulation Account will be
applied under Annuity Option B, for a life annuity with 120 monthly payments
certain. 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.
The Annuity Options in this Contract may also be elected as provided in the
"Death Benefit" section of this Contract.
DETERMINATION OF AMOUNT
The amount applied to provide a Fixed Annuity is the Accumulation Account
Value on the date immediately preceding the Annuity Commencement Date, plus or
minus any applicable market value adjustment and minus any applicable premium
tax or similar tax. Amounts applied to provide period certain annuities of less
than 10 years will also be reduced by any applicable withdrawal charges.
EFFECT OF ANNUITY COMMENCEMENT DATE ON ACCUMULATION ACCOUNT
The Accumulation Account will be canceled on the Annuity Commencement Date.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is set forth on the Certificate
Specifications Page. If no such date has been specified, the Annuity
Commencement Date will be the first day of the first month following the
Annuitant's 90th birthday. This date may be changed from time to time by the
Participant, provided that each change is effective 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 effective date of the change;
(2) the first day of a month; and (3) not later than the first day of the first
month following the Annuitant's 90th birthday unless, in the case of a Qualified
Contract, otherwise restricted by the particular retirement plan or by
applicable law. If more than one person is named as Annuitant, due to the
designation of a Co-Annuitant, the Annuity Commencement Date will be no later
than the first day of the first month following the 90th birthday of the
youngest of those persons so named. Any change of the Annuity Commencement Date
may be made by filing with the Company at its Annuity Service Mailing Address, a
written designation of a new Annuity Commencement Date in such form as the
Company may require. Any such
FUT-GRF-CONT-98-1 12
<PAGE>
change will become effective on the date the designation is received by the
Company.
FUT-GRF-CONT-98-1 13
<PAGE>
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the "Death Benefit" section of this Contract.
FIXED ANNUITY PAYMENTS
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown in the tables below, which are
based on the Minimum Average Interest Rate set forth on the Certificate
Specifications Page 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.
ANNUITY OPTIONS
Annuity Option A. Life Annuity: Monthly payments during the lifetime of the
Payee. These payments will terminate at the death of the Payee, without any
provision for continuation of payments 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
sixty (60), one hundred twenty (120), one hundred eighty (180) or two hundred
forty (240) months certain as elected.
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, monthly
payments will be determined using the percentage (chosen at the time of the
election of this option) 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 any specified period of time (at least five (5) years but not
exceeding thirty (30) years) as elected.
AMOUNTS PAYABLE ON DEATH OF PAYEE
In the event of the death of the Payee on or after the Annuity Commencement
Date, the Company will pay any remaining payments under any Annuity Option then
in effect to the Payee's designated Beneficiary, if then living, as they become
due. If there is no such designated Beneficiary entitled to any remaining
payments under an Annuity Option, the Company will pay the discounted value of
such remaining payments, in one sum, to the deceased Payee's estate. Any
Beneficiary who becomes entitled to any such remaining payments may elect to
receive the discounted value of the remaining payments in one sum. In the event
of the death of a Beneficiary who has become entitled to receive any remaining
payments under an Annuity Option, the Company will pay the discounted value of
such remaining payments in one sum to the deceased Beneficiary's estate. All
payments made in one lump sum by the Company, as provided in this paragraph, are
made in lieu of paying any remaining payments under the Annuity Option then in
effect.
If the Payee dies on or after the Annuity Commencement Date and before the
entire Accumulation Account has been distributed, the remaining portion of such
value, if any, must be distributed at least as rapidly as the method of
distribution then in effect.
ANNUITY PAYMENT RATES
The annuity payment rate tables below show, for each $1,000 applied, the
dollar amount of the monthly Fixed Annuity payment, when the payment is based on
the Minimum Average Interest Rate set forth on the Certificate Specifications
Page.
The mortality table used in determining the annuity payment rates for
Annuity Options A, B and C is the 1983 Individual Annuitant Mortality Table A.
In using this mortality table, ages of Annuitants will be reduced by one year
for Annuity Commencement Dates occurring during the 1990s, reduced by two years
for Annuity Commencement Dates occurring during the decade 2000-2009, and so on.
FUT-GRF-CONT-98-1 14
<PAGE>
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the 1990s.
Thus, for Annuity Commencement Dates occurring in the decade 2000-2009 the term
ADJUSTED AGE as used in the tables below, means actual age less one year.
ADJUSTED AGE shall mean actual age less two years for Annuity Commencement Dates
occurring in the decade 2010-2019, and so on.
ADJUSTED AGES will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months, as of the Annuity Commencement
Date. The tables below show annuity payment rates for exact ADJUSTED AGES, rates
for ADJUSTED AGES expressed in completed years and months will be based on
straight line interpolation between the appropriate annuity payment rates.
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company upon request.
AMOUNT OF MONTHLY ANNUITY PAYMENT PER $1,000
SINGLE LIFE ANNUITY
<TABLE>
<CAPTION>
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
60 PAYMENTS 120 PAYMENTS 180 PAYMENTS 240 PAYMENTS
ADJUSTED MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
-------- ---- ------ ---- ------ ---- ------ ---- ------ ---- ------
AGE
---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.02 2.92 3.02 2.92 3.01 2.92 3.01 2.91 3.01 2.91
25 3.12 3.00 3.12 3.00 3.12 3.00 3.11 3.00 3.11 2.99
30 3.25 3.10 3.25 3.10 3.24 3.10 3.24 3.10 3.23 3.09
35 3.41 3.23 3.41 3.23 3.40 3.23 3.39 3.22 3.38 3.22
40 3.61 3.39 3.61 3.39 3.60 3.38 3.58 3.38 3.56 3.37
45 3.87 3.59 3.86 3.59 3.85 3.58 3.82 3.57 3.77 3.55
50 4.19 3.84 4.18 3.84 4.15 3.83 4.10 3.81 4.03 3.77
55 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04
60 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.64 4.37
65 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72
70 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06
75 8.45 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32
80 10.55 9.07 9.80 8.69 8.17 7.69 6.62 6.48 5.48 5.45
85 13.46 11.79 11.72 10.74 8.86 8.59 6.79 6.74 5.51 5.50
90 17.33 15.74 13.66 12.99 9.30 9.18 6.85 6.84 5.51 5.51
</TABLE>
<TABLE>
<CAPTION>
OPTION C
JOINT AND SURVIVOR ANNUITY
(ASSUMED ELECTION OF JOINT AND TWO-THIRDS SURVIVOR)
ADJUSTED AGE OF FEMALE
----------------------
ADJUSTED AGE 55 60 65 70 75
OF MALE -- -- -- -- --
-------
<S> <C> <C> <C> <C> <C>
55 4.17 4.38 4.62 4.87 5.15
60 4.36 4.60 4.89 5.20 5.55
65 4.56 4.85 5.19 5.58 6.02
70 4.77 5.11 5.52 6.01 6.57
75 4.99 5.38 5.86 6.45 7.16
</TABLE>
FUT-GRF-CONT-98-1 15
<PAGE>
<TABLE>
<CAPTION>
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.91 12 8.24 19 5.73 26 4.59
6 15.14 13 7.71 20 5.51 27 4.47
7 13.16 14 7.26 21 5.32 28 4.37
8 11.68 15 6.87 22 5.15 29 4.27
9 10.53 16 6.53 23 4.99 30 4.18
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
</TABLE>
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract shall belong to the Owner. Unless any rights and privileges
have been expressly reserved by the Owner, the Participant shall be entitled to
exercise all rights and privileges in connection with his or her Certificate. In
any case, such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocable Beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the
Participant and prior to the Annuity Commencement Date, except as otherwise
provided in this Contract. In all cases, no person shall be entitled to exercise
any rights that would adversely affect the treatment of this Contract or a
Certificate as an annuity contract under the Code.
The Annuitant becomes the Payee on the Annuity Commencement Date. The
Beneficiary becomes the Payee upon the death of the Participant prior to the
Annuity Commencement Date, or upon the death of the Annuitant after the Annuity
Commencement Date. Such Payees may thereafter exercise such rights and
privileges of ownership, if any, which continue.
PERIODIC REPORTS
During the Accumulation Period the Company will send to the Participant, or
to the Owner, if so directed, at least once during each Account Year, a
statement showing the value of the Accumulation Account, which statement shall
be accurate as of a date not more than two months previous to the date of
mailing. The Company will also send such statements reflecting transactions in
the Accumulation Account as may be required by applicable laws, rules and
regulations.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in the Application, if any, will
remain in effect until changed.
Subject to the rights of an irrevocable Beneficiary, the Beneficiary
designation may be changed or revoked. Any change or revocation must be filed
with the Company at its Annuity Service Mailing Address 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 before the Company receives the change or revocation.
FUT-GRF-CONT-98-1 16
<PAGE>
GENERAL PROVISIONS
AGE AND SEX MISSTATEMENT
If any date of birth or sex, or both, has been misstated in the
Application, if any, or elsewhere, the amounts payable pursuant to this Contract
will be the amounts that would have been paid using the correct age or sex, or
both. Any deficiency in payments already made by the Company shall be paid
promptly and any excess in the payments already made by the Company shall be
charged against the benefits falling due after the adjustment.
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 this Contract. Such limitation or discontinuance shall
have no effect on rights or benefits with respect to any Participant's
Account established prior to the effective date of such limitation or
discontinuance.
THIS CONTRACT
This Contract is issued in consideration of the Contract Application, if
any, and payment of the Purchase Payment. All statements made in the Contract
Application and/or any Application will be deemed representations and not
warranties, and no statement will void this Contract or the Participant's
interest therein or be used in defense to a claim unless it is contained in such
Contract Application or the Application of that Participant, if any, or in a
similar document, and a copy is attached to the Contract or Certificate, as
applicable, at issue. Only the President, a Vice President, the Actuary or the
Secretary of the Company has authority to agree on behalf of the Company to any
alteration of the Contract or any Certificate, or to any waiver of the rights or
requirements of the Company.
This Contract is nonparticipating and will not share in any profits or
surplus earnings of the Company, and therefore, no dividends are payable.
INCONTESTABILITY
This Contract and the Certificates are incontestable, subject to the "Age
and Sex Misstatement," "Proof of Age" and "Proof of Survival" provisions
contained herein.
MODIFICATION
Upon notice to the Owner, the Participant(s), or the Payee(s) after the
Annuity Commencement Date, this Contract and the Certificates may be modified by
the Company, but only if such modification (a) is necessary to make this
Contract and/or the Certificates evidencing participation hereunder comply with
any law or regulation issued by a governmental agency to which the Company is
subject; or (b) is necessary to assure continued qualification of the Contract
and/or Certificates under the Code or other federal or state laws relating to
retirement annuities or annuity contracts; or (c) may otherwise be in the best
interests of Owners, Participants and/or Payees, as applicable. In the event of
any such modification, the Company may make appropriate endorsement in this
Contract and the Certificates to reflect such modification.
In addition, upon 60 days' prior written notice to the Owner, the Contract may
be modified by the Company to change the withdrawal charges, the tables used in
determining the amount of the first monthly Fixed Annuity payment and the
formula used to calculate the market value adjustment, provided that any such
modification shall apply only to Accumulation Accounts established after the
effective date of the modification. All of the charges and the annuity tables
which are provided in the Contract prior to any such modification will remain in
effect permanently, unless improved by the Company, with respect to Accumulation
Accounts established prior to the effective date of such modification.
PAYMENTS BY THE COMPANY
FUT-GRF-CONT-98-1 17
<PAGE>
All sums payable by the Company pursuant to this Contract are payable only
at the Company's Executive Office or such other place as the Company may
designate. The Company may require surrender of this Contract upon final payment
of all sums payable by the Company hereunder.
PROOF OF AGE
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
PROOF OF SURVIVAL
The Company shall have the right to require evidence of the survival of any
Payee under Annuity Options A, B and C at the time any payment payable to such
Payee is due.
FUT-GRF-CONT-98-1 18
<PAGE>
[LOGO]
Sun Life Assurance Company of Canada (U.S.)
<TABLE>
<S> <C> <C>
Executive Office: Home Office: Annuity Service Mailing Address:
[ONE SUN LIFE EXECUTIVE PARK [1209 ORANGE STREET [SUN LIFE OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS 02481] WILMINGTON, DELAWARE 19801] RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117]
</TABLE>
SINGLE PAYMENT DEFERRED FIXED INDIVIDUAL ANNUITY CONTRACT
NONPARTICIPATING
PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO THE OWNER. THE MARKET VALUE ADJUSTMENT APPLIES
TO WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY; HOWEVER,
SUCH PAYMENTS MADE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD AND
PAYMENT OF THE FREE WITHDRAWAL AMOUNT ARE NOT SUBJECT TO A MARKET VALUE
ADJUSTMENT.
FUT-GRF-CONT-98-1 19
<PAGE>
[LOGO]
Sun Life Assurance Company of Canada (U.S.)
<TABLE>
<S> <C> <C>
Executive Office: Home Office: Annuity Service Mailing Address:
[ONE SUN LIFE EXECUTIVE PARK [1209 ORANGE STREET SUN LIFE OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS 02481] WILMINGTON, DELAWARE 19801] [RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117]
</TABLE>
This Certificate evidences the interest of the Participant named in the
Certificate Specifications Page in the fixed group annuity contract ("Contract")
issued by Sun Life Assurance Company of Canada (U.S.) (the "Company").
The Contract is the legal contract. This Certificate is merely a summary of
the rights, duties and benefits of that Contract. A copy of the Contract may be
obtained by requesting it in writing from the Company. If there is any conflict
between the provisions of the Contract and those of this Certificate, the
Contract is the controlling document.
The Company will pay an annuity commencing on the Annuity Commencement
Date, by applying the adjusted value of the Accumulation Account in accordance
with the settlement provisions. If the Participant dies while the Contract is in
effect and this Certificate is in force and before the Annuity Commencement
Date, the Company will, subject to the provisions set forth herein, pay a death
benefit to the Beneficiary upon receipt of Due Proof of Death of the
Participant. Under certain circumstances, if the Participant dies prior to the
Annuity Commencement Date, a distribution is required by law.
All payments will be made to the persons and in the manner set forth in the
Contract. Provisions and endorsements printed or written by the Company on the
following pages form part of the Certificate.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Date of Coverage.
C. James Prieur Margaret Sears Mead
President Secretary
CERTIFICATE FOR
SINGLE PAYMENT DEFERRED FIXED GROUP ANNUITY CONTRACT
NONPARTICIPATING
PAYMENTS AND VALUES PROVIDED BY THIS CERTIFICATE ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO THE PARTICIPANT. THE MARKET VALUE ADJUSTMENT
APPLIES TO WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY;
HOWEVER, SUCH PAYMENTS MADE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE
PERIOD AND PAYMENT OF THE FREE WITHDRAWAL AMOUNT ARE NOT SUBJECT TO A MARKET
VALUE ADJUSTMENT.
RIGHT TO RETURN CERTIFICATE. PLEASE READ THIS CERTIFICATE. If not satisfied with
it, the Participant may, within 10 days after its receipt, return it by mailing
it to the Annuity Service Mailing Address shown above. Immediately upon receipt
of this Certificate by the Company, the Certificate will be deemed void as
though it had never been applied for, and the Accumulation Account Value on the
date this Certificate is received by the Company will be refunded to the
Participant.
IMPORTANT NOTICE:
It is not necessary to employ any person to collect any payment or benefit
provided by the Contract. When you require assistance, write directly to the
Company at the Annuity Service Mailing Address shown above.
The Contract contains many benefits. In your own best interest you should
consult the Company if anyone advises you to surrender this Certificate or to
replace it with a new contract or certificate.
FUT-GRF-CERT-98-1 1
<PAGE>
TABLE OF CONTENTS
CONTRACT SPECIFICATIONS PAGE
DEFINITIONS
PURCHASE PAYMENT
CONTRACT VALUES DURING ACCUMULATION PERIOD
Accumulation Account
Guarantee Periods
Guaranteed Interest Rates
Transfer Privilege
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
Cash Withdrawals
Withdrawal Charges
Market Value Adjustment
DEATH BENEFIT
Death Benefit Provided by this Contract
Election and Effective Date of Election
Payment of Death Benefit
Amount of Death Benefit
SETTLEMENT PROVISIONS
General
Election and Effective Date of Election
Determination of Amount
Effect of Annuity Commencement Date on Accumulation Account
Annuity Commencement Date
Fixed Annuity Payments
Annuity Options
Amounts Payable on Death of Payee
Annuity Payment Rates
OWNERSHIP PROVISIONS
Exercise of Contract Rights
Periodic Reports
Designation and Change of Beneficiary
GENERAL PROVISIONS
Age and Sex Misstatement
This Contract
Incontestability
Modification
Payments by the Company
Proof of Age
Proof of Survival
FUT-GRF-CERT-98-1 2
<PAGE>
CONTRACT SPECIFICATIONS PAGE
<TABLE>
<S> <C>
Contract Number [79-7900-123456]
Owner [John J. Doe]
Annuitant [Mary Doe]
Age of Owner [35]
Age of Annuitant [35]
Issue Date [June 21, 1998]
Account Anniversary Date [June 30, 1999]
Purchase Payment Amount [$100,000]
Minimum Purchase Payment Amount [$10,000]
Maximum Purchase Payment Amount [$1,000,000]
(without prior approval of the Company)
Beneficiary (Relationship) [Susan J. Doe (Daughter)]
Annuity Commencement Date [July 1, 2050]
Annuity Option [Deferred]
Minimum Annuity Purchase Amount [$10,000]
Minimum Annuity Payment Amount [$50]
[Front-end Sales Load [$0]
</TABLE>
<TABLE>
<CAPTION>
[Number of Complete Withdrawal Charge
Withdrawal Charges Account Years Percentage
- ------------------ ------------- ----------
<S> <C> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 or More 0%]]
</TABLE>
<TABLE>
<S> <C>
Initial Guarantee Period [1-10 Year]
Renewal Guarantee Period(s) [1-10 Year]
Floating Rate [three month London Interbank Offered Rate ("LIBOR"), or 90 Day T-Bill ("T-Bill")
Rate]
Guaranteed Interest Rate [3 Year-4.5%, or LIBOR minus 1.25%, or T- Bill minus .60%]
Minimum Average Interest Rate [3%]
Market Value Adjustment ("b" factor) [.25% for any Guarantee Period exceeding 7 years in length which was in effect on
the Issue Date and also for any Floating Rate Guarantee Period; 0% for all other
Guarantee Periods] Maximum 0.25%
Maximum Number of Transfers Per Account Year [1]
Amount of Death Benefit [[If the Owner was age 85 or less on the Issue Date, the amount of the Death
Benefit is the greater of:
(1) the Accumulation Account Value on the Death Benefit Date; or
(2) the amount which would have been payable in the event of a full
surrender of the Contract on the Death Benefit Date
If (2) is operative, the Accumulation Account Value will be adjusted by the
difference between (2) and (1).]
or
[If the Owner was age 86 or older on the Issue Date, the Death Benefit will
equal the amount which would have been payable in the event of a full surrender
of the Contract on the Death Benefit Date, and the Accumulation Account Value
will be adjusted to equal this amount.]]
</TABLE>
FUT-GRF-CERT-98-1 3
<PAGE>
DEFINITIONS
Any reference in this Certificate to "RECEIPT" and "RECEIVED" by the Company
means receipt at the Company's Annuity Service Mailing Address shown on the
first page of this Certificate.
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
through the last day of the calendar month in which the Purchase Payment is
received. All Account Years and Account Anniversaries thereafter shall be 12
month periods based upon the first day of the calendar month that follows the
calendar month during which the Date of Coverage occurred. For example, if the
Date of Coverage occurs 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 subsequent Account Years and all Account Anniversaries will be
measured from April 1.
ACCUMULATION ACCOUNT: An account to which the Net Purchase Payment and interest
are credited.
ACCUMULATION ACCOUNT VALUE: The value of the Accumulation Account on any date.
ACCUMULATION PERIOD: The period before the Annuity Commencement Date and during
the lifetime of the Participant.
ANNUITANT: The person (or persons) named on the Certificate Specifications Page
on whose life (or lives) the first annuity payment is to be made. If the
Annuitant dies prior to the Annuity Commencement Date, the Co- Annuitant, if
any, will become the Annuitant. If the Co-Annuitant dies or if no Co-Annuitant
is named, the Participant becomes the Annuitant upon the Annuitant's death prior
to the Annuity Commencement Date.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment is to be
made.
*ANNUITY OPTION: The method for making annuity payments.
APPLICATION: The document, if any, signed by each Participant that serves as his
or her application for participation under the Contract, a copy of which may be
attached to and made a part of this Certificate.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit set forth in this Certificate,
and, for a Certificate issued under a Non-Qualified Contract, who, in the event
of the Participant's death, is the designated Beneficiary for purposes of
Section 72(s) of the Code. After the Annuity Commencement Date, the Beneficiary
is the person or entity having the right, upon the death of the Payee, to
receive any remaining payments due under the Annuity Option elected.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
DATE OF COVERAGE: The date on which this Certificate becomes effective.
DEATH BENEFIT DATE: The date on which the Company receives Due Proof of Death.
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, and/or any other proof of death satisfactory to the
Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ANNUITY: An annuity with payments that do not vary as to dollar amount.
FLOATING RATE: The indexed rate set forth on the Certificate Specifications
Page, as such rate is published in The Wall Street Journal two business days
prior to the Floating Rate Reset Date. In the event the Floating Rate is no
longer published in The Wall Street Journal, the Company will use an alternate
method of determining the indexed rate.
FLOATING RATE GUARANTEE PERIOD: A Guarantee Period for which the Guaranteed
Interest Rate changes on each Floating Rate Reset Date.
FUT-GRF-CERT-98-1 4
<PAGE>
FLOATING RATE RESET DATE: The first Floating Rate Reset Date shall be the first
business day of the first calendar quarter that begins after a Floating Rate
Guarantee Period is elected. Thereafter, a new Floating Rate Reset Date will
occur on the first business day of each subsequent calendar quarter until the
Expiration Date of the particular Floating Rate Guarantee Period.
FLOATING RATE SPREAD: The amount deducted from the Floating Rate to determine
the Guaranteed Interest Rate in effect initially and on each Floating Rate Reset
Date during a Floating Rate Guarantee Period. The Floating Rate Spread shall
remain constant throughout a Floating Rate Guarantee Period.
FRONT-END SALES LOAD: A sales charge, if applicable, which the Company may
deduct from the Purchase Payment, in such amount as set forth on the Certificate
Specifications Page.
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during a particular Guarantee Period.
MINIMUM AVERAGE INTEREST RATE: The minimum rate of interest that may be credited
by the Company on a compound annual basis, as determined at the end of a
particular Guarantee Period, or upon surrender of this Certificate, as
applicable.
NET PURCHASE PAYMENT: The portion of the Purchase Payment remaining after the
deduction of any applicable Front-End Sales Load or premium tax or similar tax.
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, 408, 408A, or any other applicable Section of the Code.
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
Participant's interest in the Contract evidenced by this Certificate 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 if it is a Non-Qualified
Contract. If the Contract is a Qualified Contract (other than a Section 403
contract), the Participant's interest in the Contract evidenced by this
Certificate must be owned by a trustee or custodian of a retirement plan which
meets the requirements of Section 401, Section 408(c), Section 408(k), Section
408A, or any other applicable Section of the Code, and the Qualified Plan
Endorsement must be attached to and made a part of the Contract and Certificate.
*PARTICIPANT: The person named in the Certificate Specifications Page who is
entitled to exercise all rights and privileges of ownership under this
Certificate, except as reserved by the Owner.
PAYEE: A recipient of payments relating to this Certificate.
PURCHASE PAYMENT: The 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
may receive favorable federal income tax treatment under Sections 401, 403, 408,
408A, or any other applicable Section of the Code.
___________
*As specified on the Certificate Specifications Page, unless changed.
FUT-GRF-CERT-98-1 5
<PAGE>
PURCHASE PAYMENT
The Purchase Payment is to be paid to the Company at its Annuity Service
Mailing Address. The Company generally will not accept a Purchase Payment for
any Certificate which is less than the minimum Purchase Payment amount specified
on the Certificate Specifications Page. In addition, the prior approval of the
Company is required before it will accept a Purchase Payment which would exceed
the maximum Purchase Payment amount specified on the Certificate Specifications
Page.
The Net Purchase Payment will, upon receipt and acceptance by the Company,
be credited to the Accumulation Account and allocated to the Guarantee Period
specified in the Application.
CERTIFICATE VALUES DURING ACCUMULATION PERIOD
ACCUMULATION ACCOUNT
The Company will establish an Accumulation Account for each Participant and
will maintain the Accumulation Account during the Accumulation Period. The
Accumulation Account shall be continued automatically in full force during the
lifetime of the Participant until the Annuity Commencement Date or until the
Certificate is surrendered.
GUARANTEE PERIOD
The Participant elects one Guarantee Period from among those made available
from time to time by the Company. The period elected will determine the
Guaranteed Interest Rate. Amounts allocated to a particular Guarantee Period,
less any applicable front-end sales load, premium taxes or similar taxes and any
amounts subsequently withdrawn, will earn interest at the Guaranteed Interest
Rate in effect during the Guarantee Period. The Initial Guarantee Period begins
on the date the Net Purchase Payment is applied. Except for Floating Rate
Guarantee Periods, the Initial Guarantee Period ends when the number of calendar
years in the Guarantee Period elected (measured from the end of the calendar
month in which the Net Purchase Payment was applied) has elapsed. For Floating
Rate Guarantee Periods, the Initial Guarantee Period ends when the number of
calendar years in the Floating Rate Guarantee Period elected (measured from the
end of the calendar quarter in which the Net Purchase Payment was applied) has
elapsed. The last day of a Guarantee Period is the Expiration Date. Subsequent
Guarantee Periods begin on the first day following the Expiration Date. For
Floating Rate Guarantee Periods, the Expiration Date will always occur at the
end of a calendar quarter. For other Guarantee Periods, the Expiration Date will
always occur at the end of a calendar month.
The Company will mail written notice to the Participant at least 45 and no
more than 75 days prior to the Expiration Date of a Guarantee Period. A new
Guarantee Period of the same duration as the previous Guarantee Period will
commence automatically at the end of the previous Guarantee Period unless the
Company receives, in writing (or other manner acceptable by the Company) prior
to the end of such Guarantee Period, an election by the Participant of a
different Guarantee Period from among those being offered by the Company at such
time.
The Company reserves the right to add or remove Guarantee Periods available
at any time for election by a Participant.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed Interest
Rate for each Guarantee Period offered by the Company. These rates will be
guaranteed for the duration of the respective Guarantee Periods. Interest is
credited to the Accumulation Account at an annual effective rate of interest.
For a Floating Rate Guarantee Period, the Guaranteed Interest Rate may
change on each Floating Rate Reset Date; however, the Floating Rate Spread used
to compute the Guaranteed Interest Rate will remain constant throughout such
Floating Rate Guarantee Period. The Company will determine a new Floating Rate
Spread at the beginning of each Floating Rate Guarantee Period.
On any Expiration Date, and on any date on which the Certificate is
surrendered in full, the Accumulation Account Value (before the application of
any applicable withdrawal charge and/or market value adjustment) will not be
less than the Purchase Payment, less any previous withdrawals, accumulated at an
effective annual rate of interest equal to the Minimum Average Interest Rate set
forth on the Certificate Specifications Page. Subject to the above guarantees,
the Guaranteed Interest Rate credited on a particular day to a Floating Rate
Guarantee Period may be less than the Minimum Average Interest Rate set forth on
the Certificate Specifications Page.
FUT-GRF-CERT-98-1 6
<PAGE>
TRANSFER PRIVILEGE
At any time during the Accumulation Period, the Participant may transfer
the entire Accumulation Account Value to a new Guarantee Period, subject to the
conditions set forth below. No partial transfers are permitted. Except as
described below, a transfer accepted by the Company generally will be effective
on the date the request for transfer is received by the Company if such request
is received in good order by 4:00 p.m. eastern time on any date on which the
Company is open for business.
A transfer will result in a new Guarantee Period for the amount being
transferred. Any such new Guarantee Period will begin on the effective date of
the transfer and end on the new Expiration Date. The amount transferred into
such Guarantee Period will earn interest at the Guaranteed Interest Rate
declared by the Company for that Guarantee Period as of the effective date of
the transfer.
The maximum number of transfers per Account Year is set forth on the
Certificate Specifications Page. In addition, a minimum of 30 calendar days must
elapse between transfers. No transfers are allowed within 30 days after the Date
of Coverage. Transfers will be subject to the market value adjustment described
below unless the transfer is effective within 30 days prior to an Expiration
Date. The Company reserves the right in its sole discretion to delay the
effective date of any transfer. The Company also reserves the right in its sole
discretion to refuse or delay all transfer requests initiated on behalf of a
Participant by any third party authorized by the Participant to make such
transfer requests.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date, the Participant may elect
to receive a cash withdrawal payment from the Company by filing with the Company
at its Annuity Service Mailing Address, a written election in such form as the
Company may require. Any such election shall specify the amount of the
withdrawal and will be effective on the date that it is received by the Company.
The Company reserves the right to defer the payment of amounts withdrawn for a
period not to exceed six months from the date written request for such
withdrawal is received by the Company.
The Participant may request a full surrender or a partial withdrawal. A
full surrender will result in a cash withdrawal payment equal to the
Accumulation Account Value as of the date the request is received by the
Company, plus or minus any applicable market value adjustment, and less any
applicable withdrawal charge. Upon a full surrender, this Certificate will be
canceled and no further benefits will be payable hereunder. A partial withdrawal
(I.E., a payment of an amount less than that paid under a full surrender) will
reduce the Accumulation Account Value by the dollar amount of the cash
withdrawal payment, plus or minus any applicable market value adjustment and
plus any applicable withdrawal charge. Any request for a partial withdrawal
which would cause the Accumulation Account Value to be less than $1,000 will be
treated as a request for a full surrender.
All cash withdrawals, except those effective within 30 days prior to the
Expiration Date of a Guarantee Period or the withdrawal of the current "free
withdrawal amount," will be subject to the market value adjustment described
below.
WITHDRAWAL CHARGES
If a cash withdrawal is made, the Company may assess a withdrawal charge,
as set forth on the Certificate Specifications Page. The amount of any
withdrawal charge is determined as follows:
Free withdrawal amount: The free withdrawal amount in any Account Year
is equal to the greater of 10% of that Account Year's beginning
Accumulation Account Value, or any amounts withdrawn to comply with
any mandatory distribution requirements applicable to Qualified
Contracts under federal law.
Amount subject to withdrawal charge: For a partial withdrawal or full
surrender, the amount subject to a withdrawal charge is the amount of
the partial withdrawal or full surrender less any of the current
Account Year's remaining free withdrawal amount.
Withdrawal charge percentage: The withdrawal charge percentage varies
according to the number of complete Account Years between the Account
Year in which the Purchase Payment was credited to the Accumulation
Account and the Account Year in which it is withdrawn.
FUT-GRF-CERT-98-1 7
<PAGE>
Amount of withdrawal charge: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge by
the applicable withdrawal charge percentage set forth on the
Certificate Specifications Page.
No withdrawal charge is imposed upon amounts applied to purchase an
annuity, except that period certain annuities of less than ten years may incur a
withdrawal charge.
No withdrawal charge is imposed on amounts withdrawn on or after the later
of (a) the end of the Initial Guarantee Period shown on the Certificate
Specifications Page or (b) the end of the third Account Year.
MARKET VALUE ADJUSTMENT
Any cash withdrawal (which for purposes of this section includes transfers
and amounts applied to purchase an annuity), other than a withdrawal effective
within 30 days prior to the Expiration Date of a Guarantee Period, or the
withdrawal of the "free withdrawal amount," will be subject to a market value
adjustment.
The market value adjustment will reflect the relationship between the
current interest rate (as described in the formula below) for the 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.
The market value adjustment will be determined by multiplying the amount
being withdrawn before deduction of any applicable withdrawal charge by the
market value adjustment factor.
The market value adjustment factor for all Guarantee Periods except
Floating Rate Guarantee Periods is:
N/12
[(1 + I)/(1 + J + B)] -1
where,
I is the Guaranteed Interest Rate currently being credited to the
Accumulation Account,
J is the Guaranteed Interest Rate declared by the Company, as of the date
of the application of the market value adjustment, for current allocations to a
Guarantee Period equal to the balance of the current Guarantee Period, rounded
up to the next higher number of complete years,
b is a factor which the Company will determine for this Certificate and
which is set forth on the Certificate Specifications Page and which will not
exceed .25%, and
N is the number of complete months remaining in the current Guarantee
Period.
In the determination of J, if the Company currently does not offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available. If
no Guarantee Periods are available to perform a linear interpolation, the
Company will use an equitable method and will inform the appropriate state
regulatory authority of such method.
The market value adjustment factor for each Floating Rate Guarantee Period
is:
N/12
[(1 + F - X)/(1 + F - Y + B)] -1
where,
F is the Floating Rate currently being used in determining the
Floating Rate Guarantee Period's Guaranteed Interest Rate,
X is the Floating Rate Spread in effect during the current
Floating Rate Guarantee Period,
Y is the Floating Rate Spread, as of the date of the application
of the market value adjustment, for current allocations to new Floating
Rate Guarantee Periods equal to the balance of the current Floating Rate
Guarantee Period, rounded up to the next higher number of complete years,
b is a factor which the Company will determine for this
Certificate and which is set forth on the Certificate Specifications Page
and which will not exceed .25%, and
FUT-GRF-CERT-98-1 8
<PAGE>
N is the number of complete months remaining in the current
Floating Rate Guarantee Period.
In the determination of Y, if the Company currently does not offer the
applicable Floating Rate Guarantee Period, then the rate will be determined by
using the next longer Floating Rate Guarantee Period that is available. If the
Company currently does not offer a longer Floating Rate Guarantee Period, then
the Company will determine, in an equitable manner determined in its sole
discretion, the value of Y.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
If the Participant dies while the Contract and this Certificate are in
effect and before the Annuity Commencement Date, the Company will pay, upon
receipt of Due Proof of Death of the Participant, a death benefit to the
Beneficiary in accordance with this death benefit provision. If the Participant
is not a natural person, the Annuitant is considered the "Participant" for
purposes of this provision.
If a Participant under a Non-Qualified Contract dies prior to the Annuity
Commencement Date, the death benefit must be distributed to the "designated
Beneficiary" (as defined below) either (1) as a lump sum within five years after
the date of death of the Participant, or (2) as an annuity over some period not
greater than the life or expected life of the designated Beneficiary, with
annuity payments beginning within one year after the date of death of the
Participant. For this purpose (and for purposes of Section 72(s) of the Code),
the person named as the Beneficiary shall be considered the designated
Beneficiary, and if no person then living has been so named, then the Annuitant
shall automatically be the designated Beneficiary. If the designated Beneficiary
is the surviving spouse of the deceased Participant, the spouse can elect to
continue the Certificate in the spouse's own name as Participant, in which case
the mandatory distribution requirements will apply upon the death of the spouse.
As designated Beneficiary, the surviving spouse may also choose to have the
Accumulation Account distributed as an annuity over some period not greater than
his or her life or expected life, with annuity payments beginning within one
year after the date of death of the Participant. If there is no designated
Beneficiary living on the date of death of the Participant, the Company will
pay, upon receipt of Due Proof of Death of the Participant and/or the
Beneficiary, if applicable, the death benefit in one sum to the estate of the
deceased Participant. If the Participant dies on or after the Annuity
Commencement Date, no death benefit will be payable under this Certificate,
except as may be provided under the form of annuity elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Participant and prior to the Annuity
Commencement Date, the Participant may elect to have the death benefit applied
under one or more of the Annuity Options in accordance with the settlement
provisions herein to effect a Fixed Annuity for the Beneficiary as Payee after
the death of the Participant, provided that the Annuity Option chosen complies
with Section 72(s) of the Internal Revenue Code of 1986, as amended. This
election may be made or subsequently revoked by filing with the Company at its
Annuity Service Mailing Address, a written election or revocation of an election
in such form as the Company may require. Any election or revocation of an
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" section below, any election by the Participant of
a method of settlement of the death benefit that is in effect on the date of the
Participant's death will be deemed effective on the date Due Proof of Death of
the Participant is received by the Company.
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 Participant, the
Beneficiary may elect (a) to receive the death benefit in the form of a cash
payment, in which event this Certificate will be canceled, or (b) to have the
death benefit applied under one or more of the Annuity Options in accordance
with the settlement provisions, to effect a Fixed Annuity for the Beneficiary as
Payee. In no event shall any method of settlement be exercised which would
violate the mandatory distribution requirements of Section 72(s) of the Code.
Additional options available if the designated Beneficiary is the surviving
spouse are described above under "Death Benefit Provided by the Contract."
The election of a method of settlement may be made by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any written 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
Death of the Participant is received by the Company. If a written election of a
method of settlement by the Beneficiary is not received by the Company within 60
days following the date Due Proof of Death of the Participant is received by the
Company, the Company will make a cash payment to the Beneficiary as of the last
day of such 60 day period and this Certificate will be canceled upon such
payment.
FUT-GRF-CERT-98-1 9
<PAGE>
PAYMENT OF DEATH BENEFIT
If the Participant has so instructed, the Company will pay the death
benefit in cash. If the Participant has elected settlement under one or more of
the Annuity Options, annuity payments will begin on the first day of the
calendar month following the Death Benefit Date and the Accumulation Account
will be maintained in effect until the first annuity payment is made.
AMOUNT OF DEATH BENEFIT
The amount of the death benefit is determined as of the Death Benefit Date
and is calculated as shown on the Certificate Specifications Page.
SETTLEMENT PROVISIONS
GENERAL
On the Annuity Commencement Date, the adjusted value of the Accumulation
Account, as determined in accordance with the "Determination of Amount"
provision below, will be applied, as specified by the Participant, under one or
more of the Annuity Options provided in this Certificate or under such other
settlement option as may be agreed to by the Company. However, if the amount to
be applied under any Annuity Option is less than the Minimum Annuity Purchase
Amount set forth on the Certificate Specifications Page, or if the first annuity
payment payable in accordance with such option is less than the Minimum Annuity
Payment Amount also set forth on the Certificate Specifications Page, the
Company will pay the amount to be applied in a single payment to the Payee and
this Certificate will terminate.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the "Cash Withdrawals"
provision of the Contract.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the Participant's lifetime and prior to the Annuity Commencement
Date, the Participant may elect to have the adjusted value of the Accumulation
Account applied on the Annuity Commencement Date under one or more of the
Annuity Options provided in the Contract. If more than one person is named as
Annuitant, due to the designation of a Co-Annuitant, the Participant may choose
to name one of such persons to be the sole Annuitant as of the Annuity
Commencement Date.
The Participant may also change any election; however, any election or
change of election must be effective at least 30 days prior to the Annuity
Commencement Date. Such election or change of election may be made by filing
with the Company at its Annuity Service Mailing Address, a written election or
change of election in such form as the Company may require. Any such election or
change of election will become effective on the date it is received by the
Company. If no such election is in effect on the 30th day prior to the Annuity
Commencement Date, the adjusted value of the Accumulation Account will be
applied under Annuity Option B, for a life annuity with 120 monthly payments
certain. 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.
The Annuity Options in the Contract may also be elected as provided in the
"Death Benefit" section of this Certificate.
DETERMINATION OF AMOUNT
The amount applied to provide a Fixed Annuity is the Accumulation Account
Value on the date immediately preceding the Annuity Commencement Date, plus or
minus any applicable market value adjustment and minus any applicable premium
tax or similar tax. Amounts applied to provide period certain annuities of less
than 10 years will also be reduced by any applicable withdrawal charges.
EFFECT OF ANNUITY COMMENCEMENT DATE ON ACCUMULATION ACCOUNT
The Accumulation Account will be canceled on the Annuity Commencement Date.
ANNUITY COMMENCEMENT DATE
FUT-GRF-CERT-98-1 10
<PAGE>
The Annuity Commencement Date is set forth on the Certificate
Specifications Page. If no such date has been specified, the Annuity
Commencement Date will be the first day of the first month following the
Annuitant's 90th birthday. This date may be changed from time to time by the
Participant, provided that each change is effective 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 effective date of the change;
(2) the first day of a month; and (3) not later than the first day of the first
month following the Annuitant's 90th birthday unless, in the case of a Qualified
Contract, otherwise restricted by the particular retirement plan or by
applicable law. If more than one person is named as Annuitant, due to the
designation of a Co-Annuitant, the Annuity Commencement Date will be no later
than the first day of the first month following the 90th birthday of the
youngest of those persons so named. Any change of the Annuity Commencement Date
may be made by filing with the Company at its Annuity Service Mailing Address, a
written designation of a new Annuity Commencement Date in such form as the
Company may require. Any such change will become effective on the date the
designation is received by the Company.
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the "Death Benefit" section of this
Certificate.
FIXED ANNUITY PAYMENTS
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown in the tables below, which are
based on the Minimum Average Interest Rate set forth on the Certificate
Specifications Page 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.
ANNUITY OPTIONS
Annuity Option A. Life Annuity: Monthly payments during the lifetime of the
Payee. These payments will terminate at the death of the Payee, without any
provision for continuation of payments 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
sixty (60), one hundred twenty (120), one hundred eighty (180) or two hundred
forty (240) months certain as elected.
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, monthly
payments will be determined using the percentage (chosen at the time of the
election of this option) 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 any specified period of time (at least five (5) years but
not exceeding thirty (30) years) as elected.
AMOUNTS PAYABLE ON DEATH OF PAYEE
In the event of the death of the Payee on or after the Annuity Commencement
Date, the Company will pay any remaining payments under any Annuity Option then
in effect to the Payee's designated Beneficiary, if then living, as they become
due. If there is no such designated Beneficiary entitled to any remaining
payments under an Annuity Option, the Company will pay the discounted value of
such remaining payments, in one sum, to the deceased Payee's estate. Any
Beneficiary who becomes entitled to any such remaining payments may elect to
receive the discounted value of the remaining payments in one sum. In the event
of the death of a Beneficiary who has become entitled to receive any remaining
payments under an Annuity Option the Company will pay the discounted value of
such remaining payments in one sum to the deceased Beneficiary's estate. All
payments made in one lump sum by the Company, as provided in this paragraph, are
made in lieu of paying any remaining payments under the Annuity Option then in
effect.
If the Payee dies on or after the Annuity Commencement Date and before the
entire adjusted value of the Accumulation Account that was applied under the
applicable Annuity Option has been distributed, the remaining portion of such
value, if any, must be distributed at least as rapidly as the method of
distribution then in effect.
FUT-GRF-CERT-98-1 11
<PAGE>
ANNUITY PAYMENT RATES
The annuity payment rate tables below show, for each $1,000 applied, the
dollar amount of the monthly Fixed Annuity payment, when the payment is based on
the Minimum Average Interest Rate set forth on the Certificate Specifications
Page.
The mortality table used in determining the annuity payment rates for
Annuity Options A, B and C is the 1983 Individual Annuitant Mortality Table A.
In using this mortality table, ages of Annuitants will be reduced by one year
for Annuity Commencement Dates occurring during the 1990s, reduced by two years
for Annuity Commencement Dates occurring during the decade 2000-2009, and so on.
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the 1990s.
Thus, for Annuity Commencement Dates occurring in the decade 2000-2009 the term
ADJUSTED AGE as used in the tables below, means actual age less one year.
ADJUSTED AGE shall mean actual age less two years for Annuity Commencement Dates
occurring in the decade 2010-2019, and so on.
ADJUSTED AGES will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months, as of the Annuity Commencement
Date. The tables below show annuity payment rates for exact ADJUSTED AGES, rates
for ADJUSTED AGES expressed in completed years and months will be based on
straight line interpolation between the appropriate annuity payment rates.
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company upon request.
AMOUNT OF MONTHLY ANNUITY PAYMENT PER $1,000
SINGLE LIFE ANNUITY
<TABLE>
<CAPTION>
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
60 PAYMENTS 120 PAYMENTS 180 PAYMENTS 240 PAYMENTS
ADJUSTED MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
-------- ---- ------ ---- ------ ---- ------ ---- ------ ---- ------
AGE
---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.02 2.92 3.02 2.92 3.01 2.92 3.01 2.91 3.01 2.91
25 3.12 3.00 3.12 3.00 3.12 3.00 3.11 3.00 3.11 2.99
30 3.25 3.10 3.25 3.10 3.24 3.10 3.24 3.10 3.23 3.09
35 3.41 3.23 3.41 3.23 3.40 3.23 3.39 3.22 3.38 3.22
40 3.61 3.39 3.61 3.39 3.60 3.38 3.58 3.38 3.56 3.37
45 3.87 3.59 3.86 3.59 3.85 3.58 3.82 3.57 3.77 3.55
50 4.19 3.84 4.18 3.84 4.15 3.83 4.10 3.81 4.03 3.77
55 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04
60 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.64 4.37
65 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72
70 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06
75 8.45 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32
80 10.55 9.07 9.80 8.69 8.17 7.69 6.62 6.48 5.48 5.45
85 13.46 11.79 11.72 10.74 8.86 8.59 6.79 6.74 5.51 5.50
90 17.33 15.74 13.66 12.99 9.30 9.18 6.85 6.84 5.51 5.51
</TABLE>
<TABLE>
<CAPTION>
OPTION C
JOINT AND SURVIVOR ANNUITY
(ASSUMED ELECTION OF JOINT AND TWO-THIRDS SURVIVOR)
ADJUSTED AGE OF FEMALE
----------------------
ADJUSTED AGE 55 60 65 70 75
OF MALE -- -- -- -- --
-------
<S> <C> <C> <C> <C> <C>
55 4.17 4.38 4.62 4.87 5.15
60 4.36 4.60 4.89 5.20 5.55
65 4.56 4.85 5.19 5.58 6.02
70 4.77 5.11 5.52 6.01 6.57
75 4.99 5.38 5.86 6.45 7.16
</TABLE>
FUT-GRF-CERT-98-1 12
<PAGE>
<TABLE>
<CAPTION>
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.91 12 8.24 19 5.73 26 4.59
6 15.14 13 7.71 20 5.51 27 4.47
7 13.16 14 7.26 21 5.32 28 4.37
8 11.68 15 6.87 22 5.15 29 4.27
9 10.53 16 6.53 23 4.99 30 4.18
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
</TABLE>
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract shall belong to the Owner. Unless any rights and privileges
have been expressly reserved by the Owner, the Participant shall be entitled to
exercise all rights and privileges in connection with this Certificate. In any
case, such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocable Beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the
Participant and prior to the Annuity Commencement Date, except as otherwise
provided in the Contract. In all cases, no person shall be entitled to exercise
any rights that would adversely affect the treatment of the Contract or this
Certificate as an annuity contract under the Code.
The Annuitant becomes the Payee on the Annuity Commencement Date. The
Beneficiary becomes the Payee upon the death of the Participant prior to the
Annuity Commencement Date, or upon the death of the Annuitant after the Annuity
Commencement Date. Such Payees may thereafter exercise such rights and
privileges of ownership, if any, which continue.
PERIODIC REPORTS
During the Accumulation Period the Company will send to the Participant, or
to the Owner, if so directed by the Owner, at least once during each Account
Year, a statement showing the value of the Accumulation Account, which statement
shall be accurate as of a date not more than two months previous to the date of
mailing. The Company will also send such statements reflecting transactions in
the Accumulation Account as may be required by applicable laws, rules and
regulations.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in the Application, if any, will
remain in effect until changed.
Subject to the rights of an irrevocable Beneficiary, the Beneficiary
designation may be changed or revoked. Any change or revocation must be filed
with the Company at its Annuity Service Mailing Address 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 before the Company receives the change or revocation.
GENERAL PROVISIONS
AGE AND SEX MISSTATEMENT
If any date of birth or sex, or both, has been misstated in the
Application, if any, or elsewhere, the amounts payable pursuant to the Contract
under this Certificate will be the amounts that would have been paid using the
correct age or sex, or both. Any deficiency in payments already made by the
Company shall be paid promptly and any excess in the payments already made by
the Company shall be charged against the benefits falling due after the
adjustment.
THIS CERTIFICATE
FUT-GRF-CERT-98-1 13
<PAGE>
This Certificate is issued in consideration of the Application, if any, and
payment of the Purchase Payment. All statements made in any Application will be
deemed representations and not warranties, and no statement will void this
Certificate or be used in defense to a claim unless it is contained in such
Application, if any, or in a similar document, and a copy is attached to the
Certificate at issue. Only the President, a Vice President, the Actuary or the
Secretary of the Company has authority to agree on behalf of the Company to any
alteration of the Contract or any Certificate, or to any waiver of the rights or
requirements of the Company.
The Contract is nonparticipating and will not share in any profits or
surplus earnings of the Company, and therefore, no dividends are payable.
INCONTESTABILITY
The Contract and this Certificate are incontestable, subject to the "Age
and Sex Misstatement," "Proof of Age" and "Proof of Survival" provisions
contained herein.
MODIFICATION
Upon notice to the Owner, the Participant(s), or the Payee(s) after the
Annuity Commencement Date, the Contract and this Certificate may be modified by
the Company, but only if such modification (a) is necessary to make the Contract
or this Certificate comply with any law or regulation issued by a governmental
agency to which the Company is subject; or (b) is necessary to assure continued
qualification of the Contract and/or Certificate under the Code or other federal
or state laws relating to retirement annuities or annuity contracts; or (c) may
otherwise be in the best interests of Owners, Participants and/or Payees, as
applicable. In the event of any such modification, the Company may make
appropriate endorsement in the Contract and this Certificate to reflect such
modification.
PAYMENTS BY THE COMPANY
All sums payable by the Company pursuant to this Certificate are payable
only at the Company's Executive Office or such other place as the Company may
designate. The Company may require surrender of this Certificate upon final
payment of all sums payable by the Company pursuant to this Certificate.
PROOF OF AGE
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
PROOF OF SURVIVAL
The Company shall have the right to require evidence of the survival of any
Payee under Annuity Options A, B and C at the time any payment payable to such
Payee is due.
FUT-GRF-CERT-98-1 14
<PAGE>
[LOGO]
Sun Life Assurance Company of Canada (U.S.)
<TABLE>
<S> <C> <C>
Executive Office: Home Office: Annuity Service Mailing Address:
[ONE SUN LIFE EXECUTIVE PARK [1209 ORANGE STREET [SUN LIFE OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS 02481] WILMINGTON, DELAWARE 19801] RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117]
</TABLE>
SINGLE PAYMENT DEFERRED FIXED INDIVIDUAL ANNUITY CONTRACT
NONPARTICIPATING
PAYMENTS AND VALUES PROVIDED BY THIS CERTIFICATE ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO THE PARTICIPANT. THE MARKET VALUE ADJUSTMENT
APPLIES TO WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY;
HOWEVER, SUCH PAYMENTS MADE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE
PERIOD AND PAYMENT OF THE FREE WITHDRAWAL AMOUNT ARE NOT SUBJECT TO A MARKET
VALUE ADJUSTMENT.
FUT-GRF-CERT-98-1 15
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Sun Life
Assurance Company of Canada (U.S.) on Form S-2 of our report dated February
5, 1998 included in the Annual Report on Form 10-K of Sun Life Assurance
Company of Canada (U.S.) for the year ended December 31, 1997 and to the use
of our report dated February 5, 1998 appearing in the Prospectus, which is
part of this registration statement.
We also consent to the reference to us under the heading "Accountants"
in such Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 3, 1998
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that C. James Prieur, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ C. James Prieur
-----------------------------
C. James Prieur
August 13, 1998
3016b.doc
Futurity Fixed
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Richard B. Bailey, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ Richard B. Bailey
-----------------------------
Richard B. Bailey
August 13, 1998
3016b.doc
Futurity Fixed
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that M. Colyer Crum, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ M. Colyer Crum
-----------------------------
M. Colyer Crum
August 13, 1998
3016b.doc
Futurity Fixed
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that John S. Lane, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ John S. Lane
-----------------------------
John S. Lane
August 13, 1998
3016b.doc
Futurity Fixed
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Robert P. Vrolyk, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ Robert P. Vrolyk
-----------------------------
Robert P. Vrolyk
August 13, 1998
3016b.doc
Futurity Fixed
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that S. Caesar Raboy, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ S. Caesar Raboy
-----------------------------
S. Caesar Raboy
August 13, 1998
3016b.doc
Futurity Fixed
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Donald A. Stewart, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ Donald A. Stewart
-----------------------------
Donald A. Stewart
August 13, 1998
3016b.doc
Futurity Fixed
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that David D. Horn, whose signature
appears below, constitutes and appoints Margaret E. Hankard and Margaret
Sears Mead, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign an initial
Registration Statement on Form S-2 of Sun Life Assurance Company of Canada
(U.S.), and any amendments thereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ David D. Horn
-----------------------------
David D. Horn
August 13, 1998
3016b.doc
Futurity Fixed
